<PAGE>
As filed with the Securities and Exchange Commission on October 14, 1999.
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
SJNB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
California 6025 77-0058227
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
________________
One North Market Street, San Jose, California 95113, (408) 947-7562
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
________________
JAMES R. KENNY
President and Chief Executive Officer
SJNB Financial Corp.
One North Market Street
San Jose, California 95113
(408) 947-7562
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
________________
Copies to:
JONATHAN D. JOSEPH, ESQ. GLENN T. DODD, ESQ.
PATRICIA F. YOUNG, ESQ. JOSEPH G. MASON, ESQ.
WILLIAM A. HINES, ESQ. RICK J. GEORGE, ESQ.
Pillsbury Madison & Sutro LLP Coudert Brothers
P.O. Box 7880 303 Almaden Boulevard,5/th/ Floor
San Francisco, California 94120-7880 San Jose, California 95110-2721
(415) 983-1000 (408) 297-9982
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[_]
________________
Calculation of Registration Fee
================================================================================
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<CAPTION>
Proposed Proposed
Title of Each Class of Amount to Maximum Offering Maximum Aggregate Amount of
Securities to Be Registered Be Registered(1) Price Per Share Offering Price Registration Fee(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per share 1,367,152 shares $20.00 $39,061,480 $10,860
=========================================================================================================================
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of Saratoga Bancorp, a California
corporation ("Saratoga"), in the proposed merger of Saratoga with the
Registrant. Represents the approximate number of shares of common stock of
the Registrant to be issued upon the consummation of the merger, based upon
the number of shares of Saratoga common stock outstanding on October 11,
1999 (including shares issuable upon the exercise of options pursuant to
Saratoga's stock option plan), all as provided in the Agreement and Plan of
Merger attached as Annex A to the attached Proxy Statement/Prospectus.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
$20.00, the market value of the common stock of Saratoga to be exchanged in
the merger, computed in accordance with Rule 457(c) on the basis of the
average of the high and low price per share of such stock as quoted on the
OTC Bulletin Board on October 11, 1999, and 1,953,074, the maximum number
of shares of Saratoga which may be received by the Registrant and cancelled
upon consummation of the merger described herein.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PRELIMINARY PROXY STATEMENT--SUBJECT TO COMPLETION
[SJNB LOGO]
SJNB Financial Corp.
One North Market Street
San Jose, California 95113
October ___, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the Shareholders
of SJNB Financial Corp. ("SJNB") to be held at [location], at ___ __.m., local
time, on November ___, 1999.
At the meeting, SJNB shareholders will be asked to consider and vote upon a
proposal to approve the principal terms of the Agreement and Plan of Merger
dated as of August 27, 1999 (the "Merger Agreement"), by and among SJNB,
Saratoga Bancorp ("Saratoga") and Saratoga National Bank and the transactions
contemplated thereby, pursuant to which Saratoga will merge with and into SJNB
and SJNB shall be the surviving corporation, as more fully described in the
accompanying joint proxy statement/prospectus. The Merger Agreement is attached
to the joint proxy statement/prospectus as Annex A. No other business will be
transacted at the meeting other than matters incidental to the conduct of the
meeting.
As a result of the merger, each share of Saratoga common stock outstanding
at the effective time of the merger (other than shares with respect to which
dissenters' rights are perfected) will be converted into 0.70 of a share of SJNB
common stock, subject to certain potential adjustments described in the Merger
Agreement and the accompanying joint proxy statement/prospectus. No fractional
shares of SJNB common stock shall be issued to holders of shares of Saratoga
common stock, and, in lieu thereof, cash will be paid to Saratoga shareholders
in accordance with the Merger Agreement.
Under the California General Corporation Law, the approval of the Merger
Agreement and the transactions contemplated thereby requires the affirmative
vote of the holders of a majority of the outstanding shares of SJNB common
stock. The proposed merger is also subject to certain regulatory approvals and
satisfaction of the conditions contained in the Merger Agreement.
THE SJNB BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND RECOMMENDS
THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
---
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AT THE MEETING.
The accompanying notice and joint proxy statement/prospectus describe the
matters to be acted upon at the meeting. Shareholders are urged to review
carefully the attached joint proxy statement/prospectus, including the annexes
thereto. Such documents contain a detailed description of the merger, its terms
and conditions and the transactions which are proposed.
<PAGE>
Your continuing interest in the business of SJNB is appreciated, and we
hope you will attend the meeting in person. It is important that your shares be
represented at the meeting. Accordingly, whether or not you plan to attend the
meeting, please sign, date and return the enclosed proxy promptly in the
postage-paid envelope that has been provided to you for your convenience.
Sincerely,
____________________________________________
James R. Kenny
President and Chief Executive Officer
- --------------------------------------------------------------------------------
Neither the Securities Exchange Commission nor any state securities
regulators have approved this transaction or the shares of SJNB common stock to
be issued under this proxy statement/ prospectus or determined if this proxy
statement-prospectus is accurate or adequate. Any representation to the contrary
is a criminal offense.
The shares of SJNB common stock offered by this proxy statement/prospectus
are not savings accounts, deposits or other obligations of any bank or nonbank
subsidiary of any of the parties and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
- --------------------------------------------------------------------------------
The date of this proxy statement/prospectus is October __, 1999,
and is first being mailed to SJNB shareholders on or about October __, 1999.
<PAGE>
[SJNB LOGO]
SJNB Financial Corp.
Notice of Special Meeting of Shareholders
to be held on November ___, 1999
To the shareholders of SJNB Financial Corp.:
Notice is hereby given that a special meeting of shareholders of SJNB
Financial Corp. will be held on November , 1999, __:__ _.m., local time, at
[location], for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of August 27, 1999, among SJNB, Saratoga Bancorp
and Saratoga National Bank and the transactions contemplated thereby,
including the resulting issuance of shares of SJNB common stock in
connection with the merger of Saratoga with and into SJNB. The terms
and conditions of the transaction are more fully described in the
accompanying joint proxy statement/prospectus.
2. To transact such other business as may properly be brought before the
special meeting or any adjournments or postponements of the special
meeting.
The Board of Directors of SJNB has unanimously approved the merger
described above and unanimously recommends that you vote for the merger at the
special meeting.
Shareholders of record at the close of business on October __, 1999, are
entitled to notice of the special meeting and to vote at the special meeting or
any adjournment or postponement of the special meeting.
By Order Of The Board Of Directors,
_____________________________________________
Jennifer Dowling,
Assistant Corporate Secretary
- --------------------------------------------------------------------------------
Whether or not you plan to attend the special meeting in person, please
complete, date, sign and return the enclosed proxy card in the enclosed
envelope. No postage is required if you mail the proxy card in the United
States. If you attend the special meeting, you may vote in person if you wish,
even if you have previously returned your proxy card.
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PRELIMINARY PROXY STATEMENT--SUBJECT TO COMPLETION
[SARATOGA BANCORP LOGO]
Saratoga Bancorp
12000 Saratoga-Sunnyvale Road
Sarantoga, CA 95070
October ___, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Saratoga Bancorp
("Saratoga") to be held at [location], at ___ __.m., local time, on November
___, 1999.
At the meeting, Saratoga shareholders will be asked to consider and vote
upon a proposal to approve the principal terms of the Agreement and Plan of
Merger dated as of August 27, 1999 (the "Merger Agreement"), by and among SJNB
Financial Corp. ("SJNB"), Saratoga and Saratoga National Bank and the
transactions contemplated thereby, pursuant to which Saratoga will merge with
and into SJNB and SJNB shall be the surviving corporation, as more fully
described in the accompanying joint proxy statement/prospectus. The Merger
Agreement is attached to the joint proxy statement/prospectus as Annex A. No
other business will be transacted at the meeting other than matters incidental
to the conduct of the meeting.
As a result of the merger, each share of Saratoga common stock outstanding
at the effective time of the merger (other than shares with respect to which
dissenters' rights are perfected) will be converted into 0.70 of a share of SJNB
common stock, subject to certain potential adjustments described in the Merger
Agreement and the accompanying joint proxy statement/prospectus. No fractional
shares of SJNB common stock shall be issued to holders of shares of Saratoga
common stock, and, in lieu thereof, cash will be paid to Saratoga shareholders
in accordance with the Merger Agreement.
Under the California General Corporation Law, the approval of the Merger
Agreement and the transactions contemplated thereby requires the affirmative
vote of the holders of a majority of the outstanding shares of SJNB common
stock. The proposed merger is also subject to certain regulatory approvals and
satisfaction of the conditions contained in the Merger Agreement.
THE SARATOGA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
---
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AT THE MEETING.
The accompanying notice and joint proxy statement/prospectus describe the
matters to be acted upon at the meeting. Shareholders are urged to review
carefully the attached joint proxy statement/prospectus, including the annexes
thereto. Such documents contain a detailed description of the merger, its terms
and conditions and the transactions which are proposed.
<PAGE>
Your continuing interest in the business of Saratoga is appreciated, and we
hope you will attend the meeting in person. It is important that your shares be
represented at the meeting. Accordingly, whether or not you plan to attend the
meeting, please sign, date and return the enclosed proxy promptly in the
postage-paid envelope that has been provided to you for your convenience.
Sincerely,
___________________________________________
Richard L. Mount
President and Chief Executive Officer
- --------------------------------------------------------------------------------
Neither the Securities Exchange Commission nor any state securities
regulators have approved this transaction or the shares of SJNB common stock to
be issued under this proxy statement/ prospectus or determined if this proxy
statement-prospectus is accurate or adequate. Any representation to the contrary
is a criminal offense.
The shares of SJNB common stock offered by this proxy statement/prospectus
are not savings accounts, deposits or other obligations of any bank or nonbank
subsidiary of any of the parties and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
- --------------------------------------------------------------------------------
The date of this proxy statement/prospectus is October __, 1999,
and is first being mailed to Saratoga shareholders on or about October __, 1999.
<PAGE>
[SARATOGA BANCORP LOGO]
Saratoga Bancorp
Notice of Special Meeting of Shareholders
to be held on November __, 1999
To the shareholders of Saratoga Bancorp:
Notice is hereby given that a special meeting of shareholders of Saratoga
Bancorp will be held on November __, 1999, __:__ _.m., local time, at
[location], for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of August 27, 1999, among SJNB Financial Corp.,
Saratoga Bancorp and Saratoga National Bank and the transactions
contemplated thereby, including the resulting issuance of shares of
SJNB common stock in connection with the merger of Saratoga with and
into SJNB. The terms and conditions of the transaction are more fully
described in the accompanying joint proxy statement/prospectus.
2. To transact such other business as may properly be brought before the
special meeting or any adjournments or postponements of the special
meeting.
The Board of Directors of Saratoga has unanimously approved the merger
described above and unanimously recommends that you vote for the merger at the
special meeting.
Shareholders of record at the close of business on October __, 1999, are
entitled to notice of the special meeting and to vote at the special meeting or
any adjournment or postponement of the special meeting.
By Order Of The Board Of Directors,
________________________________________
V. Ronald Mancuso
Corporate Secretary
- --------------------------------------------------------------------------------
Whether or not you plan to attend the special meeting in person, please
complete, date, sign and return the enclosed proxy card in the enclosed
envelope. No postage is required if you mail the proxy card in the United
States. If you attend the special meeting, you may vote in person if you wish,
even if you have previously returned your proxy card.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
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Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................. 1
SUMMARY............................................................................................ 3
The Special Meetings............................................................................ 3
Information Regarding SJNB and Saratoga......................................................... 3
Reasons for the Merger; Recommendations of the Boards of Directors.............................. 4
Recommendations to Shareholders................................................................. 4
Opinion of Saratoga's Financial Advisor......................................................... 5
Opinion of SJNB's Financial Advisor............................................................. 5
What Saratoga Shareholders will Receive......................................................... 5
Conditions to the Merger........................................................................ 5
Termination of the Merger Agreement............................................................. 6
Termination Fees................................................................................ 7
Fees and Expenses of the Merger................................................................. 8
Stock Option Agreement.......................................................................... 8
Income Tax Consequences of the Merger........................................................... 9
Accounting Treatment............................................................................ 9
Interests of Saratoga Officers and Directors in the Merger...................................... 9
Dissenters' Rights of Appraisal................................................................. 9
Comparative Per Share Market Price Information.................................................. 11
Comparison of Shareholder Rights................................................................ 11
Selected Historical and Pro Forma Financial Data................................................ 12
RISK FACTORS....................................................................................... 18
Shares Eligible for Future Sale; Dilution....................................................... 18
Real Estate Lending............................................................................. 18
Organizational Structure and Operations upon the Merger......................................... 18
Potential Changes in Relative Stock Prices...................................................... 19
Year 2000 Problem............................................................................... 19
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS................................................... 21
INTRODUCTION....................................................................................... 22
The Special Meetings: Dates, Times and Places.................................................. 22
Matters to be Considered at the Special Meetings................................................ 22
Record Date; Stock Entitled to Vote; Quorum..................................................... 22
Votes Required.................................................................................. 22
Share Ownership of Management................................................................... 23
Voting of Proxies............................................................................... 26
INFORMATION ABOUT SJNB AND SAN JOSE NATIONAL BANK.................................................. 28
INFORMATION ABOUT SARATOGA AND SARATOGA NATIONAL BANK.............................................. 29
THE MERGER......................................................................................... 30
Background of the Merger........................................................................ 30
Reasons for the Merger; Recommendations of the Boards of Directors.............................. 31
Opinion of Saratoga's Financial Advisor......................................................... 33
Opinion of SJNB's Financial Advisor............................................................. 38
Effective Date and Time of the Merger........................................................... 46
Purchase Price and Potential Adjustments........................................................ 47
Conversion of Shares of Saratoga Common Stock................................................... 47
Exchange of Saratoga Stock Certificates; Fractional Interests................................... 48
Treatment of Stock Options...................................................................... 49
</TABLE>
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<PAGE>
<TABLE>
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Interests of Saratoga Officers and Directors in the Merger...................................... 49
Conduct of Business Pending the Merger.......................................................... 50
Additional Agreements........................................................................... 52
Representations and Warranties.................................................................. 54
Conditions to the Completion of the Merger...................................................... 55
Termination of the Merger Agreement............................................................. 57
Fees and Expenses............................................................................... 59
Amendment....................................................................................... 60
Extension; Waiver............................................................................... 60
Management and Operations Following the Merger.................................................. 61
Required Regulatory Approvals................................................................... 61
Stock Option Agreement.......................................................................... 64
Certain Federal Income Tax Consequences......................................................... 68
Accounting Treatment............................................................................ 70
Trading Markets for Stock....................................................................... 70
Resales of SJNB Common Stock.................................................................... 70
DISSENTERS' RIGHTS OF APPRAISAL.................................................................... 71
Appraisal Rights of SJNB Shareholders........................................................... 71
Appraisal Rights of Saratoga Shareholders....................................................... 72
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION....................................... 75
MARKET PRICE AND DIVIDEND INFORMATION.............................................................. 83
Market Quotations............................................................................... 83
Dividends and Dividend Policy................................................................... 83
COMPARISON OF SHAREHOLDER RIGHTS................................................................... 86
General......................................................................................... 86
Certain Anti-Takeover Measures.................................................................. 86
Quorum Requirements............................................................................. 86
Indemnification of Directors and Executive Officers............................................. 86
Shareholder Meetings and Action by Written Consent.............................................. 90
Cumulative Voting............................................................................... 91
Amendment of Bylaws............................................................................. 91
Filling Vacancies on the Board of Directors..................................................... 91
Call of Annual or Special Meeting of Shareholders and Action by Shareholders Without a Meeting.. 92
Classified Board Provisions..................................................................... 92
DESCRIPTION OF SJNB CAPITAL STOCK.................................................................. 93
Common Stock.................................................................................... 93
Preferred Stock................................................................................. 93
DESCRIPTION OF SARATOGA CAPITAL STOCK.............................................................. 94
Common Stock.................................................................................... 94
Preferred Stock................................................................................. 94
EXPERTS............................................................................................ 94
LEGAL MATTERS...................................................................................... 95
SOLICITATION OF PROXIES............................................................................ 95
WHERE YOU CAN FIND MORE INFORMATION................................................................ 95
</TABLE>
-ii-
<PAGE>
Annex A Agreement and Plan of Merger
Annex B Stock Option Agreement
Annex C Fairness Opinion of First Security Van Kasper
Annex D Form of Fairness Opinion of Sandler O'Neill & Partners, L.P.
Annex E California General Corporation Law
Chapter 13--Dissenters' Rights
-iii-
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why is this merger proposed?
A: Saratoga and SJNB are proposing this merger because the boards of
directors have concluded that this merger is in the best interests of
shareholders of Saratoga and SJNB and that the combined companies can offer
customers of Saratoga and SJNB a broader array of services and products than
each could offer on its own.
Q: What will I receive in this merger?
A: Under the merger agreement, Saratoga shareholders will have the right
to receive 0.70 of a share of SJNB common stock for each share of Saratoga
common stock that they own. SJNB shareholders will continue to own their
existing shares.
Q: What will happen to Saratoga National Bank in this merger?
A: Following the merger, Saratoga National Bank will merge into San Jose
National Bank. The resulting bank will continue under the name "San Jose
National Bank" as a wholly-owned subsidiary of SJNB.
Q: Will the merger be tax free to me?
A: The merger is intended to be a tax-free reorganization for federal
income tax purposes for the companies and their shareholders. In general,
Saratoga shareholders will not recognize gain or loss on the exchange of their
stock, other than on account of cash received for a fractional share or
dissenting shares. SJNB shareholders will not recognize any gain or loss in
connection with the merger. To review the tax consequences to SJNB and Saratoga
shareholders in greater detail, see "The Merger--Certain Federal Income Tax
Consequences," on page 68.
Q: How do I vote?
A: Simply indicate on your proxy card how you want to vote and then sign
and mail your proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at your special meeting.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will not vote your shares for you unless you provide
instructions to your broker on how to vote. It is important that you follow the
directions provided by your broker regarding how to instruct your broker to vote
your shares. Your failure to instruct your broker on how to vote your shares
will have the same effect as a vote against the merger. Broker non-votes will
not have the effect of establishing dissenters' rights of SJNB shareholders.
See "Voting of Proxies--Abstentions and Broker Non-Votes."
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You may change your vote at any time before your proxy is voted
at the special meeting. If your shares are held in your name, you may do this
in one of three ways. First, you may send a written notice stating that you
would like to revoke your proxy. Second, you may complete and submit a new
proxy card. If you choose either of these two methods, you must submit your
notice of revocation or your new proxy card to the address at the top of the
notice of the special meeting for Saratoga or SJNB (as appropriate) and it must
be received prior to the special meeting. Third, you may attend the meeting and
vote in person if you tell the Secretary that you want to cancel your proxy and
vote in person. Simply attending the special meeting, however, will not revoke
your proxy. If you have instructed a broker to vote your shares, you must
follow directions received from your broker to change your vote or to vote in
person at the special meeting.
Q: Should I send in my Saratoga certificates now?
A: No. After the merger is completed, SJNB will send you written
instructions for exchanging your Saratoga stock certificates.
Q: When do you expect this merger to be completed?
A: We are working toward completing this merger as quickly as possible.
We currently expect to complete this merger in December 1999.
Q: Why have you sent me this document?
A: This proxy statement/prospectus contains important information
regarding the proposed merger, as well as information about SJNB and Saratoga.
It
-1-
<PAGE>
also contains important information about what the Saratoga and SJNB boards of
directors and management considered in evaluating this proposed merger. We urge
you to read this proxy statement/prospectus carefully, including its annexes.
You may also want to review the documents listed under "Where You Can Find More
Information" on page 95.
Q: Whom should I contact with questions or to obtain additional copies of
this joint proxy statement/prospectus?
A: You may contact either:
SJNB Financial Corp.
One North Market Street
San Jose, California 95113
Attention: James R. Kenny
(408) 947-7562
or
Saratoga Bancorp
12000 Saratoga-Sunnyvale Road
Saratoga, California 95070
Attention: Richard L. Mount
(408) 973-1111
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<PAGE>
SUMMARY
This summary highlights certain information in this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the proposed merger fully and for a more
complete description of the terms of the proposed merger, you should carefully
read this entire document and the other documents to which we have referred you.
See "Where You Can Find More Information" (page 95). The merger agreement is
attached as Annex A to this document. We encourage you to read the merger
agreement. It is the legal document that governs the proposed merger.
The Special Meetings (page 22)
SJNB Shareholders. You can vote at the meeting of SJNB shareholders if you
owned SJNB common stock at the close of business on October __, 1999. You can
cast one vote for each share of SJNB common stock that you owned at that time.
In order to approve the merger of Saratoga with and into SJNB and the issuance
of SJNB common stock to Saratoga's shareholders, the holders of a majority of
the shares of SJNB common stock cast at the meeting must vote in its favor. You
can vote your shares by attending the SJNB meeting and voting in person, or you
can mark the enclosed proxy card with your vote, sign it and mail it in the
enclosed return envelope. You can revoke your proxy as late as the date of the
special meeting by submitting a written revocation, sending in a new proxy or by
attending the meeting and voting in person.
Saratoga Shareholders. You can vote at the meeting of Saratoga shareholders
if you owned Saratoga common stock at the close of business on October __, 1999.
You can cast one vote for each share of Saratoga common stock that you owned at
that time. In order to approve the merger of Saratoga with and into SJNB, the
holders of at least a majority of the outstanding shares of Saratoga common
stock must vote in its favor. You can vote your shares by attending the Saratoga
meeting and voting in person, or you can mark the enclosed proxy card with your
vote, sign it and mail it in the enclosed return envelope. You can revoke your
proxy as late as the date of the special meeting by submitting a written
revocation, sending in a new proxy or by attending the meeting and voting in
person.
Information Regarding SJNB and Saratoga (pages 28 and 29)
SJNB Financial Corp.
One North Market Street
San Jose, California 95113
(408) 947-7562
SJNB is a bank holding company incorporated under the laws of the State of
California and registered under the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). SJNB's principal banking subsidiary, San Jose National Bank, is
a national banking association organized under the laws of the United States.
San Jose National Bank presently operates two banking offices in two Northern
California counties.
San Jose National Bank accepts checking and savings deposits, offers money
market deposit accounts and certificates of deposit, makes secured and unsecured
commercial and other installment and term loans and offers other customary
banking services. San Jose National Bank offers banking services generally, but
it places primary emphasis on lending for real estate purposes and specialized
lending to businesses and professionals. Loans for real estate purposes include
term financing for commercial facilities and real estate construction loans
mainly for residential and commercial properties. Loans to businesses and
professionals include accounts receivable financing, equipment financing,
commercial
-3-
<PAGE>
loans, SBA loans and letters of credit. SJNB provides commercial banking,
factoring and leasing services principally through San Jose National Bank, San
Jose National Bank's Financial Services Division and Epic Funding Corporation, a
wholly-owned subsidiary of San Jose National Bank. Although San Jose National
Bank has neither a trust nor an international banking department, it has
arranged to provide these services through its correspondent banks. As a bank
holding company, SJNB is authorized to engage in the activities permitted under
the BHC Act and regulations thereunder.
Saratoga Bancorp
12000 Saratoga-Sunnyvale Road
Saratoga, California 95070
(408) 973-1111
Saratoga is a bank holding company registered under the BHC Act. Saratoga's
principal asset is the common stock of Saratoga National Bank, a national
banking association organized under the laws of the United States and the
wholly-owned and sole subsidiary of Saratoga. Saratoga itself does not engage in
any business activities other than the ownership of Saratoga National Bank and
investment of its available funds. Saratoga was incorporated in California on
December 8, 1981. Saratoga National Bank commenced operations on November 8,
1982. Saratoga National Bank conducts a commercial and retail banking business,
which includes accepting demand, savings and time deposits and making
commercial, real estate and consumer loans, and provides a variety of banking
services to businesses, governmental units and individuals. It also offers
installment note collections, issues cashier's checks, sells traveler's checks
and provides other customary banking services. Saratoga National Bank's deposits
are insured by the FDIC up to the legal limits thereupon. Saratoga National Bank
does not offer trust services or international banking services and does not
plan to do so in the near future.
Reasons for the Merger; Recommendations of the Boards of Directors (page 31)
Each of the boards of directors of SJNB and Saratoga believes the merger to
be in the best interests of their respective institutions, shareholders,
communities and banking customers. Each board expects that SJNB, as the
surviving company, will be stronger in terms of growth opportunities and
profitability than is either institution at present. SJNB will also have the
advantage of consolidation and centralization of certain management and
operations functions and certain economies of scale. Furthermore, it is believed
that SJNB, the surviving company, as a stronger independent financial
institution with a primary market area covering a greater geographic area, will
be better able to compete with major banks in the communities now served by each
company.
Recommendations to Shareholders (pages 31-33)
SJNB Shareholders. The board of directors of SJNB believes that the merger
is fair to you and in your best interests and unanimously recommends that you
vote "FOR" the proposal to approve the merger and the issuance of shares of SJNB
common stock in connection with the merger.
Saratoga Shareholders. The board of directors of Saratoga believes that the
merger is fair to you and in your best interests and unanimously recommends that
you vote "FOR" the proposal to approve the merger.
In evaluating the recommendations of the boards of directors summarized
above, shareholders should carefully consider the matters described under "Risk
Factors" and "The Merger-Background of the Merger" and "The Merger--Reasons for
the Merger; Recommendations of the Boards of Directors."
-4-
<PAGE>
Opinion of Saratoga's Financial Advisor (page 33)
First Security Van Kasper has rendered an opinion, dated August 27, 1999
(the "FSVK Fairness Opinion") to the Saratoga board of directors that the merger
is fair, from a financial point of view, to the shareholders of Saratoga, as of
the date of such opinion. The FSVK Fairness Opinion, which sets forth certain
assumptions made, matters considered and limits of review undertaken, by First
Security Van Kasper, is attached to this joint proxy statement/prospectus as
Annex C. Saratoga shareholders are urged to read the FSVK Fairness Opinion in
its entirety. See "The Merger--Opinion of Saratoga's Financial Advisor," which
also contains a discussion of the fees to be paid to First Security Van Kasper.
Certain of the fees to be paid to First Security Van Kasper are contingent upon
consummation of the merger. If First Security Van Kasper does not render an
updated fairness opinion dated the date of this proxy statement/prospectus, the
merger agreement can be terminated.
Opinion of SJNB's Financial Advisor (page 38)
Sandler O'Neill has delivered its opinion to the SJNB board of directors
that, as of the date of this joint proxy statement/prospectus, the exchange
ratio is fair to the holders of SJNB common stock from a financial point of
view. Sandler O'Neill's opinion is attached to this joint proxy statement/
prospectus as Annex D. We encourage you to read the opinion carefully and the
description under "The Merger--Opinion of SJNB's Financial Advisor" to
understand the matters considered, assumptions made and qualifications and
limitations on the review undertaken by Sandler O'Neill in rendering the
opinion. SJNB has agreed to pay Sandler O'Neill a fee of $50,000 for rendering
its opinion.
What Saratoga Shareholders will Receive (page 47)
When the merger is completed, it is expected that Saratoga shareholders
will receive 0.70 of a share of SJNB common stock for each share of Saratoga
common stock held, subject to adjustment under certain circumstances described
in this proxy statement/prospectus. See "The Merger--Purchase Price and
Potential Adjustments." Cash will be paid instead of fractional shares of SJNB
common stock. For example, if you hold 105 shares of Saratoga common stock, you
will have the right to receive 73.5 shares of SJNB common stock in the merger.
Since cash will be paid instead of a fractional share, you would only receive 73
shares of SJNB common stock and a check in an amount equal to 0.5 of a share
multiplied by the average SJNB closing price calculated during the 20
consecutive trading days ending on the day that is five business days prior to
the closing date.
Conditions to the Merger (page 55)
We will not complete the merger unless a number of conditions are
satisfied. These include:
. approval of the principal terms of the merger agreement by both SJNB
and Saratoga shareholders;
. receipt of all required regulatory approvals;
. absence of any court order prohibiting the merger;
. listing on the NASDAQ Stock Market's National Market of the shares of
SJNB common stock which will be issued to Saratoga shareholders;
-5-
<PAGE>
. receipt of tax opinions to the effect that the merger will be treated
as a tax-free reorganization under the Internal Revenue Code;
. absence of any orders suspending the effectiveness of the registration
statement filed by SJNB to register the shares to be issued to
Saratoga shareholders;
. receipt of an opinion of independent public accountants to SJNB that
the merger will qualify for "pooling of interests" accounting
treatment and of a "poolability letter" of independent public
accountants to Saratoga;
. receipt of a written fairness opinion dated as of the date of this
proxy statement/prospectus from Saratoga's financial advisor; and
. other customary conditions.
Termination of the Merger Agreement (page 57)
We can mutually agree in writing to terminate the merger agreement at any
time before the merger is completed, even if the shareholders of Saratoga or
SJNB have approved the merger agreement.
Either Saratoga or SJNB can terminate the merger agreement if:
. Any federal or state banking regulatory agency issues an order denying
approval of the merger or any governmental entity issues a final
permanent order prohibiting the merger or issues an order imposing a
burdensome condition on SJNB;
. The merger is not completed by March 31, 2000, or up to 60 days later,
if extended under certain circumstances;
. The shareholders of Saratoga or SJNB fail to approve the merger;
. The aggregate number of shares held by shareholders exercising
dissenters' rights of appraisal exceed 9%;
. Required tax opinions are not delivered;
. KPMG LLP fails to deliver the pooling opinion required by the merger
agreement (although Deloitte & Touche LLP has delivered the
"poolability letter" required by the merger agreement); or
. Saratoga's financial advisor fails to deliver a written fairness
opinion dated as of the date of this proxy statement/prospectus.
SJNB can terminate the merger agreement if:
. Saratoga or Saratoga National Bank breaches, in any material respect,
any representation, warranty or covenant in the merger agreement and
Saratoga does not cure the breach within 45 days of receipt of written
notice or the breach is of a nature that cannot be cured prior to the
closing, including Saratoga breaching the covenants related to non-
solicitation;
-6-
<PAGE>
. SJNB receives a takeover proposal from a third party which requires
the termination of the merger agreement and failing to accept the
proposal would constitute a breach of fiduciary duty;
. The board of directors of Saratoga fails to recommend adoption of the
merger agreement, amends or modifies its recommendation in a
materially adverse manner or withdraws its recommendation of the
merger;
. Deloitte & Touche LLP fails to deliver the "poolability letter"
required by the merger agreement; or
. A material adverse change or prospective change has occurred in the
business, financial condition, results of operations or prospects of
Saratoga or Saratoga National Bank and such change has not been cured
within a specified time.
Saratoga can terminate the merger agreement if:
. SJNB breaches, in any material respect, any representation, warranty
or covenant in the merger agreement and SJNB does not cure the breach
within 45 days of receipt of written notice or the breach is of a
nature that cannot be cured prior to the closing;
. Saratoga receives a takeover proposal from a third party which
Saratoga's board of directors determines is superior to the terms of
the merger and failing to accept the proposal would constitute a
breach of fiduciary duty;
. The board of directors of SJNB fails to recommend adoption of the
merger agreement, amends or modifies its recommendation in a
materially adverse manner or withdraws its recommendation of the
merger; or
. A material adverse change or prospective change has occurred in the
business, financial condition, results of operations or prospects of
SJNB or its subsidiaries and such change has not been cured within a
specified time.
Saratoga has the option to terminate the merger agreement with the approval
of a majority of its entire board during a two business day period commencing on
the first business day after the determination date, if the average closing
price of SJNB common stock for the 20 trading days ending on the determination
date is less than $29.3590. The determination date is the last day of the 20
trading day period ending five business days prior to the closing date.
Saratoga cannot terminate the merger agreement if, within five business
days of being notified by Saratoga of Saratoga's intention to terminate, SJNB
adjusts the exchange ratio so that it equals a quotient, the numerator of which
is the product of $29.3590 and 0.70 and the denominator of which is the average
SJNB closing price (calculated in the manner described above).
Termination Fees (page 59)
Saratoga is required to pay SJNB a $1.3 million fee (minus actual expenses
paid, if any, by Saratoga to SJNB as described below) if (1) SJNB terminates the
merger for the following reasons and (2) an acquisition event occurs within 18
months after the termination where 20% or more of the shares of Saratoga common
stock or the consolidated assets of Saratoga and Saratoga National Bank shall
have been transferred or disposed of through tender offer, sale or merger:
-7-
<PAGE>
. Saratoga or Saratoga National Bank breaches, in any material respect,
any representation, warranty or covenant in the merger agreement,
which breach is not cured within 45 days or is not capable of being
cured and for which SJNB is entitled to elect not to consummate the
merger;
. The Saratoga board fails to recommend adoption of the merger
agreement, amends or modifies the recommendation in a materially
adverse manner, withdraws its recommendation, or approves or
recommends a takeover proposal (whether or not the board is required
by its fiduciary duty to accept such takeover proposal); or
. Saratoga, or any of its subsidiaries, affiliates or agents, solicits,
initiates, facilitates or enters into discussion or negotiation
relating to, any takeover proposal.
SJNB is required to pay Saratoga a $1.3 million fee if the merger is
terminated for the following reasons:
. by Saratoga, if SJNB accepts any offer or enters into any agreement
with any third party regarding a takeover proposal (where Saratoga is
not included) and such condition is not cured within 10 business days;
or
. by SJNB, if SJNB accepts a takeover proposal from a third party which
does not require that the third party honor the terms of the merger
and failing to accept the proposal would constitute a breach of
fiduciary duty.
Fees and Expenses of the Merger (page 59)
Other than in the situations described in the following paragraphs and in
"--Termination Fees" above, whether or not the merger is completed in
accordance with the merger agreement, all costs and expenses incurred in
connection with the merger agreement and the transactions covered by the merger
agreement will be paid by the party incurring those expenses.
If the merger agreement is terminated due to either party's willful breach
of a representation, warranty or covenant, the breaching party will bear all
costs and expenses incurred by the non-breaching party.
If the merger agreement is terminated because Deloitte & Touche LLP fails
to deliver a "poolability letter" at or prior to the closing, or a material
adverse change or prospective change has occurred in the business, financial
condition, results of operations or prospects of Saratoga or Saratoga National
Bank and such change has not been cured within a specified time, Saratoga shall
pay promptly all costs and expenses incurred by SJNB not exceeding $500,000.
If the merger agreement is terminated because KPMG LLP fails to deliver a
pooling letter at or prior to the closing or a material adverse change or
prospective change has occurred in the business, financial condition, results of
operations or prospects of SJNB or its subsidiaries and such change has not been
cured within a specified time, SJNB shall pay promptly all costs and expenses
(excluding fees and expenses of First Security Van Kasper) incurred by Saratoga
not exceeding $500,000.
Stock Option Agreement (page 64)
When SJNB and Saratoga signed the merger agreement we also signed a stock
option agreement. Under the stock option agreement, Saratoga gave SJNB an option
to purchase up to 378,561 shares of
-8-
<PAGE>
Saratoga common stock at an exercise price of $19.21 per share, representing
approximately 19.9% of the outstanding shares of Saratoga common stock including
shares subject to the option.
The number of shares subject to the option will be increased if Saratoga
issues additional shares of common stock in order that the number of shares
subject to the option will continue to equal 19.9% of the then issued and
outstanding shares of Saratoga common stock. If Saratoga issues or agrees to
issue any shares of common stock at a price less than $19.21 per share, the
option exercise price will be equal to such lesser price.
SJNB may exercise the option only upon the occurrence of both an "Initial
Triggering Event" and a "Subsequent Triggering Event" prior to the termination
of the option.
Saratoga agreed to grant the option to SJNB in order to induce SJNB to
enter into the merger agreement. The option could have the effect of
discouraging other companies from trying to acquire Saratoga.
The stock option agreement is attached to this joint proxy
statement/prospectus as Annex B.
Income Tax Consequences of the Merger (page 68)
We have structured the merger so that, in general, SJNB, Saratoga and the
shareholders of SJNB and Saratoga will not recognize gain or loss for federal
income tax purposes in the merger, except for taxes payable because of cash
received by Saratoga shareholders instead of fractional shares or dissenting
shares. It is a condition to the merger that, at the closing of the merger, SJNB
receive an opinion from its counsel and Saratoga receive an opinion from its
independent accountants to the effect, among other matters, that the merger
should qualify as a tax-free reorganization.
Tax matters are very complicated. The tax consequences of the merger to you
will depend on the facts of your own situation. We urge you to consult your own
tax advisors as to the specific tax consequences of the merger, including the
applicable federal, state, local and foreign tax laws.
Accounting Treatment (page 70)
SJNB expects to account for the merger as a "pooling of interests." Under
the pooling of interests accounting method, SJNB will carry forward on its books
the assets and liabilities of Saratoga at their historical recorded values.
Interests of Saratoga Officers and Directors in the Merger (page 49)
Some of Saratoga's directors and officers may have interests in the merger
that are different from, or in addition to, yours. As a result, these directors
and officers may be more likely to vote to approve the merger agreement than
shareholders of Saratoga generally. The members of our boards of directors knew
about these additional interests, and considered them, when they approved the
merger.
Dissenters' Rights of Appraisal (page 71)
SJNB. No holder of SJNB common stock will be entitled to dissenters' rights
unless the holders of at least 5% of the outstanding shares of SJNB common stock
have perfected their dissenters' rights in accordance with Chapter 13 of the
California General Corporation Law.
-9-
<PAGE>
Saratoga. No holder of Saratoga common stock will be entitled to
dissenters' rights unless the holder has perfected his or her dissenter's rights
in accordance with Chapter 13 of the California General Corporation Law.
-10-
<PAGE>
Comparative Per Share Market Price Information (page 83)
SJNB common stock is listed and traded on the Nasdaq National Market under
the symbol "SJNB." Saratoga common stock is quoted on the OTC Bulletin Board
under the symbol "SRTB." The following table sets forth historical per share
market values for SJNB common stock and Saratoga common stock based on the last
sales prices and the equivalent pro forma market values for Saratoga common
stock on:
. August 27, 1999, the last trading day before public announcement of
the merger, and
. October __, 1999, the most recent date before the mailing of this
proxy statement/prospectus.
The equivalent pro forma market value of Saratoga common stock was determined by
multiplying the exchange ratio (0.70) by the SJNB stock price.
<TABLE>
<CAPTION>
Historical Market Price
-----------------------
Saratoga Equivalent
SJNB Saratoga Pro Forma Market Value
---- -------- ---------------------------
<S> <C> <C> <C>
August 27, 1999 $33.25 $19.00 $23.275
October __, 1999
</TABLE>
Following the merger, no shares of Saratoga common stock will be
outstanding and SJNB common stock will continue to be traded on the Nasdaq
National Market.
Comparison of Shareholder Rights (page 86)
Your rights as a shareholder of Saratoga are currently governed by
California law and the articles of incorporation and bylaws of Saratoga. If the
merger is completed, your rights as an SJNB shareholder will continue to be
governed by California law but will also be determined by SJNB's articles of
incorporation and bylaws, which differ in certain respects from Saratoga's
articles of incorporation and bylaws.
-11-
<PAGE>
Selected Historical and Pro Forma Financial Data (page 75)
We are providing the following information to aid you in your analysis of
the financial effects of the merger. The following tables show financial results
actually achieved by each of SJNB and Saratoga (the "historical" figures). The
tables also show results as if the companies had been combined for the periods
presented (the "pro forma combined" figures). Pro forma combined figures are
simply arithmetical combinations of SJNB's and Saratoga's separate financial
results; you should not assume that SJNB and Saratoga would have achieved the
pro forma combined results if they had actually been combined during the periods
presented. These pro forma presentations treat our companies as if they had
always been combined for accounting and financial reporting purposes, a method
known as pooling of interests accounting, which is how we plan to account for
the merger. When you read this information, you should also read the information
under the heading "Unaudited Pro Forma Condensed Combined Financial Information"
(page 65). For purposes of illustration, the pro forma combined figures have
been calculated using the exchange ratio of 0.70. The actual exchange ratio
could be greater if the price of SJNB drops below $29.3590 and if SJNB elects to
adjust the exchange ratio in accordance with the merger agreement and as
described under the heading "The Merger--Termination of the Merger Agreement"
(page 50).
SJNB's annual historical figures are derived from consolidated financial
statements audited by KPMG LLP, independent public accountants of SJNB.
Saratoga's annual historical balance sheet totals as of December 31, 1998
and 1997 and statement of operations data for each of the three years in the
period ended December 31, 1998 are derived from consolidated financial
statements incorporated in this proxy statement/prospectus by reference and
audited by Deloitte & Touche LLP, independent auditors of Saratoga. The annual
amounts for earlier periods have also been derived from audited financial
statements. The annual historical information presented below should be read
together with the consolidated audited financial statements of SJNB,
incorporated in this document by reference, and of Saratoga, incorporated in
this document by reference. To find this information, see "Where You Can Find
More Information" (page 85).
Historical figures as of and for the six-month periods ended June 30, 1999
and 1998 are derived from unaudited financial statements included in the
respective Quarterly Reports of SJNB and Saratoga on Form 10-Q.
We expect to incur merger and other non-recurring expenses as a result of
combining our companies. We also anticipate that the merger will provide the
combined company with financial benefits such as reduced operating expenses and
the opportunity to earn additional revenue. However, none of these anticipated
expenses or benefits has been factored into the pro forma combined income
statement information. For that reason, the pro forma combined information,
while helpful in illustrating the financial attributes of the combined company
under one set of assumptions, does not attempt to predict or suggest future
results.
-12-
<PAGE>
The following tables present selected historical and pro forma combined
consolidated financial information for SJNB and Saratoga. The following
financial data should be read in conjunction with the historical consolidated
financial statements of SJNB, the consolidated financial statements of Saratoga,
and the unaudited pro forma combined consolidated financial information and the
notes to such information, certain of which are included elsewhere in this proxy
statement/prospectus. The unaudited pro forma combined consolidated financial
information presents selected financial information based on the historical
financial statements of the parties, giving effect to the proposed merger under
the pooling of interests method of accounting and the assumptions and
adjustments described in the notes thereto. The unaudited pro forma combined
consolidated financial information does not indicate the results or financial
position that would have occurred if the merger had been in effect for the
periods or on the dates indicated or that may occur in the future.
SJNB Financial Corp.
Historical Consolidated Financial Information
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, As of and for the Years Ended December 31,
--------------------------- ------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1999 1998 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 10,220 $ 9,985 $ 20,254 $ 18,489 $ 16,468 $ 14,295 $ 9,749
Provision for possible loan or lease
losses (100) --- (300) (705) (190) (1,045) (600)
Other income 763 527 1,059 1,013 846 966 744
Other expenses (6,231) (5,510) (11,497) (9,910) (9,635) (8,797) (6,676)
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,652 5,002 9,516 8,887 7,489 5,419 3,217
Income taxes (1,946) (2,086) (3,975) (3,773) (3,198) (2,395) (1,354)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 2,706 $ 2,916 $ 5,541 $ 5,114 $ 4,291 $ 3,024 $ 1,863
============================================================================================================================
PER SHARE DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Net income per share - basic $ 1.14 $ 1.16 $ 2.23 $ 2.04 $ 1.73 $ 1.27 $ 1.05
Net income per share - diluted 1.08 1.10 2.11 1.94 1.64 1.22 1.00
Cash dividends per share 0.28 0.28 0.56 0.45 0.33 0.21 0.16
Shareholders' equity per share 14.52 13.66 14.48 13.30 12.14 11.02 9.92
Tangible shareholders' equity per share 12.88 11.92 12.84 11.80 10.40 9.06 7.84
============================================================================================================================
BALANCE SHEET DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Balance sheet totals-end of year:
Assets $ 403,640 $342,609 $ 349,934 $ 324,919 $309,403 $252,195 $205,949
Loans and leases 296,969 236,282 261,380 228,972 198,627 170,800 149,407
Deposits 331,125 298,178 302,442 270,345 244,639 196,692 180,287
Shareholders' equity 34,095 33,748 35,482 33,159 31,205 26,658 23,442
Average balance sheet amounts:
Assets $ 363,986 $328,420 $ 337,185 $ 314,460 $274,868 $222,913 $153,717
Loans and leases 276,864 227,789 236,971 212,795 183,367 152,820 112,818
Earning assets 340,039 304,984 313,605 286,585 251,156 202,996 140,445
Deposits 319,604 281,862 292,502 265,340 217,716 183,282 133,897
Shareholders' equity 34,154 33,986 34,097 31,091 28,288 24,898 18,210
============================================================================================================================
SELECTED RATIOS:*
- ----------------------------------------------------------------------------------------------------------------------------
Return on average equity 15.98% 17.30% 16.25% 16.45% 15.17% 12.15% 10.23%
Return on average tangible equity 19.57% 20.92% 19.91% 20.77% 20.49% 17.87% 12.54%
Return on average assets 1.50% 1.79% 1.64% 1.63% 1.56% 1.36% 1.21%
Efficiency ratio (non-interest expense
as a percentage of total revenues) 56.73% 52.42% 53.94% 50.82% 55.65% 57.64% 63.62%
Efficiency ratio excluding the amortization of
intangibles and goodwill 54.66% 50.34% 51.80% 48.39% 52.77% 53.92% 62.04%
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Average equity to average assets 9.38% 10.35% 10.11% 9.89% 10.29% 11.17% 11.85%
Leveraged capital ratio 8.09% 8.90% 9.10% 9.07% 9.28% 9.00% 9.33%
Nonperforming loans and leases to
total loans and leases 0.14% 0.28% 0.09% 0.19% 0.27% 0.52% 3.67%
Nonperforming assets to total assets 0.10% 0.19% 0.07% 0.13% 0.18% 0.35% 2.66%
Net chargeoffs (recoveries) to average
loans and leases (0.04)% (0.04)% 0.01% 0.10% 0.04% 0.33% 1.11%
Allowance for loan or lease losses to
total loans and leases 1.66% 1.92% 1.83% 1.96% 2.02% 2.25% 2.22%
Allowance for loan or lease losses to
nonperforming loans and leases 1,201.00% 681.00% 1,983.00% 1,059.70% 733.40% 430.24% 60.45%
============================================================================================================================
</TABLE>
__________________
* Selected ratios for the interim periods ending June 30, 1998 and June 30,
1999 are annualized.
-14-
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Saratoga Bancorp
Historical Consolidated Financial Information
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, As of and for the Years Ended December 31,
-------------------------- -----------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1999 1998 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 2,791 $ 2,685 $ 5,349 $ 5,073 $ 4,027 $ 3,711 $ 3,517
Provision for possible loan or lease
losses (66) (102) (136) --- 150 --- 636
Other income 508 292 765 477 353 577 405
Other expenses (1,728) (1,505) (2,965) (2,978) (2,870) (2,868) (3,523)
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,505 1,370 3,013 2,572 1,660 1,420 1,035
Income taxes (557) (520) (1,065) (976) (559) (539) (377)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 948 $ 850 $ 1,948 $ 1,596 $ 1,101 $ 881 $ 658
==================================================================================================================================
PER SHARE DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share - basic $ 0.59 $ 0.52 $ 1.19 $ 1.01 $ 0.71 $ 0.57 $ 0.43
Net income per share - diluted 0.53 0.47 1.07 0.92 0.64 0.55 0.39
Cash dividends per share 0.10 0.07 0.17 0.13 0.12 0.07 0.00
Shareholders' equity per share 9.36 8.76 9.36 8.31 7.69 7.15 6.23
Tangible shareholders' equity per share 9.36 8.76 9.36 8.31 7.69 7.15 6.23
==================================================================================================================================
BALANCE SHEET DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Balance sheet totals-end of year:
Assets $ 148,558 $ 131,070 $ 144,802 $ 131,044 $ 121,784 $ 100,497 $ 87,536
Loans and leases 69,087 64,436 74,563 63,765 52,661 37,535 33,541
Deposits 109,644 92,419 103,415 91,046 89,444 74,949 73,872
Shareholders' equity 14,854 14,402 15,257 13,605 11,952 11,057 9,627
Average balance sheet amounts:
Assets $ 147,401 $ 128,415 $ 132,132 $ 124,727 $ 104,661 $ 87,426 $ 79,491
Loans and leases 74,346 62,976 64,939 54,537 41,313 34,057 32,572
Earning assets 132,468 120,666 122,876 115,805 96,483 78,715 70,646
Deposits 130,636 113,146 93,385 89,264 79,118 70,749 68,304
Shareholders' equity 14,970 13,931 14,414 12,570 11,331 10,230 10,072
==================================================================================================================================
SELECTED RATIOS: *
- ----------------------------------------------------------------------------------------------------------------------------------
Return on average equity 12.77 % 12.30 % 13.51 % 12.70% 9.72 % 8.61 % 6.53 %
Return on average tangible equity 12.77 % 12.30 % 13.51 % 12.70% 9.72 % 8.61 % 6.53 %
Return on average assets 1.30 % 1.33 % 1.47 % 1.28% 1.05 % 1.01 % 0.83 %
Efficiency ratio (non-interest expense
as a percentage of total revenues) 52.38 % 50.55 % 48.50 % 53.66% 65.53 % 66.88 % 89.83 %
Efficiency ratio excluding the amortization
of intangibles and goodwill 52.38 % 50.55 % 48.50 % 53.66% 65.53 % 66.88 % 89.83 %
Average equity to average assets 10.16 % 10.85 % 10.91 % 10.08% 10.83 % 11.70 % 12.67 %
Leveraged capital ratio 10.08 % 11.16 % 11.00 % 10.90% 10.50 % 11.70 % 12.30 %
Nonperforming loans and leases to
total loans and leases --- --- --- 0.56% --- --- 2.11 %
Nonperforming assets to total assets --- --- --- 0.30% 1.03 % 1.74 % 2.77 %
Net chargeoffs (recoveries) to average
loans and leases (0.06)% (0.01)% --- 0.09% (0.01)% (0.11)% (0.11)%
Allowance for loan or lease losses to
total loans and leases 1.21 % 1.10 % 0.96 % 0.90% 1.19 % 2.05 % 2.19 %
Allowance for loan or lease losses to
nonperforming loans and leases N/A N/A N/A 160.56% N/A N/A 104.38 %
==================================================================================================================================
</TABLE>
* Selected ratios for the interim periods ending June 30, 1998 and June 30,
1999 are annualized.
-15-
<PAGE>
Combined
Unaudited Pro Forma Combined Consolidated Financial Information
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, As of and for the Years Ended December 31,
------------------------- ------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1999 1998 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 13,011 $ 12,670 $ 25,603 $ 23,562 $ 20,495 $ 18,006 $ 13,266
Provision for possible loan or lease
losses (166) (102) (436) (705) (40) (1,045) 36
Other income 1,271 819 1,824 1,490 1,199 1,543 1,149
Other expenses (7,959) (7,015) (14,462) (12,888) (12,505) (11,665) (10,199)
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 6,157 6,372 12,529 11,459 9,149 6,839 4,252
Income taxes (2,503) (2,606) (5,040) (4,749) (3,757) (2,934) (1,731)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,654 $ 3,766 $ 7,489 $ 6,710 $ 5,392 $ 3,905 $ 2,521
===============================================================================================================================
PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Net income per share - basic $ 1.04 $ 1.03 $ 2.06 $ 1.86 $ 1.51 $ 1.13 $ 0.89
Net income per share - diluted 0.98 0.96 1.92 1.74 1.41 1.08 0.83
Cash dividends per share 0.28 0.28 0.56 0.45 0.33 0.21 0.16
Shareholders' equity per share 14.15 13.76 14.13 12.85 11.80 10.77 9.60
Tangible shareholders' equity per
share 13.04 12.53 13.01 11.82 10.58 9.42 8.17
===============================================================================================================================
BALANCE SHEET DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Balance sheet totals-end of year:
Assets $ 552,198 $ 473,679 $ 494,736 $ 455,963 $ 431,187 $ 352,692 $ 293,485
Loans and leases 366,056 300,718 335,943 292,737 251,288 208,335 182,948
Deposits 440,769 390,597 405,857 361,391 334,083 271,641 254,159
Shareholders' equity 48,949 48,150 50,739 46,764 43,157 37,715 33,069
Average balance sheet amounts:
Assets $ 511,387 $ 456,835 $ 469,317 $ 439,187 $ 379,529 $ 310,339 $ 233,208
Loans and leases 351,210 290,765 301,910 267,332 224,680 186,877 145,390
Earning assets 472,507 425,650 436,481 402,390 347,639 281,711 211,091
Deposits 450,240 395,008 385,887 354,604 296,834 254,031 202,201
Shareholders' equity 49,124 47,917 48,511 43,661 39,619 35,128 28,282
===============================================================================================================================
SELECTED RATIOS: *
- -------------------------------------------------------------------------------------------------------------------------------
Return on average equity 14.87 % 15.72 % 15.44% 15.37% 13.61% 11.12% 8.91%
Return on average tangible equity 17.18 % 18.05 % 17.84% 18.20% 16.97% 14.75% 10.24%
Return on average assets 1.43 % 1.65 % 1.60% 1.53% 1.42% 1.26% 1.08%
Efficiency ratio (non-interest
expense as a percentage of total
revenues) 55.73 % 52.01 % 52.73% 51.45% 57.64% 59.67% 70.75%
Efficiency ratio excluding the
amortization of intangibles and
goodwill 54.13 % 50.39 % 51.06% 49.56% 55.34% 59.67% 70.75%
Average equity to average assets 9.61 % 10.49 % 10.34% 9.94% 10.44% 11.32% 12.13%
Leveraged capital ratio 8.57 % 9.56 % 9.78% 9.58% 11.42% 12.65% 12.11%
Nonperforming loans and leases to
total loans and leases 0.11 % 0.22 % 0.07% 0.27% 0.22% 0.43% 3.38%
Nonperforming assets to total assets 0.07 % 0.14 % 0.05% 0.17% 0.52% 0.94% 3.20%
Net chargeoffs (recoveries) to
average loans and leases (0.02)% (0.02)% --- 0.10% 0.04% 0.25% 0.84%
Allowance for loan or lease losses to
total loans and leases 1.57 % 1.74 % 1.64% 1.74% 1.84% 2.22% 2.21%
Allowance for loan or lease losses to
nonperforming loans and leases 1,402.43 % 785.31 % 2,279.70% 646.81% 205.73% 139.96% 43.09%
===============================================================================================================================
</TABLE>
* Selected ratios for the interim periods ending June 30, 1998 and June 30,
1999 are annualized.
-16-
<PAGE>
Historical and Pro Forma Per Share Data for SJNB and Saratoga
We have summarized below the per share information for our respective
companies on an historical, pro forma combined and equivalent basis.
We have calculated the pro forma combined per share data for net income
using the weighted average number of shares of SJNB's common stock outstanding
for the periods presented, increased by the weighted average number of shares of
Saratoga common stock outstanding for the periods presented multiplied by an
assumed exchange ratio of 0.70 shares of SJNB's common stock for each share of
Saratoga common stock, as if these shares were outstanding for each period
presented. The pro forma combined per share data for dividends declared
represents the historical dividends for SJNB common stock. The pro forma
combined book value per share has been calculated using shares of outstanding
SJNB common stock increased by the shares of outstanding Saratoga common stock
multiplied by an assumed exchange ratio of 0.70 for each share of Saratoga
common stock as if these shares were outstanding as of the dates presented.
The equivalent pro forma Saratoga shares information has been calculated by
multiplying the pro forma combined per share information by an assumed exchange
ratio of 0.70.
<TABLE>
<CAPTION>
SJNB Saratoga
Common Stock Common Stock
----------------------------------------------------------------
Pro forma Pro forma
Historical Combined Historical Equivalent
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholders' equity per share:
June 30, 1999 $14.52 $14.15 $9.36 $9.90
December 31, 1998 14.48 14.13 9.36 9.89
December 31, 1997 13.30 12.85 8.31 8.99
December 31, 1996 12.14 11.80 7.69 8.26
Tangible shareholders' equity per share:
June 30, 1999 12.88 13.04 9.36 9.13
December 31, 1998 12.84 13.01 9.36 9.11
December 31, 1997 11.80 11.82 8.31 8.27
December 31, 1996 10.40 10.58 7.69 7.40
Dividends declared:
Six months ended June 30, 1999 0.28 0.28 0.10 0.20
Year ended December 31, 1998 0.56 0.56 0.17 0.39
Year ended December 31, 1997 0.45 0.45 0.13 0.32
Year ended December 31, 1996 0.33 0.33 0.12 0.23
Net income:
Basic:
Six months ended June 30, 1999 1.14 1.04 0.59 0.73
Year ended December 31, 1998 2.23 2.06 1.19 1.44
Year ended December 31, 1997 2.04 1.86 1.01 1.30
Year ended December 31, 1996 1.73 1.51 0.71 1.06
Diluted:
Six months ended June 30, 1999 1.08 0.98 0.53 0.68
Year ended December 31, 1998 2.11 1.92 1.07 1.34
Year ended December 31, 1997 1.94 1.74 0.92 1.22
Year ended December 31, 1996 1.64 1.41 0.64 0.99
</TABLE>
-17-
<PAGE>
RISK FACTORS
In deciding whether to vote in favor of the merger, shareholders of
Saratoga and SJNB should consider the following factors, in addition to the
other matters set forth or incorporated by reference in this document:
Shares Eligible for Future Sale; Dilution
Shares of SJNB common stock eligible for future sale could have a dilutive
effect on the market for SJNB common stock and could adversely affect the market
price. The articles of incorporation of SJNB authorize the issuance of
20,000,000 shares of common stock, of which _________ shares were outstanding at
October _, 1999 and 5,000,000 shares of preferred stock, of which no shares
were outstanding at October _, 1999. Pursuant to its stock option plan, at
October _, 1999, SJNB had outstanding options to purchase an aggregate of
__________ shares of SJNB common stock. As of ________________, 1999, _________
shares of SJNB common stock remained available for option grants under SJNB's
stock option plans. The merger agreement does not restrict SJNB's ability to
grant additional options under SJNB's stock option plan or with respect to a
takeover proposal to which SJNB is a party. See "The Merger--Purchase Price and
Potential Adjustments." Sales of substantial amounts of SJNB common stock in the
public market following the merger could adversely affect the market price of
SJNB common stock. There are no restrictions in the merger agreement preventing
SJNB from issuing additional shares of SJNB common stock after the merger.
There can be no assurance given as to the market value of SJNB common stock
after the merger based on future acquisitions, if any, or other factors,
including but not limited to, general economic conditions or fluctuating
interest rates.
Real Estate Lending
The loan portfolios of SJNB and Saratoga are dependent on real estate. At
June 30, 1999, real estate served as the principal source of collateral with
respect to approximately 70% of Saratoga's loan portfolio, 55% of SJNB's loan
portfolio and 58% of pro forma combined SJNB and Saratoga's loan portfolio. A
worsening of current economic conditions or rising interest rates could have an
adverse effect on the demand for new loans, the ability of borrowers to repay
outstanding loans, the value of real estate and other collateral securing loans
and the value of the available-for-sale investment portfolio, as well as SJNB's
and Saratoga's financial condition and results of operations in general and the
market value for SJNB Common Stock and Saratoga Common Stock. Acts of nature,
including earthquakes and floods, which may cause uninsured damage and other
loss of value to real estate that secures these loans, may also negatively
impact SJNB's and Saratoga's financial condition.
Organizational Structure and Operations upon the Merger
Upon the consummation of the merger, the separate corporate existence of
Saratoga will cease and Saratoga will be merged with and into SJNB. It is also
anticipated that Saratoga National Bank will be merged into San Jose National
Bank immediately after the merger. At that time, it is anticipated that the
Saratoga National Bank branch located in San Jose will have been closed or
consolidated. Management of SJNB expects that SJNB will be able to serve
customers of Saratoga National Bank's San Jose branch at other existing San Jose
National Bank or Saratoga National Bank branches.
SJNB anticipates that, after the effective time of the merger, a
significant percentage of Saratoga National Bank's existing employees and
customers will be retained. There are no assurances that Saratoga National Bank
customers will not move their banking relationships to other financial
institutions
-18-
<PAGE>
and that a greater than anticipated number of Saratoga National Bank employees
will not remain employed by SJNB after the merger. In addition, while SJNB
expects to achieve operating cost savings through the elimination of duplicative
corporate and administrative expenses and the consolidation of banking
operations, there can be no assurance that SJNB will be able to realize such
cost savings.
Potential Changes in SJNB Stock Price
The merger consideration the Saratoga shareholders will receive may be
affected by potential changes in the market price of SJNB common stock. This
means that at the time of the special meetings, the Saratoga shareholders will
not know the exact value of the SJNB common stock that they will receive when
the merger is completed. The market price of SJNB common stock when the merger
takes place may vary from the price at the date of this document and at the date
of the special meetings. Such variations in the market price of SJNB common
stock may result from changes in the business, operations or prospects of SJNB,
Saratoga or the combined company, market assessments of the likelihood that the
merger will be consummated and the timing thereof, regulatory considerations,
general market and economic conditions and other factors. We urge you to obtain
current market quotations for SJNB common stock. See "The Merger -- Purchase
Price and Potential Adjustments."
Year 2000 Problem
The "Year 2000 issue" relates to the fact that many computer programs and
other technology utilizing microprocessors use only two digits to represent a
year, such as "98" to represent "1998." In the year 2000 ("Y2K"), such
programs/processors could incorrectly treat the year 2000 as the year 1900. This
issue has grown in importance as the use of computers and microprocessors has
become more pervasive throughout the economy, and interdependencies between
systems has multiplied. The business of SJNB and Saratoga is dependent on
technology and data processing. The issue must be recognized as a business
problem, rather than simply a computer problem, because of the way its effects
could ripple through the economy. SJNB and Saratoga could be affected either
directly or indirectly by the Year 2000 issue. This could happen if any of their
respective critical computer systems or equipment containing embedded logic
fail, if the local infrastructure (electric power, communications or water
system) fails, if their respective significant vendors are adversely impacted,
or if their respective borrowers or depositors are significantly impacted by
their internal systems or those of their customers or suppliers.
The business of SJNB and Saratoga also involves non-IT products and
services, some of which have embedded technology which might not be Year 2000
compliant. Some non-IT products and services involve various infrastructure
issues, such as power, communications and water, as well as elevators,
ventilation and air conditioning equipment.
Failure to successfully complete renovation, validation and implementation
of its mission-critical IT systems could have a material adverse effect on the
operations and financial performance of SJNB or Saratoga. Moreover, Year 2000
problems experienced by significant vendors or customers of SJNB or Saratoga or
power or communications systems could negatively impact the business and
operations of SJNB and Saratoga even if their own critical IT systems are
capable of functioning satisfactorily.
Due to the numerous issues and problems which might arise and the lack of
guarantees concerning Year 2000 readiness from non-information technology ("IT")
service providers, such as power and communication systems vendors, SJNB and
Saratoga cannot quantify the potential cost of problems if their respective
renovation and implementation efforts or the efforts of significant vendors or
customers are not successful. As a result, Year 2000 problems experienced by
SJNB or Saratoga or their respective
-19-
<PAGE>
vendors or customers may adversely affect the business, financial condition or
results of operations of SJNB, Saratoga or the combined company.
-20-
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements
regarding each of Saratoga and SJNB and the combined company following the
merger, including statements relating to:
. the financial condition, results of operations and business of SJNB
following completion of the merger,
. cost savings, enhanced revenues and accretion to reported earnings
that are expected to be realized from the merger, and
. the restructuring charges expected to be incurred in connection with
the merger.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:
. expected cost savings from the merger cannot be fully realized or
realized within the expected time frame,
. revenues following the merger are lower than expected or deposit
withdrawals, operating costs or customer loss and business disruption
following the merger may be greater than expected,
. competitive pressures among depository and other financial services
companies increase significantly,
. costs or difficulties related to the integration of the businesses of
SJNB and Saratoga are greater than expected,
. changes in the interest rate environment reduce interest margins,
cause an increase in the prepayment rate on mortgages and other loans
or reduce the demand for new loans,
. general economic or business conditions, either internationally,
nationally or in the states in which the combined company will be
doing business, are less favorable than expected, resulting in, among
other things, a deterioration in credit quality or a reduced demand
for credit,
. legislation or regulatory requirements or changes adversely affect the
businesses in which the combined company would be engaged,
. technology-related changes, including "Year 2000" data systems
compliance issues, may be harder to make or more expensive than
expected,
. changes in the securities market, and
. timing of completion of the merger may be delayed, due to regulatory
requirements or other factors which may delay, restrict or prohibit
new operations.
-21-
<PAGE>
INTRODUCTION
The Special Meetings: Dates, Times and Places
SJNB. SJNB's special meeting will be held at [location], at ____ .m., local
time, on November __, 1999.
Saratoga. Saratoga's special meeting will be held at [location], at ____ .m.,
local time, on November __,1999.
Matters to be Considered at the Special Meetings
SJNB. At SJNB's special meeting, holders of SJNB common stock are being asked
to approve the merger agreement, including the resulting issuance of SJNB common
stock to Saratoga's shareholders as provided under the terms of the agreement.
See "The Merger."
Saratoga. At Saratoga's special meeting, holders of Saratoga common stock are
being asked to approve the merger agreement. See "The Merger."
Record Date; Stock Entitled to Vote; Quorum
SJNB. Only holders of record of SJNB common stock at the close of business on
October , 1999, the record date for SJNB's special meeting, are entitled to
receive notice of and to vote at SJNB's special meeting. On the record date,
approximately ____________ shares of SJNB common stock were issued and
outstanding and held by approximately __________ holders of record. A majority
of the shares of SJNB common stock issued and outstanding and entitled to vote
on the record date must be represented in person or by proxy at SJNB's special
meeting in order for a quorum to be present for purposes of transacting business
at SJNB's special meeting. In the event that a quorum is not present at SJNB's
special meeting, it is expected that the meeting will be adjourned or postponed
to solicit additional proxies. Holders of record of SJNB common stock on the
record date are each entitled to one vote per share on each matter to be
considered at SJNB's special meeting.
Saratoga. Only holders of record of Saratoga common stock at the close of
business on October , 1999, the record date for Saratoga's special meeting,
are entitled to receive notice of and to vote at Saratoga's special meeting. On
the record date, approximately _____________ shares of Saratoga common stock
were issued and outstanding and held by approximately ________ holders of
record. A majority of the shares of Saratoga common stock issued and outstanding
and entitled to vote on the record date must be represented in person or by
proxy at Saratoga's special meeting in order for a quorum to be present for
purposes of transacting business at Saratoga's special meeting. In the event
that a quorum is not present at Saratoga's special meeting, it is expected that
the meeting will be adjourned or postponed to solicit additional proxies.
Holders of record of Saratoga common stock on the record date are each entitled
to one vote per share on each matter to be considered at Saratoga's special
meeting.
Votes Required
SJNB. The approval of the merger agreement and the issuance of the shares of
SJNB common stock to Saratoga's shareholders requires the affirmative vote of a
majority of the votes cast with respect to that proposal and entitled to vote at
SJNB's special meeting. An abstention or a broker non-vote will be included in
determining the number of shares present and voting at a meeting for the purpose
of determining the presence of a quorum. Such abstentions and broker non-votes
will have the same effect as votes against the merger agreement and consummation
of the merger; however, abstentions and broker
-22-
<PAGE>
non-votes will not have the effect of establishing dissenters' rights of SJNB
shareholders. See "--Voting of Proxies--Abstentions and Broker Non-Votes" and
"Dissenters' Rights of Appraisal--Appraisal Rights of Saratoga Shareholders."
Saratoga. The approval of the merger agreement requires the affirmative vote of
the holders of record of at least a majority of the shares of Saratoga common
stock outstanding on the record date for Saratoga's special meeting. An
abstention or a broker non-vote will be included in determining the number of
shares present and voting at a meeting for the purpose of determining the
presence of a quorum. Such abstentions and broker non-votes will have the same
effect as votes against the merger agreement and consummation of the merger.
See "--Voting of Proxies--Abstentions and Broker Non-Votes."
Share Ownership of Management
SJNB. At the close of business on the record date, directors and executive
officers of SJNB and their affiliates beneficially owned and were entitled to
vote approximately 423,166 shares of SJNB common stock, which represented
approximately 18.0% of the shares of SJNB common stock outstanding on that
date. Each of those directors and executive officers has agreed to vote, or
cause to be voted, the SJNB common stock owned by him or her FOR approval of the
merger agreement and the resulting issuance of SJNB common stock to Saratoga's
shareholders under the terms of the merger agreement at SJNB's special meeting.
-23-
<PAGE>
As of the record date, the directors and executive officers of SJNB
beneficially owned shares of SJNB common stock as described in the following
table. Unless otherwise indicated, each director and executive officer listed
below possesses sole voting power and sole investment power. All of the shares
shown in the following table are owned both of record and beneficially except as
indicated in the notes to the table. The address for beneficial owners, all of
whom are incumbent directors and officers of SJNB and San Jose National Bank, is
the address of SJNB, One North Market Street, San Jose, California 95113.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Position Beneficial Ownership Percent of Class/1/
- ------------------- -------- -------------------- ------------------
<S> <C> <C> <C>
Ray S. Akamine Director 15,000/2/ *
Robert A. Archer Chairman of the Board of 58,584/2,3/ 2.49
Directors
Albert V. Bruno Director 21,165/2/ *
Rod Diridon, Sr. Director 9,349/2/ *
F. Jack Gorry Director 15,000/2/ *
Arthur K. Lund Director 73,778/2,4,5/ 3.14
Louis Oneal Director 73,697/2,4/ 3.14
Diane P. Rubino Director 21,337/6/ *
Douglas L. Shen Director 72,860/2,7/ 3.10
Gary S. Vandeweghe Director 42,503/2,8/ 1.81
James R. Kenny President and Chief 145,082/9,10/ 6.17
Executive Officer and
Director
Eugene E. Blakeslee Executive Vice President 112,619/9,11/ 4.79
and Chief Financial
Officer
Frederic H. Charpiot Sr. Vice President and 81,108/9,12,13/ 3.45
Chief Credit Officer
Margo F. Culcasi Sr. Vice President, 19,336/14/ *
Liability Management
Judith Doering-Nielsen Sr. Vice President and 20,246/15/ *
Senior Lending Officer
All directors and executive officers as a group (15 605,326/16/ 25.75
persons)
</TABLE>
___________________________
* Less than 1% of the outstanding SJNB common stock.
/1/ Includes stock options exercisable within 60 days of October , 1999.
/2/ Includes 9,000 stock options exercisable within 60 days of October ,
1999.
/3/ Includes 3,720 shares owned of record by a trust of which Mr. Archer is a
trustee.
/4/ Includes 51,884 shares owned of record by a trust of which Messrs. Lund and
Oneal are trustees, as to which shares they disclaim beneficial ownership.
/5/ Includes 3,782 shares owned of record by a trust of which Mr. Lund is the
trustee and beneficiary.
/6/ Includes 7,000 stock options exercisable within 60 days of October ,
1999.
/7/ Includes 30,816 shares owned of record by a trust of which Dr. Shen is a
trustee and beneficiary.
/8/ Includes 33,503 shares owned of record by a trust of which Mr. Vandeweghe
is a trustee.
/9/ Includes 58,081 shares held in the SJNB Cash or Deferred Profit Sharing
Plan (the "401(k)") of which Messrs. Kenny, Blakeslee and Charpiot are
trustees and beneficiaries and with regard to which shares Messrs. Kenny,
Blakeslee and Charpiot have sole or shared voting power. Messrs. Kenny,
Blakeslee and Charpiot disclaim beneficial ownership of the 401(k) shares,
other than such shares allocated to their respective personal accounts in
the 401(k): 4,359, 3,336 and 2,350, respectively.
/10/ Includes 29,800 stock options exercisable within 60 days of October _,
1999.
/11/ Includes 22,400 stock options exercisable within 60 days of October ,
/12/ Includes 16,560 stock options exercisable within 60 days of October ,
1999.
/13/ Includes 6,466 shares owned of record by a trust of which Mr. Charpiot is
a trustee.
/14/ Includes 13,400 stock options exercisable within 60 days of October ,
1999.
/15/ Includes 12,000 stock options exercisable within 60 days of October ,
1999.
/16/ Includes 182,160 stock options exercisable within 60 days of October ,
1999.
-24-
<PAGE>
Saratoga. At the close of business on the record date, directors and executive
officers of Saratoga and their affiliates beneficially owned and were entitled
to vote approximately 565,513 shares of Saratoga common stock, which represented
approximately 30.18% of the shares of Saratoga common stock outstanding on that
date. Each of those directors and executive officers has agreed to vote, or
cause to be voted, the Saratoga common stock owned by him or her FOR approval of
the merger agreement at Saratoga's special meeting. See "The Merger--Interests
of Saratoga Officers and Directors in the Merger."
As of the record date, the directors and executive officers of Saratoga
beneficially owned shares of Saratoga common stock as described in the following
table. Unless otherwise indicated, each director and executive officer listed
below possesses sole voting power and sole investment power. All of the shares
shown in the following table are owned both of record and beneficially except as
indicated in the notes to the table. The address for beneficial owners, all of
whom are incumbent directors and officers of Saratoga and Saratoga National
Bank, is the address of Saratoga, 12000 Saratoga-Sunnyvale Road, Saratoga,
California 95070.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Position Beneficial Ownership Percent of Class/1/
- ------------------- -------- -------------------- --------------------
<S> <C> <C> <C>
Victor E. Aboukhater Director 52,492/2/ 3.24
Rogert G. Egan Director 57,547/3/ 3.55
William D. Kron Director 48,955/4/ 3.03
Earl L. Lanna Sr. Vice President, Sr. 31,704/5/ 1.96
Loan Officer of Saratoga
National Bank
John F. Lynch, III Director 54,209/6/ 3.35
V. Ronald Mancuso Director 109,475/7/ 6.76
Richard L. Mount Chairman, President and 176,034/8/ 10.67
Chief Executive Officer
Mary Page Rourke Treasurer, Sr. Vice 35,004/9/ 2.17
President and Chief
Financial Officer of
Saratoga National Bank
All directors and executive officers as a group (8 565,513/10/ 30.18
persons)
</TABLE>
________________________
/1/ Includes stock options exercisable within 60 days of October , 1999.
/2/ Includes 32,875 stock options exercisable within 60 days of October ,
1999.
/3/ Includes 32,875 stock options exercisable within 60 days of October ,
1999.
/4/ Includes 32,875 stock options exercisable within 60 days of October ,
1999.
/5/ Includes 30,042 stock options exercisable within 60 days of October ,
1999.
/6/ Includes 826 shares of common stock owned by Joan Lynch, his wife, and
32,875 stock options exercisable within 60 days of October , 1999.
/7/ Includes 2,237 shares owned by Merrill Lynch as custodian for the V.
Ronald Mancuso IRA, and 32,875 stock options exercisable within 60 days
of October , 1999.
/8/ Includes 412 shares of common stock owned by Branda Mount, a minor
daughter, under the UTMA, Richard L. Mount, Custodian and 62,875 stock
options exercisable within 60 days of October , 1999.
/9/ Includes 30,042 stock options exercisable within 60 days of October ,
1999.
/10/ Includes 287,334 stock options exercisable within 60 days of October ,
1999.
-25-
<PAGE>
Voting of Proxies
Submitting Proxies. SJNB and Saratoga shareholders may vote their shares in
person by attending their respective special meeting or vote their shares by
proxy by completing the enclosed proxy card, signing and dating it and mailing
it in the enclosed postage pre-paid envelope. IF A WRITTEN PROXY CARD IS SIGNED
BY A SHAREHOLDER AND RETURNED WITHOUT INSTRUCTIONS, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED FOR THE PROPOSALS PRESENTED AT SJNB'S SPECIAL MEETING OR
FOR THE PROPOSALS PRESENTED AT SARATOGA'S SPECIAL MEETING, AS APPLICABLE. SJNB
and Saratoga shareholders whose shares are held in "street name" (i.e., in the
name of a broker, bank or other record holder) must either direct the
recordholder of their shares as to how to vote their shares or obtain a proxy
from the record holder to vote at their respective special meeting.
Revoking Proxies. SJNB and Saratoga shareholders of record may revoke their
proxies at any time before the time their proxies are voted at SJNB's special
meeting or Saratoga's special meeting, respectively. Proxies may be revoked by
written notice, including by telegram or telecopy, to the Corporate Secretary of
SJNB or Saratoga, as applicable, by a later-dated proxy signed and returned by
mail or by attending SJNB's special meeting or Saratoga's special meeting, as
applicable, and voting in person. Attendance at SJNB's special meeting or
Saratoga's special meeting will not in and of itself constitute a revocation of
a proxy. The shareholder must inform the secretary at the special meeting, prior
to the vote, that he or she wants to revoke his or her proxy and vote in person.
Any written notice of a revocation of a proxy must be sent so as to be delivered
before the taking of the vote at the applicable special meeting as follows:
For SJNB Shareholders, to: For Saratoga Shareholders, to:
SJNB Financial Corp. Saratoga Bancorp
One North Market Street 12000 Saratoga-Sunnyvale Road
San Jose, California 95113 Saratoga, California 95070
Abstentions and Broker Non-Votes. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares is
necessary to constitute a quorum at each of SJNB's special meeting and
Saratoga's special meeting. Abstentions and broker non-votes (as described
below) will be counted solely for the purpose of determining whether a quorum is
present. Under the applicable rules of the National Association of Securities
Dealers, Inc., brokers or members who hold shares in street name for customers
who are the beneficial owners of such shares are prohibited from giving a proxy
to vote those shares with respect to the approval of the merger agreement in the
absence of specific instructions from such customers. We refer to these as
"broker non-votes". Abstentions and broker non-votes will have the same effect
as a vote against the merger agreement at either the SJNB special meeting or the
Saratoga special meeting, as applicable. Abstentions and broker non-votes will
not, however, have the effect of establishing dissenters' rights of SJNB
shareholders. See "Dissenters' Rights of Appraisal--Appraisal Rights of SJNB
Shareholders."
If any other matters are properly presented for consideration at SJNB's
special meeting, in the case of the SJNB shareholders, or at Saratoga's special
meeting, in the case of the Saratoga shareholders, the persons named in the
enclosed form of proxy will have discretion to vote or not vote on those matters
in accordance with their best judgment, unless authorization to use that
discretion is withheld. If a proposal to adjourn SJNB's special meeting or
Saratoga's special meeting is properly presented, however, the persons named in
the enclosed form of proxy will not have discretion to vote in favor of the
adjournment proposal any shares which have been voted against the proposal(s) to
be presented at the respective special meetings.
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<PAGE>
Neither SJNB nor Saratoga is aware of any matters expected to be presented
at its respective special meeting other than as described in their respective
notice of special meeting. The cost of solicitation of proxies will be paid by
SJNB and Saratoga, as applicable. In addition to solicitation by mail, the
directors, officers and employees of SJNB and Saratoga may also solicit proxies
from shareholders by telephone, facsimile, telegram or in person. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy materials to beneficial owners; and SJNB or
Saratoga, as the case may be, will, upon request, reimburse those brokerage
houses and custodians for their reasonable expenses in so doing. Neither SJNB
nor Saratoga has retained a proxy solicitor. In the event SJNB and Saratoga
jointly retain a proxy solicitor to aid in the solicitation of proxies and to
verify certain records related to the solicitations, such proxy solicitor will
receive a fee not exceeding $10,000 as compensation for its services and
reimbursement for its related out-of-pocket expenses.
Shareholders who submit proxy cards should not send in any stock
certificates with their proxy cards. A letter of transmittal with instructions
for the surrender of certificates representing shares of Saratoga common stock
will be mailed by SJNB to former Saratoga shareholders shortly after the merger
is completed. See "The Merger--Exchange of Saratoga Stock Certificates;
Fractional Interests."
Recommendation of the SJNB Board of Directors and Saratoga Board of
Directors. Each of the SJNB Board of Directors and Saratoga Board of Directors
has unanimously approved the merger described above and unanimously recommends
that their respective shareholders vote FOR the merger at their respective
special meetings.
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<PAGE>
INFORMATION ABOUT SJNB AND SAN JOSE NATIONAL BANK
SJNB is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"). SJNB was incorporated under the laws of
the State of California on April 18, 1983. Its principal office is located at
One North Market Street, San Jose, California 95113, and its telephone number is
(408) 947-7562.
SJNB owns 100% of the issued and outstanding common shares of San Jose
National Bank. San Jose National Bank was incorporated on November 23, 1981 and
commenced business in San Jose, California, on June 10, 1982. SJNB acquired
Business Bancorp and its wholly-owned subsidiary, California Business Bank, on
October 1, 1994. Operations of SJNB and Business Bancorp were consolidated into
a single location at One North Market Street, San Jose, California 95113. San
Jose National Bank engages in the general commercial banking business with
special emphasis on the banking needs of the business and professional
communities in San Jose and the surrounding areas.
On January 2, 1996, San Jose National Bank acquired Astra Financial Corp.
for approximately $760,000. Its business was merged into the Bank's Financial
Services Division, by adding approximately $1.9 million of factored receivables.
Astra Financial Corp. was liquidated on January 5, 1996, and its assets were
transferred to San Jose National Bank. San Jose National Bank's Financial
Services Division is located at 95 South Market Street, San Jose, California
95113. On May 22, 1998, SJNB acquired all of the stock of a private company,
Epic Funding Corporation ("Epic"), pursuant to a definitive agreement dated
April 13, 1998. In connection with the acquisition, which was structured as a
tax-free reorganization, SJNB issued 12,223 shares of its common stock and paid
$110,000 to Epic's sole shareholder in exchange for all of Epic's outstanding
stock. The total purchase price for Epic was $611,000, while Epic's net equity
was $28,000. Goodwill amounted to $759,000, including certain expenses of the
transaction. Epic provides direct and vendor lease programs and accounts
receivable financing to manufacturers and equipment users throughout California
and across parts of the United States. Epic is now a wholly-owned subsidiary of
San Jose National Bank. Epic's office is located in Danville, California,
together with a small de novo branch of San Jose National Bank at the same
facility which opened July 1, 1998.
San Jose National Bank accepts checking and savings deposits, offers money
market deposit accounts and certificates of deposit, makes secured and unsecured
commercial and other installment and term loans and offers other customary
banking services. San Jose National Bank offers banking services generally, but
it places primary emphasis on lending for real estate purposes and specialized
lending to businesses and professionals. Loans for real estate purposes include
term financing for commercial facilities and real estate construction loans
mainly for residential and commercial properties. Loans to businesses and
professionals include accounts receivable financing, equipment financing,
commercial loans, SBA loans and letters of credit. SJNB provides commercial
banking, factoring and leasing services principally through San Jose National
Bank, San Jose National Bank's Financial Services Division and Epic. Although
San Jose National Bank has neither a trust nor an international banking
department, it has arranged to provide these services through its correspondent
banks. As a bank holding company, SJNB is authorized to engage in the activities
permitted under the BHC Act and regulations thereunder.
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<PAGE>
INFORMATION ABOUT SARATOGA AND SARATOGA NATIONAL BANK
Saratoga is a bank holding company registered under the BHC Act. Saratoga's
principal asset is the common stock of Saratoga National Bank, a national
banking association organized under the laws of the United States and the
wholly-owned and sole subsidiary of Saratoga. Saratoga itself does not engage in
any business activities other than the ownership of Saratoga National Bank and
investment of its available funds. Saratoga was incorporated in California on
December 8, 1981. Saratoga National Bank commenced operations on November 8,
1982. Saratoga National Bank conducts a commercial and retail banking business,
which includes accepting demand, savings and time deposits and making
commercial, real estate and consumer loans, and provides a variety of banking
services to businesses, governmental units and individuals. It also offers
installment note collections, issues cashier's checks, sells traveler's checks
and provides other customary banking services. Saratoga National Bank's deposits
are insured by the FDIC up to the legal limits thereupon. Saratoga National Bank
does not offer trust services or international banking services and does not
plan to do so in the near future. As a bank holding company, Saratoga is
authorized to engage in the activities permitted under the BHC Act and
regulations thereunder.
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<PAGE>
THE MERGER
Background of the Merger
The following is a brief description of the events that resulted in the
execution of the Agreement and Plan of Merger dated as of August 27, 1999 among
SJNB, Saratoga and Saratoga National Bank.
On June 29, 1998, First Security Van Kasper was engaged by Saratoga to act
as its exclusive financial advisor to render advice concerning possible
strategic alternatives designed to maximize shareholder value. Thereafter, the
Saratoga Board of Directors considered various strategic alternatives with the
assistance of First Security Van Kasper, including the possibility of a business
combination.
After considering such alternatives, preliminary discussion with SJNB and
another financial institution resulted in execution of confidentiality
agreements on or about July 28, 1998 pursuant to which certain information
regarding Saratoga and Saratoga National Bank was provided to SJNB and the other
institution. Discussions followed between the respective parties to the
confidentiality agreements to evaluate the information provided and whether a
business combination could be structured that would meet the objectives of the
Saratoga Board of Directors. In the case of SJNB, discussions continued from
time to time after the date of execution of the confidentiality agreement until
late in the fourth quarter of 1998, when the discussions with SJNB and the other
institution terminated, primarily because the Saratoga Board of Directors was
not satisfied that a business combination could be structured which maximized
shareholder value consistent with its objectives compared to Saratoga's
independent business plan.
In the first quarter of 1999, the Saratoga Board of Directors continued its
review of Saratoga's business plan and year-end 1998 results of operations. The
Board determined to reinitiate discussions with SJNB and to preliminarily
explore the prospects for a strategic business combination with three other
institutions which had not previously been contacted. On May 20, 1999, SJNB
contacted Saratoga and expressed interest in further discussions regarding a
possible business combination. Confidentiality agreements were executed with the
three other institutions, but a satisfactory business combination proposal did
not result from discussions with those institutions and the Saratoga Board of
Directors determined to continue discussions solely with SJNB.
The parties commenced their respective due diligence examinations on June
23, 1999, in the case of Saratoga, and June 22, 1999 in the case of SJNB. At its
regularly scheduled meeting held on June 23, 1999, the Board of Directors of
SJNB discussed and unanimously approved changes to certain significant terms of
the proposed business combination in order to try to satisfy the objectives of
Saratoga. Immediately following such meeting, SJNB contacted Saratoga, amended
certain terms of its proposal and proposed additional terms for a business
combination. On June 25, 1999, a draft merger agreement, together with a draft
stock option agreement and other ancillary agreements, were distributed to
Saratoga and its legal and financial advisors. The draft merger agreement
contemplated a transaction structure whereby Saratoga National Bank would remain
a separate subsidiary in a multi-bank holding company. Following further
discussions among Saratoga, SJNB and their respective advisors, a revised draft
definitive merger agreement and related agreements were presented to the Boards
of Directors of Saratoga and Saratoga National Bank for review at a joint
special meeting held on July 23, 1999. Thereafter, Saratoga and SJNB, and their
respective advisors continued negotiations regarding various merger issues
reflected in the draft merger agreement and related agreements.
On July 28, 1999, a draft definitive merger agreement, together with the
draft stock option agreement and related ancillary agreements, were presented to
the Board of Directors of SJNB for
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<PAGE>
review. At such meeting, the Board concluded that a single-bank (rather than a
multi-bank) holding company structure was required to better realize its
business objectives. As a result, the SJNB Board of Directors instructed its
management to try to restructure the transaction to provide for the merger of
San Jose National Bank and Saratoga National Bank.
A revised draft definitive merger agreement, together with the draft stock
option agreement and related ancillary agreements, were presented to the Boards
of Directors of Saratoga and Saratoga National Bank for review at a joint
special meeting held on July 29, 1999. Various matters requiring resolution
(including the change to a single-bank holding company structure) resulted in
further negotiations. Further revised versions of the agreements were prepared
and presented to the Boards of Directors of Saratoga and Saratoga National Bank
for review at joint special meetings held on August 17 and August 26, 1999.
Following review of certain matters requiring further negotiation during a joint
special meeting held in the morning of August 27, 1999, and negotiation of those
matters during the day, the Boards of Directors of Saratoga and Saratoga
National Bank again reviewed the status of negotiations during a joint special
meeting held in the late afternoon of August 27, 1999, and authorized management
to execute the merger agreement and the stock option agreement. The merger
agreement was executed by SJNB, Saratoga and Saratoga National Bank, and the
stock option agreement was executed by SJNB and Saratoga in the evening of
August 27, 1999.
Annex A to the joint proxy statement/prospectus contains a copy of the
merger agreement, which agreement is incorporated by reference herein.
See "--Reasons for the Merger; Recommendations of the Boards of Directors"
and "--Opinion of Saratoga's Financial Advisor" below.
Reasons for the Merger; Recommendations of the Boards of Directors
SJNB. The strategy of the board of directors of SJNB for enhancing long-
term value for SJNB shareholders recognizes that further consolidation will
occur in the banking and financial services industry in the United States and
that SJNB must be in a position to take advantage of this change. Pursuant to
this strategy, management of SJNB, at the direction of the board of directors of
SJNB, continually explores and evaluates acquisition opportunities, such as the
merger of Saratoga with and into SJNB.
In reaching the conclusion that the merger of Saratoga with and into SJNB
is fair to and in the best interests of the shareholders of SJNB, the board of
directors of SJNB considered numerous factors, including the following:
(1) The board of directors' familiarity with and review of Saratoga's
business, results of operations, prospects and financial condition and
the willingness of the board of directors of Saratoga to consider a
merger with SJNB;
(2) Economic conditions and prospects for the markets in which SJNB and
Saratoga operate, and competitive pressures in the financial services
industry in general and the banking industry in particular;
(3) The enhancement of SJNB's competitiveness and its ability to serve its
customers, depositors, creditors, other constituents and the
communities in which it operates as a result of a business combination
with another California bank holding company, such as Saratoga;
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<PAGE>
(4) Information concerning the business, results of operations, asset
quality and financial condition of SJNB and Saratoga on a stand-alone
and combined basis, and the future growth prospects of SJNB and
Saratoga following the merger. In this regard, the board of directors
of SJNB gave consideration to the results of the initial review
conducted by SJNB's management with respect to Saratoga's business and
operations, including, in particular, its asset quality and certain
related conditions in the merger agreement. Such review included an
assessment of the opportunities to achieve increased market
penetration in its existing market and to expand into Saratoga's
market area in California;
(5) The possibility of achieving cost savings and operational synergies
which the management of SJNB believes may be achieved as a result of
the merger through the elimination of duplicative efforts;
(6) An assessment that, in the current economic environment, expansion
through acquisition of another financial institution is most
economically advantageous to SJNB's shareholders when compared to
other alternatives such as de novo branch openings or branch
acquisitions;
(7) The geographic and business fit of SJNB and Saratoga and the
complementary nature of their respective businesses;
(8) Information with respect to historical trading ranges and multiples
for SJNB common stock and Saratoga common stock, and possible trading
ranges and multiples for each on a stand-alone basis and for the two
companies on a combined basis and the evaluation by the board of
directors of SJNB of the financial terms of the merger and their
effect on the shareholders of SJNB and the belief of the SJNB board of
directors that such terms are fair to SJNB and its shareholders;
(9) The expectation that for federal income tax purposes the merger will
constitute a tax-free reorganization to SJNB and its subsidiaries;
(10) The expectation that the merger will be accounted for under the
pooling of interests method of accounting;
(11) The terms and conditions of the merger agreement and the related
agreements;
(12) The likelihood of the merger being approved by the appropriate
regulatory authorities; and
(13) The structure of the merger and the resulting corporate entities.
The board of directors of SJNB did not assign any relative or specific
weights to the factors considered and individual directors may have assigned
different weights to the above factors.
The board of directors of SJNB unanimously recommends that the merger
agreement, the related agreements, the transactions contemplated thereby and the
issuance of SJNB common stock in connection therewith, be approved by the SJNB
shareholders.
Saratoga. The board of directors of Saratoga believes that the merger is
fair to and in the best interests of the shareholders of Saratoga. In reaching
their conclusion to approve the merger, the board of directors of Saratoga
considered numerous factors, including the following:
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<PAGE>
(1) The Saratoga board of directors' review of the provisions of the
merger agreement and related agreements and the transactions
contemplated by those agreements with First Security Van Kasper and
with legal advisors and, as applicable, accounting advisors, to
Saratoga and Saratoga National Bank;
(2) The opinion of First Security Van Kasper that the terms of the merger
are fair, from a financial point of view, to Saratoga shareholders; in
this regard, the board of directors considered the premium represented
by the consideration offered to Saratoga shareholders in relation to
the book value per share of Saratoga common stock;
(3) The fact that the merger is expected to be tax-deferred for federal
income tax purposes to the holders of Saratoga common stock, other
than in respect of cash paid in lieu of fractional shares and cash
paid upon exercise, if any, of dissenters' rights;
(4) The market liquidity and dividend history of SJNB common stock;
(5) The current financial condition and prospects of SJNB;
(6) The current financial condition and prospects of Saratoga and Saratoga
National Bank;
(7) The current and prospective economic and regulatory environment,
burdens and constraints affecting banking organizations and commercial
banks such as Saratoga and Saratoga National Bank and the changing
competitive environment for banking services; and
(8) The probable impact of the merger on customers and employees and the
communities served by Saratoga and Saratoga National Bank.
The board of directors of Saratoga did not assign relative weights to the
factors above or determine that any factor was of particular importance.
Rather, the Saratoga board made recommendations based on the totality of the
information presented to and considered by them.
The board of directors of Saratoga unanimously recommends that the merger
agreement and related agreements and the transactions contemplated by those
agreements, including the merger of Saratoga into SJNB, be approved by the
Saratoga shareholders.
Opinion of Saratoga's Financial Advisor
Saratoga engaged First Security Van Kasper in June 1998 to act as its
exclusive financial advisor in connection with the merger. First Security Van
Kasper agreed to assist Saratoga in analyzing strategic alternatives to maximize
shareholder value, including structuring, negotiating and effecting a
satisfactory business combination transaction with another bank holding company.
Saratoga selected First Security Van Kasper because First Security Van Kasper is
a nationally recognized investment banking firm with substantial experience in
transactions similar to the merger and is familiar with Saratoga and its
business. As part of its investment banking business, First Security Van Kasper
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
A representative of First Security Van Kasper attended a joint special
meeting of the boards of directors of Saratoga and Saratoga National Bank held
on August 27, 1999 at which the boards considered and approved the merger
agreement. At the August 27 meeting, First Security Van Kasper rendered an oral
opinion that, as of that date, the exchange ratio was fair to Saratoga and its
shareholders
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<PAGE>
from a financial point of view. That opinion was reconfirmed in writing as of
the date of this proxy statement/prospectus.
The full text of First Security Van Kasper's written opinion dated the date
of this proxy statement/prospectus is attached as Annex C hereto and is
incorporated herein by reference.
Saratoga shareholders are urged to read the opinion in its entirety for a
description of the procedures followed, assumptions made, matters considered,
and qualifications and limitations on the review undertaken by First Security
Van Kasper.
First Security Van Kasper's opinion is directed to the Saratoga board of
directors and addresses only the exchange ratio of 0.70 shares of SJNB common
stock for each share of Saratoga common stock. It does not address the
underlying business decision to proceed with the merger and does not constitute
a recommendation to any shareholder as to how the shareholder should vote at the
special meeting with respect to the merger or any matter related thereto.
In rendering its opinion, First Security Van Kasper:
. reviewed, among other things,
(1) the merger agreement,
(2) Annual Reports to shareholders and Annual Reports on Form 10-K of
SJNB,
(3) Annual Reports to shareholders and Annual Reports on Form 10-K of
Saratoga,
(4) Quarterly Reports on Form 10-Q of SJNB,
(5) Quarterly Reports on Form 10-Q of Saratoga, and
(6) Certain internal financial analyses and forecasts for Saratoga
and SJNB prepared by their respective managements;
. held discussions with members of senior management of Saratoga and
SJNB regarding their respective
(1) past and current business operations,
(2) regulatory relationships,
(3) financial condition, and
(4) future prospects of the respective companies;
. compared certain financial and stock market information for SJNB and
Saratoga with similar information for certain other companies with
publicly traded securities;
. reviewed the financial terms of certain recent business combinations
in the banking industry; and
. performed other studies and analyses that it considered appropriate.
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<PAGE>
In conducting its review and arriving at its opinion, First Security Van
Kasper relied upon and assumed the accuracy and completeness of all of the
financial and other information provided to it or publicly available. First
Security Van Kasper did not attempt to verify such information independently.
First Security Van Kasper relied upon the management of SJNB and Saratoga as to
the reasonableness and achievability of the financial and operating forecasts
and projections (and assumptions and bases therefor) provided to First Security
Van Kasper. First Security Van Kasper assumed that those forecasts and
projections reflected the best available estimates and judgments of SJNB and
Saratoga management. First Security Van Kasper also assumed, without independent
verification, that the aggregate allowances for loan losses for SJNB and
Saratoga are adequate to cover loan losses. First Security Van Kasper did not
make or obtain any evaluations or appraisals of the property of SJNB or
Saratoga, and First Security Van Kasper did not examine any individual credit
files.
The projections furnished to First Security Van Kasper and used by it in
certain of its analyses were prepared by the senior management of each of
Saratoga and SJNB. Neither Saratoga nor SJNB publicly discloses internal
management projections of the type provided to First Security Van Kasper in
connection with its review of the merger. As a result, such projections were not
prepared with a view towards public disclosure. The projections were based on
numerous variables and assumptions which are inherently uncertain, including
factors related to general economic and competitive conditions. ACCORDINGLY,
ACTUAL RESULTS COULD VARY SIGNIFICANTLY FROM THOSE SET FORTH IN THE PROJECTIONS.
The following is a summary of the material analyses performed by First
Security Van Kasper related to the oral opinion rendered to Saratoga's board of
directors on August 27, 1999.
Transaction Summary. First Security Van Kasper calculated the merger
consideration to be paid pursuant to the exchange ratio as a multiple of
Saratoga's book value, actual earnings for the twelve months ended June 30, 1999
and 1999 estimated earnings. This computation was based on Saratoga's earnings
per share of $1.13 for the twelve months ended June 30, 1999 and Saratoga's
estimated earnings per share of $1.26 in 1999, and an exchange ratio of 0.70
SJNB shares for each Saratoga share. Based on those assumptions and a closing
SJNB stock price of $33.25, this analysis indicated that Saratoga shareholders
would receive shares of SJNB common stock worth $23.275 for each share of
Saratoga common stock held, and that this amount would represent a multiple of
2.49 times book value per share, 20.60 times earnings for the twelve months
ended June 30, 1999 and 18.47 times estimated 1999 earnings per share.
Discounted Cash Flow Analysis. First Security Van Kasper estimated the
present value of future cash flows that would accrue to a holder of a share of
Saratoga common stock assuming that the shareholder held the stock for five
years and then sold it. The analysis was based on earnings forecasts prepared by
Saratoga management on a stand-alone, independent basis for the year 1999 and
annual net income growth rates from 10.0% to 15.0% for the years 2000 through
2003. A 16% dividend payout ratio was assumed for Saratoga through the year
2003. An estimated year 2003 year-end stock price was estimated by multiplying
the projected annual earnings by earnings multiples ranging from 12 to 18 times.
The estimated stock price for each year and the estimated dividends were
discounted at rates from 12% to 16%. These rates were selected because, in First
Security Van Kasper's experience, they represent the risk-adjusted rates of
return that investors in securities such as the common stock of Saratoga would
require. On the basis of these assumptions, First Security Van Kasper calculated
a range of present values ranging from $11.34 to $23.50. These values were
compared to the offer from SJNB which, at August 27, 1999, represented a value
of $23.275.
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<PAGE>
The discounted cash flow present value analysis is a widely used valuation
methodology that relies on numerous assumptions, including asset and earnings
growth rates, terminal values and discount rates. The analysis did not purport
to be indicative of the actual values or expected values of Saratoga common
stock.
Selected Transaction Analysis. First Security Van Kasper reviewed certain
financial data related to a set of comparable bank merger transactions with
announced values between $30 million and $50 million since December 31, 1998.
First Security Van Kasper compared multiples of price to various factors
for the SJNB-Saratoga merger to the same multiples for the comparable group's
mergers at the times those mergers were announced. The results were as follows:
<TABLE>
<CAPTION>
Multiple of Price to Factor
---------------------------
Comparable SJNB-Saratoga
Factor Considered Group Average Merger
----------------- ------------- ------
<S> <C> <C>
Trailing 12 Months Earnings 21.79x 20.60x
Estimated Tangible Book Value 2.34x 2.49x
Tangible Book Premium to Core Deposits Value 17.44x 32.53x
</TABLE>
No company or transaction used as a comparison in the above analysis is
identical to SJNB, Saratoga or the merger. Accordingly, an analysis of these
results is not mathematical. Rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which they are being compared.
Selected Peer Group Analysis. First Security Van Kasper compared the
financial performance and market performance of SJNB to those of a group of
comparable banks and bank holding companies. The companies in the peer group
were Western regional banks that had total assets ranging from $250 million to
$750 million. The comparisons were based on:
. various financial measures, including:
(1) earnings performance,
(2) operating efficiency,
(3) capital adequacy, and
(4) asset quality; and
. various measures of market performance, including:
(1) market/book values,
(2) price to earnings, and
(3) dividend yields.
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<PAGE>
To perform this analysis, First Security Van Kasper used the financial
information as of and for the 12 months ended June 30, 1999 and market price
information as of August 27, 1999.
First Security Van Kasper's analysis showed the following concerning SJNB's
financial performance:
<TABLE>
<CAPTION>
Performance Measure SJNB Peer Group
------------------- ---- ----------
<S> <C> <C>
Return on Equity 15.60% 12.03%
Return on Assets 1.50 1.17
Net Interest Margin 6.23 4.69
Efficiency Ratio 54.23 62.11
Leverage Ratio 8.09 9.26
Non-Performing Assets to Total Assets 0.10 0.82
Loan Loss Reserve to Nonperforming Assets 1,200.01 276.34
</TABLE>
First Security Van Kasper's analysis showed the following concerning SJNB's
market performance:
<TABLE>
<CAPTION>
Performance Measure SJNB Peer Group
------------------- ---- ----------
<S> <C> <C>
Price to Earnings Multiple, based on latest
12 months earnings 15.76x 16.94x
Price to Earnings Multiple, based on 1999
estimated earnings 14.46x 15.03x
Price to Tangible Book Value Multiple 2.58x 2.00x
Dividend Yield 1.68% 2.04%
</TABLE>
For purposes of the above calculations, all earnings estimates are based
upon the First Security Van Kasper estimates for SJNB.
Contribution Analysis. First Security Van Kasper analyzed the relative
contribution of each of SJNB and Saratoga to certain pro forma balance sheet and
income statement items of the combined entity. The contribution analysis showed:
<TABLE>
Saratoga Contribution To:
<S> <C>
Combined Common Equity...................................... 33.09%
Combined 1999 Estimated Net Income without Cost Savings..... 28.32
Combined Total Assets....................................... 26.90
Saratoga Estimated Pro Forma Ownership........................ 35.23
</TABLE>
First Security Van Kasper compared the relative contribution of the balance
sheet and income statement items with the estimated pro forma ownership for
Saratoga shareholders based on an exchange ratio of 0.70.
Other Analyses. First Security Van Kasper reviewed the relative financial
and market performance of Saratoga and SJNB to a variety of relevant industry
peer groups and indices. First
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<PAGE>
Security Van Kasper also reviewed earnings estimates, balance sheet composition,
historical stock performance and other financial data for SJNB.
In connection with its opinion dated as of the date of this proxy
statement/prospectus, First Security Van Kasper performed procedures to update,
as necessary, certain of the analyses described above. First Security Van Kasper
reviewed the assumptions on which the analyses described above were based and
the factors considered in connection therewith. First Security Van Kasper did
not perform any analyses in addition to those described above in updating its
August 27, 1999 oral opinion.
First Security Van Kasper. The Saratoga board of directors has retained
First Security Van Kasper as an independent contractor to act as financial
adviser to Saratoga regarding the merger. As part of its investment banking
business, First Security Van Kasper is continually engaged in the valuation of
banking businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. First Security Van Kasper
has experience in, and knowledge of, the valuation of banking enterprises. In
the ordinary course of its business as a broker-dealer, First Security Van
Kasper may, from time to time, purchase securities from, and sell securities to,
Saratoga and SJNB. As a market maker in securities, First Security Van Kasper
may from time to time have a long or short position in, and buy or sell, debt or
equity securities of Saratoga and SJNB for First Security Van Kasper's own
account and for the accounts of its customers.
Saratoga and First Security Van Kasper have entered into an agreement
relating to the services to be provided by First Security Van Kasper in
connection with the merger. Saratoga has agreed to pay First Security Van Kasper
(1) $50,000 payable on the announcement by Saratoga of a definitive agreement to
enter into a combination transaction; and (2) an additional fee equal to 1.40%
of the aggregate consideration offered in exchange for the outstanding shares of
common stock of Saratoga in the merger, payable at the time of closing. Pursuant
to the First Security Van Kasper engagement agreement, Saratoga also agreed to
reimburse First Security Van Kasper for reasonable out-of-pocket expenses and
disbursements incurred in connection with its retention and to indemnify First
Security Van Kasper against certain liabilities, including liabilities under the
federal securities laws.
Opinion of SJNB's Financial Advisor
By letter agreement dated as of September 20, 1999, SJNB retained Sandler
O'Neill as an independent financial advisor to render an opinion as to the
fairness, from a financial point of view, of the exchange ratio to the
shareholders of SJNB. Sandler O'Neill is a nationally recognized investment
banking firm whose principal business specialty is financial institutions. In
the ordinary course of its investment banking business, Sandler O'Neill is
regularly engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions. Sandler O'Neill did not act as SJNB's financial advisor in
connection with its determination to engage in the merger and did not
participate in the negotiation of the exchange ratio or the merger agreement.
Sandler O'Neill has delivered to the SJNB board its written opinion, dated
as of the date of this joint proxy statement/prospectus, that as of such date,
the exchange ratio was fair to the shareholders of SJNB from a financial point
of view. The full text of Sandler O'Neill's opinion is attached as Annex D to
this Joint Proxy Statement/Prospectus. The opinion outlines the procedures
followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Sandler O'Neill in rendering the
opinion. The opinion is incorporated by reference into this description and
this description is qualified in its entirety by reference to the opinion. SJNB
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<PAGE>
shareholders are urged to read the opinion carefully in connection with their
consideration of the proposed merger.
Sandler O'Neill's opinion was directed to the SJNB board for its
information and is directed only to the fairness, from a financial point of
view, of the exchange ratio to the shareholders of SJNB. It does not address
the underlying business decision of SJNB to engage in the merger or any other
aspect of the merger and is not a recommendation to any SJNB shareholder as to
how such shareholder should vote at the Special Meeting with respect to the
merger or any other related matter.
In rendering its opinion, Sandler O'Neill performed a variety of financial
analyses. The following is a summary of the material analyses performed by
Sandler O'Neill, but is not a complete description of all the analyses
underlying Sandler O'Neill's opinion. The preparation of a fairness opinion is
a complex process involving subjective judgments as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances. The process, therefore, is not necessarily
susceptible to a partial analysis or summary description. Sandler O'Neill
believes that its analyses must be considered as a whole and that selecting only
certain factors and analyses, or attempting to ascribe relative weights to some
or all factors and analyses, could create an incomplete view of the evaluation
process underlying its opinion. Also, no company included in Sandler O'Neill's
comparative analyses described below is identical to SJNB or Saratoga and no
transaction is identical to the merger. Accordingly, an analysis of comparable
companies or transactions is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values or merger transaction values, as the case may be, of SJNB and
Saratoga and the companies to which they are being compared.
The earnings projections for SJNB and Saratoga relied upon by Sandler
O'Neill in its analyses were reviewed with management and were based upon
internal projections of SJNB and Saratoga for the years ending December 31, 1999
and 2000. Based on discussions with SJNB management, for periods after 2000
Sandler O'Neill assumed an annual growth rate on earning assets of approximately
13% for SJNB and approximately 16% for Saratoga. The 1999 and 2000 earnings
projections furnished to Sandler O'Neill were prepared by the senior managements
of SJNB and Saratoga for internal purposes only and not with a view towards
public disclosure. Those projections were based on numerous variables and
assumptions which are inherently uncertain and, accordingly, actual results
could vary materially from those set forth in such projections.
In performing its analyses, Sandler O'Neill also made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of SJNB, Saratoga and Sandler O'Neill. The analyses performed by
Sandler O'Neill are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Sandler O'Neill prepared its analyses solely for purposes of
rendering its opinion and provided such analyses to the SJNB Board. Estimates
on the values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
Such estimates are inherently subject to uncertainty and actual values may be
materially different. Accordingly, Sandler O'Neill's analyses do not
necessarily reflect the value of SJNB common stock or Saratoga common stock or
the prices at which SJNB common stock or Saratoga common stock may be sold at
any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based upon the closing price of SJNB common stock on
August 27, 1999, Sandler O'Neill calculated an implied transaction value per
share of Saratoga common stock of $23.28. The implied aggregate
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<PAGE>
transaction value was approximately $42.9 million, based upon 1,844,270 fully
diluted shares of Saratoga common stock outstanding, which was determined using
the treasury stock method at the implied value of $23.28. Based upon Saratoga's
June 30, 1999 financial information and the implied transaction value of $23.28
per share, Sandler O'Neill calculated the following ratios:
Implied value/Book value 2.49x
Implied value/Tangible book value 2.49x
Implied value/Last twelve months' EPS 20.6x
Implied value/Projected 1999 EPS 20.0x
Implied value/Projected 2000 EPS 19.1x
For purposes of Sandler O'Neill's analyses, earnings per share were based on
fully diluted earnings per share. Sandler O'Neill noted that the implied
transaction value represented a 22.5% premium over the August 27, 1999 closing
price of Saratoga common stock of $19.00.
Stock Trading History. Sandler O'Neill reviewed the history of the
reported trading prices and volume of SJNB common stock and Saratoga common
stock, and the relationship between the movements in the prices of SJNB common
stock and Saratoga common stock, respectively, to movements in certain stock
indices, including the Standard & Poor's 500 Index, the NASDAQ Bank Index and
the median performance of a composite group of publicly traded regional
commercial banks selected by Sandler O'Neill and listed below. During the one
year period ended October 6, 1999, the SJNB common stock outperformed the NASDAQ
Bank Index and the composite group while underperforming the Standard & Poor's
500 Index. During the one year period ended August 27, 1999, the Saratoga
common stock outperformed the NASDAQ Bank Index and the composite group while
underperforming the Standard & Poor's 500 Index.
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
SJNB and two groups of commercial banks selected by Sandler O'Neill. The
Regional Group consisted of SJNB and the following 12 publicly traded regional
commercial banks:
Bank of the Sierra BYL Bancorp
Cascade Bancorp City Bank
Civic BanCorp Columbia Bancorp
Foothill Independent Bancorp Heritage Commerce Corp.
Northern Empire Bancshares Northrim Bank
Redwood Empire Bancorp United Security Bancorp.
The Highly Valued Group consisted of the following 10 publicly traded commercial
banks that had a return on average equity (based on last twelve months'
earnings) of greater than 16% and a price to tangible book value of greater than
230%:
Boston Private Financial Bryn Mawr Bank Corp.
Camden National Corp. Cascade Bancorp
City Bank Coast Bancorp
Community West Bancshares S.Y. Bancorp Inc.
Summit Bancshares Inc. Tompkins Trustco Inc.
The analysis compared publicly available financial information for SJNB and the
median data for each of the Regional and Highly Valued Groups as of and for each
of the years ended December 31, 1994
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<PAGE>
through 1998 and as of and for the twelve months ended June 30, 1999. The table
below sets forth the comparative data as of and for the twelve months ended June
30, 1999.
<TABLE>
<CAPTION>
SJNB Regional Group Highly Valued Group
-------- -------------- -------------------
<S> <C> <C> <C>
Total assets $403,640 $403,640 $506,369
Annual growth rate
of total assets 17.81% 17.81% 15.80%
Tangible equity/
total assets 7.49% 8.10% 8.40%
Intangible assets/
total equity 11.28% 2.28% 1.50%
Net loans/total assets 72.35% 72.35% 67.89%
Cash & securities/
total assets 24.15% 22.12% 26.91%
Gross loans/
total deposits 89.68% 86.77% 88.69%
Total borrowings/
total assets 8.05% 2.53% 6.03%
Non-performing assets/
total assets .10% .48% .57%
Loan loss reserve/
gross loans 1.66% 1.56% 1.40%
Net interest margin 6.23% 6.23% 5.59%
Loan loss provision/
average assets 0.11% .36% .23%
Non-interest income/
average assets 0.29% 1.04% 1.97%
Non-interest expense/
average assets 3.44% 4.18% 3.90%
Efficiency ratio 54.23% 58.15% 53.62%
Return on average assets 1.50% 1.47% 1.74%
Return on average equity 15.60% 15.22% 18.73%
Price/tangible book
value per share 238% 216% 277%
Price/earnings per share 14.51x 13.07x 15.30x
Dividend yield 1.83% 1.83% 1.56%
Dividend payout ratio 26.54% 17.01% 23.55%
</TABLE>
Similarly, Sandler O'Neill used publicly available information to compare
selected financial and market trading information for Saratoga and two groups of
commercial banks listed below. The Regional Group consisted of Saratoga and the
following 13 publicly traded regional commercial banks:
Clovis Community Bank Community Bancorp Inc.
Cowlitz Bancorp. EvergreenBank
First American Bank First Coastal Bancshares
First Financial Bancorp Heritage Oaks Bancorp
National Mercantile Bancorp Northwest Bancorp.
Sonoma Valley Bank Vineyard National Bancorp
West Coast Bancorp
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<PAGE>
The Highly Valued Group consisted of the following seven publicly traded
commercial banks that had a return on average equity (based on last twelve
months' earnings) of greater than 16% and a price to tangible book value of
greater than 190%:
Borel Bank & Trust Co. Bridge View Bancorp
BWC Financial Corp. C&F Financial Corp.
Coast Bancorp Community West Bancshares
Resource Bankshares Corp.
The analysis compared publicly available financial information for Saratoga and
the median data for each of the Regional and Highly Valued Groups as of and for
each of the years ended December 31, 1994 through 1998 and as of and for the
twelve months ended June 30, 1999. The table below sets forth the comparative
data as of and for the twelve months ended June 30, 1999.
<TABLE>
<CAPTION>
Saratoga Regional Group Highly Valued Group
-------- -------------- -------------------
<S> <C> <C> <C>
Total assets $148,558 $148,558 $288,290
Annual growth rate
of total assets 13.34% 8.83% 13.32%
Tangible equity/
total assets 10.00% 7.63% 9.58%
Intangible assets/
total equity .00% .00% .00%
Net loans/total assets 45.95% 57.94% 66.97%
Cash & securities/
total assets 46.58% 38.61% 30.70%
Gross loans/
total deposits 63.01% 71.16% 76.59%
Total borrowings/
total assets 15.22% 2.62% .14%
Non-performing assets/
total assets .00% .69% .22%
Loan loss reserve/
gross loans 1.20% 1.52% 1.35%
Net interest margin 4.18% 5.68% 5.49%
Loan loss provision/
average assets .07% .15% .10%
Non-interest income/
average assets .53% 1.09% 1.68%
Non-interest expense/
average assets 2.24% 4.86% 4.51%
Efficiency ratio 51.22% 77.61% 58.05%
Return on average assets 1.43% .83% 1.71%
Return on average equity 13.65% 9.31% 19.09%
Price/tangible book
value per share 215% 146% 233%
Price/earnings per share 17.65x 15.13x 13.57x
Dividend yield .99% .00% 1.58%
Dividend payout ratio 17.70% .00% 23.62%
</TABLE>
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed certain
other transactions announced from January 1, 1999 to September 30, 1999
involving commercial banks as acquired institutions with transaction values
greater than $15 million. Sandler O'Neill reviewed 110 transactions
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announced nationwide and 22 transactions in California. Sandler O'Neill reviewed
the ratios of transaction value to last four quarters' earnings, transaction
value to book value, transaction value to tangible book value, tangible book
premium to core deposits, transaction value to total assets and premium to
current market and computed high, low, mean and median ratios and premiums for
the respective groups of transactions. These multiples were applied to
Saratoga's financial information as of and for the twelve months ended June 30,
1999. As illustrated in the following table, Sandler O'Neill derived an imputed
range of values per share of Saratoga common stock of $17.37 to $27.80 based
upon the median multiples for nationwide transactions and $15.80 to $27.98 based
upon the median multiples for California transactions.
<TABLE>
<CAPTION>
Nationwide Transactions California Transactions
----------------------- -----------------------
- -
Median Implied Median Implied
Multiple Value Multiple Value
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Deal price/LTM EPS 21.5x $24.20 21.1x $23.81
Deal price/Book value 2.67x 24.96 2.55x 23.88
Deal price/Tangible
book value 2.88x 26.97 2.58x 24.12
Tangible book premium/
Core deposits 22.0% 20.79 20.8% 20.13
Deal price/Total assets 23.8% 19.51 23.4% 19.13
Deal price/Total deposits 28.8% 17.37 26.2% 15.80
Premium to market 39.9% 27.80 40.8% 27.98
</TABLE>
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Saratoga through December 31, 2003 under various
circumstances, assuming Saratoga's current dividend payout ratio and that
Saratoga performed in accordance with the earnings forecasts reviewed with
management. To approximate the terminal value of Saratoga common stock at
December 31, 2003, Sandler O'Neill applied price/earnings multiples ranging from
10x to 26x and applied multiples of tangible book value ranging from 100% to
350%. The dividend income streams and terminal values were then discounted to
present values using different discount rates ranging from 9% to 15% chosen to
reflect different assumptions regarding required rates of return of holders or
prospective buyers of Saratoga common stock. As illustrated in the following
table, this analysis indicated an imputed range of values per share of Saratoga
common stock of $10.96 to $34.70 when applying the price/earnings multiples and
$8.77 to $34.85 when applying multiples of tangible book value.
<TABLE>
<CAPTION>
Price/Earnings Multiples Tangible Book Value Multiples
-------------------------- -----------------------------
Discount Rate 10x 26x 1.0x 3.5x
- ------------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
9 % $14.51 $34.70 $11.53 $34.85
11 13.19 31.46 10.50 31.60
13 12.01 28.57 9.59 28.71
15 10.96 26.00 8.77 26.13
</TABLE>
In connection with its analysis, Sandler O'Neill considered how the present
value analysis would be affected by changes in the underlying assumptions,
including variations with respect to the growth rate of assets, net interest
spread, non-interest income, non-interest expenses and dividend payout ratio.
Sandler O'Neill noted that the discounted dividend stream and terminal value
analysis is a widely used valuation methodology, but the results of such
methodology are highly dependent upon numerous
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<PAGE>
assumptions that must be made, and the results thereof are not necessarily
indicative of actual values or future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro
forma effects of the merger on SJNB, based upon the exchange ratio of 0.70,
SJNB's and Saratoga's current and projected income statements and balance
sheets, and assumptions regarding the economic environment, accounting and tax
treatment of the merger, charges associated with the merger, operating
efficiencies and other adjustments discussed with the senior management of SJNB
and Saratoga. Sandler O'Neill's analysis did not include the potential impact
of any earnings enhancements resulting from the merger. As illustrated in the
following table, this analysis indicated that the merger would be dilutive to
SJNB's projected earnings per share and tangible book value per share for the
year ending December 31, 2000. The actual results achieved by SJNB may vary
from projected results and the variations may be material.
<TABLE>
<CAPTION>
Year ending December 31, 2000 Stand-alone Pro Forma
----------------------------- ----------- ---------
<S> <C> <C>
Projected EPS $ 2.81 $ 2.72
Projected tangible book value 16.43 16.16
Projected dividend .63 .63
Projected tangible equity/assets ratio 8.19% 8.47%
</TABLE>
Based on discussions with management, SJNB believes that the potential
earnings dilution may be offset by, among other things: (1) an enhanced legal
lending limit which will allow SJNB to enhance existing Saratoga lending
relationships and allow the company to compete for larger relationships; (2) the
ability to cross-sell products through the implementation of business
development officers at Saratoga branch locations; (3) reduction in funding
costs for the combined company through expansion of the Saratoga retail deposit
base; (4) the ability to offer core banking and retail banking services to
existing customers of SJNB; and (5) better service to existing SJNB customers
and potential deposit generation on the west side of San Jose provided by the
two new offices acquired as a result of the transaction. However, there can be
no assurance as to when or if such earnings enhancements will be achieved.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions
to be made by SJNB and Saratoga to the combined institution based on data at and
for the twelve months ended June 30, 1999. This analysis indicated that the
implied contributions to the combined entity were as follows:
<TABLE>
<CAPTION>
SJNB Saratoga
---- --------
<S> <C> <C>
Total assets 73.1% 23.9%
Total net loans 81.2 18.8
Goodwill 100.0 0.00
Total deposits 75.1 24.9
Total borrowings 59.0 41.0
Tangible equity 67.1 32.9
Total equity 69.7 30.3
LTM net income 72.3 27.7
LQA net income 74.2 25.8
Percentage of pro forma 66.8 33.2
shares owned(1)
</TABLE>
- -----------------
(1) Determined using an exchange ratio of .70.
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<PAGE>
In connection with rendering its opinion, Sandler O'Neill reviewed, among
other things: (1) the merger agreement and exhibits thereto; (2) the Stock
Option Agreement, dated August 27, 1999, between SJNB and Saratoga; (3) certain
publicly available financial statements of SJNB and other historical financial
information provided by SJNB that they deemed relevant; (4) certain publicly
available financial statements of Saratoga and other historical financial
information provided by Saratoga that they deemed relevant; (5) certain internal
financial analyses and forecasts of SJNB prepared by and reviewed with
management of SJNB and the views of senior management of SJNB, based on certain
limited discussions with certain members of senior management, regarding SJNB's
past and current business, financial condition, results of operations and future
prospects; (6) certain internal financial analyses and forecasts of Saratoga
prepared by and reviewed with management of Saratoga and the views of senior
management of Saratoga, based on certain limited discussions with certain
members of senior management, regarding Saratoga's past and current business,
financial condition, results of operations and future prospects; (7) the pro
forma impact of the merger on SJNB; (8) the publicly reported historical price
and trading activity for SJNB's and Saratoga's common stock, including a
comparison of certain financial and stock market information for SJNB and
Saratoga with similar publicly available information for certain other companies
the securities of which are publicly traded; (9) the financial terms of recent
business combinations in the commercial banking industry, to the extent publicly
available; (10) the current market environment generally and the banking
environment in particular; and (11) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as they
considered relevant.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with it, and Sandler O'Neill did not assume any
responsibility or liability for independently verifying the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of SJNB or Saratoga or any
of their respective subsidiaries, or the collectibility of any such assets, nor
was it furnished with any such evaluations or appraisals. Sandler O'Neill is
not an expert in the evaluation of allowances for loan losses and it has not
made an independent evaluation of the adequacy of the allowance for loan losses
of SJNB or Saratoga, nor has it reviewed any individual credit files relating to
SJNB or Saratoga. With SJNB's consent, Sandler O'Neill has assumed that the
respective allowances for loan losses for both SJNB and Saratoga are adequate to
cover such losses and will be adequate on a pro forma basis for the combined
entity. In addition, Sandler O'Neill has not conducted any physical inspection
of the properties or facilities of SJNB or Saratoga. With respect to all
financial projections reviewed with each company's management and used by
Sandler O'Neill in its analyses, Sandler O'Neill assumed that they reflected the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of SJNB and Saratoga and that
such performances will be achieved. Sandler O'Neill expressed no opinion as to
such financial projections or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the merger agreement
and all related agreements are true and correct, that each party to such
agreements will perform all of the covenants required to be performed by such
party under such agreements and that the conditions precedent in the merger
agreement are not waived. Sandler O'Neill also assumed, with SJNB's consent,
that there has been no material change in SJNB's or Saratoga's assets, financial
condition, results of operations, business or prospects since the date of the
last publicly filed financial statements available to them, that SJNB and
Saratoga will remain as going concerns for all periods
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<PAGE>
relevant to its analyses, and that the merger will be accounted for as a pooling
of interests and will qualify as a tax-free reorganization for federal income
tax purposes.
SJNB has agreed to pay Sandler O'Neill a fee of $50,000 for rendering its
opinion. SJNB has also agreed to reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses incurred in connection with its engagement and to
indemnify Sandler O'Neill and its affiliates and their respective partners,
directors, officers, employees, agents, and controlling persons against certain
expenses and liabilities, including liabilities under securities laws. In the
ordinary course of its business as a broker-dealer, Sandler O'Neill may also
purchase securities from and sell securities to SJNB and Saratoga and may
actively trade the equity or debt securities of SJNB and Saratoga and their
respective affiliates for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Effective Date and Time of the Merger
The merger agreement provides that the merger will be effective upon the
date of the filing with the California Secretary of State of a duly executed
agreement of merger and officers' certificates prescribed by Section 1103 of the
California General Corporation Law, or at such time thereafter as is provided by
mutual agreement in the merger agreement. The date and time on which the merger
is effective as specified in the merger agreement is referred to in this
document as the effective date and effective time, respectively. Although the
parties have not adopted any formal timetable, it is presently anticipated that
the merger will be consummated during December 1999, assuming all of the
conditions set forth in the merger agreement are theretofore satisfied or
waived.
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<PAGE>
Purchase Price and Potential Adjustments
Each share of Saratoga common stock issued and outstanding prior to the
effective time (other than shares as to which dissenters' rights have been
perfected), shall be converted into the right to receive 0.70 of a share of SJNB
common stock, plus cash in lieu of fractional shares. The exchange ratio is
subject to adjustment under the following circumstances:
. If SJNB changes (or establishes a record date for changing) the number
of shares of SJNB common stock outstanding prior to the effective time
as a result of an issuance of shares, recapitalization, merger, stock
split, stock dividend or similar transaction, the exchange ratio will
be proportionately adjusted to eliminate the effect of such event;
. If, prior to the effective time, SJNB issues, sells or distributes a
warrant, option or other instrument convertible into or exchangeable
for any shares of SJNB common stock (collectively, "SJNB
Instruments"), then (1) the exchange ratio will be proportionately
adjusted to eliminate the effect of such event or (2) in the sole
discretion of SJNB, SJNB will provide to holders of Saratoga common
stock proportionately equivalent SJNB Instruments upon consummation of
the merger; and
. If Saratoga exercises its option to terminate the merger agreement
because the average closing price of SJNB common stock for the 20
trading days ending five business days before the closing of the
merger is less than $29.3590. In such case, during the five business
day period beginning on the day after receipt of notice of election by
Saratoga to terminate under this provision, SJNB may elect to adjust
the exchange ratio of 0.70 to a number equal to the quotient of (1)
29.3590 times the exchange ratio, divided by (2) the average SJNB
closing price.
No such adjustments to the exchange ratio will take place (1) in
connection with the grant of options under SJNB's stock plan or with
respect to a takeover proposal to which SJNB is a party or (2) in the
event that SJNB takes any action to authorize, approve or adopt a
shareholder rights plan as permitted by the merger agreement.
Conversion of Shares of Saratoga Common Stock
At the effective time, by virtue of the merger and without any action on
the part of the holders of Saratoga common stock, each issued and outstanding
share of Saratoga common stock (other than dissenting and fractional shares)
will be converted into the right to receive the per share consideration of SJNB
common stock as discussed above. See "--Purchase Price and Potential
Adjustments." All such shares of Saratoga common stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate previously representing any such shares shall
thereafter represent the shares of SJNB common stock into which such shares of
Saratoga common stock have been converted. Certificates previously representing
shares of Saratoga common stock shall be exchanged for certificates representing
whole shares of SJNB common stock issued in consideration therefor upon the
surrender of such certificates. Cash will be paid in lieu of any fractional
share of SJNB common stock. See "--Exchange of Saratoga Stock Certificates;
Fractional Interests." From and after the effective date, the holders of
certificates formerly representing shares of Saratoga common stock shall cease
to have any rights with respect such shares.
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Exchange of Saratoga Stock Certificates; Fractional Interests
Prior to the effective date, SJNB has agreed to appoint U.S. Stock Transfer
Corporation, or its successor as exchange agent (the "Exchange Agent") for the
purpose of exchanging certificates representing shares of SJNB common stock, and
at and after the effective date, SJNB will issue and deliver to the Exchange
Agent certificates representing the shares of SJNB common stock, to be delivered
to holders of shares of Saratoga common stock. As soon as practicable after the
effective date, each holder of shares of Saratoga common stock, upon surrender
to the exchange agent of one or more certificates for such shares of Saratoga
common stock for cancellation, will be entitled to receive a certificate
representing the number of shares of SJNB common stock into which such number of
shares of Saratoga common stock will have been converted and a payment in cash
with respect to fractional shares, if any.
No dividends or other distributions of any kind which are declared payable
to shareholders of record of the shares of SJNB common stock after the effective
date will be paid to persons entitled to receive such certificates for shares of
SJNB common stock until such persons surrender their certificates representing
shares of Saratoga common stock. Upon surrender of certificates representing
shares of Saratoga common stock, the holder thereof will be paid, without
interest, any dividends or other distributions with respect to the shares of
SJNB common stock as to which the record date and payment date occurred on or
after the effective date and on or before the date of surrender.
If any certificate for shares of SJNB common stock is to be issued in a
name other than that in which the certificate for shares of Saratoga common
stock surrendered in exchange therefor is registered, it will be a condition of
such exchange that the person requesting such exchange will pay to the Exchange
Agent any transfer costs, taxes or other expenses required by reason of the
issuance of certificates for such shares of SJNB common stock in a name other
than the registered holder of the certificate surrendered, or such persons will
establish to the satisfaction of SJNB and the Exchange Agent that such costs,
taxes or other expenses have been paid or are not applicable.
All dividends or distributions, and any cash to be paid in lieu of
fractional shares, if held by the Exchange Agent for payment or delivery to the
holders of unsurrendered certificates representing shares of Saratoga common
stock and unclaimed at the end of one year from the effective date, will
(together with any interest earned thereon) at such time be paid or redelivered
by the Exchange Agent to SJNB, and after such time any holder of a certificate
representing shares of Saratoga common stock who has not surrendered such
certificate to the Exchange Agent will, subject to applicable law, look as a
general creditor only to SJNB for payment or delivery of such shares of SJNB
common stock and dividends or distributions or cash, as the case may be.
No fractional shares of SJNB common stock will be issued to holders of
shares of Saratoga common stock. In lieu thereof, each such holder entitled to a
fraction of a share of SJNB common stock will receive, at the time of surrender
of the certificate or certificates representing such holder's shares of Saratoga
common stock, an amount in cash equal to the average price of SJNB common stock
multiplied by the fraction of a share of SJNB common stock to which such holder
otherwise would be entitled. The average price of SJNB common stock is
calculated using the closing price of the SJNB common stock for the 20 trading
days ending five business days before the closing. No such holder will be
entitled to dividends, voting rights, interest on the value of, or any other
rights in respect of, a fractional share.
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Treatment of Stock Options
At the effective time, the obligations under the Saratoga stock option plan
will be assumed by SJNB. At the effective time, options to purchase shares of
Saratoga common stock issued pursuant to Saratoga's stock option plan that are
outstanding will be converted, without any action on the part of the holders
thereof, into options to acquire the number of shares of SJNB common stock the
option holder would have received pursuant to the merger if he or she had
exercised all of his or her options immediately prior to the effective date. The
option exercise price will be adjusted to equal the exercise price per share for
the options immediately prior to the merger divided by the exchange ratio of
0.70, as the exchange ratio may be adjusted. Except as noted above, each
Saratoga stock option will otherwise continue on terms and conditions that are
consistent with those that were applicable on the effective date.
Interests of Saratoga Officers and Directors in the Merger
Saratoga directors and executive officers have interests in the merger in
addition to their interests as Saratoga shareholders. The Saratoga board of
directors was aware of these interests and considered them, among other matters,
in approving the merger agreement. See "Introduction--Share Ownership of
Management."
The directors and executive officers of Saratoga and three other Saratoga
National Bank officer employees have Supplemental Compensation Agreements which
provide lifetime annual income benefits to the respective participants and
certain benefits upon retirement (age 62 or older) or early retirement (prior to
attaining age 62), upon death or disability prior to retirement, or in the event
employment or service is terminated prior to retirement. Upon a change in
control of Saratoga or Saratoga National Bank, all of the benefits are fully
vested. Based upon current projections, the annual benefit entitlement for Mr.
Mount, Mr. Lanna and Ms. Rourke is approximately $82,000, $58,000 and $57,000,
respectively, and the average annual benefit amount for non-employee directors
is approximately $13,323.
Mr. Mount has certain additional benefits consisting of (1) an Employment
Agreement with Saratoga National Bank that provides for severance payments by
Saratoga National Bank or its successor in the event of a change in control of
Saratoga or Saratoga National Bank; (2) an Executive Benefits Agreement with
Saratoga National Bank which provides certain insurance funded payments and a
death benefit; and (3) the right pursuant to the merger agreement to receive
payments in the amount of $14,000 per month for a period not to exceed six
months following the consummation of the merger in consideration for providing
transition services to SJNB. Under the Employment Agreement, Mr. Mount is
entitled to receive severance payments equal to one and one-half times the
average of his last five years' compensation, payable in thirty-six
substantially equal installments upon the occurrence of certain termination
events or other changes in his employment following a change in control. The
severance amount payable to Mr. Mount under the Employment Agreement is a
variable amount ranging from approximately $288,881 to $317,453, depending upon
whether the merger is consummated as anticipated in December 1999 or thereafter.
In connection with the Employee Benefits Agreement, Saratoga National Bank or
its successor will distribute to Mr. Mount $70,137 annually over a five-year
term, which amounts represent his deferred bonus under a pre-existing Chief
Executive Officer Incentive Compensation Plan terminated in 1999. Each year
during the five-year term, Mr. Mount will contribute the after-tax balance of
each $70,137 installment, and Saratoga National Bank, or its successor, will
contribute approximately $28,058, as premium contributions to purchase an
insurance policy which provides lifetime and death benefits under the Employee
Benefits Agreement. Mr. Mount is entitled to receive lifetime benefit payments
through withdrawals and/or loans of the insurance policy cash surrender value to
the extent of his ownership interest on or after his termination of employment,
and Saratoga National Bank or its successor has an ownership interest in a
portion of the cash surrender value
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equal to the amount of its premium contributions. A death benefit is payable to
Saratoga National Bank or its successor upon Mr. Mount's death equal to the
total of its premium contributions plus interest accrued with the balance of the
death benefit payable to Mr. Mount's beneficiary. The amount of lifetime benefit
payments and death benefit payments is uncertain and cannot be calculated since
they are entirely dependent upon the cash surrender value returns of the
insurance policy. Cash surrender value returns are based upon future performance
of the insurance policy and will be affected by various factors, including
general economic conditions and the timing and amounts of any withdrawals and/or
loans.
Ms. Rourke and Mr. Lanna also participate in the Officer Severance Policy
adopted by Saratoga and Saratoga National Bank for certain of their respective
officers. Participants are entitled to receive severance payments upon
termination of employment within one year following a change in control based
upon their respective compensation levels (as defined in the policy) multiplied
by the product of two weeks for each full year of service (in the case of senior
vice presidents and vice presidents) and one and one-half weeks for each full
year of service (in the case of assistant vice presidents). The severance
payable to Ms. Rourke and Mr. Lanna under the policy is approximately $34,726
and $39,266, respectively.
Conduct of Business Pending the Merger
Under the merger agreement, SJNB and Saratoga have each agreed that, during
the period from the date of the merger agreement to the effective time of the
merger, it and each of its respective subsidiaries will:
. carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the execution of
the merger agreement and use all reasonable efforts to preserve intact
its present business organizations,
. maintain the rights and franchises of its business, and preserve the
relationships with its customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing businesses
will not be impaired in any material respect at the effective time of
the merger,
. not declare or pay any dividends on or make other distributions in
respect of any of its capital stock, except (1) (A) in the case of
Saratoga, cash dividends in an amount per share not greater than, and
consistent with the manner and frequency of, dividends paid by
Saratoga, in the 12 months prior to the date of the merger agreement,
and (B) in the case of SJNB, cash dividends in an amount substantially
equivalent to dividends paid in the 12 months prior to the date of the
merger agreement, and (2) for dividends paid to SJNB or Saratoga from
a wholly-owned subsidiary,
. not split, combine or reclassify any of its capital stock or issue any
other securities instead of shares of its capital stock (provided
that, with respect to SJNB, such restriction would not prevent SJNB
from implementing a shareholders' rights plan), and
. subject to certain exceptions, not change its methods of accounting.
In addition, Saratoga has agreed that it and Saratoga National Bank will
not, without the prior written consent of SJNB:
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. amend the articles of incorporation or bylaws or other organizational
documents of Saratoga or Saratoga National Bank except as otherwise
required to perform its obligations under the merger agreement,
. issue or sell any shares of its capital stock, other than issuances of
common stock in connection with the exercise of options, or
repurchase, redeem or otherwise acquire any shares of its or Saratoga
National Bank's capital stock,
. enter into any new material line of business or materially change its
lending, investment, liability management and other material banking
policies, except as required by law or by policies imposed by a
banking regulatory authority,
. subject to certain exceptions, incur or commit to any capital
expenditures or any obligations or liabilities in connection with
capital expenditures other than in the ordinary course of business
consistent with past practice, but in no event for more than $10,000
as to any one such item or $50,000 as to all such items in the
aggregate,
. make any acquisition of or enter into any merger with any other
business organization, except as permitted by certain limited
exceptions,
. sell, lease, encumber or otherwise dispose of, any material assets,
other than in the ordinary course of business consistent with past
practice,
. incur or guarantee any long-term indebtedness or issue, sell or
guarantee any long-term debt securities other than (1) indebtedness of
Saratoga National Bank to Saratoga, (2) deposits taken in the ordinary
course of business consistent with past practice, or (3) renewals or
extensions of existing long-term indebtedness without any change in
the material terms thereof,
. intentionally take or fail to take any action that would, or
reasonably might be expected to, result in any of the representations
and warranties set forth in the merger agreement being or becoming
untrue in any material respect, or in any of the conditions to the
closing set forth in the merger agreement not being satisfied or,
unless such action is required by applicable law or sound banking
practice, which would adversely affect the ability of SJNB or Saratoga
to obtain any of the requisite regulatory approvals,
. subject to certain exceptions, enter into or amend any employee
benefit plans or agreements or increase the compensation or fringe
benefits of any director, officer or employee,
. subject to certain exceptions, commit to or renew any real estate
secured or construction loan with a principal amount exceeding
$1,500,000 or any commercial loan with a principal amount exceeding
$500,000,
. issue or agree to issue any letters of credit or otherwise guarantee
the obligations of any other persons except in the ordinary course of
business consistent with past practice,
. engage or participate in any material transaction or incur or sustain
any material obligation not in the ordinary course of business
consistent with past practice,
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. settle any claim involving the payment of money damages in excess of
$50,000 as to any such matter, or settle any other matter not
involving money damages which is material to Saratoga,
. except as required by GAAP or applicable law or regulation, change or
make any tax elections or settle or compromise any material tax
liability,
. subject to certain exceptions, make an application for the opening,
relocation or closing of, or open, relocate or close, any branch or
loan production office,
. except as permitted by the merger agreement, enter into any
securitization or similar transactions with respect to any loans,
leases or other assets, or
. agree to, or make any commitment to, take any of the prohibited
actions described above.
Additionally, SJNB has agreed that it and its subsidiaries will not,
without the prior written consent of Saratoga:
. amend its articles of incorporation or its bylaws in a manner that
would materially and adversely affect (1) its ability to perform it
obligations under the merger agreement or complete the merger, or (2)
the rights, powers and privileges of the shares of SJNB common stock
to be issued in the merger,
. intentionally take or fail to take any action that would, or
reasonably might be expected to, result in (1) any of its
representations and warranties set forth in the merger agreement being
or becoming untrue in any material respect, (2) any of the conditions
to the closing set forth in the merger agreement not being satisfied,
or, unless such action is required by applicable law or sound banking
practice, that would adversely affect the ability of SJNB or Saratoga
to obtain any of the requisite regulatory approvals without imposition
of a burdensome condition, or
. agree to, or make any commitment to, take any of the prohibited
actions described above.
Under the merger agreement, SJNB further agreed:
. to use all commercially reasonable efforts to publish as soon as
practicable after the quarter in which there are at least 30 days of
post-merger combined operations, combined sales and income figures,
and
. until the effective time of the merger, not to accept a takeover
proposal from a third party unless such proposal is expressly
conditioned upon the performance by SJNB of its obligations under the
merger agreement; provided, however, that SJNB may, under certain
circumstances, accept such third party takeover proposal by paying or
causing to be paid to Saratoga the termination fee specified in the
merger agreement. See "--Fees and Expenses."
Additional Agreements
Special Shareholders' Meetings. In the merger agreement, each of SJNB and
Saratoga has agreed to call a meeting of its shareholders to be held as promptly
as practicable for the purpose of voting on the merger. Each of SJNB and
Saratoga is required through its board of directors to recommend to its
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shareholders approval of the merger agreement unless its board of directors
determines in good faith, based upon the written advice of outside counsel, that
making such recommendation, or failing to withdraw, modify or amend any
previously made recommendation, would constitute a breach of fiduciary duty by
its board of directors under applicable law.
No Solicitations. From August 27, 1999, until the earlier of the effective
time of the merger or the termination of the merger agreement, Saratoga has
agreed that neither it nor Saratoga National Bank, nor any of their affiliates
or agents, will enter into discussions or negotiations with or provide
information to any person or group of persons (other than SJNB and its
subsidiaries) concerning any inquiry, proposal or offer to acquire in any manner
20% or more of any class of equity securities of, or a merger, consolidation,
business combination, sale, recapitalization, liquidation, dissolution or other
disposition or similar transaction involving 20% or more of the assets of,
Saratoga or Saratoga National Bank. However, the board of directors of Saratoga,
to the extent required by its fiduciary duty, as determined in good faith based
upon the advice of independent counsel, may recommend or enter into an agreement
with respect to a bona fide takeover proposal by a third party on terms
determined in good faith by the board of directors of Saratoga to be reasonably
capable of being completed, taking into account all legal, financial, regulatory
and other aspects of the proposal and the person making the proposal and, based
on the advice of a financial advisor of nationally recognized reputation, if
consummated, to be more favorable to the shareholders of Saratoga from a
financial point of view than the merger with SJNB. If the board of directors
exercises the right discussed in the preceding sentence, Saratoga is required to
pay to SJNB a termination fee. See "--Fees and Expenses."
Filings and Other Actions. In the merger agreement, SJNB and Saratoga have
each agreed to use all reasonable efforts:
. to take all actions necessary to comply promptly with all legal
requirements which may be imposed on such party or its subsidiaries
with respect to the transactions contemplated by the merger agreement,
and
. to obtain (and to cooperate with the other party to obtain) any
governmental or private consent, authorization, order, exemption or
approval which is required to be obtained or made by such party or any
of its subsidiaries in connection with the merger and the other
transactions contemplated by the merger agreement. In addition, each
of Saratoga and SJNB has agreed to use all reasonable best efforts to
take all actions, and to do all things, necessary and proper or
advisable to complete, as soon as practicable, the transactions
contemplated by the merger agreement, including using all reasonable
best efforts to:
(1) lift or rescind any injunction or restraining order or other
order adversely affecting the ability of the parties to complete
the merger according to the merger agreement,
(2) defend any litigation seeking to enjoin, prevent or delay the
completion of the merger according to the merger agreement or
seeking material damages, and
(3) provide to counsel to the other party representations and
certifications as to such matters as such counsel may reasonably
request in order to render the respective tax opinions described
under "--Conditions to the Completion of the Merger" and to
obtain the letters of their independent accountants regarding
pooling accounting treatment.
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Employee Benefit Plans. Under the merger agreement, SJNB agreed to honor,
and to cause its subsidiaries to honor, all of Saratoga's employee benefits
plans, provided that after the effective time of the merger SJNB or its
subsidiaries may amend, modify or terminate such plans in accordance with their
terms and with applicable law. Additionally, Saratoga has agreed that its
Saratoga Bank Savings Plan or any other 401(k) plans can be terminated, modified
or merged into an appropriate SJNB qualified plan before or after the effective
time of the merger, as determined by SJNB in its sole discretion. However,
Saratoga is not required to take any such action unless SJNB acknowledges that
all material conditions to SJNB's obligation to consummate the merger have been
satisfied or waived and SJNB reasonably believes that the merger will close.
Indemnification; Directors' And Officers' Insurance. Under the merger
agreement, from and after the effective time of the merger SJNB will indemnify
and hold harmless each present or former officer or director of Saratoga and
Saratoga National Bank (determined as of the effective time) against (1) all
losses, claims, damages, expenses, liabilities or judgments or amounts that are
paid in the settlement of or in connection with any claim, action, suit,
proceeding or investigation based on or arising out of the fact that such person
is or was a director or officer of Saratoga or Saratoga National Bank
(collectively, "Indemnified Liabilities") and (2) all Indemnified Liabilities
based on or arising out of the merger agreement or the transactions contemplated
by the merger agreement, in each case to the full extent that Saratoga would
have been permitted under applicable law and its articles of incorporation and
SJNB is permitted under California law.
Additionally, upon the effective time of the merger, SJNB will include in
its director and officer insurance policy any executive officer or director of
Saratoga or Saratoga National Bank who becomes an officer or director of SJNB.
Saratoga has agreed to cooperate with SJNB to obtain extended coverage under
Saratoga's director and officer insurance policy to cover claims made for a
period of three years after the effective time of the merger regarding acts or
omissions of Saratoga's or Saratoga National Bank's directors or officers prior
to the effective time of the merger. However, SJNB will not be obligated to make
annual premium payments for such insurance to the extent such premiums exceed
150% of the premiums paid by Saratoga and Saratoga National Bank in respect of
1998 for such insurance, as previously disclosed to SJNB. If the premiums for
such insurance would at any time exceed 150% of the premiums paid by Saratoga
and Saratoga National Bank in respect of 1998 for such insurance, then SJNB will
maintain policies of insurance which, in SJNB's good faith determination,
provide the maximum coverage available at an annual premium equal to 150% of the
premiums paid by Saratoga and Saratoga National Bank in respect of 1998 for such
insurance. Notwithstanding the indemnification rights described above, the
officers and directors of Saratoga and Saratoga National Bank will retain all
indemnification rights and benefits they have under agreements in effect on the
date of the merger agreement. SJNB has agreed to honor those agreements with
respect to any acts or omissions by such officers or directors occurring prior
to the closing of the merger. See "Comparison of Shareholder Rights--
Indemnification of Directors and Executive Officers."
Representations and Warranties
The merger agreement contains customary mutual representations by each of
SJNB and Saratoga relating to, among other things (1) ownership by Saratoga of
SJNB's common stock and each party's ownership of capital stock held in a trust
account or in respect of a debt previously contracted, (2) corporate
organization and existence, (3) capitalization, (4) corporate power and
authority to enter into, and due authorization, execution, delivery, performance
and enforceability of, the merger agreement, (5) required governmental and third
party consents and approvals and that neither the merger agreement nor the
transactions contemplated thereby violate either party's organizational
documents, applicable law and certain material agreements, (6) financial
statements, (7) Securities and Exchange Commission
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documents, (8) the accuracy of the information provided by each of SJNB and
Saratoga for inclusion in this proxy statement/prospectus, (9) compliance with
applicable laws, (10) filing of tax returns, payment of taxes and related
matters, (11) certain material contracts, (12) employee benefit plans and
agreements, (13) the absence of material environmental liability, (14) title to
properties, (15) transactions with affiliates, (16) the absence of material
litigation, (17) subsidiaries, (18) certain bank regulatory matters, (19) the
absence of certain material changes or events since December 31, 1998, (20) the
absence of undisclosed liabilities, (21) timely filing of all material
regulatory reports, (22) brokers' and finders' fees, (23) intellectual property,
(24) confirmation that the merger will qualify for pooling of interests
treatment for accounting purposes, (25) compliance with the Community
Reinvestment Act, (26) Year 2000 readiness, (27) insurance, (28) validity and
enforceability of all loans, leases, other extensions of credit, commitments or
other interest-bearing assets and investments of Saratoga, (29) absence of high
risk, highly interest sensitive derivative contracts (except as disclosed), and
(30) absence of collective bargaining agreements.
In the merger agreement, Saratoga also makes representations and warranties
to SJNB concerning (1) receipt of a fairness opinion from its financial advisor,
(2) absence of restrictions on investments, and (3) absence of brokered deposits
(except as disclosed).
The representations and warranties of SJNB and Saratoga terminate as of the
effective time of the merger.
Conditions to the Completion of the Merger
The merger will occur only if all required government approvals are in
effect or have been obtained (without the imposition of any conditions or
requirements as determined by the board of directors of SJNB or Saratoga in its
reasonable judgment which, in general, materially and adversely affect the
economic and business benefits to the parties of the merger) (see "--Required
Regulatory Approvals"), the merger agreement is approved by the majority of the
outstanding shares of Saratoga common stock and SJNB common stock, and the
representations and warranties of the parties are true and correct in all
material respects, and all covenants complied with in all material respects, on
and as of the effective date.
Additionally, each party's obligation to complete the merger is subject to
various conditions which include, in addition to the other customary closing
conditions, the following:
. both SJNB and Saratoga shareholders shall have approved the merger
agreement;
. all necessary governmental approvals for the merger shall been
obtained and any waiting periods required by any governmental entity
with respect to the merger shall have expired;
. there shall not be any injunction or restraining order preventing the
completion of the merger or the transactions contemplated by the
merger agreement, stock option agreement and agreement of merger, nor
shall the merger or the transactions contemplated by the merger
agreement, stock option agreement and agreement of merger be illegal
under any applicable law;
. the shares of SJNB common stock to be issued to the shareholders of
Saratoga in the merger shall have been approved for listing upon
official notice of issuance on the Nasdaq National Market;
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. no stop orders suspending the effectiveness of the registration
statement filed by SJNB to register the shares to be issued to
Saratoga shareholders shall have been issued or proceedings for that
purpose initiated or threatened by the Securities and Exchange
Commission;
. receipt of a reasonably satisfactory opinion of independent public
accountants to SJNB to the effect that the merger should qualify for
"pooling of interests" accounting treatment; and
. the number of shares held by persons electing to exercise their
dissenters' rights of appraisal shall not exceed 9% of the number of
outstanding shares of SJNB common stock and Saratoga common stock.
In addition, each party's obligation to complete the merger is subject to
the following additional conditions:
. the representations and warranties of the other party set forth in the
merger agreement shall be true and correct in all material respects as
of the date of the merger agreement (except to the extent such
representations and warranties speak as of an earlier date) and as of
the closing date;
. the other party shall have performed in all material respects all of
its obligations under the merger agreement;
. such party shall have received a copy of the resolution or resolutions
duly approved by the board of directors (or a duly authorized
committee thereof) of the other party and of the holders of the common
stock of the other party, authorizing the execution, delivery and
performance by such party of the merger agreement;
. such party shall have received an opinion of its counsel or
independent public accountants, dated the closing date, that the
merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and each party will be a party to that reorganization
within the meaning of Section 368(b) of the Internal Revenue Code;
. in approving the merger agreement, no governmental authority shall
have imposed a burdensome condition or restriction upon SJNB, Saratoga
or their subsidiaries or any affiliate which would reasonably be
expected to (1) have a material adverse effect after the effective
time of the merger on the present or prospective consolidated
financial condition, business, operating results or prospects of SJNB
or the surviving corporation, including, without limitation, any
requirement to dispose of any material assets or businesses or
restrict in any significant way any material operations or activities,
(2) prevent SJNB or its subsidiaries from realizing all or a
substantial portion of the economic benefits of the transactions
contemplated by the merger agreement, or (3) materially impair SJNB's
ability to exercise and enforce its rights under the merger agreement,
stock option agreement and agreement of merger;
. each party's accountants shall have provided to the other party a
"comfort" letter not more than two business days prior to the
effective date of this proxy statement/prospectus with respect to
certain financial information regarding such party and a "comfort"
letter
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with respect to such party's financial statements for the period
ending not more than five business days prior to the closing date;
. no material adverse effect upon either party shall have occurred since
December 31, 1998 and neither party shall be a party to or, so far as
such party is aware, threatened with, and to such party's knowledge
there is no reasonable basis for, any legal action or other proceeding
before any court, any arbitrator of any kind or any government agency,
which, in the reasonable judgment of the other party, could have a
material adverse effect upon such party, and the other party shall
have received a certificate from such party to such effect; and
. each party shall have received from the other party such certificates
and other closing documents as counsel for such party shall reasonably
request.
In addition, SJNB's obligation to complete the merger is subject to the
following additional condition, which may be waived by SJNB:
. all conditions, including the receipt of required regulatory
approvals, required to be satisfied prior to the completion of the
merger of Saratoga National Bank with and into San Jose National Bank
shall have been satisfied and such merger shall be able to be
consummated as soon as practicable following the effective time.
In addition, Saratoga's obligation to complete the merger is subject to the
following additional conditions, any of which may be waived by Saratoga:
. SJNB shall have amended its bylaws or taken any other action necessary
to increase the number of authorized directors on its board of
directors to permit the appointment of the five Saratoga designees at
least five business days prior to the closing date;
. Saratoga shall have received a written "bring-down" opinion of First
Security Van Kasper, dated as of the date of this proxy
statement/prospectus; and
. Saratoga shall have received from its independent accountants a
supplemental tax opinion with respect to the recognition of gain or
loss, the holding period and tax basis relating to the exchange of
shares of Saratoga common stock for shares of SJNB common stock.
Termination of the Merger Agreement
The merger agreement may be terminated at any time before the effective
time of the merger. If the merger agreement is terminated, the merger will not
occur. The merger agreement may be terminated by action taken or authorized by
the board of directors of the terminating party or parties whether before or
after the approval of the merger agreement by the shareholders of SJNB or
Saratoga:
. by mutual consent of SJNB and Saratoga in a written instrument,
. by either party (1) upon written notice to the other party if any bank
regulator shall have issued an order denying approval of the merger
and the other material aspects of the transactions contemplated by the
merger agreement or if any governmental entity with authority to do so
shall have issued a final permanent order enjoining or otherwise
prohibiting the completion of the merger in accordance with the merger
agreement, and
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the time for appeal or petition for reconsideration of any such order
shall have expired without such appeal or petition being granted, or
(2) if any governmental entity with authority to do so shall have
issued an order in connection with the transactions under the merger
agreement imposing a burdensome condition on SJNB or the surviving
corporation, and the time for appeal or petition for reconsideration
of any such order shall have expired without such appeal or petition
being granted,
. by either party, if the merger is not completed on or before March 31,
2000, except that such termination date may be extended by up to 60
days (1) at the election of the non-breaching party, if the merger
shall not have been consummated due to the volitional breach of any
material representation, warranty or covenant in the merger agreement
by SJNB or Saratoga, or (2) at the election of the party who has
requested a required regulatory approval, in the event that the merger
shall not have been consummated because such required regulatory
approval has not been received,
. by SJNB, in the event of a breach by Saratoga of any representation,
warranty or covenant contained in the merger agreement, which breach
(1) either is not cured within 45 days after the giving of written
notice to Saratoga, or is of a nature which cannot be cured prior to
the closing, and (2) would entitle the non-breaching party to elect
not to complete the merger in accordance with the merger agreement
under the provisions described under "--Conditions to the Completion
of the Merger;" provided, however, that SJNB may immediately terminate
the merger agreement upon notice to Saratoga in the event that
Saratoga shall breach the covenant described under "--Additional
Agreements--No Solicitations,"
. by Saratoga, in the event of a breach by SJNB of any representation,
warranty or covenant contained in the merger agreement, which breach
(1) either is not cured within 45 days after the giving of written
notice to Saratoga, or is of a nature which cannot be cured prior to
the closing, and (2) would entitle the non-breaching party to elect
not to complete the merger in accordance with the merger agreement
under the provisions described under "--Conditions to the Completion
of the Merger;" provided that Saratoga can terminate the merger
agreement within ten business days after notice to SJNB in the event
SJNB breaches its covenant regarding a third party takeover proposal
and such breach is not cured within the ten business day period, and
upon such termination SJNB shall pay to Saratoga the termination fee
described under "--Fees and Expenses,"
. by SJNB (1) if a third party makes a written offer to SJNB regarding a
takeover proposal of SJNB in which such third party indicates that
they would not be willing to consummate the takeover proposal unless
the merger agreement is terminated, and (2) the SJNB board of
directors determines in good faith, based upon the advice of outside
counsel, that failing to accept such takeover proposal would
constitute a breach of fiduciary duty by SJNB's board of directors,
provided that upon such termination SJNB shall pay to Saratoga the
termination fee described under "--Fees and Expenses,"
. by SJNB or Saratoga, if the board of directors of the other party (1)
fails to recommend approval of the merger agreement by its
shareholders, (2) amends or modifies such recommendation in a manner
materially adverse to the other party, or (3) withdraws such
recommendation to its shareholders,
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. by either party (1) if the approval of the merger agreement by the
shareholders of the other party is not obtained, (2) the required
fairness opinion is not delivered by First Security Van Kasper, (3)
the "pooling letters" are not delivered by the parties' respective
accountants regarding the availability of pooling accounting treatment
to the merger or (4) the aggregate number of shares held by
shareholders of SJNB and Saratoga exercising dissenters' rights of
appraisal exceeds 9%,
. by Saratoga, by a vote of a majority of the members of its entire
board during the two business day period beginning on the first
business day after the "determination date," if the average SJNB
closing price (calculated over the 20 consecutive trading days ending
on the determination date) is less than $29.3590. The determination
date is the last day of the 20 trading day period ending five business
days prior to the closing date. However, during the five business day
period beginning on the day after receipt of notice of election by
Saratoga to terminate under this provision, SJNB may elect to adjust
the exchange ratio of 0.70 to a number equal to the quotient of (1)
29.3590 times 0.70, divided by (2) the average SJNB closing price. If
SJNB elects to so adjust the exchange ratio, then the right of
Saratoga to terminate the merger under such provision will end, and
. by either party, if (1) there has been a change, or any event
involving a prospective change, in the business, financial condition,
results of operations or prospects of the other party or its
subsidiaries that has had, or would be reasonably likely to have, a
material adverse effect on the other party, and (2) if such change or
event is not capable of being cured or such change or event has not
been cured within 45 days of giving written notice to the other party.
Fees and Expenses
Termination Fees. Saratoga is required to pay SJNB a $1.3 million fee
(minus actual expenses paid, if any, by Saratoga to SJNB as described below) if
(1) SJNB terminates the merger for the following reasons and (2) an acquisition
event has occurred within 18 months after the termination where 20% or more of
shares of Saratoga common stock or the consolidated assets of Saratoga and
Saratoga National Bank shall have been transferred or disposed of through tender
offer, sale or merger:
. Saratoga or Saratoga National Bank breaches, in any material respect,
any representation, warranty or covenant in the merger agreement,
which breach is not cured within 45 days or is not capable of being
cured and for which SJNB is entitled to elect not to consummate the
merger;
. the Saratoga board fails to recommend adoption of the merger
agreement, amends or modifies the recommendation in a materially
adverse manner, withdraws its recommendation, or approves or
recommends a takeover proposal (whether or not the board is required
by its fiduciary duty to accept such takeover proposal); or
. Saratoga, or any of its subsidiaries, affiliates or agents, solicits,
initiates, facilitates or enters into discussion or negotiation
relating to, any takeover proposal.
SJNB is required to pay Saratoga a $1.3 million fee if the merger is
terminated for the following reasons:
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. by Saratoga, if SJNB accepts any offer or enters into any agreement
with any third party regarding a takeover proposal (where Saratoga is
not included) and such condition is not cured within 10 business days;
or
. by SJNB, if SJNB accepts a takeover proposal from a third party which
requires the termination of the merger agreement and failing to accept
the proposal would constitute a breach of fiduciary duty.
Under the merger agreement, the amount of gain realized by SJNB under the
Stock Option Agreement, when added to the termination fees described above (if
any) received by SJNB, cannot exceed in the aggregate $2,200,000. SJNB will
promptly return to Saratoga by wire transfer any such amount in excess of
$2,200,000. See "--Stock Option Agreement."
General Expenses. Other than in the situations described above and in the
following paragraphs, whether or not the merger is completed in accordance with
the merger agreement, all costs and expenses incurred in connection with the
merger agreement and the transactions covered by the merger agreement will be
paid by the party incurring those expenses.
If the merger agreement is terminated due to either party's willful breach
of a representation, warranty or covenant, the breaching party will bear all
costs and expenses incurred by the non-breaching party.
Reimbursement Expenses. If the merger agreement is terminated because
Deloitte & Touche LLP fails to deliver a "poolability letter" at or prior to the
closing, or a material adverse change or prospective change has occurred in the
business, financial condition, results of operations or prospects of Saratoga or
Saratoga National Bank and such change has not been cured within a specified
time, Saratoga shall pay promptly all costs and expenses incurred by SJNB of up
to $500,000.
If the merger agreement is terminated because KPMG LLP fails to deliver a
pooling letter at or prior to the closing or a material adverse change or
prospective change has occurred in the business, financial condition, results of
operations or prospects of SJNB or its subsidiaries and such change has not been
cured within a specified time, SJNB shall pay promptly all costs and expenses
(excluding fees and expenses of First Security Van Kasper) incurred by Saratoga
up to $500,000.
Amendment
The merger agreement may be amended by the parties at any time before or
after approval of the merger agreement by the shareholders of SJNB and Saratoga.
However, after the approval by the shareholders of SJNB and Saratoga, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. The merger agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
Extension; Waiver
At any time prior to the closing of the merger, the parties, by action
taken or authorized by their respective board of directors, may, to the extent
legally allowed, (1) extend the time for the performance of any of the
obligations or other acts of the other parties, (2) waive any inaccuracies in
the representations and warranties contained in the merger agreement or in any
document delivered pursuant to it, and (3) waive compliance with any of the
agreements or conditions contained in the merger agreement. To "waive" means to
give up rights.
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Any agreement on the part of a party to the merger agreement to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party.
Management and Operations Following the Merger
Upon the consummation of the merger, the separate corporate existence of
Saratoga will cease and Saratoga will be merged with and into SJNB. It is also
anticipated that Saratoga National Bank will be merged into San Jose National
Bank immediately after the merger. All rights, franchises and interests of
Saratoga will be assumed by and vested in SJNB. The articles of incorporation
and bylaws of SJNB in effect immediately prior to the effective date shall be
and continue to be the articles of incorporation and bylaws of SJNB following
the merger. The directors and executive officers of SJNB prior to the effective
date will be the directors and executive officers of SJNB following the merger
except that (1) five Saratoga directors will be added to the boards of directors
of each of SJNB and San Jose National Bank and (2) Richard L. Mount, Chairman,
President and Chief Executive Officer of Saratoga, will be appointed to serve on
the executive management committee of SJNB.
Required Regulatory Approvals
The merger must be approved by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") pursuant to the provisions of the
BHC Act or be exempt under the BHC Act. In conducting a review of any
application for a merger, the Federal Reserve Board is required to consider the
financial and managerial resources and future prospects of the companies and the
banks concerned and the convenience and needs of the community to be served. The
Federal Reserve Board has the authority to deny an application if it concludes
that the requirements of the Community Reinvestment Act of 1977, as amended, are
not satisfied.
SJNB believes that the merger is exempt from the approval requirements of
the BHC Act pursuant to an exemption set forth in Regulation Y of the Federal
Reserve Board. SJNB expects to file a notice with the Federal Reserve Board to
obtain confirmation of the exemption on October __, 1999. Receipt of
confirmation of an exemption under the BHC Act or final regulatory approval by
the Federal Reserve Board is a precondition to the consummation of the merger.
See "--Conditions to the Completion of the Merger." SJNB expects the Federal
Reserve Board will confirm the above mentioned exemption before the end of
November 1999.
A transaction approved by the Federal Reserve Board may not be consummated
for at least 30 days (in some circumstances a 15-day waiting period is allowed)
after such approval. During such period, the Department of Justice may commence
a legal action challenging the transaction under federal antitrust laws. If the
Department of Justice does not commence a legal action during such 30-day period
(in some circumstances a 15-day waiting period is allowed), it may not
thereafter challenge the transaction except in an action commenced under the
antimonopoly provisions of Section 2 of the Sherman Antitrust Act.
The BHC Act provides for the publication of notice and the opportunity for
administrative hearings relating to an application for approval under the BHC
Act and authorizes the Federal Reserve Board to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could substantially delay the regulatory approval required for
consummation of the merger.
The merger of San Jose National Bank and Saratoga National Bank (the "Bank
Merger") is subject to the prior approval of the Office of the Comptroller of
the Currency under Section 18(c) of the
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Federal Deposit Insurance Act, as amended (the "Bank Merger Act") and Section
215a of the National Bank Act, as amended. SJNB expects to file an application
for approval of the Bank Merger with the Comptroller of the Currency under the
Bank Merger Act on October __, 1999.
The Bank Merger Act requires the Office of the Comptroller of the Currency,
when approving a transaction such as the Bank Merger, to take into consideration
the financial and managerial resources (including the competence, experience and
integrity of the officers, directors and principal shareholders) and future
prospects of the existing and proposed institutions and the convenience and
needs of the communities to be served. In considering financial resources and
future prospects, the Office of the Comptroller of the Currency will, among
other things, evaluate the adequacy of the capital levels of the parties to a
proposed transaction and of the resulting institutions.
The Bank Merger Act prohibits the Office of the Comptroller of the Currency
from approving a merger if it would result in a monopoly or be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or if its effect in any
section of the country would be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other manner result in a restraint
of trade, unless the Office of the Comptroller of the Currency finds that the
anti-competitive effects of the merger are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served. In addition, under the Community
Reinvestment Act of 1977, as amended, the Office of the Comptroller of the
Currency must take into account the record of performance of the existing
institutions in meeting the credit needs of the entire community, including low-
and moderate-income neighborhoods, served by such institutions.
The Office of the Comptroller of the Currency will furnish notice and a
copy of the application for approval of the merger to the Federal Reserve Board,
the Federal Deposit Insurance Corporation and the United States Department of
Justice. These agencies have 30 days to submit their views and recommendations
to the Office of the Comptroller of the Currency. The Bank Merger Act also
provides for the publication of notice and public comment on applications filed
with the Office of the Comptroller of the Currency and authorizes such agency to
permit interested parties to intervene in the proceedings. If an interested
party is permitted to intervene, the intervention could delay the regulatory
approvals required for completion of the merger.
Saratoga and SJNB believe that neither the merger nor the merger of
Saratoga National Bank into San Jose National Bank will raise substantial
antitrust or other significant regulatory concerns and that they will be able to
obtain all requisite regulatory approvals on a timely basis without the
imposition of any condition that would have a material adverse effect.
Under the merger agreement, prior to the merger, all governmental approvals
required for the merger shall be in effect, and all conditions or requirements
prescribed by law or any governmental approval shall be satisfied. However, no
governmental approval shall be deemed to have been received if it imposes any
condition or requirement or disapproves any aspect of any applications which, in
the reasonable opinion of the board of directors of SJNB or Saratoga materially
and adversely affects the anticipated economic and business benefits to SJNB or
Saratoga of the transactions contemplated by the merger agreement as to render
consummation of such transaction inadvisable.
Based on current precedents, the respective managements of SJNB and
Saratoga believe that the merger and other exemptions, consents and approvals
will be obtained from the Federal Reserve Board and the Office of the
Comptroller of the Currency and the merger will not be subject to challenge by
the Department of Justice under federal antitrust laws. However, no assurance
can be provided that the
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Federal Reserve Board, the Office of the Comptroller of the Currency or the
Department of Justice will concur in this assessment or that, in connection with
the grant of any exemption or approval by the Federal Reserve Board or the
Office of the Comptroller of the Currency, any exemption or action taken, or
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the merger or transactions contemplated thereby, will not contain
conditions or requirements which so materially and adversely affect the
anticipated economic and business benefits of the merger as further described in
the merger agreement. If such a material and adverse condition or requirement is
imposed in connection with a governmental approval, a condition to SJNB's
obligation to consummate the merger will be deemed not to have occurred and SJNB
will have the right to terminate the merger agreement.
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Stock Option Agreement
The following is a summary of the material provisions of the Stock Option
Agreement entered into between SJNB and Saratoga following the execution of the
merger agreement (the "Stock Option Agreement"), which is attached as Annex B to
this proxy statement/prospectus and is incorporated herein by reference. This
summary is qualified in its entirety by reference to the Stock Option Agreement.
Certain capitalized terms which are used but not defined herein have the
meanings assigned thereto in the Stock Option Agreement.
The Stock Option Agreement could have the effect of discouraging persons
who now or prior to the effective date might be interested in acquiring all or a
significant interest in Saratoga from considering or proposing such an
acquisition, even if such persons were prepared to propose greater consideration
per share for Saratoga common stock than the consideration per share represented
by the pricing structure in the merger agreement. In addition, the merger
agreement provides that Saratoga and Saratoga National Bank will not, directly
or indirectly, solicit or encourage, or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any takeover proposal. See "--Conduct of Business Pending
the Merger."
Shares Subject to the Option. The Stock Option Agreement provides for the
purchase by SJNB of up to 378,561 shares, subject to certain adjustments, of
Saratoga common stock (the "Option Shares") at an exercise price, subject to
certain adjustments, of $19.21 per share, payable in cash (the "Stock Option").
The Option Shares, if issued pursuant to the Stock Option Agreement, would
represent approximately 19.9% of the issued and outstanding shares (excluding
treasury shares) of Saratoga's common stock after giving effect to the issuance
of any shares pursuant to an exercise of the Stock Option and in no event will
the number of Option Shares exceed 19.9% of Saratoga's issued and outstanding
common stock.
Adjustment of Shares Subject to the Option and Option Exercise Price. The
number of shares of Saratoga common stock subject to the Stock Option will be
increased to the extent that Saratoga issues additional shares of common stock
(otherwise than pursuant to an exercise of the Stock Option) such that the
number of Option Shares will continue to equal 19.9% of the then issued and
outstanding shares of Saratoga common stock without giving effect to the
issuance of shares pursuant to an exercise of the Stock Option. In the event
that Saratoga issues or agrees to issue any shares of common stock (other than
as permitted under the merger agreement) at a price less than $19.21 per share
(or lower than an adjusted price per share), the exercise price will be equal to
such lesser price. The number of shares of Saratoga common stock subject to the
Stock Option, and the applicable exercise price per Option Share, also will be
appropriately adjusted in the event of any stock dividend, split-up, merger,
recapitalization, combination, subdivision, conversion, exchange of shares,
distribution on or in respect of the Saratoga common stock that would be
prohibited under the terms of the merger agreement, or similar event relating to
Saratoga.
Exercise of the Option. SJNB or any other holder or holders of the Stock
Option (collectively, the "Holder") may exercise the Stock Option, in whole or
in part, subject to regulatory approval, at any time within 30 days (subject to
extension as provided in the Stock Option Agreement) after both an "Initial
Triggering Event" and a "Subsequent Triggering Event" (as such terms are
hereinafter defined) occur prior to termination of the Stock Option.
"Initial Triggering Event" is defined as the occurrence of any of the
following events:
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(1) Saratoga or Saratoga National Bank or any Saratoga Affiliate (as
defined below), without SJNB's prior written consent, shall enter into
an agreement with any person (other than SJNB or any subsidiary of
SJNB to engage in, or the Saratoga board of directors recommends that
the holders of Saratoga common stock approve or accept (other than as
contemplated by the merger agreement), (A) a merger, consolidation or
similar transaction involving Saratoga or Saratoga National Bank, (B)
a purchase, lease, or other acquisition representing 15% or more of
the consolidated assets of Saratoga and Saratoga National Bank, or (C)
a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Saratoga or Saratoga National Bank
(each of the transactions described in the preceding clauses (A), (B)
and (C) being referred to in this paragraph and in the Stock Option
Agreement as an "Acquisition Transaction");
(2) Saratoga or Saratoga National Bank or any Saratoga Affiliate, without
having received SJNB's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to
authorize, recommend or propose, to engage in an Acquisition
Transaction with any person other than SJNB or a SJNB Subsidiary, or
the Saratoga board or directors shall have publicly withdrawn or
modified, or publicly announced its intent to withdraw or modify, in
any manner adverse to SJNB, its recommendation that the holders of
Saratoga common stock approve the transactions contemplated by the
merger agreement;
(3) any person (other than SJNB, any SJNB Subsidiary or Saratoga National
Bank acting in a fiduciary capacity) shall acquire beneficial
ownership or the right to acquire beneficial ownership of 10% or more
of the outstanding shares of Saratoga common stock;
(4) any person (other than SJNB or any SJNB Subsidiary) shall make a bona
fide proposal to Saratoga or its shareholders by public announcement
or written communication that is or becomes subject to public
disclosure to engage in an Acquisition Transaction;
(5) a third party shall make a proposal to Saratoga or its shareholders to
engage in an Acquisition Transaction, after which Saratoga shall have
breached any covenant or obligation contained in the merger agreement,
which breach would entitle SJNB to terminate the merger agreement, if
such breach is not cured prior to the date that SJNB sends notice of
its exercise of the Stock Option to Saratoga; or
(6) any person (other than SJNB or any SJNB Subsidiary), other than in
connection with a transaction to which SJNB has given its prior
written consent, shall file an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority,
which application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction.
"Saratoga Affiliate" is defined as any person who or which, together with
all affiliates and associates of such person, is the beneficial owner of 5% or
more of the shares of Saratoga common stock then outstanding. "Saratoga
Affiliate" does not include Saratoga, Saratoga National Bank, any employee
benefit plan of Saratoga or Saratoga National Bank, or any entity holding shares
of Saratoga common stock for or pursuant to the terms of any such plan.
"Subsequent Triggering Event" is defined as either (A) the acquisition by
any person (other than SJNB or any SJNB Subsidiary) of beneficial ownership of
20% or more of the then outstanding Saratoga
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common stock, or (B) the occurrence of the Initial Triggering Event described in
clause (1) above, except that the percentage referred to in subclause (C) shall
be 20%.
Termination of the Option. The Stock Option Agreement terminates (1) at the
effective time of the merger, (2) upon termination of the merger agreement in
accordance with the terms thereof if such termination occurs prior to the
occurrence of an Initial Triggering Event (except a termination by SJNB pursuant
to the merger agreement, resulting from a volitional breach by Saratoga of a
representation, warranty or covenant therein), (3) 12 months after termination
of the merger agreement following the occurrence of an Initial Triggering Event
unless the merger agreement is terminated by SJNB as a result of a volitional
breach by Saratoga of a representation, warranty or covenant therein (provided
that if an Initial Triggering Event occurs after or continues beyond such
termination and prior to the passage of such 12-month period, the Stock Option
will terminate 12 months from the expiration of the last Initial Triggering
Event, but in no event more than 18 months after such termination) or (4) August
27, 2002.
Within 30 days (subject to extension as provided in the Stock Option
Agreement) after a Subsequent Triggering Event and prior to the termination of
the Stock Option, SJNB (on behalf of itself or any subsequent Holder) may demand
that the Stock Option and the related Option Shares be registered under the
Securities Act. Upon such demand, Saratoga must promptly prepare, file and keep
current a shelf registration, subject to certain exceptions. SJNB is entitled to
two such registrations so long as the second request is within 18 months of the
first request.
Notwithstanding any other provision of the Stock Option Agreement, if a
Holder, the owner of the Option Shares, or certain related parties offer or
propose to engage in an Acquisition Transaction (other than as contemplated by
the merger agreement) without the prior written consent of Saratoga, then (1) in
the case of a Holder or related party thereof, the Stock Option held by it will
immediately terminate and be of no further force or effect and (2) in the case
of an Owner or any related party thereof, the Option Shares held by it will be
repurchasable by Saratoga immediately at the then applicable Stock Option
exercise price.
If the Stock Option terminates under certain circumstances as described in
the Stock Option Agreement, SJNB (or any subsequent Holder) may have as many as
30 days subsequent to such termination to exercise the Stock Option (or
Substitute Option (as hereinafter defined)) in connection with the resale of
Saratoga common stock or other securities pursuant to a registration statement
as provided in the Stock Option Agreement.
Repurchase at Option of SJNB. Within 30 days (subject to extension as
provided in the Stock Option Agreement) after a Subsequent Triggering Event and
prior to termination of the Stock Option, subject to regulatory approval,
Saratoga is required (1) at the request of the Holder, to repurchase the Stock
Option from the Holder at a price (the "Option Repurchase Price") equal to the
amount by which (x) the "market/offer price" (as hereinafter defined) exceeds
(y) the then applicable Stock Option exercise price, multiplied by the number of
shares for which the Stock Option may then be exercised; and (2) at the request
of the Owner, to repurchase such number of Option Shares from the Owner as the
Owner designates at a price per share (the "Option Share Repurchase Price")
equal to the "market/offer price" multiplied by the number of Option Shares so
designated. "Market/offer price" means the highest of (A) the highest price per
share of Saratoga common stock at which a tender offer or exchange offer
therefor has been made, (B) the price per share of Saratoga common stock to be
paid by any third party pursuant to an agreement with Saratoga, (C) the highest
closing price per share for shares of Saratoga common stock quoted on the
principal trading market for the shares within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of the
Stock Option or the Owner gives notice of the required repurchase of the Option
Shares, as the case may be, or (D) in the
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event of a sale representing 15% or more of Saratoga's consolidated assets, the
sum of the price paid in such sale for such assets and the current market value
of the remaining assets of Saratoga as determined by a nationally recognized
investment banking firm, selected by the Holder or the Owner, as the case may
be, divided by the number of shares of Saratoga common stock outstanding at the
time of such sale.
Substitute Option. In the event that, prior to termination of the Stock
Option, Saratoga enters into an agreement (1) to consolidate with or merge into
any entity other than SJNB or any SJNB Subsidiary and shall not be the
continuing or surviving corporation of such consolidation or merger, (2) to
permit any entity other than SJNB or any SJNB Subsidiary to merge into Saratoga
with Saratoga as the continuing or surviving corporation, but in connection
therewith the then outstanding shares of Saratoga common stock are changed into
or exchanged for stock or other securities of any other person or cash or any
other property, or the then outstanding shares of Saratoga common stock shall
after such merger represent less than 50% of the outstanding shares and share
equivalents of the merged company, or (3) to sell or transfer all or
substantially all of its assets to any entity other than to SJNB or any SJNB
Subsidiary, then the Stock Option will be converted into, or exchanged for, an
option (a "Substitute Option") to purchase shares of common stock of, at the
Holder's option, either the continuing or surviving corporation of a merger or a
consolidation, the transferee of all or substantially all of Saratoga's assets,
or the person controlling such continuing or surviving corporation or
transferee. The number of shares subject to the Substitute Option and the
exercise price per share will be determined in accordance with a formula in the
Stock Option Agreement. To the extent possible, the Substitute Option will
contain other terms and conditions that are the same as those in the Stock
Option Agreement.
Repurchase of Substitute Option or Shares. Subject to regulatory approval,
the issuer of a Substitute Option will be required to repurchase such option at
the request of the holder thereof and to repurchase any shares of such issuer's
common stock ("Substitute Common Stock") issued upon exercise of a Substitute
Option ("Substitute Shares") at the request of the owner thereof. The repurchase
price for a Substitute Option will equal the amount by which (A) the "Highest
Closing Price" (as hereinafter defined) exceeds (B) the exercise price of the
Substitute Option, multiplied by the number of shares of Substitute Shares for
which the Substitute Option may then be exercised. The repurchase price for any
Substitute Shares that have been issued from a prior exercise of the Substitute
Option will equal Highest Closing Price multiplied by the number of Substitute
Shares. As used herein, "Highest Closing Price" means the highest closing price
for shares of Substitute Common Stock within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of the
Substitute Option or the owner gives notice of the required repurchase of
Substitute Shares, as the case may be.
Assignability. Neither SJNB nor Saratoga may assign any of its respective
rights and obligations under the Stock Option Agreement or the Stock Option to
any other person without the other party's written consent, except that if a
Subsequent Triggering Event occurs prior to termination of the Stock Option,
then within 30 days thereafter (subject to extension as provided in the Stock
Option Agreement), SJNB, SJNB may assign in whole or in part its rights and
obligations thereunder. In addition, until 15 days after the Federal Reserve
Board approves an application by SJNB to acquire the Option Shares, SJNB may not
assign its rights under the Stock Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Saratoga, (iii) an
assignment to a single party for the purpose of conducting a widely dispersed
public distribution on SJNB's behalf, or (iv) any other manner approved by the
Federal Reserve Board provided that such assignment can be made in compliance
with applicable law.
Notice of Exercise. In the event SJNB (or any subsequent Holder) wishes to
exercise the Stock Option, it must send to Saratoga a written notice specifying
(1) the total number of shares it will purchase pursuant to such exercise and
(2) a place (subject to SJNB's reasonable approval), and a "closing date"
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not less than three nor more than 30 business days from the date of the exercise
notice. If the purchase and sale of the Stock Option cannot be consummated
because of an applicable judgment, decree, order, law or regulation, the period
of time referred to in this paragraph shall run from the date that the
restriction on consummation lapses. If prior notification to or approval of the
Federal Reserve Board is required, SJNB (or any subsequent Holder) must promptly
file the required notice or application. In such a case, the period of time
referred to in this paragraph will run from the date the notification period
expires or any necessary approval is granted. In no event shall the closing date
be more than 18 months after the date of the exercise notice.
The rights and obligations of SJNB under the Stock Option Agreement are
subject to receipt of any required regulatory approvals. Without the prior
approval of the Federal Reserve Board, SJNB may not acquire more than 5% of the
outstanding common stock of Saratoga. SJNB intends to file an application for
such approval as soon as practicable.
Certain Federal Income Tax Consequences
The following discussion summarizes the material United States federal
income tax consequences of the merger. The discussion does not address all
aspects of United States federal taxation that may be relevant to you, and it
may not be applicable to Saratoga shareholders who, for United States federal
income tax purposes, are nonresident alien individuals, foreign corporations,
foreign partnerships, foreign trusts or foreign estates, or who acquired their
Saratoga common stock pursuant to the exercise of Saratoga stock options or
otherwise as compensation. You should consult your own tax advisor as to the
particular tax consequences of the merger to you.
This discussion is based on the Internal Revenue Code of 1986, as amended,
regulations thereunder, current administrative rulings and practice, and
judicial precedent, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to you as
discussed in this proxy statement/prospectus. This discussion assumes that you
hold your Saratoga common stock as a capital asset within the meaning of section
1221 of the Internal Revenue Code.
SJNB is not required to complete the merger unless SJNB receives an opinion
of Pillsbury Madison & Sutro LLP, counsel to SJNB, based upon certain customary
assumptions and representations made by SJNB and Saratoga, and to the effect
that under currently applicable law for United States federal income tax
purposes:
. The merger will constitute a reorganization within the meaning of
section 368(a) of the Internal Revenue Code; and
. SJNB and Saratoga will each be a party to that reorganization within
the meaning of section 368(b) of the Internal Revenue Code.
Saratoga's obligation to complete the merger is conditioned upon Saratoga
receiving an opinion of Deloitte & Touche LLP, independent accountants to
Saratoga, or other accounting or law firm reasonably acceptable to SJNB, based
upon certain customary assumptions and representations made by SJNB and
Saratoga, and to the effect that under currently applicable law for United
States federal income tax purposes:
. The merger should constitute a reorganization within the meaning of
section 368(a) of the Internal Revenue Code;
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. SJNB and Saratoga should each be a party to that reorganization within
the meaning of section 368(b) of the Internal Revenue Code;
. except for any cash received in lieu of any fractional share, no gain
or loss should be recognized by the holders of Saratoga common stock
who receive SJNB common stock in exchange for the Saratoga common
stock which they hold;
. the holding period of the SJNB common stock exchanged for Saratoga
common stock should include the holding period of the Saratoga common
stock for which it is exchanged, assuming the shares of Saratoga
common stock are capital assets in the hands of the holder thereof at
the effective time; and
. the basis of the SJNB common stock received in the exchange should be
the same as the basis of the Saratoga common stock for which it was
exchanged, less any basis attributable to fractional shares for which
cash is received.
In the event Saratoga fails to receive the foregoing opinion from Deloitte
& Touche LLP or other accounting or law firm reasonably acceptable to SJNB, such
condition shall be deemed satisfied to the extent Saratoga shall have received
an opinion from Pillsbury Madison & Sutro LLP to the effect that, under
currently applicable law for United States federal income tax purposes, the
merger should constitute a reorganization within the meaning of section 368(a)
of the Internal Revenue Code and SJNB and Saratoga should each be a party to
that reorganization within the meaning of section 368(b) of the Internal Revenue
Code.
You will recognize no gain or loss if you receive solely SJNB common stock
in exchange for shares of Saratoga common stock you hold, except with respect to
cash received instead of fractional shares of SJNB common stock.
. The holding period of the shares of SJNB common stock you receive in
the merger (including any fractional share of SJNB common stock deemed
to be received by you, as described below), will include the holding
period of the shares of Saratoga common stock you exchange for the
shares of SJNB common stock; and
. The aggregate adjusted tax basis of the shares of SJNB common stock
you receive in the merger (including any fractional share of SJNB
common stock deemed to be received by you, as described below), will
be equal to the aggregate adjusted tax basis of the shares of Saratoga
common stock surrendered by you for the shares of SJNB common stock.
Each of Pillsbury Madison & Sutro LLP and Deloitte & Touche LLP has
indicated that it expects to be able to deliver its tax opinion. No ruling has
been or will be obtained from the Internal Revenue Service in connection with
the merger. Opinions of counsel are not binding on the Internal Revenue Service
or the courts.
Although not explicitly addressed in either the Pillsbury Madison & Sutro
LLP nor Deloitte & Touche LLP opinion, the following federal income tax
consequences will occur as a result of the merger being classified as a
reorganization within the meaning of section 368(a) of the Internal Revenue
Code. Neither SJNB nor Saratoga will recognize gain or loss solely as a result
of the merger. In addition, if you receive cash in the merger instead of a
fractional share of SJNB common stock, then you will be treated as if you
received the fractional share in the merger and then SJNB redeemed the
fractional share in exchange for the cash. You will generally be required to
recognize gain or loss equal to the difference
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between the amount of cash received and the portion of your adjusted tax basis
in the shares of SJNB common stock allocable to the fractional share.
The foregoing is a general discussion of the material United States federal
income tax consequences of the merger and is included for general information
only. The foregoing discussion does not take into account the particular facts
and circumstances of your status and attributes. As a result, the United States
federal income tax consequences addressed in the foregoing discussion may not
apply to you. In view of the individual nature of income tax consequences, you
are urged to consult your own tax advisor to determine the specific tax
consequences of the merger to you, including the application and effect of
United States federal, state, local and other tax laws and the possible effects
of changes in United States federal and other tax laws.
Accounting Treatment
For accounting and financial reporting purposes, the merger is intended to
be treated as a pooling of interests of Saratoga by SJNB under generally
accepted accounting principles. Under the pooling of interests accounting
method, SJNB will carry forward on its books the assets and liabilities of
Saratoga at their historical recorded values. The unaudited pro forma combined
financial information contained in this proxy statement/prospectus have been
prepared using the pooling of interests method of accounting to account for the
merger. See "Summary--Selected Historical and Pro Forma Financial Data" and
"Unaudited Pro Forma Condensed Combined Financial Information."
Trading Markets for Stock
The SJNB common stock is listed on the Nasdaq National Market. SJNB intends
to cause the shares of SJNB common stock to be issued in the merger and the
shares of SJNB common stock to be reserved for issuance upon the exercise of
existing Saratoga stock options to be approved for listing on the Nasdaq
National Market, subject to official notice of issuance, prior to the effective
date.
The Saratoga common stock is currently quoted on the OTC Bulletin Board. If
the merger is consummated, SJNB will take action to cause such shares to cease
to be quoted on the OTC Bulletin Board and public trading of such shares will
cease.
Resales of SJNB Common Stock
The SJNB common stock issued pursuant to the merger will be freely
transferable under the Securities Act, except for shares issued to any Saratoga
shareholder who may be deemed to be an "affiliate" of SJNB or Saratoga for
purposes of Rule 145 under the Securities Act. Each director and executive
officer of Saratoga is deemed to be such an affiliate. Each such director and
each other person deemed to be an affiliate has entered into an agreement with
SJNB providing that such person will not transfer any shares of SJNB common
stock received in the merger, except in compliance with the Securities Act and
applicable rules thereunder.
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DISSENTERS' RIGHTS OF APPRAISAL
Appraisal Rights of SJNB Shareholders
Dissenters' rights will be available to the shareholders of SJNB only if
the holders of five percent (5%) or more of SJNB common stock make a written
demand upon SJNB for the purchase of dissenting shares in accordance with
Chapter 13 of the California General Corporation Law ("Chapter 13"). If this
condition is satisfied and the merger is consummated, shareholders of SJNB who
dissent from the merger by complying with the procedures set forth in Chapter 13
would be entitled to receive an amount equal to the fair market value of their
shares as of August 27, 1999, the last day before the public announcement of the
merger. The high, low and closing sales prices for SJNB common stock on August
27, 1999 were $33.25, $33.125 and $33.25, respectively. A copy of Chapter 13 of
the California General Corporation Law is attached hereto as Annex D and should
be read for more complete information concerning dissenters' rights. The
required procedure set forth in Chapter 13 of the California General Corporation
Law must be followed exactly or any dissenters' rights may be lost. The
information set forth below is a general summary of dissenters' rights as they
apply to SJNB shareholders and is qualified in its entirety by reference to
Annex D.
In order to be entitled to exercise dissenters' rights, a shareholder of
SJNB must vote "AGAINST" the merger. Thus, any SJNB shareholder who wishes to
dissent and executes and returns a proxy in the accompanying form must specify
that his or her shares are to be voted "Against" the merger. If the shareholder
returns a proxy without voting instructions or with instructions to vote "For"
the merger, his or her shares will automatically be voted in favor of the merger
and the shareholder will lose any dissenters' rights. In addition, if the
shareholder abstains from voting his or her shares, the shareholder will lose
his or her dissenters' rights.
Furthermore, in order to preserve his or her dissenters' rights, an SJNB
shareholder must make a written demand upon SJNB for the purchase of dissenting
shares and payment to such shareholder of their fair market value, specifying
the number of shares held of record by such shareholder and a statement of what
the shareholder claims to be the fair market value of those shares as of August
27, 1999. Such demand must be addressed to SJNB Financial Corp., One North
Market Street, San Jose, California 95113; Attention: Corporate Secretary, and
must be received by SJNB not later than the date of SJNB's special meeting. A
vote "Against" the merger does not constitute such written demand.
If the holders of five percent (5%) or more of the outstanding shares of
SJNB common stock have submitted a written demand for SJNB to purchase their
shares, these demands are received by SJNB on or before the date of the Special
Meeting and the merger is approved by the shareholders, SJNB will have 10 days
after such approval to send to those shareholders who have voted against the
approval of the merger written notice of such approval accompanied by a copy of
Chapter 13, a statement of the price determined by SJNB to represent the fair
market value of the dissenting shares as of August 27, 1999, and a brief
description of the procedure to be followed if a shareholder desires to exercise
dissenters' rights. Within 30 days after the date on which the notice of the
approval of the merger is mailed, the dissenting shareholder must surrender to
SJNB, at the office designated in the notice of approval, the certificates
representing the dissenting shares to be stamped or endorsed with a statement
that they are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed. Any shares of SJNB common stock
that are transferred prior to their submission for endorsement lose their status
as dissenting shares.
If SJNB and the dissenting shareholder agree that the surrendered shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder will be entitled to the agreed price with
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interest thereon at the legal rate on judgments from the date of the agreement.
Payment of the fair market value of the dissenting shares shall be made within
30 days after the amount thereof has been agreed upon or 30 days after any
statutory or contractual conditions to the merger have been satisfied, whichever
is later, subject to the surrender of the certificates therefor, unless provided
otherwise by agreement.
If SJNB denies that the shares surrendered are dissenting shares, or SJNB
and the dissenting shareholder fail to agree upon a fair market value of such
shares of SJNB common stock, then the dissenting shareholder of SJNB must,
within six months after the notice of approval is mailed, file a complaint at
the Superior Court of the proper county requesting the court to make such
determinations or intervene in any pending action brought by any other
dissenting shareholder. If the complaint is not filed or intervention in a
pending action is not made within the specified six-month period, the
dissenters' rights are lost. If the fair market value of the dissenting shares
is at issue, the court will determine, or will appoint one or more impartial
appraisers to determine, such fair market value.
A dissenting shareholder may not withdraw his or her dissent or demand for
payment unless SJNB consents to such withdrawal.
Appraisal Rights of Saratoga Shareholders
If the merger agreement is approved by the required vote of Saratoga
shareholders, and is not abandoned or terminated, shareholders of Saratoga who
did not vote "FOR" the merger may be entitled to certain dissenters' appraisal
rights under Chapter 13 of the California General Corporation Law.
The following discussion is not a complete statement of the California
General Corporation Law relating to dissenters' rights, and is qualified in its
entirety by reference to sections 1300 through 1312 of the California General
Corporation Law attached to this joint proxy statement/prospectus as Annex C and
incorporated herein by reference. This discussion and sections 1300 through 1312
of the California General Corporation Law should be reviewed carefully by any
Saratoga shareholder who wishes to exercise statutory dissenters' rights or
wishes to preserve the right to do so, since failure to comply with the required
procedures will result in the loss of such rights.
If the merger is consummated, those shareholders who elect to exercise
their dissenters' rights and who timely perfect such rights in accordance with
applicable law will be entitled to receive the "fair market value" of their
shares in cash. Pursuant to section 1300(a) of the California General
Corporation Law, such "fair market value" would be determined as of the day
before the first announcement of the terms of the merger, excluding any
appreciation or depreciation in consequence of the proposed merger, but adjusted
for any stock split, reverse stock split, or share dividend which becomes
effective thereafter. For example, assuming the "fair market value" of Saratoga
common stock on August 27, 1999, the day before the first announcement of the
terms of the merger, is the last reported sale price of the stock on the OTC
Bulletin Board, then a dissenting shareholder of Saratoga common stock may be
entitled to receive $19.00 per share.
Shares must satisfy each of the following requirements to qualify as
dissenting shares ("Dissenting Shares") under the California General Corporation
Law: (i) the shares must have been outstanding on the record date for the
special meeting (and, therefore, shares acquired after such record date upon
exercise of options to purchase common stock may not constitute Dissenting
Shares); (ii) the shares must not have been voted "FOR" approval of the merger
agreement and the transactions contemplated thereby, including the merger; and
(iii) the holder of such shares must submit certificates for endorsement as
described below. If a holder of Saratoga common stock votes "FOR" the approval
of the merger agreement, including the merger, and the transactions contemplated
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thereby, such holder will lose any dissenters' rights that may exist with
respect to the subject shares. Executing and returning a proxy with no voting
instructions indicated thereon will be counted as a vote "FOR" the merger
agreement, including the merger.
If the merger is approved at the Saratoga special meeting of shareholders,
Saratoga will, within ten days after such approval, mail to any shareholder who
may have a right to require Saratoga to purchase his or her shares for cash as a
result of making such a demand (as described below), a notice that the required
shareholder approval of the merger agreement and the transactions contemplated
thereby, including the merger, was obtained (the "Notice of Approval")
accompanied by a copy of sections 1300 through 1304 of the California General
Corporation Law. The Notice of Approval will set forth the price determined by
Saratoga to represent the "fair market value" of any Dissenting Shares (which
shall constitute an offer by Saratoga to purchase such Dissenting Shares at such
stated price) and will set forth a brief description of the procedures to be
followed by such shareholders who wish to exercise their dissenters' rights.
Within 30 days after the date on which the Notice of Approval was mailed:
(1) Saratoga or its transfer agent must receive the demand of the dissenting
shareholder which is required by law to contain a statement concerning the
number and class of shares held of record by such dissenting shareholder which
the dissenting shareholder demands that Saratoga purchase and a statement of
what such dissenting shareholder claims to be the "fair market value" of the
Dissenting Shares as of August 27, 1999, the day before the announcement of the
proposed merger (the statement of "fair market value" in such demand by the
dissenting shareholder constitutes an offer by the dissenting shareholder to
sell the Dissenting Shares at such price); and (2) the dissenting shareholder
must submit share certificate(s) representing the Dissenting Shares to Saratoga
at its principal office or at the office of the transfer agent for Saratoga. The
certificate(s) will be stamped or endorsed with a statement that the shares are
Dissenting Shares or will be exchanged for certificates of appropriate
denomination so stamped or endorsed. If the price contained in the Notice of
Approval is acceptable to the dissenting shareholder, the dissenting shareholder
may demand the same price. This would constitute an acceptance of the offer by
Saratoga to purchase the dissenting shareholder's stock at the price stated in
the Notice of Approval.
If Saratoga and a dissenting shareholder agree upon the price to be paid
for the Dissenting Shares, upon the dissenting shareholder's surrender of the
certificates representing the Dissenting Shares, such price (together with
interest thereon at the legal rate on judgments from the date of the agreement
between Saratoga and the dissenting shareholder) is required by law to be paid
to the dissenting shareholder within 30 days after such agreement or within 30
days after any statutory or contractual conditions to the merger are satisfied,
whichever is later, subject to the surrender of the certificates therefor.
If Saratoga and a dissenting shareholder disagree as to the price for such
Dissenting Shares or disagree as to whether such Dissenting Shares are entitled
to be classified as Dissenting Shares, such holder may, within six months after
the Notice of Approval is mailed, file a complaint in the Superior Court of the
proper county requesting the court to make such determination or, alternatively,
may intervene in any pending action brought by any other dissenting shareholder.
Costs of such an action (including compensation of appraisers) are required to
be assessed as the court considers equitable, but must be assessed against
Saratoga if the appraised value as determined by the court exceeds the price
offered by Saratoga.
The court action to determine the fair market value of the shares will be
suspended if litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing the merger. Furthermore, no
shareholder who has appraisal rights under Chapter 13 of the California General
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Corporation Law has any right to attack the validity of the merger or to have
the merger set aside or rescinded except in an action to test whether the number
of shares required to authorize or approve the merger has been legally voted in
favor of the merger.
Dissenting Shares may lose their status as such and the right to demand
payment will terminate if (1) the merger is abandoned (in which case Saratoga
shall pay on demand to any dissenting shareholder who has initiated proceedings
in good faith as provided under Chapter 13 of the California General Corporation
Law all necessary expenses and reasonable attorneys' fees incurred in such
proceedings); (2) the Dissenting Shares are transferred before being submitted
for endorsement or are surrendered for conversion into shares of another class;
(3) the dissenting shareholder and Saratoga do not agree upon the status of the
shares as Dissenting Shares or upon the price of such shares and the dissenting
shareholder fails to file suit against Saratoga or intervene in a pending action
within six months following the date on which the Notice of Approval was mailed
to the shareholder; or (4) the dissenting shareholder withdraws his or her
demand for the purchase of the Dissenting Shares with the consent of Saratoga.
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UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
June 30, 1999, combines the historical consolidated balance sheets of SJNB and
Saratoga as if the merger had been effective on June 30, 1999, after giving
effect to certain adjustments. These adjustments are based on estimates. The
Unaudited Pro Forma Condensed Combined Statements of Operations for the six
months ended June 30, 1999 and 1998 and for the years ended December 31, 1998,
1997 and 1996 present the combined results of operations of SJNB and Saratoga as
if the merger had been effective at the beginning of each period. The Unaudited
Pro Forma Condensed Combined Financial Information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and notes thereto of SJNB and Saratoga.
The Unaudited Pro Forma Condensed Combined Financial Information and
accompanying notes reflect the application of the pooling of interests method of
accounting for the merger. Under this method of accounting, the recorded assets,
liabilities, shareholders' equity, income and expenses of SJNB and Saratoga are
combined and reflected at their historical amounts.
The pro forma combined figures shown in the Unaudited Pro Forma Condensed
Combined Financial Information are simply arithmetical combinations of SJNB's
and Saratoga's separate financial results; you should not assume that SJNB and
Saratoga would have achieved the pro forma combined results if they had actually
been combined during the periods presented.
THE COMBINED COMPANY EXPECTS TO ACHIEVE MERGER BENEFITS IN THE FORM OF
OPERATING COST SAVINGS. THE PRO FORMA EARNINGS, WHICH DO NOT REFLECT ANY DIRECT
COSTS OR POTENTIAL SAVINGS WHICH ARE EXPECTED TO RESULT FROM THE CONSOLIDATION
OF THE OPERATIONS OF SJNB AND SARATOGA, ARE NOT INDICATIVE OF THE RESULTS OF
FUTURE OPERATIONS. NO ASSURANCES CAN BE GIVEN WITH RESPECT TO THE ULTIMATE LEVEL
OF EXPENSE SAVINGS. FOR FURTHER EXPLANATION ABOUT THESE RISKS, READ THE
INFORMATION UNDER "INFORMATION REGARDING FORWARD-LOOKING STATEMENTS" AND "RISK
FACTORS."
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SJNB Financial Corp. and Saratoga Bancorp
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
SJNB and
Saratoga
Assets SJNB Saratoga Adjustment Combined
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 18,425 $ 7,212 --- $ 25,637
Federal Funds sold 4,150 16,900 $(1,789) 19,261
Money market investments 8,422 --- --- 8,422
Interest bearing deposits in other banks --- 1,789 --- 1,789
Investment securities:
Available for sale 56,187 32,507 --- 88,694
Held to maturity 10,279 10,791 --- 21,070
-------------------------------------------------------------
Total investment securities 66,466 43,298 --- 109,764
-------------------------------------------------------------
Loans and leases 296,969 69,087 --- 366,056
Allowance for possible loan and lease losses (4,938) (826) --- (5,764)
-------------------------------------------------------------
Loans and leases, net 292,031 68,261 --- 360,292
-------------------------------------------------------------
Premises and equipment, net 3,706 3,742 --- 7,448
Accrued interest receivable 1,990 925 --- 2,915
Intangibles, net of accumulated amortization
of $2,393 3,845 --- --- 3,845
Other assets 4,605 6,431 --- 11,036
-------------------------------------------------------------
Total Assets $403,640 $148,558 $(1,789) $550,409
=============================================================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 76,464 $ 30,038 --- $106,502
Interest-bearing 254,661 79,606 --- 334,267
-------------------------------------------------------------
Total deposits 331,125 109,644 --- 440,769
Short-term borrowings 32,497 --- --- 32,497
Other borrowings --- 22,613 --- 22,613
Accrued interest payable 938 357 --- 1,295
Other liabilities 4,985 1,090 $ 573 6,648
-------------------------------------------------------------
Total liabilities 369,545 133,704 573 503,822
-------------------------------------------------------------
Shareholders' equity:
Common stock 13,840 4,434 --- 18,274
Retained earnings 20,440 10,857 (2,362) 28,935
Accumulated other comprehensive loss (185) (437) --- (622)
-------------------------------------------------------------
Total shareholders' equity 34,095 14,854 (2,362) 46,587
-------------------------------------------------------------
Commitments and contingencies --- --- --- ---
-------------------------------------------------------------
Total Liabilities and Shareholders' Equity $403,640 $148,558 $(1,789) $550,409
=============================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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SJNB Financial Corp. and Saratoga Bancorp
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Month Period Ended June 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SJNB and
Saratoga
SJNB Saratoga Adjustment Combined
------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $13,321 $3,465 --- $16,786
Interest and dividends on investment securities 1,772 1,521 --- 3,293
Other interest and investment income (20) 54 --- 34
------------------------------------------------------------
Total interest income 15,073 5,040 20,113
------------------------------------------------------------
Interest expense:
Interest on deposits 4,726 1,576 --- 6,302
Other short-term borrowings 127 --- --- 127
Interest on long-term borrowings --- 673 --- 673
------------------------------------------------------------
Total interest expense 4,853 2,249 --- 7,102
------------------------------------------------------------
Net interest income 10,220 2,791 --- 13,011
------------------------------------------------------------
Provision for possible loan and lease losses 100 66 --- 166
Net interest income after provision ---
for possible loan and lease losses 10,120 2,725 12,845
------------------------------------------------------------
Other income:
Service charges on deposits 352 124 --- 476
Other operating income 411 384 --- 795
------------------------------------------------------------
Total other income 763 508 --- 1,271
------------------------------------------------------------
Other expenses:
Salaries and benefits 3,709 692 --- 4,401
Occupancy 440 412 --- 852
Amortization of intangibles 228 --- --- 228
Other 1,854 624 --- 2,478
------------------------------------------------------------
Total other expenses 6,231 1,728 --- 7,959
------------------------------------------------------------
Income before income taxes 4,652 1,505 --- 6,157
Income taxes 1,946 557 --- 2,503
------------------------------------------------------------
Net income $ 2,706 $ 948 --- $ 3,654
============================================================
Net income per share - basic $ 1.14 $ 0.59 --- $ 1.04
============================================================
Net income per share - diluted $ 1.08 $ 0.53 --- $ 0.98
============================================================
Average common shares outstanding- basic 2,382 1,598 (479) 3,501
============================================================
Average common share equivalents outstanding-
diluted 2,501 1,777 (533) 3,745
============================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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SJNB Financial Corp. and Saratoga Bancorp
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Month Period Ended June 30, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SJNB and
Saratoga
SJNB Saratoga Adjustment Combined
------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $12,155 $3,094 --- $15,249
Interest and dividends on investment securities 2,289 1,690 --- 3,979
Other interest and investment income (5) 49 --- 44
------------------------------------------------------------
Total interest income 14,439 4,833 --- 19,272
------------------------------------------------------------
Interest expense:
Interest on deposits 4,231 1,443 --- 5,674
Other short-term borrowings 223 --- --- 223
Interest on long-term borrowings --- 705 --- 705
------------------------------------------------------------
Total interest expense 4,454 2,148 --- 6,602
------------------------------------------------------------
Net interest income 9,985 2,685 --- 12,670
------------------------------------------------------------
Provision for possible loan and lease losses --- 102 --- 102
Net interest income after provision ---
for possible loan and lease losses 9,985 2,583 12,568
------------------------------------------------------------
Other income: ---
Service charges on deposits 312 113 --- 425
Other operating income 223 120 --- 343
Net gain (loss) on securities available for sale (8) 59 --- 51
------------------------------------------------------------
Total other income 527 292 --- 819
------------------------------------------------------------
Other expenses:
Salaries and benefits 3,330 633 --- 3,963
Occupancy 349 311 --- 660
Amortization of intangibles 218 --- --- 218
Other 1,613 561 --- 2,174
------------------------------------------------------------
Total other expenses 5,510 1,505 --- 7,015
------------------------------------------------------------
Income before income taxes 5,002 1,370 --- 6,372
Income taxes 2,086 520 --- 2,606
------------------------------------------------------------
Net income $ 2,916 $ 850 --- $ 3,766
============================================================
Net income per share - basic $ 1.16 $ 0.52 --- $ 1.03
============================================================
Net income per share - diluted $ 1.10 $ 0.47 --- $ 0.96
============================================================
Average common shares outstanding- basic 2,505 1,642 (493) 3,654
============================================================
Average common share equivalents outstanding-
diluted 2,655 1,820 (546) 3,929
============================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE>
SJNB Financial Corp. and Saratoga Bancorp
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SJNB and
Saratoga
SJNB Saratoga Adjustments Combined
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $24,858 $ 6,394 --- $31,252
Interest and dividends on investment securities 4,482 3,186 --- 7,668
Other interest and investment income (9) 169 --- 160
-------------------------------------------------------------
Total interest income 29,331 9,749 --- 39,080
-------------------------------------------------------------
Interest expense:
Interest on deposits 8,766 3,001 --- 11,767
Other short-term borrowings 312 --- --- 312
Interest on long-term borrowings --- 1,399 --- 1,399
-------------------------------------------------------------
Total interest expense 9,077 4,400 --- 13,477
-------------------------------------------------------------
Net interest income 20,254 5,349 --- 25,603
-------------------------------------------------------------
Provision for possible loan and lease losses 300 136 --- 436
Net interest income after provision
for possible loan and lease losses 19,954 5,213 --- 25,167
-------------------------------------------------------------
Other income:
Service charges on deposits 659 291 --- 950
Other operating income 404 320 --- 724
Net gain (loss) on securities available for
sale (4) 154 --- 150
-------------------------------------------------------------
Total other income 1,059 765 --- 1,824
-------------------------------------------------------------
Other expenses:
Salaries and benefits 6,787 1,261 --- 8,048
Occupancy 775 398 --- 1,173
Amortization of intangibles 457 --- --- 457
Other 3,478 1,306 --- 4,784
-------------------------------------------------------------
Total other expenses 11,497 2,965 --- 14,462
-------------------------------------------------------------
Income before income taxes 9,516 3,013 --- 12,529
Income taxes 3,975 1,065 --- 5,040
-------------------------------------------------------------
Net income $ 5,541 $ 1,948 --- $ 7,489
=============================================================
Net income per share - basic $ 2.23 $ 1.19 --- $ 2.06
=============================================================
Net income per share - diluted $ 2.11 $ 1.07 --- $ 1.92
=============================================================
Average common shares outstanding- basic 2,484 1,644 (493) 3,635
=============================================================
Average common share equivalents
outstanding-diluted 2,627 1,822 (547) 3,902
=============================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE>
SJNB Financial Corp. and Saratoga Bancorp
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SJNB and
Saratoga
SJNB Saratoga Adjustments Combined
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $22,732 $ 5,571 --- $28,303
Interest and dividends on investment
securities 4,515 3,745 --- 8,260
Other interest and investment income (9) 30 --- 21
---------------------------------------------------------------
Total interest income 27,238 9,346 --- 36,584
---------------------------------------------------------------
Interest expense:
Interest on deposits 7,995 2,921 --- 10,916
Other short-term borrowings 754 --- --- 754
Interest on long-term borrowings --- 1,352 --- 1,352
---------------------------------------------------------------
Total interest expense 8,749 4,273 --- 13,022
---------------------------------------------------------------
Net interest income 18,489 5,073 --- 23,562
---------------------------------------------------------------
Provision for possible loan and lease losses 705 --- --- 705
Net interest income after provision ---
for possible loan and lease losses 17,784 5,073 22,857
---------------------------------------------------------------
Other income:
Service charges on deposits 607 273 --- 880
Other operating income 453 170 --- 623
Net gain (loss) on securities available for
sale (47) 34 --- (13)
---------------------------------------------------------------
Total other income 1,013 477 --- 1,490
---------------------------------------------------------------
Other expenses:
Salaries and benefits 5,725 1,338 --- 7,063
Occupancy 725 372 --- 1,097
Amortization of intangibles 473 --- --- 473
Other 2,987 1,268 --- 4,255
---------------------------------------------------------------
Total other expenses 9,910 2,978 --- 12,888
---------------------------------------------------------------
Income before income taxes 8,887 2,572 --- 11,459
Income taxes 3,773 976 --- 4,749
---------------------------------------------------------------
Net income $ 5,114 $ 1,596 --- $ 6,710
===============================================================
Net income per share - basic $ 2.04 $ 1.01 --- $ 1.86
===============================================================
Net income per share - diluted $ 1.94 $ 0.92 --- $ 1.74
===============================================================
Average common shares outstanding- basic 2,508 1,573 (472) 3,609
===============================================================
Average common share equivalents
outstanding-diluted 2,640 1,728 (518) 3,850
===============================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE>
SJNB Financial Corp. and Saratoga Bancorp
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 1996
(in thousands, except per share amounts)
<TABLE>
SJNB and
Saratoga
SJNB Saratoga Adjustments Combined
------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $20,422 $ 4,395 --- $24,817
Interest and dividends on investment 4,114 3,180 --- 7,294
securities
Other interest and investment income (9) 10 --- 1
------------------------------------------------------------
Total interest income 24,527 7.585 --- 32,112
------------------------------------------------------------
Interest expense:
Interest on deposits 6,600 2.713 --- 9,313
Other short-term borrowings 1,459 --- --- 1,459
Interest on long-term borrowings --- 845 --- 845
------------------------------------------------------------
Total interest expense 8,059 3,558 --- 11,617
------------------------------------------------------------
Net interest income 16,468 4,027 --- 20,495
------------------------------------------------------------
Provision for possible loan and lease losses 190 (150) --- 40
Net interest income after provision ---
for possible loan and lease losses 16,278 4,177 20,455
------------------------------------------------------------
Other income:
Service charges on deposits 551 199 --- 750
Other operating income 437 154 --- 591
Net gain (loss) on securities available for sale (142) --- --- (142)
------------------------------------------------------------
Total other income 846 353 --- 1,199
------------------------------------------------------------
Other expenses:
Salaries and benefits 5,517 1,342 --- 6,859
Occupancy 702 348 --- 1,050
Amortization of intangibles 499 --- --- 499
Other 2,917 1,180 --- 4,097
------------------------------------------------------------
Total other expenses 9,635 2,870 --- 12,505
------------------------------------------------------------
Income before income taxes 7,489 1,660 --- 9,149
Income taxes 3,198 559 --- 3,757
------------------------------------------------------------
Net income $ 4,291 $1,101 --- $ 5,392
============================================================
Net income per share - basic $ 1.73 $ 0.71 --- $ 1.51
============================================================
Net income per share - diluted $ 1.64 $ 0.64 --- $ 1.41
============================================================
Average common shares outstanding- basic 2,481 1,551 (465) 3,567
============================================================
Average common share equivalents outstanding-
diluted 2,622 1,726 (518) 3,830
============================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(1) Market Value of Investment Securities Held to Maturity.
The market value of Investment Securities Held to Maturity as of June 30, 1999
is as follows:
SJNB $10,133
Saratoga 10,537
-------
Total $20,670
=======
(2) Common Stock.
Common stock outstanding as of June 30, 1999 is as follows together with the pro
forma combined, calculated on the basis of 0.70 shares of SJNB common stock to
one share of Saratoga common stock.
SJNB 2,349
Saratoga 1,587
Pro forma combined 3,459
(3) Merger Costs.
The following table reflects all nonrecurring SJNB and Saratoga estimated
merger-related costs as of June 30, 1999. These costs are not included on the
unaudited pro forma condensed combined statements of operations but are included
on the unaudited pro forma condensed combined balance sheet as a reduction to
shareholders' equity, net of a $462,000 tax benefit. These costs will be charged
to expense immediately following the consummation of the merger. These estimated
merger-related costs are summarized below, in thousands:
<TABLE>
<CAPTION>
Merger Costs
-----------------------------------------
SJNB Saratoga Total
-----------------------------------------
<S> <C> <C> <C>
Financial advisory $ 50 $ 600 $ 650
Professional fees 200 250 450
Printing 50 25 75
Termination and severance benefits 827 827
Deferred compensation 702 702
Other 120 120
-----------------------------------------
$300 $2,524 $2,824
=========================================
Estimated Tax benefit (462)
----------------
Total $2,362
================
</TABLE>
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<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Market Quotations
The SJNB common stock is listed and traded on the Nasdaq National Market.
The Saratoga common stock is quoted on the OTC Bulletin Board. As of October
___, 1999, there were approximately _______ holders of record of SJNB
common stock and approximately _____ holders of record of Saratoga common
stock.
The following table sets forth for SJNB common stock and Saratoga common
stock the high and low closing prices and per share cash dividends declared for
the quarters indicated.
<TABLE>
<CAPTION>
SJNB Saratoga
----------------------------------- ------------------------------
Common Stock Dividends Common Stock Dividends
High Low Declared High Low Declared
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter....................... $26.00 18.75 -- $10.00 $ 8.00 --
Second Quarter...................... 26.00 22.50 $.21 11.00 9.67 $.07
Third Quarter....................... 32.25 24.75 -- 12.67 10.50 --
Fourth Quarter...................... 42.00 30.75 .24 12.17 10.83 .07
1998
First Quarter....................... $37.00 33.50 $.14 $15.33 $12.75 $.07
Second Quarter...................... 43.25 35.00 .14 17.33 14.33 --
Third Quarter....................... 43.25 26.00 .14 17.25 13.88 .10
Fourth Quarter...................... 29.00 26.00 .14 14.50 13.00 --
1999
First Quarter....................... $28.50 $26.00 $.14 $17.00 $14.00 $.10
Second Quarter...................... 30.25 26.50 .14 17.88 15.75 --
Third Quarter (through October __)..
</TABLE>
At the close of business on August 27, 1999, immediately prior to the first
public announcement of the merger, the high, low and closing prices for SJNB
common stock on the Nasdaq National Market were $33.25, $33.125 and $33.25,
respectively.
At the close of business on August 27, 1999, immediately prior to the first
public announcement of the merger, the high, low and last reported sale prices
for Saratoga common stock as quoted on the OTC Bulletin Board were $19.00,
$18.875 and $19.00, respectively.
Dividends and Dividend Policy
SJNB. SJNB's board of directors considers the advisability and amount of
proposed dividends each year. Future dividends will be determined after
consideration of SJNB's earnings, financial condition, future capital funds,
regulatory requirements and such other factors as the board of directors may
deem relevant. SJNB's primary source of funds for payment of dividends to its
shareholders will be receipt of dividends and management fees from San Jose
National Bank. The payment of dividends by a bank is subject to various legal
and regulatory restrictions.
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<PAGE>
From 1993 through 1997, SJNB maintained a policy of paying semi-annual
dividends to its shareholders. Effective with the first quarter of 1998, SJNB
adopted a policy to pay quarterly cash dividends to its shareholders. It is the
intention of SJNB to continue the payment of dividends, subject to financial
results and other factors which could limit or restrict dividends as more fully
discussed elsewhere herein.
SJNB has paid cash dividends on its outstanding shares of common stock
totaling $0.45 per share in 1997, $0.56 per share in 1998 and $0.28 per share
through June 30, 1999. It is the intention of SJNB to pay cash dividends,
subject to the restrictions on the payment of cash dividends as described above,
depending upon the level of earnings, management's assessment of future capital
needs and other factors considered by the board of directors.
Holders of SJNB common stock are entitled to receive dividends as and when
declared by the board of directors of SJNB out of funds legally available
therefor under the laws of the State of California. The California General
Corporation Law provides that a corporation may make a distribution to its
shareholders if the corporation's retained earnings equal at least the amount of
the proposed distribution. The California General Corporation Law further
provides that, in the event sufficient retained earnings are not available for
the proposed distribution, a corporation may nevertheless make a distribution to
its shareholders if, after giving effect to the distribution, it meets two
conditions, which generally stated are as follows: (i) the corporation's assets
must equal at least 125% of its liabilities; and (ii) the corporation's current
assets must equal at least its current liabilities or, if the average of the
corporation's earnings before taxes on income and before interest expense for
the two preceding fiscal years was less than the average of the corporation's
interest expense for such fiscal years, then the corporation's current assets
must equal at least 125% of its current liabilities.
The Federal Reserve Board generally prohibits a bank holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded only through borrowing or other
arrangements that might adversely affect a bank holding company's financial
position. The Federal Reserve Board's policy is that a bank holding company
should not continue its existing rate of cash dividends on its common stock
unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality and overall financial condition.
Under the merger agreement, SJNB is prohibited from declaring or paying any
dividends on or making other distributions in respect of any of its capital
stock, except (1) cash dividends in an amount substantially equivalent to
dividends paid in the 12 months prior to the date of the merger agreement and
(2) dividends paid to SJNB from a wholly-owned subsidiary. The merger agreement
also requires each party to coordinate with the other party the declaration of,
and record and payment dates for, any dividend in respect of its common stock.
Saratoga. Saratoga's shareholders are entitled to receive dividends when
and as declared by its board of directors, out of funds legally available
therefore, subject to the restrictions set forth in the California General
Corporation Law noted above. Funds for payment of any cash dividends by Saratoga
would be obtained from its investments as well as dividends and/or management
fees from Saratoga National Bank.
The payment of cash dividends by Saratoga National Bank may be subject to
the approval of the Office of the Comptroller of the Currency, as well as
restrictions established by federal banking law, the Federal Reserve Board and
the FDIC. Approval of the Office of the Comptroller of the Currency is required
if the total of all dividends declared by Saratoga National Bank's board of
directors in any
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<PAGE>
calendar year will exceed Saratoga National Bank's net profits for that year
combined with its retained net profits for the preceding two years, less any
required transfers to surplus or to a fund for the retirement of preferred
stock. Additionally, the Federal Reserve Board, FDIC and/or Office of the
Comptroller of the Currency, might, under certain circumstances, place
restrictions on the ability of a bank to pay dividends based upon peer group
averages and the performance and maturity of that bank.
Saratoga has paid cash dividends on its outstanding shares of common stock
totaling $0.134 per share in 1997, $0.167 per share in 1998 and $0.10 per share
through June 30, 1999. Saratoga has announced a $0.10 per share cash dividend
effective to shareholders of record at October 22, 1999 and payable on November
5, 1999. It is the intention of Saratoga to pay cash and stock dividends,
subject to the restrictions on the payment of cash dividends as described above,
depending upon the level of earnings, management's assessment of future capital
needs and other factors considered by the board of directors.
Under the merger agreement, Saratoga is prohibited from declaring or paying
any dividends on or making other distributions in respect of any of its capital
stock, except (1) cash dividends in an amount per share not greater than, and
consistent with the manner and frequency of, dividends paid in the 12 months
prior to the date of the merger agreement and (2) dividends paid to Saratoga
from Saratoga National Bank. The merger agreement also requires each party to
coordinate with the other party the declaration of, and record and payment dates
for, any dividend in respect of its common stock.
-85-
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
General
SJNB and Saratoga are both incorporated under and subject to the provisions
of the California General Corporation Law.
Upon consummation of the merger, except for those persons, if any, who
perfect appraisal rights under the California General Corporation Law (see
"Dissenters' Rights of Appraisal"), the shareholders of Saratoga will become
shareholders of SJNB.
SJNB is a California corporation and, accordingly, is governed by the
California General Corporation Law and by its Articles of Incorporation (the
"SJNB Articles") and Bylaws (the "SJNB Bylaws"). While Saratoga is also governed
by the California General Corporation Law, its Articles of Incorporation (the
"Saratoga Articles") and Bylaws (the "Saratoga Bylaws") differ in certain
material respects from the SJNB Articles and SJNB Bylaws.
The following is a general comparison of certain similarities and material
differences between the rights of SJNB and Saratoga shareholders under their
respective governing Articles of Incorporation and Bylaws. This discussion is
only a summary of certain provisions and does not purport to be a complete
description of such similarities and differences, and is qualified in its
entirety by reference to the California General Corporation Law, the common law
thereunder and the full text of the SJNB Articles, SJNB Bylaws, Saratoga
Articles and Saratoga Bylaws.
Certain Anti-Takeover Measures
Some of the provisions in the SJNB Articles and the SJNB Bylaws discussed
below may deter efforts to obtain control of SJNB on a basis which some
shareholders might deem favorable. Such provisions are designed to encourage any
person attempting a change in control of SJNB to enter into negotiations with
the board of directors of SJNB. For example, the SJNB Articles contain a
"Classified Board" provision, creating classes of directors with terms expiring
at different times. See "--Classified Board Provisions." In addition, the SJNB
board of directors is authorized to issue preferred stock which may have the
effect of delaying or preventing a change in control of SJNB. See "Description
of SJNB Capital Stock--Preferred Stock." The foregoing anti-takeover measures
may decrease the likelihood that a person or group would obtain control of SJNB
or may perpetuate incumbent management.
The provisions in the Saratoga Articles permitting the issuance of
preferred stock discussed under the caption "Description of Saratoga Capital
Stock--Preferred Stock" may deter efforts to obtain control of Saratoga on a
basis which some shareholders might deem favorable as further discussed below.
Quorum Requirements
Both the SJNB Bylaws and the Saratoga Bylaws provide that the presence in
person or by proxy of the holders of a majority of the shares entitled to vote
at any meeting of the shareholders shall constitute a quorum for the transaction
of business.
Indemnification of Directors and Executive Officers
Overview of California Law. Section 317 of the California General
Corporation Law expressly grants to each California corporation the power to
indemnify its directors, officers and agents against certain liabilities and
expenses incurred in the performance of their duties. Rights to indemnification
-86-
<PAGE>
beyond those provided by Section 317 may be valid to the extent that such rights
are authorized in the corporation's articles of incorporation. Indemnification
may not be made, however, with respect to liability incurred in connection with
any of the following acts for which the liability of directors may not be
limited under the California General Corporation Law: (1) acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law; (2)
acts or omissions that a director believes to be contrary to the best interests
of the corporation or its shareholders or that involve the absence of good faith
on the part of the director; (3) any transaction from which a director derived a
personal benefit; (4) acts or omissions that show a reckless disregard for the
director's duty to the corporation or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the corporation
or its shareholders; (5) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders; (6) acts or omissions arising out of certain
interested party transactions; or (7) acts in connection with illegal
distributions, loans or guarantees.
With respect to all proceedings other than shareholder derivative actions,
Section 317 permits a California corporation to indemnify any of its directors,
officers or other agents only if such person acted in good faith and in a manner
such person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of such person was unlawful. In the case of derivative actions, a
California corporation may indemnify any of its directors, officers or agents
only if such person acted in good faith and in a manner such person believed to
be in the best interests of the corporation and its shareholders. Furthermore,
in derivative actions, no indemnification is permitted (1) with respect to any
matter with respect to which the person to be indemnified has been held liable
to the corporation, unless such indemnification is approved by the court; (2) of
amounts paid in settling or otherwise disposing of a pending action without
court approval; or (3) of expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval. To the extent that a
director, officer or agent of a corporation has been successful on the merits in
defense of any proceeding for which indemnification is permitted by Section 317,
a corporation is obligated by Section 317 to indemnify such person against
expenses actually and reasonably incurred by him in connection with the
proceeding.
SJNB. The SJNB Articles eliminate the liability of its directors for
monetary damages to the fullest extent permissible under California law and
grant to SJNB the power to indemnify its directors, officers and agents through
agreements with such persons, bylaw provisions, vote of shareholders or
disinterested directors, or otherwise, in excess of the indemnification
otherwise permitted by Section 317, subject to applicable statutory prohibitions
upon indemnification.
The SJNB Bylaws obligate SJNB to indemnify to the maximum extent permitted
by California General Corporation Law its directors, officers and other agents
against liabilities and expenses incurred in the performance of their duties,
subject to the prohibitions of the California General Corporation Law.
SJNB maintains directors' and officers' liability insurance policies that
indemnify its directors and officers against certain losses in connection with
claims made against them for certain wrongful acts. In addition, SJNB has
entered into separate indemnification agreements with its directors and officers
that require SJNB, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as agents of
SJNB to the maximum extent permitted by the California General Corporation Law.
The SJNB Bylaws and indemnification agreements with its directors entitle
the directors of SJNB to be indemnified against liabilities and expenses
actually and reasonably incurred in connection with any
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<PAGE>
proceeding arising by reason of the fact that any such person is or was an agent
of SJNB. SJNB directors have been granted the right to be paid by SJNB the
expenses incurred in defending the proceedings specified above in advance of
their final disposition.
Saratoga. The Saratoga Articles eliminate the liability of its directors
for monetary damages to the fullest extent permissible under California law and
authorize Saratoga to provide indemnification of agents (as defined in Section
317 of the California General Corporation Law) for breach of duty to Saratoga
and its shareholders through bylaw provisions or through agreements with the
agents, or both, in excess of the indemnification provisions otherwise permitted
by Section 317 of the California General Corporation Law, subject to the limits
on such excess indemnification set forth in Section 204 of the California
General Corporation Law. Saratoga also maintains directors' and officers'
liability insurance policies that indemnify its directors and officers against
certain losses in connection with claims made against them for certain wrongful
acts.
The Saratoga Bylaws and indemnification agreements provide to Saratoga
directors, officers and other agents the maximum indemnification allowed under
applicable California law and under the Saratoga Articles. The indemnification
agreements provide indemnification which expands the scope of indemnification
provided by California law. It has not yet been determined, however, to what
extent the indemnification expressly permitted by California law may be
expanded, and, therefore, the validity and scope of indemnification provided by
the indemnification agreements may be subject to future judicial interpretation.
Any award of indemnification to a director, officer or other agent would come
directly from the assets of Saratoga, thereby affecting a shareholder's
investment.
The indemnification agreements incorporate the provisions of the Saratoga
Bylaws regarding indemnification and set forth a number of procedural and
substantive matters which are not addressed or are addressed in less detail in
the California law including the following:
. The indemnification agreements establish a standard of conduct that
the person to be indemnified must have acted "in a manner such person
did not believe to be contrary to the best interests of the
corporation." This standard is an expansion of the standard under
California law that the person must have acted "in a manner such
person reasonably believed to be in the best interests of the
corporation."
. The indemnification agreements establish the presumption that the
indemnified party has met the applicable standard of conduct required
for indemnification. In addition, an arbitrator may make the
determination that indemnification is proper in any arbitration
proceeding in which such determination is pending. California law
requires a finding in each specific case by the board of directors,
independent legal counsel or the shareholders that the applicable
standard of conduct has been met.
. The indemnification agreements provide that litigation expenses shall
be advanced to an indemnified party at his or her request provided
that he or she undertakes to repay the amount advanced if it is
ultimately determined that he or she is not entitled to
indemnification for such expenses. California law provides that such
expenses may be advanced against such an undertaking upon
authorization by the board of directors.
. The indemnification agreements explicitly provide that in a derivative
suit the indemnified party will be entitled to indemnification against
amounts paid in settlement, to the fullest extent permitted by law,
where the indemnified party meets the applicable standard of conduct.
Indemnification of any such amount would be paid out of
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<PAGE>
Saratoga's funds. California law does not provide for such
indemnification without court approval. The enforceability of the
provisions in the indemnification agreements providing for settlement
payments in derivative suits has not been judicially interpreted by
the courts and may be subject to public policy limitations.
. In the event Saratoga does not pay a requested indemnification amount,
the indemnification agreements allow the indemnified party to contest
this determination by petitioning a court to make an independent
determination of whether the party is entitled to indemnification
under the indemnification agreements. In the event of such a contest,
the burden of proving that the indemnified party did not meet the
applicable standard of conduct will be on Saratoga. If Saratoga fails
to establish that the applicable standard of conduct has not been met,
the indemnified party will be entitled to indemnification, which will
include reimbursement for expenses incurred by the indemnified party
in such contest in establishing the right to indemnification.
California law does not set forth any procedure for contesting a
corporation's determination of a party's right to indemnification or
establish which party bears the burden of proof with respect to a
challenge to such a determination.
. The indemnification agreements explicitly provide for partial
indemnification of costs and expenses in the event that an indemnified
party is not entitled to full indemnification under the terms of the
indemnification agreements. California law does not specifically
address this issue. It does, however, provide that to the extent that
an indemnified party has been successful on the merits, he or she
shall be entitled to such indemnification.
. The indemnification agreements automatically incorporate future
changes in the laws which increase the protection available to the
indemnitee. Such changes will apply to Saratoga without further
shareholder approval and may further impair shareholders' rights or
subject Saratoga's assets to risk of loss in the event of large
indemnification claims. Each indemnification agreement constitutes a
binding, legal obligation of Saratoga, and may not be amended without
the consent of the individual who is protected by such indemnification
agreement.
. The indemnification agreements explicitly provide that actions by an
indemnified party serving at the request of Saratoga as a director,
officer or agent of an employee benefit plan, corporation,
partnership, joint venture or other enterprise, whether or not owned
or controlled by Saratoga, shall be covered by the indemnification.
California law provides that a corporation may so indemnify such
parties. It should be noted that by agreeing by contract to indemnify
those parties, Saratoga may be exposed to liability for actions of an
entity over which it may not exercise control, which liability could
adversely affect Saratoga's financial position.
. The indemnification agreements, together with the limitation on the
director's liability and the indemnification provided by the Saratoga
Articles and Saratoga Bylaws, reduce significantly the number of
instances in which directors might be held liable to Saratoga for
monetary damages for breach of their fiduciary duties.
Under the merger agreement, from and after the effective time of the merger
SJNB will indemnify and hold harmless each present or former officer or director
of Saratoga and Saratoga National Bank (determined as of the effective time)
against (1) all losses, claims, damages, expenses, liabilities or judgments or
amounts that are paid in the settlement of or in connection with any claim,
action, suit,
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proceeding or investigation based on or arising out of the fact that such person
is or was a director or officer of Saratoga or Saratoga National Bank
(collectively, "Indemnified Liabilities") and (2) all Indemnified Liabilities
based on or arising out of the merger agreement or the transactions contemplated
by the merger agreement, in each case to the full extent that Saratoga would
have been permitted under applicable law and its articles of incorporation and
SJNB is permitted under California law.
Additionally, upon the effective time of the merger, SJNB will include in
its director and officer insurance policy any executive officer or director of
Saratoga or Saratoga National Bank who becomes an officer or director of SJNB.
Saratoga has agreed to cooperate with SJNB to obtain extended coverage under
Saratoga's director and officer insurance policy to cover claims made for a
period of three years after the effective time of the merger regarding acts or
omissions of Saratoga's or Saratoga National Bank's directors or officers prior
to the effective time of the merger. However, SJNB will not be obligated to make
annual premium payments for such insurance to the extent such premiums exceed
150% of the premiums paid by Saratoga and Saratoga National Bank in respect of
1998 for such insurance, as previously disclosed to SJNB. If the premiums for
such insurance would at any time exceed 150% of the premiums paid by Saratoga
and Saratoga National Bank in respect of 1998 for such insurance, then SJNB will
maintain policies of insurance which, in SJNB's good faith determination,
provide the maximum coverage available at an annual premium equal to 150% of the
premiums paid by Saratoga and Saratoga National Bank in respect of 1998 for such
insurance. Notwithstanding the indemnification rights described above, the
officers and directors of Saratoga and Saratoga National Bank will retain all
indemnification rights and benefits they have under agreements in effect on the
date of the merger agreement. SJNB has agreed to honor those agreements with
respect to any acts or omissions by such officers or directors occurring prior
to the closing of the merger.
Overview of Federal Law. Federal law authorizes the FDIC to limit, by
regulation or order, the payment of indemnification by insured banks or bank
holding companies to their directors and officers. Pursuant to this authority,
the FDIC has enacted a regulation that permits the payment of indemnification by
banks and bank holding companies to institution-affiliated directors, officers
and other parties only if certain requirements are satisfied. This regulation
permits an institution to make an indemnification payment to, or for the benefit
of, a director, officer or other party only if the institution's board of
directors, in good faith, certifies in writing that the individual has a
substantial likelihood of prevailing on the merits and that the payment of
indemnification will not adversely affect the institution's safety and
soundness. An institution's board of directors is obligated to cease making or
authorizing indemnification payments in the event that it believes, or
reasonably should believe, that the conditions discussed in the preceding
sentence are no longer being met. Further, an institution's board of directors
must provide the FDIC and any other appropriate bank regulatory agency with
prior written notice of any authorization of indemnification. In addition,
indemnification payments related to an administrative proceeding or civil action
instituted by an appropriate federal bank regulatory agency are limited to the
payment or reimbursement of reasonable legal or other professional expenses.
Finally, the director, officer or other party must agree in writing to reimburse
the institution for any indemnification payments received should the proceeding
result in a final order being instituted against the individual assessing a
civil money penalty, removing the individual from office, or requiring the
individual to cease and desist from certain institutional activities.
Shareholder Meetings and Action by Written Consent
The Saratoga Bylaws provide for shareholder action by written consent,
including the requirement for unanimous written consent for the election of
directors other than to fill vacancies. The SJNB Articles authorize shareholder
action by written consent only when first authorized by the board of directors.
Additionally, both the SJNB Bylaws and the Saratoga Bylaws permit a director to
be elected at
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any time to fill a vacancy on the board of directors that has not been filled by
the directors by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors.
Cumulative Voting
Cumulative voting allows a shareholder to cast a number of votes equal to
the number of directors to be elected multiplied by the number of shares held in
the shareholder's name on the record date. SJNB shareholders are not entitled to
cumulative voting in the election of directors. Saratoga shareholders are
entitled to cumulative voting in the election of directors.
Amendment of Bylaws
SJNB. The SJNB Bylaws may be amended or repealed by the affirmative vote or
written consent of a majority of the outstanding shares entitled to vote. The
SJNB Bylaws require that if the SJNB Articles set forth the number of authorized
directors of SJNB, the authorized number of directors may be changed only by an
amendment of the SJNB Articles. The SJNB Articles currently set forth a
permissible range of authorized directors of between nine and 17. Subject to the
rights of shareholders to amend the bylaws, the SJNB Bylaws provide that the
bylaws may be adopted, amended or repealed by its board of directors.
Saratoga. The Saratoga Bylaws may be amended or repealed by the affirmative
vote or written consent of a majority of the outstanding shares entitled to
vote, provided that any amendment which reduces (1) the number of directors on a
fixed-number board or (2) the minimum number of directors on a variable-number
board to a number less than five, cannot be adopted if the votes cast or
consents given opposing such action are equal to or more than 16 2/3% of all
outstanding shares entitled to vote.
Subject to the rights of shareholders to amend the bylaws, the Saratoga
Bylaws provide that the bylaws may be adopted, amended or repealed by its board
of directors, except that only the shareholders can adopt a bylaw or amendment
to the bylaws which (1) specifies or changes the number of directors on a fixed
number board, (2) specifies or changes the minimum or maximum number of
directors on a variable number Board or (3) changes from a fixed number board to
a variable number board or vice versa.
Filling Vacancies on the Board of Directors
Both the SJNB Bylaws and the Saratoga Bylaws provide that vacancies
occurring on their respective boards of directors may be filled by a vote of a
majority of the remaining directors, though less than a quorum, or by a sole
remaining director, except that a vacancy created by the removal of a director
may only be filled by the vote of a majority of the shares entitled to vote
represented at a duly held meeting or by unanimous written consent of the
outstanding shares entitled to vote. Both the SJNB Bylaws and the Saratoga
Bylaws also provide that the shareholders may elect a director at any time to
fill any vacancy not filled by the directors, except that any election by
written consent, other than to fill a vacancy created by removal of a director,
requires the consent of a majority of the outstanding shares entitled to vote.
In addition, the California General Corporation Law provides that if, after
the filling of any vacancy by the directors, the directors then in office who
have been elected by the shareholders constitute less than a majority of the
directors then in office, (1) any holder or holders of an aggregate of 5% or
more of the total number of shares at the time outstanding having the right to
vote for such directors may call a special meeting of shareholders; or (2) the
California Superior Court of the proper county shall,
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upon application of such shareholder or shareholders, summarily order a special
meeting of shareholders, to be held to elect the entire Board of Directors.
Call of Annual or Special Meeting of Shareholders and Action by Shareholders
Without a Meeting
Both the SJNB Bylaws and the Saratoga Bylaws provide that a special meeting
of the shareholders may be called at any time by their board of directors,
chairman of the board, president or one or more shareholders holding shares in
the aggregate entitled to cast not less than 10% of the votes at that meeting.
Under the California General Corporation Law, unless otherwise provided in the
articles of incorporation (which, in the case of the SJNB Articles and the
Saratoga Articles, is not provided), any action which may be taken at any annual
or special meeting may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. The SJNB Articles
provide that action without a meeting cannot be taken unless the Board of
directors of SJNB has by resolution approved any such action without a meeting.
Classified Board Provisions
SJNB. The SJNB Articles provide that, in the event that the authorized
number of directors shall be fixed at nine or more, the board shall be divided
into three classes: Class I, Class II and Class III, each consisting of a number
of directors equal to as nearly as practicable one-third the total number of
directors. Directors in Class I, Class II and Class III shall initially serve
for a term expiring respectively at the 2000, 2001 and 2002 annual meeting of
shareholders. Thereafter, each director shall serve for a term ending at the
third annual shareholders meeting following the annual meeting at which such
director was elected. In the event that the authorized number of directors shall
be fixed with at least six but less than nine, the Board shall be divided into
two classes, designated as Class I and Class II, each consisting of one-half of
the directors or as close an approximation as possible. At each annual meeting,
each of the successors to the directors of the class whose term shall have
expired at such annual meeting shall be elected for a term running until the
second annual meeting next succeeding his or her election and until his or her
successor shall have been duly elected and qualified. The number of directors is
currently set between nine and 17. The use of a classified board may have the
effect of discouraging takeover attempts.
Saratoga. Neither the Saratoga Articles nor the Saratoga Bylaws provide for
a classified board. The Saratoga Bylaws provide that the number of authorized
directors shall be not less than five nor more than twelve, unless and until
such provisions are amended by a vote of Saratoga shareholders. The Saratoga
Bylaws further specify that directors shall be elected at each annual meeting of
shareholders, and shall continue in office until their respective successors are
elected and qualified.
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DESCRIPTION OF SJNB CAPITAL STOCK
The authorized capital stock of SJNB consists of 20,000,000 shares of SJNB
common stock, without par value, and 5,000,000 shares of preferred stock,
without par value. As of October ___, 1999, _______________ shares of SJNB
common stock and no shares of preferred stock were outstanding and an additional
_______________ shares of the authorized SJNB common stock were available for
future grant and reserved for issuance to holders of outstanding stock options
under SJNB's stock option plans.
Common Stock
Holders of SJNB common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Shareholders may
not cumulate their votes. Shareholders are entitled to receive ratably such
dividends as may be legally declared by SJNB's board of directors. There are
legal and regulatory restrictions on the ability of SJNB to declare and pay
dividends. See "Market Price and Dividend Information--Dividends and Dividend
Policy." In the event of a liquidation, common shareholders are entitled to
share ratably in all assets remaining after payment of liabilities and
liquidation preference for securities with a priority over the SJNB common
stock. Shareholders of SJNB common stock have no preemptive or conversion
rights. SJNB common stock is not subject to calls or assessments. The transfer
agent and registrar for SJNB common stock is U.S. Stock Transfer Corporation.
Preferred Stock
The SJNB board of directors is authorized to fix the rights, preferences,
privileges and restrictions of the preferred stock and may establish series of
such stock and determine the variations between series. If and when any
preferred stock is issued, the holders of preferred stock may have a preference
over holders of SJNB common stock upon the payment of dividends, upon
liquidation of SJNB, in respect of voting rights and in the redemption of the
capital stock of SJNB. The issuance of any preferred stock may have the effect
of delaying, deferring or preventing a change in control of SJNB without further
action of its shareholders. The issuance of such stock with voting and
conversion rights may adversely affect the voting power of the holders of SJNB
common stock. SJNB has no present plans to issue any shares of preferred stock.
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DESCRIPTION OF SARATOGA CAPITAL STOCK
The authorized capital stock of Saratoga consists of 20,000,000 shares of
common stock, without par value, and 1,000,000 shares of preferred stock,
without par value. As of the October ___, 1999, there were __________ shares of
Saratoga common stock and no shares of Saratoga preferred stock outstanding, and
an additional _________ shares of the authorized Saratoga common stock available
for future grant and reserved for issuance to holders of outstanding stock
options under Saratoga's stock option plan.
Common Stock
Holders of Saratoga common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders, except that
under the Saratoga Bylaws, shareholders may cumulate their votes for the
election of directors. Shareholders are entitled to receive ratably such
dividends as may be legally declared by Saratoga's board of directors. There are
legal and regulatory restrictions on the ability of Saratoga to declare and pay
dividends. See "Market Price and Dividend Information--Dividends and Dividend
Policy." In the event of a liquidation, common shareholders are entitled to
share ratably in all assets remaining after payment of liabilities and
liquidation preferences for securities with a priority over the Saratoga common
stock. Shareholders of Saratoga common stock have no preemptive or conversion
rights. Saratoga common stock is not subject to calls or assessments. The
transfer agent and registrar for Saratoga common stock is ChaseMellon
Shareholder Services LLC.
Preferred Stock
The Saratoga board of directors is authorized to determine or alter the
rights, preferences, privileges and restrictions of the preferred stock and may
establish series of such stock, fix the number of shares of each series and
determine the variations between series. If and when any preferred stock is
issued, the holders of preferred stock may have a preference over holders of
Saratoga common stock upon the payment of dividends, upon liquidation of
Saratoga, in respect of voting rights and in the redemption of the capital stock
of Saratoga. The issuance of any preferred stock may have the effect of
delaying, deferring or preventing a change in control of Saratoga without
further action of its shareholders. The issuance of such stock with voting and
conversion rights may adversely affect the voting power of the holders of
Saratoga common stock. Saratoga has no present plans to issue any shares of
preferred stock and is prohibited from doing so by the merger agreement.
EXPERTS
The Consolidated Financial Statements of SJNB incorporated in this proxy
statement/prospectus by reference from SJNB's annual report on Form 10-K, as
amended, for the year ended December 31, 1998 have been audited by KPMG LLP,
independent auditors, as stated in their report which is incorporated herein by
reference. Such statements have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of Saratoga incorporated in this
proxy statement/prospectus by reference from Saratoga's annual report on Form
10-K, as amended, for the year ended December 31, 1998 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference. Such statements have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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LEGAL MATTERS
The validity of the shares of SJNB common stock offered hereby and certain
legal matters in connection with the merger will be passed upon for SJNB by
Pillsbury Madison & Sutro LLP, San Francisco, California.
SOLICITATION OF PROXIES
Each of SJNB and Saratoga will bear the cost of the solicitation of proxies
from their respective shareholders. In addition to solicitation by mail, the
directors, officers and employees of SJNB or Saratoga may solicit proxies from
their respective shareholders by telephone or telegram or in person. Such
persons will not be additionally compensated, but will be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
Arrangements will also be made with brokerage firms, nominees, fiduciaries and
other custodians, for the forwarding of solicitation materials to the beneficial
owners of shares held of record by such persons, and SJNB or Saratoga, as
applicable, will reimburse such persons for their reasonable out-of-pocket
expenses in connection therewith.
WHERE YOU CAN FIND MORE INFORMATION
Both SJNB and Saratoga file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that SJNB and
Saratoga file at the Commission's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. You may also obtain copies of this
information by mail from the Public Reference Section of the SEC, 450 5th
Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. Please call
the Commission at (800) SEC-0330 for further information on the public reference
rooms. The Commission also maintains an Internet World Wide Web site at
"http://www.sec.gov" at which reports, proxy and information statements and
other information regarding SJNB and Saratoga are available. In addition,
reports, proxy statements and other information concerning SJNB also may be
inspected at the offices of The Nasdaq Stock Market, 1735 K Street, Washington,
D.C. 20006.
SJNB has filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act relating to the shares of SJNB
common stock to be issued in connection with the merger. This proxy
statement/prospectus also constitutes the prospectus of SJNB filed as part of
the registration statement and does not contain all the information set forth in
the registration statement and exhibits thereto. You may copy and read the
registration statement and its exhibits at the public reference facilities
maintained by the Commission at the public reference rooms specified above.
The Commission allows both SJNB and Saratoga to "incorporate by reference"
information into this proxy statement/prospectus, which means that SJNB and
Saratoga can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is deemed to be a part of this proxy statement/prospectus, except for
any information superseded by information contained directly in this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
the documents set forth below that either SJNB or Saratoga has previously filed
with the Commission. These documents contain important information about SJNB
and Saratoga and their financial conditions.
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SJNB Commission Filings Period
(File No. 000-11771)
Annual Reports on Form 10-K.............. Year ended December 31, 1998
Quarterly Reports on Form 10-Q........... Quarters ended March 31, 1999
and June 30, 1999
Current Reports on Form 8-K.............. Dated September 1, 1999
Proxy Statement.......................... Dated April 16, 1999
Saratoga Commission Filings
(File No. 002-77519-LA)
Annual Report on Form 10-K, as amended... Year ended December 31, 1998
Quarterly Reports on Form 10-Q........... Quarters ended March 31, 1999
and June 30, 1999
Current Reports on Form 8-K.............. Dated March 3, 1999, May 4,
1999, May 21, 1999, September 1,
1999 and September 24, 1999
SJNB and Saratoga incorporate by reference any additional documents that
either may file with the Commission between the date of this proxy
statement/prospectus and the date of their respective special meeting. These
include periodic reports, such as annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, as well as proxy statements.
SJNB has supplied all information contained or incorporated by reference in
the proxy statement/prospectus relating to SJNB and Saratoga has supplied all
such information relating to Saratoga.
This proxy statement/prospectus incorporates by reference documents
relating to SJNB and Saratoga which are not presented in this proxy
statement/prospectus or delivered herewith. Those documents relating to SJNB are
available from SJNB without charge, excluding all exhibits unless specifically
incorporated by reference in this proxy statement/prospectus, by requesting them
in writing or by telephone from SJNB Financial Corp., Assistant Corporate
Secretary, One North Market Street, San Jose, California 95113, (408) 947-7562.
Those documents relating to Saratoga are available from Saratoga without charge,
excluding all exhibits unless specifically incorporated by reference in this
proxy statement/prospectus, by requesting them in writing or by telephone from
Saratoga Bancorp, Corporate Secretary, 12000 Saratoga-Sunnyvale Road, Saratoga,
California 95020, (408) 973-1111. If you would like to request documents from
either SJNB or Saratoga, please do so by ________________, 1999 in order to
receive them before the special meeting.
In deciding how to vote on the merger, you should rely only on the
information contained or incorporated by reference in this proxy
statement/prospectus. Neither SJNB nor Saratoga has authorized any person to
provide you with any information that is different from what is contained in
this proxy statement/prospectus. This proxy statement/prospectus is dated
______________, 1999. You should not assume that the information contained in
this proxy statement/prospectus is accurate as of any date other than such date,
and neither the mailing to you of this proxy statement/prospectus nor the
issuance to you of shares of SJNB common stock will create any implication to
the contrary. This proxy statement/
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prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any securities, or the solicitation of a proxy in any jurisdiction in
which, or to any person to whom, it is unlawful.
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ANNEX A
-------
================================================================================
AGREEMENT AND PLAN OF MERGER
dated as of August 27, 1999
among
SJNB FINANCIAL CORP.,
SARATOGA BANCORP
and
SARATOGA NATIONAL BANK
================================================================================
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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<S> <C>
ARTICLE I THE MERGER...................................................................... A-2
1.1 Effective Time of the Merger................................................... A-2
1.2 Closing........................................................................ A-2
1.3 Effects of the Merger.......................................................... A-2
1.4 Alternative Structure.......................................................... A-3
1.5 Absence of Control............................................................. A-3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.................................................... A-4
2.1 Effect on Capital Stock of the Constituent Corporations........................ A-4
(a) Conversion of Saratoga Common Stock...................................... A-4
(b) SJNB Capital Stock....................................................... A-4
2.2 No Further Ownership Rights in Saratoga Common Stock........................... A-4
2.3 Fractional Shares.............................................................. A-4
2.4 Surrender of Shares of Saratoga Common Stock................................... A-5
2.5 Adjustments.................................................................... A-6
2.6 Options........................................................................ A-6
2.7 Dissenters' Rights............................................................. A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES................................................ A-7
3.1 Representations and Warranties of Saratoga and SNB............................. A-7
(a) Organization, Standing and Power......................................... A-7
(b) Capital Structure; Ownership of SJNB Common Stock........................ A-9
(c) Authority; No Violation.................................................. A-10
(d) Financial Statements..................................................... A-12
(e) Saratoga SEC Documents................................................... A-12
(f) Saratoga Information Supplied............................................ A-13
(g) Compliance with Applicable Laws.......................................... A-13
(h) Litigation............................................................... A-14
(i) Taxes.................................................................... A-14
(j) Certain Agreements....................................................... A-15
(k) Benefit Plans............................................................ A-16
(l) Subsidiaries............................................................. A-18
(m) Agreements with Bank or Other Regulators................................. A-19
(n) Absence of Certain Changes or Events..................................... A-19
(o) Undisclosed Liabilities.................................................. A-19
(p) Governmental Reports..................................................... A-19
(q) Environmental Liability.................................................. A-20
(r) Properties............................................................... A-22
(s) Transactions with Affiliates............................................. A-23
(t) Brokers or Finders....................................................... A-23
</TABLE>
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<S> <C>
(u) Intellectual Property.................................................... A-23
(v) Pooling of Interests..................................................... A-23
(w) Opinion of Financial Advisor............................................. A-23
(x) Community Reinvestment Act Compliance.................................... A-24
(y) Year 2000 Readiness...................................................... A-24
(z) Insurance................................................................ A-24
(aa) Loans and Other Assets................................................... A-25
(ab) Restrictions on Investments.............................................. A-26
(ac) No Brokered Deposits..................................................... A-26
(ad) Derivatives Contracts; Structured Notes; Etc............................. A-26
(ae) Labor Matters............................................................ A-27
3.2 Representations and Warranties of SJNB......................................... A-27
(a) Organization, Standing and Power......................................... A-27
(b) Capital Structure; Ownership of SJNB Common Stock........................ A-27
(c) Authority; No Violation.................................................. A-28
(d) Financial Statements..................................................... A-30
(e) SJNB SEC Documents....................................................... A-30
(f) SJNB Information Supplied................................................ A-31
(g) Compliance with Applicable Laws.......................................... A-31
(h) Litigation............................................................... A-32
(i) Taxes.................................................................... A-32
(j) Certain Agreements....................................................... A-33
(k) Benefit Plans............................................................ A-34
(l) Subsidiaries............................................................. A-36
(m) Agreements with Bank or Other Regulators................................. A-36
(n) Absence of Certain Changes or Events..................................... A-36
(o) Undisclosed Liabilities.................................................. A-36
(p) Governmental Reports..................................................... A-37
(q) Environmental Liability.................................................. A-37
(r) Properties............................................................... A-39
(s) Transactions with Affiliates............................................. A-39
(t) No Broker or Finder...................................................... A-40
(u) Intellectual Property.................................................... A-40
(v) Pooling of Interests..................................................... A-40
(w) Community Reinvestment Act Compliance.................................... A-40
(x) Year 2000 Readiness...................................................... A-40
(y) Insurance................................................................ A-41
(z) Loans and Other Assets................................................... A-41
(aa) Derivatives Contracts; Structured Notes; Etc............................. A-42
(ab) Labor Matters............................................................ A-42
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS...................................... A-43
4.1 Covenants of Saratoga.......................................................... A-43
4.2 Covenants of SJNB.............................................................. A-47
ARTICLE V ADDITIONAL AGREEMENTS........................................................... A-49
5.1 Regulatory Matters............................................................. A-49
</TABLE>
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<TABLE>
<S> <C>
5.2 Access to Information.......................................................... A-50
5.3 Shareholders' Meetings......................................................... A-50
5.4 No Solicitations............................................................... A-51
5.5 Legal Conditions............................................................... A-53
5.6 Employee Benefit Plans......................................................... A-54
5.7 Indemnification; Directors' and Officers' Insurance............................ A-55
5.8 Additional Agreements.......................................................... A-56
5.9 Fees and Expenses.............................................................. A-56
5.10 Cooperation.................................................................... A-57
5.11 Affiliates..................................................................... A-58
5.12 Stock Exchange Listing......................................................... A-58
5.13 Advice of Changes.............................................................. A-58
5.14 Subsequent Interim and Annual Financial Statements; Certain Reports............ A-58
5.15 Dissenters' Rights............................................................. A-58
5.16 SNB Board of Directors and Executive Officers.................................. A-58
5.17 Transition Services............................................................ A-59
ARTICLE VI CONDITIONS PRECEDENT........................................................... A-59
6.1 Conditions to Each Party's Obligation.......................................... A-59
(a) Shareholder Approvals.................................................... A-59
(b) Other Approvals.......................................................... A-59
(c) No Injunctions or Restraints............................................. A-59
(d) NASDAQ National Market Listing........................................... A-59
(e) S-4...................................................................... A-60
(f) Pooling.................................................................. A-60
(g) Burdensome Condition..................................................... A-60
(h) Dissenters' Rights....................................................... A-60
6.2 Conditions to Obligations of SJNB.............................................. A-60
(a) Representations and Warranties........................................... A-60
(b) Performance of Obligations............................................... A-61
(c) Corporate Action......................................................... A-61
(d) Tax Opinion.............................................................. A-61
(e) Material Adverse Effect.................................................. A-61
(f) Closing Documents........................................................ A-61
(g) Bank Merger.............................................................. A-61
(h) Comfort Letter (S-4)..................................................... A-61
(i) Comfort Letter........................................................... A-62
6.3 Conditions to Obligations of Saratoga.......................................... A-62
(a) Representations and Warranties........................................... A-62
(b) Performance of Obligations............................................... A-62
(c) Corporate Action......................................................... A-62
(d) Tax Opinion.............................................................. A-62
(e) Material Adverse Effect.................................................. A-63
(f) Closing Documents........................................................ A-63
(g) Additions to SJNB Board of Directors..................................... A-63
(h) Fairness Opinion......................................................... A-63
(i) Comfort Letter (S-4)..................................................... A-63
</TABLE>
-A(iii)-
<PAGE>
<TABLE>
<S> <C>
(j) Comfort Letter........................................................... A-63
ARTICLE VII TERMINATION AND AMENDMENT..................................................... A-63
7.1 Termination.................................................................... A-63
7.2 Effect of Termination.......................................................... A-67
7.3 Amendment...................................................................... A-67
7.4 Extension; Waiver.............................................................. A-67
ARTICLE VIII GENERAL PROVISIONS........................................................... A-68
8.1 Survival of Representations, Warranties and Covenants.......................... A-68
8.2 Notices........................................................................ A-68
8.3 Interpretation................................................................. A-69
8.4 Counterparts................................................................... A-69
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership............ A-69
8.6 Governing Law; Consent to Jurisdiction......................................... A-70
8.7 Severability................................................................... A-70
8.8 Assignment..................................................................... A-70
8.9 Publicity...................................................................... A-71
8.10 Attorneys' Fees................................................................ A-72
</TABLE>
Exhibit A: Form of Agreement of Merger
Exhibit B: Form of Stock Option Agreement
Exhibit C-1: Form of Affiliate Agreement (Saratoga)
Exhibit C-2: Form of Affiliate Agreement (SJNB)
-A(iv)-
<PAGE>
Index of Defined Terms
----------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Acquisition Event.................................................. A-53
Action............................................................. A-72
Actual Expenses.................................................... A-57
Affiliate.......................................................... A-9
Agreement.......................................................... A-1
Agreement of Merger................................................ A-2
Average SJNB Closing Price......................................... A-66
Bank Merger........................................................ A-1
Bank Regulators.................................................... A-13
Benefit Plans...................................................... A-17
BHC Act............................................................ A-7
BIF................................................................ A-7
Burdensome Condition............................................... A-60
Business Day....................................................... A-2
CGCL............................................................... A-2
Change in Control.................................................. A-54
Closing............................................................ A-2
Closing Date....................................................... A-2
Code............................................................... A-1
Confidentiality Agreement.......................................... A-50
Consents........................................................... A-59
Constituent Corporations........................................... A-3
CRA................................................................ A-24
date hereof........................................................ A-1
Derivatives Contract............................................... A-26
Determination Date................................................. A-66
Dissenting Shares.................................................. A-7
DPC Shares......................................................... A-10
Effective Time..................................................... A-2
ERISA.............................................................. A-16
Exchange Act....................................................... A-12
Exchange Agent..................................................... A-5
Exchange Ratio..................................................... A-4
FDIC............................................................... A-7
Federal Reserve.................................................... A-11
FFIEC.............................................................. A-24
GAAP............................................................... A-12
Governmental Entity................................................ A-11
Indemnified Liabilities............................................ A-55
Indemnified Parties................................................ A-55
Injunction......................................................... A-59
</TABLE>
-A(v)-
<PAGE>
<TABLE>
<S> <C>
knowledge.......................................................... A-9
Litigation......................................................... A-14
material........................................................... A-8
material adverse effect............................................ A-8
Merger............................................................. A-1
Minimum Price...................................................... A-65
NASDAQ............................................................. A-66
OCC................................................................ A-12
OREO............................................................... A-25
PBGC............................................................... A-17
person............................................................. A-9
Proxy Statement.................................................... A-12
Representatives.................................................... A-51
Requisite Regulatory Approvals..................................... A-59
S-4................................................................ A-30
Saratoga........................................................... A-1
Saratoga Benefit Plans............................................. A-17
Saratoga Certificates.............................................. A-5
Saratoga Common Stock.............................................. A-1
Saratoga Consolidated Financial Statements......................... A-12
Saratoga Designees................................................. A-2
Saratoga Disclosure Schedule....................................... A-9
Saratoga Intellectual Property..................................... A-23
Saratoga Option.................................................... A-6
Saratoga Permits................................................... A-13
Saratoga Preferred Stock........................................... A-9
Saratoga SEC Reports............................................... A-12
Saratoga Shareholder Approval...................................... A-10
Saratoga Shareholders' Meeting..................................... A-13
Saratoga Stock Option Plans........................................ A-6
Saratoga's Current Premium......................................... A-56
SEC................................................................ A-51
SEC Fees........................................................... A-57
Securities Act..................................................... A-12
SFAS No. 5......................................................... A-8
Significant Subsidiary............................................. A-51
SJNB............................................................... A-1
SJNB Benefit Plans................................................. A-34
SJNB Common Stock.................................................. A-4
SJNB Consolidated Financial Statements............................. A-30
SJNB Disclosure Schedule........................................... A-28
SJNB Intellectual Property......................................... A-40
SJNB Permits....................................................... A-31
SJNB Preferred Stock............................................... A-27
SJNB SEC Reports................................................... A-30
SJNB Shareholder Approval.......................................... A-29
</TABLE>
-A(vi)-
<PAGE>
<TABLE>
<S> <C>
SJNB Shareholders' Meeting......................................... A-31
SNB................................................................ A-1
SNB Common Stock................................................... A-1
Stock Option Agreement............................................. A-1
Subsidiary......................................................... A-8
Superior Proposal.................................................. A-52
Surviving Corporation.............................................. A-3
Takeover Proposal.................................................. A-51
tax................................................................ A-15
Tax return......................................................... A-15
taxable............................................................ A-15
taxes.............................................................. A-15
Termination Fee.................................................... A-52
to the best knowledge of........................................... A-9
Trading day........................................................ A-66
Transaction Agreements............................................. A-9
Trust Account Shares............................................... A-10
Violation ......................................................... A-11
Year 2000 Ready.................................................... A-24
</TABLE>
-A(vii)-
<PAGE>
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 27, 1999
(the "date hereof"), among SJNB FINANCIAL CORP., a California corporation
("SJNB"), SARATOGA BANCORP, a California corporation ("Saratoga"), and SARATOGA
NATIONAL BANK, a national banking association and a wholly-owned subsidiary of
Saratoga ("SNB").
WHEREAS, Saratoga is the beneficial and record owner of 300,000 shares of
the issued and outstanding common stock, $5.00 par value per share (the "SNB
Common Stock"), of SNB, constituting all of the issued and outstanding shares of
SNB Common Stock;
WHEREAS, the Board of Directors of SJNB has approved this Agreement,
declared it advisable and deems it advisable and in the best interests of the
shareholders of SJNB to consummate the transactions provided for herein in
which, inter alia, Saratoga would merge with and into SJNB pursuant to an
----------
Agreement of Merger substantially in the form attached hereto as Exhibit A (the
---------
"Merger");
WHEREAS, the Boards of Directors of Saratoga and SNB have approved this
Agreement and declared it advisable and deem it advisable and in the best
interests of the shareholders of Saratoga and SNB to consummate the Merger;
WHEREAS, it is the intention of the parties that the Merger qualify as a
tax-free reorganization pursuant to section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and that the Merger shall be accounted for as
a "pooling of interests";
WHEREAS, it is the intention of the parties that, immediately after
consummation of the Merger or, at the discretion of SJNB, as soon as reasonably
practicable thereafter, SNB shall be merged with and into San Jose National Bank
(the "Bank Merger"), and San Jose National Bank shall be the surviving entity in
the Bank Merger and shall continue as a wholly-owned Subsidiary (as defined
herein) of SJNB;
WHEREAS, the Boards of Directors of SJNB, Saratoga and SNB have each
determined that the Merger and the other transactions contemplated by this
Agreement are consistent with, and will contribute to the furtherance of, their
respective business strategies and goals; and
WHEREAS, as a condition and inducement to SJNB's willingness to enter into
this Agreement, SJNB and Saratoga are entering into a Stock Option Agreement
dated as of the date hereof in the form of Exhibit B hereto (the "Stock Option
---------
Agreement") pursuant to which Saratoga has granted to SJNB an option to purchase
shares of the Common Stock, no par value, of Saratoga (the "Saratoga Common
Stock") constituting 19.9% of the outstanding shares of Saratoga Common Stock.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
A-1
<PAGE>
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the terms and conditions of
----------------------------
this Agreement, the Merger shall become effective upon the occurrence of the
filing of an agreement of merger in substantially the form of Exhibit A hereto
---------
(the "Agreement of Merger") and officers' certificates prescribed by section
1103 of the California General Corporation Law ("CGCL") with the Secretary of
State of the State of California, or at such time thereafter as is provided by
mutual agreement in the Agreement of Merger (the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
-------
10:00 a.m., California time, on the first Friday which is at least ten Business
Days after receipt of all Requisite Regulatory Approvals and the expiration of
all requisite waiting periods (subject to the satisfaction of the condition set
forth in Section 6.1(a)), but in no event shall such date be later than March
31, 2000, unless otherwise agreed in writing by the parties hereto or as
provided in Section 7.1(c) (the "Closing Date"). The Closing shall be held at
the offices of SJNB Financial Corp., One North Market Street, San Jose,
California 95113, or at such other location as is agreed to in writing by the
parties hereto. As used in this Agreement, "Business Day" shall mean any day
that is not a Saturday, Sunday or other day on which banks are required or
authorized by law to be closed in California.
1.3 Effects of the Merger.
---------------------
(a) At the Effective Time (i) Saratoga shall be merged with and into SJNB
and the separate corporate existence of Saratoga shall cease, (ii) the Articles
of Incorporation of SJNB as in effect immediately prior to the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation, (iii) the
By-laws of SJNB as in effect immediately prior to the Effective Time shall be
the By-laws of the Surviving Corporation, (iv) the directors of SJNB at the
Effective Time shall be the directors of the Surviving Corporation (except that
the Board of Directors of SJNB shall take all necessary action to appoint
Richard L. Mount and four other representatives of Saratoga (collectively, the
"Saratoga Designees"), mutually acceptable to SJNB and Saratoga, to serve on the
Surviving Corporation's board of directors as of and after the Effective Time,
with three of such Saratoga Designees to serve as Class I Directors and one each
of such Saratoga Designees to serve as a Class II Director and a Class III
Director of SJNB, such Saratoga Designees to serve as directors until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be; provided, however, that Richard
-------- -------
L. Mount shall remain a director of SJNB following any termination of his
employment with SJNB or its Subsidiaries; provided further that the Board of
-------- -------
Directors of SJNB or the nomination committee thereof shall nominate and
recommend the election of each of the five Saratoga Designees for reelection as
directors of SJNB at the conclusion of the term of their respective director
class as necessary in order that each such Saratoga Designee shall serve as an
SJNB director for at least three years after the Effective Time; provided
--------
further, however, that in the event any such Saratoga Designee resigns, is
- -------
removed (other than by a vote of the shareholders of SJNB) or otherwise
terminates service, the remaining Saratoga Designees may
A-2
<PAGE>
select a former Saratoga director as his or her replacement and SJNB shall
nominate for election such replacement so selected to serve as a director of
SJNB for at least the remainder of the term of the Saratoga Designee being
replaced (as such term may be required to be extended as provided in the second
proviso above)), (v) the officers of SJNB immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be, (vi) Richard L. Mount shall be
appointed to serve on the Executive Management Committee of SJNB, and (vii) each
of the Saratoga Designees will be appointed to serve on the Board of Directors
of San Jose National Bank until the earlier of his resignation or removal, until
his respective successor is duly elected and qualified or until he ceases to
serve as a member of the Board of Directors of SJNB.
(b) As used in this Agreement, "Constituent Corporations" shall mean each
of SJNB and Saratoga, and "Surviving Corporation" shall mean SJNB, at and after
the Effective Time, as the surviving corporation in the Merger and SNB shall be
a subsidiary of SJNB.
(c) At and after the Effective Time, the Merger will have the effects set
forth in the CGCL.
1.4 Alternative Structure.
---------------------
Notwithstanding anything contained in this Agreement to the contrary, upon
receipt of Saratoga's prior written consent (which consent shall not be
unreasonably withheld), SJNB may specify, for any reasonable business, tax or
regulatory purpose, that, before the Merger, SJNB, Saratoga and SNB shall enter
into transactions other than those described herein in order to effect the
purposes of this Agreement, and the parties hereto shall take all action
necessary and appropriate to effect, or cause to be effected, such transactions;
provided, however, that no such specification may (a) materially and adversely
- -------- -------
affect the timing of the consummation of the transactions contemplated herein,
or (b) adversely affect the economic benefits, the form of consideration or the
tax effect of the Merger to the holders of Saratoga Common Stock.
1.5 Absence of Control. Subject to any specific provisions of this
------------------
Agreement, it is the intent of the parties hereto that neither SJNB nor Saratoga
by reason of this Agreement shall be deemed (until consummation of the
transactions contemplated hereby) to control, directly or indirectly, the other
party and shall not exercise, or be deemed to exercise, directly or indirectly,
a controlling influence over the management or policies of such other party.
A-3
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock of the Constituent Corporations. At the
-------------------------------------------------------
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any shares of Saratoga or SJNB capital stock:
(a) Conversion of Saratoga Common Stock. Subject to Sections 2.3, 2.5
-----------------------------------
and 7.1(h), each of the shares of Saratoga Common Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares perfected in accordance with Chapter 13 of the CGCL) shall be
converted into the right to receive 0.7 shares (the "Exchange Ratio") of
fully paid and nonassessable shares of Common Stock, no par value per share
(the "SJNB Common Stock"), of SJNB. All such shares of Saratoga Common
Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the right to
receive (i) a certificate representing the number of whole shares of SJNB
Common Stock into which such Saratoga Common Stock has been converted and,
if applicable, (ii) cash in lieu of fractional shares as provided in
Section 2.3 hereof. Certificates previously representing shares of Saratoga
Common Stock shall be exchanged for certificates representing whole shares
of SJNB Common Stock issued in consideration therefor (and, if applicable,
cash in lieu of fractional shares as provided in Section 2.3 hereof) upon
the surrender of such certificates.
(b) SJNB Capital Stock. At and after the Effective Time, each share
------------------
of SJNB Common Stock issued and outstanding immediately prior to the
Effective Time shall remain an issued and outstanding share of capital
stock of SJNB and shall not be affected by the Merger.
2.2 No Further Ownership Rights in Saratoga Common Stock. All shares of
----------------------------------------------------
SJNB Common Stock issued upon conversion of shares of Saratoga Common Stock in
accordance with the terms hereof shall be deemed to represent all rights
pertaining to such shares of Saratoga Common Stock, and, after the Effective
Time, there shall be no further registration of transfers on the stock transfer
books of Saratoga of the shares of Saratoga Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates formerly representing shares of Saratoga Common Stock are presented
to SJNB for any reason, they shall be canceled and, if applicable, exchanged as
provided in this Article II.
2.3 Fractional Shares. Notwithstanding any other provision hereof, no
-----------------
fractional shares of SJNB Common Stock shall be issued to holders of shares of
Saratoga Common Stock. In lieu thereof, each such holder entitled to a fraction
of a share of SJNB Common Stock (after taking into account all shares of
Saratoga Common Stock held at the Effective Time by such
A-4
<PAGE>
holder) shall receive, at the time of surrender of the certificates representing
such holder's Saratoga Common Stock, an amount in cash equal to the Average SJNB
Closing Price, multiplied by the fraction of a share of SJNB Common Stock to
which such holder would otherwise be entitled. No such holder shall be entitled
to dividends, voting rights, interest on the value of, or any other rights in
respect of a fractional share.
2.4 Surrender of Shares of Saratoga Common Stock.
--------------------------------------------
(a) Prior to the Effective Time, SJNB shall appoint U.S. Stock Transfer
Corp. or its successor, or any other bank or trust company (having capital of at
least $50 million) mutually acceptable to Saratoga and SJNB, as exchange agent
(the "Exchange Agent") for the purpose of exchanging certificates representing
the SJNB Common Stock which are to be issued pursuant to Section 2.1, and at and
after the Effective Time, SJNB shall issue and deliver to the Exchange Agent
certificates representing the shares of SJNB Common Stock, as shall be required
to be delivered to holders of shares of Saratoga Common Stock pursuant to
Section 2.1 hereof. As soon as practicable after the Effective Time, each holder
of shares of Saratoga Common Stock converted pursuant to Section 2.1, upon
surrender to the Exchange Agent of one or more Saratoga share certificates (the
"Saratoga Certificates") for cancellation, will be entitled to receive a
certificate representing the number of shares of SJNB Common Stock determined in
accordance with Section 2.1 and a payment in cash with respect to fractional
shares, if any, determined in accordance with Section 2.3.
(b) No dividends or other distributions of any kind which are declared
payable to shareholders of record of the shares of SJNB Common Stock after the
Effective Time will be paid to persons entitled to receive such certificates for
shares of SJNB Common Stock until such persons surrender their Saratoga
Certificates. Upon surrender of such Saratoga Certificate, the holder thereof
shall be paid, without interest, any dividends or other distributions with
respect to the shares of SJNB Common Stock as to which the record date and
payment date occurred on or after the Effective Time and on or before the date
of surrender.
(c) If any certificate for shares of SJNB Common Stock is to be issued in
a name other than that in which the Saratoga Certificate surrendered in exchange
therefor is registered, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer costs,
taxes or other expenses required by reason of the issuance of certificates for
such shares of SJNB Common Stock in a name other than the registered holder of
the Saratoga Certificate surrendered, or such persons shall establish to the
satisfaction of SJNB and the Exchange Agent that such costs, taxes or other
expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid in lieu of
fractional shares pursuant to Section 2.3, if held by the Exchange Agent for
payment or delivery to the holders of unsurrendered Saratoga Certificates
representing shares of Saratoga Common Stock and unclaimed at the end of one
year from the Effective Time, shall (together with any interest earned thereon)
at such time be paid or redelivered by the Exchange Agent to SJNB, and after
such time any holder of a Saratoga Certificate who has not surrendered such
Saratoga Certificate
A-5
<PAGE>
to the Exchange Agent shall, subject to applicable law, look as a general
creditor only to SJNB for payment or delivery of such dividends or distributions
or cash, as the case may be.
(e) Neither SJNB nor the Surviving Corporation shall be liable to any
holder of Saratoga Common Stock for such shares (or dividends or distributions
thereon) or cash payable in lieu of fractional shares pursuant to Section 2.3
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
2.5 Adjustments. In the event SJNB changes (or establishes a record date
-----------
for changing) the number of shares of SJNB Common Stock issued and outstanding
prior to the Effective Time as a result of an issuance of shares of SJNB Common
Stock, or a recapitalization, reclassification, split-up, combination, exchange,
readjustment, reorganization, merger, consolidation, distribution, stock split,
stock or other dividend, or similar transaction with respect to the outstanding
SJNB Common Stock and the record date therefor, if applicable, shall be prior to
the Effective Time, the Exchange Ratio shall be proportionately adjusted with
the result that the holders of Saratoga Common Stock shall receive the same
economic benefit set forth in Section 2.1. Further, in the event SJNB, prior to
the Effective Time, grants, issues, delivers, sells or otherwise distributes any
warrant, option, security, right or other instrument convertible into or
exchangeable for any shares of SJNB Common Stock (collectively, an "SJNB
Instrument"), then (i) the Exchange Ratio shall be proportionately adjusted in
the manner prescribed above as if the shares of SJNB Common Stock issuable
pursuant to such SJNB Instrument were outstanding prior to the Effective Time
or, (ii) in the sole discretion of SJNB, SJNB shall provide, at or prior to the
Effective Time, for the holders of the Saratoga Common Stock whose shares are to
be converted into shares of SJNB Common Stock pursuant to the Merger
proportionately equivalent SJNB Instruments upon consummation of the Merger;
provided, however, that no adjustment hereunder shall be made for the grant of
- -------- -------
options under the SJNB 1996 Stock Option Plan made by the Board of Directors of
SJNB in its sole discretion; and provided further, that no adjustment shall be
-------- -------
made hereunder for any option granted in connection with a Takeover Proposal (as
defined in Section 5.4(a)) to which SJNB is a party (either as acquiror or
target) and no adjustment shall be made in the event that SJNB takes any action
to authorize, approve or adopt a shareholder rights plan in accordance with
Section 4.2(a)(ii).
2.6 Options. At the Effective Time, each option granted by Saratoga to
-------
purchase shares of Saratoga Common Stock (each, an "Saratoga Option") which is
outstanding and unexercised immediately prior thereto shall cease to represent a
right to acquire shares of Saratoga Common Stock and shall be converted
automatically into an option to purchase shares of SJNB Common Stock in an
amount and at an exercise price determined as provided below (and otherwise
subject to the terms of the stock option plans of Saratoga (the "Saratoga Stock
Option Plans") and the agreements evidencing grants thereunder, including but
not limited to, the accelerated vesting of such options which shall occur in
connection with and by virtue of the consummation of the Merger as and to the
extent required by such plans and agreements): (a) the number of shares of SJNB
Common Stock to be subject to the new option shall be equal to the product of
the number of shares of Saratoga Common Stock subject to the original option and
the Exchange Ratio, provided that any fractional shares of SJNB Common Stock
resulting
A-6
<PAGE>
from such multiplication shall be rounded down to the nearest share; and (b) the
exercise price per share of SJNB Common Stock under the new option shall be
equal to the exercise price per share of Saratoga Common Stock under the
original option divided by the Exchange Ratio, provided that such exercise price
shall be rounded up to the nearest cent. In the case of any options which are
"incentive stock options" (as defined in section 422 of the Code), the exercise
price, the number of shares purchasable pursuant to such options and the terms
and conditions of exercise of such options shall be determined in order to
comply with section 424(a) of the Code. The duration and other terms of the new
option shall be the same as the original option except that all references to
Saratoga shall be deemed to be references to SJNB.
2.7 Dissenters' Rights. Notwithstanding anything in this Agreement to the
------------------
contrary, shares of Saratoga Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders that
have not voted such shares in favor of the Merger and have delivered a written
demand for the valuation of such shares in the manner provided in the CGCL (such
shares, the "Dissenting Shares") shall not be converted into or represent the
right to receive SJNB Common Stock as provided in Section 2.1 and the holders
thereof shall only be entitled to such rights as are granted by Chapter 13 of
the CGCL. Each holder of Dissenting Shares that becomes entitled to payment for
such shares pursuant to Chapter 13 of the CGCL shall receive payment therefor
from the Surviving Corporation in accordance with the CGCL; provided, however,
-------- -------
that (i) if any such holder of Dissenting Shares shall have failed to establish
that such holder is entitled to dissenters' rights as provided in Chapter 13 of
the CGCL, or (ii) if any such holder of Dissenting Shares shall have effectively
withdrawn the demand for valuation of such shares or lost the right to valuation
and payment of such shares under Chapter 13 of the CGCL, or (iii) if neither the
Surviving Corporation nor such holder of Dissenting Shares shall have filed a
petition demanding a determination of the value of all Dissenting Shares within
the time provided in section 1309 of the CGCL, such holder's or holders' (as the
case may be) shares of Saratoga Common Stock shall thereupon be deemed to have
been converted, as of the Effective Time, into and represent the right to
receive from the Surviving Corporation the shares of SJNB Common Stock as
provided in Section 2.1 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Saratoga and SNB. Each of Saratoga
--------------------------------------------------
and SNB hereby represent and warrant to SJNB as follows:
(a) Organization, Standing and Power. Saratoga is a bank holding company
--------------------------------
registered under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). SNB is a wholly owned Subsidiary of Saratoga and is a national banking
association organized under the laws of the United States. The deposit accounts
of SNB are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC") to the fullest extent permitted by law, and all
premiums and assessments required in connection therewith have been paid when
due. Saratoga and each of its Subsidiaries is a bank or corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization,
A-7
<PAGE>
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify
would not, either individually or in the aggregate, have a material adverse
effect on Saratoga. The Articles of Incorporation or Association and By-laws of
each of Saratoga, and each Subsidiary of Saratoga, copies of which were
previously made available to SJNB, are true, complete and correct. The minute
books of Saratoga and its Subsidiaries which have been made available to SJNB
contain a complete (except for certain portions thereof relating to the Merger
and the transactions contemplated hereby) and accurate record of all meetings of
the respective Boards of Directors (and committees thereof) and shareholders.
As used in this Agreement,
(i) the term "Subsidiary" when used with respect to any party means
any corporation or other organization, whether incorporated or
unincorporated, (x) of which such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general partnership
interests of which held by such party or any Subsidiary of such party do
not have a majority of the voting interests in such partnership), or (y) at
least a majority of the securities or other interests of which having by
their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by
such party and one or more of its Subsidiaries,
(ii) any reference to any event, change or effect being "material"
with respect to any entity means an event, change or effect which is
material in relation to the condition (financial or otherwise), properties,
assets, liabilities, businesses, results of operations or prospects of such
entity and its Subsidiaries taken as a whole,
(iii) the term "material adverse effect" means, with respect to any
entity, a material adverse effect (whether or not required to be accrued or
disclosed under Statement of Financial Accounting Standards No. 5 ("SFAS
No. 5")) (A) on the condition (financial or otherwise), properties, assets,
liabilities, businesses, results of operations or prospects of such entity
and its Subsidiaries taken as a whole (but does not include any such effect
resulting from or attributable to any action or omission by Saratoga or
SJNB or any Subsidiary of either of them taken with the prior written
consent of the other parties hereto, in contemplation of the transactions
contemplated hereby), or (B) on the ability of such entity to perform its
obligations under the Transaction Agreements (as defined below) on a timely
basis,
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(iv) the term "Transaction Agreements" shall mean this Agreement, the
Stock Option Agreement and the Agreement of Merger,
(v) the term "knowledge" or "to the best knowledge of" a party
hereto means the actual knowledge of a director or executive officer of a
party after reasonable inquiry under all the circumstances,
(vi) the term "Affiliate" means, as to any person, a person which
controls, is controlled by or is under common control with such person, and
(vii) the term "person" shall mean an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(b) Capital Structure; Ownership of SJNB Common Stock.
-------------------------------------------------
(i) The authorized capital stock of Saratoga consists of 20,000,000
shares of Saratoga Common Stock and 1,000,000 shares of preferred stock, no
par value (the "Saratoga Preferred Stock"), of which (A) as of August 25,
1999, 1,586,588 shares of Saratoga Common Stock were outstanding (none
having been issued thereafter except from the exercise of Saratoga Options)
and (B) as of the date hereof, no shares of Saratoga Preferred Stock are
outstanding. All outstanding shares of Saratoga Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable and not
subject to preemptive rights.
(ii) The authorized capital stock of SNB consists of 405,000 shares
of SNB Common Stock of which 300,000 shares are outstanding. All
outstanding shares of SNB Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable (except to the extent
provided in the National Bank Act) and not subject to preemptive rights.
(iii) Except for this Agreement and the Stock Option Agreement and
except as set forth in Section 3.1(b)(iii) of the disclosure schedule of
Saratoga delivered to SJNB on the date hereof (the "Saratoga Disclosure
Schedule"), (A) there are no options, warrants, calls, rights, commitments
or agreements of any character to which Saratoga or any of its Subsidiaries
or Affiliates (as defined herein) is a party or by which any of the
foregoing are bound obligating Saratoga or any of its Subsidiaries,
including SNB, or Affiliates to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of Saratoga
or any of its Subsidiaries or obligating Saratoga or any of its
Subsidiaries or Affiliates to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement, (B) there are no outstanding
contractual obligations of Saratoga or any of its Subsidiaries or
Affiliates to repurchase, redeem or otherwise acquire any shares of capital
stock of Saratoga or any of its Subsidiaries and (C) there are no
outstanding securities of any kind convertible into or
A-9
<PAGE>
exchangeable for the capital stock of Saratoga or any of its Subsidiaries
(or any interest therein). Except as set forth in Section 3.1(b)(iii) of
the Saratoga Disclosure Schedule, there is no agreement of any kind to
which Saratoga or SNB is a party and, to the knowledge of Saratoga (without
inquiry), no other agreement of any kind, in each case that gives any
person any right to participate in the equity, value or income of, or to
vote (x) in the election of directors or officers of, or (y) otherwise with
respect to the affairs of, Saratoga or any of its Subsidiaries.
(iv) Neither Saratoga nor any of its Subsidiaries or, to the best
knowledge of Saratoga, its Affiliates, beneficially owns, directly or
indirectly, any shares of capital stock of SJNB, securities of SJNB
convertible into, or exchangeable for, such shares, or options, warrants or
other rights to acquire such shares (regardless of whether such securities,
options, warrants or other rights are then exercisable or convertible), nor
is Saratoga or any of such Subsidiaries or Affiliates a party to any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of shares of capital stock of SJNB or any such
other securities, options, warrants or other rights.
(v) No shares of Saratoga Common Stock are held directly or
indirectly by Saratoga or its Subsidiaries in trust accounts, managed
accounts and the like or otherwise held in a fiduciary or nominee capacity
(any such shares, and shares of SJNB Common Stock which are similarly held,
whether held directly or indirectly by Saratoga or SJNB or any of their
respective Subsidiaries, as the case may be, being referred to herein as
"Trust Account Shares") and no shares of Saratoga Common Stock are held by
Saratoga or its Subsidiaries in respect of a debt previously contracted
(any such shares and shares of SJNB Common Stock which are similarly held,
whether held directly or indirectly by Saratoga or SJNB or any of their
respective Subsidiaries, as the case may be, being referred to herein as
"DPC Shares").
(c) Authority; No Violation.
-----------------------
(i) Each of Saratoga and SNB, as applicable, has all requisite
corporate power and authority to enter into this Agreement and the other
Transaction Agreements and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
other Transaction Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Saratoga and SNB, other than the approval
of this Agreement and the Agreement of Merger by the holders of a majority
of the outstanding shares of Saratoga Common Stock (the "Saratoga
Shareholder Approval"). The Saratoga Shareholder Approval is the only vote
of any class or series of Saratoga capital stock necessary to approve this
Agreement and the other Transaction Agreements and the consummation of the
transactions contemplated hereby and thereby. This
A-10
<PAGE>
Agreement and the other Transaction Agreements have been duly executed and
delivered by each of Saratoga and SNB, as applicable, and (assuming due
authorization, execution and delivery by SJNB) constitute the valid and
binding obligations of each of Saratoga and SNB, as applicable, enforceable
against each of Saratoga and SNB in accordance with their terms, subject,
as to enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles. SNB has full corporate power and authority to consummate
the Bank Merger.
(ii) Except as set forth in Section 3.1(c)(ii) of the Saratoga
Disclosure Schedule, the execution and delivery by each of Saratoga and
SNB, as applicable, of this Agreement and the other Transaction Agreements
does not or will not when delivered, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or constitute a default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security interest, charge
or other encumbrance on any assets (any such conflict, violation, default,
right of termination, cancellation or acceleration, loss or creation, a
"Violation") pursuant to, (x) any provision of the articles of
incorporation or association or by-laws or comparable organizational
documents of Saratoga or any Subsidiary of Saratoga, or (y) subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii)
below, any loan or credit agreement, note, mortgage, indenture, lease,
Saratoga Benefit Plan (as defined in Section 3.1(k)) or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Saratoga or any Subsidiary of Saratoga or its properties or assets, which
Violation, in the case of clause (y), individually or in the aggregate,
would have a material adverse effect on Saratoga.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency
or commission or other governmental authority or instrumentality, domestic
or foreign (a "Governmental Entity"), is required by or with respect to
Saratoga or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the other Transaction Agreements or the
consummation by Saratoga or SNB of the transactions contemplated hereby or
thereby, which, if not made or obtained, would have a material adverse
effect on Saratoga or on the ability of Saratoga or SNB to perform its
respective obligations hereunder or thereunder on a timely basis, or on
SJNB's ability to own, possess or exercise the rights of an owner with
respect to the business and assets of Saratoga and its Subsidiaries, except
for (A) the filing of applications and notices with the Board of Governors
of the Federal Reserve System (the "Federal Reserve") under the BHC Act and
approval of
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<PAGE>
same, (B) the filing by Saratoga and SJNB with the SEC of a joint proxy
statement (the "Proxy Statement") in definitive form relating to the
meetings of the shareholders of Saratoga and SJNB to be held to approve and
adopt this Agreement and the transactions contemplated hereby, (C) such
applications, filings, authorizations, orders and approvals as may be
required by the Office of the Comptroller of the Currency ("OCC"), and (D)
the filing with the Secretary of State of the State of California of the
Agreement of Merger.
(d) Financial Statements. Saratoga has previously delivered to SJNB copies
--------------------
of (a) the consolidated statements of financial condition of Saratoga and its
Subsidiaries, as of December 31, for the fiscal years 1997 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for the fiscal years 1996 through 1998, inclusive, as reported in Saratoga's
Annual Reports on Form 10-K for the relevant fiscal years filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
each case accompanied by the report of Deloitte & Touche LLP, independent
auditors with respect to Saratoga (the consolidated financial statements of
Saratoga and its Subsidiaries referred to in this sentence being hereinafter
sometimes referred to as the "Saratoga Consolidated Financial Statements"). Each
of the financial statements referred to in this Section 3.1(d) (including the
related notes, where applicable) fairly present, and the financial statements
referred to in Section 5.14 hereof will fairly present (subject, in the cases of
the unaudited statements, to normal recurring and year-end audit adjustments,
none of which are expected to be material in nature or amount), the results of
the consolidated operations and changes in shareholders' equity and consolidated
financial condition of Saratoga and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth. Each of such statements
(including the related notes, where applicable) complies, and the financial
statements referred to in Section 5.14 hereof will comply, in all material
respects, with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto and each of such statements
(including the related notes, where applicable) has been, and the financial
statements referred to in Section 5.14 will be, prepared, in all material
respects, in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except in
each case as indicated in such statements or in the notes thereto or, in the
case of unaudited statements (subject to normal recurring and year-end audit
adjustments), as permitted by Form 10-Q. The books and records of Saratoga and
its Subsidiaries have been, and are being, maintained where required in all
material respects in accordance with GAAP and any other applicable legal and
accounting requirements and, where such books and records purport to reflect any
transactions, the transactions so reflected are actual transactions.
(e) Saratoga SEC Documents. Saratoga has made available to SJNB a true and
----------------------
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Saratoga with the SEC pursuant to the Securities Act of
1933 (the "Securities Act") or the Exchange Act (other than reports filed
pursuant to section 13(g) of the Exchange Act), since December 31, 1997 (as such
documents have since the time of their filing been amended, the "Saratoga SEC
Reports"), which are all the documents (other than preliminary material and
reports required pursuant to section 13(g) of the Exchange Act) that Saratoga
was required to file
A-12
<PAGE>
with the SEC since such date. As of their respective dates of filing with the
SEC, the Saratoga SEC Reports complied as to form in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Saratoga
SEC Reports, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Saratoga included in the Saratoga
SEC Reports (including any related notes and schedules thereto) complied as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared, in all
material respects, in accordance with GAAP applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements (subject to normal recurring and year-end audit
adjustments), as permitted by Form 10-Q of the SEC) and fairly present in all
material respects the consolidated financial position of Saratoga and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of operations, changes in shareholders' equity and cash flows of such companies
for the periods then ended.
(f) Saratoga Information Supplied. None of the information supplied or to
-----------------------------
be supplied by Saratoga for inclusion or incorporation by reference in the Proxy
Statement relating to the meeting of the shareholders of Saratoga (the "Saratoga
Shareholders' Meeting") at which the Saratoga Shareholder Approval will be
sought or for inclusion in the S-4 (as defined herein) will, at the date of
mailing to shareholders of Saratoga and at the time of the Saratoga
Shareholders' Meeting, (i) contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or (ii) at the time and in the light of the
circumstances under which it is made, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of a proxy for the
Saratoga Shareholders' Meeting which has become false or misleading.
(g) Compliance with Applicable Laws. Saratoga and its Subsidiaries hold,
-------------------------------
and at all relevant times have held, all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities which are material
to the operation of the businesses of Saratoga and its Subsidiaries, taken as a
whole (the "Saratoga Permits"). Saratoga and its Subsidiaries are in compliance
and have complied with the terms of the Saratoga Permits, except where the
failure so to comply, individually or in the aggregate, would not have a
material adverse effect on Saratoga. The businesses of Saratoga and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which,
individually or in the aggregate, do not, and, insofar as reasonably can be
foreseen, in the future will not, have a material adverse effect on Saratoga.
Except for routine examinations by Federal or state Governmental Entities
charged with the supervision or regulation of banks or bank holding companies or
engaged in the insurance of bank deposits ("Bank Regulators"), no investigation
by any Governmental Entity with respect to Saratoga or any of its Subsidiaries
is pending or threatened, and no proceedings by any Bank Regulator are pending
or threatened
A-13
<PAGE>
which seek to revoke or materially limit any of the Saratoga Permits. Saratoga
and its Subsidiaries do not offer or sell insurance and/or securities products,
including but not limited to annuity products, for their own account or the
account of others.
(h) Litigation. Except as set forth in Section 3.1(h) of the Saratoga
----------
Disclosure Schedule, to the best knowledge of Saratoga, there is no suit,
action, proceeding, arbitration or investigation ("Litigation") pending to which
Saratoga or any Subsidiary of Saratoga is a party or by which any of such
persons or their respective assets may be bound or, to the best knowledge of
Saratoga, threatened against or affecting Saratoga or any Subsidiary of
Saratoga, or challenging the validity or propriety of the transactions
contemplated hereby which, if adversely determined, would, individually or in
the aggregate, have or reasonably be expected to have a material adverse effect
on Saratoga or on the ability of Saratoga or SNB to perform its respective
obligations under this Agreement or the Stock Option Agreement in a timely
manner, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Saratoga or any Subsidiary
of Saratoga.
(i) Taxes. Saratoga and each of its Subsidiaries have timely filed all tax
-----
returns required to be filed by any of them and all such tax returns were, when
filed, correct and complete in all material respects. Saratoga and each of its
Subsidiaries have timely paid (or Saratoga has paid on their behalf), or have
set up an adequate reserve for the payment of, all taxes required to be paid
(whether or not shown as due on such returns), and the most recent financial
statements that have been delivered to SJNB reflect an adequate reserve (other
than reserves for deferred taxes established to reflect differences between tax
and book basis of assets and liabilities) for all taxes accrued but not yet due
and owing, by Saratoga and its Subsidiaries accrued through the date of such
financial statements. Saratoga and its Subsidiaries file tax returns in all
jurisdictions where required to file tax returns. No material deficiencies for
any taxes have been asserted or assessed against Saratoga or any of its
Subsidiaries that are not adequately reserved for (other than reserves for
deferred taxes established to reflect differences between tax and book basis of
assets and liabilities). Except as set forth in Section 3.1(i) of the Saratoga
Disclosure Schedule: (i) there are no liens with respect to taxes upon any of
the assets or properties of Saratoga and its Subsidiaries, other than with
respect to taxes not yet due and payable, (ii) no material issue relating to
taxes of Saratoga and its Subsidiaries has been raised in writing by any taxing
authority in any audit or examination which can result in a proposed adjustment
or assessment by a governmental authority in a taxable period (or portion
thereof) ending on or before the Closing Date nor, to the best knowledge of
Saratoga, does any basis exist for the raising of any such issue, (iii) Saratoga
and its Subsidiaries have duly and timely withheld from all payments (including
employee salaries, wages and other compensation) and paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods for which the statute of limitations has not expired under
all applicable laws and regulations, (iv) as of the Closing Date, none of
Saratoga nor any of its Subsidiaries shall be a party to, be bound by or have
any obligation under, any tax sharing agreement or similar contract or
arrangement or any agreement that obligates any of them to make any payment
computed by reference to the taxes, taxable income or taxable losses of any
other person, (v) except as set forth on Section 3.1(i) of the Saratoga
Disclosure Schedule, there is no contract or agreement,
A-14
<PAGE>
plan or arrangement by Saratoga or any of its Subsidiaries covering any person
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible by Saratoga or any of its Subsidiaries by reason of
section 280G of the Code, (vi) Saratoga and its Subsidiaries have collected all
material sales and use taxes required to be collected, and have remitted, or
will remit on a timely basis, such amounts to the appropriate governmental
authorities, or have been furnished properly completed exemption certificates
and have maintained all such records and supporting documents in all material
respects in the manner required by all applicable sales and use tax statutes and
regulations for all periods for which the statute of limitations has not
expired, (vii) neither Saratoga nor any of its Subsidiaries has been a United
States real property holding corporation within the meaning of section 897(c)(2)
of the Code during the applicable period specified in section 897(c)(1)(A)(ii)
of the Code, and (viii) none of Saratoga nor any of its Subsidiaries (A) has
been a member of an affiliated group (other than the group to which they are
currently members) filing a consolidated federal income tax return or (B) has
any liability for the taxes of any person (other than the members of such
current group) under Treasury Regulation section 1.1502-6(a) (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise. For the purpose of this Agreement, the term "tax"
(including, with correlative meaning, the terms "taxes" and "taxable") shall
include, except where the context otherwise requires, all Federal, state, local
and foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, custom, duty, capital
stock, ad valorem, value added, estimated, stamp, alternative, environmental,
any taxes imposed under Subchapter H of Chapter I of Subtitle A of the Code, and
other taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts. As used
in this Agreement, the term "Tax return" shall mean any return, declaration,
report, claim for refund or information return or statement relating to taxes,
including any schedule or attachment thereto, and including any amendment
thereof. None of Saratoga nor any of its Subsidiaries has filed a consent to the
application of section 341(f) of the Code.
(j) Certain Agreements. Section 3.1(j) of the Saratoga Disclosure Schedule
------------------
sets forth a listing of all of the following contracts and other agreements,
oral or written (which are currently in force or which may in the future be
operative in any respect) to which Saratoga or any of its Subsidiaries is a
party or by or to which Saratoga or any of its Subsidiaries or any of their
respective assets or properties are bound or subject: (i) consulting agreements
not terminable on six months or less notice involving the payment of more than
$25,000 per annum, or union, guild or collective bargaining agreements covering
any employees in the United States, (ii) agreements with any officer or other
key employee of Saratoga or any of its Subsidiaries (x) providing any term of
employment or (y) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving Saratoga
of the nature contemplated by this Agreement, (iii) any agreement or plan, any
of the benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement, (iv) contracts and other agreements for the sale or lease (other than
where Saratoga or any of its Subsidiaries is a lessor) of any assets or
properties (other than in the ordinary course of business)
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or for the grant to any person (other than to Saratoga or any of its
Subsidiaries) of any preferential rights to purchase any assets or properties,
(v) contracts and other agreements relating to the acquisition by Saratoga or
any of its Subsidiaries of any operating business or entity or any interest
therein, (vi) contracts or other agreements under which Saratoga or any of its
Subsidiaries agrees to indemnify any party, other than in the ordinary course of
business, consistent with past practice, or to share a tax liability of any
party, (vii) contracts and other agreements containing covenants restricting
Saratoga or any of its Subsidiaries from competing in any line of business or
with any person in any geographical area or requiring Saratoga or any of its
Subsidiaries to engage in any line of business, (viii) contracts or other
agreements (other than contracts in the ordinary course of their banking
business) relating to the borrowing of money by Saratoga or any of its
Subsidiaries, or the direct or indirect guaranty by Saratoga or any of its
Subsidiaries of any obligation for, or an agreement by Saratoga or any of its
Subsidiaries to service, the repayment of borrowed money, or any other
contingent obligations of Saratoga or any of its Subsidiaries in respect of
indebtedness of any other person, and (ix) any other material contract or other
agreement whether or not made in the ordinary course of business, including any
contract required to be filed by Saratoga pursuant to Item 601(b)(10) of
Regulation S-K of the SEC. There have been delivered or made available to SJNB
true and complete copies of all of the contracts and other agreements set forth
in Section 3.1(j) of the Saratoga Disclosure Schedule and in any other Section
of the Saratoga Disclosure Schedule. Except as set forth in Section 3.1(j) of
the Saratoga Disclosure Schedule, each such contract and other agreement is in
full force and effect and constitutes a legal, valid and binding obligation of
Saratoga or its Subsidiaries, as the case may be, and to the best knowledge of
Saratoga, each other party thereto, enforceable in accordance with its terms
subject, as to enforceability, to bankruptcy, insolvency, and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. Neither Saratoga nor any Subsidiary of Saratoga has received
any notice, whether written or oral, of termination or intention to terminate
from any other party to such contract or agreement. None of Saratoga or any of
its Subsidiaries or (to the best knowledge of Saratoga) any other party to any
such contract or agreement is in violation or breach of or default under any
such contract or agreement (or with or without notice or lapse of time or both,
would be in violation or breach of or default under any such contract or
agreement), which violation, breach or default has had or would have,
individually or in the aggregate, a material adverse effect on Saratoga.
(k) Benefit Plans.
-------------
(i) Section 3.1(k) of the Saratoga Disclosure Schedule contains a
true and complete list of each "employee benefit plan" (within the meaning
of section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), including, without limitation, multiemployer plans
(within the meaning of ERISA section 3(37)), and all stock purchase, stock
option, severance, employment, change-in-control, fringe benefit,
collective bargaining, bonus, incentive, deferred compensation, employee
stock ownership, retirement, profit sharing and all other employee benefit
plans, agreements, programs, policies or other arrangements, whether or not
subject to ERISA, and whether formal or
A-16
<PAGE>
informal, oral or written (all the foregoing being herein called "Benefit
Plans"), that are sponsored or are being maintained or contributed to, or
required to be contributed to, by Saratoga or any of its Subsidiaries (the
"Saratoga Benefit Plans"). No Saratoga Benefit Plan is a multiemployer plan
or is subject to a collective bargaining agreement.
(ii) With respect to each Saratoga Benefit Plan, Saratoga has
delivered to SJNB a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable, (A) any related trust agreement or other funding instrument;
(B) the most recent determination letter; (C) any summary plan description
and other written communications (or a description of any oral
communications) by Saratoga or any of its Subsidiaries to any of their
respective employees concerning the extent of the benefits provided under
any Saratoga Benefit Plan; and (D) except as described in Section
3.1(k)(ii) of the Saratoga Disclosure Schedule, for the two most recent
years (I) the Form 5500 and attached schedules; (II) audited financial
statements; and (III) actuarial valuation reports.
(iii) Except as set forth in Section 3.1(k) of the Saratoga Disclosure
Schedule, (A) each Saratoga Benefit Plan has been established and
administered in accordance with its terms, and in compliance in all
material respects with the applicable provisions of ERISA, the Code and
other applicable laws, rules and regulations; (B) each Saratoga Benefit
Plan which is intended to be qualified within the meaning of Code section
401(a) is so qualified and has received a favorable determination letter as
to its qualification and nothing has occurred, whether by action or failure
to act, which would cause the loss of such qualification; (C) with respect
to any Saratoga Benefit Plan, no audits, actions, suits or claims (other
than routine claims for benefits in the ordinary course) are pending or
threatened, and no facts or circumstances exist which could give rise to
any such audits, actions, suits or claims; (D) neither Saratoga nor any
other party has engaged in a prohibited transaction which could subject
Saratoga or any of its Subsidiaries, or the Surviving Corporation, to any
taxes, penalties or other liabilities under Code section 4975 or ERISA
sections 409 or 502(i); (E) no event has occurred and no condition exists
that could subject Saratoga or any of its Subsidiaries, or the Surviving
Corporation, either directly or by reason of any such entity's affiliation
with any member of any such entity's Controlled Group (defined as any
organization which is a member of a controlled group of organizations
within the meaning of Code sections 414(b), (c), (m) or (o)), to any tax,
fine, liability or penalty imposed by ERISA, the Code or other applicable
laws, rules and regulations; (F) all insurance and Pension Benefit Guaranty
Corporation ("PBGC") premiums required to be paid with respect to Saratoga
Benefit Plans through the Closing Date have been or will be paid prior
thereto and adequate reserves will have been provided for on Saratoga's
consolidated statement of financial condition as of the month end
immediately prior to the Closing Date for any premiums (or portions
thereof) attributable to service on or prior to the Closing Date; (G) all
contributions required to be made prior to the
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Closing Date under the terms of each Saratoga Benefit Plan, the Code,
ERISA or other applicable laws, rules and regulations have been or will
be timely made and adequate reserves will have been provided for on
Saratoga's consolidated statement of financial condition as of the
month end immediately prior to the Closing Date for all benefits
attributable to service on or prior to the Closing Date; (H) no
Saratoga Benefit Plan has incurred any "accumulated funding deficiency"
as such term is defined in ERISA section 302 and (including, but not
limited to the voting of any securities held pursuant to an Saratoga
Benefit Plan) Code section 412 (whether or not waived); (I) the
consummation of this Agreement will not result in a nonexempt
prohibited transaction or a breach of fiduciary duty under ERISA; and
(J) no Saratoga Benefit Plan provides health coverage beyond the
termination of employment except as provided under Code section 4980B.
(iv) Except as set forth in Section 3.1(k)(iv) of the Saratoga
Disclosure Schedule, with respect to each of the Saratoga Benefit Plans
which is subject to Title IV of ERISA, as of the Closing Date, the
assets of each such Plan shall be at least equal in value to the
present value of the accrued benefits (vested and unvested) of the
participants in such Plan on a termination and projected basis, based
on the actuarial methods and assumptions indicated in the most recent
actuarial valuation reports.
(v) Except as set forth on Section 3.1(k)(v) of the Saratoga
Disclosure Schedule, no Saratoga Benefit Plan exists which provides for
an increase in benefits on or after the Closing Date or could result in
the payment to any employee of Saratoga or any of its Subsidiaries of
any money or other property or rights or accelerate or provide any
other rights or benefits to any such employee as a result of the
transactions contemplated by this Agreement. The aggregate amount of
payments due from Saratoga under all such contracts and the amount due
under each such contract, at the Effective Time, are as set forth in
the schedule included in Section 3.1(k)(v) of the Saratoga Disclosure
Schedule. Except as set forth in Section 3.1(k)(v) of the Saratoga
Disclosure Schedule, none of such payments will constitute an "excess
parachute" payment within the meaning of Code section 280G.
(l) Subsidiaries. Section 3.1(l) of the Saratoga Disclosure Schedule
------------
lists all the Subsidiaries of Saratoga. Saratoga owns, directly or indirectly,
beneficially and of record 100% of the issued and outstanding voting securities
of each such Subsidiary. All of the shares of capital stock of each of the
Subsidiaries held by Saratoga or by another of its Subsidiaries are fully paid
and nonassessable and are owned by Saratoga or one of its Subsidiaries free and
clear of any lien, claim or other encumbrance. Neither Saratoga nor any of its
Subsidiaries owns any shares of capital stock or other equity securities of any
person (other than, in the case of Saratoga, the capital stock of its
Subsidiaries and, in the case of such Subsidiaries, shares or equity securities
acquired in satisfaction of debts previously contracted in good faith in the
ordinary course of their banking business).
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(m) Agreements with Bank or Other Regulators. Except as set forth in
----------------------------------------
Section 3.1(m) of the Saratoga Disclosure Schedule, neither Saratoga nor any
Subsidiary of Saratoga is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board resolutions at
the request of, any Bank Regulator which restricts materially the conduct by
Saratoga or its Subsidiaries of their businesses, or in any manner relates to
their capital adequacy, credit policies, community reinvestment, loan
underwriting or documentation or management, nor has Saratoga or any such
Subsidiary been advised by any Bank Regulator that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, or any such board
resolutions.
(n) Absence of Certain Changes or Events. Except as set forth in Section
------------------------------------
3.1(n) of the Saratoga Disclosure Schedule, since December 31, 1998, (i) there
has not been any change, or any event involving a prospective change, in the
business, financial condition or results of operations or prospects of Saratoga
or any of its Subsidiaries which has had, or would be reasonably likely to have,
a material adverse effect on Saratoga, and (ii) Saratoga and each of its
Subsidiaries have conducted their respective businesses in the ordinary course
consistent with their past practices and neither Saratoga nor any of its
Subsidiaries has taken any action or entered into any transaction, and no event
has occurred, that would have required SJNB's consent pursuant to Section 4.1 of
this Agreement if such action had been taken, transaction entered into or event
had occurred, in each case, after the date of this Agreement, nor has Saratoga
or any of its Subsidiaries entered into any agreement, plan or arrangement to do
any of the foregoing.
(o) Undisclosed Liabilities. Except as set forth in Section 3.1(o) of the
-----------------------
Saratoga Disclosure Schedule, and except (i) for those liabilities or
obligations that are fully reflected or reserved against in the consolidated
statement of financial condition at December 31, 1998 of Saratoga referred to in
Section 3.1(d) or (ii) for liabilities or obligations incurred in the ordinary
course of business consistent with past practice since December 31, 1998 and
which are not material to Saratoga and its Subsidiaries taken as a whole, none
of Saratoga or any of its Subsidiaries has incurred any liability or obligation
of any nature whatsoever (whether absolute, accrued or contingent or otherwise
and whether due or to become due) that, either alone or when combined with all
similar liabilities or obligations, has had, or would have, a material adverse
effect on Saratoga. No agreement pursuant to which any loans or other assets
have been or will be sold by Saratoga or any Subsidiary entitle the buyer of
such loans or other assets, unless there is material breach of a representation
or covenant by Saratoga or its Subsidiaries not relating to the payment or other
performance by an obligor of such loan or other asset of its obligations
thereunder, to cause Saratoga or its Subsidiaries to repurchase such loan or
other asset or the buyer to pursue any other form of recourse against Saratoga
or its Subsidiaries.
(p) Governmental Reports. Saratoga and each of its Subsidiaries have
--------------------
timely filed all material reports, registrations and statements, together with
any amendments required to be made with respect thereto, that they were required
to file since January 1, 1995 with any Governmental
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Entity and have paid all fees and assessments due and payable in connection
therewith. Except as set forth in Section 3.1(p) of the Saratoga Disclosure
Schedule and except for normal examinations conducted by a Governmental Entity
in the regular course of business of Saratoga and its Subsidiaries, no
Governmental Entity has initiated any proceeding or, to the best knowledge of
Saratoga, investigation into the business or operations of Saratoga or any of
its Subsidiaries since January 1, 1995. Except as set forth in Section 3.1(p) of
the Saratoga Disclosure Schedule, there is no material unresolved violation,
criticism or exception by any Governmental Entity with respect to any report or
statement relating to any examinations of Saratoga or any of its Subsidiaries.
(q) Environmental Liability. (i) Except as set forth in Section 3.1(q) of
-----------------------
the Saratoga Disclosure Schedule, to the best knowledge of Saratoga, there are
no pending or threatened claims, actions or proceedings against Saratoga or SNB
relating to:
(A) any asserted liability of Saratoga or any of its Affiliates or
any current or prior owner, operator, occupier or user of any Real Property
(as defined herein) under any Environmental Law (as defined herein),
including without limitation, the terms and conditions of any permit,
license, authority, settlement or other obligation arising under any
Environmental Law;
(B) any handling, storage, use or disposal of Hazardous Substances
(as defined herein) on, under or within any Real Property or any
transportation or removal of Hazardous Substances to or from any Real
Property;
(C) any actual or threatened discharge, release or emission of
Hazardous Substances from, on, under or within any Real Property into the
air, water, surface water, groundwater, land surface or subsurface strata;
or
(D) any actual or asserted claims for personal injuries, illness or
damage to real or personal property related to or arising out of exposure
to Hazardous Substances discharged, released or emitted from, on, under,
within or into, or transported from or to, any Real Property.
(ii) Except as set forth in Section 3.1(q) of the Saratoga Disclosure
Schedule, to the best knowledge of Saratoga, no Hazardous Substances are present
on, under or within any Real Property (except those Hazardous Substances used in
the normal course of operating or maintaining the business of Saratoga or any
Subsidiary of Saratoga) and, except as set forth in Section 3.1(q) of the
Saratoga Disclosure Schedule, the presence of these Hazardous Substances does
not violate any Environmental Law. Except as set forth in Section 3.1(q) of the
Saratoga Disclosure Schedule, to the best knowledge of Saratoga, there are no
storage tanks underground or otherwise present on any Real Property and all such
tanks set forth in Section 3.1(q) of the Saratoga Disclosure Schedule comply in
all material respects with applicable law, all permits in respect thereof are in
full force and effect and there have been no releases or discharges of Hazardous
Substances from such tanks to the environment.
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(iii) To the best knowledge of Saratoga, except as set forth in Section
3.1(q) of the Saratoga Disclosure Schedule, no Hazardous Substances have been,
or have been threatened to be, discharged, released or emitted in a Reportable
Quantity (as defined herein) into the air, water, surface water, groundwater,
land surface or subsurface strata or transported to or from the Real Property
except in accordance with Environmental Laws (in particular, but without
limitation, in accordance with any permits issued pursuant thereto). To the best
knowledge of Saratoga, all notifications, remediation, removal or other response
actions of any kind whatsoever, in respect of such discharges, releases and
emissions which are required by Environmental Laws, and by applicable agreements
with third parties, have been made within the time limits prescribed by such
Environmental Laws and such third party agreements. Copies of all such
notifications or documents relating to any remediation, removal or response
action have previously been provided to SJNB.
(iv) To the best knowledge of Saratoga, except as set forth in Section
3.1(q) of the Saratoga Disclosure Schedule, Saratoga and its Affiliates are in
compliance, in all material respects, with all Environmental Laws related to the
ownership, operation, use and occupation of the Real Property.
(v) To the best knowledge of Saratoga, except as set forth in Section
3.1(q) of the Saratoga Disclosure Schedule, no part of any Real Property is
listed on CERCLIS or the National Priorities List created pursuant to the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, as a site containing Hazardous Substances.
(vi) Saratoga has provided SJNB with copies of all material notices
posted by it under any Environmental Law with respect to the Real Property at
which the business of Saratoga or its Subsidiaries is conducted, including
without limitation, notices required under California Health & Safety Code
section 25359.7.
(vii) All properties held by Saratoga or its Subsidiaries under leases are
held by them under valid, binding and enforceable leases, with such exceptions
as are not material and do not interfere with the conduct of the business of
Saratoga, and Saratoga enjoys quiet and peaceful possession of such leased
property. Saratoga and its Subsidiaries are not in default in any material
respect under any material lease, agreement or obligation regarding their
properties to which they are a party or by which they are bound.
(viii) Except as set forth in Section 3.1(q) of the Saratoga Disclosure
Schedule, all of Saratoga's and its Subsidiaries' rights and obligations under
the leases referred to in Section 3.1(q)(vii) above do not require the consent
of any other party to the transactions contemplated by this Agreement.
(ix) For purposes of this Section 3.1(q) and Section 3.2(q) only, the
following terms shall have the indicated meaning:
"Business" means the business conducted at any Real Property (as
defined below).
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<PAGE>
"Environmental Law" means any and all applicable federal, state
and local laws (whether under common law, statute, rule, regulation or
otherwise), requirements under permits issued with respect thereto, and
other orders, decrees, judgments, directives or other requirements of any
governmental authority relating to the environment, or to any Hazardous
Substances.
"Hazardous Substances" means any chemical, compound, material,
mixture, living organism or substance that is now defined or listed in, or
otherwise classified or regulated in any way pursuant to, any Environmental
Laws as a "hazardous waste," "hazardous substance," "hazardous material,"
"extremely hazardous waste," "infectious waste," "toxic substance," or
"toxic pollutants," such materials, including without limitation, oil,
waste oil, petroleum, waste petroleum, polychlorinated biphenyls ("PCBs"),
asbestos, radon, natural gas, natural gas liquids, liquefied natural gas,
or synthetic gas usable for fuel (or mixtures of natural gas and such
synthetic gas).
"Real Property" means all interests in real property of Saratoga
or its Subsidiaries (with respect to Section 3.1) or SJNB or its
Subsidiaries (with respect to Section 3.2), including without limitation,
interests in fee, leasehold, interest as mortgagee or secured party, or
option or contract to purchase or acquire.
"Reportable Quantity" means the quantity set forth in 40 C.F.R.
Part 302 as it is in effect on the effective date of this Agreement for the
particular Hazardous Substances set forth therein. With respect to
Hazardous Substances not listed in that part, if any, "reportable quantity"
means that quantity which, if released, would be required to be reported to
a Governmental Entity pursuant to applicable Environmental Law. "Reportable
Quantity" shall be determined based on a single release or series of
related releases or threatened releases.
(r) Properties. Except as set forth in Section 3.1(r) of the Saratoga
----------
Disclosure Schedule, Saratoga or its Subsidiaries (i) has good and marketable
title to all Real Property owned in fee, and good title to all other properties
and assets reflected in the Saratoga Consolidated Financial Statements as being
owned by Saratoga or its Subsidiaries or acquired after the date thereof which
are material to the business of Saratoga on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the ordinary
course of business), free and clear of all claims, liens, charges, security
interests or encumbrances of any nature whatsoever except (A) statutory liens
securing payments not yet delinquent, (B) liens on assets of SNB securing
deposits incurred in the ordinary course of its banking business and (C) such
imperfections or irregularities of title, claims, liens, charges, security
interests or encumbrances as do not materially affect the use of the properties
or assets subject thereto or affected thereby or otherwise materially impair
business operations at such properties and (ii) is the lessee of all leasehold
estates reflected in the Saratoga Consolidated Financial Statements or acquired
after the date thereof which are material to its business on a consolidated
basis (except for leases that have expired by their terms since the date
thereof) and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without material
A-22
<PAGE>
default thereunder by the lessee or, to the best knowledge of Saratoga, the
lessor. Except as set forth in Section 3.1(r) of the Saratoga Disclosure
Schedule, all real properties owned by Saratoga or its Subsidiaries are owned in
accordance in all material respects with all requirements of applicable rules,
regulations and policies of the Bank Regulators.
(s) Transactions with Affiliates. Except as set forth in Section 3.1(s)
----------------------------
of the Saratoga Disclosure Schedule and except for those arrangements,
contracts, agreements or transactions which were entered into in the ordinary
course of business, since December 31, 1998, neither Saratoga nor SNB has
extended credit, committed to extend credit or transferred any asset to or
assumed or guaranteed any liability of or entered into any other transactions
with the employees or directors of Saratoga or SNB, or any spouse or child of
any of them, or to any of their "affiliates" or "associates" as such terms are
defined in Rule 405 under the Securities Act. Any such transactions, including
those in the ordinary course of business, have been on terms no less favorable
than those which would prevail in an arm's-length transaction with an
independent third party.
(t) Brokers or Finders. No agent, broker, investment banker, financial
------------------
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, except for First Security Van
Kasper whose fees and expenses will be paid by Saratoga in accordance with
Saratoga's agreement with such firm (a copy of which agreement has been
delivered to SJNB prior to the date of this Agreement).
(u) Intellectual Property. Except as set forth in Section 3.1(u) of the
---------------------
Saratoga Disclosure Schedule, Saratoga and its Subsidiaries own or have a valid
license to use all trademarks, service marks and trade names (including any
registrations or applications for registration of any of the foregoing)
(collectively, the "Saratoga Intellectual Property") necessary to carry on their
business substantially as currently conducted, except for such Saratoga
Intellectual Property the failure of which to own or validly license,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on Saratoga. Neither Saratoga nor any such Subsidiary
has received any notice of infringement of or conflict with, and, to the best
knowledge of Saratoga, there are no infringements of or conflicts with, the
rights of others with respect to the use of any Saratoga Intellectual Property
that, individually or in the aggregate, in either such case, would reasonably be
expected to have a material adverse effect on Saratoga.
(v) Pooling of Interests. Except as set forth in Section 3.1(v) of the
--------------------
Saratoga Disclosure Schedule, as of the date of this Agreement, Saratoga has no
reason (in respect to matters pertaining to Saratoga existing as of the date
hereof or expected to exist as of the Closing Date) to believe that Saratoga
will not qualify for pooling of interests treatment for accounting purposes
under GAAP as presently in effect.
(w) Opinion of Financial Advisor. Saratoga has received the written
----------------------------
opinion of First Security Van Kasper dated the date hereof, to the effect that,
as of such date, subject to the limitations and conditions contained therein,
the consideration to be received by the holders of
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<PAGE>
Saratoga Common Stock pursuant to the Merger is fair to such holders from a
financial point of view.
(x) Community Reinvestment Act Compliance. SNB is in substantial
-------------------------------------
compliance with the applicable provisions of the Community Reinvestment Act of
1977 and the regulations promulgated thereunder (collectively, the "CRA") and
has received a CRA rating of "satisfactory" from the OCC in its most recent
examination, and neither Saratoga nor SNB has any knowledge of the existence of
any fact or circumstance or set of facts or circumstances which could be
reasonably expected to result in SNB failing to be in substantial compliance
with such provisions or having its current rating lowered.
(y) Year 2000 Readiness. Saratoga and its Subsidiaries have a plan and
-------------------
organization in place to minimize any material adverse effect caused by the
failure of any system, equipment or product which is material to their
respective operations or financial condition to be Year 2000 Ready (as defined
below). Such plan addresses, at a minimum, the issues set forth in the
statements of the Federal Financial Institutions Examination Council ("FFIEC"),
dated May 5, 1997, entitled "Year 2000 Project Management Awareness," and
December 1997, entitled "Safety and Soundness Guidelines Concerning the Year
2000 Business Risk," as well as any other statements of the FFIEC related to the
Year 2000, as such issues might affect Saratoga and its Subsidiaries. Saratoga
has provided to SJNB a complete and accurate copy of the plan, which includes
Saratoga's Year 2000 organization and an estimate of anticipated associated
costs. Saratoga is using its best efforts to implement such plan, which includes
seeking assurances from its vendors and suppliers that such vendors' and
suppliers' products and services which are material to its operations are Year
2000 Ready, replacing any material products and services supplied by such
vendors or suppliers which are not Year 2000 Ready with new products and
services which are Year 2000 Ready, and/or working with such vendors and
suppliers to achieve Year 2000 Readiness with respect to such material products
and services. Such plan shall also establish procedures to evaluate, manage and
mitigate Year 2000-related risks to Saratoga posed by material customers of
Saratoga or any of its Subsidiaries who may not themselves be Year 2000 Ready.
Neither Saratoga nor its Subsidiaries have received, or expect to receive, a
"Year 2000 Deficiency Notification Letter" (as such term is employed in the
Federal Reserve's Supervision and Regulation Letter No. SR 98-3 (SUP), dated
March 4, 1998). As used herein, the term "Year 2000 Ready" shall mean that the
functionality and the performance of any system or piece of equipment will not
be materially adversely affected as a result of the date change for any date on
or after January 1, 2000, including leap year calculations, and that, to the
extent applicable to normal operating specifications, the system or equipment
will in all material respects accurately accept, store, retrieve, calculate,
compare and otherwise process dates of January 1, 2000 and later.
(z) Insurance. Saratoga has previously delivered to SJNB a list
---------
identifying all insurance policies maintained on behalf of Saratoga and its
Subsidiaries (other than mortgage, title and other similar policies for the
benefit of Saratoga or its Subsidiaries as mortgagees under residential mortgage
loans). All of the material insurance policies and bonds maintained by or for
the benefit of Saratoga and its Subsidiaries are in full force and effect, to
the best knowledge of Saratoga, Saratoga and its Subsidiaries are not in default
thereunder, and all material claims
A-24
<PAGE>
thereunder have been filed in due and timely fashion, and neither Saratoga nor
any of its Subsidiaries has received notice that any of such material claims
have been or will be denied. The insurance policies and bonds maintained by
Saratoga and its Subsidiaries are written by reputable insurers and are in such
amounts, cover such risks and have such other terms as is customary for banks
and bank holding companies comparable in size and operations to Saratoga and its
Subsidiaries. Since December 31, 1998, there has not been any damage to,
destruction of, or loss of any assets of Saratoga and its Subsidiaries (whether
or not covered by insurance) that could have a material adverse effect on
Saratoga. Neither Saratoga nor any of its Subsidiaries has received any notice
of a premium increase or cancellation with respect to any of its insurance
policies or bonds, and within the last three years, neither Saratoga nor any of
its Subsidiaries has been refused any insurance coverage sought or applied for,
and Saratoga has no reason to believe that existing insurance coverage cannot be
renewed as and when the same shall expire, upon terms and conditions as
favorable as those presently in effect, other than possible increases in
premiums or unavailability in coverage that have not resulted from an
extraordinary loss experience of Saratoga or any Saratoga Subsidiary.
(aa) Loans and Other Assets.
----------------------
(i) Saratoga has disclosed to SJNB prior to the date hereof the amounts
of all loans, leases, other extensions of credit, commitments or other interest-
bearing assets presently owned by Saratoga or any of its Subsidiaries that have
been classified by any Bank Regulator, Saratoga's independent auditors, or the
management of Saratoga or any Subsidiary of Saratoga as "Other Loans Especially
Mentioned," "Substandard," "Doubtful," or "Loss", or classified using categories
with similar import, and will have disclosed promptly to SJNB prior to the
Closing Date all such items which will be so classified hereafter and prior to
the Closing Date. All such assets or portions thereof classified "Loss", or
which are subsequently so classified, have been (or will be) charged off on a
timely basis in full, collected or otherwise placed in a bankable condition.
Saratoga regularly reviews and appropriately classifies its and its
Subsidiaries' loans and other assets in accordance in all material respects with
all applicable legal and regulatory requirements and GAAP. Saratoga has
disclosed to SJNB the amounts and identities of all other real estate owned
("OREO") that has been classified as such as of the date hereof by Saratoga's
independent auditors, management of Saratoga or any Bank Regulator and will have
promptly disclosed to SJNB prior to the Closing Date all such assets which will
be so classified hereafter and prior to the Closing Date. As of the date hereof
and the Closing Date, the recorded values of all OREO on the books of Saratoga
and its Subsidiaries accurately reflect and will reflect the net realizable
values of each OREO parcel thereof in compliance with GAAP. Saratoga and its
Subsidiaries have recorded on a timely basis all expenses associated with or
incidental to its OREO, including but not limited to taxes, maintenance and
repairs as required by GAAP.
(ii) All loans, leases, other extensions of credit, commitments or other
interest-bearing assets and investments of Saratoga and its Subsidiaries are
legal, valid and binding obligations enforceable in accordance with their
respective terms and are not subject to any setoffs, counterclaims or disputes
known to Saratoga (subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability,
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to equitable principles of general applicability), except as previously
disclosed to SJNB in Section 3.1(aa)(ii) of the Saratoga Disclosure Schedule or
reserved for in the consolidated statement of financial condition of Saratoga as
of December 31, 1998 referred to in Section 3.1(d) in accordance with GAAP, and
were duly authorized under and made in compliance with applicable federal and
state laws and regulations. Saratoga and its Subsidiaries do not have any
extensions or letters of credit, investments, guarantees, indemnification
agreements or commitments for the same (including without limitation commitments
to issue letters of credit, to create acceptances, or to repurchase securities,
federal funds or other assets) other than those documented on the books and
records of Saratoga and its Subsidiaries.
(ab) Restrictions on Investments. Except for pledges to secure public and
---------------------------
trust deposits and repurchase agreements in the ordinary course of business and
except as described in Section 3.1(ab) of the Saratoga Disclosure Schedule, none
of the investments reflected in the consolidated statement of financial
condition of Saratoga as of December 31, 1998 referred to in Section 3.1(d), and
none of the investments made by Saratoga and its Subsidiaries since December 31,
1998, is subject to any restriction, whether contractual or statutory, which
materially impairs the ability of Saratoga or its Subsidiaries freely to dispose
of such investment at any time.
(ac) No Brokered Deposits. Except as described in Section 3.1(ac) of the
--------------------
Saratoga Disclosure Schedule, as of the date hereof, neither Saratoga nor any of
its Subsidiaries now has any "brokered deposits" as such deposits are defined by
applicable regulations of the OCC as of the date hereof.
(ad) Derivatives Contracts; Structured Notes; Etc. Except as set forth in
--------------------------------------------
Section 3.1(ad) of the Saratoga Disclosure Schedule, neither Saratoga nor any
Subsidiary is a party to or has agreed to enter into an exchange traded or over-
the-counter equity, interest rate, foreign exchange or other swap, forward,
future, option, cap, floor or collar or any other contract that is not included
on the balance sheet and is a derivatives contract (including various
combinations thereof) (each, a "Derivatives Contract") or owns securities that
(1) are referred to generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate mortgage
derivatives" or (2) are likely to have changes in value as a result of interest
or exchange rate changes that significantly exceed normal changes in value
attributable to interest or exchange rate changes, except for those Derivatives
Contracts and other instruments legally purchased or entered into in the
ordinary course of their banking business, consistent with safe and sound
banking practices and regulatory guidance, and with counterparties reasonably
believed by Saratoga to be financially responsible. All of such Derivatives
Contracts or other instruments are legal, valid and binding obligations of
Saratoga or one of its Subsidiaries and, to the best knowledge of Saratoga, each
of the other counterparties thereto, enforceable in accordance with their terms
(except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally), and are in
full force and effect. Saratoga and each of its Subsidiaries and, to the best
knowledge of Saratoga, each of the other counterparties thereto, have duly
performed in all material respects all of their material obligations thereunder
to the extent that such obligations to perform have
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accrued; and there are no breaches, violations or defaults or allegations or
assertions of such by any party thereunder which would have or would reasonably
be expected to have a material adverse effect on Saratoga.
(ae) Labor Matters. Neither Saratoga nor any of its Subsidiaries is a party
-------------
to, or is bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
or any of its Subsidiaries the subject of a proceeding asserting that it or any
such Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it or such Subsidiary to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or, to the best of its knowledge, threatened, nor is it
aware of any activity involving it or any of its Subsidiaries' employees seeking
to certify a collective bargaining unit or engaging in any other organization
activity.
3.2 Representations and Warranties of SJNB. SJNB represents and warrants
--------------------------------------
to Saratoga as follows:
(a) Organization, Standing and Power. SJNB is a bank holding company
--------------------------------
registered under the BHC Act. The deposit accounts of SJNB's bank Subsidiaries
are insured by the BIF of the FDIC to the fullest extent permitted by law, and
all premiums and assessments required in connection therewith have been paid
when due. SJNB and each of its Subsidiaries is a bank or corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and is duly qualified and in good standing to do business
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify would not, either individually or
in the aggregate, have a material adverse effect on SJNB. The Articles of
Incorporation or Association and By-laws of each of SJNB, and each Subsidiary of
SJNB, copies of which were previously made available to Saratoga, are true,
complete and correct. The minute books of SJNB and its Subsidiaries which have
been made available to Saratoga contain a complete (except for certain portions
thereof relating to the Merger and the transactions contemplated hereby) and
accurate record of all meetings of the respective Boards of Directors (and
committees thereof) and shareholders.
(b) Capital Structure; Ownership of SJNB Common Stock.
-------------------------------------------------
(i) The authorized capital stock of SJNB consists of 20,000,000
shares of SJNB Common Stock and 5,000,000 shares of preferred stock, no par
value (the "SJNB Preferred Stock"), of which (A) as of August 25, 1999,
2,350,118 shares of SJNB Common Stock were outstanding (none having been
issued thereafter except from the exercise of SJNB Options) and (B) as of
the date hereof, no shares of SJNB Preferred Stock are outstanding. All
outstanding shares of SJNB Common Stock have been duly authorized and
validly issued and
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are fully paid and non-assessable and not subject to preemptive rights. At
the Effective Time, the SJNB Common Stock to be issued hereunder will be,
when issued in accordance with the terms hereof, duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights.
(ii) Except for this Agreement and except as set forth in Section
3.2(b)(ii) of the disclosure schedule of SJNB delivered to Saratoga on the
date hereof (the "SJNB Disclosure Schedule"), (A) there are no options,
warrants, calls, rights, commitments or agreements of any character to
which SJNB or any of its Subsidiaries or Affiliates is a party or by which
any of the foregoing are bound obligating SJNB or any of its Subsidiaries
or Affiliates to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock of SJNB or any of its
Subsidiaries or obligating SJNB or any of its Subsidiaries or Affiliates to
grant, extend or enter into any such option, warrant, call, right,
commitment or agreement, (B) there are no outstanding contractual
obligations of SJNB or any of its Subsidiaries or Affiliates to repurchase,
redeem or otherwise acquire any shares of capital stock of SJNB or any of
its Subsidiaries and (C) there are no outstanding securities of any kind
convertible into or exchangeable for the capital stock of SJNB or any of
its Subsidiaries (or any interest therein). Except as set forth in Section
3.2(b)(ii) of the SJNB Disclosure Schedule, there is no agreement of any
kind to which SJNB is a party and, to the knowledge of SJNB (without
inquiry), no other agreement of any kind, in each case that gives any
person any right to participate in the equity, value or income of, or to
vote (x) in the election of directors or officers of, or (y) otherwise with
respect to the affairs of, SJNB or any of its Subsidiaries.
(iii) Neither SJNB nor any of its Subsidiaries or, to the best
knowledge of SJNB, its Affiliates, beneficially owns, directly or
indirectly, any shares of capital stock of SJNB, securities of SJNB
convertible into, or exchangeable for, such shares, or options, warrants or
other rights to acquire such shares (regardless of whether such securities,
options, warrants or other rights are then exercisable or convertible), nor
is SJNB or any of such Subsidiaries or Affiliates a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of shares of capital stock of SJNB or any such other
securities, options, warrants or other rights.
(iv) No shares of SJNB Common Stock held directly or indirectly by
SJNB are Trust Account Shares or DPC Shares.
(c) Authority; No Violation.
-----------------------
(i) SJNB has all requisite corporate power and authority to enter
into this Agreement and the other Transaction Agreements and to consummate
the
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<PAGE>
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other Transaction Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of SJNB, other than the
approval of this Agreement and the Agreement of Merger by the holders of a
majority of the outstanding shares of SJNB Common Stock (the "SJNB
Shareholder Approval"). The SJNB Shareholder Approval is the only vote of
any class or series of SJNB capital stock necessary to approve this
Agreement and the other Transaction Agreements and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the other
Transaction Agreements have been duly executed and delivered by SJNB and
(assuming due authorization, execution and delivery by Saratoga and SNB)
constitute the valid and binding obligation of SJNB enforceable against
SJNB in accordance with their terms, subject, as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles. San Jose
National Bank has full corporate power and authority to consummate the Bank
Merger.
(ii) Except as set forth in Section 3.2(c)(ii) of the SJNB Disclosure
Schedule, the execution and delivery by SJNB of this Agreement and the
other Transaction Agreements does not or will not when delivered, and the
consummation of the transactions contemplated hereby and thereby will not,
result in any Violation pursuant to, (x) any provision of the articles of
incorporation or association or by-laws or comparable organizational
documents of SJNB or any Subsidiary of SJNB, or (y) subject to obtaining or
making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below, any loan or
credit agreement, note, mortgage, indenture, lease, SJNB Benefit Plan (as
defined in Section 3.2(k)) or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to SJNB or any Subsidiary of
SJNB or its properties or assets, which Violation, in the case of clause
(y), individually or in the aggregate, would have a material adverse effect
on SJNB.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to SJNB or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the other
Transaction Agreements or the consummation by SJNB of the transactions
contemplated hereby or thereby, which, if not made or obtained, would have
a material adverse effect on SJNB or on the ability of SJNB to perform its
obligations hereunder or thereunder on a timely basis, or on SJNB's ability
to own, possess or exercise the rights of an owner with respect to the
business and assets of Saratoga and its Subsidiaries, except for (A) the
filing of applications and notices with the Federal Reserve under the BHC
Act and approval of same, (B) the filing by Saratoga and SJNB with the SEC
of the Proxy Statement in definitive form relating to the meetings of the
shareholders of
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<PAGE>
Saratoga and SJNB to be held to approve and adopt this Agreement and the
transactions contemplated hereby, (C) the filing by SJNB with the SEC of a
registration statement on Form S-4 (the "S-4") with respect to the SJNB
Common Stock issuable pursuant hereto, (D) approval for listing upon
official notice of issuance on the NASDAQ National Market of the SJNB
Common Stock issuable pursuant hereto, (E) compliance with applicable state
blue sky laws, and (F) the filing with the Secretary of State of the State
of California of the Agreement of Merger.
(d) Financial Statements. SJNB has previously delivered to Saratoga copies
--------------------
of (a) the consolidated statements of financial condition of SJNB and its
Subsidiaries, as of December 31, for the fiscal years 1997 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for the fiscal years 1996 through 1998, inclusive, as reported in SJNB's Annual
Reports on Form 10-K for the relevant fiscal years filed with the SEC under the
Exchange Act, in each case accompanied by the report of KPMG LLP, independent
auditors with respect to SJNB (the consolidated financial statements of SJNB and
its Subsidiaries referred to in this sentence being hereinafter sometimes
referred to as the "SJNB Consolidated Financial Statements"). Each of the
financial statements referred to in this Section 3.2(d) (including the related
notes, where applicable) fairly present, and the consolidated financial
statements referred to in Section 5.14 hereof will fairly present (subject in
the cases of the unaudited statements, to normal recurring and year-end audit
adjustments, none of which are expected to be material in nature or amount), the
results of the consolidated operations and changes in shareholders' equity and
consolidated financial condition of SJNB and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth. Each of such
statements (including the related notes, where applicable) complies, and the
financial statements referred to in Section 5.14 hereof will comply, in all
material respects, with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto and each of such
statements (including the related notes, where applicable) has been, and the
financial statements referred to in Section 5.14 will be, prepared, in all
material respects, in accordance with GAAP consistently applied during the
periods involved, except in each case as indicated in such statements or in the
notes thereto or, in the case of the unaudited statements (subject to normal
recurring and year-end audit adjustments), as permitted by Form 10-Q. The books
and records of SJNB and its Subsidiaries have been, and are being, maintained
where required in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and, where such books and records
purport to reflect any transactions, the transactions so reflected are actual
transactions.
(e) SJNB SEC Documents. SJNB has made available to Saratoga a true and
------------------
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by SJNB with the SEC pursuant to the Securities Act or the
Exchange Act (other than reports filed pursuant to section 13(g) of the Exchange
Act), since December 31, 1997 (as such documents have since the time of their
filing been amended, the "SJNB SEC Reports"), which are all the documents (other
than preliminary material and reports required pursuant to section 13(g) of the
Exchange Act) that SJNB was required to file with the SEC since such date. As of
their respective dates of filing with the SEC, the SJNB SEC Reports complied as
to form in all
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<PAGE>
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such SJNB SEC Reports, and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of SJNB included
in the SJNB SEC Reports (including any related notes and schedules thereto)
complied as to form, as of their respective dates of filing with the SEC, in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared, in
all material respects, in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto or,
in the case of the unaudited statements (subject to normal recurring and year-
end audit adjustments), as permitted by Form 10-Q of the SEC) and fairly present
in all material respects the consolidated financial position of SJNB and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of operations, changes in shareholders' equity and cash flows of such companies
for the periods then ended.
(f) SJNB Information Supplied. None of the information supplied or to be
-------------------------
supplied by SJNB for inclusion or incorporation by reference in the Proxy
Statement relating to the meeting of shareholders of SJNB (the "SJNB
Shareholders' Meeting") at which the SJNB Shareholder Approval will be sought or
for inclusion in the S-4 will, at the date of mailing to shareholders of SJNB
and at the time of the SJNB Shareholders' Meeting, (i) contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading or (ii) at the time
and in the light of the circumstances under which it is made, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of a proxy for the SJNB Shareholders' Meeting which has become
false or misleading.
(g) Compliance with Applicable Laws. SJNB and its Subsidiaries hold, and
-------------------------------
at all relevant times have held, all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are material to the
operation of the businesses of SJNB and its Subsidiaries, taken as a whole (the
"SJNB Permits"). SJNB and its Subsidiaries are in compliance and have complied
with the terms of the SJNB Permits, except where the failure so to comply,
individually or in the aggregate, would not have a material adverse effect on
SJNB. The businesses of SJNB and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which, individually or in the aggregate, do not, and,
insofar as reasonably can be foreseen, in the future will not, have a material
adverse effect on SJNB. Except for routine examinations by Bank Regulators, no
investigation by any Governmental Entity with respect to SJNB or any of its
Subsidiaries is pending or threatened, and no proceedings by any Bank Regulator
are pending or threatened which seek to revoke or materially limit any of the
SJNB Permits. SJNB and its Subsidiaries do not offer or sell insurance and/or
securities products, including but not limited to annuity products, for their
own account or the account of others.
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<PAGE>
(h) Litigation. Except as set forth in Section 3.2(h) of the SJNB
----------
Disclosure Schedule, to the best knowledge of SJNB, there is no Litigation
pending to which SJNB or any Subsidiary of SJNB is a party or by which any of
such persons or their respective assets may be bound or, to the best knowledge
of SJNB, threatened against or affecting SJNB or any Subsidiary of SJNB, or
challenging the validity or propriety of the transactions contemplated hereby
which, if adversely determined, would, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on SJNB or on the
ability of SJNB to perform its obligations under this Agreement in a timely
manner, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against SJNB or any Subsidiary of
SJNB.
(i) Taxes. SJNB and each of its Subsidiaries have timely filed all tax
-----
returns required to be filed by any of them and all such tax returns were, when
filed, correct and complete in all material respects. SJNB and each of its
Subsidiaries have timely paid (or SJNB has paid on their behalf), or have set up
an adequate reserve for the payment of, all taxes required to be paid (whether
or not shown as due on such returns), and the most recent financial statements
that have been delivered to Saratoga reflect an adequate reserve (other than
reserves for deferred taxes established to reflect differences between tax and
book basis of assets and liabilities) for all taxes accrued but not yet due and
owing, by SJNB and its Subsidiaries accrued through the date of such financial
statements. SJNB and its Subsidiaries file tax returns in all jurisdictions
where required to file tax returns. No material deficiencies for any taxes have
been asserted or assessed against SJNB or any of its Subsidiaries that are not
adequately reserved for (other than reserves for deferred taxes established to
reflect differences between tax and book basis of assets and liabilities).
Except as set forth in Section 3.2(i) of the SJNB Disclosure Schedule: (i) there
are no liens with respect to taxes upon any of the assets or properties of SJNB
and its Subsidiaries, other than with respect to taxes not yet due and payable,
(ii) no material issue relating to taxes of SJNB and its Subsidiaries has been
raised in writing by any taxing authority in any audit or examination which can
result in a proposed adjustment or assessment by a governmental authority in a
taxable period (or portion thereof) ending on or before the Closing Date nor, to
the best knowledge of SJNB, does any basis exist for the raising of any such
issue, (iii) SJNB and its Subsidiaries have duly and timely withheld from all
payments (including employee salaries, wages and other compensation) and paid
over to the appropriate taxing authorities all amounts required to be so
withheld and paid over for all periods for which the statute of limitations has
not expired under all applicable laws and regulations, (iv) as of the Closing
Date, none of SJNB nor any of its Subsidiaries shall be a party to, be bound by
or have any obligation under, any tax sharing agreement or similar contract or
arrangement or any agreement that obligates any of them to make any payment
computed by reference to the taxes, taxable income or taxable losses of any
other person, (v) except as set forth on Section 3.2(i) of the SJNB Disclosure
Schedule, there is no contract or agreement, plan or arrangement by SJNB or any
of its Subsidiaries covering any person that, individually or collectively,
could give rise to the payment of any amount that would not be deductible by
SJNB or any of its Subsidiaries by reason of section 280G of the Code, (vi) SJNB
and its Subsidiaries have collected all material sales and use taxes required to
be collected, and have remitted, or will remit on a timely basis, such amounts
to the appropriate governmental authorities, or have been furnished properly
completed exemption certificates and have maintained all such records and
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<PAGE>
supporting documents in all material respects in the manner required by all
applicable sales and use tax statutes and regulations for all periods for which
the statute of limitations has not expired, (vii) neither SJNB nor any of its
Subsidiaries has been a United States real property holding corporation within
the meaning of section 897(c)(2) of the Code during the applicable period
specified in section 897(c)(1)(A)(ii) of the Code, and (viii) none of SJNB nor
any of its Subsidiaries (A) has been a member of an affiliated group (other than
the group to which they are currently members) filing a consolidated federal
income tax return or (B) has any liability for the taxes of any person (other
than the members of such current group) under Treasury Regulation section
1.1502-6(a) (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise. None of SJNB nor any of its
Subsidiaries has filed a consent to the application of section 341(f) of the
Code .
(j) Certain Agreements. Section 3.2(j) of the SJNB Disclosure Schedule
------------------
sets forth a listing of all of the following contracts and other agreements,
oral or written (which are currently in force or which may in the future be
operative in any respect) to which SJNB or any of its Subsidiaries is a party or
by or to which SJNB or any of its Subsidiaries or any of their respective assets
or properties are bound or subject: (i) consulting agreements not terminable on
six months or less notice involving the payment of more than $25,000 per annum,
or union, guild or collective bargaining agreements covering any employees in
the United States, (ii) agreements with any officer or other key employee of
SJNB or any of its Subsidiaries (x) providing any term of employment or (y) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving SJNB of the nature contemplated
by this Agreement, (iii) any agreement or plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement, (iv) contracts and other
agreements for the sale or lease (other than where SJNB or any of its
Subsidiaries is a lessor) of any assets or properties (other than in the
ordinary course of business) or for the grant to any person (other than to SJNB
or any of its Subsidiaries) of any preferential rights to purchase any assets or
properties, (v) contracts and other agreements relating to the acquisition by
SJNB or any of its Subsidiaries of any operating business or entity or any
interest therein, (vi) contracts or other agreements under which SJNB or any of
its Subsidiaries agrees to indemnify any party, other than in the ordinary
course of business, consistent with past practice, or to share a tax liability
of any party, (vii) contracts and other agreements containing covenants
restricting SJNB or any of its Subsidiaries from competing in any line of
business or with any person in any geographical area or requiring SJNB or any of
its Subsidiaries to engage in any line of business, (viii) contracts or other
agreements (other than contracts in the ordinary course of their banking
business) relating to the borrowing of money by SJNB or any of its Subsidiaries,
or the direct or indirect guaranty by SJNB or any of its Subsidiaries of any
obligation for, or an agreement by SJNB or any of its Subsidiaries to service,
the repayment of borrowed money, or any other contingent obligations of SJNB or
any of its Subsidiaries in respect of indebtedness of any other person, and (ix)
any other material contract or other agreement whether or not made in the
ordinary course of business, including any contract required to be filed by SJNB
pursuant to Item 601(b)(10) of Regulation S-K of the SEC. There have been
delivered or made available to
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Saratoga true and complete copies of all of the contracts and other agreements
set forth in Section 3.2(j) of the SJNB Disclosure Schedule and in any other
Section of the SJNB Disclosure Schedule. Except as set forth in Section 3.2(j)
of the SJNB Disclosure Schedule, each such contract and other agreement is in
full force and effect and constitutes a legal, valid and binding obligation of
SJNB or its Subsidiaries, as the case may be, and to the best knowledge of SJNB,
each other party thereto, enforceable in accordance with its terms subject, as
to enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. Neither SJNB nor any Subsidiary of SJNB has received any notice,
whether written or oral, of termination or intention to terminate from any other
party to such contract or agreement. None of SJNB or any of its Subsidiaries or
(to the best knowledge of SJNB) any other party to any such contract or
agreement is in violation or breach of or default under any such contract or
agreement (or with or without notice or lapse of time or both, would be in
violation or breach of or default under any such contract or agreement), which
violation, breach or default has had or would have, individually or in the
aggregate, a material adverse effect on SJNB.
(k) Benefit Plans.
-------------
(i) Section 3.2(k) of the SJNB Disclosure Schedule contains a true
and complete list of each Benefit Plan that is sponsored or is being
maintained or contributed to, or required to be contributed to, by SJNB or
any of its Subsidiaries (the "SJNB Benefit Plans"). No SJNB Benefit Plan is
a multiemployer plan or is subject to a collective bargaining agreement.
(ii) With respect to each SJNB Benefit Plan, SJNB has delivered to
Saratoga a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent
applicable, (A) any related trust agreement or other funding instrument;
(B) the most recent determination letter; (C) any summary plan description
and other written communications (or a description of any oral
communications) by SJNB or any of its Subsidiaries to any of their
respective employees concerning the extent of the benefits provided under
any SJNB Benefit Plan; and (D) except as described in Section 3.2(k)(ii) of
the SJNB Disclosure Schedule, for the two most recent years (I) the Form
5500 and attached schedules; (II) audited financial statements; and (III)
actuarial valuation reports.
(iii) Except as set forth in Section 3.2(k) of the SJNB Disclosure
Schedule, (A) each SJNB Benefit Plan has been established and administered
in accordance with its terms, and in compliance in all material respects
with the applicable provisions of ERISA, the Code and other applicable
laws, rules and regulations; (B) each SJNB Benefit Plan which is intended
to be qualified within the meaning of Code section 401(a) is so qualified
and has received a favorable determination letter as to its qualification
and nothing has occurred, whether by action or failure to act, which would
cause the loss of such qualification; (C) with respect to any SJNB Benefit
Plan, no audits, actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or threatened, and no facts or
circumstances exist which could give rise to any such audits, actions,
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<PAGE>
suits or claims; (D) neither SJNB nor any other party has engaged in a
prohibited transaction which could subject SJNB or any of its Subsidiaries,
or the Surviving Corporation, to any taxes, penalties or other liabilities
under Code section 4975 or ERISA sections 409 or 502(i); (E) no event has
occurred and no condition exists that could subject SJNB or any of its
Subsidiaries, or the Surviving Corporation, either directly or by reason of
any such entity's affiliation with any member of any such entity's
Controlled Group (defined as any organization which is a member of a
controlled group of organizations within the meaning of Code sections
414(b), (c), (m) or (o)), to any tax, fine, liability or penalty imposed by
ERISA, the Code or other applicable laws, rules and regulations; (F) all
insurance and PBGC premiums required to be paid with respect to SJNB
Benefit Plans through the Closing Date have been or will be paid prior
thereto and adequate reserves will have been provided for on SJNB's
consolidated statement of financial condition as of the month end
immediately prior to the Closing Date for any premiums (or portions
thereof) attributable to service on or prior to the Closing Date; (G) all
contributions required to be made prior to the Closing Date under the terms
of each SJNB Benefit Plan, the Code, ERISA or other applicable laws, rules
and regulations have been or will be timely made and adequate reserves will
have been provided for on SJNB's consolidated statement of financial
condition as of the month end immediately prior to the Closing Date for all
benefits attributable to service on or prior to the Closing Date; (H) no
SJNB Benefit Plan has incurred any "accumulated funding deficiency" as such
term is defined in ERISA section 302 and (including, but not limited to the
voting of any securities held pursuant to an SJNB Benefit Plan) Code
section 412 (whether or not waived); (I) the consummation of this Agreement
will not result in a nonexempt prohibited transaction or a breach of
fiduciary duty under ERISA; and (J) no SJNB Benefit Plan provides health
coverage beyond the termination of employment except as provided under Code
section 4980B.
(iv) Except as set forth in Section 3.2(k)(iv) of the SJNB Disclosure
Schedule, with respect to each of the SJNB Benefit Plans which is subject
to Title IV of ERISA, as of the Closing Date, the assets of each such Plan
shall be at least equal in value to the present value of the accrued
benefits (vested and unvested) of the participants in such Plan on a
termination and projected basis, based on the actuarial methods and
assumptions indicated in the most recent actuarial valuation reports.
(v) Except as set forth on Section 3.2(k)(v) of the SJNB Disclosure
Schedule, no SJNB Benefit Plan exists which provides for an increase in
benefits on or after the Closing Date or could result in the payment to any
employee of SJNB or any of its Subsidiaries of any money or other property
or rights or accelerate or provide any other rights or benefits to any such
employee as a result of the transactions contemplated by this Agreement.
The aggregate amount of
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<PAGE>
payments due from SJNB under all such contracts and the amount due under
each such contract, at the Effective Time, are as set forth in the schedule
included in Section 3.2(k)(v) of the SJNB Disclosure Schedule. Except as
set forth in Section 3.2(k)(v) of the SJNB Disclosure Schedule, none of
such payments will constitute an "excess parachute" payment within the
meaning of Code section 280G.
(l) Subsidiaries. Section 3.2(l) of the SJNB Disclosure Schedule lists
------------
all the Subsidiaries of SJNB. SJNB owns, directly or indirectly, beneficially
and of record 100% of the issued and outstanding voting securities of each such
Subsidiary. All of the shares of capital stock of each of the Subsidiaries held
by SJNB or by another of its Subsidiaries are fully paid and nonassessable and
are owned by SJNB or one of its Subsidiaries free and clear of any lien, claim
or other encumbrance. Neither SJNB nor any of its Subsidiaries owns any shares
of capital stock or other equity securities of any person (other than, in the
case of SJNB, the capital stock of its Subsidiaries and, in the case of such
Subsidiaries, shares or equity securities acquired in satisfaction of debts
previously contracted in good faith in the ordinary course of their banking
business).
(m) Agreements with Bank or Other Regulators. Except as set forth in
----------------------------------------
Section 3.2(m) of the SJNB Disclosure Schedule, neither SJNB nor any Subsidiary
of SJNB is a party to any written agreement or memorandum of understanding with,
or a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of, any Bank
Regulator which restricts materially the conduct by SJNB or its Subsidiaries of
their businesses, or in any manner relates to their capital adequacy, credit
policies, community reinvestment, loan underwriting or documentation or
management, nor has SJNB or any such Subsidiary been advised by any Bank
Regulator that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar submission, or any such board resolutions.
(n) Absence of Certain Changes or Events. Except as set forth in Section
------------------------------------
3.2(n) of the SJNB Disclosure Schedule, since December 31, 1998, (i) there has
not been any change, or any event involving a prospective change, in the
business, financial condition or results of operations or prospects of SJNB or
any of its Subsidiaries which has had, or would be reasonably likely to have, a
material adverse effect on SJNB, and (ii) SJNB and each of its Subsidiaries have
conducted their respective businesses in the ordinary course consistent with
their past practices and neither SJNB nor any of its Subsidiaries has taken any
action or entered into any transaction, and no event has occurred, that would
have required Saratoga's consent pursuant to Section 4.2 of this Agreement if
such action had been taken, transaction entered into or event had occurred, in
each case, after the date of this Agreement, nor has SJNB or any of its
Subsidiaries entered into any agreement, plan or arrangement to do any of the
foregoing.
(o) Undisclosed Liabilities. Except as set forth in Section 3.2(o) of the
-----------------------
SJNB Disclosure Schedule, and except (i) for those liabilities or obligations
that are fully reflected or
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reserved against in the consolidated statement of financial condition at
December 31, 1998 of SJNB referred to in Section 3.2(d) or (ii) for liabilities
or obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1998 and which are not material to SJNB and its
Subsidiaries taken as a whole, none of SJNB or any of its Subsidiaries has
incurred any liability or obligation of any nature whatsoever (whether absolute,
accrued or contingent or otherwise and whether due or to become due) that,
either alone or when combined with all similar liabilities or obligations, has
had, or would have, a material adverse effect on SJNB. No agreement pursuant to
which any loans or other assets have been or will be sold by SJNB or any
Subsidiary entitle the buyer of such loans or other assets, unless there is
material breach of a representation or covenant by SJNB or its Subsidiaries not
relating to the payment or other performance by an obligor of such loan or other
asset of its obligations thereunder, to cause SJNB or its Subsidiaries to
repurchase such loan or other asset or the buyer to pursue any other form of
recourse against SJNB or its Subsidiaries.
(p) Governmental Reports. SJNB and each of its Subsidiaries have timely
--------------------
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 1995 with any Governmental Entity and have paid all fees
and assessments due and payable in connection therewith. Except as set forth in
Section 3.2(p) of the SJNB Disclosure Schedule and except for normal
examinations conducted by a Governmental Entity in the regular course of
business of SJNB and its Subsidiaries, no Governmental Entity has initiated any
proceeding or, to the best knowledge of SJNB, investigation into the business or
operations of SJNB or any of its Subsidiaries since January 1, 1995. Except as
set forth in Section 3.2(p) of the SJNB Disclosure Schedule, there is no
material unresolved violation, criticism or exception by any Governmental Entity
with respect to any report or statement relating to any examinations of SJNB or
any of its Subsidiaries.
(q) Environmental Liability. (i) Except as set forth in Section 3.2(q) of
-----------------------
the SJNB Disclosure Schedule, to the best knowledge of SJNB, there are no
pending or threatened claims, actions or proceedings against SJNB relating to:
(A) any asserted liability of SJNB or any of its Affiliates or any
current or prior owner, operator, occupier or user of any Real Property
under any Environmental Law, including without limitation, the terms and
conditions of any permit, license, authority, settlement or other
obligation arising under any Environmental Law;
(B) any handling, storage, use or disposal of Hazardous Substances
on, under or within any Real Property or any transportation or removal of
Hazardous Substances to or from any Real Property;
(C) any actual or threatened discharge, release or emission of
Hazardous Substances from, on, under or within any Real Property into the
air, water, surface water, groundwater, land surface or subsurface strata;
or
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<PAGE>
(D) any actual or asserted claims for personal injuries, illness or
damage to real or personal property related to or arising out of exposure
to Hazardous Substances discharged, released or emitted from, on, under,
within or into, or transported from or to, any Real Property.
(ii) Except as set forth in Section 3.2(q) of the SJNB Disclosure
Schedule, to the best knowledge of SJNB, no Hazardous Substances are present on,
under or within any Real Property (except those Hazardous Substances used in the
normal course of operating or maintaining the business of SJNB or any Subsidiary
of SJNB) and, except as set forth in Section 3.2(q) of the SJNB Disclosure
Schedule, the presence of these Hazardous Substances does not violate any
Environmental Law. Except as set forth in Section 3.2(q) of the SJNB Disclosure
Schedule, to the best knowledge of SJNB, there are no storage tanks underground
or otherwise present on any Real Property and all such tanks set forth in
Section 3.2(q) of the SJNB Disclosure Schedule comply in all material respects
with applicable law, all permits in respect thereof are in full force and effect
and there have been no releases or discharges of Hazardous Substances from such
tanks to the environment.
(iii) To the best knowledge of SJNB, except as set forth in Section 3.2(q)
of the SJNB Disclosure Schedule, no Hazardous Substances have been, or have been
threatened to be, discharged, released or emitted in a Reportable Quantity into
the air, water, surface water, groundwater, land surface or subsurface strata or
transported to or from the Real Property except in accordance with Environmental
Laws (in particular, but without limitation, in accordance with any permits
issued pursuant thereto). To the best knowledge of SJNB, all notifications,
remediation, removal or other response actions of any kind whatsoever, in
respect of such discharges, releases and emissions which are required by
Environmental Laws, and by applicable agreements with third parties, have been
made within the time limits prescribed by such Environmental Laws and such third
party agreements. Copies of all such notifications or documents relating to any
remediation, removal or response action have previously been provided to SJNB.
(iv) To the best knowledge of SJNB, except as set forth in Section 3.2(q)
of the SJNB Disclosure Schedule, SJNB and its Affiliates are in compliance, in
all material respects, with all Environmental Laws related to the ownership,
operation, use and occupation of the Real Property.
(v) To the best knowledge of SJNB, except as set forth in Section 3.2(q)
of the SJNB Disclosure Schedule, no part of any Real Property is listed on
CERCLIS or the National Priorities List created pursuant to the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, as a
site containing Hazardous Substances.
(vi) SJNB has provided Saratoga with copies of all material notices posted
by it under any Environmental Law with respect to the Real Property at which the
business of SJNB or its Subsidiaries is conducted, including without limitation,
notices required under California Health & Safety Code section 25359.7.
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<PAGE>
(vii) All properties held by SJNB or its Subsidiaries under leases are
held by them under valid, binding and enforceable leases, with such exceptions
as are not material and do not interfere with the conduct of the business of
SJNB, and SJNB enjoys quiet and peaceful possession of such leased property.
SJNB and its Subsidiaries are not in default in any material respect under any
material lease, agreement or obligation regarding their properties to which they
are a party or by which they are bound.
(viii) Except as set forth in Section 3.2(q) of the SJNB Disclosure
Schedule, all of SJNB's and its Subsidiaries' rights and obligations under the
leases referred to in Section 3.2(q)(vii) above do not require the consent of
any other party to the transactions contemplated by this Agreement.
(r) Properties. Except as set forth in Section 3.2(r) of the SJNB
----------
Disclosure Schedule, SJNB or its Subsidiaries (i) has good and marketable title
to all Real Property owned in fee, and good title to all other properties and
assets reflected in the SJNB Consolidated Financial Statements as being owned by
SJNB or its Subsidiaries or acquired after the date thereof which are material
to the business of SJNB on a consolidated basis (except properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of all claims, liens, charges, security interests or
encumbrances of any nature whatsoever except (A) statutory liens securing
payments not yet delinquent, (B) liens on assets of San Jose National Bank
securing deposits incurred in the ordinary course of its banking business and
(C) such imperfections or irregularities of title, claims, liens, charges,
security interests or encumbrances as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise materially
impair business operations at such properties and (ii) is the lessee of all
leasehold estates reflected in the SJNB Consolidated Financial Statements or
acquired after the date thereof which are material to its business on a
consolidated basis (except for leases that have expired by their terms since the
date thereof) and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without material default thereunder by
the lessee or, to the best knowledge of SJNB, the lessor. Except as set forth in
Section 3.2(r) of the SJNB Disclosure Schedule, all real properties owned by
SJNB or its Subsidiaries are owned in accordance in all material respects with
all requirements of applicable rules, regulations and policies of the Bank
Regulators.
(s) Transactions with Affiliates. Except as set forth in Section 3.2(s)
----------------------------
of the SJNB Disclosure Schedule and except for those arrangements, contracts,
agreements or transactions which were entered into in the ordinary course of
business, since December 31, 1998, SJNB has not extended credit, committed to
extend credit or transferred any asset to or assumed or guaranteed any liability
of or entered into any other transactions with the employees or directors of
SJNB, or any spouse or child of any of them, or to any of their "affiliates" or
"associates" as such terms are defined in Rule 405 under the Securities Act. Any
such transactions, including those in the ordinary course of business, have been
on terms no less favorable than those which would prevail in an arm's-length
transaction with an independent third party.
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<PAGE>
(t) No Broker or Finder. No agent, broker, investment banker, financial
-------------------
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement
(u) Intellectual Property. Except as set forth in Section 3.2(u) of the
---------------------
SJNB Disclosure Schedule, SJNB and its Subsidiaries own or have a valid license
to use all trademarks, service marks and trade names (including any
registrations or applications for registration of any of the foregoing)
(collectively, the "SJNB Intellectual Property") necessary to carry on their
business substantially as currently conducted, except for such SJNB Intellectual
Property the failure of which to own or validly license, individually or in the
aggregate, would not reasonably be expected to have a material adverse effect on
SJNB. Neither SJNB nor any such Subsidiary has received any notice of
infringement of or conflict with, and, to the best knowledge of SJNB, there are
no infringements of or conflicts with, the rights of others with respect to the
use of any SJNB Intellectual Property that, individually or in the aggregate, in
either such case, would reasonably be expected to have a material adverse effect
on SJNB.
(v) Pooling of Interests. Except as set forth in Section 3.2(v) of the
--------------------
SJNB Disclosure Schedule, as of the date of this Agreement, SJNB has no reason
(in respect to matters pertaining to SJNB existing as of the date hereof or
expected to exist as of the Closing Date) to believe that SJNB will not qualify
for pooling of interests treatment for accounting purposes under GAAP as
presently in effect.
(w) Community Reinvestment Act Compliance. San Jose National Bank is in
-------------------------------------
substantial compliance with the applicable provisions of the CRA and has
received a CRA rating of "satisfactory" from the OCC in its most recent
examination, and SJNB has no knowledge of the existence of any fact or
circumstance or set of facts or circumstances which could be reasonably expected
to result in San Jose National Bank failing to be in substantial compliance with
such provisions or having its current rating lowered.
(x) Year 2000 Readiness. SJNB and its Subsidiaries have a plan and
-------------------
organization in place to minimize any material adverse effect caused by the
failure of any system, equipment or product which is material to their
respective operations or financial condition to be Year 2000 Ready. Such plan
addresses, at a minimum, the issues set forth in the statements of the FFIEC,
dated May 5, 1997, entitled "Year 2000 Project Management Awareness," and
December 1997, entitled "Safety and Soundness Guidelines Concerning the Year
2000 Business Risk," as well as any other statements of the FFIEC related to the
Year 2000, as such issues might affect SJNB and its Subsidiaries. SJNB has
provided to Saratoga a complete and accurate copy of the plan, which includes
SJNB's Year 2000 organization and an estimate of anticipated associated costs.
SJNB is using its best efforts to implement such plan, which includes seeking
assurances from its vendors and suppliers that such vendors' and suppliers'
products and services which are material to its operations are Year 2000 Ready,
replacing any material products and services supplied by such vendors or
suppliers which are not Year 2000 Ready with new products and services which are
Year 2000 Ready, and/or working with such vendors and suppliers to achieve Year
2000 Readiness with respect to such material products and services. Such plan
shall also establish
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<PAGE>
procedures to evaluate, manage and mitigate Year 2000-related risks to SJNB
posed by material customers of SJNB or any of its Subsidiaries who may not
themselves be Year 2000 Ready. Neither SJNB nor its Subsidiaries have received,
or expect to receive, a "Year 2000 Deficiency Notification Letter" (as such term
is employed in the Federal Reserve's Supervision and Regulation Letter No. SR
98-3 (SUP), dated March 4, 1998).
(y) Insurance. SJNB has previously delivered to Saratoga a list
---------
identifying all insurance policies maintained on behalf of SJNB and its
Subsidiaries (other than mortgage, title and other similar policies for the
benefit of SJNB or its Subsidiaries as mortgagees under residential mortgage
loans). All of the material insurance policies and bonds maintained by or for
the benefit of SJNB and its Subsidiaries are in full force and effect, to the
best knowledge of SJNB, SJNB and its Subsidiaries are not in default thereunder,
and all material claims thereunder have been filed in due and timely fashion,
and neither SJNB nor any of its Subsidiaries has received notice that any of
such material claims have been or will be denied. The insurance policies and
bonds maintained by SJNB and its Subsidiaries are written by reputable insurers
and are in such amounts, cover such risks and have such other terms as is
customary for banks and bank holding companies comparable in size and operations
to SJNB and its Subsidiaries. Since December 31, 1998, there has not been any
damage to, destruction of, or loss of any assets of SJNB and its Subsidiaries
(whether or not covered by insurance) that could have a material adverse effect
on SJNB. Neither SJNB nor any of its Subsidiaries has received any notice of a
premium increase or cancellation with respect to any of its insurance policies
or bonds, and within the last three years, neither SJNB nor any of its
Subsidiaries has been refused any insurance coverage sought or applied for, and
SJNB has no reason to believe that existing insurance coverage cannot be renewed
as and when the same shall expire, upon terms and conditions as favorable as
those presently in effect, other than possible increases in premiums or
unavailability in coverage that have not resulted from an extraordinary loss
experience of SJNB or any SJNB Subsidiary.
(z) Loans and Other Assets.
----------------------
(i) SJNB has disclosed to Saratoga prior to the date hereof the amounts of
all loans, leases, other extensions of credit, commitments or other interest-
bearing assets presently owned by SJNB or any of its Subsidiaries that have been
classified by any Bank Regulator, SJNB's independent auditors, or the management
of SJNB or any Subsidiary of SJNB as "Other Loans Especially Mentioned,"
"Substandard," "Doubtful," or "Loss", or classified using categories with
similar import, and will have disclosed promptly to Saratoga prior to the
Closing Date all such items which will be so classified hereafter and prior to
the Closing Date. All such assets or portions thereof classified "Loss", or
which are subsequently so classified, have been (or will be) charged off on a
timely basis in full, collected or otherwise placed in a bankable condition.
SJNB regularly reviews and appropriately classifies its and its Subsidiaries'
loans and other assets in accordance in all material respects with all
applicable legal and regulatory requirements and GAAP. SJNB has disclosed to
Saratoga the amounts and identities of all OREO that has been classified as such
as of the date hereof by SJNB's independent auditors, management of SJNB or any
Bank Regulator and will have promptly disclosed to Saratoga prior to the Closing
Date all such assets which will be so classified hereafter and prior to the
Closing Date. As of the
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date hereof and the Closing Date, the recorded values of all OREO on the books
of SJNB and its Subsidiaries accurately reflect and will reflect the net
realizable values of each OREO parcel thereof in compliance with GAAP. SJNB and
its Subsidiaries have recorded on a timely basis all expenses associated with or
incidental to its OREO, including but not limited to taxes, maintenance and
repairs as required by GAAP.
(ii) All loans, leases, other extensions of credit, commitments or other
interest-bearing assets and investments of SJNB and its Subsidiaries are legal,
valid and binding obligations enforceable in accordance with their respective
terms and are not subject to any setoffs, counterclaims or disputes known to
SJNB (subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to equitable
principles of general applicability), except as previously disclosed to Saratoga
in Section 3.2(z)(ii) of the SJNB Disclosure Schedule or reserved for in the
consolidated statement of financial condition of SJNB as of December 31, 1998
referred to in Section 3.2(d) in accordance with GAAP, and were duly authorized
under and made in compliance with applicable federal and state laws and
regulations. SJNB and its Subsidiaries do not have any extensions or letters of
credit, investments, guarantees, indemnification agreements or commitments for
the same (including without limitation commitments to issue letters of credit,
to create acceptances, or to repurchase securities, federal funds or other
assets) other than those documented on the books and records of SJNB and its
Subsidiaries.
(aa) Derivatives Contracts; Structured Notes; Etc. Except as set forth in
--------------------------------------------
Section 3.2(aa) of the SJNB Disclosure Schedule, neither SJNB nor any Subsidiary
is a party to or has agreed to enter into a Derivatives Contract or owns
securities that (1) are referred to generically as "structured notes," "high
risk mortgage derivatives," "capped floating rate notes" or "capped floating
rate mortgage derivatives" or (2) are likely to have changes in value as a
result of interest or exchange rate changes that significantly exceed normal
changes in value attributable to interest or exchange rate changes, except for
those Derivatives Contracts and other instruments legally purchased or entered
into in the ordinary course of their banking business, consistent with safe and
sound banking practices and regulatory guidance, and with counterparties
reasonably believed by SJNB to be financially responsible. All of such
Derivatives Contracts or other instruments are legal, valid and binding
obligations of SJNB or one of its Subsidiaries and, to the best knowledge of
SJNB, each of the other counterparties thereto, enforceable in accordance with
their terms (except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally),
and are in full force and effect. SJNB and each of its Subsidiaries and, to the
best knowledge of SJNB, each of the other counterparties thereto, have duly
performed in all material respects all of their material obligations thereunder
to the extent that such obligations to perform have accrued; and there are no
breaches, violations or defaults or allegations or assertions of such by any
party thereunder which would have or would reasonably be expected to have a
material adverse effect on SJNB.
(ab) Labor Matters. Neither SJNB nor any of its Subsidiaries is a party to,
-------------
or is bound by, any collective bargaining agreement, contract or other agreement
or understanding with a
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<PAGE>
labor union or labor organization, nor is it or any of its Subsidiaries the
subject of a proceeding asserting that it or any such Subsidiary has committed
an unfair labor practice (within the meaning of the National Labor Relations
Act) or seeking to compel it or such Subsidiary to bargain with any labor
organization as to wages and conditions of employment, nor is there any strike
or other labor dispute involving it or any of its Subsidiaries pending or, to
the best of its knowledge, threatened, nor is it aware of any activity involving
it or any of its Subsidiaries' employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Saratoga. During the period from the date of this
---------------------
Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that SJNB shall
otherwise consent in writing, which consent shall not be unreasonably withheld)
Saratoga agrees that it will and will cause each of its Subsidiaries to carry on
the business of Saratoga and each of its Subsidiaries in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
all reasonable efforts to preserve intact the present business organizations of
Saratoga and each of its Subsidiaries, maintain the rights and franchises of,
and preserve the relationships with customers, suppliers and others having
business dealings with, Saratoga and each of its Subsidiaries to the end that
their goodwill and ongoing businesses shall not be impaired in any material
respect at the Effective Time. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the Effective Time,
Saratoga shall not, and shall not permit any of its Subsidiaries to, without the
prior consent of SJNB in writing:
(a) (i) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, except for cash dividends in an
amount per share not greater than, and consistent with the manner and
frequency of, dividends paid by Saratoga in the past 12 months and
dividends by a wholly owned Subsidiary of Saratoga to Saratoga, (ii) set
any record or payment dates for the payment of any dividends or
distribution on its capital stock except in the ordinary course of business
consistent with past practice, (iii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for, shares
of its capital stock or (iv) repurchase, redeem or otherwise acquire, or
permit any Subsidiary to purchase or otherwise acquire, any shares of its
capital stock or the capital stock of any other Subsidiary of Saratoga or
any securities convertible into or exercisable for any shares of such
capital stock;
(b) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class, any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares, or enter into any agreement with
respect to any of the foregoing, other
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<PAGE>
than issuances of Saratoga Common Stock pursuant to the exercise of
Saratoga Options;
(c) except as required to perform its obligations under this
Agreement, amend or propose to amend its Articles of Incorporation or its
By-laws or other organizational documents or that of any Subsidiary;
(d) (i) enter into any new material line of business, (ii) change its
lending, investment, liability management and other material banking
policies in any respect which is material to Saratoga, except as required
by law or by policies imposed by a Bank Regulator, or (iii) except as set
forth in Section 4.1(d) of the Saratoga Disclosure Schedule, incur or
commit to any capital expenditures or any obligations or liabilities in
connection therewith other than capital expenditures and obligations or
liabilities incurred or committed to in the ordinary course of business
consistent with past practice but in no event for more than $10,000 as to
any one such item or $50,000 as to all such items in the aggregate;
(e) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other means, any business or any corporation,
partnership, association or other business organization or division
thereof; provided, however, that the foregoing shall not prohibit
-------- -------
foreclosures and other debt-previously-contracted acquisitions in the
ordinary course of business consistent with past practice;
(f) sell, lease, encumber or otherwise dispose of, or agree to sell,
lease, encumber or otherwise dispose of, any of its assets (including
capital stock of Subsidiaries of Saratoga), which are material,
individually or in the aggregate, to Saratoga, other than in the ordinary
course of business consistent with past practice;
(g) incur any long-term indebtedness for borrowed money or guarantee
any such long-term indebtedness or issue or sell any long-term debt
securities or warrants or rights to acquire any long-term debt securities
of Saratoga or any of its Subsidiaries or guarantee any long-term debt
securities of others other than (i) indebtedness of any Subsidiary of
Saratoga to Saratoga or to another Subsidiary of Saratoga, (ii) deposits
taken in the ordinary course of business consistent with past practice, or
(iii) renewals or extensions of existing long-term indebtedness without any
change in the material terms thereof;
(h) intentionally take or fail to take any action that would, or
reasonably might be expected to, result in any of the representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect, or in any of the conditions to the Closing set forth in
Article VI (including without limitation the conditions set forth in
Sections 6.1(f) and 6.3(d)) not being satisfied, or
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(unless such action is required by applicable law or sound banking
practice) which would adversely affect the ability of SJNB or Saratoga to
obtain any of the Requisite Regulatory Approvals without imposition of a
condition or restriction of the type referred to in Section 6.1(g);
(i) change the methods of accounting of Saratoga or any of its
Subsidiaries, except as required by changes in GAAP as concurred in by such
party's independent auditors;
(j) enter into, adopt, amend (except for technical amendments and
such amendments as may be required by law) or terminate any Saratoga
Benefit Plan or any other Benefit Plan or any agreement, arrangement, plan
or policy between Saratoga or any of its Subsidiaries and one or more of
its directors or officers, increase in any manner the compensation or
fringe benefits of any director, officer or employee of Saratoga or any of
its Subsidiaries (provided, that Saratoga or any of its Subsidiaries may
--------
increase the compensation of any such director, officer or employee in a
manner consistent with Saratoga's present policies, procedures and plans in
effect for the calendar year 1999, all of which policies, procedures and
plans have been previously provided to SJNB and, in connection with any
increase in compensation of officers, said increases shall be deemed
consistent with Saratoga's present policies so long as the annual increase
for each officer is four percent (4%) or less; provided, however that,
-------- ------
notwithstanding the foregoing, Saratoga or its Subsidiaries shall not
increase the compensation or fringe benefits of any director, officer or
employee of Saratoga or any of its Subsidiaries with an annual base salary
in excess of $40,000 (except for annual compensation increases for officers
of four percent (4%) or less) without obtaining the prior written consent
of SJNB (which consent shall not be unreasonably withheld)) or pay or grant
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock options,
stock appreciation rights, restricted stock, restricted stock units or
performance units or shares or any similar awards) or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing,
(ii) enter into or renew any contract, agreement, commitment or arrangement
providing for the payment to any director, officer or employee of Saratoga
or any of its Subsidiaries of compensation or benefits contingent, or the
terms of which are materially altered, upon the occurrence of any of the
transactions contemplated by this Agreement, or (iii) with respect to any
Saratoga Benefit Plan which is a defined benefit or defined contribution
pension plan, permit or cause (A) a consolidation or merger of any such
Saratoga Benefit Plan, (B) a spin-off involving any such Saratoga Benefit
Plan, (C) a transfer of assets and/or liabilities from or to any such
Saratoga Benefit Plan, or (D) any similar transaction involving any such
Saratoga Benefit Plan;
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(k) enter into any contract that would be required to be disclosed on
Section 3.1(j) of the Saratoga Disclosure Schedule or renew or terminate
any contract listed in Section 3.1(j) of the Saratoga Disclosure Schedule
through any volitional conduct, other than renewals of contracts or leases
for a term of one year or less without material adverse changes to the
terms thereof;
(l) commit to or renew any real estate secured or construction loan
with a principal amount exceeding $1,500,000 or any commercial loan with a
principal amount exceeding $500,000; provided, however, that if any new
-------- -------
loan commitment or loan renewal involves a loan to a borrower (or his
associates (as defined in Rule 405 under the Securities Act) and
Affiliates) who has (A) any other classified or criticized asset, (B) a
total lending relationship of $250,000 or more, or (C) a renewal involving
a classified or criticized asset, then the relevant loan amount subject to
this subsection shall be $250,000; provided, further, however, that any
-------- ------- -------
such loan or renewal which is in excess of the applicable amount specified
in this subsection shall not be made or committed to be made unless
Saratoga shall have given SJNB at least one Business Day's advance written
notice of the proposal to make such loan commitment or renewal, which
written notice shall provide SJNB the same information provided to the
relevant loan committee (or loan officer, if no committee approval is
required) of Saratoga or the applicable Saratoga Subsidiary, and shall have
furnished SJNB with such other information as SJNB may reasonably have
requested;
(m) issue or agree to issue any letters of credit or otherwise
guarantee the obligations of any other persons except in the ordinary
course of business consistent with past practice;
(n) engage or participate in any material transaction or incur or
sustain any material obligation not in the ordinary course of business
consistent with past practice;
(o) settle any claim, action or proceeding involving money damages
involving a payment in excess of $50,000 as to any such matter, or settle
any other matter not involving money damages which is material to Saratoga;
(p) except as required by GAAP or applicable law or regulation,
change or make any tax elections, change any method of accounting with
respect to taxes, file any amended tax return, or settle or compromise any
federal, state, local or foreign material tax liability;
(q) except as set forth in Section 4.1(q) of the Saratoga Disclosure
Schedule, make an application for the opening, relocation or closing of, or
open, relocate or close any branch or loan production office;
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(r) except as described in Section 4.1(r) of the Saratoga Disclosure
Schedule, enter into any securitization or similar transactions with
respect to any loans, leases or other assets of Saratoga or any of its
Subsidiaries; or
(s) agree to, or make any commitment to, take any of the actions
prohibited by this Section 4.1.
4.2 Covenants of SJNB.
-----------------
(a) During the period from the date of this Agreement and continuing until
the Effective Time, SJNB agrees as to itself and its Subsidiaries that (except
as expressly contemplated or permitted by this Agreement or to the extent that
Saratoga shall otherwise consent in writing, which consent shall not be
unreasonably withheld), SJNB will and will cause each of its Subsidiaries to
carry on its respective businesses 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 organizations, maintain its
rights and franchises and preserve its relationships with customers, suppliers
and others having business dealings with them to the end that their goodwill and
ongoing businesses shall not be impaired in any material respect at the
Effective Time. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time, SJNB shall not,
and shall not permit any of its Subsidiaries to, without the prior consent of
Saratoga in writing:
(i) except as required to perform its obligations under this
Agreement, amend or propose to amend its Articles of Incorporation or its
By-laws in a manner that would materially and adversely affect its ability
to perform its obligations under this Agreement or consummate the
transactions contemplated hereunder, or otherwise materially and adversely
affect the rights, powers and privileges of the shares of SJNB Common Stock
to be issued in the Merger;
(ii) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, except for cash dividends in an amount
substantially equivalent to dividends paid in the year prior to the date
hereof and dividends by a wholly owned Subsidiary of SJNB to SJNB, (ii) set
any record or payment dates for the payment of any dividends or
distribution on its capital stock except in the ordinary course of business
consistent with past practice, (iii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for, shares
of its capital stock or (iv) repurchase, redeem or otherwise acquire, or
permit any Subsidiary to purchase or otherwise acquire, any shares of its
capital stock or the capital stock of any other Subsidiary of SJNB or any
securities convertible into or exercisable for any shares of such capital
stock; provided, however, that nothing in this Agreement shall restrict
-------- -------
SJNB from taking actions involving the authorization, approval or adoption
of a shareholders' rights plan or taking any other action incidental
thereto;
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(iii) change the methods of accounting of SJNB or any of its
Subsidiaries (including any changes in accounting with respect to taxes),
except as required by changes in GAAP as concurred in by such party's
independent auditors;
(iv) intentionally take or fail to take any action that would, or
reasonably might 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 Closing set forth in
Article VI (including without limitation the conditions set forth in
Sections 6.1(f) and 6.2(d)) not being satisfied, or (unless such action is
required by applicable law or sound banking practice) which would adversely
affect the ability of SJNB or Saratoga to obtain any of the Requisite
Regulatory Approvals without imposition of a condition or restriction of
the type referred to in Section 6.1(g); or
(v) agree to, or make any commitment to, take any of the actions
prohibited by this Section 4.2(a).
(b) SJNB shall use all commercially reasonable efforts to publish as soon
as practicable after the end of the quarter in which there are at least thirty
(30) days of post-Merger combined operations, combined sales and net income
figures as contemplated by and in accordance with the terms of SEC Accounting
Release No. 135.
(c) During the period from the date of this Agreement and continuing until
the Effective Time, SJNB shall not accept any offer from or enter into any
agreement with any third party regarding a Takeover Proposal (as defined in
Section 5.4(a), however, references therein to Saratoga shall be deemed for
purposes of this Section 4.2(c) to refer to SJNB) of SJNB with any other entity
unless such offer or agreement is expressly conditioned upon the performance by
SJNB or its successor in interest of its obligations under this Agreement.
Notwithstanding the foregoing, the Board of Directors of SJNB, to the extent
required by its fiduciary obligations, as determined in good faith by the Board
of Directors of SJNB based on the advice of independent counsel, may (subject to
the following sentence) withdraw or modify its approval or recommendation of
this Agreement or the Merger, approve, recommend or enter into an agreement with
respect to any Takeover Proposal pursuant to Section 7.1(e)(ii), or terminate
this Agreement, in each case at any time after the third business day following
Saratoga's receipt of a written notice advising Saratoga that the Board of
Directors of SJNB has received such a Takeover Proposal, specifying the material
terms and conditions of such Takeover Proposal and identifying the Person making
such Takeover Proposal (it being understood that any amendment to such Takeover
Proposal shall necessitate an additional three business day period). If SJNB
proposes to enter into an agreement with respect to any Takeover Proposal
pursuant to Section 7.1(e)(ii), it shall concurrently with entering into such
agreement pay, or cause to be paid, to Saratoga the Termination Fee in
accordance with the provisions of Section 7.1(e)(ii).
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Regulatory Matters.
------------------
(a) Saratoga and SJNB shall promptly prepare and file with the SEC a Proxy
Statement, and SJNB shall promptly prepare and file with the SEC the S-4, in
which the Proxy Statement will be included as a prospectus, and one or more
registration statements or amendments to existing registration statements under
the Securities Act for the purpose of registering the maximum number of shares
of SJNB Common Stock to which the option holders of Saratoga may be entitled
pursuant to Section 2.6 at or after the Effective Time. Each of SJNB and
Saratoga shall use all reasonable efforts to have the S-4 declared effective
under the Securities Act as promptly as practicable after such filing, and
Saratoga and SJNB shall thereafter promptly mail the Proxy Statement to their
respective shareholders.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement and the other Transaction Agreements (including without limitation the
Merger and the Bank Merger). SJNB and Saratoga shall have the right to review in
advance and to the extent practicable each will consult the other on, in each
case subject to applicable laws relating to the exchange of information, all the
information relating to Saratoga or SJNB, as the case may be, and any of their
respective Subsidiaries which appears in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement
(including without limitation the Merger) and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(c) SJNB and Saratoga shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with the Proxy Statement, the S-4 or any other statement, filing,
notice or application made by or on behalf of SJNB, Saratoga or any of their
respective Subsidiaries to any Governmental Entity in connection with the Merger
and the other transactions contemplated by this Agreement.
(d) SJNB and Saratoga shall promptly advise each other upon receiving any
communication from any Governmental Entity whose consent or approval is required
for consummation of the transactions contemplated by this Agreement which causes
such party to believe that there is a reasonable likelihood that any Requisite
Regulatory Approval (as defined
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in Section 6.1(b)) will not be obtained or that the receipt of any such approval
will be materially delayed.
5.2 Access to Information. Upon reasonable notice, Saratoga and SJNB shall
---------------------
(and shall cause each of their respective Subsidiaries to) afford to the other
and their representatives and advisors access, during normal business hours
during the period prior to the Closing Date, to all the properties, books,
contracts, commitments and records of Saratoga (in the case of Saratoga) and of
SJNB (in the case of SJNB) and, during such period, each of Saratoga and SJNB
shall (and shall cause each of their respective Subsidiaries to) make available
to the other and their representatives and advisors (a) a copy of each report,
schedule, registration statement and other document filed or received by
Saratoga or SJNB, as the case may be, 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 or reports or documents which are subject to an attorney-client
privilege or which constitute attorney work product) and (b) all other
information concerning the business, properties and personnel of Saratoga or of
SJNB, as the case may be, as such other party may reasonably request. SJNB will
hold any such information with respect to Saratoga and its Subsidiaries which is
nonpublic in confidence to the extent required by, and in accordance with, the
provisions of the letter dated July 28, 1998, between Saratoga and SJNB (the
"Confidentiality Agreement"). Saratoga will hold all such information with
respect to SJNB and its Subsidiaries which is nonpublic in confidence and will
otherwise deal with such information to the extent required by, and in
accordance with, the provisions of the Confidentiality Agreement, deeming, for
purpose of this sentence, such information to be subject to the provisions of
the Confidentiality Agreement as if such provisions applied by their terms to
such information of SJNB and its Subsidiaries, as well as to such information of
Saratoga and its Subsidiaries. No investigation by either SJNB, on the one hand,
or Saratoga, on the other hand, shall affect the representations and warranties
of the other.
5.3 Shareholders' Meetings. (a) Saratoga shall call a meeting of its
----------------------
shareholders to be held as promptly as practicable for the purpose of voting
upon the adoption of this Agreement. Saratoga will, through its Board of
Directors, recommend to its shareholders adoption of this Agreement unless the
Board of Directors of Saratoga determines in good faith, based upon the written
advice of outside counsel, that making such recommendation, or failing to
withdraw, modify or amend any previously made recommendation, would constitute a
breach of fiduciary duty by Saratoga's Board of Directors under applicable law.
In addition, nothing in this Section 5.3 or elsewhere in this Agreement shall
prohibit accurate disclosure by Saratoga of information that is required to be
disclosed in the Proxy Statement, or any other document required to be filed
with the SEC (including without limitation a Solicitation/Recommendation
Statement on Schedule 14D-9) or otherwise required to be disclosed by applicable
law or regulation or the rules of any securities exchange or automated quotation
system on which the securities of Saratoga may then be traded.
(b) SJNB shall call a meeting of its shareholders to be held as promptly
as practicable for the purpose of voting upon the adoption of this Agreement.
SJNB will, through its Board of
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Directors, recommend to its shareholders adoption of this Agreement unless the
Board of Directors of SJNB determines in good faith, based upon the written
advice of outside counsel, that making such recommendation, or failing to
withdraw, modify or amend any previously made recommendation, would constitute a
breach of fiduciary duty by SJNB's Board of Directors under applicable law. In
addition, nothing in this Section 5.3 or elsewhere in this Agreement shall
prohibit accurate disclosure by SJNB of information that is required to be
disclosed in the Proxy Statement, the S-4 or any other document required to be
filed with the SEC (including without limitation a Solicitation/Recommendation
Statement on Schedule 14D-9) or otherwise required to be disclosed by applicable
law or regulation or the rules of any securities exchange or automated quotation
system on which the securities of SJNB may then be traded.
(c) Each of Saratoga and SJNB shall use all commercially reasonable
efforts to cause such meetings of their respective shareholders to take place on
or before November 12, 1999, or as soon thereafter as is reasonably practicable.
Saratoga and SJNB shall coordinate and cooperate with respect to the timing of
said meetings and the date on which the Saratoga Shareholders' Meeting shall be
held.
5.4 No Solicitations. (a) From the date hereof until the earlier of the
----------------
Effective Time or the termination of this Agreement, Saratoga agrees that
neither it, nor any of its Subsidiaries, Affiliates or agents shall, nor shall
it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative or agent (collectively, "Representatives") retained by it or any
of its Subsidiaries, Affiliates or agents to, solicit, initiate or knowingly
encourage the submission of, or enter into discussions or negotiations with or
provide information to any person or group of persons (other than the respective
parties to this Agreement) concerning, any Takeover Proposal (as defined below)
or enter into any agreement with a third party relating to a Takeover Proposal
or assist, participate in, facilitate or encourage any effort or attempt by any
other person to do or seek to do any of the foregoing. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any director, officer or Affiliate of Saratoga or any
of its Subsidiaries or any investment banker, attorney or other advisor or
Representative of Saratoga or any of its Subsidiaries or Affiliates, whether or
not such Person is purporting to act on behalf of Saratoga or any of its
Subsidiaries or otherwise, shall be deemed to be a breach of this Section 5.4(a)
by Saratoga. As used in this Agreement, "Takeover Proposal" shall mean any
inquiry, proposal or offer to acquire in any manner 20% or more of any class of
equity securities of, or a merger, consolidation, business combination, sale,
recapitalization, liquidation, dissolution or other disposition or similar
transaction involving 20% or more of the assets of, Saratoga or any Significant
Subsidiary of Saratoga, or any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of Saratoga or any Significant Subsidiary of Saratoga
(other than pursuant to the transactions contemplated by this Agreement and the
Stock Option Agreement). A "Significant Subsidiary" means any Subsidiary of a
person that would constitute a Significant Subsidiary of such person within the
meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange Commission
(the "SEC").
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(b) Except as set forth herein, neither the Board of Directors of Saratoga
nor any committee thereof shall (i) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to SJNB, the approval or recommendation by the
Board of Directors of Saratoga or any such committee of this Agreement or the
Merger, (ii) approve or recommend, or propose to approve or recommend, any
Takeover Proposal, or (iii) enter into any agreement with respect to any
Takeover Proposal. Notwithstanding the foregoing, the Board of Directors of
Saratoga, to the extent required by its fiduciary obligations, as determined in
good faith by the Board of Directors of Saratoga based on the advice of
independent counsel, may (subject to the following sentences) withdraw or modify
its approval or recommendation of this Agreement or the Merger, approve or
recommend any Superior Proposal (as defined herein), enter into an agreement
with respect to such Superior Proposal or terminate this Agreement, in each case
at any time after the third business day following SJNB's receipt of a written
notice advising SJNB that the Board of Directors of Saratoga has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the Person making such Superior Proposal (it being
understood that any amendment to a Superior Proposal shall necessitate an
additional three business day period). In addition, if Saratoga proposes to
enter into an agreement with respect to any Takeover Proposal, it shall
concurrently with entering into such agreement pay, or cause to be paid, to SJNB
the Termination Fee in accordance with the provisions of Section 5.4(d). For
purposes hereof, "Superior Proposal" shall mean any bona fide written Takeover
Proposal by a third party on terms determined in good faith by the Board of
Directors of Saratoga to be reasonably capable of being completed, taking into
account all legal, financial, regulatory and other aspects of the proposal and
the Person making the proposal and (based on the advice of a financial advisor
of nationally recognized reputation), if consummated to be more favorable to the
shareholders of Saratoga from a financial point of view than the Merger.
(c) In addition to the obligation of Saratoga set forth in paragraph (b)
above, Saratoga promptly shall advise SJNB orally and in writing of any request
for information or of any Takeover Proposal, or any inquiry with respect to or
which could lead to any Takeover Proposal, the material terms and conditions of
such request, Takeover Proposal or inquiry and the identity of the Person making
any such request, Takeover Proposal or inquiry. Saratoga shall keep SJNB fully
informed of the status and details (including amendments or proposed amendments)
of any such request, Takeover Proposal or inquiry.
(d) If this Agreement is terminated pursuant to its terms other than by
SJNB or Saratoga pursuant to Section 7.1(a), 7.1(b)(i) or 7.1(b)(ii), 7.1(c),
7.1(e)(ii), 7.1(f)(i)(2) or 7.1(f)(i)(3), 7.1(g), 7.1(i)(1) or 7.1(i)(2), or
other than by Saratoga pursuant to Section 7.1(e)(i), 7.1(f)(ii)(1) or
7.1(f)(ii)(2), or 7.1(h) (in the event that SJNB elects not to adjust the
Exchange Ratio as provided in Section 7.1(h)), and an Acquisition Event (as
defined herein) shall occur after the date hereof and within 18 months after the
date of such termination, Saratoga shall pay promptly, but in no event later
than two Business Days after the occurrence of such Acquisition Event, by wire
transfer of immediately available Federal Funds to such account as SJNB shall
designate, $1.3 million (the "Termination Fee") as liquidated damages to SJNB
for such breach (but only if a Termination Fee shall not theretofore have been
paid pursuant to Section 5.4(b) hereof, and provided, further that if Actual
-------- -------
Expenses have been paid by Saratoga pursuant to the
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penultimate sentence of Section 5.9, the Termination Fee payable shall be
reduced by the amount of such Actual Expenses paid). For purposes hereof,
"Acquisition Event" shall mean any of the following: (i) any Person (other than
SJNB or any Subsidiary thereof) shall have acquired pursuant to a tender offer
or otherwise beneficial ownership of 20% or more of the outstanding shares of
Saratoga Common Stock; (ii) Saratoga or SNB shall have authorized, recommended,
proposed or publicly announced an intention to authorize, recommend or propose,
or entered into, an agreement with any Person (other than SJNB or a Subsidiary
thereof) to (A) effect a merger, consolidation or similar transaction (or series
of unrelated and non-integrated mergers, consolidations or similar transactions)
involving Saratoga or SNB (other than a merger, consolidation or similar
transaction in which those holders of Saratoga Common Stock outstanding
immediately prior to each such transaction continue to own at least 80% of the
Saratoga Common Stock outstanding immediately after such transaction), (B) sell,
lease or otherwise dispose of assets of Saratoga or its Subsidiaries
representing 20% or more of the consolidated assets of Saratoga and its
Subsidiaries, or (C) issue, sell or otherwise dispose of (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 20% or more of the voting power of Saratoga or its Subsidiaries
(but excluding a series of unrelated and non-integrated issues, sales or other
dispositions).
(e) Notwithstanding anything to the contrary contained herein, the
aggregate amount of gain realized by SJNB pursuant to the Stock Option
Agreement, when added to the Termination Fee, if any, received by SJNB, shall
not in the aggregate exceed $2,200,000 as liquidated damages, and, in the event
SJNB realizes gain in excess of such amount under the Stock Option Agreement
when added to the Termination Fee, if any, from Saratoga, SJNB undertakes
promptly to pay back to Saratoga, by wire transfer of immediately available
funds, the amount of such excess.
5.5 Legal Conditions.
----------------
(a) Each of Saratoga and SJNB shall, and shall cause its respective
Subsidiaries to, use all reasonable efforts (i) to take, or cause to be taken,
all actions necessary to comply promptly with all legal requirements which may
be imposed on such party or its Subsidiaries with respect to the transactions
contemplated by this Agreement and as promptly as practicable, (ii) to obtain
(and to cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity and or any
other public or private third party which is required to be obtained or made by
such party or any of its Subsidiaries in connection with the Merger and the
other transactions contemplated by this Agreement. Each of Saratoga and SJNB
will promptly cooperate with and furnish information to the other in connection
with any such burden suffered by, or requirement imposed upon, any of them or
any of their Subsidiaries in connection with the foregoing.
(b) Each of Saratoga and SJNB agrees to use all reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary and proper or advisable to consummate, as soon as practicable
after the date of this Agreement, the transactions contemplated hereby,
including, without limitation, using all reasonable best efforts to (i) lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby,
(ii) defend any Litigation seeking
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to enjoin, prevent or delay the consummation of the transactions contemplated
hereby or seeking material damages, (iii) provide to counsel to the other party
hereto representations and certifications as to such matters as such counsel may
reasonably request in order to render the opinions referred to in Sections
6.2(d) and 6.3(c), and (iv) to obtain the letters of the independent accountants
referred to in Section 6.1(f).
5.6 Employee Benefit Plans.
----------------------
(a) For purposes of all employee benefit plans of SJNB or its Subsidiaries
in which the employees of Saratoga who shall remain in the employment of SJNB or
its Subsidiaries after the Closing Date shall participate from and after such
date (including all policies and employee fringe benefit programs, including
vacation policies), and under which an employee's benefit depends, in whole or
in part, on length of service, credit will be given to employees of Saratoga for
vesting and eligibility purposes only for service previously credited with
Saratoga or its Subsidiaries prior to the Effective Time to the extent that such
crediting of service does not result in duplication of benefits; provided,
--------
however, that SJNB shall determine each employee's length of service in a manner
- -------
consistent with the customary practice with respect to the employees of the SJNB
Subsidiary by which they shall be employed. SJNB shall also cause each employee
benefit plan in which employees of Saratoga participate from and after the
Effective Time to waive (i) any preexisting condition restriction which was
waived under the terms of any analogous Benefit Plan immediately prior to the
Effective Time or (ii) any waiting period limitation which would otherwise be
applicable to an employee of Saratoga on or after the Effective Time to the
extent such employee of Saratoga had satisfied any similar waiting period
limitation under an analogous Benefit Plan prior to the Effective Time.
(b) Notwithstanding the foregoing, except as otherwise expressly provided
in this Agreement, SJNB shall, and shall cause its Subsidiaries to, honor in
accordance with their terms all Benefit Plans, each as amended to the date
hereof and as otherwise amended prior to the Closing Date in accordance with the
terms of paragraph (e) hereof, and other contracts, arrangements, commitments or
understandings described in the Saratoga Disclosure Schedule; provided, however,
-------- -------
that this paragraph (b) shall be subject to the provisions of paragraph (d)
hereof. SJNB and Saratoga hereby acknowledge that consummation of the Merger
will constitute a "Change in Control" for purposes of all Benefit Plans,
contracts, arrangements and commitments of Saratoga identified pursuant to
Section 3.1(k) that contain change in control provisions.
(c) Saratoga and its Subsidiaries shall take all action necessary to
ensure that no further mortgage loans will be made to employees and to amend any
retiree medical plans so that no additional retirees shall become entitled to
continuing medical insurance benefits thereunder.
(d) Except as otherwise provided herein, nothing in this Section 5.6 shall
be interpreted as preventing SJNB or its Subsidiaries after the Effective Time
from amending, modifying or terminating any of the Plans, or other contracts,
arrangements, commitments or understandings, in accordance with their terms and
applicable law.
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(e) Saratoga agrees that the Saratoga Bank Savings Plan or any other
401(k) plans may be terminated, frozen, modified or merged into the appropriate
SJNB qualified plans before or after the Effective Time, as determined by SJNB
in its sole discretion; provided, however, that Saratoga shall not be required
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to take any such action prior to the Effective Time unless and until SJNB
acknowledges that all material conditions to its obligation to consummate the
Merger herein have been satisfied or waived and SJNB reasonably believes the
Merger will close.
5.7 Indemnification; Directors' and Officers' Insurance.
---------------------------------------------------
(a) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless each person who is as of the date hereof or
who becomes prior to the Effective Time, an officer or director of Saratoga or
any of its Subsidiaries (the "Indemnified Parties") against (i) all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts of any
nature whatsoever, governmental or non-governmental (including but not limited
to reasonable expenses of counsel and investigation) that are paid in settlement
of or in connection with any claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the fact that
such person is or was a director or officer of Saratoga or any Subsidiary of
Saratoga, whether pertaining to any matter existing or occurring at or prior to
the Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, or
pertaining to this Agreement or the transactions contemplated hereby, in each
case to the full extent that Saratoga would have been permitted under applicable
law and its Articles of Incorporation, and the Surviving Corporation is
permitted under California law, to indemnify such person (and the Surviving
Corporation shall pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the full extent permitted by
law with no bond or security to be required upon receipt of any undertaking
required by section 317(f) of the CGCL). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period after
the Effective Time shall be reasonably satisfactory to the Surviving
Corporation; (ii) after the Effective Time, the Surviving Corporation shall pay
all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (iii) after the Effective
Time, the Surviving Corporation will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that the Surviving Corporation
shall not be liable for any settlement of any claim effected without its written
consent, which consent, however, shall not be unreasonably withheld or delayed.
Any Indemnified Party wishing to claim indemnification under this Section 5.7,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Surviving Corporation (but the failure so to notify the
Surviving Corporation shall not relieve it from any liability which it may have
under this Section 5.7 except to the extent such failure materially prejudices
the Surviving Corporation), and shall deliver to the Surviving Corporation the
undertaking, if any, required by section 317(f) of the CGCL. The Surviving
Corporation shall be liable for the fees and expenses hereunder with respect to
only one law firm, in addition to local counsel in each applicable jurisdiction,
to represent
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<PAGE>
the Indemnified Parties as a group with respect to each such matter unless there
is, under applicable standards of professional conduct, a conflict between the
positions of any two or more Indemnified Parties that would preclude or render
inadvisable joint or multiple representation of such parties.
(b) Upon the Effective Time, any executive officer or director of Saratoga
or SNB who becomes an officer or director of SJNB (including any Subsidiaries
thereof) shall be included in SJNB's director and officer insurance policy.
Saratoga shall cooperate with SJNB to obtain extended coverage under Saratoga's
director and officer insurance policy to cover claims made for a period of three
years after the Effective Time regarding acts or omissions of Saratoga or SNB's
directors or officers prior to the Effective Time; provided, however, that SJNB
-------- -------
shall not be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 150% of the premiums paid by Saratoga and SNB in
respect of 1998 for such insurance, as previously disclosed to SJNB ("Saratoga's
Current Premium"), and if such premiums for such insurance would at any time
exceed 150% of Saratoga's Current Premium, then SJNB shall cause to be
maintained policies of insurance which, in SJNB's good faith determination,
provide the maximum coverage available at an annual premium equal to 150% of
Saratoga's Current Premium.
(c) The provisions of this Section 5.7 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives and are in addition to, and not in substitution for,
any other rights to indemnification or contribution that any such person may
have by contract or otherwise.
(d) Notwithstanding the foregoing, any rights or benefits conferred by
Saratoga or SNB to their respective directors or officers under indemnification
agreements in effect as of the date hereof shall, to the extent such rights or
benefits provided thereunder are in excess of or an enhancement of the
indemnification rights provided for in this Section 5.7, be honored by SJNB and
replace or supplement the indemnification rights provided in this Section 5.7
with respect to indemnification for acts or omissions by such directors or
officers occurring prior to the Closing Date.
5.8 Additional Agreements. In case at any time after the Effective Time
---------------------
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Subject to the mutual intent of the
parties that the Merger will be accounted for under the pooling of interests
method, Saratoga shall take any and all actions necessary or appropriate to
ensure that the Merger will be accounted for under the pooling of interests
method, including without limitation, causing Deloitte & Touche LLP to issue the
"poolability" letter required as a condition to close in Section 6.1(f).
5.9 Fees and Expenses. Unless otherwise agreed by the parties in writing
-----------------
or as otherwise provided herein, each party hereto shall bear and pay all costs
and expenses incurred by it incident to preparing, entering into and carrying
out this Agreement and to consummating the Merger, including fees and expenses
of its own financial advisors, accountants and counsel,
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<PAGE>
all printing, filing, mailing and other incidental fees, costs and expenses
related thereto associated with the S-4 and the Proxy Statement (collectively,
the "SEC Fees"). Notwithstanding the foregoing provisions of this Section 5.9
and notwithstanding the payment of any Termination Fee, if this Agreement is
terminated by either party pursuant to Section 7.1(d) or (e) hereof because of a
willful breach by the other party of any representation, warranty, covenant or
agreement as set forth in Section 7.1(d) or (e), and provided that the
terminating party shall not have been in breach (in any material respect) of any
representation and warranty, covenant or agreement contained herein, then the
breaching party shall bear and pay all the costs and expenses incurred by the
non-breaching party, with respect to the fees and expenses of financial and
other advisors, investment bankers, accountants, counsel, printers and persons
involved in the transactions contemplated by this Agreement, including SEC Fees.
Notwithstanding the foregoing provisions of this Section 5.9, if this Agreement
is terminated pursuant to Sections 7.1(f)(i)(2) or 7.1(f)(i)(3), 7.1(f)(ii)(2)
or 7.1(i)(1), then Saratoga shall pay promptly by wire transfer of immediately
available funds to such account as SJNB shall designate the amount of all costs
and expenses incurred by SJNB incident to preparing, entering into and carrying
out this Agreement and to consummating the Merger, including without limitation,
fees and expenses incurred by SJNB for its accountants and counsel and all SEC
Fees, which amount shall not exceed $500,000 (collectively, the "Actual
Expenses"). Notwithstanding the foregoing provisions of this Section 5.9, if
this Agreement is terminated pursuant to Section 7.1(i)(2) or 7.1(g)(iii), then
SJNB shall pay promptly by wire transfer of immediately available funds to such
account as Saratoga shall designate the amount of all Actual Expenses incurred
by Saratoga (excluding any and all fees and expenses of First Security Van
Kasper), which amount of Actual Expenses shall not exceed $500,000. Final
settlement with respect to the payment of such fees and expenses by the parties
shall be made within thirty days of the termination of this Agreement.
Except as otherwise expressly provided herein, whether or not the
transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expense.
5.10 Cooperation. During the period from the date of this Agreement to the
-----------
Effective Time, each of Saratoga and SJNB shall, (i) confer on a regular and
frequent basis with the other, report on operational matters, policies and
banking practices and promptly advise the other orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen, could
have, a material adverse effect on Saratoga or SJNB, as the case may be, or
which would cause or constitute a material breach of any of the representations,
warranties or covenants of such party contained herein, (ii) cause each
Subsidiary of Saratoga and SJNB that is a bank to file all call reports with the
appropriate Bank Regulators and all other reports, applications and other
documents required to be filed with the applicable Governmental Entities between
the date hereof and the Effective Time and (iii) coordinate with the other the
declaration of any dividends in respect of SJNB Common Stock and Saratoga Common
Stock and the record dates and payment dates relating thereto, it being the
intention of the parties hereto that holders of SJNB Common Stock or Saratoga
Common Stock shall not receive two dividends, or fail to receive one dividend,
for any single calendar quarter with respect to their shares of SJNB Common
Stock and/or Saratoga Common Stock and any shares of SJNB Common Stock any such
holder
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<PAGE>
receives in exchange therefor in the Merger.
5.11 Affiliates. Each of SJNB and Saratoga shall use its commercially
----------
reasonable efforts to cause each director, executive officer and other person
who is an "affiliate" (for purposes of Rule 145 under the Securities Act, in the
case of affiliates of Saratoga, and for purposes of qualifying the Merger for
pooling of interests accounting treatment, in the case of affiliates of either
SJNB or Saratoga) of such party to execute and deliver, as soon as practicable
after the date of this Agreement, and in any event on or prior to the date the
Proxy Statements are mailed to the shareholders of Saratoga and SJNB, a written
agreement, substantially in the form attached hereto as Exhibit C-1 with respect
-----------
to Saratoga and Exhibit C-2 with respect to SJNB. Saratoga shall instruct
-----------
Saratoga's transfer agent regarding stop transfer instructions required in
connection with shares of Saratoga Common Stock owned by "affiliates" of
Saratoga, as described in Exhibit C-1 hereto.
-----------
5.12 Stock Exchange Listing. SJNB shall use its commercially reasonable
----------------------
efforts to cause the shares of SJNB Common Stock to be issued in the Merger to
be approved for listing on the NASDAQ National Market, subject to official
notice of issuance, prior to the Effective Time.
5.13 Advice of Changes. SJNB and Saratoga shall promptly advise the other
-----------------
party of any change or event which, individually or in the aggregate with other
such changes or events, has a material adverse effect on it or which it believes
would or would be reasonably likely to cause or constitute a material breach of
any of its representations, warranties or covenants contained herein.
5.14 Subsequent Interim and Annual Financial Statements; Certain Reports.
-------------------------------------------------------------------
As soon as reasonably available, but in no event more than 45 days after the end
of each fiscal quarter (other than the fourth quarter of a fiscal year) or 90
days after December 31, 1999, or the end of each fiscal year ending after the
date of this Agreement, each party will deliver to the other party its Quarterly
Report on Form 10-Q or its Annual Report on Form 10-K, as the case may be, as
filed with the SEC under the Exchange Act, and each party will furnish to the
other party copies of their management's monthly interim reports (which do not
comply with the published rules and regulations of the SEC or GAAP) to their
respective Boards of Directors within two days after such reports are so
furnished to the Boards.
5.15 Dissenters' Rights. Saratoga and SJNB shall include in the notice of
------------------
their respective shareholders' meetings the summary of certain provisions of the
CGCL as required by CGCL section 1300(b).
5.16 SNB Board of Directors and Executive Officers. In the event that the
---------------------------------------------
Bank Merger will not be consummated immediately following the Effective Time, at
and after the Effective Time, the Board of Directors and executive officers of
SNB shall consist of such individuals as the Board of Directors of SJNB shall
designate in their sole discretion. In such event, the condition set forth in
Section 6.2(g) shall be deemed to be replaced by the following clause: "At the
request of SJNB, which request shall be provided in writing at least five
Business
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<PAGE>
Days prior to the Closing Date, the members of the Board of Directors of SNB
shall submit their resignations effective as of the Effective Time."
5.17 Transition Services. SJNB shall retain Richard L. Mount as a
-------------------
consultant to SJNB for a period of six (6) months from and after the Effective
Time to provide transition services in the nature of customer retention,
business development, consulation and advice. SJNB shall pay to Mr. Mount, on
the first and fifteenth of each calendar month in such six-month period,
compensation totaling the amount of $14,000 per month (prorated for any partial
month).
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation. The respective obligations of
-------------------------------------
each party to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approvals. The Saratoga Shareholder Approval and the SJNB
---------------------
Shareholder Approval shall have been obtained.
(b) 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 (all the foregoing, "Consents") which are necessary
pursuant to the Merger, other than immaterial Consents which, if not obtained,
would have no material adverse effect on the consummation of the transactions
contemplated by this Agreement and the Agreement of Merger or on either SJNB or
the Surviving Corporation, shall have been filed, have occurred or been obtained
(all such permits, approvals, filings and consents and the lapse of all such
waiting periods being referred to as the "Requisite Regulatory Approvals") and
all such Requisite Regulatory Approvals shall be in full force and effect.
(c) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the transactions contemplated by this Agreement
or the Transaction Agreements shall be in effect. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the transactions contemplated by this Agreement or the
Transaction Agreements, by any Federal, state or foreign Governmental Entity of
competent jurisdiction which makes the consummation of the transactions
contemplated by this Agreement or the Transaction Agreements illegal.
(d) NASDAQ National Market Listing. The shares of SJNB Common Stock which
------------------------------
shall be issued to the shareholders of Saratoga upon consummation of the Merger
shall have been approved for listing upon official notice of issuance on the
NASDAQ National Market.
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<PAGE>
(e) S-4. The S-4 shall become effective under the Securities Act, no stop
---
orders suspending the effectiveness of the S-4 shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(f) Pooling. SJNB shall have received a letter from KPMG LLP, independent
-------
public accountants to SJNB, dated the Closing Date, in form and substance
reasonably satisfactory to SJNB and Saratoga, respectively, to the effect that
the Merger will qualify for "pooling of interests" accounting treatment;
provided, however, that Deloitte & Touche LLP shall deliver to the Saratoga
- -------- -------
Board of Directors and KPMG LLP a "poolability letter" dated the Closing Date in
a form reasonably acceptable to KPMG LLP and in accordance with Statement on
Auditing Standards No. 50; provided further, however, that if either party shall
-------- ------- -------
have knowingly taken or omitted to take any action within the control of such
party which shall have prevented such party's independent public accountants
from rendering such letter, then this condition shall not be applicable to such
party.
(g) Burdensome Condition. There shall not be any action taken, or any
--------------------
statute, rule, regulation, order or decree enacted, entered, enforced or deemed
applicable to the Merger or the other Transaction Agreements by any Federal,
state or foreign Governmental Entity which, in connection with the grant of a
Requisite Regulatory Approval or otherwise, imposes any condition or restriction
(a "Burdensome Condition") upon SJNB or Saratoga or their respective
Subsidiaries or Affiliates which would reasonably be expected to (i) have a
material adverse effect after the Effective Time on the present or prospective
consolidated financial condition, business, operating results or prospects of
SJNB or the Surviving Corporation (including, without limitation, any
requirement to dispose of any material assets or businesses or restrict in any
significant way any material operations or activities), (ii) prevent SJNB or
Saratoga or their respective Subsidiaries from realizing all or a substantial
portion of the economic benefits of the transactions contemplated by this
Agreement, or (iii) materially impair SJNB's or Saratoga's ability to exercise
and enforce its rights under the Transaction Agreements.
(h) Dissenters' Rights. The aggregate number of shares of SJNB Common
------------------
Stock and Saratoga Common Stock held by persons who have taken all of the steps
required at or prior to the SJNB Shareholders' Meeting and the Saratoga
Shareholders' Meeting to perfect their right (if any) to be paid the value of
such shares under Chapter 13 of the CGCL shall not exceed 9% of the outstanding
shares of SJNB Common Stock and Saratoga Common Stock.
6.2 Conditions to Obligations of SJNB. The obligation of SJNB to
---------------------------------
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions unless waived by SJNB:
(a) Representations and Warranties. The representations and warranties of
------------------------------
Saratoga and SNB set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and SJNB shall have
received a certificate signed on behalf of each of Saratoga and SNB by their
respective
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<PAGE>
President and Chief Executive Officer and Chief Financial Officer to such
effect.
(b) Performance of Obligations. Saratoga and SNB shall have performed in
--------------------------
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and SJNB shall have received a
certificate signed on behalf of each of Saratoga and SNB by their respective
President and Chief Executive Officer and Chief Financial Officer to such
effect.
(c) Corporate Action. SJNB shall have received a copy of the resolution or
----------------
resolutions duly adopted by the Board of Directors (or a duly authorized
committee thereof) of Saratoga and of the holders of the Saratoga Common Stock
authorizing the execution, delivery and performance by Saratoga of this
Agreement and the other Transaction Agreements, certified by the Secretary or an
Assistant Secretary of Saratoga.
(d) Tax Opinion. SJNB shall have received the opinion of Pillsbury Madison
-----------
& Sutro LLP, counsel to SJNB, dated the Closing Date, to the effect that (i) the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Code and (ii) SJNB and Saratoga will
each be a party to that reorganization within the meaning of section 368(b) of
the Code. In rendering such opinion, such counsel may require and rely upon
representations and covenants contained in certificates of officers of SJNB,
Saratoga, SNB and others. If the opinion referred to in this Section 6.2(d) is
not delivered, such condition shall be deemed to be satisfied if SJNB shall have
received an opinion to the effect of subsections (i) and (ii) above from
Deloitte & Touche LLP or another accounting firm or law firm selected by
Saratoga and reasonably acceptable to SJNB. SJNB will cooperate in obtaining
such opinion.
(e) Material Adverse Effect. Except as disclosed to SJNB in writing prior
-----------------------
to the date hereof, no material adverse effect upon Saratoga shall have occurred
since December 31, 1998, and Saratoga shall not be a party to or so far as
Saratoga is aware, threatened with, and to Saratoga's knowledge there is no
reasonable basis for, any legal action or other proceeding before any court, any
arbitrator of any kind or any government agency, which in the reasonable
judgment of SJNB, could have a material adverse effect upon Saratoga, and SJNB
shall have received a certificate signed on behalf of Saratoga by its President
and Chief Executive Officer and its Chief Financial Officer to such effect.
(f) Closing Documents. SJNB shall have received from Saratoga such
-----------------
certificates and other closing documents as counsel for SJNB shall reasonably
request.
(g) Bank Merger. Any required Consents of any Governmental Entities to the
-----------
consummation of the Bank Merger shall have been received and the Bank Merger
shall be able to be consummated immediately following the Effective Time.
(h) Comfort Letter (S-4). SJNB shall have received from Deloitte & Touche
--------------------
LLP a letter addressed to SJNB not more than two (2) Business Days prior to the
effective date of the
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<PAGE>
S-4 with respect to certain financial information regarding Saratoga, in form
and substance which is customary in transactions of the nature contemplated by
this Agreement.
(i) Comfort Letter. SJNB shall have received from Deloitte & Touche LLP a
--------------
comfort letter in form and substance customary for transactions of this type and
reasonably acceptable to SJNB with respect to Saratoga's financial statements
for the period ending no more than five (5) Business Days prior to the Closing
Date.
6.3 Conditions to Obligations of Saratoga. The obligation of Saratoga to
-------------------------------------
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions unless waived by Saratoga:
(a) Representations and Warranties. The representations and warranties of
------------------------------
SJNB set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Saratoga shall have
received a certificate signed on behalf of SJNB by its President and Chief
Executive Officer and its Chief Financial Officer to such effect.
(b) Performance of Obligations. SJNB shall have performed in all material
--------------------------
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and Saratoga shall have received a certificate
signed on behalf of SJNB by its President and Chief Executive Officer and its
Chief Financial Officer to such effect.
(c) Corporate Action. Saratoga shall have received a copy of the
----------------
resolution or resolutions duly adopted by the Board of Directors (or a duly
authorized committee thereof) of SJNB and of the holders of the SJNB Common
Stock authorizing the execution, delivery and performance by SJNB of this
Agreement and the other Transaction Agreements, certified by the Secretary or an
Assistant Secretary of SJNB.
(d) Tax Opinion. Saratoga shall have received the opinion of Deloitte &
-----------
Touche LLP, independent accountants to Saratoga (or other accounting or law firm
reasonably acceptable to SJNB), dated the Closing Date, to the effect that (i)
the Merger should be treated for Federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Code, (ii) SJNB and Saratoga should
each be a party to that reorganization within the meaning of section 368(b) of
the Code and (iii) (1) except for any cash received in lieu of any fractional
share, no gain or loss should be recognized by holders of Saratoga Common Stock
who receive SJNB Common Stock in exchange for the Saratoga Common Stock which
they hold; (2) the holding period of SJNB Common Stock exchanged for Saratoga
Common Stock should include the holding period of the Saratoga Common Stock for
which it is exchanged, assuming the shares of Saratoga Common Stock are capital
assets in the hands of the holder thereof at the Effective Time; and (3) the
basis of the SJNB Common Stock received in the exchange should be the same as
the basis of the Saratoga Common Stock for which it was exchanged, less any
basis attributable to fractional shares for which cash is received. In rendering
such opinion, such independent accountants ( or law firm) may require and rely
upon representations and covenants contained in certificates of officers of
SJNB, Saratoga, SNB and others. If the opinion referred
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<PAGE>
to in this Section 6.3(d) is not delivered, such condition shall be deemed
satisfied if Saratoga shall have received an opinion to the effect of
subsections (i) and (ii) above from Pillsbury Madison & Sutro LLP or another law
or accounting firm selected by SJNB and reasonably acceptable to Saratoga.
Saratoga will cooperate in obtaining such opinion.
(e) Material Adverse Effect. Except as disclosed to Saratoga in writing
-----------------------
prior to the date hereof, no material adverse effect upon SJNB shall have
occurred since December 31, 1998, and SJNB shall not be a party to or so far as
SJNB is aware, threatened with, and to SJNB's knowledge there is no reasonable
basis for, any legal action or other proceeding before any court, any arbitrator
of any kind or any governmental agency, which in the reasonable judgment of
Saratoga, could have a material adverse effect upon SJNB, and Saratoga shall
have received a certificate signed on behalf of SJNB by its President and Chief
Executive Officer and its Chief Financial Officer to such effect.
(f) Closing Documents. Saratoga shall have received from SJNB such
-----------------
certificates and other closing documents as counsel for Saratoga shall
reasonably request.
(g) Additions to SJNB Board of Directors. SJNB shall have amended its
------------------------------------
Bylaws or taken any other action necessary to increase the number of authorized
directors on its Board of Directors to permit the appointment of the five
Saratoga Designees (pursuant to Section 1.3(a)(iv)) at least five Business Days
prior to the Closing Date.
(h) Fairness Opinion. Saratoga shall have received a written "bring-down"
----------------
opinion of First Security Van Kasper, dated as of the date of Saratoga's Proxy
Statement, to the effect that, as of such date, the consideration to be received
by the holders of the Saratoga Common Stock in the Merger is fair to the holders
of the Saratoga Common Stock from a financial point of view.
(i) Comfort Letter (S-4). Saratoga shall have received from KPMG LLP a
--------------------
letter addressed to Saratoga not more than two (2) Business Days prior to the
effective date of the S-4 with respect to certain financial information
regarding SJNB, in form and substance which is customary in transactions of the
nature contemplated by this Agreement.
(j) Comfort Letter. Saratoga shall have received from KPMG LLP a comfort
--------------
letter in form and substance customary for transactions of this type and
reasonably acceptable to Saratoga with respect to SJNB's financial statements
for the period ending no more than five (5) Business Days prior to the Closing
Date.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party
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<PAGE>
or parties, whether before or after adoption of the Agreement by the
shareholders of Saragota or SJNB:
(a) by mutual consent of SJNB and Saratoga in a written instrument;
(b) by either SJNB or Saratoga (i) upon written notice to the other
party if any Bank Regulator shall have issued an order denying approval of
the Merger and the other material aspects of the transactions contemplated
by this Agreement or if any Governmental Entity of competent jurisdiction
shall have issued a final permanent order enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement or (ii) if any Governmental Entity of competent jurisdiction
shall have issued an order in connection with the transactions contemplated
hereby imposing a Burdensome Condition on SJNB or the Surviving
Corporation, and in any such case the time for appeal or petition for
reconsideration of any such order referred to in clauses (i) or (ii) shall
have expired without such appeal or petition being granted;
(c) by either SJNB or Saratoga if the Merger shall not have been
consummated on or before March 31, 2000; provided that if the Merger shall
not have been consummated on or before such date, such termination date may
be extended by up to 60 days thereafter (i) at the election of the non-
breaching party, if the Merger shall not have been consummated due to the
volitional breach of any material representation, warranty or covenant in
this Agreement by SJNB or Saratoga, or (ii) at the election of the party
who has requested any Requisite Regulatory Approval, in the event that the
Merger shall not have been consummated due to the fact that any such
Requisite Regulatory Approvals shall not yet have been received;
(d) by SJNB in the event of a breach by Saratoga or SNB of any
representation, warranty or covenant contained in this Agreement, which
breach (i) either is not cured within 45 days after the giving of written
notice to Saratoga or SNB, or is of a nature which cannot be cured prior to
the Closing and (ii) would entitle the non-breaching party to elect not to
consummate the transactions contemplated hereby pursuant to Article VI;
provided, however, that SJNB may immediately terminate this Agreement upon
-------- -------
notice to Saratoga in the event that Saratoga or SNB shall breach the
covenant provided for in Section 5.4 hereof;
(e) (i) by Saratoga in the event of a breach by SJNB of any
representation, warranty or covenant contained in this Agreement, which
breach (1) either is not cured within 45 days after the giving of written
notice to SJNB or is of a nature which cannot be cured prior to the Closing
and (2) would entitle the non-breaching party to elect not to consummate
the transactions contemplated hereby pursuant to Article VI; provided,
--------
however, that Saratoga may terminate this Agreement within ten Business
-------
Days after notice to SJNB in the event that
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<PAGE>
SJNB shall breach the covenant provided for in Section 4.2(c) hereof and
such breach shall not have been cured within such ten Business Day period
and, upon such termination, SJNB shall pay to Saratoga the Termination Fee
as liquidated damages to Saratoga for such breach, which sum shall be paid
by wire transfer of immediately available Federal Funds, to such account as
Saratoga shall designate;
(ii) by SJNB, in the event that, notwithstanding its obligations in
Section 4.2(c), a third party makes a written offer regarding a Takeover
Proposal of SJNB in which such third party indicates that they would not be
willing to consummate such a Takeover Proposal unless this Agreement is
terminated, and the Board of Directors of SJNB determines in good faith,
based upon the written advice of outside counsel, that failing to accept
such Takeover Proposal would constitute a breach of fiduciary duty by
SJNB's Board of Directors under applicable law; provided, however, that
-------- -------
upon such termination, SJNB shall pay to Saratoga the Termination Fee as
liquidated damages to Saratoga for such termination, which sum shall be
paid in the manner described in subsection 7.1(e)(i) above;
(f) (i) by SJNB (1) if, in accordance with Section 5.3, the Board of
Directors of Saratoga fails to recommend adoption of this Agreement by the
shareholders of Saratoga, or amends or modifies such recommendation in a
manner materially adverse to SJNB or withdraws such recommendation to the
shareholders of Saratoga, (2) if the condition set forth in Section 6.3(h)
is not satisfied, or (3) if Deloitte & Touche LLP fails to deliver the
"poolability letter" required by Section 6.1(f);
(ii) by Saratoga (1) if, in accordance with Section 5.3, the Board of
Directors of SJNB fails to recommend adoption of this Agreement by the
shareholders of SJNB, or amends or modifies such recommendation in a manner
materially adverse to Saratoga or withdraws such recommendation to the
shareholders of SJNB, or (2) if the condition set forth in Section 6.3(h)
is not satisfied;
(g) by SJNB or Saratoga, if (i) the Saratoga Shareholder Approval or
the SJNB Shareholder Approval shall not have been obtained at a duly held
meeting of shareholders of Saratoga or SJNB, as appropriate, held for such
purpose or at any adjournment, postponement or continuation thereof, or
(ii) the condition set forth in Section 6.1(h) is not satisfied, or (iii)
KPMG LLP fails to deliver the letter required by Section 6.1(f) (although
Deloitte & Touche LLP has delivered the "poolability letter" required by
Section 6.1(f));
(h) by the Board of Directors of Saratoga, if the Board of Directors
so determines by a vote of a majority of the members of its entire Board,
at any time during the two-Business Day period commencing on the first
Business Day after the Determination Date (as defined herein), if the
Average SJNB Closing Price shall be less than $29.3590 (the "Minimum
Price"); subject, however, to the
------- -------
A-65
<PAGE>
following provisions of this paragraph (h). If Saratoga elects to exercise
its termination right pursuant to the immediately preceding sentence, it
shall give prompt written notice to SJNB during such two-Business Day
period by means of facsimile transmission (as provided in Section 8.2
hereof); provided that such notice of election to terminate may be
withdrawn at any time within the aforementioned two-Business Day period.
During the five Business-Day period commencing on the day after receipt of
such notice of election to terminate, SJNB shall have the option of
adjusting the Exchange Ratio to equal a number equal to a quotient (rounded
to the nearest one ten-thousandth), the numerator of which is the product
of the Minimum Price and 0.70 and the denominator of which is the Average
SJNB Closing Price. If SJNB makes the election contemplated by the
preceding sentence, within such five Business-Day period, it shall give
prompt written notice to Saratoga of such election and the revised Exchange
Ratio, whereupon no termination shall have occurred pursuant to this
paragraph (h) and this Agreement shall remain in effect in accordance with
its terms (except as the Exchange Ratio shall have been so modified), and
any references in this Agreement to "Exchange Ratio" shall thereafter be
deemed to refer to the Exchange Ratio as adjusted pursuant to this
paragraph (h).
For purposes hereof, the following terms have the following meanings:
(i) "Average SJNB Closing Price" shall mean the average of the
closing prices of SJNB Common Stock on the NASDAQ National Market for
the 20 consecutive trading days ending on the Determination Date,
rounded to four decimal places, whether or not trades occurred on
those days (subject to adjustment as provided below and provided that
if no trades of SJNB Common Stock shall occur on a given trading day
the closing price thereof on the next preceding day when a trade shall
have occurred shall be deemed to be the closing price on such day for
the purposes hereof). In the event SJNB pays, declares or otherwise
effects a stock split, reverse stock split, reclassification or stock
dividend or stock distribution with respect to the SJNB Common Stock
between the date of this Agreement and the Effective Time, appropriate
adjustments will be made to the Average SJNB Closing Price of SJNB
Common Stock.
(ii) "Determination Date" shall mean the last day of the 20
trading-day period referred to in the definition of "Average SJNB
Closing Price" ending five Business Days prior to the Closing Date.
(iii) "Trading day" shall mean a day on which trading generally
takes place on the National Association of Securities Dealers
Automated Quotations ("NASDAQ") and on which trading in SJNB Common
Stock has not been halted or suspended; or
A-66
<PAGE>
(i)(1) by SJNB in the event there has been a change, or any event
involving a prospective change, in the business, financial condition,
results of operations or prospects of Saratoga or any of its Subsidiaries
which has had, or would be reasonably likely to have, a material adverse
effect on Saratoga; provided, however, that termination pursuant to this
-------- -------
subsection (1) shall be effective 45 days after the giving of written
notice to Saratoga if the change or event described in said notice has not
been cured; and provided, further that termination under this subsection
-------- -------
(1) shall be effective immediately after the giving of written notice if
said change or event cannot be cured prior to the Closing; and (2) by
Saratoga in the event there has been a change, or any event involving a
prospective change, in the business, financial condition, results of
operations or prospects of SJNB or any of its Subsidiaries which has had,
or would be reasonably likely to have, a material adverse effect on SJNB;
provided, however, that termination pursuant to this subsection (2) shall
-------- -------
be effective 45 days after the giving of written notice to SJNB if the
change or event described in said notice has not been cured; and provided,
--------
further that termination under this subsection (2) shall be effective
-------
immediately after the giving of written notice if said change or event
cannot be cured prior to Closing.
7.2 Effect of Termination. Termination of this Agreement shall not
---------------------
terminate or affect the Stock Option Agreement or the representations and
warranties in Article III insofar as they relate to the Stock Option Agreement
or the obligations of the parties under Section 4.2(c), 5.4, 5.9 or 8.10 or
otherwise to pay expenses as provided elsewhere herein, to maintain the
confidentiality of the other party's information pursuant to Section 5.2 or the
provisions of this Section 7.2 or of Section 8.2 or 8.6, and shall not affect
any agreement after such termination. The parties agree that any termination of
this Agreement shall not in any manner release or be construed as so releasing
the nonterminating party or parties or their respective officers or directors
from any liability or damage to the other party or parties arising out of, in
connection with or otherwise relating to, directly or indirectly, such parties'
willful breach of its covenants, agreements, representations or warranties
hereunder, except to the extent expressly provided herein.
7.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time before or after approval of this Agreement by the shareholders of Saratoga
and SJNB, but after any such approval, no amendment shall be made which by law
requires further approval by such shareholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Closing Date, the parties
-----------------
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (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.
A-67
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations, Warranties and Covenants. No
-----------------------------------------------------
investigation by SJNB or Saratoga made before or after the date hereof shall
affect the representations and warranties which are contained in this Agreement;
provided that all representations, warranties, covenants and agreements in this
Agreement or in any instrument delivered pursuant hereto or thereto shall expire
on, and be terminated and extinguished at, the Effective Time other than
covenants and agreements that by their terms are to survive or be performed, in
whole or in part, after the Effective Time; provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive SJNB or Saratoga (or any director or officer
thereof) of any defense in law or equity which otherwise would be available
against the claims of any person, including, without limitation, any shareholder
or former shareholder of either SJNB or Saratoga, the aforesaid representations,
warranties, covenants and agreements being material inducements to the
consummation by SJNB and Saratoga of the transactions contemplated herein.
8.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the third Business Day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice.
(a) if to Saratoga or SNB, to:
Saratoga National Bank
12000 Saratoga Sunnyvale Road
Saratoga, California 95070
Attention: Mr. Richard L. Mount
President and Chief Executive Officer
Fax: (408) 257-3705
with a copy to:
Coudert Brothers
Attorneys at Law
303 Almaden Boulevard, Fifth Floor
San Jose, California 95110-2721
Attention: Glenn T. Dodd, Esq.
Fax: (408) 297-3191
and
A-68
<PAGE>
(b) if to SJNB, to:
SJNB Financial Corp.
One North Market Street
San Jose, California 95113
Attention: Mr. James R. Kenny
President and Chief Executive Officer
Fax: (408) 947-0362
with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Attention: Jonathan D. Joseph, Esq.
Fax: (415) 983-1200
8.3 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available.
8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.
-------------------------------------------------------------------
This Agreement (including the documents and the instruments referred to herein)
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, other than the Confidentiality Agreement, which shall
survive the execution and delivery of this Agreement, and (b) is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder except as otherwise expressly provided in Section 5.7. The parties
hereby acknowledge that, except as hereinafter agreed to in writing, no party
shall have the right to acquire or shall be deemed to have acquired shares of
common stock of the other party pursuant to the Merger until consummation
thereof. No current or former employee of Saratoga, SJNB, or any of their
respective Subsidiaries, shall be construed as a third party beneficiary under
this Agreement, and no provision in this Agreement shall create any right in any
such employee (or his or her beneficiary or dependent) for any reason,
including, without limitation, in respect of employment, continued employment,
or resumed employment with the Surviving Corporation,
A-69
<PAGE>
Saratoga or SJNB (or any of their respective Affiliates) or in respect of any
benefits that may be provided, directly or indirectly, under any Benefit Plan
maintained by the Surviving Corporation, Saratoga or SJNB (or any of their
respective Affiliates).
8.6 Governing Law; Consent to Jurisdiction. This Agreement shall be
--------------------------------------
governed by and construed in accordance with the laws of the State of California
without giving effect to the principles of conflicts of law. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the non-
exclusive jurisdiction of the courts of the State of California and of the
United States of America, in each case located in the County of Santa Clara, for
any Litigation in any court or before any governmental authority arising out of
or relating to this Agreement and the transactions contemplated hereby. Each of
the parties hereto hereby irrevocably and unconditionally waives, and agrees not
to assert, by way of motion, as a defense, counterclaim or otherwise, in any
such Litigation, any claim that it is not personally subject to the jurisdiction
of the aforesaid courts for any reason other than the failure to serve process
in accordance with this Section 8.6, that it or its property is exempt or immune
from jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and to the fullest extent permitted by applicable law, that the Litigation in
any such court is brought in an inconvenient forum, that the venue of such
Litigation is improper, or that this Agreement, or the subject matter hereof,
may not be enforced in or by such courts and further irrevocably waives, to the
fullest extent permitted by applicable law, the benefit of any defense that
would hinder, fetter or delay the levy, execution or collection of any amount to
which the party is entitled pursuant to the final judgment of any court having
jurisdiction. Each of the parties irrevocably and unconditionally waives, to the
fullest extent permitted by applicable law, any and all rights to trial by jury
in connection with any Litigation arising out of or relating to this Agreement
or the transactions contemplated hereby.
8.7 Severability. Any term or provision of this Agreement which is invalid
------------
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability and, unless the
effect of such invalidity or unenforceability would prevent the parties from
realizing the major portion of the economic benefits of the Merger that they
currently anticipate obtaining therefrom, shall not render invalid or
unenforceable the remaining terms and provisions of this Agreement or affect the
validity or enforceability of any of the terms or provisions of this Agreement
in any other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
----------
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, and any attempt to make any such assignment without such consent shall
be null and void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
A-70
<PAGE>
8.9 Publicity. SJNB, SNB, and Saratoga shall consult with each other
---------
before issuing any press release with respect to the Merger or this Agreement
and shall not issue any such press release or make any such public statement
without the prior consent of the other parties, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
-------- -------
other parties (but after prior consultation, to the extent practicable in the
circumstances) issue such press release or make such public statement as may
upon the advice of outside counsel be required by law or the rules and
regulations of the National Association of Securities Dealers. Without limiting
the reach of the preceding sentence, SJNB and Saratoga shall cooperate to
develop all public announcement materials and make appropriate management
available at presentations related to the transactions contemplated by this
Agreement as reasonably requested by the other party. In addition, Saratoga and
its Subsidiaries shall (a) consult with SJNB regarding communications with
customers, shareholders, prospective investors and employees related to the
transactions contemplated hereby, (b) provide SJNB with shareholders lists of
Saratoga and (c) allow and facilitate SJNB contact with shareholders of Saratoga
and other prospective investors.
A-71
<PAGE>
8.10 Attorneys' Fees. In the event of any dispute between the parties
---------------
arising out of or relating to this Agreement, the prevailing party in any
litigation (whether at law or in equity), arbitration or other proceeding with
respect to such dispute, including any appeal thereof (collectively, an
"Action"), shall be entitled to recover such party's reasonable attorneys' fees
and all other reasonable costs and expenses incurred in connection with such
Action from the non-prevailing party.
IN WITNESS WHEREOF, SJNB, Saratoga and SNB have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of date
first above written.
SJNB FINANCIAL CORP.
By: /s/ James R. Kenny
-------------------------------------------
Name: James R. Kenny
Title: President and Chief Executive Officer
By: /s/ Jennifer Dowling
-------------------------------------------
Name: Jennifer Dowling
Title: Assistant Corporate Secretary
SARATOGA BANCORP
By: /s/ Richard L. Mount
-------------------------------------------
Name: Richard L. Mount
Title: President and Chief Executive Officer
By: /s/ V. Ronald Mancuso
-------------------------------------------
Name: V. Ronald Mancuso
Title: Secretary
SARATOGA NATIONAL BANK
By: /s/ Richard L. Mount
-------------------------------------------
Name: Richard L. Mount
Title: President and Chief Executive Officer
By: /s/ V. Ronald Mancuso
-------------------------------------------
Name: V. Ronald Mancuso
Title: Secretary
A-72
<PAGE>
Exhibit A
---------
AGREEMENT OF MERGER
OF
SARATOGA BANCORP WITH AND INTO SJNB FINANCIAL CORP.
THIS AGREEMENT OF MERGER, dated as of __________________, 1999 (this
"Merger Agreement"), is made and entered into by and between SJNB FINANCIAL
CORP., a California corporation ("Surviving Corporation"), and SARATOGA BANCORP,
a California corporation ("Disappearing Corporation").
W I T N E S S E T H:
WHEREAS, the Surviving Corporation, the Disappearing Corporation and
Saratoga National Bank, a national banking association organized under the laws
of the United States ("SNB"), have entered into an Agreement and Plan of Merger
dated as of August 27, 1999 (the "Agreement and Plan of Merger") which provides
for, among other things, the merger (the "Merger") of the Disappearing
Corporation with and into the Surviving Corporation; and
WHEREAS, the Boards of Directors of the Surviving Corporation and the
Disappearing Corporation have approved, and deem it advisable and in the best
interests of the Surviving Corporation, the Disappearing Corporation and their
respective shareholders that the Surviving Corporation and the Disappearing
Corporation consummate the Merger.
NOW, THEREFORE, in consideration of the mutual agreements contained in this
Merger Agreement, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties to this Merger Agreement hereby agree
that the Disappearing Corporation shall be merged with and into the Surviving
Corporation in accordance with the provisions of the Bank Holding Company Act of
1956, as amended ("BHC Act") and other applicable law and upon the terms and
subject to the conditions set forth as follows:
1. The Merger. On the Effective Date (as hereinafter defined), the
----------
Disappearing Corporation shall be merged with and into the Surviving
Corporation. The Merger shall become effective on __________________, ____ (the
"Effective Date"), on which date a copy of this Merger Agreement will be filed
with the Secretary of State of the State of California. The Merger shall become
effective at 12:01 a.m., California time, on the Effective Date (the "Effective
Time").
2. Articles of Incorporation and By-laws. The Articles of Incorporation
-------------------------------------
and By-laws, respectively, of the Surviving Corporation in effect immediately
prior to the Effective Time shall be and remain the Articles of Incorporation
and By-laws, respectively, of the Surviving Corporation until amended as
provided by law.
3. Officers and Directors. From and after the Effective Time and until
----------------------
they shall have resigned or shall have been legally removed or until their
respective successors shall have
<PAGE>
been elected or appointed and qualified, (a) the officers of the Surviving
Corporation shall be those persons who are the officers of the Surviving
Corporation immediately prior to the Effective Time, and (b) the directors of
the Surviving Corporation shall be those persons who are the directors of the
Surviving Corporation immediately prior to the Effective Time, together with
five additional members of the Board of Directors of the Surviving Corporation
elected or appointed as of the Effective Date pursuant to the terms of the
Agreement and Plan of Merger and in accordance with the By-laws of the Surviving
Corporation.
4. Effect of the Merger.
--------------------
4.1 All assets, rights, privileges, immunities, powers, franchises and
interests of the Disappearing Corporation and the Surviving Corporation in and
to every type of property (real, personal and mixed) and choses in action, as
they exist as of the Effective Time, including appointments, designations and
nominations and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver and in every other fiduciary capacity, shall pass and be transferred to
and vest in the Surviving Corporation by virtue of the Merger at the Effective
Time without any deed, conveyance or other transfer. The corporate existence of
the Surviving Corporation as a California corporation shall continue unaffected
and unimpaired upon consummation of the Merger and the separate corporate
existence of the Disappearing Corporation shall cease at and as of the Effective
Time.
4.2 From and after the Effective Time, the Surviving Corporation shall be
responsible and liable for all the liabilities and obligations of each of the
Surviving Corporation and the Disappearing Corporation. Any claim existing or
action or proceeding pending by or against the Surviving Corporation or the
Disappearing Corporation at the Effective Time thereafter may be prosecuted as
if the Merger had not taken place or, in connection with any such action or
proceeding to which the Disappearing Corporation is a party, the Surviving
Corporation may be substituted in place of the Disappearing Corporation.
Neither the rights of creditors nor any liens upon the property of either the
Surviving Corporation or the Disappearing Corporation shall be impaired by
reason of the Merger.
5. Effect of Merger on Outstanding Shares.
--------------------------------------
5.1 Surviving Corporation. Each share of the common stock of the
---------------------
Surviving Corporation issued and outstanding immediately prior to the Effective
Time shall continue to be issued and outstanding from and after the Effective
Time.
5.2 Disappearing Corporation. At the Effective Time, by virtue of the
------------------------
Merger and without any action on the part of the holder of any shares of the
capital stock of the Disappearing Corporation (the "Saratoga Common Stock"), (i)
all shares of Saratoga Common Stock that are owned directly or indirectly by the
Surviving Corporation, the Disappearing Corporation or any of their respective
Subsidiaries (other than shares of Saratoga Common Stock held directly or
indirectly in trust accounts, managed accounts and the like or otherwise held in
a fiduciary or nominee capacity that are beneficially owned by third parties and
other than any shares of Saratoga Common Stock held by the Surviving Corporation
or the Disappearing Corporation or any of their respective Subsidiaries in
respect of a debt previously contracted) shall be canceled and shall cease to
exist and no stock of the Surviving Corporation or other consideration shall be
<PAGE>
delivered in exchange therefor, and (ii) each of the shares of Saratoga Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with subparagraph (i) above and Perfected
Dissenting Shares (as defined below)) shall be converted into the right to
receive 0.70 shares of fully paid and nonassessable shares of Common Stock, no
par value, of the Surviving Corporation (the "SJNB Common Stock"). All such
shares of Saratoga Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter represent
the right to receive a certificate representing the number of whole shares of
SJNB Common Stock into which such Saratoga Common Stock has been converted and,
if applicable, the right to receive cash in lieu of fractional shares.
Certificates previously representing shares of Saratoga Common Stock shall be
exchanged for certificates representing whole shares of SJNB Common Stock issued
in consideration therefor (and, if applicable, cash in lieu of fractional
shares) upon the surrender of such certificates.
Notwithstanding any other provision hereof, no fractional shares of SJNB
Common Stock shall be issued to holders of shares of Saratoga Common Stock. In
lieu thereof, each such holder entitled to a fraction of a share of SJNB Common
Stock (after taking into account all shares of Saratoga Common Stock held at the
Effective Time by such holder) shall receive, at the time of surrender of the
certificates representing such holder's Saratoga Common Stock, an amount in cash
equal to the average of the closing prices of the SJNB Common Stock on the
Nasdaq National Market for the 20 consecutive trading days prior to five
business days prior to the Effective Date, rounded to four decimal places
(whether or not there were any trades in SJNB Common Stock on such days,
multiplied by the fraction of a share of SJNB Common Stock to which such holder
would otherwise be entitled. No such holder shall be entitled to dividends,
voting rights, interest on the value of, or any other rights in respect of a
fractional share.
5.3 Dissenters' Rights. Each outstanding share of Saratoga Common Stock,
------------------
the holder of which has complied with the provisions of Chapter 13 of the
California General Corporation Law ("CGCL") relating to dissenters' rights, is
herein called a "Dissenting Share." Dissenting Shares, the holders of which have
not effectively withdrawn or lost their dissenters' rights under the CGCL
("Perfected Dissenting Shares"), shall not be converted into SJNB Common Stock,
but the holders thereof shall be entitled only to such rights as are granted by
the CGCL. Each holder of Dissenting Shares who becomes entitled to payment for
his shares of Saratoga Common Stock pursuant to the provisions of the CGCL shall
receive payment therefor from the Surviving Corporation, but only after the
amount thereof shall have been agreed upon or finally determined in accordance
with the provisions of the CGCL.
6. Further Assurances. From time to time as and when requested by the
------------------
Surviving Corporation and to the extent permitted by law, the officers and
directors of the Disappearing Corporation and the Surviving Corporation last in
office shall execute and deliver such assignments, deeds and other instruments
and shall take or cause to be taken such further or other action as shall be
necessary in order to vest or perfect in or to confirm of record or otherwise to
the Surviving Corporation title to, and possession of, all of the assets,
rights, franchises and interests of the Disappearing Corporation and the
Surviving Corporation in and to every type of property (real, personal and
mixed) and choses in action, and otherwise to carry out the purposes of this
Merger Agreement, and the proper officers and directors of the Surviving
Corporation are
<PAGE>
fully authorized to take any and all such action in the name of the Disappearing
Corporation or the Surviving Corporation or otherwise.
7. Conditions to the Obligations of the Surviving Corporation. The
----------------------------------------------------------
obligations of the Surviving Corporation under this Agreement are subject to
fulfillment at or prior to the Effective Time of the following condition:
7.1 Government Approvals. All consents and approvals of any state or
--------------------
federal governmental authority, including, without limitation, the Federal
Reserve Board, that are required by law or otherwise in connection with the
Merger (collectively, "Government Approvals") shall have been obtained and shall
be in effect, and all conditions or requirements prescribed by law or by any
such Government Approval shall have been satisfied.
8. Disappearing Corporation. The obligations of the Disappearing
------------------------
Corporation under this Agreement are subject to fulfillment at or prior to the
Effective Time of the following condition:
8.1 Government Approvals. All Government Approvals shall have been
---------------------
obtained and shall be in effect, and all conditions or requirements prescribed
by law or by any such Government Approval shall have been satisfied.
9. Termination. This Merger Agreement may be terminated by the mutual
-----------
consent of the Boards of Directors of the Disappearing Corporation and the
Surviving Corporation, and may be amended with respect to its principal terms by
the mutual consent of the Boards of Directors of the Disappearing Corporation
and the Surviving Corporation and the approval of the shareholders of the
Disappearing Corporation and the Surviving Corporation. This Merger Agreement
shall terminate automatically upon the termination of the Agreement and Plan of
Merger prior to the consummation of the Merger therein provided for.
10. Counterparts. This Merger Agreement may be signed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which shall
be deemed but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as
of the date first written above.
SJNB FINANCIAL CORP.
By _____________________________________
Name: James R. Kenny
Title: President and Chief Executive Officer
By_______________________________________
Name: Jennifer Dowling
Title: Assistant Secretary
SARATOGA BANCORP
By_________________________________________
Name: Richard L. Mount
Title: President and Chief Executive Officer
By__________________________________________
Name:
Title: Secretary
<PAGE>
OFFICERS' CERTIFICATE
James R. Kenny and Jennifer Dowling hereby certify that:
1. They are the President and Chief Executive Officer and Assistant
Secretary, respectively, of SJNB FINANCIAL CORP., a California corporation.
2. The Agreement of Merger in the form attached was duly approved by the
Board of Directors and the shareholders of the corporation.
3. The shareholder approval was by the holders of a number of outstanding
shares which equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding shares.
4. There is only one class of shares entitled to vote on the merger and
the number of shares outstanding is ____________.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: __________________, ____
______________________________________________
Name: James R. Kenny
Title: President and Chief Executive Officer
______________________________________________
Name: Jennifer Dowling
Title: Assistant Secretary
<PAGE>
OFFICERS' CERTIFICATE
Richard L. Mount and ____________________ hereby certify that:
1. They are the President and Chief Executive Officer and Secretary,
respectively, of SARATOGA BANCORP, a California corporation.
2. The Agreement of Merger in the form attached was duly approved by the
Board of Directors and the shareholders of the corporation.
3. The shareholder approval was by the holders of a number of outstanding
shares which equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding shares.
4. There is only one class of shares entitled to vote on the merger and
the number of shares outstanding is ____________.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: __________________, ____
_______________________________________________
Name: Richard L. Mount
Title: President and Chief Executive Officer
_______________________________________________
Name:
Title: Secretary
<PAGE>
ANNEX B
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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated August 27, 1999 (the "Agreement"), between
SJNB Financial Corp., a California corporation ("Buyer"), and Saratoga Bancorp,
a California corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Buyer, Seller and Saratoga National Bank (Seller's subsidiary)
have entered into an Agreement and Plan of Merger of even date herewith (the
"Merger Agreement"), which agreement has been executed by the parties hereto
immediately prior to this Agreement; and
WHEREAS, as a condition to Buyer's entering into the Merger Agreement and
in consideration therefor, Seller has agreed to grant Buyer the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Seller hereby grants to Buyer an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 378,561
fully paid and nonassessable shares of Seller's Common Stock, no par value
("Common Stock"), at a price of $19.21 per share; provided, however, that in the
-----------------
event Seller issues or agrees to issue any shares of Common Stock (other than
pursuant to warrants and options outstanding at the date hereof or as permitted
under the Merger Agreement) at a price less than $19.21 per share (as adjusted
pursuant to subsection (b) of Section 5), such price shall be equal to such
lesser price (such price, as adjusted if applicable, the "Option Price");
provided further that in no event shall the number of shares for which this
- ----------------
Option is exercisable exceed 19.9% of the Seller's issued and outstanding shares
of Common Stock. The number of shares of Common Stock that may be received upon
the exercise of the Option and the Option Price are subject to adjustment as
herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date hereof (other than pursuant to
this Agreement), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, it equals 19.9% of the number
of shares of Common Stock then issued and outstanding without giving effect to
any shares subject to or issued pursuant to the Option. Nothing contained in
this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Seller or Buyer to breach any provision of the Merger Agreement.
2. (a) Provided that Buyer shall not be in material breach of this
Agreement or of its covenants and agreements contained in the Merger Agreement
such that Seller shall be entitled to terminate the Merger Agreement pursuant to
Section 7.1(e)(i) thereof, and no preliminary or permanent injunction or other
order against exercise of the Option or delivery of the shares covered by the
Option issued by a court of competent jurisdiction is currently in effect, the
Holder (as hereinafter defined) may exercise the Option, in whole or in part,
and from time to time, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), provided that the Holder shall have sent written notice of
--------
such exercise (as provided in subsection (e) of this Section 2) within 30 days
following such Subsequent Triggering Event. Each of the following shall be an
Exercise
B-1
<PAGE>
Termination Event: (i) the Effective Time of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Buyer pursuant to Section 7.1(d) of the Merger Agreement (unless
the breach by Seller giving rise to such right of termination is non-
volitional); (iii) the passage of 12 months after termination of the Merger
Agreement if such termination follows the occurrence of an Initial Triggering
Event except a termination by Buyer pursuant to Section 7.1(d) thereof (unless
the breach by Seller giving rise to such right of termination is non-volitional)
(provided that if an Initial Triggering Event continues or occurs beyond such
--------
termination and prior to the passage of such 12-month period, the Exercise
Termination Event shall be 12 months from the expiration of the Last Triggering
Event but in no event more than 18 months after such termination); or (iv) the
third anniversary of the date hereof. The "Last Triggering Event" shall mean the
last Initial Triggering Event to occur. The term "Holder" shall mean the holder
or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Seller or any of its Subsidiaries (each a "Seller Subsidiary")
or any Seller Affiliate (as hereinafter defined), without having received
Buyer's prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as hereinafter defined) with any
person (the term "person" for purposes of this Agreement having the meaning
assigned thereto in sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations
thereunder) other than Buyer or any of its Subsidiaries (each a "Buyer
Subsidiary") or the Board of Directors of Seller shall have recommended
that the shareholders of Seller approve or accept any Acquisition
Transaction other than as contemplated by the Merger Agreement. For
purposes of this Agreement, "Acquisition Transaction" shall mean (x) a
merger or consolidation, or any similar transaction, involving Seller or
any Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission ("SEC") of Seller,
(y) a purchase, lease or other acquisition representing 15% or more of the
consolidated assets of Seller and its Subsidiaries, or (z) a purchase or
other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of Seller or any Significant Subsidiary of Seller; provided that the
--------
term "Acquisition Event" shall not include any transaction involving only
Seller and/or any Seller Subsidiary.
(ii) Seller or any Seller Subsidiary or Seller Affiliate, without
having received Buyer's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to authorize,
recommend or propose, to engage in an Acquisition Transaction with any
person other than Buyer or a Buyer Subsidiary, or the Board of Directors of
Seller shall have publicly withdrawn or modified, or publicly announced its
intent to withdraw or modify, in any manner adverse to Buyer, its
recommendation that the shareholders of Seller approve the transactions
contemplated by the Merger Agreement;
(iii) Any person other than Buyer, any Buyer Subsidiary or any Seller
Subsidiary acting in a fiduciary capacity shall have acquired beneficial
ownership or the right to acquire Beneficial Ownership (within the meaning
of section 13(d) of the Exchange Act and the rules and regulations
thereunder) of 10% or more of the outstanding shares of Common Stock;
B-2
<PAGE>
(iv) Any person other than Buyer or any Buyer Subsidiary shall have
made a bona fide proposal to Seller or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to Seller or its
shareholders to engage in an Acquisition Transaction, Seller shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Buyer to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Buyer or any Buyer Subsidiary, other than
in connection with a transaction to which Buyer has given its prior written
consent, shall have filed an application or notice with the Federal Reserve
Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
For purposes of this Agreement, the term "Seller Affiliate" shall mean
any Person who or which, together with all "affiliates" and "associates"
(as such terms are defined in Rule 12b-2 of the rules and regulations under
the Exchange Act) of such Person, shall be the "beneficial owner" (as
defined in section 13(d) of the Exchange Act and the rules and regulations
thereunder) ("Beneficial Owner") of 5% or more of the shares of Common
Stock then outstanding, but shall not include Seller, any Seller
Subsidiary, any employee benefit plan of the Seller or any Seller
Subsidiary, or any entity holding shares of Common Stock for or pursuant to
the terms of any such plan.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Buyer or any Buyer
Subsidiary) of beneficial ownership of 20% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) shall be 20%.
(d) Seller shall notify Buyer promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Seller shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Seller a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place (subject to Seller's
reasonable approval) and date not earlier than three business days nor later
than 30 business days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided, that if the closing of the purchase and sale pursuant
--------
to the Option (the "Closing") cannot be consummated by reason of any applicable
judgment, decree, order, law or regulation, the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which
such restriction on consummation has
B-3
<PAGE>
expired or been terminated; and provided further, without limiting the
----------------
foregoing, that if prior notification to or approval of the Federal Reserve
Board or any other regulatory agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods shall
have passed. Any exercise of the Option shall be deemed to occur on the Notice
Date relating thereto. Notwithstanding this subsection (e), in no event shall
any Closing Date be more than 18 months after the related Notice Date, and if
the Closing Date shall not have occurred within 18 months after the related
Notice Date due to the failure to obtain any such required approval, the
exercise of the Option effected on the Notice Date shall be deemed to have
expired. In the event (i) Buyer receives official notice that an approval of the
Federal Reserve Board or any other regulatory authority required for the
purchase of Option Shares (as hereinafter defined) would not be issued or
granted, (ii) a Closing Date shall not have occurred within 18 months after the
related Notice Date due to the failure to obtain any such required approval or
(iii) Holder (or Substitute Option Holder (as hereinafter defined)) shall have
the right pursuant to the last sentence of Section 7 (or Section 9) to exercise
the Option (or Substitute Option (as hereinafter defined)), Buyer shall
nevertheless be entitled to exercise its right as set forth in Section 7 and
Buyer or Holder (or Substitute Option Holder) shall be entitled to exercise the
Option (or Substitute Option) in connection with the resale of Seller Common
Stock or other securities pursuant to a registration statement as provided in
Section 6.
(f) At the Closing referred to in subsection (e) of this Section 2,
the Holder shall present and surrender this Agreement and pay to Seller the
aggregate purchase price for the shares of Common Stock purchased pursuant to
the exercise of the Option in immediately available funds by wire transfer to a
bank account designated by Seller, provided that failure or refusal of Seller to
--------
designate such a bank account shall not preclude the Holder from exercising the
Option.
(g) At such Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in subsection (f) of
this Section 2, Seller shall deliver to the Holder a certificate or certificates
representing the number of shares of Common Stock purchased by the Holder and,
if the Option should be exercised in part only, a new Option evidencing the
rights of the Holder thereof to purchase the balance of the shares purchasable
hereunder, and the Holder shall deliver to Seller a letter reasonably
satisfactory to Seller by which Holder makes the representations and covenants
customary in the issuance of privately placed securities, including, without
limitation, agreements that the Holder will not offer to sell or otherwise
dispose of such shares in violation of applicable law or the provisions of this
Agreement.
(h) Certificates for Common Stock delivered at a Closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Seller and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Seller and will be provided to the holder hereof without charge upon
receipt by Seller of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Holder shall have
delivered to Seller a copy of a letter from the staff of the SEC, or an opinion
of counsel, in form and substance reasonably satisfactory to Seller, to the
effect that such legend is not required for
B-4
<PAGE>
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Seller of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds and
surrender of this Agreement to Seller, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Seller shall then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder or the Seller shall have failed or refused to
designate the bank account described in subsection (f) of this Section 2.
Seller shall pay all expenses, and any and all United States federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2 in
the name of the Holder or its assignee, transferee or designee.
3. Seller agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued shares of Common Stock
(and other securities issuable pursuant to Section 5(a)) so that the Option may
be exercised without additional authorization of Common Stock (or such other
securities) after giving effect to all other options, warrants, convertible
securities and other rights to purchase Common Stock (or such other securities);
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Seller; (iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (S) 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended ("BHCA"), or the Change in Bank Control Act of 1978, as amended, or any
state banking law, prior approval of or notice to the Federal Reserve Board or
to any state regulatory authority is necessary before the Option may be
exercised, cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
state regulatory authority as they may require) in order to permit the Holder to
exercise the Option and the Seller duly and effectively to issue shares of
Common Stock pursuant hereto; and (iv) promptly to take all action provided
herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Seller, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Seller of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Seller will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Seller, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
B-5
<PAGE>
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type
and number of shares of Common Stock purchasable upon exercise hereof shall
be appropriately adjusted so that Buyer shall receive upon exercise of the
Option and payment of the aggregate Option Price hereunder the number and
class of shares or other securities or property that Buyer would have
received in respect of Common Stock if the Option had been exercised in
full immediately prior to such event, or the record date therefor, as
applicable.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event (or as otherwise provided in the last
sentence of Section 2(e)), Seller shall, at the request of Buyer, which request
shall be delivered within 30 days after such Subsequent Triggering Event (or
such trigger date as is provided in the last sentence of Section 2(e)) (whether
on its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the
Securities Act covering this Option and any shares issued and issuable pursuant
to this Option and shall use its best efforts to cause such registration
statement to become effective and remain current in order to permit the sale or
other disposition of this Option and any shares of Common Stock issued upon
total or partial exercise of this Option ("Option Shares") in accordance with
any plan of disposition requested by Buyer. Seller will use its best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the date such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Buyer, for a
period of 18 months following such first request, shall have the right to demand
a second such registration if reasonably necessary to effect such sales or
dispositions. The foregoing notwithstanding, if, at the time of any request by
Buyer for registration of the Option or the Option Shares as provided above,
Seller is in registration with respect to an underwritten public offering of
shares of Common Stock, and if, in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering, the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Seller, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and provided,
---------
however, that after any such required reduction the number of Option Shares to
- -------
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Seller in
the aggregate; and provided further, however, that if such reduction occurs,
-------------------------
then the Seller shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter occur (and such registration
shall not be charged against the Holder). Each such Holder shall provide all
information
B-6
<PAGE>
reasonably requested by Seller for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Seller shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for the Seller. Upon
receiving any request under this Section 6 from any Holder, Seller agrees to
send a copy thereof to any other person known to Seller to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
7. (a) Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, (i) at the request of the Holder,
delivered within 30 days after such occurrence (or such later period as provided
in Section 10 or the last sentence of Section 2(e)), Seller (or any successor
thereto) shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to the amount by which (A) the market/offer price (as
defined below) exceeds (B) the Option Price, multiplied by the number of shares
for which this Option may then be exercised and (ii) at the request of the owner
of Option Shares from time to time (the "Owner"), delivered within 30 days after
such occurrence (or such later period as provided in Section 10), Seller shall
repurchase such number of the Option Shares from the Owner as the Owner shall
designate at a price (the "Option Share Repurchase Price") equal to the
market/offer price multiplied by the number of Option Shares so designated. The
term "market/offer price" shall mean the highest of (i) the highest price per
share of Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Seller, (iii) the highest closing price for
shares of Common Stock quoted in the New York Stock Exchange (or if Common Stock
is not quoted in the New York Stock Exchange, the highest bid price per share as
quoted on the National Association of Securities Dealers Automated Quotation
Systems, or, if the shares of Common Stock are not quoted thereon, on the
principal trading market on which such shares are traded as reported by a
recognized source) within the six-month period immediately preceding the date
the Holder gives notice of the required repurchase of Option Shares, as the case
may be, or (iv) in the event of a sale of assets representing 15% or more of the
consolidated assets of Seller and its Subsidiaries, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Seller as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, divided by the number
of shares of Common Stock of Seller outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be.
(b) The Holder or the Owner, as the case may be, may exercise its
right to require Seller to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Seller, at its principal
office, this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Seller to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Seller shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Seller is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Seller is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Seller shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be
B-7
<PAGE>
delivered, from time to time, to the Holder and/or the Owner, as appropriate,
the portion of the Option Repurchase Price and the Option Share Repurchase
Price, respectively, that it is no longer prohibited from delivering, within
five business days after the date on which Seller is no longer so prohibited;
provided, however, that if Seller at any time after delivery of a notice of
- -----------------
repurchase pursuant to paragraph (b) of this Section 7 is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
delivering to the Holder and/or the Owner, as appropriate, the Option Repurchase
Price and the Option Share Repurchase Price, respectively, in full (and Seller
hereby undertakes to use its best efforts to obtain all required regulatory and
legal approvals and to file any required notices as promptly as practicable in
order to accomplish such repurchase), the Holder or Owner may revoke its notice
of repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Seller shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Seller is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable immediately prior to the time of delivery of
the notice of repurchase less the number of shares of Common Stock covered by
the portion of the Option Shares repurchased, or (B) to the Owner, a certificate
for the Option Shares it is then so prohibited from repurchasing. If an Exercise
Termination Event shall have occurred prior to the date of the notice by Seller
described in the first sentence of this subsection (c), or shall be scheduled to
occur at any time before the expiration of a period ending on the thirtieth day
after such date, the Holder shall nonetheless have the right to exercise the
Option until the expiration of such 30-day period.
8. (a) In the event that prior to an Exercise Termination Event,
Seller shall enter into an agreement (i) to consolidate with or merge into any
person, other than Buyer or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Buyer or one of its Subsidiaries, to merge into
Seller and Seller shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Buyer or one of
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Seller (if other than
Seller), (ii) Seller in a merger in which Seller is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Seller's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
B-8
<PAGE>
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the date
preceding such consolidation, merger or sale; provided that if Seller is
--------
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the person merging into
Seller or by any company which controls or is controlled by such person, as
the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
- --------
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option
shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement (after giving
effect for such purpose to the provisions of Section 9), which agreement shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value multiplied
by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to the exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for more
than 19.9% of the shares of Substitute Common Stock outstanding prior to
exercise but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Seller") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by the Holder.
(f) Seller shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Seller hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Seller shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common Stock for which
the Substitute Option may then be exercised, and at the request of the owner
(the "Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Seller shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal to
the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean the highest closing
price for shares of Substitute Common Stock within the six-month period
immediately preceding the date the Substitute Option Holder gives notice of the
required repurchase of the Substitute
B-9
<PAGE>
Option or the Substitute Share Owner gives notice of the required repurchase of
the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Seller to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Seller, at its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Seller to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provision
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Seller shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or the portion thereof which the Substitute Option Seller is not then
prohibited under applicable law and regulation, or as a consequence of
administrative policy, from so delivering.
(c) To the extent that the Substitute Option Seller is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from repurchasing the Substitute Option and/or the Substitute Shares in
part or in full, the Substitute Option Seller shall immediately so notify the
Substitute Option Holder and/or the Substitute Share Owner and thereafter
deliver or cause to be delivered, from time to time, to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the portion of the
Substitute Option Repurchase Price or the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, within five
business days after the date on which the Substitute Option Seller is no longer
so prohibited; provided, however, that if the Substitute Option Seller is at any
-----------------
time after delivery of a notice of repurchase pursuant to subsection (b) of this
Section 9 prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Seller shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Seller shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Seller is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the notice
by the Substitute Option Seller described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the expiration
of a period ending on the thirtieth day after such date, the Substitute Option
Holder shall nevertheless have the right to exercise the Substitute Option until
the expiration of such 30-day period.
B-10
<PAGE>
10. The 30-day period for exercise of certain rights under Sections
2, 6, 7, 9 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under section 16(b) of the Exchange Act by reason of such exercise.
11. Seller hereby represents and warrants to Buyer as follows:
(a) Seller has full corporate power and authority to execute and
deliver this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of Seller
and no other corporate proceedings on the part of Seller are necessary to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Seller. This
Agreement is the valid and legally binding obligation of Seller, enforceable
against Seller in accordance with its terms.
(b) Seller has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto and payment of the aggregate Option Price therefor, will be duly
authorized, validly issued, fully paid, nonassessable, and will be delivered
free and clear of all claims, liens, encumbrance and security interests and not
subject to any preemptive rights.
(c) Except as disclosed pursuant to the Merger Agreement, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or the creation of a lien, pledge, security interest, charge or other
encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation")
pursuant to any provisions of the Articles of Incorporation or by-laws of Seller
or any Seller Subsidiary or, subject to obtaining any approvals or consents
contemplated hereby, result in any Violation of any loan or credit agreement,
note, mortgage, indenture, lease, Plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Seller or any Seller
Subsidiary or their respective properties or assets which Violation would have a
Material Adverse Effect on Seller.
12. Buyer hereby represents and warrants to Seller as follows:
(a) Buyer has full corporate power and authority to execute and
deliver this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of Buyer
and no other corporate proceedings on the part of Buyer are necessary to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Buyer. This
Agreement is the valid and legally binding obligation of Buyer, enforceable
against Buyer in accordance with its terms.
B-11
<PAGE>
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Buyer upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Buyer, subject to the express provisions hereof, may
assign in whole or in part its rights and obligations hereunder within 30 days
following such Subsequent Triggering Event (or such later period as provided in
Section 10); provided, however, that until the date 15 days following the date
-----------------
on which the Federal Reserve Board approves an application by Buyer under the
BHCA to acquire the shares of Common Stock subject to the Option, Buyer may not
assign its rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Seller, (iii) an assignment
to a single party (e.g., a broker or investment banker) for the purpose of
conducting a widely dispersed public distribution on Buyer's behalf, or (iv) any
other manner approved by the Federal Reserve Board. Any such assignment shall
be made in compliance with and subject to applicable Federal and state laws,
rules and regulations.
14. Immediately following an Initial Triggering Event, each of Buyer
and Seller will use its best efforts to make all filings with, and to obtain
consents of, all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement, including
without limitation, making application to list the shares of Common Stock
issuable hereunder on the Nasdaq upon official notice of issuance and applying
to the Federal Reserve Board under the BHCA for approval to acquire the shares
issuable hereunder, but Buyer shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
15. Notwithstanding anything to the contrary herein, in the event
that the Holder or Owner or any Related Person thereof is a person making,
without the prior written consent of Seller, an offer or proposal to engage in
an Acquisition Transaction (other than the transaction contemplated by the
Merger Agreement), then (i) in the case of a Holder or any Related Person
thereof, the Option held by it shall immediately terminate and be of no further
force or effect, and (ii) in the case of an Owner or any Related Person thereof,
the Option Shares held by it shall be immediately repurchasable by Seller at the
Option Price. A Related Person of a Holder or Owner means any "affiliate" (as
defined in Rule 12b-2 of the rules and regulations under the Exchange Act) of
the Holder or Owner and any person that is the beneficial owner of 20% or more
of the voting power of the Holder or Owner, as the case may be.
16. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a Federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder or Substitute Option Holder is not permitted to acquire, or
Seller or Substitute Option Seller is not permitted to repurchase, pursuant to
Section 7 or Section 9, as the case may be, the full number of shares of Common
Stock provided in
B-12
<PAGE>
Section 1(a) hereof (as adjusted pursuant to Section 1(b) or Section 5 hereof),
it is the express intention of Seller to allow the Holder to acquire or to
require Seller to repurchase such lesser number of shares as may be permissible,
without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
19. This Agreement shall be governed by and construed in accordance
with the laws of the State of California, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
20. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein. Any provision of this
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
23. In the event of any exercise of the Option by Buyer, Seller and
Buyer shall execute and deliver all other documents and instruments and take all
other action that may be reasonably necessary in order to consummate the
transactions provided for by such exercise.
24. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
B-13
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
SARATOGA BANCORP
By: /s/ Richard L. Mount
---------------------------------
Attest: /s/ V. Ronald Mancuso Name: Richard L. Mount
--------------------- Title: President and Chief
Name: V. Ronald Mancuso Executive Officer
Title: Secretary
SJNB FINANCIAL CORP.
By: /s/ James R. Kenny
-------------------------------------
Attest: /s/ Jennifer Dowling Name: James R. Kenny
--------------------- Title: President and Chief
Name: Jennifer Dowling Executive Officer
Title: Assistant Corporate
Secretary
B-14
<PAGE>
ANNEX C
-------
[LETTERHEAD OF FIRST SECURITY VAN KASPER]
October 14, 1999
Members of the Board of Directors
Saratoga Bancorp
12000 Saratoga-Sunnyvale Rd.
Saratoga, CA 95070
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of Saratoga Bancorp ("Saratoga") of
the Exchange Ratio as defined in Section 2.1(a) of the Agreement and Plan of
Reorganization dated as of August 27, 1999 (the "Agreement"), in the proposed
merger (the "Merger") of SJNB Financial Corp. ("SJNB") and Saratoga. On the
Effective Time (as such term is defined in the Agreement), each share of
Saratoga Common Stock will be converted into the right to receive 0.70 shares of
SJNB Common Stock subject to adjustment as defined in the Agreement.
In arriving at our opinion, we have reviewed and analyzed, among other things,
the following: (i) the Agreement; (ii) certain publicly available financial and
other data with respect to SJNB and Saratoga, including consolidated financial
statements for recent years and interim periods to June 30, 1999; (iii) certain
other publicly available financial and other information concerning SJNB and
Saratoga and the trading markets for the publicly traded securities of SJNB and
Saratoga; (iv) publicly available information concerning other banks and bank
holding companies, the trading markets for their securities and the nature and
terms of certain other merger transactions we believed relevant to our inquiry;
and (v) evaluations and analyses prepared and presented to the Board of
Directors of Saratoga or a committee thereof in connection with the Merger. We
have held discussions with senior management of SJNB and Saratoga concerning the
companies' past and current operations, financial condition and prospects.
We have reviewed with the senior management of Saratoga earnings projections for
Saratoga as a stand-alone entity, assuming the Merger does not occur. We have
also reviewed earnings projections for SJNB as a stand-alone entity, assuming
the Merger does not occur as well as securities industry consensus estimates of
projected earnings per share from published sources for SJNB as a stand-alone
entity. Certain financial projections for the combined companies and for
Saratoga and SJNB as stand-alone entities were derived by us based partially
upon the projections and information described above, as well as our own
assessment of general economic, market and financial conditions.
C-1
<PAGE>
In conducting our review and in arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of the financial and other information
provided to us or publicly available, and we have not assumed any responsibility
for independent verification of the same. We have relied on advice of counsel
and independent accountants as to all legal and financial reporting matters with
respect to SJNB, Saratoga, the Merger and the Agreement. We have relied upon the
managements of Saratoga and SJNB as to the reasonableness of the financial and
operating forecasts, projections and projected operating cost savings (and the
assumptions and bases therefor) provided to us, and we have assumed that such
forecasts, projections and projected operating cost savings reflect the best
currently available estimates and judgments of the applicable managements. We
have also assumed, without assuming any responsibility for the independent
verification of same, that the aggregate allowances for loan losses for Saratoga
and SJNB are adequate to cover such losses. We have not made or obtained any
evaluations or appraisals of the property of Saratoga or SJNB, nor have we
examined any individual loan credit files. For purposes of this opinion, we have
assumed that the Merger will have the tax, accounting and legal effects
(including, without limitation, that the Merger will be accounted for as a
pooling of interests) described in the Merger Agreement. Our opinion as
expressed herein is limited to the fairness, from a financial point of view, to
the holders of the Common Stock of Saratoga of the Exchange Ratio in the Merger
and does not address Saratoga's underlying business decision to proceed with the
Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Saratoga and SJNB, including interest income, interest expense, net interest
income, net interest margin, provision for loan losses, non-interest income,
non-interest expense, earnings, dividends, internal capital generation, book
value, intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
Saratoga and for SJNB; (ii) the assets and liabilities of Saratoga and SJNB,
including the loan, investment and mortgage portfolios, deposits, other
liabilities, historical and current liability sources and costs and liquidity;
and (iii) the nature and terms of certain other merger transactions involving
banks and bank holding companies. We have also taken into account our assessment
of general economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and our
knowledge of the banking industry generally. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
It is understood that this letter is for the information of the Board of
Directors of Saratoga. This letter does not constitute a recommendation to the
Board of Directors or to any shareholder of Saratoga with respect to any
approval of the Merger. This opinion is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the offering or sale of
securities, nor shall this letter be used for any other purposes, without our
prior written consent.
C-2
<PAGE>
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the Exchange Ratio in the Merger is fair,
from a financial point of view, to the holders of the Common Stock of Saratoga.
Very truly yours,
/s/ First Security Van Kasper
FIRST SECURITY VAN KASPER
C-3
<PAGE>
ANNEX D
-------
FORM OF OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
____________, 1999
Board of Directors
SJNB Financial Corp.
One North Market Street
San Jose, CA 95113
Ladies and Gentlemen:
SJNB Financial Corp. ("SJNB"), Saratoga Bancorp ("Saratoga") and Saratoga
National Bank, a wholly owned subsidiary of Saratoga, have entered into an
Agreement and Plan of Merger, dated as of August 27, 1999 (the "Agreement"),
pursuant to which Saratoga will be merged with and into SJNB (the "Merger").
Upon consummation of the Merger, each share of Saratoga common stock, no par
value, issued and outstanding immediately prior to the Merger, other than
certain shares specified in the Agreement, will be converted into the right to
receive 0.70 shares (the "Exchange Ratio") of SJNB common stock, no par value.
The Exchange Ratio is subject to possible adjustment under certain
circumstances, as set forth in the Agreement. The terms and conditions of the
Merger are more fully set forth in the Agreement. You have requested our opinion
as to the fairness, from a financial point of view, of the Exchange Ratio to the
holders of shares of SJNB common stock.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option
Agreement, dated August 27, 1999, by and between SJNB and Saratoga; (iii)
certain publicly available financial statements of SJNB and other historical
financial information provided by SJNB that we deemed relevant; (iv) certain
publicly available financial statements of Saratoga and other historical
financial information provided by Saratoga that we deemed relevant; (v) certain
internal financial analyses and forecasts of SJNB prepared by and reviewed with
management of SJNB and the views of senior management of SJNB, based on certain
limited discussions with certain members of senior management, regarding SJNB's
past and current business, financial condition, results of operations and future
prospects; (vi) certain internal financial analyses and forecasts of Saratoga
prepared by and reviewed with management of Saratoga and the views of senior
management of Saratoga, based on certain limited discussions with certain
members of senior management, regarding Saratoga's past and current business,
financial condition, results of operations and future prospects; (vii) the pro
forma impact of the Merger on SJNB; (viii) the publicly reported historical
price and trading activity for SJNB's and Saratoga's common stock, including a
comparison of certain financial and stock market information for SJNB and
Saratoga with similar publicly available information for certain other companies
the securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the commercial banking industry, to the extent publicly
available; (x) the current market environment generally and the banking
environment in particular; and (xi) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as we
considered relevant.
D-1
<PAGE>
Board of Directors
SJNB Financial Corp.
____________, 1999
Page 2
In performing our review, we have assumed and relied upon the accuracy and
completeness of all the financial information, analyses and other information
that was publicly available or otherwise furnished to, reviewed by or discussed
with us, and we do not assume any responsibility or liability for independently
verifying the accuracy or completeness thereof. We did not make an independent
evaluation or appraisal of the specific assets, the collateral securing assets
or the liabilities (contingent or otherwise) of SJNB or Saratoga or any of their
subsidiaries, or the collectibility of any such assets, nor have we been
furnished with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the allowance for loan losses of SJNB
or Saratoga nor have we reviewed any individual credit files relating to SJNB
and Saratoga and, with your permission, we have assumed that the respective
allowances for loan losses for both SJNB and Saratoga are adequate to cover such
losses and will be adequate on a pro forma basis for the combined entity. With
respect to the financial projections reviewed with management, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of the
respective future financial performance of SJNB and Saratoga and that such
performances will be achieved, and we express no opinion as to such financial
projections or the assumptions on which they are based. We have also assumed
that there has been no material change in SJNB's or Saratoga's assets, financial
condition, results of operations, business or prospects since the date of the
most recent financial statements made available to us. We have assumed in all
respects material to our analysis that SJNB and Saratoga will remain as going
concerns for all periods relevant to our analyses, that all of the
representations and warranties contained in the Agreement and all related
agreements are true and correct, that each party to such agreements will perform
all of the covenants required to be performed by such party under such
agreements, that the conditions precedent in the Agreement are not waived and
that the Merger will be accounted for as a pooling of interests and will qualify
as a tax-free reorganization for federal income tax purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of SJNB common stock will be
when issued to Saratoga's shareholders pursuant to the Agreement or the prices
at which SJNB's or Saratoga's common stock will trade at any time.
We have been retained by you solely to render this opinion and will receive
a fee for our services. We did not act as a financial advisor to SJNB in
connection with its determination to engage in the Merger and did not
participate in the negotiation of the Exchange Ratio or the Agreement.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to SJNB and Saratoga. We may also actively
trade the debt or equity securities of SJNB and Saratoga for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
Our opinion is directed to the Board of Directors of SJNB for its
information and does not constitute a recommendation to any shareholder of SJNB
as to how such shareholder should vote at any meeting of shareholders called to
consider and vote upon the Merger. Our opinion is not to be quoted or referred
to, in whole or in part, in a registration statement, prospectus, proxy
statement or in any other document, nor shall this opinion be used for any other
purposes, without Sandler O'Neill's prior written consent; provided, however,
that we hereby consent to the inclusion of this opinion as an annex to
D-2
<PAGE>
Board of Directors
SJNB Financial Corp.
____________, 1999
Page 3
SJNB's and Saratoga's Joint Proxy Statement/Prospectus dated the date hereof and
to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
holders of shares of SJNB common stock.
Very truly yours,
D-3
<PAGE>
ANNEX E
-------
CHAPTER 13. Dissenters' Rights.
(S)1300. Reorganization or short-form merger; dissenting shares; corporate
purchase at fair market value; definitions -
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
(S)1301. Notice to holders of dissenting shares in reorganizations; demand
for purchase; time; contents -
E-1
<PAGE>
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
(S)1302. Submission of share certificates for endorsement; uncertificated
securities -
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
(S)1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment -
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
E-2
<PAGE>
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
(S)1304. Action to determine whether shares are dissenting shares or fair
market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers -
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market values of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S)1305. Report of appraisers; confirmation; determination by court;
judgment; payment; appeal; costs -
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the
E-3
<PAGE>
price offered by the corporation, the corporation shall pay the costs (including
in the discretion of the court attorneys' fees, fees of expert witnesses and
interest at the legal rate on judgments from the date of compliance with
Sections 1300, 1301 and 1302 if the value awarded by the court for the shares is
more than 125 percent of the price offered by the corporation under subdivision
(a) of Section 1301).
(S)1306. Prevention of immediate payment; status as creditors; interest -
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S)1307. Dividends on dissenting shares -
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
(S)1308. Rights of dissenting shareholders pending valuation; withdrawal of
demand for payment -
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
(S)1309. Termination of dissenting share and shareholder status -
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
E-4
<PAGE>
(S)1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval -
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
(S)1311. Exempt shares -
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
(S)1312. Right of dissenting shareholder to attack, set aside or rescind
merger or reorganization; restraining order or injunction; conditions -
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
E-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors,
officers, employees and other agents of the corporation ("Agents") in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended.
Article V of the Registrant's Articles of Incorporation, as amended,
authorizes the Registrant to indemnify its Agents, through bylaw provisions,
agreements, votes of shareholders or disinterested directors or otherwise, in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the applicable limits set forth in
Section 204 of the California Corporations Code with respect to actions for
breach of duty to the Registrant and its shareholders. Article VI of the
Registrant's Bylaws provides for mandatory indemnification of each director to
the maximum extent permitted by the California General Corporation Law.
The Registrant maintains a directors' and officers' liability insurance
policy that indemnifies the Registrant's directors and officers against certain
losses in connection with claims made against them for certain wrongful acts.
In addition, the Registrant has entered into separate indemnification agreements
with its directors and officers that require the Registrant, among other things,
to indemnify them against certain liabilities that may arise by reason of their
status or service as Agents of the Registrant to the maximum extent permitted by
the California General Corporation Law.
Item 21. Exhibits and Financial Statement Schedules.
(A) Exhibits.
Exhibit
Number
------
2.1 Agreement and Plan of Merger by and among the Registrant,
Saratoga Bancorp and Saratoga National Bank, dated as of August
27, 1999 (included as Annex A to the proxy statement/prospectus
(without certain exhibits)).
4.1 Specimen of the Registrant's common stock certificate.
5.1+ Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of KPMG LLP (SJNB).
23.2 Consent of Deloitte & Touche LLP (Saratoga).
23.3+ Consent of Pillsbury Madison & Sutro LLP (included in Exhibit
5.1).
23.4 Consent of First Security Van Kasper.
23.5 Form of Consent of Sandler O'Neill & Partners, L.P.
24.1 Power of Attorney (see Page II-4).
II-1
<PAGE>
99.1 Form of proxy to be used in soliciting shareholders of SJNB for
the Special Meeting.
99.2 Form of proxy to be used in soliciting shareholders of Saratoga
for the Special Meeting.
+ To be filed by amendment.
(B) Financial Statement Schedules: Not applicable.
Item 22. Undertakings.
(1) The undersigned Registrant hereby undertakes: (a) To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; (b) That, for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; (c)
To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(2) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes as follows: that prior
to any public re-offering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such re-offering prospectus will the contain information
called for by the applicable registration form with respect to re-offerings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(4) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered
II-2
<PAGE>
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(7) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on the 14th day of October, 1999.
SJNB FINANCIAL CORP
By /s/ James R. Kenny
-------------------------------------
James R. Kenny
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints James R. Kenny and Eugene E. Blakeslee, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James R. Kenny President and Chief Executive October 14, 1999
------------------------------- Officer (Principal Executive
James R. Kenny Officer) and Director
/s/ Eugene E. Blakeslee Executive Vice President and Chief October 14, 1999
------------------------------- Financial Officer (Principal
Eugene E. Blakeslee Financial Officer and Principal
Accounting Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Ray S. Akamine Director October 14, 1999
----------------------------------
Ray S. Akamine
/s/ Robert A. Archer Chairman and Director October 14, 1999
----------------------------------
Robert A. Archer
/s/ Albert V. Bruno Director October 14, 1999
----------------------------------
Albert V. Bruno
/s/ Rod Diridon Director October 14, 1999
----------------------------------
Rod Diridon
/s/ F. Jack Gorry Director October 14, 1999
----------------------------------
F. Jack Gorry
/s/ Arthur K. Lund Director October 14, 1999
----------------------------------
Arthur K. Lund
/s/ Louis Oneal Director October 14, 1999
----------------------------------
Louis Oneal
/s/ Diane Rubino Director October 14, 1999
----------------------------------
Diane Rubino
/s/ Douglas L. Shen Director October 14, 1999
----------------------------------
Douglas L. Shen
/s/ Gary S. Vandeweghe Director October 14, 1999
----------------------------------
Gary S. Vandeweghe
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document Description
------ --------------------
2.1 Agreement and Plan of Merger by and among the Registrant,
Saratoga Bancorp and Saratoga National Bank, dated as of August
27, 1999 (included as Annex A to the proxy statement/prospectus
(without certain exhibits)).
4.1 Specimen of the Registrant's common stock certificate.
5.1+ Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of KPMG LLP (SJNB).
23.2 Consent of Deloitte & Touche LLP (Saratoga).
23.3+ Consent of Pillsbury Madison & Sutro LLP (included in Exhibit
5.1).
23.4 Consent of First Security Van Kasper.
23.5 Form of Consent of Sandler O'Neill & Partners, L.P.
24.1 Power of Attorney (see Page II-4).
99.1 Form of proxy to be used in soliciting shareholders of SJNB for
the Special Meeting.
99.2 Form of proxy to be used in soliciting shareholders of Saratoga
for the Special Meeting.
+ To be filed by amendment
<PAGE>
EXHIBIT 4.1
[LOGO OF SJNB FINANCIAL CORP.]
NUMBER SHARES
SJ ****** ******
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA ON THE 18TH DAY OF
APRIL, 1983
CUSIP 784273 10 4
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that ______******_______________________________________________
is the record holder of _______******__________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
SJNB FINANCIAL CORP., transferable on the books of the Corporation in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
As stated on the reverse hereof, a statement of the rights, preferences,
privileges and restrictions granted to or imposed upon the respective classes of
shares and upon the holders thereof may be obtained, upon request and without
charge, from the Corporation at its principal office.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: ____________
[SEAL OF SJNB FINANCIAL CORP.]
/s/ Eugene E. Blakeslee /s/ James R. Kenny
Executive Vice President and President and
Chief Financial Officer Chief Executive Officer
Countersigned and Registered:
U.S. STOCK TRANSFER CORPORATION
Transfer Agent and Registrar
By /s/ [illegible]
------------------------------
Authorized Officer
<PAGE>
[REVERSE SIDE]
SJNB FINANCIAL CORP.
On request of the shareholder and without charge, the Corporation will
furnish a full summary or statement of all of the designations, rights,
preferences, privileges and restrictions of each class of shares authorized to
be issued. In addition, on request of the shareholder and without charge, the
Corporation will furnish a full summary or statement as to any class of
preferred or special shares authorized to be issued in series, the relative
rights and preferences between the shares of each such series so far as the same
have been fixed and determined, and the authority of the Board of Directors to
fix and determine the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as thought they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______ Custodian ________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act ___________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
[PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE]
____________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
Shares of the Common Capital Stock represented by the within certificate, and
do hereby irrevocably constitute and appoint ___________________________________
Attorney to transfer said stock on the books of the within-named Corporation
with full power of substitution in the premises.
NOTICE: The signature to this assignment must correspond with the
name as written upon the face of the Certificate, in every particular,
without alteration or enlargement, or any change whatever.
Dated, ____________________
________________________________
In the presence of ________________________
Signature(s) Guaranteed:
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
SJNB Financial Corp:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
San Francisco, California
October 11, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
SJNB Financial Corp. on Form S-4 of our report dated January 22, 1999, appearing
in the Annual Report on Form 10-K of Saratoga Bancorp for the year ended
December 31, 1998.
We also consent to the references to us under the headings "Selected Historical
and Proforma Financial Data" and "Experts" in the prospectus, which is part of
such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Jose, California
October 12, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF FIRST SECURITY VAN KASPER
We hereby consent to the inclusion of our opinion letter dated October 14, 1999
to the Board of Directors of Saratoga Bancorp ("Saratoga") as Annex C to the
Registration Statement on Form S-4 ("Registration Statement") of SJNB Financial
Corp. ("SJNB") and to all references to our firm and such opinion in the
Prospectus/Proxy Statement included in such Registration Statement. In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under, and we do not admit and we disclaim that we are
"experts" for purposes of the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
/s/ First Security Van Kasper
FIRST SECURITY VAN KASPER
San Francisco, CA
October 14, 1999
<PAGE>
EXHIBIT 23.5
FORM OF CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of SJNB Financial Corp. (the "Company") as an Annex to the Joint Proxy
Statement/Prospectus relating to the proposed merger of Saratoga Bancorp with
and into the Company contained in the Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on the date hereof, and to the
references to our firm and such opinion in such Joint Proxy Statement/
Prospectus. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended (the "Act"), or the rules and regulations of the
Securities and Exchange Commission thereunder (the "Regulations"), nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Act or the
Regulations.
__________________, 1999
<PAGE>
Exhibit 99.1
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SJNB FINANCIAL CORP.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders of SJNB Financial Corp., a California corporation, and the
accompanying proxy statement/prospectus dated ____________, 1999, and revoking
any proxy heretofore given, hereby constitutes and appoints Douglas L. Shen,
Diane P. Rubino and F. Jack Gorry, and any of them, with full power of
substitution, as attorney and proxy to appear and vote all of the shares of
Common Stock of SJNB Financial Corp. standing in the name of the undersigned
which the undersigned could vote if personally present and acting at the Special
Meeting of Shareholders of SJNB Financial Corp. to be held in [location] on
November __, 1999 at _____.m. local time, or at any adjournments or
postponements thereof, upon the following items as set forth in the Notice of
Special Meeting and more fully described in the proxy statement/prospectus.
1. Approval of Merger Agreement. To consider and vote upon a proposal to
----------------------------
approve the Agreement and Plan of Merger, dated as of August 27, 1999,
among SJNB Financial Corp., Saratoga Bancorp and Saratoga National Bank and
the transactions contemplated thereby, including the resulting issuance of
shares of SJNB Financial Corp. common stock in connection with the merger
of Saratoga with and into SJNB Financial Corp.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Other Business. The proxies are authorized to vote in their discretion on
--------------
such other matters as may properly come before the meeting or any
adjournment or postponement thereof.
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED
IN THE MANNER HEREIN SPECIFIED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS INDICATED, THIS PROXY WILL BE VOTED IN FAVOR OF PROPOSAL 1 AND IN ACCORDANCE
WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS TO COME BEFORE THE
SPECIAL MEETING.
Number of Common Shares _____ Dated ________________, 1999
I/We [_] do or [_] do not
expect to attend this meeting. SHAREHOLDER(S)
___________________________________________
(Signature)
___________________________________________
(Signature)
<PAGE>
(Please mark, date and sign this proxy
exactly as your name appears hereon and
return this proxy promptly in the enclosed
envelope. Executors, administrators,
guardians, officers of the corporation and
others signing in a fiduciary capacity
should state their full titles as such. If
shares are held by joint tenants or as
community property, both should sign.)
DO NOT FOLD, STAPLE OR MUTILATE
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
<PAGE>
Exhibit 99.2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SARATOGA BANCORP
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders of Saratoga Bancorp, a California corporation, and the accompanying
proxy statement/prospectus dated ____________, 1999, and revoking any proxy
heretofore given, hereby constitutes and appoints Richard L. Mount and V. Ronald
Mancuso, and each of them, with full power of substitution, as attorney and
proxy to appear and vote all of the shares of Common Stock of Saratoga Bancorp
standing in the name of the undersigned which the undersigned could vote if
personally present and acting at the Special Meeting of Shareholders of Saratoga
Bancorp to be held in [location] on November __, 1999 at _____ _.m. local time,
or at any adjournments or postponements thereof, upon the following items as set
forth in the Notice of Special Meeting and more fully described in the proxy
statement/prospectus.
1. Approval of Merger Agreement. To consider and vote upon a proposal to
----------------------------
approve the Agreement and Plan of Merger, dated as of August 27, 1999, among
SJNB Financial Corp., Saratoga Bancorp and Saratoga National Bank and the
transactions contemplated thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Other Business. The proxies are authorized to vote in their discretion on
--------------
such other matters as may properly come before the meeting or any
adjournment or postponement thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER HEREIN SPECIFIED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED IN FAVOR OF PROPOSAL 1 AND IN ACCORDANCE
WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS TO COME BEFORE THE
SPECIAL MEETING.
Number of Common Shares _____ Dated ________________, 1999
I/We [_] do or [_] do not
expect to attend this meeting. SHAREHOLDER(S)
___________________________________
(Signature)
___________________________________
(Signature)
<PAGE>
(Please mark, date and sign this proxy
exactly as your name appears hereon
and return this proxy promptly in the
enclosed envelope. Executors,
administrators, guardians, officers of the
corporation and others signing in a
fiduciary capacity should state their full
titles as such. If shares are held by joint
tenants or as community property, both
should sign.)
DO NOT FOLD, STAPLE OR MUTILATE
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
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