-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, N1VgohxqRIZBCajCSblFde5qX7bkvab14DD9NvQR4m66C8GYHKgDd4XMl1e5xpKx 5seIuOZAIjN5Lwvi7oTgXQ== 0000702147-95-000014.txt : 19950908 0000702147-95-000014.hdr.sgml : 19950908 ACCESSION NUMBER: 0000702147-95-000014 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19950907 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SDNB FINANCIAL CORP CENTRAL INDEX KEY: 0000702147 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953725079 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-58379 FILM NUMBER: 95570664 BUSINESS ADDRESS: STREET 1: 1420 KETTNER BLVD CITY: SAN DIEGO STATE: CA ZIP: 92101 BUSINESS PHONE: 6192331234 MAIL ADDRESS: STREET 1: P O BOX 12605 CITY: SAN DIEGO STATE: CA ZIP: 92112-3605 POS AM 1 As filed with the Securities and Exchange Commission on September 6, 1995 Registration No. 33-58379 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 4 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SDNB FINANCIAL CORP. (Exact name of registrant as specified in its charter) California 95-3725079 (State or other (I.R.S. Employer jurisdiction of Identification incorporation or Number) organization) 1420 Kettner Boulevard San Diego, California 92101 (619) 233-1234 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) Murray L. Galinson President and Chief Executive Officer 1420 Kettner Boulevard San Diego, California 92101 (619) 233-1234 (Name, address, including zip code, and telephone number, including area code, of agent for service) With Copies to: Lawrence M. Sherman, Esq. Theodore G. Johnsen, Esq. Sherman & Eggers, P.C. Arnold & Porter 350 West Ash Street, Suite 1100 777 South Figueroa Street San Diego, California 92101 Los Angeles, California 90017-2513 (619) 338-4900 (213) 243-4000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE Title of class Proposed maximum Proposed maximum of securities Amount to offering price aggregate offering Amount of to be registered be registered per security price registration fee Common Stock (no par value) 769,582 $4.34 $3,339,986 $1,151.72 Subscription Rights to purchase Common Stock 769,582 (2) (2) None 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 the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. (1) Estimated solely for the purpose of calculating the registration fee. (2) No separate consideration will be received for the Subscription Rights. (3) 1/29 of 1% of the proposed maximum aggregate offering price. Previously paid.
SDNB FINANCIAL CORP. CROSS REFERENCE SHEET Pursuant to Item 501(b) Item Number and Location or Caption Heading in Form S-3 in Prospectus 1. Forepart of Registration Facing Page and Cross- Statement Reference Sheet of and Outside Front Cover Registration Statement and Page of Cover Page of Prospectus. Prospectus. 2. Inside Front and Outside Inside Front and Outside Back Cover Back Cover Pages of Prospectus. Pages of Prospectus. 3. Summary Information, Risk Prospectus Summary(pp. 4-7); Factors Risk Factors (pp. 8-12). and Ratio of Earnings to Fixed Charges. 4. Use of Proceeds. Use of Proceeds (p. 20). 5. Determination of Offering The Subscription Offering - Price. Determination of Subscription Price and Fairness Opinion (p. 16). 6. Dilution. Risk Factors - Dilution (pp. 9-10). 7. Selling Security Holders. * 8. Plan of Distribution. The Underwriting Agreement (pp. 19-20); Plan of Distribution (pp. 25-26). 9. Description of Securities Incorporation of Certain to be Documents by Reference (p. 3); Registered. The Subscription Offering (pp. 12-18); Description of Capital Stock and Rights of Shareholders (pp.24-25). 10. Interests of Named * Experts and Counsel. 11. Material Changes. * 12. Incorporation of Certain Incorporation of Certain Information Documents by by Reference. Reference (p. 3). 13. Disclosure of Commission * Position on Indemnification for Securities Act Liabilities. _____________________________ * Omitted as not applicable. SDNB Financial Corp. PROSPECTUS 769,582 Shares of Common Stock (no par value) SDNB Financial Corp. (the "Company") is hereby offering (the "Subscription Offering") up to 769,582 shares of its Common Stock, no par value ("Common Stock"), to holders of record of its Common Stock (the "Shareholders") at the close of business on May 5, 1995 (the "Record Date"), pursuant to transferable subscription rights (the "Basic Subscription Rights" and, together with the Oversubscription Rights (as defined below), the "Subscription Rights"). The subscription price is $4.34 per share (the "Subscription Price"). Holders of Subscription Rights, including transferees of Shareholders (collectively, the "Rights Holders" and, together with the Shareholders, the "Holders"), will be able to exercise their Subscription Rights until 5:00 p.m., New York time, on September 21, 1995 (such date, as it may be extended by the Company to a date not later than October 12, 1995, being the "Expiration Date"). See "THE SUBSCRIPTION OFFERING." After the Expiration Date, the Subscription Rights will no longer be exercisable to purchase shares of Common Stock. For each two shares of Common Stock held of record as of the close of business on the Record Date, a Shareholder will receive one Basic Subscription Right. No fractional Basic Subscription Rights will be issued by the Company. The number of Basic Subscription Rights distributed by the Company to each Shareholder will be rounded up to the nearest whole number. Each Rights Holder will have the right to purchase one share of Common Stock for each Basic Subscription Right. Rights Holders are entitled to subscribe for all, or any portion of, the shares of Common Stock underlying their Basic Subscription Rights. A Rights Holder who subscribes for the full number of shares of Common Stock underlying the Basic Subscription Rights held by such Rights Holder on the date of exercise (other than in his or her capacity as a participant in the San Diego National Bank Deferred Savings Plan) and evidenced by a Subscription Warrant will have the right to subscribe for additional shares of Common Stock that are not subscribed for by other Rights Holders pursuant to their Basic Subscription Rights (the "Oversubscription Rights"). See "THE SUBSCRIPTION OFFERING - Oversubscription Rights" and "RISK FACTORS - Interests of WHR." No minimum amount of proceeds is required for the Company to consummate the Subscription Offering. The Common Stock is traded on the NASDAQ National Market System (the "NASDAQ/NMS") under the symbol "SDNB" and, on September 5, 1995, the last sale price of the Common Stock was $4.25. See "MARKET PRICE AND DIVIDENDS ON THE COMMON STOCK." The Basic Subscription Rights will be tradable on the NASDAQ/NMS under the symbol "SDNBR" until the end of trading on the NASDAQ/NMS on the Expiration Date. However, there has been no prior market for the Basic Subscription Rights and no assurance can be given that a market will develop. See "THE SUBSCRIPTION OFFERING - Transferability of Basic Subscription Rights." HOLDERS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER "RISK FACTORS (PAGES 8-12)." _______________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. _________________ THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, OR ANY OTHER GOVERNMENTAL AGENCY. Subscription Underwriting Discounts Proceeds to Price and Commissions(1) the Company(2) Per share $4.34 $.217 $4.34 Total $3,339,986 $166,999 $3,172,987 (1) Assumes all Subscription Rights exercised through the Underwriter (defined herein). See "THE UNDERWRITING AGREEMENT - Underwriter's Compensation" and "PLAN OF DISTRIBUTION" for information with respect to other compensation payable to the Underwriter. See also "THE SUBSCRIPTION OFFERING - Determination of Subscription Price and Fairness Opinion" for information with respect to financial advisory fees payable by the Company. (2) Before deducting expenses payable by the Company estimated at $360,000, of which $10,000 constitutes the Expense Fee (as defined herein) payable to the Underwriter. See "THE UNDERWRITING AGREEMENT". _______________________ The Common Stock is being offered directly to Rights Holders by the Company and through the Underwriter pursuant to a best-efforts underwriting agreement. See "THE UNDERWRITING AGREEMENT" and "PLAN OF DISTRIBUTION." It is expected that delivery of the shares of Common Stock will be made as soon as practicable after the Expiration Date. September _, 1995 NOTICE REGARDING RESIDENTS OF FLORIDA DUE TO BURDENSOME SECURITIES AND DEALER REGISTRATION REQUIREMENTS OF THE FLORIDA SECURITIES AND PROTECTION ACT, SUBSCRIPTION RIGHTS MAY NOT BE TRANSFERRED TO, OR EXCERCISED BY, A RESIDENT OF FLORIDA WHO WAS NOT A SHAREHOLDER OF RECORD OF THE COMPANY'S COMMON STOCK ON THE RECORD DATE (MAY 5, 1995). AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith files reports, proxy statements, and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements, and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its Regional Offices at Seven World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Commission's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Company has filed with the Commission a Registration Statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") relating to the shares of Common Stock that may be issued to Rights Holders. This Prospectus does not contain all of the information set forth in the Registration Statement and exhibits thereto that the Company has filed with the Commission under the Securities Act of 1933, as amended (the "Securities Act"), and to which reference is hereby made. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Incorporated by reference in this Prospectus are the following documents filed by the Company with the Commission pursuant to the Exchange Act: 1. the Company's Annual Report on Form 10-K for the year ended December 31, 1994; 2. the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995; and 3. the description of the Common Stock in the Company's registration statement filed under the Exchange Act with respect to the Common Stock, including any amendments and reports filed for the purpose of updating such description. All documents subsequently filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the Subscription Offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date such documents are filed. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, to each person to whom this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the information incorporated herein by reference other than exhibits to such information (unless such exhibits are specifically incorporated by reference into such information). Written or oral requests should be directed to SDNB Financial Corp., 1420 Kettner Boulevard, San Diego, California 92101, Attention: Howard W. Brotman, telephone (619) 233-1234, ext. 717. PROSPECTUS SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information, including consolidated financial statements, appearing elsewhere, or incorporated by reference, in this Prospectus. The Company SDNB Financial Corp. (the "Company") is a registered bank holding company organized in 1982. The Company's principal subsidiary is San Diego National Bank, San Diego, California (the "Bank"), a national banking association organized in 1981, the deposits of which are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation (the "FDIC") up to applicable limits. Through the Bank, the Company provides general commercial banking services. At June 30, 1995, the Company had consolidated assets of approximately $156 million, consolidated liabilities of approximately $145 million (which includes total deposits through the Bank of approximately $125 million), and shareholders' equity of approximately $11 million. The Company's principal executive office is located at 1420 Kettner Boulevard, San Diego, California 92101, and its telephone number is (619) 233-1234. See "THE COMPANY." The Subscription Offering Shares Offered Hereby Up to 769,582 shares of Common Stock. Subscription Price $4.34 per share of Common Stock. Risk Factors See "RISK FACTORS" for a discussion of certain important factors to be considered by Holders. Basic Subscription Rights For each two shares of Common Stock held of record as of the close of business on May 5, 1995, 1995 (the "Record Date"), a Shareholder will receive one Basic Subscription Right. The number of Basic Subscription Rights distributed by the Company to each Shareholder will be rounded up to the nearest whole number. Each Rights Holder will have the right to purchase one share of Common Stock for each Basic Subscription Right. Rights Holders are entitled to subscribe for all, or any portion of, the shares of Common Stock underlying their Basic Subscription Rights. Basic Subscription Rights will be evidenced by Subscription Warrants. Oversubscription Rights A Rights Holder who subscribes for the full number of shares of Common Stock underlying the Basic Subscription Rights held by such Rights Holder on the date of exercise (other than in his or her capacity as a participant in the San Diego National Bank Deferred Savings Plan (the "Plan")) and evidenced by a Subscription Warrant will have the right to subscribe for additional shares of Common Stock that are not subscribed for by other Rights Holders pursuant to their Basic Subscription Rights. Basic Subscription Rights held by the Plan shall not be eligible for Oversubscription Rights due to the prohibited transaction rules of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974. There can be no assurance that any shares of Common Stock will be available to satisfy in whole or in part a Rights Holder's request to subscribe for shares in excess of the shares underlying such Rights Holder's Basic Subscription Rights. Oversubscription Rights are exercisable by all Rights Holders, other than the Plan, including transferees of Shareholders. See "THE SUBSCRIPTION OFFERING - Oversubscription Rights." Proration of Oversubscription Rights If there are shares available for sale pursuant to the exercise of Oversubscription Rights and the number of such shares is not sufficient to satisfy in full all subscriptions submitted pursuant to such requests, the available shares of Common Stock will be allocated among the Rights Holders who exercise Oversubscription Rights pro rata based upon the number of Basic Subscription Rights held by each such Rights Holder on the Expiration Date. Private Placement On January 31, 1995, two limited partnerships, of which WHR Management Corp. is the general partner (the two limited partnerships and WHR Management Corp. are referred to herein, collectively, as "WHR"), agreed to purchase 510,121 shares of the Company's Common Stock (the "Private Placement"), which purchase was consummated on March 28, 1995. The 510,121 shares issued to WHR constitute 24.9% of the Company's outstanding Common Stock after such issuance (without taking into consideration shares to be issued in this Subscription Offering). Pursuant to the Stock Purchase Agreement (as defined herein) and in lieu of participating in the Subscription Offering, WHR also agreed to purchase an additional 255,193 shares of Common Stock at $4.34 per share, for an aggregate purchase price of $1,107,538, if the Subscription Offering is fully subscribed, or such lesser amount so that after such purchase WHR will hold an aggregate of 24.9% of the outstanding Common Stock of the Company, taking into account the shares issued in the Subscription Offering. See "THE SUBSCRIPTION OFFERING - Private Placement." Use of Proceeds The net proceeds from the sale of the Common Stock will be used for general corporate purposes, which may include investments in or extensions of credit to the Company's subsidiaries, the reduction of existing debt, and financing of possible future acquisitions of other banking institutions or related businesses. At the present time, the Company does not have any specific plans, agreements, or understandings, written or oral, pertaining to the proposed acquisition of any banking institution or related business. See "USE OF PROCEEDS." Underwriting Agreement On September 5, 1995, the Company and Torrey Pines Securities, Inc., a California corporation (the "Underwriter"), entered into an agreement (the "Underwriting Agreement"), pursuant to which the Underwriter, on a best-efforts basis, will: (i) prior to the Expiration Date (as defined below),solicit the exercise by third parties of Subscription Rights; and (ii) prior to the Termination Date (as defined below), solicit the purchase by third parties of any unsubscribed shares of Common Stock offered in the Subscription Offering at a purchase price equal to the Subscription Price ($4.34 per share) (the "Standby Purchase Commitment"). The Underwriter has not agreed to purchase on behalf of third parties any specific amount of unsubscribed shares, nor can there be any assurance given that the Underwriter will be able to solicit the purchase by third parties of any unsubscribed shares. In exchange for its services, the Underwriter will be eligible to receive certain commissions, fees, and stock purchase warrants. The terms of the Underwriting Agreement are subject to the approval of the National Association of Securities Dealers, Inc. See "THE UNDERWRITING AGREEMENT." Shares Currently Outstanding 2,048,485 shares of Common Stock, at September 6, 1995. Subscription Agent The Subscription Agent is American Stock Transfer & Trust Company (the "Subscription Agent"). See "THE SUBSCRIPTION OFFERING - Subscription Agent" for addresses and information relating to the delivery of Subscription Warrants and the payment of the aggregate Subscription Price. Information Agent The Information Agent is Western Financial Corporation. The Information Agent's toll-free telephone number is (800) 488-5990. Method of Exercising Subscription Rights Basic Subscription Rights and Oversubscription Rights may be exercised by properly completing, signing, and delivering the Subscription Warrant accompanying this Prospectus, together with payment in full of the aggregate Subscription Price by either bank certified check or cashier's check. See "THE SUBSCRIPTION OFFERING - Method of Exercising Subscription Rights." Expiration Date Rights Holders will be able to exercise their Subscription Rights until 5:00 p.m., New York time, on September 21, 1995, unless such period is extended by the Company, at its option, to a date not later than October 12, 1995. See "THE SUBSCRIPTION OFFERING - Amendments and Waivers; Early Termination." After the Expiration Date, Subscription Rights will no longer be exercisable to purchase shares of Common Stock and will have no value. See "Foreign Restrictions and Undeliverable Subscription Warrants" below for a summary of the restrictions on the method of exercising Subscription Rights held by shareholders whose record addresses are outside of the continental United States or Canada, or are Army Post Office ("A.P.O.") or Fleet Post Office ("F.P.O.") addresses. Amendments, Early Termination The Company reserves the right to amend the terms and conditions of the Subscription Offering or to terminate the Subscription Offering at any time prior to delivery of the shares of Common Stock offered hereby. See "THE SUBSCRIPTION OFFERING - Amendments and Waivers; Early Termination." Termination Date Unless earlier terminated by the Company, the Subscription Offering shall automatically terminate at 5:00 p.m., New York time, on the eighth business day following the Expiration Date. Transferability of Subscription Rights The Basic Subscription Rights are transferable, and the right to subscribe for additional shares of Common Stock pursuant to the Oversubscription Rights is transferable with each Basic Subscription Right. DUE TO BURDENSOME SECURITIES AND DEALER REGISTRATION REQUIREMENTS OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, SUBSCRIPTION RIGHTS MAY NOT BE TRANSFERRED TO, OR EXCERCISED BY, A RESIDENT OF FLORIDA WHO WAS NOT A SHAREHOLDER OF THE COMPANY'S COMMON STOCK ON THE RECORD DATE (MAY 5, 1995). The Basic Subscription Rights will be tradable on the NASDAQ National Market System (the "NASDAQ/NMS") until the end of trading on the NASDAQ/NMS on the Expiration Date. There is no assurance, however, that a market for the Basic Subscription Rights will develop. The Subscription Agent will attempt to sell Basic Subscription Rights for the convenience of Rights Holders, provided the Subscription Warrant with the instructions for sale properly executed is received by the Subscription Agent before 11:00 a.m., New York time, on the Expiration Date. No assurance can be given that the Subscription Agent will be able to sell any Basic Subscription Rights. Foreign Restrictions and Undeliverable Subscription Warrants Subscription Warrants will not be mailed to Shareholders whose record addresses are outside the continental United States or Canada, or are A.P.O. or F.P.O. addresses. Such Subscription Warrants will be held by the Subscription Agent for such Shareholders' accounts until instructions are received to exercise or transfer the Subscription Rights. If no instructions have been received by 11:00 a.m., New York time, on the Expiration Date, the Subscription Agent will attempt to sell the Subscription Rights of those Shareholders together with the rights of Shareholders whose addresses are not known by the Company or the Subscription Agent or to whom delivery of a Subscription Warrant could not be made. No Fractional Basic Subscription Rights . . . No fractional Basic Subscription Rights will be issued by the Company. The number of Basic Subscription Rights distributed by the Company to each Shareholder will be rounded up to the nearest whole number. NASDAQ/NMS Symbols Common Stock - "SDNB." Basic Subscription Rights - "SDNBR." CUSIP Number . . . . Basic Subscription Rights - 784082-11-7. Federal Income Tax Considerations For United States federal income tax purposes, receipt of the Subscription Rights by Shareholders pursuant to the Subscription Offering should be treated as a nontaxable dividend distribution. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS." RISK FACTORS Dividend Limitations The capital stock of San Diego National Bank (the "Bank") is one of the Company's two principal assets. See "THE COMPANY." As a national bank subject to the regulation of the Office of the Comptroller of the Currency (the "Comptroller"), the Bank is subject to legal limitations on the source and amount of dividends it is permitted to pay to the Company. The approval of the Comptroller is required for any dividend by a national bank if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits, as defined by the Comptroller, for that year, combined with its retained net profits for the preceding two years. The Bank had a net loss (as defined by the Comptroller) of approximately $1.49 million for 1993 and 1994, combined. Until the effects of that loss are overcome, the Bank will be precluded from paying dividends to the Company without the Comptroller's approval. The payment of dividends by the Bank may also be affected by other factors, such as requirements for the maintenance of adequate capital. In addition, the Comptroller and the Federal Deposit Insurance Corporation (the "FDIC") are authorized to determine under certain circumstances relating to the financial condition of a national bank whether the payment of dividends would be an unsafe or unsound banking practice and to prohibit payment thereof. Finally, under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), an insured depository institution is prohibited from making any capital distribution to its owner, including any dividend, if, after making such distribution, the depository institution fails to meet the required minimum level for any relevant capital measure, including the risk-based capital adequacy and leverage standards discussed under "Capital" below. The Company and the Federal Reserve Bank of San Francisco ("Reserve Bank") entered into an agreement on November 20, 1992, pursuant to which the Company must obtain the approval of the Reserve Bank prior to, among other actions, the declaration of any cash dividends. Capital The Federal Reserve Board (the "Reserve Board") and the Comptroller have adopted risk-based capital adequacy guidelines for bank holding companies and banks under their supervision. Under the Comptroller's guidelines, a bank is "well capitalized" (the highest rating) if its so called "Tier 1 capital" and "total capital" as a percentage of risk- weighted assets and certain off-balance sheet instruments are at least 6% and 10%, respectively. Under the Reserve Board guidelines, the Tier 1 capital and total capital of all bank holding companies must be at least 4% and 8%, respectively. The Reserve Board and the Comptroller have also imposed a leverage standard to supplement their risk-based ratios. This leverage standard focuses on a banking institution's ratio of Tier 1 capital to average total assets adjusted for goodwill and certain other items. Under these guidelines, banking institutions that meet certain criteria, including excellent asset quality, high liquidity, low interest rate exposure, and good earnings, and have received the highest regulatory rating must maintain a ratio of Tier 1 capital to total assets of at least 3%. Institutions not meeting these criteria, as well as institutions with supervisory, financial, or operational weaknesses, along with those experiencing or anticipating significant growth, are expected to maintain a Tier 1 capital to total assets ratio equal to at least 4% to 5%. As reflected in the following table, the risk-based capital ratios and leverage ratios of the Company and the Bank, as of June 30, 1995, exceeded the fully phased-in risk-based capital adequacy guidelines and the leverage standard. Capital Components and Ratios (Dollars in Thousands) June 30, 1995 Company Bank Capital Components: Tier 1 capital $ 11,414 $ 12,115 Total capital 12,890 13,547 Risk-weighted assets and off-balance sheet instruments 117,067 106,230 Regulatory Capital Tier 1 capital risk-based: Actual 9.75% 11.40% Required 4.00 6.00 Excess 5.75% 5.40% Total risk-based: Actual 11.01% 12.67% Required 8.00 10.00 Excess 3.01% 2.67% Leverage: Actual 7.15% 8.18% Required 5.00 5.00 Excess 2.15% 3.18% FDICIA requires each federal banking agency, including the Reserve Board, to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk, and the risk of non-traditional activities, and reflect the actual performance and expected risk of loss on multifamily mortgages. The Reserve Board, the FDIC, and the Comptroller have issued proposed rules whereby exposures to interest rate risk would be measured as the effect that a specified change in market interest rates would have on the net economic value of a bank. This economic perspective considers the effect that changing market interest rates may have on the value of a bank's assets, liabilities, and off-balance sheet positions. Institutions with interest rate risk exposure in excess of a threshold level would be required under the proposed rules to hold additional capital proportional to that risk. The Reserve Board, the FDIC, the Comptroller, and the Office of Thrift Supervision have issued a final rule amending the risk-based capital guidelines to take account of concentration of credit risk and the risk of non-traditional activities. The final rule amends each agency's risk-based capital standards by explicitly identifying concentration of credit risk and the risk arising from non-traditional activities, as well as an institution's ability to manage those risks, as important factors to be taken into account by the agency in assessing an institution's overall capital adequacy. The final rule became effective on January 17, 1995. The final rule has not materially impacted on the Company's capital requirements, but there can be no assurance that the adoption of other proposals implementing FDICIA will not have an adverse impact on the Company's capital requirements. Bank regulators and legislators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. However, management is unable to predict whether and when higher capital requirements would be imposed and, if imposed, at what levels and on what schedule. Dilution Due to the Private Placement, Shareholders have suffered a dilution in their voting rights and in their percentage interest in any future net earnings of the Company. In addition, Shareholders who do not exercise their Basic Subscription Rights in full will suffer an additional dilution in their voting rights and in their percentage interest in any future net earnings of the Company. All Shareholders have suffered a reduction in the per share book value of the shares of Common Stock currently held by them as a result of the sale of the 510,121 shares to WHR at less than book value in the Private Placement and will suffer an additional reduction as a result of the sale of shares to subscribing Rights Holders at less than book value in the Subscription Offering and the sale of additional shares to WHR at less than book value as discussed below under "Interests of WHR" and "THE SUBSCRIPTION OFFERING - Private Placement." The following tables show the detail of such dilution (assuming, respectively, all Subscription Rights are exercised and half of the Subscription Rights are exercised): Number of Shares Shareholders' Per Share Fully Subscribed Outstanding Equity Book Value June 30, 1995 amounts 2,048,485 $11,414,555 $5.57 (includes initial issuance to WHR at $4.34 per share) Proforma Proforma Shareholders' Per Share Equity Book Value Rights offering @ $4.34 per share 769,582 3,339,986 Additional issuance to WHR @ $4.34 per share 255,193 1,107,538 Less estimated costs and underwriting commissions and fees (527,000) Totals 3,073,260 $15,335,079 $4.99 Number of Shares Shareholders' Per Share Half subscribed Outstanding Equity Book Value June 30, 1995 amounts 2,048,485 $11,414,555 $5.57 Proforma Proforma Shareholders' Per Share Equity Book Value Rights offering @ $4.34 per share 384,791 1,669,993 Additional issuance to WHR @ $4.34 per share 127,596 553,767 Less estimated costs and underwriting commissions and fees (443,500) Totals 2,560,872 $13,194,815 $5.15 No Minimum Size of Offering No minimum amount of proceeds is required for the Company to consummate the Subscription Offering. As of July 21, 1995, the date on which the Subscription Offering was previously scheduled to expire, 23,279 Subscription Rights, representing 23,279 shares of Common Stock, had been exercised. No assurance can be given regarding the amount of proceeds that the Company will receive from the Subscription Offering. See "THE SUBSCRIPTION OFFERING." The Company does not know if Holders will exercise their Subscription Rights. The Company does not have a firm commitment from any person to purchase any shares of Common Stock that remain unsold after the termination of the Subscription Offering. However, the Underwriter (as defined herein) has agreed, on a best-efforts basis, to solicit the purchase by third parties of any unsubscribed shares of Common Stock at a purchase price equal to the Subscription Price ($4.34 per share). The Underwriter has not agreed to purchase on behalf of third parties any specific amount of unsubscribed shares, nor can there be any assurance given that the Underwriter will be able to solicit the purchase by third parties of any unsubscribed shares. See "THE UNDERWRITING AGREEMENT." Market Considerations It is possible that although a Rights Holder may subscribe for shares at a time when the Subscription Price is less than the prevailing market price, the market price of the Common Stock may decline during the subscription period after such Rights Holder exercises its Subscription Rights. The election of a Rights Holder to exercise Subscription Rights in the Subscription Offering is irrevocable. In addition, there can be no assurance that, following the Subscription Offering, a subscribing Rights Holder will be able to sell shares purchased in the Subscription Offering at a price equal to or greater than the Subscription Price. Moreover, until stock certificates are delivered, subscribing Rights Holders may not be able to sell the shares of Common Stock which they have purchased in the Subscription Offering. No interest will be paid to Rights Holders on funds delivered to the Subscription Agent pursuant to the exercise of Subscription Rights. The Company has been informed by the National Association of Securities Dealers, Inc. ("NASD") that the Basic Subscription Rights will not trade on a "when issued" basis (i.e., traded securities having no settlement date at the time the trade is executed with delivery at a future date to be determined by the Uniform Practice Committee of the NASD after the date of the issuance or distribution of the traded securities) but will trade "regular way" (i.e., prior to June 7, 1995, traded securities to be delivered on the fifth business day following the date of the transaction and, on or after June 7, 1995, traded securities to be delivered on the third business day following the date of the transaction) until the Expiration Date. Litigation In January 1993, the Bank was named as a defendant in an adversary proceeding in Bankruptcy Court filed by Pioneer Liquidating Corporation ("PLC"), successor to six bankrupt Pioneer Mortgage Company entities (collectively, "Pioneer"). Investors in Pioneer had previously filed suit against the Bank, which litigation was settled in 1992. The PLC case has been transferred to United States District Court. The PLC complaint, which does not specify the amount of damages, alleges that the Bank and five other banks received preferential payments and voidable transfers from Pioneer prior to the filing of the Chapter 11 petition in January 1991. The attorneys for PLC have alleged recoverable transfers from the Bank in excess of $14 million but have stated informally that they are seeking recovery of approximately $1.75 million. Of the $1.75 million, the sum of $250,000 would be in cash with the balance in the form of charged-off Bank loans. PLC and the Bank have been engaged in ongoing settlement negotiations, however, as yet no resolution has been reached. As of June 30, 1995, the Bank has set aside a provision of $250,000 for resolution of this litigation. Interests of WHR At September 6, 1995, there were 2,048,485 shares of Common Stock of the Company outstanding and entitled to vote. As of such date, WHR beneficially owned 510,121 shares of Common Stock, representing 24.9% of the outstanding shares of Common Stock. Pursuant to the Stock Purchase Agreement (as defined herein) and in lieu of participating in the Subscription offering, WHR is obligated to purchase an additional 255,193 shares of the Company's Common Stock at $4.34 per share, for an aggregate purchase price of $1,107,538, if the Subscription Offering is fully subscribed, or such lesser amount so that after such purchase WHR will hold anaggregate of 24.9% of the outstanding Common Stock of the Company, taking into account the shares issued in the Subscription Offering. See "THE SUBSCRIPTION OFFERING - Private Placement." There is a pre-existing relationship between the Bank and Danielson Trust Company ("Danielson"), an affiliate of WHR, in which the Bank refers potential trust customers to Danielson for a referral fee. The Company has been informed that Danielson has over $4 billion in trust assets under administration. The referral fee arrangement is conducted on an arm's- length basis and on market terms and conditions. It is not a significant financial transaction for either the Bank or Danielson. The Company is also advised that a corporation controlled by Charles I. Feurzeig, the Chairman of the Company's Board of Directors, is a customer of Danielson, with an account of approximately $800,000 under administration. There are no other existing affiliations, other than those described herein, between WHR and the Company or any of the Company's officers and directors. Special Considerations Affecting the San Diego National Bank Deferred Savings Plan On May 22, 1995, the Company submitted an exemption request with the Department of Labor (the "DOL") with respect to the exercise of Subscription Rights by the San Diego National Bank Deferred Savings Plan (the "Plan"), which request, if approved, will be retroactively effective to the Expiration Date. In the event that the exemption request is not approved by the DOL, any Subscription Rights exercised by the Plan, or Common Stock issued to the Plan pursuant to such exercise, will be invalidated by the Company and the aggregate Subscription Price paid by the Plan to exercise such Subscription Rights will be returned to the Plan, without interest. Amendment of the Subscription Offering The Company believes that the Subscription Offering and the agreement by WHR to invest an additional amount based upon the aggregate subscriptions received in the Subscription Offering present an unusual capital-raising opportunity for the Company. In order to take full advantage of that opportunity, the Company has elected to amend the Subscription Offering by extending the offering to September 21, 1995 (which date may be extended at the Company's option to a date not later than October 12, 1995) and by paying commissions on subscriptions in connection with a best-efforts underwriting agreement. See "THE SUBSCRIPTION OFFERING - Amendments and Waivers; Early Termination" and "THE UNDERWRITING AGREEMENT." Right to Terminate and Amend the Subscription Offering The Company expressly reserves the right, in its sole discretion, at any time prior to delivery of the shares of Common Stock offered in the Subscription Offering, to terminate the Subscription Offering by giving oral or written notice thereof to the Subscription Agent and making a public announcement thereof. If the Subscription Offering is so terminated, all funds received from Rights Holders will be promptly refunded, without interest. The Company also reserves the right to amend the terms and conditions of the Subscription Offering. See "THE SUBSCRIPTION OFFERING - Amendments and Waivers; Early Termination." THE SUBSCRIPTION OFFERING The Company is offering (the "Subscription Offering") up to 769,582 shares of its Common Stock, no par value ("Common Stock"), to holders of record of its Common Stock (the "Shareholders") at the close of business on May 5, 1995 (the "Record Date"), pursuant to transferable subscription rights (the "Basic Subscription Rights" and, together with the Oversubscription Rights, the "Subscription Rights"). The subscription price is $4.34 per share (the "Subscription Price"). Holders of Subscription Rights, including transferees of Shareholders (collectively, the "Rights Holders" and, together with the Shareholders, the "Holders"), will be able to exercise their Subscription Rights until 5:00 p.m., New York time, on September 21, 1995 (such date, as it may be extended by the Company to a date not later than October 12, 1995, being the "Expiration Date"). See "THE SUBSCRIPTION OFFERING - Amendments and Waivers; Early Termination." Subscription Rights not exercised by 5:00 p.m., New York time, on the Expiration Date will be void. After the Expiration Date, Subscription Rights will no longer be exercisable to purchase shares of Common Stock and will have no value. The term "Shareholder" includes financial institutions that are participants in a securities depository, such as The Depository Trust Company, and that held shares of Common Stock on the Record Date in such securities depository. Private Placement On January 31, 1995, two limited partnerships, of which WHR Management Corp. is the general partner (the two limited partnerships and WHR Management Corp. are referred to herein, collectively, as "WHR"), entered into an agreement (the "Stock Purchase Agreement") with the Company whereby WHR agreed to purchase, in compliance with regulatory requirements, shares of the Company's Common Stock in an amount equal to 24.9% of the Company's outstanding Common Stock after such issuance (without taking into consideration shares to be issued in this Subscription Offering). On March 28, 1995, the Company issued to WHR 510,121 shares of Common Stock for an aggregate price of $2,213,925 ($4.34 per share). At that date, the reported closing bid price for the Company's Common Stock on the NASDAQ National Market System (the "NASDAQ/NMS") was $3.25 per share. The book value of the Company's Common Stock on June 30, 1995 was $5.57. Pursuant to the Stock Purchase Agreement, and in lieu of participating in the Subscription Offering, WHR is obligated to purchase an additional 255,193 shares of the Company's Common Stock at $4.34 per share for an aggregate purchase price of $1,107,538, if the Subscription Offering is fully subscribed, or such lesser amount so that after such purchase WHR holds an aggregate of 24.9% of the outstanding Common Stock of the Company, taking into account the shares issued in the Subscription Offering. Purpose of Offering Common Stock qualifies as Tier I capital of the Company for regulatory purposes, and the issuance of additional Common Stock pursuant to the Subscription Offering will enhance the Company's capital structure. See "USE OF PROCEEDS" for a discussion of the Company's intended use of the proceeds from the Subscription Offering. Basic Subscription Rights For each two shares of Common Stock held of record as of the close of business on the Record Date, a Shareholder will receive one Basic Subscription Right. No fractional Basic Subscription Rights will be issued by the Company. The number of Basic Subscription Rights distributed by the Company to each Shareholder will be rounded up to the nearest whole number. Each Rights Holder will have the right to purchase one share of Common Stock for each Basic Subscription Right. Rights Holders are entitled to subscribe for all, or any portion of, the shares of Common Stock underlying their Basic Subscription Rights. Subscription Rights are evidenced by subscription warrants ("Subscription Warrants") which are being distributed to the Company's Shareholders contemporaneously with the delivery of this Prospectus. Oversubscription Rights A Rights Holder who subscribes for the full number of shares of Common Stock underlying the Basic Subscription Rights held by such Rights Holder on the date of exercise (other than in his or her capacity as a participant in the Plan) and evidenced by a Subscription Warrant will have the right to subscribe for additional shares of Common Stock (the "Oversubscription Rights"). Basic Subscription Rights held by the Plan shall not be eligible for Oversubscription Rights due to the prohibited transaction rules of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974. Rights Holders will be entitled to purchase additional shares of Common Stock to the extent available as a result of other Holders electing not to subscribe, or subscribing for fewer shares than those to which they are otherwise entitled, pursuant to their respective Basic Subscription Rights. Subject to the aggregate number of shares of Common Stock offered in this Subscription Offering, there is no limitation on the number of shares of Common Stock for which an eligible Rights Holder may elect to oversubscribe. However, if there are shares available for sale pursuant to the exercise of Oversubscription Rights, and if the number of such shares is not sufficient to satisfy in full all oversubscriptions submitted pursuant to such requests, the available shares of Common Stock will be allocated among the Rights Holders who exercise such Oversubscription Rights pro rata based upon the number of Basic Subscription Rights held by each such Rights Holder on the Expiration Date. If the amount so allocated exceeds the amount subscribed for pursuant to the exercise of a Rights Holder's Oversubscription Rights, the excess will be reallocated among those Rights Holders whose subscriptions are not fully satisfied on the same principle, until all available shares have been allocated or all exercises of Oversubscription Rights have been satisfied. There can be no assurance, however, that any shares of Common Stock will be available to satisfy in whole or in part any Rights Holder's request to subscribe for additional shares in excess of the shares underlying such Rights Holder's Basic Subscription Rights. To exercise the Oversubscription Rights properly, the appropriate section on the Subscription Warrant must be completed, and payment in full of the aggregate Subscription Price for the additional shares of Common Stock must accompany the Subscription Warrant. Payments for oversubscriptions will be deposited upon receipt by the Subscription Agent, and refunds will be made promptly after the Expiration Date, without interest, to the extent oversubscriptions are not honored due to proration or otherwise. Oversubscription Rights are exercisable by all Rights Holders, other than the Plan, including transferees of Shareholders. No Fractional Basic Subscription Rights No fractional Basic Subscription Rights will be issued by the Company. The number of Basic Subscription Rights distributed by the Company to each Shareholder will be rounded up to the nearest whole number. Method of Exercising Subscription Rights Basic Subscription Rights and Oversubscription Rights may be exercised by properly completing, signing, and delivering the Subscription Warrant accompanying this Prospectus, together with payment in full of the aggregate Subscription Price for shares of Common Stock subscribed for pursuant to Basic Subscription Rights and Oversubscription Rights. Subscription Warrants and payments must be received by the Subscription Agent before 5:00 p.m., New York time, on the Expiration Date, at the address provided below under "Subscription Agent." Payment of the aggregate Subscription Price must be made in United States dollars and must be made by bank certified check or cashier's check, payable to the order of the Subscription Agent. ONCE A HOLDER HAS EXERCISED A SUBSCRIPTION RIGHT, THE EXERCISE IS IRREVOCABLE UNLESS, IN THE JUDGMENT OF THE COMPANY, THERE IS A MATERIAL AMENDMENT TO THE SUBSCRIPTION OFFERING AND THE SUBSCRIPTION RIGHT IS EXERCISED BEFORE SUCH AMENDMENT. See "Amendments and Waivers; Early Termination" below. See "Foreign Restrictions and Undeliverable Subscription Warrants" below for a discussion of restrictions on the method of exercising Subscription Rights held by Shareholders whose record addresses are outside of the continental United States or Canada, or are A.P.O. or F.P.O. addresses. The method of delivery of Subscription Warrants and payments of any Subscription Price to the Subscription Agent is at the risk of the Rights Holder. The Company suggests that Express Mail or similar overnight carrier be used to ensure timely delivery. If delivery is made by regular mail service, the use of registered or certified mail, return receipt requested, properly insured, is recommended. COMPLETED SUBSCRIPTION WARRANTS AND PAYMENTS SHOULD BE MAILED OR DELIVERED TO THE SUBSCRIPTION AGENT AND NOT TO THE COMPANY. QUESTIONS GENERALLY REGARDING THE SUBSCRIPTION OFFERING SHOULD BE DIRECTED TO THE INFORMATION AGENT OR THE SUBSCRIPTION AGENT AND QUESTIONS REGARDING THE PURCHASE OR SALE OF SUBSCRIPTION RIGHTS OR UNSUBSCRIBED SHARES OF COMMON STOCK OR REGARDING THE UNDERWRITER SHOULD BE DIRECTED TO THE UNDERWRITER. SEE "SUBSCRIPTION AGENT," "INFORMATION AGENT," AND "UNDERWRITER" BELOW. A Rights Holder who subscribes for fewer than all of the shares represented by such Holder's Subscription Warrants may, under certain circumstances, (i) direct the Subscription Agent to attempt to sell its remaining Basic Subscription Rights, or (ii) receive from the Subscription Agent a new Subscription Warrant representing the unused Basic Subscription Rights. See "Partial Exercise or Sale of Rights" below. A Rights Holder's election to exercise its Oversubscription Rights must be made at the time such Rights Holder exercises fully the Basic Subscription Rights. Late Delivery of Subscription Warrants If, prior to 5:00 p.m., New York time, on the Expiration Date, the Subscription Agent has received full payment as specified above for the total number of shares of Common Stock subscribed for, together with a letter or telegram from a bank or trust company or a member of a national securities exchange in the United States stating the name of the subscriber, the number of Subscription Rights represented by the Subscription Warrant, and the number of shares of Common Stock subscribed for, and guaranteeing that the Subscription Warrant will be delivered to the Subscription Agent within five business days after Subscription Agent's receipt of payment, such subscription will be accepted by the Subscription Agent, subject to the withholding of the stock certificates representing the shares of Common Stock subscribed for pending receipt of the duly executed Subscription Warrant within such five day period. Delivery of Stock Certificates; Refunds Certificates representing shares of Common Stock subscribed for and issued, together with any refund, without interest, of the aggregate Subscription Price for shares of Common Stock subscribed for pursuant to Oversubscription Rights but not issued, will be mailed promptly after the Expiration Date (i.e., withing three business days following the Expiration Date or, where permitted, within three business days following the late delivery of Subscription Warrants). Certificates for shares of Common Stock issued pursuant to the exercise of Subscription Rights will be registered in the name of the Rights Holder exercising such Subscription Rights. The Subscription Agent will place all proceeds of the Subscription Offering into an escrow account until such funds are transferred to the Company or refunded to Rights Holders at the completion or termination of the Subscription Offering. No interest will be paid to Rights Holders on funds delivered to the Subscription Agent pursuant to the exercise of the Subscription Rights. The shares of Common Stock subscribed for pursuant to the Subscription Offering will be issued and sold as of the Expiration Date. Termination Date Unless earlier terminated by the Company, the Subscription Offering will automatically terminate at 5:00 p.m., New York time, on the eighth business day following the Expiration Date. See "Amendments and Waivers; Early Termination" below. Transferability of Subscription Rights Rights Holders may attempt to sell their Basic Subscription Rights through transactions on the NASDAQ/NMS, by the delivery of sale instructions to the Subscription Agent, or otherwise. Basic Subscription Rights traded on the NASDAQ/NMS may be bought or sold through usual investment channels, including banks or brokers. There has been no prior trading in the Basic Subscription Rights, and no assurance can be given that a trading market will develop for the Basic Subscription Rights. DUE TO BURDENSOME SECURITIES AND DEALER REGISTRATION REQUIREMENTS OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, SUBSCRIPTION RIGHTS MAY NOT BE TRANSFERRED TO, OR EXERCISED BY, A RESIDENT OF FLORIDA WHO WAS NOT A SHAREHOLDER OF RECORD OF THE COMPANY'S COMMON STOCK ON THE RECORD DATE (MAY 5, 1995). Basic Subscription Rights may be transferred in whole by endorsing the Subscription Warrant for transfer. Rights Holders who elect to sell their Basic Subscription Rights in part may effect such sales in the manner described in "Partial Exercise or Sale of Rights" below. The right to subscribe for additional shares of Common Stock pursuant to the Oversubscription Rights is transferable with each Basic Subscription Right. All commissions, fees, and other expenses (including brokerage commissions and any transfer taxes) incurred in connection with the purchase or sale of Basic Subscription Rights are for the account of the transferor or the transferee of the Basic Subscription Rights, and none of such commissions, fees, or expenses will be paid by the Company or the Subscription Agent. With respect to underwriting commissions and fees payable to the Underwriter (as defined herein), see "THE UNDERWRITING AGREEMENT" and "PLAN OF DISTRIBUTION" below. The Subscription Agent will attempt to sell Basic Subscription Rights in the open market for the convenience of Rights Holders as soon as practical after receipt by the Subscription Agent of an applicable Subscription Warrant with the instructions for sale properly executed; provided that such Subscription Warrant is received by the Subscription Agent by 11:00 a.m., New York time, on the Expiration Date. A Rights Holder for which the Subscription Agent sells Basic Subscription Rights on any given day will receive for each of its Basic Subscription Rights the net weighted average sales price of all Basic Subscription Rights sold on that day by the Subscription Agent. The net weighted average sales price will be calculated by dividing the total proceeds from all sales realized by the Subscription Agent on the day of sale by the total number of Basic Subscription Rights sold by the Subscription Agent on that day and then subtracting a pro rata portion of any applicable brokerage commissions, taxes, and other expenses. No assurance can be given that the Subscription Agent will be able to sell any Basic Subscription Rights. Foreign Restrictions and Undeliverable Subscription Warrants Because of the short exercise period for the Subscription Rights, Subscription Warrants will not be mailed to Shareholders whose record addresses are outside the continental United States or Canada, or are A.P.O. or F.P.O. addresses. Subscription Warrants will be held by the Subscription Agent for such Shareholders' respective accounts until instructions are received to exercise or transfer the Subscription Rights. If no instructions have been received by 11:00 a.m., New York time, on the Expiration Date, the Basic Subscription Rights of those Shareholders, together with the Basic Subscription Rights of those Shareholders whose addresses are not known by the Company or the Subscription Agent or to whom delivery of a Subscription Warrant could not be made, will be sold, subject to the Subscription Agent's ability to find a purchaser. See "Transferability of Basic Subscription Rights" above for a description of how the Subscription Agent will attempt to sell Basic Subscription Rights. The net proceeds, if any, resulting from all sales of Basic Subscription Rights of Shareholders whose addresses are not known by the Subscription Agent or to whom delivery could not be made will be held in a non-interest bearing account at the Bank. Any amounts remaining unclaimed on the second anniversary of the Expiration Date will be turned over to the Company and, after such date but before any such amounts become subject to the unclaimed property law of any state, any person claiming such proceeds will, as an unsecured general creditor of the Company, be able to look only to the Company for payment thereof. Partial Exercise or Sale of Rights Rights Holders who elect to exercise their Basic Subscription Rights in part or to sell their Basic Subscription Rights in part may do so by delivering to the Subscription Agent at the address set forth under "Subscription Agent" below, a Subscription Warrant that has been properly endorsed for subscription or sale, or for part subscription and part sale, with instructions to issue to the submitting Rights Holder a Subscription Warrant representing Basic Subscription Rights not sold or exercised. The right to subscribe for additional shares of Common Stock pursuant to the Oversubscription Rights is transferable with each Basic Subscription Right. A new Subscription Warrant will be issued to a submitting Rights Holder upon the partial exercise or sale of Basic Subscription Rights only if the Subscription Agent receives a properly endorsed Subscription Warrant not later than 11:00 a.m., New York time, on the Expiration Date. After such time and date, no new Subscription Warrants will be issued. Accordingly, after such time and date a Rights Holder exercising less than all of such Holder's Basic Subscription Rights will lose the power to sell or exercise any remaining Basic Subscription Rights. A new Subscription Warrant will be sent by first class mail to the submitting Rights Holder if the Subscription Agent receives the properly completed Subscription Warrant by 11:00 a.m., New York time, on the fourth business day before the Expiration Date. Unless the submitting Rights Holder makes other arrangements with the Subscription Agent, a new Subscription Warrant issued after 11:00 a.m., New York time, on the fourth business day before the Expiration Date will be held for pick-up by the submitting Rights Holder at the Subscription Agent's New York hand delivery address provided under "Subscription Agent" below. All deliveries of newly issued Subscription Warrants will be at the risk of the submitting Rights Holder. Amendments and Waivers; Early Termination The Company reserves the right to automatically extend the Expiration Date to a date not later than October 12, 1995, and to otherwise amend the terms and conditions of the Subscription Offering, whether the amended terms are less or more favorable to the Holders. If any such amendment to the terms and conditions of the Subscription Offering constitutes, in the judgment of the Company, a material adverse change to Holders, the Company will deliver to Shareholders a new prospectus incorporating such amendment and the Company will set a new expiration date which will be a minimum of ten business days from the date of the amended prospectus and not later than October 12, 1995. Properly completed subscriptions received or in transit prior to such amendment, unless revoked before the new expiration date, will be honored. All questions as to the validity, form, eligibility (including time of receipt and record ownership), and acceptance of any exercise of Subscription Rights shall be determined by the Company, in its sole discretion, and its determination shall be final and binding. The Company reserves the right to reject any exercise if such exercise is not in accordance with the terms of the Subscription Offering or not in proper form or if the acceptance thereof or the issuance of shares of Common Stock pursuant thereto could be deemed unlawful. The Company also reserves the right to waive any deficiency or irregularity with respect to the exercise of any Subscription Warrant. The Company reserves the right, in its sole discretion, at any time prior to delivery of the shares of Common Stock offered hereby, to terminate the Subscription Offering by giving oral or written notice thereof to the Subscription Agent and making a public announcement thereof. If the Subscription Offering is so terminated, all funds received from Holders will be promptly refunded, without interest. Determination of Subscription Price and Fairness Opinion The Subscription Price was determined by the Company in consultation with its financial advisor, Hoefer & Arnett, Incorporated ("Hoefer & Arnett"), and was based upon the price paid by WHR in the Private Placement. In determining the price to be paid by WHR in the Private Placement, and, thus, the Subscription Price, the Company considered, among other things, such factors as the prevailing market price and book value of the Company's Common Stock, the business prospects of the Company, and the general condition of the securities markets at the time of the Private Placement. The Company has received from Hoefer & Arnett an opinion dated May 26, 1995, to the effect that based on, among other things, the trading history of the Common Stock, the publicly available financial information regarding the Company, discussions with management regarding the terms of the Subscription Offering, and a review of the terms and conditions of rights offerings of other publicly traded companies, the consideration to be received pursuant to the Subscription Offering and the Private Placement and the terms and conditions that exist as of the date of the opinion, taken as a whole, are fair from a financial point of view to the shareholders of the Company. The full text of Hoefer & Arnett's opinion is set forth as an Appendix to this Prospectus and should be read in its entirety with respect to the assumptions made and other matters considered and limitations on the review undertaken. The Company has paid Hoefer & Arnett $35,000.00 as financial advisory fees for its services. In addition, Hoefer & Arnett will be indemnified against certain liabilities, including liabilities under the securities laws. Market Conditions It is possible that a Rights Holder may subscribe for shares of Common Stock at a time when the Subscription Price is less than the prevailing market price. The market price of the Common Stock, however, may decline during the subscription period after such Rights Holder exercises its Subscription Rights. The election of a Rights Holder to exercise Subscription Rights in the Subscription Offering is irrevocable unless, in the judgment of the Company, there is a material amendment to the Subscription Offering and the Subscription Rights were exercised before such amendment. See "Amendments and Waivers; Early Termination" above. In addition, there can be no assurance that following the Subscription Offering a subscribing Rights Holder will be able to sell shares purchased in the Subscription Offering at a price equal to or greater than the Subscription Price. Moreover, until certificates are delivered, subscribing Rights Holders may not be able to sell the shares of Common Stock which they have purchased in the Subscription Offering. Certificates representing shares of Common Stock issued in the Subscription Offering will be mailed to subscribing Rights Holders at the addresses appearing on their Subscription Warrant promptly following the Expiration Date (i.e., within three business days following the Expiration Date or, where permitted, within three business days following the late delivery of Subscription Warrants). See "Late Delivery of Subscription Warrants" above. Regulatory Limitation The Company will not be required to issue Subscription Rights or shares of Common Stock pursuant to the Subscription Offering to any Holder to whom such issuance is prohibited by law or regulation or to anyone who would be required to obtain prior clearance or approval from any state or federal bank regulatory authority to own or control such shares if, on the Expiration Date, such clearance or approval has not been obtained. If the Company elects not to issue shares in such a case, such shares will become available to satisfy the exercise of Oversubscription Rights. The Federal Change in Bank Control Act of 1978, as amended (the "Act"), generally prohibits a person or group of persons "acting in concert" from acquiring "control" of a bank holding company unless the Reserve Board has been given 60 days' prior written notice of such proposed acquisition and within that time period the Reserve Board has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued. An acquisition may be made prior to the expiration of the disapproval period if the Reserve Board issues written notice of its intent not to disapprove the action. Under a rebuttable presumption established by the Reserve Board, the acquisition of more than 10% of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act (such as the Common Stock of the Company) would, under the circumstances set forth in the presumption, constitute the acquisition of control. WHR has filed a written notice under the Act with respect to its acquisition of shares in the Company, and the Company has been informed by the Reserve Board that it does not object to the acquisition by WHR of 24.9% of the Company's Common Stock based on the information contained in the notice. In addition, any "company" would be required to obtain the approval of the Reserve Board under the Bank Holding Company Act of 1956, as amended (the "BHCA") before acquiring 25% (5% in the case of an acquiror that is a bank holding company) or more of the outstanding Common Stock of, or such lesser number of shares as constitute control over, the Company. No Board or Financial Advisor Recommendation An investment in the Common Stock must be made pursuant to each investor's evaluation of its, his, or her best interests. ACCORDINGLY, NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR ITS FINANCIAL ADVISOR MAKES ANY RECOMMENDATION TO THE RIGHTS HOLDERS REGARDING WHETHER THEY SHOULD EXERCISE THEIR SUBSCRIPTION RIGHTS. No Firm Commitment to Purchase Unsubscribed Shares The Company does not have a firm commitment from any person to purchase any shares of Common Stock which remain unsubscribed after the Expiration Date. However, the Underwriter has agreed, on a best-efforts basis, to solicit the purchase by third parties of any unsubscribed shares of Common Stock at a purchase price equal to the Subscription Price ($4.34 per share). The Underwriter has not agreed to purchase on behalf of third parties any specific amount of unsubscribed shares, nor can there be any assurance given that the Underwriter will be able to solicit the purchase by third parties of any unsubscribed shares. See "THE UNDERWRITING AGREEMENT." WHR does not have the right to participate in the Subscription Offering. See "RISK FACTORS - Interests of WHR" and "Private Placement" above. Subscription Agent American Stock Transfer & Trust Company will act as the Company's agent to accept exercises of Subscription Rights (the "Subscription Agent"). All communications to the Subscription Agent, including the delivery of Subscription Warrants and payment of the aggregate Subscription Price, should be addressed as follows: American Stock Transfer & Trust Company 6201 15th Avenue, Floor 3L Brooklyn, New York 11219 Attn: Cynthia Trotman Information Agent Western Financial Corporation will serve as Information Agent for the Subscription Offering. Any questions or requests for assistance concerning the method of subscribing for shares of Common Stock or for additional copies of this Prospectus or Subscription Warrants can be directed to the Information Agent as follows: Western Financial Corporation 600 "B" Street, Suite 1904 San Diego, California 92101 Attn: Howard B. Levenson Underwriter Subject to the approval of the NASD, Torrey Pines Securities, Inc. will serve as a best-efforts underwriter (the "Underwriter") of the Subscription Offering. See "THE UNDERWRITING AGREEMENT." Any questions concerning the purchase or sale of Subscription Rights or unsubscribed shares of Common Stock or concerning the Underwriter should be directed to the Underwriter as follows: Torrey Pines Securities, Inc. 140 Marine Drive, Suite 110 Solana Beach, California 92075 Attn: Jack C. Smith, President THE UNDERWRITING AGREEMENT On September 5, 1995, the Company and the Underwriter entered into an agreement (the "Underwriting Agreement"), pursuant to which the Underwriter, on a best-efforts basis, will: (i) prior to the Expiration Date, solicit the exercise by third parties of Subscription Rights; and (ii) prior to the Termination Date, solicit the purchase by third parties of any unsubscribed shares of Common Stock offered in the Subscription Offering at a purchase price equal to the Subscription Price ($4.34 per share) (the "Standby Purchase Commitment"). The Underwriter has not agreed to purchase on behalf of third parties any specific amount of unsubscribed shares, nor can there be any assurance given that the Underwriter will be able to solicit the purchase by third parties of any unsubscribed shares. The terms of the Underwriting Agreement, which terms are more fully described below, are subject to the approval of the NASD. Underwriter's Compensation Commissions Payable The Underwriting Agreement establishes a two-tier commission structure (collectively, the "Underwriting Commissions"). First, the Underwriter will be entitled to a commission equal to 5% of: (a) the aggregate Subscription Price attributable to Subscription Rights validly exercised through the Underwriter, or any Participating Agent (as defined below) engaged by the Underwriter, excluding Subscription Rights exercised prior to July 21, 1995 (the date on which the Subscription Offering was previously scheduled to expire) or exercised by the Plan or any officer or director of the Company (collectively, the "Excluded Subscriptions"); and (b) any unsubscribed shares of Common Stock purchased by the Underwriter prior to the Termination Date pursuant to the Standby Purchase Commitment. See "Participating Agents" below. Second, the Underwriter will be entitled to a commission equal to 2% of the aggregate purchase price attributable to any additional shares of Common Stock purchased by WHR after the Termination Date pursuant to the Stock Purchase Agreement. See "THE SUBSCRIPTION OFFERING - Private Placement." Fee Payable In addition to any commissions payable, the Company has also agreed to pay the Underwriter a nonrefundable, nonaccountable expense allowance equal to a maximum amount of $10,000.00 (the "Expense Fee"). Fifty percent (50%) of the Expense Fee (or $5,000.00) was paid by the Company to the Underwriter on September _, 1995, the effective date of the Underwriting Agreement. The remaining 50% of the Expense Fee (or $5,000.00) is payable upon the Termination Date of the Subscription Offering, subject to the valid exercise of at least 100,000 Subscription Rights (exclusive of Excluded Subscriptions). Underwriter Warrants Subject to the valid exercise of at least 100,000 Subscription Rights (exclusive of Excluded Subscription), the Company has also agreed to sell to the Underwriter on the Termination Date, at an aggregate price of $10.00, stock purchase warrants (the "Underwriter Warrants") evidencing the right of the Underwriter to purchase, within the two-year period measured from the Termination Date, the number of shares of Common Stock equal to 0.05 multiplied by the difference between (x) the number of the shares subscribed for in the Subscription Offering less (y) the number of shares subscribed for pursuant to the Excluded Subscriptions. The purchase price of the shares of Common Stock evidenced by the Underwriter Warrants is equal to the Subscription Price ($4.34 per share). The Underwriter Warrants are transferable in certain limited circumstances. Additionally, during the two-year period in which the Underwriter Warrants are exercisable, any holder of more than 50% of the Underwriter Warrants and the shares of Common Stock evidenced thereby has the right, subject to certain restrictions, to: (i) make a one-time demand that the shares of Common Stock evidenced by the Underwriter Warrants be registered with the Commission at the Company's expense; and (ii) request piggyback registration of such shares at the Company's expense in connection with a public offering by the Company. Participating Agents Subject to the prior approval of the Company and, if applicable, the NASD, the Underwriter may engage one or more broker-dealer firms (each, a "Participating Agent") to: (i) prior to the Expiration Date, solicit the exercise by third parties of Subscription Rights; or (ii) prior to the Termination Date, solicit the purchase by third parties of any unsubscribed shares of Common Stock offered in the Subscription Offering at a purchase price equal to the Subscription Price ($4.34 per share). Each Participating Agent exclusively will deal with, and exclusively will be employed by, the Underwriter. The Underwriter will be credited for any Subscription Rights exercised through any Participating Agent. Only the Underwriter is eligible to purchase on behalf of third parties unsubscribed shares of Common Stock from the Company; however, the number of unsubscribed shares so purchased by the Underwriter may reflect third party commitments to purchase such unsubscribed shares obtained by a Participating Agent. No commissions, fees, or expenses will be paid by the Company to any Participating Agent. Instead, the Participating Agents will be compensated for their services directly by the Underwriter, which will reallocate to the Participating Agents a maximum of 80% of the Underwriting Commissions payable to the Underwriter based upon: (i) the aggregate Subscription Price attributable to Subscription Rights validly exercised through the Participating Agents, exclusive of Excluded Subscriptions; or (ii) the aggregate purchase price attributable to any unsubscribed shares of Common Stock purchased by the Underwriter on behalf of third parties pursuant to the Standby Purchase Commitment, where such unsubscribed shares are purchased on behalf of customers solicited by the Participating Agents. To be eligible to participate in the Subscription Offering, each Participating Agent must execute an agreement in the form approved by the Underwriter, the Company, and the NASD (the "Participating Agent Agreement") evidencing, among other things, such Participating Agent's agreement to adopt and become bound by the terms of the Underwriting Agreement. No Participating Agent will be eligible to receive any compensation or reimbursement in connection with its participation in the Subscription Offering until a duly executed Participating Agent Agreement has been delivered to, and accepted by, the Underwriter. Indemnification of Underwriter and Participating Agents The Underwriter and each Participating Agent, and any person who controls the Underwriter or any member of the underwriting group within the meaning of the Securities Act, will be indemnified by the Company against certain liabilities arising under Federal or State securities laws and reimbursed for any legal or other expenses reasonably incurred by the Underwriter or any Participating Agent in connection with the investigation or the defense of such liabilities. THE COMPANY The Company is a bank holding company incorporated under the laws of the State of California and is registered under the BHCA. The Company's principal assets are the capital stock of the Bank and its joint venture interest in the office building which houses the Company and the Bank (the "Bank Building"). As of June 30, 1995, the Company had consolidated assets of approximately $156 million, consolidated liabilities of approximately $145 million (which includes total deposits through the Bank of approximately $125 million), and shareholders' equity of approximately $11 million. The Company, through the Bank, engages in a general commercial banking business in the metropolitan San Diego area. The Bank was granted its Charter by the Comptroller on November 12, 1981, and commenced operations as a national bank on the same date. The Bank had assets of approximately $145 million as of June 30, 1995. The Bank focuses primarily upon wholesale commercial banking operations, emphasizing the needs of small and medium size business firms and corporations and the personal banking needs of business executives and professional persons located in the Bank's immediate service area. The Company is a joint venture partner in the San Diego National Bank Building Joint Venture (the "Joint Venture"), a partnership formed for the purpose of constructing and developing the Bank Building. The Joint Venture is 62% owned by the Company and the Company is the general partner. In addition, the Company owns SDNB Mortgage Bankers, a California corporation, which is currently inactive. USE OF PROCEEDS The net proceeds from the sale of the Common Stock in the Subscription Offering will be used for general corporate purposes, which may include investments in or extensions of credit to the Company's subsidiaries, reduction of existing debt, or financing possible future acquisitions of other banking institutions or related businesses. At the present time, the Company does not have any specific plans, agreements, or understandings, written or oral, pertaining to the proposed acquisition of any banking institution or related business. The Company has utilized $250,000 of the proceeds from the Private Placement to make a loan to the Joint Venture, which in turn will use the funds to make a partial payment on a note (the "PV Note") owed to Pacific View Construction Co., Inc. ("Pacific View"), which is secured by a second trust deed (the "Second Trust Deed") on the Bank Building. Pacific View is a corporation controlled by Charles I. Feurzeig, Chairman of the Company's Board of Directors. The PV Note and Second Trust Deed have been assigned to River Forest Bank as collateral for other loans made by that bank to Pacific View and other entities controlled by Mr. Feurzeig. Murray L. Galinson, the Company's President and Chief Executive Officer, and his wife own less than 2% of the outstanding shares of the holding company of River Forest Bank. The family of Mr. Galinson's wife owns a controlling interest in such holding company. The Joint Venture owes Pacific View $1.9 million on the PV Note. The PV Note originally was scheduled to mature on January 4, 1995, at an interest rate of "prime" (8.5% at January 31, 1995) plus one and one-half percent. The PV Note has been modified to fix the interest rate at 10% per annum and extend the due date to April 1, 1997, and to provide for a further mandatory payment of principal in the event the Company realizes an aggregate of $4.447 million of gross proceeds from the Subscription Offering and the subsequent additional investment by WHR. In such event, the Company shall purchase from the Bank and lend to the Joint Venture, which shall then assign and transfer to Pacific View, without recourse or reserve of any type, certain notes evidencing loans in the aggregate stated principal amount of approximately $1.1 million and the amount of the PV Note shall be correspondingly reduced. In addition, if the Company realizes less than the $4.447 million of gross proceeds from the Subscription Offering and the subsequent additional investment by WHR, but is still willing and able to purchase such notes from the Bank and lend them to the Joint Venture, the Joint Venture shall have the option to prepay the PV Note in the amount of the outstanding principal balance of the notes purchased from the Bank. CAPITALIZATION The following tables set forth the consolidated capitalization of the Company as of June 30, 1995, and as adjusted to give effect to the issuance of the Common Stock in the Private Placement, the Subscription Offering, and the second issuance to WHR (assuming, respectively, all Subscription Rights are exercised and half of the Subscription Rights are exercised). The tables should be read in conjunction with the detailed information and consolidated financial statements and related notes incorporated by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." As of June 30, 1995 As Fully Subscribed Actual Adjusted(1) (Dollars in Thousands) Liabilities: Deposit accounts $ 125,298 $ 125,298 Securities sold under agreement to repurchase 6,586 6,586 Accrued interest payable and other liabilities 800 800 Notes payable 12,198 12,198 Total liabilities 144,882 144,882 Shareholders' Equity: Common stock, no par value; authorized 15,000,000 shares, issued and outstanding 2,048,485 shares (as adjusted: 3,073,260) $ 16,648 $ 20,569 Accumulated deficit (5,132) (5,132) Net unrealized holding losses in (102) (102) available-for-sale securities Total shareholders' equity 11,414 15,335 Total capitalization $ 156,296 $ 160,217 (1) Adjusted to reflect the issuance of 1,024,775 shares of Common Stock offered by the Company assuming: (a) exercise of all Subscription Rights; (b) an issue price of $4.34 per share in the Subscription Offering; (c) the purchase of 255,193 shares of Common Stock by WHR at $4.34 per share subsequent to the Subscription Offering; and (d) aggregate estimated selling costs attributed to the Subscription Offering and the second WHR issuance of $527,000, assuming all Subscription Rights are exercised through the Underwriter. As of June 30, 1995 As Half subscribed Actual Adjusted(1) (Dollars in Thousands) Liabilities: Deposit accounts $ 125,298 $ 125,298 Securities sold under agreement to repurchase 6,586 6,586 Accrued interest payable and other liabilities 800 800 Notes payable 12,198 12,198 Total liabilities 144,882 144,882 Shareholders' Equity: Common stock, no par value; authorized 15,000,000 shares, issued and outstanding 2,048,485 shares (as adjusted: 3,073,260) $ 16,648 $ 18,428 Accumulated deficit (5,132) (5,132) Net unrealized holding losses in (102) (102) available-for-sale securities Total shareholders' equity 11,414 13,194 Total capitalization $ 156,296 $ 158,076 (1) Adjusted to reflect the issuance of 512,387 of Common Stock offered by the Company assuming: (a) exercise of half of the Subscription Rights; (b) an issue price of $4.34 per share in the Subscription Offering; (c) the purchase of 127,596 shares of Common Stock by WHR at $4.34 per share subsequent to the Subscription Offering; and (de) aggregate estimated selling costs attributed to the Subscription Offering and the second WHR issuance of $433,500, assuming half of the Subscription Rights are exercised through the Underwriter. MARKET PRICE AND DIVIDENDS ON THE COMMON STOCK The Common Stock is traded in the over-the-counter market on the NASDAQ/NMS under the symbol "SDNB." The following table sets forth the high and low sales prices of the Common Stock as quoted on the NASDAQ/NMS and the cash dividends declared per share of the Common Stock for the periods indicated. Price Range Dividends High Low Per Share 1992 First Quarter $6.50 $4.75 --- Second Quarter $4.75 $4.75 --- Third Quarter $4.75 $2.75 --- Fourth Quarter $4.50 $3.25 --- 1993 First Quarter $4.00 $3.50 --- Second Quarter $4.38 $3.50 --- Third Quarter $4.00 $2.50 --- Fourth Quarter $3.38 $2.50 --- 1994 First Quarter $3.25 $2.50 --- Second Quarter $3.25 $2.50 --- Third Quarter $4.75 $2.50 --- Fourth Quarter $4.75 $3.00 --- 1995 First Quarter $4.25 $3.25 --- Second Quarter $4.25 $3.625 --- Third Quarter (through September 5, 1995) $4.25 $3.50 --- On July 12, 1994, the last trading day before the Company's public announcement that it was considering making a Subscription Offering, the reported closing bid price of the Company's Common Stock as quoted on the NASDAQ/NMS was $2.50. On September 5, 1995, the last trading day before the filing of the Registration Statement with the Commission, the last sale price of the Common Stock as quoted on the NASDAQ/NMS was $4.25. No dividends were paid to the Company by the Bank during 1994, nor for the two preceding fiscal years, and no assurances can be given with respect to the amount and timing of future dividends. For a discussion of the Company's inability to pay dividends due to certain regulatory restrictions, see "RISK FACTORS - Dividend Limitations." Due to the Bank's financial condition and regulatory restrictions, management does not anticipate the payment of dividends to holders of Common Stock in the foreseeable future. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS Federal Income Tax Consequences The following discussion sets forth the material United States federal income tax consequences associated with the receipt, ownership, and exercise of Subscription Rights. For United States federal income tax purposes, receipt of the Subscription Rights pursuant to the Subscription Offering should be treated as a nontaxable dividend distribution. A Shareholder will have a zero basis in the Subscription Rights received in the Subscription Offering, unless: (i) either the Shareholder elects under Section 307 of the Internal Revenue Code of 1986, as amended, to allocate a portion of his basis in his existing shares of Common Stock to the Subscription Rights (based on their relative fair market values on the date of distribution) or the fair market value of the Subscription Rights at the time of the distribution equals or exceeds 15% of the fair market value of the Common Stock at that time, in which case the allocation of basis (based upon relative fair market values) is required; and (ii) the Shareholder sells or exercises such Subscription Rights. Upon exercise of a Subscription Right, a Shareholder will not recognize gain or loss. The basis of each share of Common Stock acquired upon exercise of a Subscription Right will equal the sum of the Subscription Price and the basis, if any, in the Subscription Rights exercised. The holding period for such Common Stock will begin on the date the Subscription Rights are exercised. No loss will be recognized by a Shareholder who receives Subscription Rights in the Subscription Offering and allows those Subscription Rights to lapse. Gain or loss will be recognized by a Shareholder who sells or exchanges a Basic Subscription Right received in the Subscription Offering. Such gain or loss will be measured by the difference between the selling price and the basis, if any, of the Basic Subscription Right. It will be a capital gain or loss if the Basic Subscription Right is a capital asset in the hands of the Shareholder. The holding period of the Basic Subscription Rights in such circumstances will include the period for which the Common Stock with respect to which the Basic Subscription Rights were distributed has been held. THE ACTUAL TAX CONSEQUENCES TO SHAREHOLDERS MAY VARY DEPENDING UPON THEIR OWN PARTICULAR CIRCUMSTANCES. ACCORDINGLY, SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF THE DISTRIBUTION AND EXERCISE OF THE SUBSCRIPTION RIGHTS. DESCRIPTION OF CAPITAL STOCK AND RIGHTS OF SHAREHOLDERS The authorized capital stock of the Company consists of 15,000,000 shares of Common Stock, no par value. As of September 6, 1995, there were issued and outstanding 2,048,485 shares of Common Stock. The following description of the Company's Common Stock and summary of the material rights of the Company's shareholders does not purport to be complete and is subject in all respects to the applicable provisions of the General Corporation Law of the State of California and the Company's Restated Articles of Incorporation. Common Stock Holders of Common Stock are entitled to: (i) receive ratably such dividends, if any, as the Board of Directors may in its discretion declare out of legally available funds; (ii) cast one vote for each share held of record on all matters submitted to a vote of shareholders; and (iii) receive ratably, in the event of liquidation, dissolution, or winding up of the Company, all assets remaining available for distribution to shareholders after payment of creditors. See "RISK FACTORS - Dividend Limitations." All of the issued and outstanding shares of Common Stock are fully paid and nonassessable and the shares of Common Stock offered hereby will be fully paid and nonassessable upon their due issuance, delivery, and the receipt of payment therefor. The Articles of Incorporation do not provide for any conversion rights, sinking fund provisions, redemption provisions, or restrictions on alienability with respect to the Common Stock. The Transfer Agent and Registrar for the Common Stock of the Company is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. Supermajority Voting Provisions Anti-Takeover Provisions Certain provisions of the Company's Restated Articles of Incorporation may discourage an attempt to acquire control of the Company or the Bank if a majority of the Company's shareholders determines that such attempt is not in their best interest. Specifically, the Company's Restated Articles of Incorporation generally require the affirmative vote of at least 85% of the outstanding shares entitled to vote to approve certain enumerated transactions, including, but not limited to: (i) a merger or consolidation of the Company or the Bank; (ii) any disposition of all, substantially all, or more than 5% of the total consolidated assets of the Company and its subsidiaries; (iii) the issuance of any securities, or of any rights, warrants, or options to acquire any securities, of the Company or the Bank, 80% or more of which are issued to a beneficial owner of 10% or more of the voting power or voting stock of the Company; and (iv) any reclassification of the Company's voting stock, or recapitalization of the Company, or any merger or consolidation of the Company with any of its subsidiaries or any other transaction which has the effect, directly or indirectly, of increasing the proportionate share of the voting stock of the Company or any subsidiary which is directly or indirectly owned by a beneficial owner of 10% or more of the voting power or voting stock of the Company or any affiliate or associate of such beneficial owner. The 85% approval requirement does not apply if the subject transaction is approved by the affirmative vote of at least 66-2/3% of the outstanding shares entitled to vote and certain other conditions are satisfied. Stock Repurchases The Company's Restated Articles of Incorporation generally require the affirmative vote of at least 66-2/3% of the outstanding shares entitled to vote to approve any direct or indirect purchase or other acquisition by the Company of any voting stock from a beneficial owner of 10% or more of the voting power or voting stock of the Company who has beneficially owned such securities for less than two years prior to the date of such purchase. No affirmative vote shall be required, however, with respect to any purchase or other acquisition of securities made as part of a tender offer, exchange offer, or other offer by the Corporation to purchase securities of the same class that is made on the same terms to all holders of such securities and in compliance with the requirements of the Exchange Act. Shareholder Action The Company's Restated Articles of Incorporation provide that no action shall be taken by the shareholders of the Company except in an annual or special meeting of shareholders. Amendments Any amendment, change, or repeal of the Company's Restated Articles of Incorporation which would have the effect of modifying or circumventing the supermajority voting or shareholder action provisions of the Restated Articles of Incorporation requires the affirmative vote of at least 80% of the outstanding shares entitled to vote. Indemnification The Company's Restated Articles of Incorporation limit the liability of directors for monetary damages and provide for the indemnification of agents of the Company for breach of duty to the Company and its shareholders. PLAN OF DISTRIBUTION The Common Stock offered hereby is being offered by the Company directly to Shareholders on the Record Date. The Company has also employed the Underwriter, on a best-efforts basis, to solicit the exercise by third parties of Subscription Rights and the purchase by third parties of unsubscribed shares of Common Stock, and certain underwriting commissions, fees, or discounts will be paid in connection with the Subscription Offering. The Underwriter has not agreed to purchase on behalf of third parties any specific amount of unsubscribed shares, nor can there be any assurance given that the Underwriter will be able to solicit the purchase by third parties of any unsubscribed shares. The Underwriter may engage Participating Agents to assist in its underwriting efforts, however, no commission, fee, or discount will be paid by the Company to any Participating Agent. See "THE UNDERWRITING AGREEMENT." Certain regular employees in the Exchange Department of the Subscription Agent may solicit responses from Holders to the Subscription Offering, but such employees will not receive any commission or compensation for such services other than their normal employment compensation. No directors or employees of the Company or the Subscription Agent will solicit sales of the Common Stock or the Subscription Rights. Shareholders or Rights Holders who desire to purchase shares of Common Stock in the Subscription Offering are urged to complete, date, and sign the Subscription Warrant accompanying this Prospectus and return it to the Subscription Agent on or before the Expiration Date of the Subscription Offering, together with payment in full of the aggregate Subscription Price. Any questions concerning the procedure for subscribing for the purchase of shares of Common Stock should be directed to the Subscription Agent or the Information Agent. EXPERTS The consolidated balance sheets as of December 31, 1994 and 1993 and the consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994, incorporated by reference in this Prospectus, have been incorporated herein in reliance on the report, which includes an explanatory paragraph related to the outcome of litigation, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. OPINIONS Arnold & Porter, Los Angeles, California, special counsel to the Company, has rendered an opinion to the effect that the Subscription Rights and the Common Stock offered hereby, when issued as contemplated in the Prospectus, will be legally issued and the Common Stock, when sold as contemplated in the Prospectus, will be fully paid and nonassessable. Subscription Warrants should be sent or delivered by each Rights Holder or its broker, dealer, commercial bank, or trust company to the Subscription Agent at the address set forth below: The Subscription Agent for the Subscription Offering is: AMERICAN STOCK TRANSFER & TRUST COMPANY American Stock Transfer & Trust Company 6201 15th Avenue, Floor 3L Brooklyn, New York 11219 Attn: Cynthia Trotman Facsimile No.: For Information: (718) 234-5001 (718) 921-8200 (Call Collect) Except as otherwise noted herein, any questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers set forth below. Requests for additional copies of this Prospectus and the related Letters of Transmittal and Instructions Booklet may also be directed to the Information Agent. Any questions concerning the purchase or sale of Subscription Rights or unsubscribed shares of Common Stock or concerning the Underwriter should be directed to the Underwriter at its address and telephone number set forth below. Rights Holders may also contact their brokers, dealers, commercial banks, or trust companies for assistance concerning the Subscription Offering. The Information Agent for the Subscription Offering is: WESTERN FINANCIAL CORPORATION 600 "B" Street, Suite 1904 Banks and Brokers call San Diego, California 92101 (619) 234-0197 Attn: Howard B. Levenson Toll Free 1-800-488-5990 The Underwriter for the Subscription Offering is: TORREY PINES SECURITIES, INC. Torrey Pines Securities, Inc. 140 Marine Drive, Suite 110 Solana Beach, California 92075 Attn: Jack C. Smith, President (619) 259-9921 (Call Collect) APPENDIX [HOEFER & ARNETT LETTERHEAD] May 26, 1995 Board of Directors SDNB Financial Corp. 1420 Kettner Blvd. San Diego, CA 92101 Dear Members of the Board: You have requested our opinion as to the fairness to the shareholders of SDNB Financial Corp. ("SDNB" or the "Company") from a financial point of view, of the terms and conditions of the proposed private placement and rights offering (collectively, the "Offering") of common stock by the Company as stated in the Registration Statement on Form S-3 (the "Registration Statement"), attached hereto as Exhibit A and incorporated herein by this reference. Qualifications of the Appraiser Hoefer & Arnett, Incorporated ("H&A") conducts business in investment banking and securities brokerage specific to independent financial institutions. The analysis of securities and of mergers, acquisitions, tender offers and other corporate transactions for the purpose of (i) providing transactional advice and assistance, (ii) investment research, (iii) capital financing activities, and (iv) rendering opinions concerning fairness, is a normal part of this business. H&A currently conducts dealer markets in the shares of more than 100 independent California financial institutions, but not SDNB. In addition, the principals of H&A have substantially broader experience in investment and commercial banking, some of which may be deemed applicable to this evaluation and opinion. Procedure In connection with our opinion, we have, among other things: (i) reviewed the Registration Statement (Exhibit A) including the terms and conditions of the Offering; (ii) reviewed certain publicly available financial and other data with respect to SDNB, including the financial statements for recent years and interim periods to date and certain other relevant financial and operating data relating to the Company made available to us from published sources and from the internal records of the Company including the 10-Q for the most recent quarter ended March 31, 1995 and asset quality migration analysis dated March 31, 1995; (iii) compared the Company from a financial point of view with certain other companies in the financial services industry which we deemed relevant; (iv) considered the financial terms and conditions, to the extent publicly available, of selected common stock offerings of financial institutions, which we deemed to be comparable, in whole or in part, to the Offering and the Company; (v) reviewed and discussed with representatives of the management of the Company certain information of a business and financial nature regarding the Company, furnished to us by them, including the related assumptions of the Company: (vi) discussed the Registration Statement with the Company's counsel and (vii) performed such other analyses and examinations as we have deemed appropriate. H&A also conducted its own assessment of general economic, market and financial conditions. In connection with our review, we have not independently verified any of the foregoing information, have relied on all such information and assumed that all such information is complete and accurate in all material respects. We have also assumed that there has been no material change in the Company's assets, financial condition, results of operations, business or prospects since the date of the last financial statements made available to us. In addition, we have not made an independent evaluation, appraisal or physical inspection of the assets or individual properties of the Company. Further, our opinion is based on economic, monetary and market conditions existing as of the date hereof. Based upon the foregoing, and in reliance thereon, it is our opinion that, as of the date hereof, the consideration to be received pursuant to the Offering and the terms and conditions that exist as of the date hereof, taken as a whole, are fair from a financial point of view to the shareholders of SDNB Financial Corp. Our opinion should not be construed in any way as a valuation of the Company nor as a recommendation to participate in the Offering. Further any material changes in the terms and conditions of the proposed Offering prior to closing would render this opinion invalid. We hereby consent to the inclusion of this opinion as the Appendix to the Prospectus that is a part of the Registration Statement and to the reference to our firm under the caption "THE SUBSCRIPTION OFFERING -- Determination of Subscription Price and Fairness Opinion" in the Prospectus. Very truly yours, /S/ HOEFER & ARNETT, INCORPORATED HOEFER & ARNETT, INCORPORATED No person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to SDNB FINANCIAL CORP. any person to whom it is unlawful to make such offer in such jurisdiction. Neither the 769,582 Shares delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that the information herein is correct as of any time subsequent to the date hereof or that there has Common Stock been no change in the affairs of (no par value) the Company since such date. __________________ PROSPECTUS __________________ TABLE OF CONTENTS Page Notice Regarding Residents of Florida 2 Available Information 3 Incorporation of Certain Documents by Reference 3 Prospectus Summary 4 Risk Factors 8 The Subscription Offering 12 The Underwriting Agreement 19 The Company 20 Use of Proceeds 20 Capitalization 22 Market Price and Dividends on the Common Stock 23 Certain Federal Income Tax Considerations 23 Description of Capital Stock and Rights of Shareholders 24 Plan of Distribution 25 Experts 26 Opinions 25 Appendix -- Opinion of Hoefer & Arnett, Incorporated. September _, 1995 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution Securities and Exchange Commission registration fee $1,151.72 Fees and expenses of Subscription Agent, Transfer Agent, and Registrar 10,000.00 Printing and engraving expenses 5,000.00* Legal fees and expenses $175,000.00* Accounting fees and expenses 10,000.00* Blue Sky fees and expenses $8,000.00* Fees and expenses of Company's Financial Advisor $35,000.00 Fees and expenses of the Information Agent $10,800.00 Underwriting commissions (if fully subscribed)* $166,999.30 Expense fee* $10,000.00 NASDAQ/NMS Listing Fees $17,500.00* Miscellaneous expenses $77,548.98* Total $527,000.00* ________________ * Estimated Item 15. Indemnification of Directors and Officers The Company has adopted provisions in its Restated Articles of Incorporation which provide for indemnification of its officers and directors in excess of the indemnification expressly permitted by Section 317 of the California General Corporation Law, as amended (the "Code"), subject to applicable limits in the Code with respect to breach of duty to the Company and its shareholders. As authorized by the Code, the Restated Articles of Incorporation limit the liability of directors to the Company for monetary damages. The effect of this provision is to eliminate the rights of the Company and its shareholders (through shareholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent behavior) except in certain limited situations. This provision does not limit or eliminate the rights of the Company or any shareholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. These provisions will not alter the liability of directors under federal securities laws. In addition, the Company has entered into Indemnification Agreements with each director and executive officer which provide that the Company shall indemnify such directors and executive officers to the fullest extent authorized by the Code. The Company and its directors and officers are also insured up to $3 million for liability arising from claims against the Company's directors and officers in their capacities as such. Item 16. Exhibits 3(a)* Restated Articles of Incorporation, as amended (incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 0-11117). 3(b)* Bylaws, as amended through May 18, 1988 (incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 0-11117). 4* Common Stock Specimen Certificate (incorporated by reference from the Company's Registration Statement on Form S-14, filed April 27, 1982, SEC File No. 2-77187). 5* Opinion of Arnold & Porter, dated May 24, 1995. 23(a)* Consent of Coopers & Lybrand L.L.P., dated August 9, 1995. 23(b)* Consent of Arnold & Porter (included as part of Exhibit 5). 23(c)* Consent of Hoefer & Arnett, Incorporated (included as part of Exhibit 99(g)). 24* Power of Attorney (incorporated by reference from the Company's Registration Statement on Form S-3, filed April 3, 1995, SEC File No. 33-58379) 99(a)* Form of Subscription Agent Agreement between the Company and American Stock Transfer & Trust Company. 99(b)* Form of Subscription Warrant. 99(c)* Form of Letter to Securities Dealers, Commercial Banks, Trust Companies, and Other Nominees. 99(d)* Form of Transmittal Letter to Holders of Common Stock whose addresses are within the continental United States or Canada and who do not have A.P.O. or F.P.O. addresses. 99(e)* Instructions Booklet. 99(f)* Form of Letter of Transmittal to Holders of Common Stock whose addresses are outside the continental United States and Canada or who have A.P.O. and F.P.O addresses. 99(g)* Opinion of Hoefer & Arnett, Incorporated (included as a part of the Prospectus filed herewith). 99(h) Form of Notice to Holders of Subscription Rights regarding amendment of the Subscription Offering. 99(i) Form of Notice to Rights Holders Who Have Already Exercised Subscription Rights regarding amendment of the Subscription Offering. 99(j) Rights Agent Agreement between the Company and Torrey Pines Securities, Inc., constituting the Underwriting Agreement. 99(k) Form of Participating Agent Agreement (included as part of Exhibit 99(j)). 99(l) Form of Rights Agent Warrant Purchase Agreement, regarding the terms and form of the Underwriter Warrants (included as part of Exhibit 99(j)). * Previously filed. Item 17. Undertakings A. The undersigned registrant hereby undertakes: (1) 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, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of registattion 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 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 and 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; and (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. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to all 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) 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. B. The Company hereby undertakes that, for purposes of determining any liability under the Securities Act each filing of the Company's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) 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. C. The Company hereby undertakes to supplement the Prospectus, after the Expiration Date, to set forth the results of the Subscription Offering, the transactions by the Underwriter prior to the Expiration Date, the amount of unsubscribed shares of Common Stock to be purchased by the Underwriter, and the terms of any subsequent reoffering thereof. If any public offering by the Underwriter (including the Participating Agents) is to be made on terms differing from those set forth on the cover page of the Prospectus, a post-effective amendment will be filed setting forth the terms of such offering. D. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer, or controlling person of the Company 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 Company 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 Securities Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, California, on September 6, 1995. SDNB Financial Corp. By /s/Murray L.Galinson Murray L. Galinson President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signatures Title Date Chairman of the Board and Director September _, 1995 CHARLES I. FEURZEIG President, Chief Executive /s/Murray L. Galinson Officer, and Director September 6, 1995 MURRAY L. GALINSON Director September _, 1995 MARGARET COSTANZA /s/Karla J. Hertzog* Director September 6, 1995 KARLA J. HERTZOG /s/Robert B. Horsman* Director September 6, 1995 ROBERT B. HORSMAN /s/Mark P. Mandell* Director September 6, 1995 MARK P. MANDELL /s/Patricia L. Roscoe* Director September 6, 1995 PATRICIA L. ROSCOE /s/Julius H. Zolezzi* Director September 6, 1995 JULIUS H. ZOLEZZI Senior Vice President, Secretary, and Chief /s/Howard W. Brotman Financial Officer September 6, 1995 HOWARD W. BROTMAN * By Howard W. Brotman, attorney-in-fact. INDEX OF EXHIBITS 3(a)* Restated Articles of Incorporation, as amended (incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 0-11117). 3(b)* Bylaws (incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 0-11117). 4* Common Stock Specimen Certificate (incorporated by reference from the Company's Registration Statement on Form S-14, filed April 27, 1982, SEC File No. 0-11117). 5* Opinion of Arnold & Porter, dated May 24, 1995. 23(a)* Consent of Coopers & Lybrand L.L.P., dated August 9, 1995. 23(b)* Consent of Arnold & Porter (included as part of Exhibit 5). 23(c)* Consent of Hoefer & Arnett, Incorporated (included as part of Exhibit 99(g)). 24* Power of Attorney (incorporated by reference from the Company's Registration Statement on Form S-3, filed April 3, 1995, SEC File No. 33-58379) 99(a)* Form of Subscription Agent Agreement between the Company and American Stock Transfer & Trust Company. 99(b)* Form of Subscription Warrant. 99(c)* Form of Letter to Securities Dealers, Commercial Banks, Trust Companies, and Other Nominees. 99(d)* Form of Transmittal Letter to Holders of Common Stock whose addresses are within the continental United States or Canada and who do not have A.P.O. or F.P.O. addresses. 99(e)* Instructions Booklet. 99(f)* Form of Letter of Transmittal to Holders of Common Stock whose addresses are outside the continental United States and Canada or who have A.P.O. and F.P.O addresses. 99(g)* Opinion of Hoefer & Arnett, Incorporated. 99(h) Form of Notice to Holders of Subscription Rights regarding amendment of the Subscription Offering. 99(i) Form of Notice to Rights Holders Who Have Already Exercised Subscription Rights regarding amendment of the Subscription Offering. 99(j) Rights Agent Agreement between the Company and Torrey Pines Securities, Inc., constituting the Underwriting Agreement. 99(k) Form of Participating Agent Agreement (included as part of Exhibit 99(j)). 99(l) Form of Rights Agent Warrant Purchase Agreement, regarding the terms and form of the Underwriter Warrants (included as part of Exhibit 99(j)). * Previously filed. EX-99 2 EXHIBIT 99H [SDNB Letterhead] September _, 1995 NOTICE OF AMENDMENT OF SDNB FINANCIAL CORP. SUBSCRIPTION OFFERING To Holders of Subscription Rights: SDNB Financial Corp. (the "Company") has elected to amend the terms of its offering (the "Subscription Offering") of up to 769,582 shares of its Common Stock, no par value per share, to holders of record of the Common Stock on May 5, 1995, to extend the offering and to pay commissions on subscriptions in connection with a best-efforts underwriting agreement. Unless otherwise specified, capitalized terms used but not defined herein shall have the same meaning as set forth in the Company's original Prospectus, dated May 30, 1995, which Prospectus was supplemented on July 6, 1995. The Company believes the Subscription Offering and the agreement by WHR to invest an additional amount based upon the aggregate subscriptions received from the Subscription Offering present an unusual capital- raising opportunity for the Company. In order to take full advantage of that opportunity, the Company has elected to amend the Subscription Offering by extending the offering to September 21, 1995 (which date, as it may be extended by the Company to a date not later than October 12, 1995, is the "New Expiration Date") and by paying commission on subscriptions in connection with a best-efforts underwriting agreement. Enclosed is a new Prospectus, dated September _, 1995, which incorporates the amendments to the Subscription Offering. All other offering materials (including the form of Subscription Warrant) and all other terms of the Subscription Offering (including the ability of a Rights Holder, before the New Expiration Date, to revoke completed subscriptions received or in transit prior to July 21, 1995, the date of the amendment of the Subscription Offering) remain unchanged. Very truly yours, /s/Murray L. Galinson Murray L. Galinson President and Chief Executive Officer EX-99 3 Exhibit 99(i) [SDNB Letterhead] September _, 1995 NOTICE OF AMENDMENT OF SDNB FINANCIAL CORP. SUBSCRIPTION OFFERING To Rights Holders Who Have Already Exercised Subscription Rights: SDNB Financial Corp. (the "Company") has elected to amend the terms of its offering (the "Subscription Offering") of up to 769,582 shares of its Common Stock, no par value per share, to holders of record of the Common Stock on May 5, 1995, to extend the offering and to pay commissions on subscriptions in connection with a best-efforts underwriting agreement. Unless otherwise specified, capitalized terms used but not defined herein shall have the same meaning as set forth in the Company's original Prospectus, dated May 30, 1995. The Company believes that the Subscription Offering and the agreement by WHR to invest an additional amount based upon the aggregate subscriptions received in the Subscription Offering present an unusual capital raising opportunity for the Company. In order to take full advantage of that opportunity, the Company has elected to amend the Subscription Offering by extending the offering to September 21, 1995 (which date, as it may be extended by the Company to a date not later than October 12, 1995, is the "New Expiration Date") and by paying commissions on subscriptions in connection with a best-efforts underwriting agreement. Enclosed is a new Prospectus, dated September _, 1995, which incorporates the amendments to the Subscription Offering. All other offering materials (including the form of Subscription Warrant) and all other terms of the Subscription Offering (including the ability of a Rights Holder, before the New Expiration Date, to revoke completed subscriptions received or in transit prior to July 21, 1995, the date of the amendment of the Subscription Offering) remain unchanged. As a Rights Holder who exercised Subscription Rights on or before July 21, 1995, you have the right to revoke your completed subscriptions or to confirm your intention to exercise such subscriptions. Accordingly, please indicate your decision on the enclosed confirmation form and return the form to the Subscription Agent in the enclosed, postage-paid envelope on or before the New Expiration Date. If the Subscription Agent has not received a completed confirmation form from you by the New Expiration Date, your completed subscriptions will be presumed to be revoked and the Subscription Agent will promptly return your aggregate Subscription Price, without interest. Very truly yours, Murray L. Galinson President and Chief Executive Officer CONFIRMATION OF EXERCISED SUBSCRIPTIONS Name of Rights Holder:__________________________________________ Number of Exercised Subscription Rights:________________________ [ ] I hereby affirmatively confirm my intention to exercise the foregoing Subscription Rights. [ ] I hereby revoke my exercise of the foregoing Subscription Rights. I understand that by revoking my completed subscriptions: (i) such subscriptions will be declared invalid by the Subscription Agent; and (ii) the Subscription Agent will promptly return to me the aggregate Subscription Price paid for such Subscription Rights, without interest. Date:__________ Rights Holder's Signature:________________________ EX-99 4 EXHIBIT 99(J) RIGHTS AGENT AGREEMENT This Rights Agent Agreement (the "Rights Agent Agreement" or "this Agreement") is entered into, on the date last shown below, by and among SDNB FINANCIAL CORP., a California corporation (the "Company"), TORREY PINES SECURITIES, INC., a California corporation (the "Rights Agent"), and such Participating Agents (as defined in Section C of Article II hereof) who expressly adopt this Agreement and agree to be bound hereby. PREFACE SDNB Financial Corp. 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 "BHCA"). The Company is offering (the "Offering") up to 769,582 shares of its Common Stock, no par value (the "Shares"), to holders of record of its Common Stock on May 5, 1995 (the "Record Date"), pursuant to transferrable subscription rights (the "Basic Subscription Rights" and, together with the "Oversubscription Rights", hereinafter referred to as the "Subscription Rights") (the Shares and the Subscription Rights are collectively referred to herein as the "Securities"). The Shares are being offered at a price of $4.34 per share (the "Subscription Price"). Holders of the Subscription Rights, including transferees of shareholders (collectively, the "Rights Holders"), will be able to exercise their Subscription Rights until 5:00 p.m., New York time, on September 21, 1995 (such date as it may be extended by the Company, at its option, to a date not later than October 12, 1995, being the "Expiration Date"). In connection with the Offering, two (2) limited partnerships of which WHR Management Corp. is the general partner (collectively referred to as "WHR") have entered into an agreement with the Company whereby WHR is obligated to purchase an additional 255,193 shares of the Company's common stock at $4.34 per share in the event the Offering is fully subscribed, or such lesser amount, so that after such purchase WHR will hold an aggregate of 24.9% of the outstanding Common Stock of the Company, taking into account the Shares issued in the Subscription Offering and the shares of Common Stock issued immediately thereafter to WHR (the "WHR Share Purchase Commitment"). The Company is making the Offering pursuant to its registration statement on Form S-3, including all amendments and exhibits thereto, filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Act of 1933, as amended (the "Act"). Said registration statement first became effective on May 30, 1995, at which time the Offering commenced. The Company's current prospectus is dated May 5, 1995, and was supplemented on July 6, 1995. The terms used in this Agreement, unless otherwise defined herein or otherwise required by the context within which they are used, shall have same meaning as set forth in such prospectus. In consideration of the representations, warranties, and agreements set forth herein, the parties hereto agree as follows: I A. Representations, Warranties, and Agreements of the Company. In order to induce the Rights Agents to enter into this Agreement, the Company represents and warrants to and agrees for itself with the Rights Agent that: 1. (a) A registration statement on Form S-3 (File No. 33-58379) with respect to the Securities, including the related form of prospectus initially filed on April 3, 1995, and post-effective amendment nos. 1, 2, and 3 thereto, filed on May 25, 1995, July 21, 1995, and August 9, 1995, respectively, have been prepared by the Company in conformity with the requirements of the Act and the applicable rules and regulations promulgated by the Commission thereunder (the "Rules and Regulations") and have been filed with and declared effective by the Commission and post-effective amendment No. 4, filed on September 6 1995, and any other amendments to such registration statement required prior to the date hereof have been filed with the Commission and have been similarly prepared. Copies of the registration statement and each amendment thereto, including the related form of prospectus, have been delivered to the Rights Agent. The Company will provide the Rights Agent copies of any proposed amendments to the registration statement or to any form of prospectus before filing them with the Commission, and the Company will not at any time hereafter file any amendments to the registration statement or to any form of prospectus if the Rights Agent shall provide the Company, within one day after receipt of a copy of such proposed amendment or prospectus, reasonable objections thereto in writing. The registration statement and the prospectus relating to the Offering, in the forms in which they are effective as of the Effective Date (as defined in Article VII) of this Agreement, and as such registration statement and prospectus may be hereafter appropriately amended, are herein respectively referred to as the "Registration Statement" and the "Prospectus." (a) The Company has filed all reports and other documents required to be filed by it with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and each such report or other document contained, at the time it was filed, such information as was required to be included in such report or other document and all such information was correct and complete in all material respects. The Company has made all reports to shareholders required by law to be made by the Company and each such report was correct and complete in all material respects. To the Company's best knowledge, except as disclosed in the Registration Statement, no event has occurred that required an amendment to any report or document referred to in this Subparagraph (b) that has not been filed or distributed as required. 2. The Commission has not issued any order preventing or suspending the use of any prospectus. Each prospectus has complied in all material respects with the requirements of the Act and the Rules and Regulations, and no prospectus has included an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading. When the Registration Statement became effective and at all times thereafter up to and at the Closing Date (as defined in Article VI hereof): (a) the Registration Statement and the Prospectus, and any amendments or supplements thereto, will contain all statements and information that are required to be included therein in accordance with the Act and the Rules and Regulations and will comply in all material respects with the requirements of the Act and the Rules and Regulations; and (b) neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by the Rights Agent specifically for use in the preparation thereof. 3. The Company has been duly incorporated and is now and, at the Closing Date, will be validly existing as a corporation in good standing under the laws of the State of California, with full power and authority (corporate and other) to own, lease, and operate its properties and to conduct its business as described in the Prospectus. The Company is now and, at the Closing Date, will be duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except those jurisdictions where the failure to be qualified would not have a material adverse effect on the business or financial condition of the Company. The Company now holds and, at the Closing Date, will hold all licenses, certificates, covenants, approvals, and permits from state, federal, and other regulatory authorities, or orders of any court, regulatory body, administrative agency, or other governmental body, that are required to be obtained by the Company in connection with, or are necessary for, the conduct of its business, except those permits which, if not held by the Company, would not have a material adverse effect on the Company. The Company has not received any notice of proceedings relating to revocation or modification of any qualification, license, certificate, consent, approval, or order referred to in this Section 3. The Company is not in violation of its Articles of Incorporation or Bylaws or in material default in the performance or observance of any material bond, debenture, note, or other evidence of indebtedness or in any lease, contract, or other agreement or instrument to which the Company is a party or by which it or any of its properties may be bound, nor is it in violation of any statute, law, order, rule, regulation, writ, injunction, or court (domestic or foreign) having jurisdiction over the Company or any of its properties, the result of which default would have a material adverse effect on the Company. 4. This Rights Agent Agreement has been duly authorized, executed, and delivered by the Company and is binding upon the Company in accordance with its terms, except: (a) as the availability of the remedy of specific enforcement, of injunctive relief, or of other equitable relief may be subject to the discretion of the court before which any proceedings therefore may be brought; or (b) as the enforceability of the rights and remedies created hereby are subject to bankruptcy, insolvency, reorganization, moratorium, and similar laws of general application relating to or affecting the rights and remedies of creditors and secured parties. The issuance and delivery of the Securities and the Rights Agent Warrants (as defined in Section B.5 of Article II hereof), the execution, delivery, and performance of this Agreement, and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under: (a) any contract, indenture, mortgage, deed of trust, loan agreement, bond, debenture, note, or other evidence of indebtedness or any lease, contract, or other agreement or instrument to which the Company is a party or by which it or any of its properties may be bound; (b) the Company's Articles of Incorporation or Bylaws; or (c) any statute, law, order, rule, regulation, writ, injunction, or decree of any court (foreign or domestic) or governmental agency or body having jurisdiction over the Company or its properties. No consent, approval, authorization, or order of any court or governmental agency or body is required for the consummation by the Company of the transactions contemplated herein, except as may be required under the Act or under applicable state or other securities laws. 5. Coopers & Lybrand, L.L.P., Certified Public Accountants, who have examined the financial statements incorporated by reference into the Registration Statement and the Prospectus, are independent public accountants within the meaning of the Act and the Rules and Regulations. The financial statements incorporated by reference into the Registration Statement and the Prospectus fairly present the consolidated financial position, results of operations, stockholders' equity, and cash flows of the Company at the respective dates and for the respective periods to which they apply and have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved. The financial statement schedules, if any, incorporated by reference into the Registration Statement and the Prospectus present fairly the information required to be stated therein. 6. The Company has not taken and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in the stabilization or the manipulation of the price of the Securities or of the Common Stock of the Company. B. Representations and Warranties of the Company and the Rights Agent. The Company and the Rights Agent each represents and warrants to the other that, except as set forth in this Rights Agent Agreement, no person is entitled, directly or indirectly, to compensation from it for services as a finder in connection with the Offering. C. Representations, Warranties, and Agreements of the Rights Agent and the Participating Agents. 1. By the Rights Agent. In order to induce the Company to enter into this Agreement, the Rights Agent represents and warrants and agrees for itself with Company that: (a) The Rights Agent has been duly incorporated and is now and, at the Closing Date, will be validly existing as a corporation in good standing under the laws of the State of California, with full power and authority (corporate and other) to own, lease, and operate its properties and to conduct its business as described in this Agreement. The Rights Agent is now and, at the Closing Date, will be duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except those jurisdictions where the failure to be qualified would not have a material adverse effect on the business or financial condition of the Rights Agent. The Rights Agent now holds and, at the Closing Date, will hold all licenses, certificates, covenants, approvals, and permits from state, federal, and other regulatory authorities, or orders of any court, regulatory body, administrative agency, or other governmental body, that are required to be obtained by the Rights Agent in connection with, or are necessary for, the conduct of its business, except those permits which, if not held by the Rights Agent, would not have a material adverse effect on the Rights Agent. The Rights Agent has not received any notice of proceedings relating to revocation or modification of any qualification, license, certificate, consent, approval, or order referred to in this Subparagraph (a). The Rights Agent is not in violation of its Articles of Incorporation or Bylaws or in material default in the performance or observance of any material bond, debenture, note, or other evidence of indebtedness or in any lease, contract, or other agreement or instrument to which the Rights Agent is a party or by which it or any of its properties may be bound, nor is it in violation of any statute, law, order, rule regulation, writ, injunction, or court (domestic or foreign) having jurisdiction over the Rights Agent or any of its properties, the result of which default would have a material adverse effect on the Rights Agent. (b) This Rights Agent Agreement has been duly authorized, executed, and delivered by the Rights Agent and is binding upon the Rights Agent in accordance with its terms except: (i) as the availability of the remedy of specific enforcement, of injunctive relief, or of other equitable relief may be subject to the discretion of the court before which any proceedings therefore may be brought; or (ii) as the enforceability of the rights and remedies created hereby are subject to bankruptcy, insolvency, reorganization, moratorium, and similar laws of general application relating to or affecting the rights and remedies of creditors and secured parties. The Rights Agent's participation in the Offering, its receipt of compensation therefor (including the Rights Agent Warrants) in the manner contemplated in this Agreement, and the execution, delivery, and performance of this Agreement will not result in a breach or violation of any of the terms and provisions of, or constitute a default under: (i) any contract, indenture, mortgage, deed of trust, loan agreement, bond, debenture, note, or other evidence of indebtedness, lease, contract, or other agreement or instrument to which the Rights Agent is a party or by which it or any of its properties may be bound; (ii) the Rights Agent's Articles of Incorporation or Bylaws; or (iii) any statute, law, order, rule, regulation, writ, injunction, or decree of any court (foreign or domestic) or governmental agency or body having jurisdiction over the Rights Agent or its properties. No consent, approval, authorization, or order of any court or governmental agency or body is required for the consummation by the Rights Agent of the transactions contemplated herein, except as may be required under the Act or under applicable state or other securities laws. (c) The information furnished by the Rights Agent or its counsel for inclusion in the Registration Statement and the Prospectus, and in any amendment or supplement thereto, is true and accurate in all material respects and no material information has been omitted therefrom that would be necessary in order to make the statements in the Registration Statement or the Prospectus prepared in reliance on such information, in light of the circumstances under which they were made, not misleading. (d) The Rights Agent has not taken and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in the stabilization or the manipulation of the price of the Securities or of the Common Stock of the Company. (e) The Rights Agent is registered as a broker-dealer in securities with the Commission and with applicable state securities commissions, is in full and current compliance in all material respects with the rules and regulations of the Commission and such state securities commissions, and is a member in good standing of and in full and current compliance in all material respects with the rules of the National Association of Securities Dealers, Inc. (the "NASD"). (f) No proceeding is pending or, to the knowledge of the Rights Agent, threatened against the Rights Agent or any director or officer thereof in any court of competent jurisdiction, or before the Commission, any state securities commission, or the NASD, concerning the Rights Agent's activities as a broker and/or dealer. The Rights Agent has provided the Company with a copy of its most recent report on Form BD, as amended, filed with the Commission, the NASD, and various state securities commissions and represents that such report contains a complete and accurate description of all lawsuits, disciplinary proceedings, injunctive actions, administrative actions, and other matters of a similar nature involving the Rights Agent and its "control affiliates," as that term is defined on Form BD. The Rights Agent will immediately advise the Company by telephone or telegraph (and confirm in writing) of the initiation or threat of initiation of any such actions or proceedings, any requests by such persons for additional information, or of the initiation or threat of any steps or proceedings which would impair or prevent the right to offer any of the Securities proposed to be offered pursuant to this Agreement or the issuance of any "stop orders" or any other prohibition impairing or preventing the Offering. (g) The Rights Agent will solicit the exercise of Subscription Rights and the purchase of unsubscribed Shares only in those states which are identified in Exhibit "A" hereto, which exhibit is attached hereto and by this reference incorporated herein, as those states in which the Shareholders of the Company reside and in which the Offering has either been qualified for sale under, or is exempt from the registration requirements of, the applicable statutes and regulations of such states. Also, the Rights Agent may offer the Securities in any other state if: (i) the transaction is exempt from the registration requirements of the applicable statutes and regulations of that state; (ii) the Company's counsel has been notified in writing of the proposed sale in such other state; and (iii) the Company's counsel consents to the proposed sale in such other state. (h) The Rights Agent will not publish, issue, or circulate or authorize the publication, issuance, or circulation of any circular, notice, or advertisement regarding the Securities which shall not have previously been approved by the Company and its counsel. (i) The Rights Agent shall confirm sales to customers only in those states in which it is licensed to do so as a securities broker or dealer and shall ensure that all Participating Agents (as defined in Section C of Article II hereof) similarly confirm sales to customers only in states in which they are duly licensed to do so. (j) The Rights Agent will instruct each Holder on behalf of whom the Rights Agent solicits the exercise of, or on behalf of whom the Rights Agent exercises, Subscription Rights that payment for the aggregate Subscription Price attributable to any Subscription Rights so solicited or exercised must be made by bank certified check or cashier's check, payable to the order of the Subscription Agent. (k) The Rights Agent will transmit to the Subscription Agent any funds received from a Holder by 12:00 p.m., New York time, on the business day following the date of the Rights Agent's receipt of such funds. (l) If the Offering is terminated, the Rights Agent will be entitled only to be reimbursed for its out-of-pocket expenses. (m) The Rights Agent shall promptly provide the Company with an executed copy of each Participating Agent Agreement (as hereinafter defined), if any. (n) During the duration of the Offering, the Rights Agent will promptly notify the Company of any acquisition by the Rights Agent, any Participating Agent, or any associated or affiliated person of the Rights Agent or any Participating Agent, of any unregistered securities of the Company. Such notification shall set forth complete details of any such acquisition, including, but not limited to, the date of acquisition, the acquisition price, and the amount of unregistered securities so acquired. (o) During the duration of the Offering, the Rights Agent will promptly notify the Company of any contractual or other relationship between any Participating Agent and the Company. (p) The Rights Agent will comply with the provisions of Sections 8, 24, 25, and 36 of Article III of the Rules of Fair Practice of the NASD. (q) The Rights Agent is not directly or indirectly affiliated or associated with any beneficial owner of any unregistered security of the Company acquired within the 12 month period prior to April 3, 1995, the initial filing date of the Registration Statement relating to the Offering. (r) The Rights Agent does not have any direct or indirect affiliation or association with any officer, director, or five percent (5%) or greater shareholder of the Company. (s) Neither the Rights Agent nor any associated person, parent, or affiliate of the Rights Agent has a "Conflict of Interest" with the Company within the meaning of Section 2(g) of Schedule E to the NASD By-Laws. 2. By Each Participating Agent. By agreeing to participate in the Offering, each Participating Agent (as defined in Section C of Article II hereof), if any, solely on behalf of and with respect to itself, represents and warrants and agrees for itself with the Company that: (a) The Participating Agent has not taken and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in the stabilization or the manipulation of the price of the Securities or of the Common Stock of the Company. (b) The Participating Agent is registered as a broker-dealer in securities with the Commission and with applicable state securities commissions, is in full and current compliance in all material respects with the rules and regulations of the Commission and such state securities commissions, and is a member in good standing of and in full and current compliance in all material respects with the rules of the NASD. (c) No proceeding is pending or, to the knowledge of the Participating Agent, threatened against the Participating Agent or any director or officer thereof in any court of competent jurisdiction, or before the Commission, any state securities commission, or the NASD, concerning the Participating Agent's activities as a broker and/or dealer. The Participating Agent has provided the Company with a copy of its most recent report on Form BD, as amended, filed with the Commission, the NASD, and various state securities commissions, and represents that such report contains a complete and accurate description of all lawsuits, disciplinary proceedings, injunctive actions, administrative actions, and other matters of a similar nature involving the Participating Agent and its "control affiliates," as that term is defined on Form BD. The Participating Agent will immediately advise the Company by telephone or telegraph (and confirm in writing) of the initiation or threat of initiation of any such actions or proceedings, any requests by such persons for additional information, or of the initiation or threat of any steps or proceedings which would impair or prevent the right to offer any of the Securities proposed to be offered pursuant to this Agreement or the issuance of any "stop orders" or any other prohibition impairing and preventing the Offering. (d) The Participating Agent will participate in the Offering subject to and in accordance with the terms of this Rights Agent Agreement and the Prospectus, the Act, the Exchange Act, the Rules of Fair Practice of the NASD, and any applicable state securities laws and regulations. (e) The Participating Agent will solicit the exercise of Subscription Rights or the purchase of unsubscribed Shares only in those states which are identified in Exhibit "A" hereto as those states in which the Shareholders of the Company reside and in which the Offering has either been qualified for sale under, or is exempt from the registration requirements of, the applicable statutes and regulations of such states. Also, the Participating Agent may offer the Securities in any other state if: (i) the transaction is exempt from the registration requirements of the applicable statutes and regulations of that state; (ii) the Company's counsel has been notified in writing of the proposed sale in such other state; and (iii) the Company's counsel consents to the proposed sale in such other state. (f) The Participating Agent will not publish, issue, or circulate or authorize the publication, issuance, or circulation of any circular, notice, or advertisement regarding the Securities which shall not have previously been approved by the Company and its counsel. (g) The Participating Agent shall confirm sales to customers only in those states in which it is licensed to do so as a securities broker or dealer and shall ensure that all selected dealers similarly confirm sales to customers only in states in which they are duly licensed to do so. (h) The Participating Agent will instruct each Holder on behalf of whom the Participating Agent solicits the exercise of, or on behalf of whom the Participating Agent exercises, Subscription Rights that payment for the aggregate Subscription Price attributable to any Subscription Rights so solicited or exercised must be made by bank certified check or cashier's check, payable to the order of the Subscription Agent. (i) The Participating Agent will transmit to the Subscription Agent any funds received from a Holder by 12:00 p.m., New York time, on the business day following the date of the Participating Agent's receipt of such funds. (j) If the Offering is terminated, the Participating Agent will be entitled only to be reimbursed for its out-of-pocket expenses. (k) During the duration of the Offering, the Participating Agent will promptly notify the Rights Agent of any acquisition by the Participating Agent or any associated or affiliated person of the Participating Agent, of any unregistered securities of the Company. Such notification shall set forth complete details of any such acquisition, including, but not limited to, the date of acquisition, the acquisition price, and the amount of unregistered securities so acquired. (l) During the duration of the Offering, the Participating Agent will promptly notify the Rights Agent of any contractual or other relationship, other than the relationship evidenced hereby, between the Participating Agent and the Company. (m) The Participating Agent will comply with the provisions of Sections 8, 24, 25, and 36 of Article III of the Rules of Fair Practice of the NASD. (n) The Participating Agent is not directly or indirectly affiliated or associated with any beneficial owner of any unregistered security of the Company acquired within the 12 month period prior to April 3, 1995, the initial filing date of the Registration Statement on Form S-3 relating to the Offering. (o) The Participating Agent does not have any direct or indirect affiliation or association with any officer, director, or five percent (5%) or greater shareholder of the Company. (p) Neither the Participating Agent nor any associated person, parent, or affiliate of the Participating Agent has a "Conflict of Interest" with the Company within the meaning of Section 2(g) of Schedule E to the NASD By-Laws. II Engagement of the Rights Agent. In reliance upon the foregoing representations, warranties, and agreements, and subject to the terms and conditions of this Agreement, the Rights Agent is engaged on the following terms: A. Scope of Engagement. Subject to the provisions of this Agreement and commencing with the Effective Date of this Agreement, the Rights Agent agrees to serve as independent consultant to the Company to solicit the exercise by third parties of the Subscription Rights and the purchase by third parties of unsubscribed Shares in California and in those states set forth in Exhibit "A." The solicitation of the exercise by third parties of the Subscription Rights and the purchase by third parties of unsubscribed Shares shall be made pursuant to the terms of this Rights Agent Agreement and the Prospectus, and in accordance with the Act, the Exchange Act, the Rules of Fair Practice of the NASD, any applicable securities laws and regulations of the states enumerated in Exhibit "A", and any other applicable state securities laws and regulations. Subject to the terms and conditions of this Agreement, the Rights Agent agrees to accept such agency and to use its best efforts during the term of this Agreement to solicit the exercise of the Subscription Rights and the purchase of unsubscribed Shares at the Subscription Price ($4.34 per share). The Rights Agent shall deliver a copy of the Prospectus, together with any supplement thereto furnished by the Company, to each prospective subscriber or purchaser, and the Rights Agent is hereby authorized to use only such documents and sales literature as are prepared by, or otherwise authorized in writing by, the Company and furnished to the Rights Agent from time to time. The Rights Agent is not authorized to engage in any other type of solicitation activity in connection with the Offering other than as expressly set forth in this Agreement or to make use of any offering material or sales representations or furnish any information other than that contained in the Prospectus or in any sales literature authorized by the Company. B. Commissions. As compensation for its services hereunder, the Company shall compensate the Rights Agent as follows: 1. The Rights Agent shall be paid on the Closing Date a commission equal to 5% of: (a) the aggregate Subscription Price attributable to Subscription Rights validly exercised through the Rights Agent or any Participating Agent engaged by the Rights Agent, other than Excluded Subscriptions (hereinafter defined); or (b) any unsubscribed Shares purchased by the Rights Agent prior to the Closing Date pursuant to the Standby Purchase Commitment (as defined in Article VI hereof). For purposes of this Rights Agent Agreement, "Excluded Subscriptions" shall mean any and all Subscription Rights exercised: (a) from the commencement of the Offering through July 21, 1995; (b) by the Company's 401(k) Plan; or (c) by an officer or director of the Company. 2. Upon the valid exercise of the WHR Share Purchase Commitment, the Rights Agent shall be paid a commission equal to 2% of the aggregate purchase price in connection with the sale of any additional shares to WHR pursuant to the valid exercise of the WHR Share Purchase Commitment. 3. The Rights Agent shall be paid on the Effective Date of this Agreement a nonaccountable expense allowance equal to Five Thousand Dollars ($5,000). 4. The Rights Agent shall be paid on the Closing Date an additional nonaccountable expense allowance equal to Five Thousand Dollars ($5,000) if the Minimum Subscriptions (hereinafter defined) shall have been achieved. For purposes of this Rights Agent Agreement, "Minimum Subscriptions" shall mean that a minimum of 100,000 Subscription Rights, not including any Excluded Subscriptions, shall have been validly exercised. 5. If the Minimum Subscriptions shall have been achieved, the Company shall issue to the Rights Agent at the Closing Date, for an aggregate price of $10.00, warrants to purchase Common Stock of the Company (the "Rights Agent Warrants" or the "Warrants"). The Warrants shall: (a) provide for the purchase of a number of shares of Common Stock equal to 0.05 multiplied by the difference between (x) the number of Shares subscribed for in the Offering less (y) the number of shares subscribed for pursuant to the Excluded Subscriptions; (b) be exercisable at a price of $4.34 per share; (c) be exercisable for a period of two (2) years following the Closing Date; and (d) shall include such other terms and conditions as are set forth in the form of Rights Agent Warrant Purchase Agreement attached hereto as Exhibit "B" and by this reference incorporated herein. It is specifically understood that the fairness of the amount, price, and terms of the Rights Agent Warrants must be passed upon by the Corporate Financing Department of the NASD and, accordingly, the Rights Agent shall agree and consent to the modification of one or more of the foregoing terms and conditions (including, without limitation, the exercise price and the term of exercise of the Warrants) as required by the Corporate Financing Department if legal counsel for the Rights Agent is allowed to first discuss such proposed changes with the Corporate Financing Department and such counsel determines that the modification is mandatory. C. Engagement of Participating Agents. The Rights Agent may engage one or more broker-dealer firms to participate in the Offering of the Securities (each a "Participating Agent") subject to the prior approval of such person's participation by the Rights Agent, the Company, and, as applicable, the NASD and such person's express adoption and agreement to become bound by the terms of this Agreement as evidenced by such person's execution and delivery to, and the acceptance by, the Rights Agent of a Participating Agent Agreement in the form attached hereto as Exhibit "C" and by this reference incorporated herein. The Rights Agent shall not permit any prospective Participating Agent to participate in the Offering if the Rights Agent has any reason to believe that the representations and warranties of such person set forth in this Agreement or the Participating Agent Agreement are untrue. The Rights Agent shall compensate the Participating Agent in accordance with the terms of the Participating Agent Agreement. D. Further Agreements of the Rights Agent. The Rights Agent represents, warrants, and agrees with the Company that, in connection with the Offering and the transactions contemplated hereby, it has complied and will comply with all applicable laws, rules, and regulations (including, without limitation, the Act, the Exchange Act, the BHCA, the rules and regulations promulgated under those laws, and the provisions of Rule 10b-6 under the Exchange Act with regard to trading of the Securities). For the purposes of the foregoing sentence, the Rights Agent agrees that, in addition to the Subscription Rights and the Shares, other securities of the Company or securities of a guarantor of the Securities or any other right or option to purchase or otherwise acquire any securities of the Company shall be considered securities of the same class and series as the Securities. III Further Agreements of the Company. The Company agrees with the Rights Agent that: A. The Company will use its best efforts to cause the Registration Statement to continue to be effective and will advise the Rights Agent promptly and, if requested by the Rights Agent, will confirm such advice in writing: (i) when any amendment to the Registration Statement or to the Prospectus becomes effective; (ii) of any request by the Commission or other governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or other governmental authority of any "stop order" suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; and (iv) within the period of time referred to in Section G below, of the happening of any event that makes any statement of material fact made in the Registration Statement or the Prospectus untrue or that requires the making of any additions to statements of material fact in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If at any time the Commission or other governmental authority issues any "stop order" or any similar order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of that order at the earliest possible moment. B. Prior to the Closing Date, counsel for the Rights Agent shall have access to the Articles of Incorporation and the Bylaws of the Company, any amendments thereto, all resolutions authorizing the issuance of the Securities, and all material contracts to which the Company is a party. There shall also be made available for inspection by attorneys for the Rights Agent minutes of all meetings of incorporators, directors, and stockholders of the Company from the date of incorporation of the Company to the Closing Date. The Rights Agent shall be provided at or before the Closing Date with certified copies of those of the above documents as it reasonably requests, as well as with such assurances of the organization and good standing of the Company as it reasonably requests. C. Promptly after the Effective Date and thereafter from time to time for such period as, in the opinion of counsel for the Rights Agent, the Prospectus is required by law to be delivered in connection with sales by an underwriter or dealer, the Company will deliver to the Rights Agent without charge as many copies of the Prospectus (and of any amendments or supplements thereto) as the Rights Agent may reasonably request. The Company consents to the use of the Prospectus (and of any amendments or supplements thereto) in accordance with the provisions of the Act and the Rules and Regulations and with the securities laws and regulations of the jurisdictions in which the Securities are offered by the Rights Agent and by all dealers to which Securities may be sold, both in connection with the Offering or sale of the Securities and for such period of time thereafter as the Prospectus is required by law to be delivered in connection with offers and sales of the Securities. If during this period of time any event occurs which, in the judgment of the Company, should be set forth in the Prospectus in order to make the statements therein, in light of the circumstances in which they were made, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with the Act or the Rules and Regulations or any other law or regulation, the Company will promptly prepare and file with the Commission an appropriate amendment or supplement thereto and will furnish to the Rights Agent, without charge, a reasonable number of copies thereof. D. The Company will use its best efforts to register or qualify the Securities under the securities laws of such jurisdictions as the Rights Agent may reasonably request and will file such consents to service of process or other documents as may be necessary to effect such registration or qualification and continue the same in effect for so long a period as the Rights Agent may reasonably request; provided, however, that in no event shall the Company be required to qualify to do business in any jurisdiction in which it is not now so qualified. Public offerings will be made only in those states which shall have approved the Offering or for which there exists an exemption from registration of the Securities offered or sold in the Offering. The Company, at its expense, will use its counsel to prepare such filings and qualifications. E. During the two-year period following the Closing Date, the Company will furnish to the Rights Agent: (i) as soon as available, a copy of each document or report of the Company mailed to stockholders or filed with the Commission or any state securities administration or commission, any national securities exchange upon which any Securities of the Company become listed, or the NASD; and (ii) from time to time, such other information concerning the business and financial condition of the Company as the Rights Agent may reasonably request. F. Except as contemplated herein or as described in the Prospectus, the Company will not, for a period of 90 days after the Effective Date, offer or sell, contract to sell, or otherwise dispose of any of its Common Stock or Securities convertible into, or exercisable to purchase, its Common Stock without the prior written consent (which consent will not be unreasonably withheld or delayed) of the Rights Agent. The Company will obtain commitments, prior to the execution and delivery of this Rights Agent Agreement, from those of the Company's officers and directors and beneficial holders of more than five percent (5%) of the Company's outstanding common stock (other than street name holders and institutional investors), who were such at the Record Date, providing that such persons will not, for a period of 90 days after the Effective Date, offer to sell, sell, contract to sell or otherwise dispose of any Shares of Common Stock of the Company owned by them or with respect to which they have the power of disposition otherwise than: (i) as a gift or gifts, provided the donee or donees thereof agree to be bound by this restriction; or (ii) with the Rights Agent's prior consent (which consent will not be reasonably withheld or delayed). G. The Company will use its best efforts to obtain and maintain the qualification of the Subscription Rights and the Shares for quotation on the NASDAQ National Market System ("NASDAQ/NMS"). H. The Company will refer to the Rights Agent all inquiries and requests by persons desiring to purchase the Securities. I. The Company shall at all times from the Effective Date through the Closing Date remain in compliance with and in good standing under the Federal Deposit Insurance Corporation Improvement Act, the BHCA, and the rules and regulations promulgated thereunder. The Company has taken all necessary and appropriate steps to continue such compliance and good standing and shall, on a timely basis, and at all times during the term of this Rights Agent Agreement, prepare and make such filings and otherwise take such action as may be required or deemed necessary and appropriate to maintain such compliance and good standing, except to the extent that the failure to comply therewith would not have a material adverse effect on the Company. IV Indemnity and Contribution Provisions. The Company, the Rights Agent, and each Participating Agent hereby agree to the following indemnity provisions: A. The Company agrees to indemnify and hold harmless the Rights Agent, any Participating Agent, and any person who controls the Rights Agent or any member of the selling group within the meaning of the Act, and each of their directors, officers, employees, and agents, against losses, claims, damages, or liabilities, joint and several, to which any such Rights Agent, or any director, officer, employee, or agent, may become subject under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. Subject to Section C of this Article IV, the Company agrees to reimburse any legal or other expenses reasonably incurred by such Rights Agent or Participating Agent, each member of the selling group, and such controlling person, and each of their directors, officers, employees, and agents, in connection with the investigation or the defense of any such loss, claim, damage, liability, or action; provided, however, that the Company will not be liable under this Article IV, Section A, if such loss, claim, or liability arises out of or is based on an untrue statement or alleged untrue statement or omission or alleged omission made in the Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Rights Agent or any Participating Agent specifically for use in preparation thereof. A person who controls the Rights Agent, or any Participating Agent, or any of their directors, officers, employees, or agents, will be covered by the indemnity agreement in this Article IV, Section A, for all such losses, claims, damages, liabilities, and expenses irrespective of whether they are based on Section 15 of the Act. This indemnity agreement will be in addition to any liability which the Company may otherwise have. B. The Rights Agent and each Participating Agent agrees, jointly and severally, to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and any person who controls the Company within the meaning of the Act, against any losses, claims, damages, or liabilities to which the Company or any such director, officer, or controlling person may become subject, under the Act or otherwise, if such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based on any untrue or alleged untrue statement of material fact contained in the Prospectus or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case if, but only if, such untrue statement or alleged untrue statement or omission or alleged omission was made in the Prospectus in reliance upon and in conformity with written information concerning the Rights Agent or any Participating Agent furnished to the Company by or on behalf of the Rights Agent or such Participating Agent specifically for use in the preparation thereof. Subject to Section C of this Article IV, the Rights Agent and each Participating Agent agrees, jointly and severally, to reimburse any legal or other expense reasonably incurred by the Company or such director, officer, or controlling person in connection with the investigation or the defense of any such loss, claim, damage, liability, or action. This indemnity agreement will be in addition to any liability which such person may otherwise have. C. Promptly after receipt by an indemnified party under this Article IV of notice of the commencement of any action, the indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Article IV, notify the indemnifying party in writing of the commencement thereof; but the omission to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Article IV. In case any such action is brought against any indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel who shall be reasonably satisfactory to such indemnified party; and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Article IV for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such action, any indemnified party shall have the right to retain its own counsel, but the fees and expense of such counsel shall be at the expense of such indemnified party unless: (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel; or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing legal defenses or interests between them. The indemnifying party shall not be liable for any settlement of any proceeding or claim effected without its written consent; but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. D. If the indemnification provided for in Section A or B of this Article IV is for any reason, other than as specified in such sections, held by a court to be unavailable and the Company or the Rights Agent or any Participating Agent has been required to pay damages as a result of a determination by a court that the Prospectus contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, then the Company shall contribute to the damages paid by the Rights Agent and the Participating Agent and such persons shall contribute to the damages paid by the Company (but in each case only to the extent that such damages arise out of or are based upon such untrue statement or omissions): (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Rights Agent and the Participating Agent on the other from the offering of the Securities; or (ii) if the allocations provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect the relative fault of the Company and the Rights Agent and the Participating Agents in connection with statements or omissions which resulted in such damages, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Rights Agent and the Participating Agents shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company bears to the total commissions received by the Rights Agent and the Participating Agents as set forth in the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or the Rights Agent and the Participating Agents and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such untrue statement or omission. For purposes of this Article IV, Section D, the term "damages" shall include any legal or other expenses reasonably incurred by the Company or the Rights Agent or any Participating Agents in connection with investigation or defending any action or claim which is the subject of the contribution provisions of this Article IV, Section D. Notwithstanding the provisions of this Article IV, Section D, the Rights Agent shall not be required to contribute any amount in excess of the amount by which the total Rights Agent compensation received by it under this Rights Agent Agreement exceeds the amount of any damages which the Rights Agent has otherwise been required to pay by reason of any such untrue statements or omissions. No person adjudged guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Act shall be entitled to contribution from any person who was not adjudged guilty of such fraudulent misrepresentation. Under this Article IV, Section D, the obligations of the Rights Agent or any Participating Agent to contribute are several in proportion to their respective Rights Agent obligations and not joint. E. The agreements contained in this Article IV and the representations and warranties of the Company and the Rights Agent or any Participating Agent in this Rights Agent Agreement shall remain operative and in full force and effect regardless of: (i) any investigation made by or on behalf of: (a) the Rights Agent or any person controlling the Rights Agent; or (b) the Company, any of its directors or officers, or any person controlling Company or any of its directors or officers; (ii) acceptance of any Securities and payment therefor hereunder; and (iii) any termination of this Rights Agent Agreement. A successor of the Rights Agent or of the Company, or any director or officer thereof, or any person controlling the Rights Agent or the Company shall be entitled to the benefits of the agreements contained in this Article IV. V A. Conditions to the Company's Obligations. The several obligations of the Company to compensate the Rights Agent in the manner contemplated herein are subject to the accuracy of, and compliance with, the representations, warranties, and agreements of the Rights Agent and each Participating Agent contained herein at and as of the Closing Date and to the following further conditions: 1. The Corporate Financing Department of the NASD shall have approved the participation in the Offering by the Rights Agent and, as applicable, any Participating Agent, in the manner contemplated in this Agreement. 2. The Rights Agent shall have complied in all material respects with all agreements and satisfied all conditions on its part to be performed at or prior to the Closing Date, including, without limitation, those contained in Section D of Article II. 3. The representations and warranties of the Rights Agent set forth in this Rights Agent Agreement shall be accurate in all material respects as though expressly made at, and as of, all times from the Effective Date through the Closing Date, including, without limitation, those contained in Section D of Article II. 4. At the Closing Date, counsel for the Company shall have been furnished with all such documents and certificates as such counsel may reasonably request for the purpose of: (a) enabling such counsel to pass upon the qualification of the Rights Agent or any Participation Agent to participate in the Offering in the manner contemplated in this Agreement and the matters referred to in Section C.1(b) of Article I hereof; and (b) to evidence the accuracy and completeness of any of the representations, warranties, or statements of the Rights Agent or any Participating Agent, the performance of any of the covenants of the Rights Agent or any Participating Agent, or the fulfillment of any of the conditions herein contained. All proceedings taken by the Rights Agent or any Participating Agent at or prior to the Closing Date in connection with the participation by the Rights Agent or any Participating Agent in the Offering in the manner contemplated in this Agreement shall be reasonably satisfactory in form and substance to the Company and its counsel. Notwithstanding the foregoing, the Company shall have received at the Closing Date a certificate, dated as of the Closing Date and signed by the President and by the Treasurer of the Rights Agent, as to: (a) the fulfillment of the conditions set forth in this Section A of Article V; (b) the accuracy, to the best of their knowledge, in all material respects, of the representations and warranties of the Rights Agent and each Participating Agent contained in Sections B and C of Article I hereof on and as of the Closing Date; and (c) the effect that, to the best of their knowledge, all of the agreements contained in this Agreement and required to be performed or complied by the Rights Agent at or prior to the Closing Date shall have been performed or complied with in all material respects. 5. Subsequent to the Effective Date and prior to the Closing Date, there shall not have occurred any change or any development involving a prospective change in or affecting the Rights Agent's or any Participating Agent's participation in the Offering not contemplated by the Prospectus which materially adversely affects the accuracy or adequacy of the disclosure in the Prospectus. B. Conditions to the Rights Agent's Obligations. The several obligations of the Rights Agent to provide the services required herein, including its best efforts to sell unsubscribed Shares pursuant to the Standby Purchase Commitment, are subject to the accuracy of, and compliance with, the representations, warranties, and agreements of the Company contained herein at and as of the Closing Date and to the following further conditions: 1. Post-Effective Amendment No. 4 to the Registration Statement shall have become effective in accordance with the requirements of the Act and of the Rules and Regulations thereunder and the Corporate Financing Department of the NASD shall have approved the participation of the Rights Agent in the Offering. 2. No "stop order" suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or to the knowledge of the Company shall be contemplated by the Commission at or prior to the Closing Date. 3. There shall not have been any change in the capital stock of the Company as described in the Prospectus under the caption "Description of Capital Stock and Rights of Shareholders." 4. There shall not have been, since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition (financial or other), earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business. 5. No action, suit, or proceeding at law or in equity shall be pending or, to the knowledge of the Company's management, threatened against the Company that would be required to be set forth in the Prospectus other than as set forth therein and no proceedings shall be pending or, to the knowledge of the Company's management, threatened against the Company before or by any federal, state, or other commission, board, or administrative agency wherein an unfavorable decision, ruling, or finding could materially adversely affect the condition (financial or other), earnings, business affairs, or business prospects of the Company, other than as set forth in the Prospectus. 6. The Company shall have complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date. 7. The other representations and warranties of the Company set forth in this Rights Agent Agreement shall be accurate in all material respects as though expressly made at, and as of, all times from the Effective Date through the Closing Date. 8. The Company shall not have any material liabilities or obligations, direct or contingent (not in the ordinary course of business), other than those reflected in the Prospectus. 9. At the Closing Date, counsel for the Rights Agent shall have been furnished with all such documents and certificates as such counsel may reasonably request for the purpose of: (a) enabling such counsel to pass upon the issuance and sale of the Securities as herein contemplated and the matters referred to in Section A.4 of Article I hereof; and (b) to evidence the accuracy and completeness of any of the representations, warranties, or statements of the Company, the performance of any of the covenants of the Company, or the fulfillment of any of the conditions herein contained. All proceedings taken by the Company at or prior to the Closing Date in connection with the authorization, issuance, and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Rights Agent and its counsel. Notwithstanding the foregoing, the Rights Agent shall have received at the Closing Date a certificate, dated as of the Closing Date and signed by the Chief Executive Officer and by the Chief Financial Officer of the Company, as to: (a) the fulfillment of the conditions set forth in this Section B of Article V; (b) the accuracy, to the best of their knowledge, in all material respects, of the representations and warranties of the Company contained in Sections A and B of Article I hereof on and as of the Closing Date; and (c) to the effect that, to the best of their knowledge, all of the agreements contained in this agreement and required to be performed or complied with by the Company at or prior to the Closing Date shall have been performed or complied with in all material respects. 10. Subsequent to the Effective Date and prior to the Closing Date, there shall not have occurred any change or any development involving a prospective change in or affecting the business or properties of the Company not contemplated by the Prospectus which materially adversely affects the accuracy or adequacy of the disclosure in the Prospectus, or materially adversely affects the market for the Securities. 11. The Rights Agent shall have received at the Closing Date a signed opinion, dated as of the Closing Date, in form and substance satisfactory to the Rights Agent and its counsel, from Arnold & Porter, special counsel for the Company, to the effect that: (a) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of California; (b) The Securities to be issued upon completion of this Offering have been or will be duly authorized, legally and validly issued, and are, or will be, fully paid and nonassessable; (c) The holders of the Company's Common Stock do not have any preemptive rights to subscribe to any additional issuances of the Company's Common Stock, other than pursuant to the Subscription Rights or the WHR Share Purchase Commitment; (d) The Securities are registered in accordance with the requirements of the Act, all requirements of the Act prerequisite to the Offering have been complied with in all material respects, the Registration Statement (except for the financial statements and other financial data incorporated by reference into or included therein as to which such counsel need express no opinion) complies as to form in all material respects with the requirements of the Act and the Rules and Regulations, and, to the best of such counsel's knowledge, such counsel has no reason to believe that the Registration Statement or any other document filed with the Commission contains any untrue statements of material facts or omits to state material facts necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; and (e) This Agreement and the Rights Agent Warrants which are described herein have been duly authorized and, when executed by the Company, will constitute valid and binding agreements of the Company enforceable in accordance with their terms, except: (i) as the availability of the remedy of specific enforcement, of injunctive relief or of other equitable relief may be subject to the discretion of the court before which any proceeding therefore may be brought; or (ii) as the enforceability of the rights and remedies created hereby are subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general application relating to or affecting the rights and remedies of creditors and secured parties. Such opinion shall be to such further effect with respect to other legal matters relating to this Rights Agent Agreement and the sale of the Securities as counsel for the Rights Agent may reasonably request. In rendering such opinion, counsel may rely as to matters of fact, to the extent appropriate, upon certificates and representations of responsible officers of the Company, of public officials, and of other third parties reasonably satisfactory to Rushall & McGeever, legal counsel to the Rights Agent. VI Standby Purchase Commitment. In connection with the Offering, the Rights Agent shall have the right to purchase, for the account of one or more of its customers, any Shares not subscribed for as of the Expiration Date of the Offering by delivering to the Company by 12:00 p.m., New York time, on the eighth business day following the Expiration Date (the "Closing Date") good funds for such Shares (the "Standby Purchase Commitment"). Such purchase shall be at the Subscription Price of $4.34 per Share. The purchase of unsubscribed Shares pursuant to the Standby Purchase Commitment may be made only by the Rights Agent on behalf of third parties; provided, however, that the number of unsubscribed Shares so purchased by the Rights Agent may reflect third party commitments to purchase such unsubscribed Shares obtained by a Participating Agent. The Company shall modify the Offering and the Prospectus to provide for the appointment of the Rights Agent and the terms and conditions of the Rights Agent's services. VII Effective Date of this Agreement. This Agreement will become effective at 9:00 a.m., California time, on the first full business day after Post-Effective Amendment No. 4 to the Registration Statement has become effective (the "Effective Date"), unless prior to such time the Rights Agent received written notice from the Company that it elects that this Agreement shall not become effective or the Rights Agent gives notice to the Company that the Rights Agent elects that this Agreement shall not become effective; provided, however, that the provisions of this Article and of Article IV hereof shall at all times be effective. VIII Cancellation of this Agreement. This Rights Agent Agreement and all obligations of the Rights Agent or of the Company hereunder may be cancelled at, or any time prior to, the Closing Date by the Rights Agent or by the Company without liability on the part of the cancelling party to the other parties to this Agreement except as set forth in this Article VIII, if on or prior to the Closing Date: (a) trading on the New York Stock Exchange, the American Stock Exchange, or the NASDAQ/NMS shall have been wholly suspended; (b) minimum or maximum prices for trading shall have been fixed or maximum ranges for prices for securities shall have been required by the New York Stock Exchange, the American Stock Exchange, or the NASDAQ/NMS, the NASD, or by order of the Commission or any other governmental authority having jurisdiction; (c) a banking moratorium shall have been declared by federal or state authorities; (d) the Dow Jones Industrial Average shall have fallen by either 15 percent or more or 300 points from its closing price on the day immediately preceding the date that the Registration Statement is declared effective by the Commission; or (e) an outbreak of major hostilities in which the United States is involved or a declaration of war by Congress shall have occurred since the execution of this Agreement the effect of which, in the judgment of the cancelling party, makes it impractical or inadvisable to proceed with the completion of the sale of or any payment for the Securities. Notice of cancellation shall be given by the cancelling party to the other parties to this Agreement by telephone or telegraph and shall be subsequently confirmed by letter. Within five business days after the date on which the cancelling party first provides notice of such cancellation to the other parties, the cancelling party will return all compensation received from any other party under this Agreement, and shall forfeit its right to receive any other compensation under this Agreement other than out-of-pocket expenses not previously reimbursed. IX Certain Agreements Relating to Expenses. A. By the Company. The Company will pay all costs and expenses incident to the performance by the Company of its obligations hereunder, including: (a) the preparation, printing, and filing of the Registration Statement (including exhibits and amendments thereto) and the Prospectus (including amendments and supplements thereto); (b) the preparation, printing, and issuance of certificates for the Securities, including any stamp taxes payable in connection with the original issuance of the Securities; (c) the registration or qualification and fees of the Company's counsel with respect to the matters referred to in Section H of Article III hereof; (d) the fees and expenses of the Company's accountants and the fees and expenses of counsel for the Company; and (e) furnishing such copies of the Prospectus and all amendments or supplements to the Prospectus as may be reasonably requested for use by the Rights Agent and the Participating Agents in connection with the offering and sale of the Securities (including postage, air freight charges, and charges for counting and packaging). B. By the Rights Agent. The Rights Agent will bear all costs and expenses incident to the performance by the Rights Agent of its obligations hereunder, other than the expenses set forth in Section A of this Article IX, including the fees and expenses of its legal counsel. X Miscellaneous. A. Notices. Except as otherwise provided in Sections C.1(f) or C.2(c) of Article I, Section A of Article III, and Sections A and B of Article VIII, notice given pursuant to any of the provisions of this Rights Agent Agreement shall be in writing and shall be delivered personally, by first class, certified, or registered mail, by facsimile transmission, or by Federal Express or any other reputable overnight courier service, addressed as set forth below (or in each case to such other address as the person to be notified may have requested in writing): 1. If to the Company: SDNB Financial Corp. 1420 Kettner Boulevard San Diego, California 92101 Attention: Howard W. Brotman Senior Vice President and Chief Financial Officer With a copy to: Theodore G. Johnsen, Esq. Arnold & Porter 777 South Figueroa Street, 44th Floor Los Angeles, California 90017 2. If to the Rights Agent: Torrey Pines Securities, Inc. 140 Marine View Drive, Suite 110 Solana Beach, California 92075 Attention: Jack C. Smith President With a copy to: Bruce J. Rushall, Esq. RUSHALL & McGEEVER 2111 Palomar Airport Road, Suite 200 Carlsbad, California 92009 B. Successors and Assigns. This Rights Agent Agreement has been and is made solely for the benefit of the Rights Agent, the Company, the controlling persons, directors, and officers referred to in Article IV hereof, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Rights Agent Agreement. The terms "successor" and "successor and assigns" as used in this Rights Agent Agreement shall not include a purchaser from any Rights Agent of any of the Securities in his, her, or its status as such purchaser. C. Counterparts. This Rights Agent Agreement may be executed in any number of counterparts, each of which, when taken together, shall be deemed the fully executed agreement between the parties. D. Applicable Law. This Rights Agent Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to conflict of laws or principles thereunder. E. Venue. All disputes relating to this Rights Agent Agreement shall be tried before the court of appropriate jurisdiction of the State of California located in San Diego County, California to the exclusion of all other courts that might have jurisdiction. IN WITNESS WHEREOF, the parties have entered into this Agreement on and as of the __________ day of September, 1995, which Agreement shall be effective on the Effective Date set forth in Article VII above. COMPANY: SDNB FINANCIAL CORP., By: a California corporation Howard W. Brotman, Senior Vice President RIGHTS AGENT: TORREY PINES SECURITIES, INC., a California corporation By: Jack C. Smith, President LIST OF EXHIBITS Exhibit A. List of states in which the exercise of Subscription Rights or the purchase of unsubscribed Shares may be solicited by the Rights Agent or any Participating Agent. Exhibit B. Form of Rights Agent Warrant Purchase Agreement. Exhibit C. Form of Participating Agent Agreement. EXHIBIT A States in Which the Rights Agent and any Participating Agent May Solicit the Exercise of Subscription Rights or the Purchase of Unsubscribed Shares Arizona California Connecticut Idaho Illinois Iowa Minnesota Missouri Nevada New Jersey New York Pennsylvania Tennessee Texas Virginia EXHIBIT B FORM OF RIGHTS AGENT WARRANT PURCHASE AGREEMENT _____________, 1995 SDNB FINANCIAL CORP. ___________ Shares No Par Value Common Stock $4.34 Per Share RIGHTS AGENT WARRANT PURCHASE AGREEMENT This Warrant Purchase Agreement (the "Agreement") is made by and between SDNB Financial Corp., a California corporation (the "Company"), and Torrey Pines Securities, Inc., a California corporation (the "Warrantholder"). In consideration of $10.00, the receipt of which is hereby acknowledged, the Company hereby issues to the Warrantholder a purchase warrant (the "Warrant") to purchase an aggregate of __________________________________ (__________) shares of the Company's Common Stock, no par value (the "Rights Agent Shares"), subject to adjustment pursuant to Section 8 below. The Warrant is being issued pursuant to Article II, Section B.5 of the Rights Agent Agreement, dated effective as of __________________, 1995 (the "Rights Agent Agreement"), by and among the Company, the Rights Agent, and each Participating Agent (as defined in Article II, Section C of the Rights Agent Agreement) who expressly adopts and agrees to be bound by the terms of the Rights Agent Agreement, in connection with the offering ("Offering") by the Company of up to 769,582 shares of its Common Stock to holders of record of its Common Stock on May 5, 1995, pursuant to transferable subscription rights. The Warrantholder is the Rights Agent under the Rights Agent Agreement and is executing this Agreement for its own behalf and as the representative of the Participating Agent Group (as hereinafter defined) who may be entitled to receive the Warrants pursuant to Section 1(d) hereof. Capitalized terms used, but not defined herein, shall have the meanings ascribed to such terms in the Rights Agent Agreement. In consideration of the foregoing and for the purpose of defining the terms and provisions of the Warrant and the respective rights an obligations thereunder, the Company and the Warrantholder, for value received, hereby agree as follows: 1. FORM AND TRANSFERABILITY OF WARRANT (a) Registration. The Warrant (or Warrants should the Warrant be divided and/or assigned as provided herein) shall be numbered and shall be registered on the books of the Company when issued. (b) Form of Warrant. The text and the form of the Warrant and of the election to purchase the Rights Agent Shares (the "Election to Purchase") shall be substantially as set forth in Exhibit "A" attached hereto and by this reference incorporated herein. The price per share as determined in accordance with the provisions of Section 7 hereof (the "Warrant Price") and the number of the Rights Agent Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events, all as hereinafter provided in section 8 hereof. The Warrant shall be executed on behalf of the Company by its president or a vice president, under its corporate seal reproduced thereon attested by its secretary or an assistant secretary. A Warrant bearing the signature of an individual who was at any time the proper officer of the Company shall bind the Company, notwithstanding that such individual shall have ceased to hold such office prior to the delivery of such Warrant or did not hold such office on the date of this Agreement. The Warrant shall be dated as of the date of signature thereof by the Company either upon initial issuance or upon division, exchange, substitution or transfer. (c) Transfer. The Warrant shall be divisible and transferable only on the books of the Company maintained at its principal office in San Diego, California, or at the office of the Company's stock transfer agent, upon delivery thereof duly endorsed by the Warrantholder or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. Upon any registration of transfer, the Company shall execute and deliver a new Warrant to the person entitled thereto. (d) Limitations on Transfer of Warrant. The Warrant shall not be sold, transferred, assigned, exchanged or hypothecated by the Warrantholder, except to: (i) broker-dealer firms which have executed, and are not then in default of, their respective Participating Agent Agreement regarding the Offering (the "Participating Agent Group") and one or more persons, each of whom on the date of transfer is an officer (including officer-director) or partner of a member of the Participating Agent Group or an officer (including officer-director) or partner of a successor to a member of the Participating Agent Group; (ii) one or more persons, each of whom on the date of transfer is an officer (including officer-director) of a Warrantholder or an officer (including officer-director) or partner of a successor to a Warrantholder as provided herein; (iii) a partnership or partnerships, all of the partners of which are a Warrantholder and one or more persons, each of whom on the date of transfer is an officer (including officer-director) of a Warrantholder or an officer (including officer-director) or partner of a successor to a Warrantholder; (iv) a successor to a Warrantholder through merger or consolidation; (v) a purchaser of all or substantially all of a Warrantholder's assets; (vi) the stockholders of a Warrantholder or the stockholders or partners of its transferee in the event of liquidation or dissolution; or (vii) any person receiving the Warrant from one or more persons listed in this Subsection (d) at such person's or persons' death pursuant to will, trust or the laws of intestate succession. The Warrant may be divided or combined, upon request to the Company by the Warrantholder, into a certificate or certificates representing the right to purchase the same aggregate number of Rights Agent Shares. (e) Exchange or Assignment of Warrant. Any Warrant certificate may be exchanged without expense for another certificate or certificates entitling the Warrantholder to purchase a like aggregate number of Rights Agent Shares as the certificate or certificates surrendered then entitled such Warrantholder to purchase. Any Warrantholder desiring to exchange a Warrant certificate shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, the certificate evidencing the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver to the person entitled thereto a new Warrant certificate as so requested. Any Warrantholder desiring to assign a Warrant shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, the certificate evidencing the Warrant to be so assigned, with an instrument of assignment duly executed accompanied by proper evidence of assignment, succession or authority to transfer, and funds sufficient to pay any transfer tax, whereupon the Company shall, without charge, execute and deliver a new Warrant certificate in the name of the assignee named in such instrument of assignment and the original Warrant certificate shall promptly be cancelled. The text and form of the request for assignment shall be substantially as set forth in Exhibit "B" attached hereto and by this reference incorporated herein. (f) Warrantholder. Unless the context indicates otherwise, the term "Warrantholder" shall include any transferee or transferee of the Warrant pursuant to Subsection (d) above, and the term "Warrant" shall include any and all Warrants outstanding pursuant to this Agreement, including those evidenced by a certificate or certificates issued upon division, exchange, substitution, or transfer pursuant to this Agreement. 2. TERMS AND EXERCISE OF WARRANTS Subject to the terms of this Agreement, the Warrantholder shall have the right, at any time during the twenty-four (24) month period (the "Exercise Period") commencing ________________, 1995 (the "Exercise Date") and ending at 5:00 p.m., California time, on ___________________, 1997 (the "Warrant Expiration Date"), or if any such date is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, to purchase from the Company up to the number of fully paid and nonassessable Rights Agent Shares which the Warrantholder may at the time be entitled to purchase pursuant to this Agreement, upon surrender to the Company, at its principal office in San Diego, California, or at the office of the Company's stock transfer agent or at such other address as the Company may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company, of the certificate evidencing the Warrant to be exercised, together with the form of Election to Purchase duly completed and signed, and upon payment to the Company of the Warrant Price (as determined in accordance with the provisions of Sections 7 and 8 hereof), for the number of Rights Agent Shares with respect to which such Warrant is then exercised together with all taxes applicable upon such exercise. Payment of the aggregate Warrant Price shall be made in cash or by certified check or cashier's check, payable to the order of the Company. Upon such surrender of the Warrant certificate and payment of such Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to the Warrantholder in such name or names as the Warrantholder may designate in writing, a certificate or certificates for the number of full Rights Agent Shares so purchased upon the exercise of the Warrant, together with cash, as provided in Section 9 hereof, with respect to any fractional Rights Agent Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of such Rights Agent Shares as of the close of business on the date of the surrender of the Warrant and payment of the Warrant Price, as aforesaid, notwithstanding that the certificates representing such Rights Agent Shares shall not actually have been delivered or that the stock transfer books of the Company shall then be closed. The Warrant shall be exercisable, at the election of the Warrantholder, either in full or from time to time in part, and, in the event that the certificate evidencing the Warrant is exercised with respect to less than all of the Rights Agent Shares specified therein at any time prior to the Warrant Expiration Date, a new certificate evidencing the remaining Rights Agent Shares shall be issued by the Company. 3. MUTILATED OR MISSING WARRANT In case the certificate or certificates evidencing the Warrant shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the Warrantholder, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate or certificates, or in lieu of and in substitution for the certificate or certificates lost, stolen or destroyed, a new Warrant certificate or certificates of like tenor and date and representing an equivalent right or interest, but only upon receipt of evidence satisfactory the Company of such loss, theft or destruction of such Warrant, and of reasonable bond of indemnity, if requested, also satisfactory in form and amount and at the applicant's cost. Applicants for such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. 4. RESERVATION OF RIGHTS AGENT SHARES There has been reserved, and the Company shall at all times keep reserved so long as the Warrant remains outstanding, out of its authorized Common Stock, such number of shares of its Common Stock as shall be subject to purchase under the Warrant. Every transfer agent for the Common Stock issuable upon the exercise of the Warrant shall be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be requisite for such purpose. The Company shall keep a copy of this Agreement on file with every transfer agent for the shares of Common Stock issuable upon the exercise of the Warrant. The Company shall supply such transfer agent with duly executed stock and other certificates for such purpose and shall provide or otherwise make available any cash which may be payable as provided in Section 9 hereof. 5. LEGEND ON CERTIFICATE FOR RIGHTS AGENT SHARES Each certificate for Rights Agent Shares initially issued upon exercise of the Warrant, unless at the time of exercise such Rights Agent Shares are registered with the Securities Exchange Commission (the "Commission"), under the Securities Act of 1933, as amended (the "Act"), shall bear the following legend: NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS CERTIFICATE OR THE SECURITIES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED. TRANSFER OF THIS CERTIFICATE IS ALSO RESTRICTED BY THAT CERTAIN WARRANT PURCHASE AGREEMENT DATED AS OF __________________, 1995, A COPY OF WHICH IS AVAILABLE FROM THE ISSUER. Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public underwriting pursuant to a registration statement under the Act of the securities represented thereby) shall also bear the above legend unless, in the opinion of such counsel as shall be reasonably approved by the Company, the securities represented thereby need no longer be subject to such restrictions. 6. PAYMENT OF TAXES The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of the Warrant and underlying shares of Common Stock evidenced thereby; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable with respect to any secondary transfer of the Warrant or such securities. 7. WARRANT PRICE The price per share at which the Rights Agent Shares shall be purchasable on the exercise of the Warrant (the "Warrant Price") shall be four and thirty-four one-hundredths dollars ($4.34) per share, subject to adjustment pursuant to Section 8 hereof. 8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF RIGHTS AGENT SHARES The number and kind of securities purchasable upon the exercise of the Warrant and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) In case the Company shall (i) pay a dividend in Common Stock or make a underwriting in Common Stock, (ii) subdivide its outstanding Common Stock, (iii) combine its outstanding Common Stock into a smaller number of shares of Common Stock, or (iv) issue by reclassification of its Common Stock other securities of the Company, the number and kind of securities purchasable upon the exercise of the Warrant immediately prior thereto shall be adjusted so that the Warrantholder shall be entitled to receive the number and kind of securities of the Company which it would have owned or would have been entitled to receive after the happening of any of the events described above had the Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made pursuant to this Subsection (a) shall become effective on the effective date of such event retroactive to the record date, if any, for such event. (b) No adjustment in the number of Rights Agent Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of Rights Agent Shares (calculated to the nearest full share) then purchasable upon the exercise of the Warrant or, if the Warrant is not then exercisable, the number of Rights Agent Shares purchasable upon the exercise of the Warrant on the first date thereafter that the Warrant becomes exercisable; provided, however, that any adjustment which by reason of this Subsection (b) is not required to be made immediately shall be carried forward and taken into account in any subsequent adjustment. (c) Whenever the number of Rights Agent Shares purchasable upon the exercise of the Warrant is adjusted as herein provided, the Warrant Price payable upon the exercise of the Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Rights Agent Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Rights Agent Shares so purchasable immediately thereafter. (d) For the purpose of this Section 8, the term "Common Stock" shall mean: (i) the class of stock designated as the Common Stock of the Company at the date of this Agreement; or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to this Section 8, the Warrantholder shall become entitled to purchase any securities of the Company other than Rights Agent Shares, thereafter the number of such other securities so purchasable upon the exercise of the Warrant and the Warrant Price of such securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Rights Agent Shares contained in this Section 8. (e) Whenever the number of Rights Agent Shares purchasable upon the exercise of the Warrant or the Warrant Price is adjusted as herein provided, the Company shall cause to be promptly mailed to the Warrantholder by first class mail, postage prepaid, notice of such adjustment and a certificate of a firm of independent certified public accountants selected by the board of directors of the Company (who may be the regular accountants employed by the Company) setting forth the number of Rights Agent Shares purchasable upon the exercise of the Warrant or the Warrant Price after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. (f) In case of any reclassification, capital reorganization or other change in the outstanding shares of Common Stock of the Company (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of an issuance of Common Stock by way of dividend or other distribution, or of a subdivision or combination of the Common Stock), or in case of any consolidation or merger of the Company with or into another corporation or entity (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change in the outstanding shares of Common Stock of the Company) as a result of which the holders of the Company's Common Stock become holders of other shares or securities of the Company or of another corporation or entity, or such holders receive cash or other assets, or in case of any sale or conveyance to another corporation of the property, assets or business of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Warrantholder an agreement that the Warrantholder shall have the right thereafter upon payment of the Warrant Price in effect immediately prior to such action to purchase upon the exercise of the Warrant the kind and number of securities and property which it would have owned or have been entitled to have received after the happening of such reclassification, capital reorganization, change in the outstanding shares of Common Stock of the Company, consolidation, merger, sale or conveyance had the Warrant been exercised immediately prior to such action. The agreement referred to in this Subsection (f) shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. The provisions of this Subsection (f) shall similarly apply to successive reclassifications, capital reorganizations, changes in the outstanding shares of Common Stock of the Company, consolidations, mergers, sales or conveyances. (g) Except as provided in this Section 8, no adjustment with respect to any dividends shall be made during the term of the Warrant or upon the exercise of the Warrant. (h) No adjustments shall be made in connection with the public sale and issuance of Common Stock, or the options or warrants issued in connection therewith, or for any warrants or options outstanding on the date of this Agreement, including, without limitation, the WHR Stock Purchase Commitment. (i) Irrespective of any adjustments in the Warrant Price or the number or kind of securities purchasable upon the exercise of the Warrant, the Warrant certificate or certificates theretofore or thereafter issued may continue to express the same price or number or kind of securities stated in the Warrant initially issuable pursuant to this Agreement. 9. FRACTIONAL INTEREST The Company shall not be required to issue fractional Rights Agent Shares upon the exercise of the Warrant. If any fraction of a Rights Agent Share would, except for the provisions of this Section 9, be issuable upon the exercise of the Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the then current market price of the Company's Common Stock multiplied by such fraction. For purposes of this Agreement, the term "current market price" shall mean: (a) if the Common Stock is traded in the over-the-counter market and not on the NASDAQ National Market System (the "NASDAQ/NMS") or on any national securities exchange, the average between the per share closing bid and asked prices of the Common Stock for the 30 consecutive trading days immediately preceding the date in question, as reported by the NASDAQ/NMS or an equivalent generally accepted reporting service; or (b) if the Common Stock is traded on the NASDAQ/NMS or on a national securities exchange, the average for the 30 consecutive trading days immediately preceding the date in question of the daily per share closing prices of the Common Stock on the NASDAQ/NMS or on the principal national stock exchange on which it is listed, as the case may be. The closing price referred to in clause (b) above shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices on the NASDAQ/NMS or on the principal national securities exchange on which the Common Stock is then listed, as the case may be. 10. NO RIGHTS AS SHAREHOLDER; NOTICES OF WARRANTHOLDER Nothing contained in this Agreement or in the Warrant shall be construed as conferring upon the Warrantholder or its transferee any rights as a shareholder of the Company, either at law or in equity, including the right to vote, receive dividends, consent or receive notices as a shareholder with respect to any meeting of shareholders for the election of directors of the Company or for any other matter. If, however, at any time prior to the Warrant Expiration Date and prior to the exercise of the Warrant, any action which requires an adjustment pursuant to Section 8 occurs, or a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger or sale of its property, assets and business as an entirety) is proposed, then the Company shall give notice in writing of such occurrence or proposal to the Warrantholder, as provided in Section 13 hereof, at least 30 days prior to the date fixed as the record date or the date of closing the transfer books for the determination of the shareholders entitled to any relevant dividend, underwriting, subscription rights or other rights or for the determination of the shareholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall specify such record date or such date of closing the transfer books, as the case may be. 11. REGISTRATION RIGHTS (a) Demand Registration. When so requested in writing at any time during the Exercise Period by the holder or holders then of record of more than 50% of the outstanding Warrant(s) and any Rights Agent Shares issued upon the exercise of the Warrant(s) (the "50% Holder"), the Company shall, as promptly as practicable after receipt of such request, but in no event later than 90 days therefrom, prepare and file with the Commission a registration statement pursuant to Rule 415 of the Act on such form as may then be available to the Company, for the registration under the Act of a public offering by such 50% Holder of all or any portion of the Rights Agent Shares. The preparation and filing of the first registration statement requested pursuant to this Subsection (a) shall be without any expense to such 50% Holder (other than fees and expenses of counsel to such 50% Holder and any underwriting discounts or commissions) for that one time only. The Company shall be required to file only one such registration statement hereunder, but shall use its best efforts to keep such registration statement effective for a period of not less than twenty-four (24) months. Within ten (10) days after receiving any such request, the Company shall give notice to any other holders of Warrants or Rights Agent Shares advising them that the Company is filing such registration statement, and offering to include therein all or any portion of the Rights Agent Shares of such holders. The Company shall not be obligated to any such other holder unless such other holder shall accept such offer by notice in writing to the Company within thirty (30) days after the receipt thereof. Notwithstanding any provision to the contrary, the Company's obligation to file a registration statement shall not be satisfied unless and until the registration statement is declared effective by the Commission and it is effective for a period of at least twenty- four (24) months following such effective date. The registration rights of the holder shall not be extinguished if the registration statement is withdrawn for any reason. The Company may include other of its securities in such registration statement, unless the underwriter of such offering reasonably advises the Company that the inclusion of such other securities will materially and adversely affect the underwriting of, or the market for, the Rights Agent Shares. (b) Piggyback Registration. In addition to the rights of the Warrantholder pursuant to Subsection (a) above, if the Company shall at any time during the period commencing with the Exercise Date and ending with the Warrant Expiration Date prepare and file a registration statement under the Act with respect to the public offering of any of its securities (other than on Forms S-8, S-14 or S-15 or other similar form inappropriate to the registration of the Rights Agents Shares), and pursuant to the then applicable rules and regulations under the Act a secondary offering of the Rights Agent Shares by the Warrantholder may be combined with such public offering in a single registration, the Company shall in every such instance give reasonable written notice thereof to the Warrantholder thirty (30) or more days prior to the filing of such registration statement, and shall upon the written request of the Warrantholder made within fifteen (15) days of the mailing of said written notice by the Company, include in such registration statement such number of Rights Agent Shares as the Warrantholder may request. Any such registration statement shall remain effective for a period of not less than ninety (90) days following its effective date; provided, however, that if the Warrantholder defers the sale of its Rights Agent Shares pursuant to Subsection (c) below, then the Company shall keep such registration statement current for an additional period of ninety (90) days; provided further, that the Company shall have no duty to file any amendment to any such registration statement at any time that the Company reasonably believes that disclosure of the information required to be included in such amendment would be premature or contrary to the best interests of the Company and its security holders. The inclusion of such Rights Agent Shares in any registration statement shall be without any expense to the Warrantholder, other than fees and expenses of counsel to the Warrantholder and any underwriting discounts or commissions. Neither the delivery of such notice by the Company nor such request by the Warrantholder shall in any way obligate the Company to file such registration statement, and notwithstanding the filing of such registration statement, the Company may, at any time prior to the effective date thereof, determine not to offer the securities to which such registration statement relates, without liability to the Warrantholder. In the event the Company fails to receive written notice from the Warrantholder within fifteen (15) days of the mailing of said written notice by the Company, then the Company shall treat such failure as having the same force and effect as if the Warrant holder had advised the Company that the Warrantholder does not intend to include any of its Rights Agent Shares in such registration statement. If the Warrantholder shall advise or be deemed to have advised the Company of its intention not to include any of its Rights Agent Shares in such registration statement, then the Warrantholder shall, for a period of ninety (90) days thereafter, refrain from demanding its rights pursuant to Subsection (a). (c) Notwithstanding the provisions of Subsection (b) above, if the offering subject to any registration statement referred to in Subsection (b) is made by the Company and is underwritten, and if the underwriter makes a written determination prior to the effectiveness of such registration statement and so requests and such request is based upon the opinion of the underwriter that the sale of the Rights Agent Shares to be registered on such registration statement by the Warrantholder pursuant to Subsection (b) will materially and adversely interfere with such planned offering, then: (i) the Warrantholder shall agree not to sell any Rights Agent Shares, whether pursuant to such registration statement or otherwise, for a period not to exceed ninety (90) days following the effective date of such registration statement, and the Company shall, at the expiration of such ninety (90) day period, at its expense, maintain the currency of the registration statement and take such other steps as may be required to permit the Warrantholder to sell Rights Agent Shares pursuant to such registration statement for an additional period of ninety (90) days following the expiration of such ninety (90) days period; provided, however, that the Company shall have no duty to file any amendment to any such registration statement at any time that: (A) the Company reasonably believes that disclosure of the information required to be included in such amendment would be premature or contrary to the best interests of the Company and its security holders; or (B) the underwriter makes a written determination prior to the filing of any such amendment requesting that the Company not file such amendment and such request is based upon the opinion of the underwriter that the sale of the Rights Agent Shares to be registered on such amendment by the Warrantholder will materially and adversely interfere with the Company's planned offering; and (ii) the Warrantholder shall agree that the Rights Agent Shares shall be sold through such underwriter in the same manner as the other securities that are the subject of the registration, and shall pay to such underwriter a commission in respect of such Rights Agent Shares at the same rate as the commission to be paid to such underwriter in respect of the other securities that are the subject of such registration. If securities are proposed to be offered for sale pursuant to such registration statement by other security holders of the Company, and the total number of securities to be offered by the Warrantholder and such other selling security holders is required to be reduced pursuant to a request from the underwriter (which request shall be made only for the reasons and in the manner set forth above in this Subsection (c)), then the number of Rights Agent Shares to be offered by the Warrantholder pursuant to such registration statement shall equal the number that bears the same ratio to the maximum number of securities that the underwriter believes may be included for all the selling security holders (including the Warrantholder) as the original number of Rights Agent Shares proposed to be sold by the Warrantholder bears to the total original number of securities proposed to be offered by the Warrantholder and the other selling security holders. (d) The Company shall use its best efforts to cause any registration statement covering all or any portion of the Rights Agent Shares to become effective as promptly as possible and, if any stop order shall be issued in connection therewith, to use its best efforts to obtain the removal of such order. The Company shall furnish the selling Warrantholder with copies of preliminary prospectuses (together with any supplements thereto) and other documents necessary or incidental to the offering being made by the Warrantholder in such quantities as the Warrantholder may reasonably request. The Warrantholder agrees to cooperate in all respects with the Company in effectuating the foregoing. The obligations of the Company to the Warrantholder hereunder are expressly conditioned on the timely furnishing in writing by the Warrantholder to the Company of such information concerning the Warrantholder and the terms of the Warrantholder's proposed offering as the Company may reasonably request. (e) In connection with any registration of all or any portion of the Rights Agent Shares (and the Warrant, if applicable), the Company shall, without any expense to the Warrantholder (other than fees and expenses of counsel to the Warrantholder and any underwriting discounts or commissions), prepare and file such documents as may be necessary to register or qualify such Rights Agent Shares under the securities or blue sky laws of such states as the Warrantholder shall reasonably request, and use its best efforts to do any and all other acts and things, consistent with its existing business practices, that may reasonably be necessary or advisable to enable the Warrantholder to consummate a public sale in such states of such Rights Agent Shares; provided, however, that in connection with any registration statement filed pursuant to Subsection (b) above, the Company shall be required to make the Rights Agent Shares eligible for public offering and sale only in such additional states (including the District of Columbia) as any other securities of the Company included in such registration statement are eligible for public offering and sale. In no event shall the Company be obligated to qualify to do business in any state where it is not so qualified at the time of filing such documents or to take any action which would subject it to unlimited service of process in any state where it is not so subject at such time. The Company shall keep any such filing current for the time period it is obliged to keep any registration statement current pursuant to Subsections (a), (b) or (c). (f) Nothing herein shall be construed to require the Warrantholder to exercise the Warrant with respect to any Rights Agent Shares which the Warrantholder is entitled to require the Company to register pursuant to any provision of this Section 11 prior to the effective date of the registration statement effecting such registration, and the Warrantholder, at its election, to the extent permissible by law, may exercise such Warrant against payment of the proceeds of the sale of the registered Rights Agent Shares in the offering covered by such registration statement. (g) The provisions of this Section 11 and of Section 12 below shall apply to the extent provided herein if the Company chooses to file an offering statement under Regulation A promulgated under the Act. (h) The Company agrees that until the Rights Agent Shares have been sold under a registration statement or pursuant to Rule 144 under the Act, it shall keep current in filing all materials required to be filed with the Commission in order to permit holders of the Rights Agent Shares, if they otherwise comply with the requirements of Rule 144, to sell Rights Agent Shares under such Rule. 12. INDEMNITY AND CONTRIBUTION PROVISIONS The Company, the Rights Agent, and each Participating Agent hereby agree to the following indemnity provisions: B. In the event of the filing of any registration statement with respect to the Warrant or the Rights Agent Shares pursuant to Section 11 above, the Company agrees to indemnify and hold harmless the Warrantholder(s) and any person who controls any such person within the meaning of the Act, and each of their directors, officers, employees, and agents, against losses, claims, damages, or liabilities, joint and several, to which any such person, or any director, officer, employee, or agent, may become subject under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Subject to Subsection C of this Section 12, the Company agrees to reimburse any legal or other expenses reasonably incurred by such Rights Agent, each member of the selling group, and such controlling person, and each of their directors, officers, employees, and agents, in connection with the investigation or the defense of any such loss, claim, damage, liability, or action; provided, however, that the Company will not be liable under this Section 12, Subsection A, if such loss, claim, or liability arises out of or is based on an untrue statement or alleged untrue statement or omission or alleged omission made in the Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Warrantholder(s) specifically for use in preparation thereof. A person who controls the Warrantholder(s) or any of their directors, officers, employees, or agents, will be covered by the indemnity agreement in this Section 12, Subsection A, for all such losses, claims, damages, liabilities, and expenses irrespective of whether they are based on Section 15 of the Act. This indemnity agreement will be in addition to any liability which the Company may otherwise have. C. C. Each Warrantholder agrees, jointly and severally, to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and any person who controls the Company within the meaning of the Act, against any losses, claims, damages, or liabilities to which the Company or any such director, officer, or controlling person may become subject, under the Act or otherwise, if such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based on any untrue or alleged untrue statement of material fact contained in the Prospectus or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case if, but only if, such untrue statement or alleged untrue statement or omission or alleged omission was made in the Prospectus in reliance upon and in conformity with written information concerning the Warrantholder(s) furnished to the Company by or on behalf of the Warrantholder(s) specifically for use in the preparation thereof. Subject to Subsection C of this Section 12, the Rights Agent and each Participating Agent agrees, jointly and severally, to reimburse any legal or other expense reasonably incurred by the Company or such director, officer, or controlling person in connection with the investigation or the defense of any such loss, claim, damage, liability, or action. This indemnity agreement will be in addition to any liability which such person may otherwise have. D. Promptly after receipt by an indemnified party under this Article IV of notice of the commencement of any action, the indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 12, notify the indemnifying party in writing of the commencement thereof; but the omission to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 12. In case any such action is brought against any indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel who shall be reasonably satisfactory to such indemnified party; and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 12 for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such action, any indemnified party shall have the right to retain its own counsel, but the fees and expense of such counsel shall be at the expense of such indemnified party unless: (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel; or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing legal defenses or interests between them. The indemnifying party shall not be liable for any settlement of any proceeding or claim effected without its written consent; but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. E. If the indemnification provided for in Subsection A or B of this Section 12 is for any reason, other than as specified in such sections, held by a court to be unavailable and the Company or the Warrantholder(s) has been required to pay damages as a result of a determination by a court that the Prospectus contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, then the Company shall contribute to the damages paid by the Warrantholder(s) and such persons shall contribute to the damages paid by the Company (but in each case only to the extent that such damages arise out of or are based upon such untrue statement or omissions): (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Warrantholder(s) on the other from the offering of the Securities; or (ii) if the allocations provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect the relative fault of the Company and the Warrantholder(s) in connection with statements or omissions which resulted in such damages, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Warrantholder(s) shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company bears to the total commissions received by the Warrantholder(s) as set forth in the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or Warrantholder(s) and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such untrue statement or omission. For purposes of this Section 12, Subsection D, the term "damages" shall include any legal or other expenses reasonably incurred by the Company or Warrantholder(s) in connection with investigation or defending any action or claim which is the subject of the contribution provisions of this Article IV, Section D. Notwithstanding the provisions of this Section 12, Subsection D, the Rights Agent shall not be required to contribute any amount in excess of the amount by which the total Rights Agent compensation received by it under the Rights Agent Agreement exceeds the amount of any damages which the Rights Agent has otherwise been required to pay by reason of any such untrue statements or omissions. No person adjudged guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Act shall be entitled to contribution from any person who was not adjudged guilty of such fraudulent misrepresentation. Under this Section 12, Subsection D, the obligations of the Warrantholder(s) to contribute are several in proportion to their respective obligations and not joint. F. The agreements contained in this Section 12 and the representations and warranties of the Company and the Warrantholder in this Agreement shall remain operative and in full force and effect regardless of: (i) any investigation made by or on behalf of: (a) the Warrantholder or any person controlling the Warrantholder; or (b) the Company, any of its directors or officers, or any person controlling Company or any of its directors or officers; (ii) acceptance of any Rights Agent Shares and payment therefor hereunder; and (iii) any termination of this Agreement. 13. NOTICES G. Notices. Except as otherwise expressly provided herein, notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be delivered personally, by first class, certified, or registered mail, by facsimile transmission, or by Federal Express or any other reputable overnight courier service addressed as set forth below (or in each case to such other address as the person to be notified may have requested in writing: 1. If to the Company: SDNB Financial Corp. 1420 Kettner Boulevard San Diego, California 92101 Attention: Howard W. Brotman, Senior Vice President and Chief Financial Officer With a copy to: Theodore G. Johnsen, Esq. ARNOLD & PORTER 777 South Figueroa Street, 44th Floor Los Angeles, California 90017 2. If to the Rights Agent: Torrey Pines Securities, Inc. 140 Marine View Drive, Suite 110 Solana Beach, California 92075 Attention: Jack C. Smith President With a copy to: Bruce J. Rushall, Esq. RUSHALL & McGEEVER 2111 Palomar Airport Road, Suite 200 Carlsbad, California 92009 14. PARTIES IN INTEREST Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Warrantholder, and, to the extent expressed, any holder of Rights Agent Shares, any person controlling the Company or the Warrantholder or any holder of Rights Agent Shares, directors of the Company, nominees for directors (if any) named in the final prospectus, or officers of the Company who have signed the registration statement, any legal or equitable right, remedy or claim under this Agreement, and this Agreement shall be for the sole and exclusive benefit of the aforementioned parties. 15. MISCELLANEOUS PROVISIONS (a) Successors. All the covenants and provisions of this Agreement by or for the benefit of the parties listed in Section 14 above shall bind and inure to the benefit of their respective executors, administrators, successors and assigns hereunder; provided, however, that the rights of the Warrantholder shall be assignable only to those persons and entities specified in Section 1, Subsection (d), hereof, in which event such assignee shall be bound by each of the terms and conditions of this Agreement. (b) Merger or Consolidation of the Company. The Company shall not merge or consolidate with or into any other corporation or sell all or substantially all of its property to another corporation, unless it complies with the provisions of Section 8, Subsection (f), hereof. (c) Survival of Representations and Warranties. All statements contained in any schedule, exhibit, certificate or other instrument delivered by or on behalf of the parties hereto, or in connection with the transactions contemplated by this Agreement, shall be deemed to be representations and warranties hereunder. Notwithstanding any investigations made by or on behalf of the parties to this Agreement, all representations, warranties and agreements made by the parties to this Agreement or pursuant hereto shall survive. (d) Choice of Law. This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of California, including all matters of construction, validity, performance, and enforcement, and without giving effect to the principles of conflict of laws. (e) Jurisdiction. The parties submit to the jurisdiction of the Courts of the State of California or a Federal Court empaneled in the State of California for the resolution of all legal disputes arising under the terms of this Agreement. (f) Entire Agreement. Except as provided herein, this Agreement, including exhibits, contains the entire agreement of the parties, and supersedes all existing negotiations, representations or agreements and all other oral, written, or other communications between them concerning the subject matter of this Agreement. (g) Severability. If any provision of this Agreement is unenforceable, invalid, or violates applicable law, such provision shall be deemed stricken and shall not affect the enforceability of any other provisions of this Agreement. (h) Captions. The captions in this Agreement are inserted only as a matter of convenience and for reference and shall not be deemed to define, limit, enlarge, or describe the scope of this Agreement or the relationship of the parties, and shall not affect this Agreement or the construction of any provisions herein. (i) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. SDNB FINANCIAL CORP. TORREY PINES SECURITIES, INC. a California corporation a California corporation By: By: Name and Title Name and Title EXHIBIT A SDNB FINANCIAL CORP. RIGHTS AGENT WARRANT AND ELECTION TO PURCHASE SDNB FINANCIAL CORP. 1420 Kettner Boulevard San Diego, California 92101 The undersigned hereby irrevocably elects to exercise the right of purchase represented by the attached Rights Agent Warrant (the "Warrant") and to purchase thereunder __________ Rights Agent Shares provided for therein and hereby tenders $_______________________ in payment of the actual exercise price thereof, and requests that certificates evidencing the Rights Agent Shares be issued in the name of (Please Print Name, Address and SSN or EIN of Assignee) and, if said number of Rights Agent Shares shall not be the total possible number of Rights Agent Shares purchasable hereunder, that a new Warrant certificate for the balance of the Rights Agent Shares purchasable under the attached Warrant certificate be registered in the name of the undersigned Warrantholder or his or assignee as indicated below and delivered at the address stated below: Dated: , 19 Name of Warrantholder or Assignee: (Please Print) Address: Signature: Signature Guaranteed: Note: The above signature must correspond with the name as written upon the face of the attached Warrant certificate in every particular respect, without alteration or enlargement any change whatever, unless this Warrant has been duly assigned. SDNB FINANCIAL CORP. RIGHTS AGENT WARRANT NO. 001 NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS WARRANT OR THE SECURITIES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED. TRANSFER OF THIS WARRANT IS ALSO RESTRICTED BY THAT CERTAIN RIGHTS AGENT WARRANT PURCHASE AGREEMENT DATED AS OF AUGUST ___, 1995, A COPY OF WHICH IS AVAILABLE FROM THE ISSUER. WARRANT TO PURCHASE SHARES OF NO PAR VALUE COMMON STOCK OF SDNB FINANCIAL CORP. Exercisable upon issuance Void after _______________, 1997 THIS CERTIFIES that, for value received, the undersigned holder (the "Warrantholder"), or registered assigns, is entitled, subject to the terms and conditions set forth in this warrant (the "Warrant"), to purchase from SDNB Financial Corp., a California corporation (the "Company"), the above- stated number of shares of the Company's no par value common stock (the "Rights Agent Shares"). The Warrant may be exercised at any time during the twenty-four (24) month period commencing on ________________, 1995, and continuing up to 5:00 p.m., California time, on ___________________, 1997, at a price of four and thirty-four one-hundredths dollars ($4.34) per share, subject to adjustment from time to time as set forth in that certain Rights Agent Warrant Purchase Agreement between Torrey Pines Securities, Inc., a California corporation, and the Company, dated effective as of August ___, 1995, and subject to all the terms thereof, including the limitations on transferability set forth therein. THIS WARRANT may be exercised by the holder thereof, in whole or in part (but not as to a fractional Rights Agent Share), by the presentation and surrender of this Warrant with the form of Election to Purchase duly executed, with signature(s) guaranteed, at the principal office of the Company or its stock transfer agent (or at such other address as the Company may designate by notice to the holder hereof at the address of such holder appearing on the books of the Company), and upon payment to the Company of the purchase price in cash or by certified check or bank cashier's check. The Rights Agent Shares so purchased shall be deemed to be issued to the holder hereof as the record owner of such Rights Agent Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Rights Agent Shares. The Rights Agent Shares so purchased shall be registered to the holder (and, if requested, certificates issued) promptly after this Warrant shall have been so exercised and unless this Warrant has expired or has been exercised, in full, a new Warrant identical in form, but representing the number of Rights Agent Shares with respect to which this Warrant shall not have been exercised, shall also be issued to the holder hereof. NOTHING CONTAINED herein shall be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company. "WARRANTHOLDER" TORREY PINES SECURITIES, INC., SDNB FINANCIAL CORP. a California corporation a California corporation By: By: 140 Marine View Drive, Suite 110 Name of President or Vice President Solana Beach, California 92075 Name of Secretary or Assistant Secretary EXHIBIT B SDNB FINANCIAL CORP. RIGHTS AGENT WARRANT ASSIGNMENT (To be signed only upon assignment of the Rights Agent Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: (Please Print Name, Address and SSN or EIN of Assignee) the attached Warrant No. , to purchase shares of the Common (number) Stock, no par value, of SDNB Financial Corp. (the "Company"), hereby irrevocably constituting and appointing the Company and/or its transfer agent as its attorney to transfer said Warrant on the books of the Company, with full power of substitution. By its signature below, the undersigned hereby represents and warrants that to the best of its knowledge, after reasonable investigation, this assignment is a permitted transfer under Section 1(d) of the Rights Agent Warrant Purchase Agreement. Dated: , 19 Signature of Registered Holder Signature Guaranteed: Note: The above signature must correspond with the name as written upon the face of the attached Warrant certificate in every particular respect, without alteration or enlargement any change whatever, unless this Warrant has been duly assigned. EXHIBIT C FORM OF PARTICIPATING AGENT AGREEMENT PARTICIPATING AGENT AGREEMENT SDNB FINANCIAL CORP. RIGHTS OFFERING ____________, 1995 TORREY PINES SECURITIES, INC. 140 Marine View Drive, Suite 110 Solana Beach, California 92075 Dear Sirs: We understand that, pursuant to the terms of an agreement, executed as of August ___, 1995 (the "Rights Agent Agreement"), between you and SDNB Financial Corp., a California corporation (the "Issuer"), you serve as Rights Agent for the Issuer in connection with the Issuer's offering (the "Offering") of up to 769,582 shares of its Common Stock, no par value (the "Shares"), to holders of record of its Common Stock on May 5, 1995, pursuant to transferable subscription rights (the "Basic Subscription Rights" and, together with the "Oversubscription Rights," hereinafter referred to as the "Subscription Rights") (the Subscription Rights and the Shares are collectively referred to herein as the "Securities"). This Participating Agent Agreement (the "Participating Agent Agreement" or "this Agreement") shall evidence our agreement to act as a Participating Agent in the Offering and our participation in the Offering shall be subject at all time to the provisions of this Agreement. This Agreement, as it may be amended or supplemented, shall become effective with respect to our participation in the Offering upon the later of the Effective Date hereof (as defined on the execution page of this Agreement) or the Effective Date of the Rights Agent Agreement. Our acceptance of this Agreement will constitute our confirmation that, except as otherwise indicated in a written communication previously furnished to you, each statement included in the Participating Agent Questionnaire (in the form attached hereto as Exhibit "A" and by this reference incorporated herein or in the form otherwise furnished to us) is correct. All references in this Agreement to "you" or to the "Rights Agent" shall mean Torrey Pines Securities, Inc., a California corporation. All other capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Rights Agent Agreement. This Agreement may be supplemented or amended by you by written notice to us and any such supplement or amendment to this Agreement will be effective with respect to the Offering after this Agreement is so amended or supplemented. 1. Rights Agent Agreement; Authority of Rights Agent. We authorize, consent to and ratify your execution and delivery of the Rights Agent Agreement, of any amendment or supplement thereto and of any associated agreement (collectively referred to hereinafter as, the "Rights Agent Agreement") on our behalf to the Issuer with respect to the Offering or the Securities in such form as you determine. We expressly adopt and agree to be bound by all terms of the Rights Agent Agreement as executed, including, without limitation, the representations, warranties, and agreements set forth in Section C.2 of Article I thereof. You are authorized to take such action as you deem necessary or advisable to carry out this Agreement, the Rights Agent Agreement and the sale of the Securities, and to agree to any waiver or modification of any provision of the Rights Agent Agreement. It is expressly understood and agreed that Torrey Pines Securities, Inc. may act on behalf of all Participating Agents. 2. Registration Statement and Prospectus. You will furnish to us, upon our request, to the extent made available to you by the Issuer, copies of the registration statement relating to the Offering or the Securities which was filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Act of 1933, as amended (the "1933 Act"), and Post- Effective Amendment No. 4 thereto (excluding exhibits but including any documents incorporated by reference therein). Such registration statement(s), as amended, and the form of prospectus(es) relating to the Offering or to the Securities constituting a part thereof, including all documents incorporated therein by reference, as from time to time amended or supplemented by the filing of documents pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1933 Act or otherwise, are referred to herein as the "Registration Statement" and the "Prospectus." 3. Public Offering. The sale of the Securities to the public shall commence as soon as you deem advisable. When notified by you that the Securities are publicly offered for sale, we will offer and sell the Securities in conformity with the terms of the Offering set forth in the Prospectus, in the Rights Agent Agreement and in conformity with the following: (a) We will instruct each Holder on behalf of whom we solicit the exercise of, or on behalf of whom we exercise, Subscription Rights that payment for the aggregate Subscription Price attributable to any Subscription Rights so solicited or exercised must be made by bank certified check or cashier's check, payable to the order of the Subscription Agent. (b) We will transmit to the Subscription Agent, as defined in the Prospectus, any funds received from a Holder by 12:00 p.m., New York time, on the business day following the date of our receipt of such funds. (c) During the duration of the Offering, we will promptly notify the Rights Agent, as defined in the Prospectus, of any acquisition by us, or any of our associated or affiliated persons, of any unregistered securities of the Issuer. Such notification shall set forth complete details of any such acquisition, including, but not limited to, the date of acquisition, the acquisition price, and the amount of unregistered securities so acquired. (d) During the duration of the Offering, we will promptly notify the Rights Agent of any contractual or other relationship, other than the relationship evidenced hereby, between us and the Issuer. (e) We will not sell any Securities to any account over which we have discretionary authority. We will also comply with any other restrictions which may be set forth in the Rights Agent Agreement. The initial public advertisement, if any, with respect to the Securities shall appear on such date, and shall include the names of such Participating Agents, as you may determine. 4. Scope of Participation. Our participation in the Offering and in the sale of the Securities offered thereby shall be limited to: (i) prior to the Expiration Date of the Offering, soliciting the exercise of Subscription Rights at the Subscription Price of $4.34 per share; and (ii) prior to the Termination Date of the Offering, soliciting the purchase of any unsubscribed Shares at a purchase price of $4.34 per share. 5. Open Market Transactions. We represent, warrant and agree that in connection with the Offering of the Securities we have complied and will comply with the provisions of Rule 10b-6 under the 1934 Act with regard to trading in the Securities. For purposes of the foregoing sentence, we agree that, in addition to the Securities, other securities of the Issuer or securities of any guarantor of the Securities or any other right or option to purchase or otherwise acquire any securities of the Issuer shall be considered securities of the same class and series as the Securities. 6. Compensation. As compensation for our services in the Offering, you agree to pay to us compensation attributable to any Subscription Rights validly exercised through us, exclusive of Excluded Subscriptions (as defined in the prospectus) or to any unsubscribed Shares purchased on behalf of customers solicited by us, which compensation is equal to four percent (4.0%) of the aggregate Subscription Price, as defined in the Prospectus, or aggregate purchase price, as applicable, attributable to any shares of the Issuer's Common Stock placed by us in the Offering other than Shares exercised pursuant to the Excluded Shares Subscriptions or shares purchased by WHR pursuant to the WHR Stock Purchase Commitment (as defined in the Prospectus). Subject to the Issuer's acceptance of each subscription, and subject to and conditioned on your prior receipt of good funds in payment of your commissions under the Rights Agent Agreement (collectively, the "Rights Agent Commissions"), commissions will be payable to us within three (3) business days after the Rights Agent's receipt of good funds in payment of the Rights Agent Commissions. Under no circumstances may you withhold any portion of the Rights Agent Commissions to be applied toward payment of our compensation. 7. Legal Qualifications. You shall inform us, upon request, of the states and other jurisdictions of the United States in which it is believed that the Securities are qualified for sale under, or are exempt from the requirements of, their respective securities laws, but you assume no responsibility with respect to our right to sell securities in any jurisdiction. If we propose to offer Securities outside the United States, its territories or its possessions, we will take, at our own expense, such action, if any, as may be necessary to comply with the laws of each foreign jurisdiction in which we propose to offer Securities. 8. Membership in National Association of Securities Dealers, Foreign Rights Agents and Banks. We understand that you are a member in good standing of the NASD. We confirm that we are actually engaged in the investment banking or securities business and are either: (i) a member in good standing of the NASD; (ii) a dealer with its principal place of business located outside the United States, its territories and its possessions and not registered under the 1934 Act who hereby agrees to make no sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein; or (iii) a bank not eligible for membership in the NASD. We hereby agree to comply with Section 24 of Article III of the Rules of Fair Practice of the NASD, and if we are a foreign dealer or bank and not a member of the NASD we also hereby agree to comply with the NASD's interpretation with respect to free- riding and withholding, to comply, as though we were a member of the NASD, with the provisions of Sections 8 and 36 of Article III of such Rules of Fair Practice, and to comply with Section 25 of Article III thereof as that section applies to a non-member foreign dealer or bank. 9. Distribution of Prospectuses. We are familiar with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the 1934 Act, relating to the distribution of preliminary and final prospectuses and we confirm that we will comply therewith, to the extent applicable, in connection with any sale of the Securities. You shall cause to be made available to us, to the extent made available to you by the Issuer, such number of copies of the Prospectus as we may reasonably request for purposes contemplated by the 1933 Act, the 1934 Act and the rules and regulations thereunder. 10. Net Capital. The incurrence by us of our obligations hereunder and under the Rights Agent Agreement in connection with the Offering of the Securities will not place us in violation of the net capital requirements of Rule 15c3-1 under the 1934 Act, nor will such incurrence, if we are a financial institution subject to regulation by the Board of Governors of the Federal Reserve System, the Comptroller of the Currency or the Federal Deposit Insurance Corporation, place us in violation of the capital requirements of such regulator or any other regulator to which we are subject. 11. Termination. You may terminate any or all of the provisions of this Agreement at any time by prior notice to us. 12. Expenses. We agree to bear our own expenses in connection with our participation in the Offering without right to reimbursement from you; provided, however, that the Offering is terminated, we will only be entitled to be reimbursed for our out-of-pocket expenses. 13. Indemnification. With respect to the Offering, we will indemnify and hold harmless each other Participating Agent and each person, if any, who controls a Participating Agent within the meaning of Section 15 of the 1933 Act, to the extent that and on the terms upon which we agree to indemnify and hold harmless the Issuer and other specified persons as set forth in the Rights Agent Agreement. 14. Claims Against Participating Agents. With respect to the Offering, if at any time any person other than a Participating Agent asserts a claim (including any commenced or threatened investigation or proceeding by any governmental agency or body) against one or more of the Participating Agents or against the Rights Agent arising out of an alleged untrue statement or omission in the Registration Statement (or any amendment thereto) or any prospectus or any amendment or supplement thereto, or relating to any transaction contemplated by this Agreement, the indemnification provisions set forth in the Rights Agent Agreement shall apply. 15. Legal Responsibility. As the Rights Agent, you shall have no liability to us, except for your lack of good faith and for obligations assumed by you in this Agreement and except that we do not waive any rights that we may have under the 1933 Act or the 1934 Act or the rules and regulations thereunder. No obligation not expressly assumed by you in this Agreement shall be implied herefrom. Nothing herein contained shall constitute the Participating Agents to be in association, or partnership, with you, or with each other, or, except as otherwise provided herein or in the Rights Agent Agreement, nor render any Participating Agent liable for the obligations of any other Participating Agent; and the rights, obligations and liabilities of the Participating Agents are several in accordance with their respective obligations, and not joint. If the Participating Agents are deemed to constitute a partnership for federal income tax purposes, we elect to be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (the "Code"), and agree not to take any position inconsistent with such election, and you, as the Rights Agent, are authorized, in your discretion, to execute on behalf of the Participating Agents such evidence of such election as may be required by the Internal Revenue Service and to act as Tax Matters Partner, within the meaning of the Code and Regulations promulgated thereunder, for the Partnership. 16. Name and Address. Unless we have promptly notified you in writing otherwise, our name as it should appear in the Prospectus and our address are set forth on the signature pages hereof. 17. Notices. Any notice from you shall be deemed to have been duly given if mailed or transmitted to us at our address appearing below. 18. Governing Law. This Agreement shall be governed by the laws of the State of California applicable to agreements made and to be performed in said State. 19. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when taken together, shall be deemed a fully executed agreement between the parties. Please confirm your acceptance of this Agreement and deliver a copy to us. Very truly yours, Name of Firm By: Authorized Officer or Partner Address: TORREY PINES SECURITIES, INC. By: Accepted as of: _____________________, 1995 (the "Effective Date") EXHIBIT A PARTICIPATING AGENT QUESTIONNAIRE This Participating Agent Questionnaire constitutes a part of, and is expressly incorporated by reference in, that certain Participating Agent Agreement relating to the participation by each Participating Agent in the offering (the "Offering") by SDNB Financial Corp., a California corporation (the "Issuer"), of up to 769,582 shares of its Common Stock, no par value (the "Shares"), to holders of record of its Common Stock on May 5, 1995, pursuant to transferable subscription rights (the "Basic Subscription Rights" and, together with the "Oversubscription Rights," hereinafter referred to as the "Subscription Rights") (the Subscription Rights and the Shares are collectively referred to herein as the "Securities"). By accepting the Participating Agent Agreement and except as otherwise indicated in a written communication previously furnished to Torrey Pines Securities, Inc., a California corporation (the "Rights Agent"), each Participating Agent expressly confirms the following information. Capitalized terms used but not defined herein shall have the same meanings ascribed to such terms in the Participating Agent Agreement. (a) At or prior to the Closing Date of the Rights Agent Agreement, such Participating Agent shall comply with all agreements and shall satisfy all conditions on its part required to be performed pursuant to the Participating Agent Agreement or the Rights Agent Agreement. (b) The representations and warranties of such Participating Agent set forth in the Participating Agent Agreement and the Rights Agent Agreement are accurate in all material respects, and such Participating Agent shall maintain compliance with such representations and warranties at, and as of, all times from the Effective Date of the Participating Agent Agreement through the Closing Date of the Rights Agent Agreement. (c) Neither such Participating Agent nor any of its directors, officers or partners have any material (as defined in Regulation C under the 1933 Act) relationship with Issuer, its parent (if any) or any other seller of the Securities. (d) Except as described or to be described in the Participating Agent Agreement, the Rights Agent Agreement or the Prospectus, such Participating Agent does not know: (i) of any discounts or commissions to be allowed or paid to dealers, including all cash, securities, contracts, or other consideration to be received by any dealer in connection with the sale of the Securities, or of any other discounts or commissions to be allowed or paid to the Participating Agents or of any other items that would be deemed by the NASD to constitute underwriting compensation for purposes of the NASD's Rules of Fair Practice; (ii) of any intention to over-allot; or (iii) that the price of any security may be stabilized or manipulated to facilitate the offering of the Securities. (e) No report or memorandum has been prepared for external use (i.e., outside such Participating Agent's organization) by such Participating Agent in connection with the proposed offering of Securities and, in the case of a registered offering, such Participating Agent has not prepared or had prepared for it any engineering, management or similar report or memorandum relating to the broad aspects of the business, operations or production of the Issuer, its parent (if any) or any guarantor of any of the Securities within the past twelve months (except for reports solely composed of recommendations to buy, sell or hold the securities of the Issuer, its parent (if any) and any guarantor of the Securities, unless such recommendations have changed within the past six months). If any such report or memorandum has been prepared, such Participating Agent shall promptly furnish to the Rights Agent three copies thereof, together with a statement as to the actual or proposed use, identifying each class of persons who have received or will receive the report or memorandum, the number of copies distributed to each class and the period of distribution. (f) Neither such Participating Agent, nor any "group" (as that term is defined in Section 13(d)(3) of the 1934 Act) of which it is a member, is the beneficial owner (determined in accordance with Rule 13d-3 under the 1934 Act) of more than 5% of any class of voting securities of the Issuer, its parent (if any), any other seller of the Securities or any guarantor of the Securities, nor does such Participating Agent have any knowledge that more than 5% of any class of voting securities of the Issuer is held or to be held subject to any voting trust or other similar agreement. (g) The Participating Agent is not, directly or indirectly, affiliated or associated with any beneficial owner of any unregistered security of the Issuer acquired within the 12-month period prior to April 3, 1995, the initial filing date of the Registration Statement on Form S-3 relating to the Offering. (h) The Participating Agent does not have any, direct or indirect, affiliation or association with any officer, director or five percent (5%) or greater shareholder of the Issuer. (i) Neither the Participating Agent nor any associated person, parent or affiliate of the Participating Agent has a "Conflict of Interest" with the Issuer within the meaning of Section 2(g) of Schedule E to the NASD Bylaws. The undersigned hereby confirms and certifies that each of the foregoing is true and correct. Date Name of Participating Agent By: Signature [Print Name and Title] -----END PRIVACY-ENHANCED MESSAGE-----