-----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, sVvaHqSdm1MewC3gKRpe2X3YjTJntWU4YKcD11jKL+BFmveHctqwBNzLY2Z/O7nA U2Flp2/8t7wQzcv/O9tpwg== 0000950110-95-000218.txt : 19950414 0000950110-95-000218.hdr.sgml : 19950414 ACCESSION NUMBER: 0000950110-95-000218 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19950407 SROS: NASD GROUP MEMBERS: WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II LP GROUP MEMBERS: WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II-A, L.P. SUBJECT COMPANY: 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: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-39091 FILM NUMBER: 95527585 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II LP CENTRAL INDEX KEY: 0000943311 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133663987 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 767 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128885222 MAIL ADDRESS: STREET 1: 767 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D 1 INITIAL STATEMENT OF BENEFICIAL OWNERSHIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- OMB APPROVAL OMB Number: 3235-0145 Expires: October 31, 1997 Estimated average burden hours per response....14.90 ----------- SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. ________)* SDNB Financial Corp. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock - -------------------------------------------------------------------------------- (Title of Class of Securities) 784082-10-9 ------------------------------ (CUSIP Number) James P. Heffernan, c/o Whitman Heffernan Rhein & Co., Inc. 767 Third Avenue, New York, New York 10017 (212) 888-5222 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 28, 1995 ------------------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-I(b)(3) or (4), check the following box / /. Check the following box if a fee is being paid with the statement /X/. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP No. 784082-10-9 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON WHR Management Corporation, as General Partner of Whitman Heffernan & Rhein Workout Fund II, L.P. and Whitman Heffernan & Rhein Workout Fund II-A, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / / (b) /X/ - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* 00 - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OR ORGANIZATION New York corporation - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 510,121 ------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY N/A OWNED BY ------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 510,121 WITH ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER N/A - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 510,121 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 24.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* C - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION Page 2 of 62 Pages SCHEDULE 13D CUSIP No. 784082-10-9 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Whitman Heffernan & Rhein Workout Fund II, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) (a) / / (b) /X/ - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* 00 - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OR ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 358,524 ------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY N/A OWNED BY ------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 358,524 WITH ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER N/A - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 358,524 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* /X/ - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 17.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION Page 3 of 62 Pages SCHEDULE 13D CUSIP No. 784082-10-9 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Whitman Heffernan & Rhein Workout Fund II-A, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / / (b) /X/ - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* 00 - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OR ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 151,597 ------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY N/A OWNED BY ------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 151,597 WITH ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER N/A - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 151,597 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* /X/ - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.4% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION Page 4 of 62 Pages ITEM 1: Security and Issuer This Statement relates to the acquisition of common stock, no par value (the "Common Stock"), of SDNB Financial Corp. (the "Issuer"). The address of the principal executive offices of the Issuer is: 1420 Kettner Boulevard, San Diego, California 92101. ITEM 2: Identity and Background This statement is filed on behalf of (i) Whitman Heffernan & Rhein Workout Fund II, L.P. ("Fund II"), (ii) Whitman Heffernan & Rhein Fund II-A, L.P. ("Fund II-A") and WHR Management Corporation ("Management Corp."), in its capacity as the sole general partner of Fund II and Fund II-A. Fund II and Fund II-A (together, the "Funds") are Delaware limited partnerships, and Management Corp. is a New York corporation. Fund II, Fund II-A and Management Corp. are collectively referred to herein as the "Filer." The business of Filer is to invest in, own, sell or exchange debt and/or equity securities. The business address of the Funds and Management Corp. (and each of the executive officers and directors of Management Corp.) is set forth on the cover page hereof. During the last five years, neither the Filer, nor any general partner, executive officer, director or controlling person of the Filer, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) nor during the last five years, has Filer, or any general partner, executive officer, director or controlling person of the Filer, been party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3: Source and Amount of Funds or Other Consideration Pursuant to the terms of a Stock Purchase Agreement, dated as of January 31, 1995 (the "Stock Purchase Agreement"), among the Funds and the Issuer, on March 28, 1995 Fund II acquired 358,524 shares of Common stock and Fund II-A acquired 151,597 shares of Common Stock at a purchase price of $4.34 per share (for an aggregate cost of $2,213,925.14). The source of funds used by Fund II and Fund II-A for the purchase reported in this Statement was the available committed capital of Fund II and Fund II-A. ITEM 4: Purpose of Transaction Filer has acquired the securities of the Issuer for investment. Filer has no plans or proposals which relate to or would result in any of the following: (a) The acquisition by any person or additional securities of the Issuer, or the disposition of securities of the Issuer other than as disclosed below in response to Item 5; Page 5 of 62 Pages (b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) A sale or transfer of a material amount of assets of the Issuer or of any of its subsidiaries; (d) Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board of directors of the Issuer; (e) Any material change in the present capitalization or dividend policy of the Issuer; (f) Any other material change in the Issuer's business or corporate structure; (g) Changes in the Issuer's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (h) Causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934; or (j) Any action similar to any of those enumerated above. In connection with the filing of a Notice of Change in Control with the Federal Reserve Board, Fund II and Fund II-A have made certain commitments which limit their ability to exercise control over the Issuer. Those commitments are set forth in response to Item 6 below. ITEM 5: Interest in Securities of the Issuer Fund II beneficially owns, and has the sole power to vote or dispose of, 358,524 shares of Common Stock. Fund II-A beneficially owns, and has the sole power to vote or dispose of, 151,597 shares of Common Stock. The 510,121 shares of Common Stock beneficially owned by the Filer represents, to the best of Filer's knowledge, 24.9% of the outstanding Common Stock. As disclosed in the response to Item 6 below, pursuant to the terms of the Stock Purchase Agreement, Filer has agreed to purchase additional shares of Common Stock after completion of a Rights Offering to be conducted by the Issuer. The number of additional shares to be purchased by the Filer will be the number necessary to cause the Filer to continue to hold 24.9% of the shares of the Common Stock after giving effect to the issuance of shares in the Rights Offering. Page 6 of 62 Pages ITEM 6: Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer Pursuant to Section 2.8 of the Agreements of Limited Partnership of Fund II and Fund II-A, certain actions taken by Fund II and Fund II-A (including voting as securityholders and disposing of investments) must be taken by Fund II and Fund II-A simultaneously. By letter dated March 9, 1995 from the Federal Reserve Bank of San Francisco, the Federal Reserve Board approved the acquisition referred to in this Statement under the Change in Bank Control Act. In connection with such approval, the Funds have committed that they will not directly or indirectly: 1. Seek or accept representation on the board of directors of the Issuer or its subsidiary bank, San Diego National Bank ("Bank"), except that the Funds may have a nonvoting observer attend the board of directors meetings of the Issuer and Bank and may designate a director for the board of directors of the Issuer under the conditions set forth below; 2. Take action causing the Issuer or Bank to become a subsidiary of the Funds; 3. Acquire or retain shares that would cause the combined interests of the Issuer and their officers, directors, trustees, and affiliates to exceed 24.9 percent of the outstanding voting securities of the Issuer or 24.9 percent of the equity of the Issuer; 4. Exercise or attempt to exercise a controlling influence over the management or policies of the Issuer or Bank; 5. Have or seek to have any representative serve as an officer, agent, or employee of the Issuer or Bank; 6. Propose a director or slate of directors in opposition to a nominee or slate of nominees proposed by the management or board of directors of the Issuer or Bank; 7. Solicit or participate in soliciting proxies with respect to any matter presented to the shareholders of the Issuer or Bank; 8. Attempt to influence the dividend policies or practices of the Issuer or Bank; 9. Attempt to influence the loan and credit decisions or policies of the Issuer or Bank, the pricing of services, any personnel decisions, the location of any offices, branching, the hours of operation, or similar activities of the Issuer or Bank, except that this commitment shall not apply to the execution of board responsibilities by a director designated under the conditions set forth below; Page 7 of 62 Pages 10. Enter into any other banking or nonbanking transaction with the Issuer or Bank, except that (a) the Funds may establish and maintain deposit accounts with Bank, provided that the aggregate balances of all such accounts do not exceed $500,000 and that the accounts are maintained on substantially the same terms as those prevailing for comparable accounts of persons unaffiliated with the Issuer, (b) Bank and Danielson Trust Company may continue their trust referral arrangement provided that the referral income received by Bank from Danielson Trust Company shall not exceed on an annual basis an amount equal to one percent (1%) of the shareholders equity of Bank and such arrangement will be on arms-length basis and on substantially the same terms and conditions that would be offered to others in similar circumstances not affiliated with the Issuer, and (c) the Funds, as the mortgagee on the building occupied by the Issuer and Bank, will not use this mortgage lending relationship to exert or attempt to exert control over the Issuer or Bank; 11. Dispose or threaten to dispose of shares of the Issuer in any manner as a condition of specific action or nonaction by the Issuer; In connection with the Funds' proposal to designate a member of the board of the Issuer in the event that such designation becomes necessary for the Funds to retain their qualification under ERISA as a "venture capital operating company," the Funds commit: 12. To make such a designation only after providing notice to the Federal Reserve Board staff and demonstrating to the Board's satisfaction that the Funds' ERISA qualification is in jeopardy without the representation; 13. That such designation would be solely for the purpose of complying with ERISA and would not be for the purpose of exercising control over the Issuer pursuant to the Bank Holding Company Act; 14. That the Funds will not seek to designate a director of the Issuer without first designating, to the extent possible, a director at all other investments made by the Funds; 15. To reduce their aggregate holding of the Issuer shares to less than 15 percent of the total voting shares of the Issuer and to less than 15 percent of the total equity of the Issuer. The Funds will make this reduction as soon as possible, but not later than six months following the director's designation. The Funds may request, and the Board may grant, an extension of this time period if the Funds are not likely to divest the required shares within this period and demonstrate that they have exercised reasonable efforts in good faith to divest the required shares; 16. To cease having a nonvoting observer attend meetings of the board of directors of the Issuer at the time of designation; Page 8 of 62 Pages 17. That the Funds will submit the name of a proposed director to the Board for its review prior to designating this individual, and to accommodate any reasonable objection of the Board in selecting the designated individual; and 18. That the Funds will not designate as a director of the Issuer any officer, board member, management official, or partner of Management Corp., or any of its affiliates. Pursuant to the terms of the Stock Purchase Agreement, the Issuer has agreed to file with the Securities and Exchange Commission a Registration Statement pursuant to which the Issuer shall offer to its existing stockholders (other than the Funds) the right to purchase additional shares of Common Stock at a price equal to the price at which the Funds acquired the shares referred to in this Statement (the "Rights Offering"). In addition, the Funds have agreed to purchase additional shares of Common Stock upon completion of the Rights Offering in such numbers that the Funds will continue to own shares representing 24.9% of the issued and outstanding shares of Common Stock. Pursuant to a Registration Rights Agreement, dated as of March 28, 1995, among the Issuer and the Funds, the Issuer has agreed, among other things, to file not later than six months after the conclusion of the Rights Offering, a Registration Statement in compliance with the Securities Act of 1933, as amended, covering the offer and sale of the shares of Common Stock acquired by the Funds and to use its best efforts to cause such Registration Statement to be declared effective. ITEM 7: Material to Be Filed as Exhibits Attached as Exhibits hereto are (1) the Stock Purchase Agreement (without exhibits); (2) the Registration Rights Agreement; (3) Section 2.8 of the Agreement of Limited Partnership of Fund II; (4) Section 2.8 of the Agreement of Limited Partnership of Fund II-A; and (5) Federal Reserve Bank of San Francisco letter dated March 9, 1995. Page 9 of 62 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: April 6, 1995 WHR MANAGEMENT CORPORATION, as General Partner of Whitman Heffernan & Rhein Workout Fund II, L.P. and Whitman Heffernan & Rhein Workout Fund II-A, L.P. By: /s/ JAMES P. HEFFERNAN ----------------------------------------------- Name: James P. Heffernan Title: President WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II, L.P. By: WHR Management Corporation, as General Partner By: /s/ JAMES P. HEFFERNAN ----------------------------------------------- Name: James P. Heffernan Title: President WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II-A, L.P. By: WHR Management Corporation, as General Partner By: /s/ JAMES P. HEFFERNAN ----------------------------------------------- Name: James P. Heffernan Title: President Page 10 of 62 Pages EXHIBIT INDEX The following items are attached hereto as exhibits pursuant to Item 7 of the Schedule 13D. These exhibits have been copied from the originals for the purpose of this EDGAR filing. The original versions of all exhibits were duly executed. PAGE 12 (1) Stock Purchase Agreement, dated as of January 31, 1995, among Filer and the Issuer; 40 (2) Registration Rights Agreement, dated as of January 31, 1995, among Filer and the Issuer; 57 (3) Section 2.8 of the Agreement of Limited Partnership of Fund II; 58 (4) Section 2.8 of the Agreement of Limited Partnership of Fund II-A; and 59 (5) Federal Reserve Bank of San Francisco letter dated March 9, 1995. Page 11 of 62 Pages EX-1 2 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 31st day of January, 1995 by and between SDNB FINANCIAL CORP., a California corporation (the "Company"), and WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II, L.P., a New York limited partnership, and WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II-A, L.P., a New York limited partnership (collectively "Investor"). THE PARTIES HEREBY AGREE AS FOLLOWS: ARTICLE I PURCHASE AND SALE OF STOCK 1.1 Sale and Issuance of Common Stock. 1.1.1 Subject to the terms and conditions of this Agreement, Investor agrees to purchase and the Company agrees to sell and issue to Investor shares of the Company's common stock, no par value (the "Common Stock") as follows: (a) At the Initial Closing (as hereinafter defined), Five Hundred Ten Thousand, One Hundred Twenty-One (510,121) shares of the Company's Common Stock allocated between each of the parties comprising Investor as set forth on Schedule I annexed hereto at a price (the "Purchase Price") of Four Dollars Thirty-Four Cents ($4.34) per share (the "Initial Investment"); and (b) At the Second Closing (as hereinafter defined), that number of additional shares determined pursuant to Section 1.3 below (the "Additional Investment") allocated between each of the parties comprising Investor as set forth on Schedule I annexed hereto at a price equal to the Purchase Price. 1.2 Initial Investment. The number of shares to be purchased by Investor is calculated to insure that, in compliance with applicable regulatory requirements, the amount invested will not exceed 24.9% of the issued and outstanding shares of Common Stock of the Company after purchase by Investor. 1.2.1 Regulatory Approval. The obligations of Investor hereunder are subject to and conditional upon approval of the transaction contemplated hereof of Bank Regulators (as hereinafter defined). 1.3 Rights Offering to Existing Shareholders; Additional Investment. Immediately after the Initial Closing, the Company will prepare and file with the Securities and Exchange Commission (the Page 12 of 62 Pages "SEC") a registration statement on Form. S-3 whereby it offers its existing shareholders, other than Investor, the right to purchase additional shares of Common Stock of the Company at a price equal to the Purchase Price (the "Rights Offering"). Upon completion of such Rights Offering, the Investor will purchase, and the Company shall issue and sell, at the Purchase Price, such additional Shares of Common Stock so that after the completion of the Rights Offering Investor owns an aggregate of 24.9% of the issued and outstanding shares of Common Stock of the Company. 1.4 "Most Favored Nation." If, at any time after the Initial Closing but prior to the Initial Closing, the Company shall issue any shares of its Common Stock or any debt or equity security convertible into its Common Stock, or shall grant any option, warrant or similar right to purchase any Common Stock and the purchase price, conversion price or exercise price, as the case may be, is less than the Purchase Price, then the Purchase Price shall automatically be reduced to such lower purchase price, conversion price or exercise price. None of the foregoing is intended to apply to the issuance of any shares of Common Stock pursuant to the exercise of any option outstanding prior to the date hereof (all of which are listed on Exhibit A attached hereto), or the grant of any option or warrant pursuant to the Company's existing Stock Option Plans. 1.4.1 If, at any time prior to the Second Closing, the Company shall issue any shares of its Common Stock or any debt or equity security convertible into its Common Stock, or shall grant any option, warrant or similar right to purchase any Common Stock and the purchase price, conversion price or exercise price, as the case may be, is less than the Purchase Price, then the Purchase Price with respect to the Common Stock to be issued at the Second Closing shall automatically be reduced to such lower purchase price, conversion price or exercise price. In addition, the Investor shall be entitled to a credit against the amount due on account of the Additional Investment equal to the excess of the Purchase Price for the Initial Investment over the Purchase Price for the Additional Investment as adjusted pursuant to the provisions of this paragraph, multiplied by the number of shares of Common Stock acquired at the Initial Closing. None of the foregoing is intended to apply to the issuance of any shares of Common Stock pursuant to the exercise of any option outstanding prior to the date hereof (all of which are listed on Exhibit A attached hereto), or the grant of any option or warrant pursuant to the Company's existing Stock Option Plans. 1.5 Closing. 1.5.1 The purchase and sale of the Initial Investment in the Company's Common Stock shall take place at the offices of the Company, 1420 Kettner Boulevard, Seventh Floor, San Diego, California 92112, at 10:00 a.m. local time, on the tenth business Page 13 of 62 Pages day after the satisfaction or waiver of the latest to occur of the conditions precedent set forth in Article IV hereof, or at such other time and place as the Company and Investor mutually agree upon (which time and place are designated as the "Initial Closing" or "Initial Closing Date"). At the Initial Closing, the Company shall deliver to Investor certificates representing the Common Stock which Investor is purchasing against payment to the Company by Investor by federal funds of the Purchase Price therefor. 1.5.2 The purchase and sale of the Additional Investment shall take place at the offices of the Company, 1420 Kettner Boulevard, Seventh Floor, San Diego, California 92112, at 10:00 a.m. local time, on the tenth business day after the latest to occur of the following: (i) the completion of the Rights Offering, (ii) the satisfaction or waiver of all conditions precedent set forth in Article IV hereof, and (iii) the receipt by Investor of notice that the conditions of clauses (i) and (ii) above have been satisfied is received by Investor, or at such other time and place as the Company and Investor mutually agree upon (which time and place are designated as (the "Second Closing or Second Closing Date"). At the Second Closing, the Company shall deliver to Investor certificates representing the Common Stock which Investor' is purchasing against payment to the Company by Investor by federal funds of the Purchase Price therefor. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Investor that, except as set forth on the Disclosure Schedule furnished to Investor and annexed hereto and specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Corporate Existence. The Company is a corporation duly organized, validly existing, and in good standing under the laws of California. San Diego National Bank, a wholly owned subsidiary of the Company ("SDNB") is a national bank duly organized, validly existing and in good standing under the laws of the United States. Both the Company and SDNB have all necessary corporate powers to own their respective properties and to operate their respective business as now owned and operated by each of them. Neither the ownership of their properties nor the nature of their business requires the Company or SDNB to be qualified in any jurisdiction other than the state of its incorporation. 2.2 Capital Structure. The authorized Common Stock of the Company consists of 15,000,000 shares of Common Stock, without par value, of which 1,538,364 shares are presently issued and outstanding. All the shares of Common Stock are validly issued, Page 14 of 62 Pages fully paid, and nonassessable, and such shares have been so issued in full compliance with all federal and state securities laws. Except for the Letter of Intent elated November 17, 1994 between the parties hereto and as set forth on Exhibit A and the Disclosure Schedule, there are no outstanding subscriptions, options, rights, warrants, convertible securities, or other agreements or commitments obligating the Company to issue additional shares of its Common Stock. 2.3 Subsidiaries. The Company owns all of the outstanding Common Stock of SDNB and all of such shares are fully paid, non-assessable and not subject to any preemptive rights and are owned by the Company free and clear of any claims, liens, encumbrances or restrictions and there are no agreements or understandings with respect to the voting or disposition of such shares. The Company does not own, directly or indirectly, any interest or investment (whether equity or debt) in any other corporation, partnership, business trust, or other entity other than as set forth in the Disclosure Schedule. 2.4 Financial Statements. The Company has delivered to Investor true and complete copies of (a) the balance sheets of the Company at December 31, 1991, 1992, and 1993, and the related statements of income, cash flow and changes in shareholders equity for the fiscal years then ended, audited by Coopers & Lybrand, the Company's independent certified accountants; and (b) an unaudited balance sheet of the Company at June 30, 1994 and September 30, 1994, and related statements of income and cash flow and changes in shareholders equity for the fiscal quarters then ended, all of which have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved (collectively clauses (a) and (b), the "Financial Statement.-3"). Such balance sheets, including the related notes, fairly present the financial position, assets and liabilities (whether accrued, absolute, contingent or otherwise) of the Company at the dates indicated and such statements of income, cash flow and changes in shareholders equity fairly present the results of operations, cash flow and changes in shareholders equity, of the Company for the periods indicated therein, subject in the case of the statements of income and cash flow for the quarters ended June 30, 1994 and September 30, 1994, to normal year-end audit adjustments. 2.5 Existing Conditions. Since December 31, 1993, there has not been any: (1) Transaction by the Company or SDNB except in the ordinary course of business as conducted on that date; (2) Capital expenditure by the Company or SDNB exceeding $275,000; Page 15 of 62 Pages (3) Material adverse change in the financial condition, liabilities, assets, business, or prospects of the Company or SDNB; (4) Destruction, damage to, or loss of any asset of the Company or SDNB (whether or not covered by insurance) that materially and adversely affects the financial condition, business, or prospects of the Company or SDNB; (5) Change in accounting methods or practices (including, without limitation, any change in depreciation or amortization policies or rates) by the Company or SDNB except for the adoption of FAS 115, effective January 1, 1994; (6) Revaluation by the Company or SDNB of any of its assets except for the adjustments required by FAS 115; (7) Declaration, setting aside, or payment of a dividend or other distribution in respect to the Common Stock of the Company or SDNB, or any direct or indirect redemption, purchase, or other acquisition by the Company or SDNB of any, of their shares of Common Stock; (8) Except for normal periodic increases in the ordinary course of business consistent with past practices, increases: in the salary or other compensation payable or to become payable by the Company or SDNB to any of their respective officers, directors, or employees, or the declaration, payment, or commitment or obligation of any kind for the payment, by the Company or SDNB, of a bonus or other additional salary or compensation to any such person; (9) Sale or transfer of any asset of the Company or SDNB, except in the ordinary course of business; (10) Amendment or termination of any material contract, agreement, or license to which the Company or SDNB is a party, except in the ordinary course of business; (11) Except in the ordinary course of business, any loan by the Company or SDNB to any person or entity, or guaranty by the Company or SDNB of any loan; (12) Mortgage, pledge, or other encumbrance of any asset of the Company or SDNB; (13) Waiver or release of any right or claim of the Company or SDNB, except in the ordinary course of business; (14) Agreement by the Company or SDNB to do any of the things described in the preceding clauses (1) through (14); Page 16 of 62 Pages (15) Other event or condition of any character that has or might reasonably have a material and adverse effect on the financial condition, business, assets, liabilities, or prospects of the Company or SDNB. 2.6 Liabilities. Neither the Company nor SDNB has any liabilities or obligations (absolute, accrued, contingent or otherwise) except (i) liabilities which are reflected and reserved against in the Financial Statements, (ii) liabilities incurred in the ordinary course of business and consistent with past practice since the date of the Financial Statements, and (iii) liabilities arising under contracts, letters of credit, purchase orders, licenses, permits, purchase agreements and other agreements, business arrangements and commitments described in the Disclosure Schedule or which are of the type described in Section 2.15 but which because of the dollar amount or other qualifications are not required to be listed in the Disclosure Schedule. 2.7 Tax and Other Returns and Audits. Within the times and in the manner prescribed by law, the Company and SDNB have filed all federal, state, and local tax returns required by law and has paid all taxes, assessments, and penalties due and payable. The federal income tax and California tax returns of the Company and SDNB have not been audited by the Internal Revenue Service and the California Franchise Tax Board, respectively. The provisions for taxes reflected in the Financial Statements as of December 31, 1993, are adequate for any and all federal, state, county, and local taxes for the period ending on the date and for all prior periods, whether or not disputed. There are no present disputes as to taxes of any nature payable by the Company or SDNB. 2.8 Leases. All leases to which the Company and SDNB are a party are valid and in full force, and there does not exist any default or event that, with notice or lapse of time, or both, would constitute a default under any of these leases. 2.9 Proprietary Rights. The Company and SDNB have sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for their respective business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. Neither the Company nor SDNB has received any communications alleging that the Company or SDNB have violated or, by conducting their respective businesses as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets, information or other proprietary rights of any other person or entity. Page 17 of 62 Pages 2.10 Disclosure. The Company has fully provided Investor with all the material information which Investor has requested for deciding whether to purchase the Company's Common Stock and all information reasonably necessary to enable Investor to make such decision. 2.11 Information. Neither this Agreement nor any other statements or certificates made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.12 Insurance. The Company and SDNB have in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow each of them to replace any of their respective properties that might be damaged or destroyed. The Company and SDNB also maintain worker's compensation and other insurance required by law. 2.13 Minute Books. The minute books of the Company and SDNB made available to counsel for Investor contain a complete summary of all meetings of directors, committees and shareholders for the last three (3) years and reflect all transactions referred to in such minutes accurately in all material respects. 2.14 Title to Assets; Condition of Tangible Assets. The Company and SDNB have good and marketable title to their respective assets and interests in assets, whether real, personal, mixed, tangible, or intangible, which constitute all the assets and interests in assets that are used in the business of the Company and SDNB. All these assets are free and clear of restrictions on or conditions to transfer or assignment, and free and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims, easements, rights of way, covenants, conditions, or restrictions, except for (1) those disclosed in the Financial Statements; (2) the lien of current taxes not yet due and payable; and (3) possible minor matters that, in the aggregate, are not substantial in amount and do not materially detract from or interfere with the present or intended use of any of these assets or materially impair business operations. All tangible personal property of the Company and SDNB is in good operating condition and repair, ordinary wear and tear excepted. The Company and SDNB are in possession of all premises leased by them from others. 2.15 Contracts and Commitments. Neither the Company, nor SDNB is a party to, nor is the property of the Company or SDNB bound by, any agreement, indenture, mortgage, deed of trust:, or lease not entered into in the ordinary course of business; there is no default or event that, with notice or lapse of time or both, would constitute a default by any party to any agreements to which the Company or SDNB is a party. Neither the Company nor SDNB has Page 18 of 62 Pages received written notice that any party to any agreements to which the Company or SDNB is a party intends to cancel or terminate any such agreements or to exercise or not exercise any options under any such agreements. Neither the Company nor SDNB is a party to, nor is the property of the Company or SDNB bound by, any agreement that was materially adverse to the business, properties, or financial condition of the Company or SDNB when entered into. 2.16 Compliance with Laws. The Company and SDNB and the conduct of the business of each of them is in compliance with all applicable laws, statutes, ordinances and regulations, whether federal, state or local, except where the failure to comply would not have a material adverse effect on the business or financial condition of the Company or SDNB. Except as set forth in the Disclosure Schedule, neither the Company nor SDNB has received any written notice to the effect that, or otherwise been advised that, it is not in compliance with any of such statutes, regulations, orders, ordinances or other laws where the failure to comply would have a material adverse effect on the business or financial condition of the Company, or SDNB, and neither the Company nor SDNB has reason to anticipate that any presently existing circumstances are likely to result in violations of any such regulations which would, in any one case or in the aggregate, have a material adverse effect on. the business or financial condition of the Company or SDNB. 2.17 Litigation. Except as set forth in the Disclosure Schedule, there is not pending, or, to the best knowledge of the Company or SDNB, threatened, any suit, action, arbitration, or legal, administrative, or other proceeding, or governmental investigation against or affecting the Company or SDNB, or any of their respective businesses, assets, or financial condition. Neither the Company nor SDNB is in default with respect to any order, writ, injunction, or decree of any federal, state, local, or foreign court, department, agency, or instrumentality. 2.18 Validity of Contemplated Transactions. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in or constitute any of the following: (1) a default or an event that, with notice or lapse of time or both, would be a default, breach, or violation of the Articles of Incorporation or ByLaws of the Company or SDNB, or any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, or other agreement, instrument, or arrangement to which the Company or SDNB is a party or by which either of them or the property of either of them is bound; (2) an event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other obligation of the Company or SDNB; or (3) the creation or imposition of any lien, charge, or encumbrance on any of the properties; or assets or interests in assets of the Company or SDNB. Page 19 of 62 Pages 2.19 Corporate Power; Authorization. No consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority, or any other person or entity, is required to be made or obtained by the Company or SDNB in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby except for: (A) the approval of the Board of Governors of the Federal Reserve System Under the Bank Holding Act of 1956, as amended; (B) FDIC (?); (C) the filing with the SEC of a proxy statement in definitive form relating to the meeting of the Company's shareholders to be held in connection with this Agreement and the transactions contemplated hereby; and (D) the approval of the Company's shareholders as provided herein. 2.20 Employee Benefit Plans. (1) A "Company Employee Plan" shall mean each "employee benefit plan," as such term is defined in Section 3(3) of the Employment Retirement Income Security Act of 1974, as amended, and all regulations promulgated thereunder, as in effect from time to time ("ERISA"), established by the Company, any of its subsidiaries (which has the meaning given to it in Rule 12b-2 promulgated under the Exchange Act), or any ERISA Affiliates (as hereinafter defined) or under which the Company, any of' its subsidiaries, or any ERISA Affiliate contributes or under which any officer, employee, director of independent contractor or a person or any of its subsidiaries, whether former or current (collectively, "Employee") of the Company or any beneficiary thereof is covered, is eligible for coverage or has benefit rights with respect to service to the Company, any of its subsidiaries or any ERISA Affiliate or under which any obligation exists to issue capital stock of the Company of any of its subsidiaries. A "Company Benefit Arrangement" shall mean each other plan, program, policy, contract or arrangement providing for bonuses, pensions, deferred pay, stock or stock-related awards, severance pay, salary continuation or similar benefits, hospitalization, medical, dental or disability benefits, life insurance or other employee benefits, or compensation to or for any Company Employees or any beneficiaries or dependents of any Company Employees (either than directors' and officers' liability insurance policies), whether or not oral or written or insured or funded, or constituting an employment or severance agreement or arrangement with any officer or director of the Company or, any subsidiary. (2) Each Company Employee Plan and Company Benefit Arrangement has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended, and all regulations promulgated thereunder, as in effect from time to time (the "Code") where the failure to comply would have a material adverse Page 20 of 62 Pages effect on the business, assets, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company and its subsidiaries. To the best of the Company's knowledge, neither the Company nor any of its subsidiaries nor any of their respective Employees nor any other disqualified person or party-in-interest with respect to any Company Employee Plan, have engaged directly or indirectly in any "prohibited transaction," as such term is defined in section 4975 of the Code or Section 406 of ERISA, with respect to which the Company or its subsidiaries could have or has any material liability. All contributions required to be made to the Company Employee Plans and Company Benefit Arrangements have been made in a timely fashion or, to the extent such contributions have not been made in a timely fashion the liability resulting therefrom is not material. Each Company Employee Plan that is intended to be qualified under Section 401(a) or the Code and whose related trust is intended be exempt from taxation under Section 501(a) of the Code has received a favorable determination letter with respect to its qualification and to the Company's best knowledge, nothing has occurred which could cause a loss of such qualification. Neither the Company, any trade or business, whether or not incorporated, that is now or has at any time in the past been treated as a single employer with the Company or any of its subsidiaries under Section 414(b) or (c) of the Code and the Treasury Regulations thereunder ("ERISA Affiliate") nor any subsidiary has incurred any liability to the Pension Benefit Guaranty Corporation other than a liability for premiums not yet due. (3) With respect to each Company Employee Plan that is subject to Title IV of ERISA: (i) there has been no termination, no partial termination and no "reportable event" (as defined in Section 4043 of ERISA) with respect to any such Company Employee Plan as to which the 30-day notice requirement is not waived pursuant to Section 4043 of ERISA and regulations of the Pension Benefit Guaranty Corporation thereunder. No Company Employee Plan that is subject to Section 412 of the Code has incurred any "accumulated funding deficiency" (as defined in Section 412 of the Code), whether or not waived. (4) No Company Employee Plan is a "multiemployer plan' as that term is defined in Section 3(37) of ERISA or a "multiple employer plan" described in Section 4063(a) of ERISA, nor has the Company, any ERISA Affiliate or any subsidiary at any time since September 2, 1974, contributed to or been obligated to contribute to such a multiemployer plan or multiple employer plan. (5) Neither the Company nor any ERISA Affiliate has any liability under Title IV or ERISA, nor do any circumstances exist that could result in any of them having any liability under Title IV of ERISA. Neither the Company nor any subsidiary has any liability for any failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of Page 21 of 62 Pages the Code or to the extent the Company or any subsidiary has any such liability, such liability is not material. (6) There are no actions, suits, arbitrations, inquiries, investigations or other proceedings (other than routine claims for benefits) pending or, to the Company's knowledge, threatened, with respect to any Company Employee Plan or Company Benefit Arrangement. (7) No Employees and no beneficiaries or dependents of Employees are or may become entitled under any Company Employee Plan or Company Benefit arrangement to post-employment welfare benefits of any kind, including without limitation death or medical benefits (other than coverage mandated by Section 4980B of the Code.) (8) There are no agreements with, or pending petitions for recognition of, a labor union or association as the exclusive bargaining agent for any of the Employees of the Company or any of its subsidiaries; no such petitions have! been pending at any time within two years of the date of this Agreement, there has not been any organizing effort by any union or other group seeking to represent any Employees of the Company or any of its subsidiaries as their exclusive bargaining agent at any time within two years of the date of this Agreement. There are no labor strikes, work stoppages or other labor troubles, other than routine grievance matters, now pending, or, to the Company's knowledge, threatened, against the Company or any of its subsidiaries, nor have there been any such labor strikes, work stoppages or other labor troubles, other than routine grievance matters, with respect to, the Company or any of its subsidiaries at any time within two ears of the date of this Agreement. (9) Neither the Company, nor any subsidiary has scheduled or agreed upon future increases of benefits levels (or creations of new benefits) with respect to any Company Employee Plan or Company Benefit Arrangement, and no such increases or creation of benefits have been proposed or made the subject of representations to Employees under circumstances which make it reasonable to expect that such increases would be granted. Except as disclosed in the Disclosure Schedule, no loan is outstanding between the Company, any Subsidiary, or any ERISA Affiliate and any Employee. 2.21 Agreements with Bank Regulators. Except as set forth in the Disclosure Schedule, neither the Company nor SDNB is a party (or has been a party within the last 5 years) to any written agreement or memorandum of understanding with, or party to any commitment letter or similar undertaking to, or is subject to any order or directive by, any Federal or state governmental entity charged with the supervision or regulation of banks or bank holding companies or engaged in insurance of savings bank or bank deposits ("Bank Regulators"), nor has the Company or SDNB been advised by any Bank Regulator that it is contemplating issuing or Page 22 of 62 Pages requesting (or is considering the appropriateness of issuing or requesting) any such order, directive, written agreement, memorandum of understanding, commitment letter or similar undertakings. 2.22 Binding Effect. This Agreement is a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as such enforceability may be limited by (a) applicable solvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors' rights generally, and (b) applicable equitable principles (whether considered in a proceeding at law or in equity). 2.23 Authorization. The Company has full power and authority to enter into this Agreement. 2.24 Fairness. The Company has received an opinion of an investment banking firm selected by it and acceptable to Investor that the transactions contemplated by this Agreement are fair to shareholders from a financial point of view. ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR Investor hereby represents and warrants to the Company that: 3.1 Binding Effect. This Agreement is a valid and legally binding obligation of Investor, enforceable in accordance with its terms, except as such enforceability may be limited by (a) applicable solvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors rights generally, and (b) applicable equitable principles (whether considered in a proceeding at law or in equity). 3.2 Purchase Entirely for Own Account; Authorization. The Common Stock of the Company which is to be acquired hereunder in both the Initial Closing and Second Closing i-/ill be acquired for investment for Investor's own account, and not with a view to the resale or distribution of any part thereof, and that Investor has no present intention of selling, granting any participation in, or otherwise distributing the same without compliance with federal and state securities laws. By executing this Agreement, Investor further represents that Investor does not have any contract, undertaking, agreement: or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Common Stock. Investor represents that it has full power and authority to enter into this Agreement. 3.3 Disclosure of Information. Investor has received all the Page 23 of 62 Pages information it considers necessary or appropriate for deciding whether to purchase the Common Stock. Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Common Stock. 'The foregoing, however, does not limit or modify the representations and warranties of the Company in Article II of this Agreement. 3.4 Investment Experience. Investor is an investor in securities and acknowledges that it is able to fend for itself, can bear the economic risk and complete loss of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Common Stock. 3.5 Restricted Securities. Investor understands that the Common Stock it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. In this connection Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 3.6 Legends. It is understood that the certificates evidencing the Common Stock may bear one or both of the following legends: (a) "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act." (b) Any legend required by the laws of the State! of California. 3.7 Accredited Investor. Investor is an accredited investor as defined in Rule 501 (a) of Regulation D of the SEC under the Securities Act and agrees not to sell, hypothecate, pledge or otherwise dispose of any interest in the Common SIX" in the United States, its territories, possessions or any area subject to its jurisdiction, or to any person who is a national thereof or resident therein (including any estate of such person), or any corporation, partnership or other entity created or organized therein, unless such Common Stock has been either registered under the Securities Act, or is exempt from the registration requirements of the Page 24 of 62 Pages Securities Act, in the opinion of the Company's counsel, and the Investor has compiled with any restrictions on transfer contained in this Agreement. 3.8 No Ownership of Company Common Stock. As of the date hereof, except as set forth in the Letter of Intent dated November 17, 1994 between the parties, neither Investor nor, any of its subsidiaries or affiliates beneficially own, directly or indirectly, or are parties to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of, any of the outstanding shares of the Common Stock of the Company. ARTICLE IV CONDITIONS OF INVESTOR'S OBLIGATIONS AT INITIAL CLOSING AND THE SECOND CLOSING The obligations of Investor under Section 1.1.1 of this Agreement are subject to the fulfillment on or before the Initial Closing and the Second Closing of each of the following conditions by the Company, the waiver of which shall not be effective against the Investor unless in writing: 4.1 Representations and Warranties True as of Initial Closing Date and Second Closing Date. All representations and warranties by the Company in this Agreement, or in any written statement that shall be delivered to Investor under this Agreement, shall be true in all material respects on and as of the Initial Closing Date and Second Closing Date as though ]made at that time. 4.2 Compliance with this Agreement. The Company shall have performed, satisfied, and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it, on or before the Initial Closing Date and Second Closing Date. 4.3 Compliance Certificate. The President of the Company shall deliver to Investor at the Initial Closing and Second Closing Date a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating that, except as set forth in the Disclosure Schedule hereto, there has been no adverse change in the business, affairs, prospects, operations, properties, assets, liabilities or condition of the Company since December 31, 1993. 4.4 Approval of Counsel for Investor. The form and substance of all certificates, instruments, opinions, and either documents delivered to Investor under this Agreement shall be satisfactory in all reasonable respects to Investor and its counsel. 4.5 Opinion of Company Counsel. Investor shall have received Page 25 of 62 Pages from SHERMAN & EGGERS, P.C., counsel for the Company, an opinion, dated as of the Initial Closing and Second Closing Date, respectively, in the form attached herein as Exhibit B. 4.6 Other Approvals. All authorizations, consents, orders or approvals of, or declarations or filings with, and all expirations of waiting periods imposed by, any governmental entity (collectively, the "Consents") which are prescribed by law as necessary for the consummation of the transactions contemplated hereby other than Consents the failure to obtain which would have no material adverse effect on the consummation of the transactions contemplated hereby, taken as a whole, shall have been filed, occurred or been obtained (all such authorizations, consents, orders, approvals, declarations or filings and the lapse of all such waiting periods being referred to as the "Requisite Regulatory Approvals"), as the case may be and all such Requisite Regulatory Approvals shall be in full force and effect. None of the Requisite Regulatory Approvals shall impose any condition or restriction upon the Company, SDNB or Investor which would so materially adversely impact the business, financial condition or results of operations of the Company, SDNB or Investor as to render inadvisable, in the reasonable judgment of the Board[ of Directors of each of the Company, SDNB or Investor, the consummation of the transactions contemplated hereby (a "Burdensome Condition"). 4.7 Company is "Well Capitalized," The Company's ratios for Total Risk Based Capital, Tier 1 Risk Based Capital and Tier 1 Leverage Capital are within the "well capitalized" level as determined in accordance with Federal Reserve Bank regulations. 4.8 No Material Adverse Change. There shall have occurred no material adverse change in, nor any condition, event or change which is reasonably likely to have a material adverse effect on the Company or its business, financial condition, or results of operations taken as a whole. 4.9 No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding by any governmental entity seeking any such Injunction be pending. No statute, rule, regulation, order, Injunction or decree shall have been enacted, entered, promulgated or enforced by any governmental entity which prohibits, restricts or makes illegal consummation of the transactions contemplated hereby. 4.10 Intentionally Omitted. 4.11 Shareholder Approval. The consummation of the transactions contemplated by this Agreement shall have been approved Page 26 of 62 Pages by the affirmative vote of a majority of the votes cast by all of the holders of the outstanding shares of the Company's Common Stock entitled to vote thereat at a meeting of such holders at which a quorum is present. 4.12 Registration Rights Agreement. The Company shall have executed and delivered the Registration Rights Agreement attached hereto as Exhibit C. ARTICLE V CONDITIONS OF THE COMPANY'S OBLIGATIONS AT INITIAL CLOSING AND SECOND CLOSING The obligations of the Company under this Agreement are subject to the fulfillment on or before the Initial Closing and the Second Closing of each of the following conditions by Investor, the waiver of which shall not be effective against the Company unless in writing: 5.1 Representations and Warranties True as of Initial Closing Date and Second Closing Date. All representations and warranties by Investor contained in this Agreement or in any written statement delivered by Investor under this Agreement, shall be true in all material respects on and as of the Initial Closing Date and Second Closing Date as though made at that date. 5.2. Opinion of Counsel for Investor. Investor shall have furnished the Company with an opinion, dated the Initial Closing Date and Second Closing Date, respectively, of ANDERSON KILL OLICK & OSHINSKY, P.C., special counsel for Investor, in the form attached hereto as Exhibit D. 5.3 Other Approvals. All Requisite Regulatory Approvals shall be in full force and effect. None of the Requisite Regulatory Approvals shall impose a Burdensome Condition upon the Company, SDNB or Investor. 5.4 Shareholder Approval. The consummation of the transactions contemplated by this Agreement shall have been approved by the affirmative vote of a majority of the votes cast by all of the holders of the outstanding shares of the Company's Common Stock entitled to vote thereat at a meeting of such holders at which a quorum is present. 5.5 Intentionally Omitted. 5.6 No Injunctions or Restraints; Illegality. No Injunction preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding by any governmental entity seeking any such Injunction be pending. No Page 27 of 62 Pages statute, rule, regulation, order, Injunction or decree shall have been enacted, entered, promulgated or enforced by any governmental entity which prohibits, restricts or makes illegal consummation of the transactions contemplated hereby. ARTICLE VI COVENANTS 6.1 Conduct of Business. During the period from the date of this Agreement and continuing until the Initial Closing and Second Closing Date, except as expressly contemplated or permitted by this Agreement or with the prior written consent of Investor, the Company shall carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, and use all reasonable efforts to preserve intact its present business organization and relationships. Without limiting the generality of the foregoing, and except as otherwise contemplated by this Agreement, the Company shall not: (a) amend its Articles of Incorporation, Bylaws or other applicable governing document; (b) authorize or permit any of its officers, directors, employees or agents to directly or indirectly solicit, initiate or encourage any inquiries or the making of any proposal which constitutes any "takeover proposal" (as defined below) or, except to the extent legally required for the discharge of the fiduciary duties of the Board of Directors of the Company after consultation with such board's counsel, recommend or endorse any takeover proposal, or participate in any discussions or negotiations, or provide third parties with any nonpublic information, relating to any such inquiry or proposal or otherwise facilitate any effort or attempt to make or implement a takeover proposal. The Company will notify Investor immediately if any such inquiries or takeover proposals are received by, and such information is required from, or any such negotiations or discussions are sought to be initiated with, the Company. As used in this Agreement, "takeover proposal" shall mean any tender or exchange offer, proposal for a merger, consolidation or other business combination involving the Company or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of' the assets of, the Company or SDNB other than the transactions contemplated or permitted by this Agreement; (c) knowingly take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the consummation of the transactions contemplated hereby set forth in Article IV not being satisfied, or in violation of any provision Page 28 of 62 Pages of this Agreement, except, in every case, as may be required by applicable law; (d) except as required by applicable law, knowingly -take or cause to be taken an action that could reasonably, be expected to jeopardize or delay the receipt of any of the Requisite Regulatory Approvals or which would reasonable be expected to result in any such Requisite Regulatory Approval containing a Burdensome Condition; (e) sell or otherwise dispose of or encumber any shares of Common Stock of SDNB; (f) fail to use its best efforts to keep in full force and effect its insurance in such amounts as are reasonable to cover such risks customary in relation to the character and location of its properties and the nature of its business and in any event at least equal in scope and amount of coverage of insurance carried as of the date hereof; (g) fail to notify the Investor promptly of its receipt of any letter, notice or other communication, whether written or oral, from any Bank Regulators advising the Company that it is contemplating issuing, requiring, or requesting any agreement, memorandum of understanding, or similar undertaking, order or directive; (h) fail to use its best efforts to remain in compliance with any capital or other operating requirement of any regulatory agency to which it is subject; (i) fail to maintain and keep its properties in as good repair and condition as of the date hereof, except for depreciation due to ordinary wear and tear; (j) fail to perform in all material respects all obligations required to be performed under all material contracts, leases, and documents relating to or affecting its assets, properties, and business; (k) enter any agreement to take any of the foregoing actions. 6.2 Investor to File Notice of Change in Control. Investor shall promptly prepare and file a Notice of Change in Control pursuant to 12 U.S.C. SS 1817(j) with respect to the transactions contemplated hereby. Investor shall use its best efforts to obtain Requisite Regulatory Approval of such filing as soon as possible. Investor shall be free to negotiate the type of commitments required for such approval but agrees to accept,if necessary, the commitments previously negotiated with the staff of the Federal Reserve by Investor. Page 29 of 62 Pages 6.3 Access to Information. Upon reasonable notice and subject to applicable laws relating to the exchange of information, the Company shall (and shall cause SDNB to) afford to the officers, employees, accountants, counsel and other representatives of the Investor access, during normal business hours during the period prior to the Initial Closing, to all its properties, books, contracts, commitments and records and, during such period, the Company shall make available to Investor (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of Federal securities laws or Federal or state banking laws (other than reports or documents which such party is not permitted to disclose under applicable law) and (b) all other information concerning its business, properties, mortgage and other loans, other :real estate owned and personnel as the Investor may reasonably request. Neither the Company nor SDNB shall be required to provide access to or to disclose information where such access or disclosure would contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date hereof. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. Investor will hold all such information in confidence to the extent required by, and in accordance with, the provisions of the confidentiality agreement, dated September 17, 1993, between the Company and Investor (the "Confidentiality Agreement"). No investigation by Investor shall affect the representations and warranties set forth herein. 6.4 Meetings of Shareholders. The Company will take all action necessary in accordance with applicable law and its Articles of Incorporation and Bylaws to convene a meeting of its shareholders (the "Company Shareholders' Meeting") as promptly as practicable to consider and vote upon the approval of the transactions contemplated by this Agreement and the other transactions contemplated hereby (the "Company's Shareholders' Approval"); and (ii) the Board of Directors of the Company shall recommend (which recommendation shall not be withdrawn) and declare advisable such approval and the Company shall take all lawful action to solicit, and use all reasonable efforts to obtain, such approval. Investor agrees to cooperate in all reasonable respects with the Company in the Company's efforts to obtain the Company Shareholders' Approval. ARTICLE VII INDEMNIFICATION 7.1 Indemnification by the Company. The Company shall indemnify, defend, and hold harmless Investor, its directors and officers and any person or entity which controls Investor against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and Page 30 of 62 Pages deficiencies, including interest, penalties, and reasonable attorneys' fees, that Investor shall incur or suffer, that arise, result from, or relate to any breach of, or failure by the Company to perform, any of its representations, warranties, covenants, or agreements in this Agreement or in any schedule, certificate, exhibit, or other instrument furnished or to be furnished by the Company under this Agreement. 7.2 Indemnification by Investor. Investor shall indemnify, defend, and hold harmless the Company, its directors and officers and any person or entity which controls the Company against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable attorneys' fees, that the Company shall incur or suffer, that arise, result from, or relate to any breach of', or failure by Investor to perform, any of its representations, warranties, covenants, or agreements in this Agreement or in any schedule, certificate, exhibit, or other instrument furnished or to be furnished by Investor under this Agreement. ARTICLE VIII TERMINATION AND AMENDMENT 8.1 Termination. This Agreement may be terminated at any time prior to the Initial Closing, whether before or after approval of this Agreement and the transactions contemplated hereby by the shareholders of the Company; (a) by mutual consent of the Company and Investor in a written instrument, if the Board of Directors of the Company and the Board of Directors of the General Partners of the Investor each so determines by a vote of a majority of the members of its entire Board; (b) by either the Company or Investor upon written notice to the other party if (i) any Requisite Regulatory Approval shall have been denied and the time for an appeal or petition for reconsideration expires without such appeal or reconsideration having been granted or (ii) any governmental entity of competent jurisdiction shall have issued a final nonappealable order enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; (c) by the Company or the Investor, on written notice to the other, if the transactions contemplated hereby shall not have been consummated on or before May 31, 1995, provided, however, the Company shall not have the right to terminate if failure of the Initial Closing to occur by such date shall be due to the failure of the Company to perform or observe the covenants and agreements Page 31 of 62 Pages of the Company set forth herein; (d) by either the Company or Investor (i) if there has been a material breach of any of the representations or warranties set forth in this Agreement on the part of the other party, which breach by its nature cannot be cured prior to the Initial Closing and which breach would have, individually or in the aggregate, a material adverse effect on the breaching party or upon the consummation of the transactions contemplated hereby, or (ii) if there is a failure of any condition to the obligation of such party to close set forth in this Agreement; provided, that such failure of condition is not caused by the breach of the party seeking to terminate; or (e) by either the Company or Investor if there shall have been a material failure to perform any of the covenants or agreements set forth in this Agreement on the part of the other party, which breach shall not have been cured within twenty business days following receipt by the breaching part),' of written notice of such breach from the other party hereto. 8.2 Effect of Termination. In the event of termination of this Agreement by either the Company or Investor as provided in Section 8.1, this Agreement shall forthwith become void and have no effect except (i) the penultimate sentence of Section 6.4 (including the Confidentiality Agreement), and Sections 8.3 and 9.8, shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in -this Agreement, no party shall be relieved or released from any liabilities or damages arising out of its willful breach or gross negligence in performing of any provision of this Agreement. 8.3 Employees. Investor hereby warrants and agrees I-.hat if this Agreement is terminated and abandoned prior to the Initial Closing, it will not, during the one-year period following such termination and abandonment, directly or indirectly, solicit to leave the employment of the Company, or SDNB, any executive employee of the Company or SDNB as of the date of such termination or abandonment. 8.4 Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval by the shareholders of the Company. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 8.5 Extension: Waiver. At any time prior to the Initial Closing Date, the parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or Page 32 of 62 Pages other acts of the other parties thereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 Survival of Warranties. The warranties, representations and covenants of the Company or Investor contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Initial Closing for a period of two (2) years and shall in no way, be affected by any investigation of the subject matter thereof made by or on behalf of Investor or the Company. 9.2 Successors and Assigns; No Third Party Beneficiaries. Neither this Agreement nor any of the rights, interests; or obligations hereunder shall be assigned by either of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party. Subject to the preceding sentence, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 9.3 Governing Law. This Agreement shall be governed[ by and construed under the laws of the State of California. 9.4 Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.6 Notices. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the second day after mailing if mailed to the party to whom notice is Page 33 of 62 Pages to be given, by first class mail, registered or certified, postage prepaid, and properly addressed as follows: To the Company: SDNB FINANCIAL CORP. 1420 Kettner Boulevard San Diego, CA 92112 Attention: Murray L. Galinson, President and Chief Executive Officer With a Copy to: Sherman & Eggers, P.C. 350 West Ash Street, Suite 1100 San Diego, CA 92101 Attention: Lawrence M. Sherman, Esq. To the Investor: WHR Management Corp. 767 Third Avenue New York, New York 10017 Attn: James Heffernan, President With a Copy to: Anderson Kill Olick & Oshinsky, P.C. 1251 Avenue of the Americas New York, NY 10020 Attention: Michael W. Stamm, Esq. 9.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Investor agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, partners, employees or representatives is responsible. 9.8 Expenses. Irrespective of whether the Initial Closing is effected, the Company shall pay all costs and expenses of Investor with respect to the negotiation, execution, delivery and performance of this Agreement, except that if this Agreement is terminated by Investor due to a Burdensome Condition, the Company shall have no obligation to pay such costs and expenses if Requisite Regulatory Approval could have been obtained on the basis of the commitments negotiated with the staff of the Federal Reserve prior to the execution of this Agreement. Page 34 of 62 Pages 9.9 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and[ the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 9.10 Publicity. Except as otherwise required by law or the rules of the National Association of Securities Dealers, neither the Company nor Investor shall issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the consent of the other party, which consent shall. not be unreasonably withheld. IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day and year first above written. Company: SDNB FINANCIAL CORP., a California Corporation By:/s/ Murray L. Galinson ----------------------------- Murray L. Galinson, President Investor: WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II, L.P. By: WHR Management Corporation, its general partner By:/s/ James P. Heffernan ----------------------------- James P. Heffernan, President WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II-A, L.P. By: WHR Management Corporation, its general partner By:/s/ James P. Heffernan ----------------------------- James P. Heffernan, President Page 35 of 62 Pages LIST OF EXHIBITS Schedule I- Allocation of Shares Disclosure Schedule Exhibit A - Outstanding Options under the Company's Stock Option Plans Exhibit B - Form of Opinion of Sherman & Eggers, P.C. Exhibit C - Registration Rights Agreement Exhibit D - Form of Opinion of Anderson Kill Olick & Oshinsky, P.C. Page 36 of 62 Pages SCHEDULE I Percentage Investors Allocation - --------- ---------- Whitman Heffernan & Rhein Workout Fund II, L.P. 70.28214% Whitman Heffernan & Rhein Workout Fund II-A, L.P. 29.71786% Page 37 of 63 Pages Disclosure Schedule Stock Purchase Agreement Para, no, - --------- 2.3 Subsidiaries: The Company is 50% owner and general partner of San Diego National Bank Building Joint Venture and general partner and 24.4% owner of Kettner Building Associates, Ltd., the limited partnership which owns the remaining 50% of San Diego National Bank Building Joint Venture. 2.5 Creation of a reserve above the amount currently contemplated in connection with the Pioneer Liquidating Corporation matter described in Sec. 2.17(a) below. 2.5(3) Potential adverse change resulting from Mesa loan. 2.5(5) The Company has adopted FAS No. 115 effective January 1, 1994. 2.5(6) The investment portfolio is revalued, as necessary, in accordance with the requirements of FAS No. 115. 2.6 Creation of a reserve above the amount currently contemplated in connection with the Pioneer Liquidating Corporation matter described in Sec. 2.17(a) below. 2.17 Litigation: a) San Diego National Bank is a defendant in an action entitled Pioneer Liquidating Corporation, et al, v. San Diego Trust and Savings Bank, et al., United States District Court, Southern District of California, Case No. 94-361-SPK (BTM) b) San Diego National Bank is a defendant in an action entitled Vakhshour v. Gardality et al., San Diego Superior Court Case No. 668862. c) Richard Riel Elizabeth Riel v. Miles Grant, et al., San Diego Superior Court Case No. 676462 Page 38 of 62 Pages 2.21 Agreements with Bank Regulators: The Company has signed a Memorandum of Understanding with the Federal Reserve Bank of San Francisco dated November 20, 1992. San Diego National Bank has signed a Memorandum of Understanding with the Comptroller of the Currency dated June 1, 1994. Virtually all regulatory examinations result in a commitment letter which is superseded by a subsequent commitment letter or memorandum of understanding. The memoranda cited above represented the latest agreements with the respective regulatory authorities. Page 39 of 62 Pages EX-2 3 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of this 28th day of March, 1995, among SDNB Financial Corp., a Delaware corporation (the "Company"), Whitman Heffernan & Rhein Workout Fund II, L.P., a Delaware limited partnership and Whitman Heffernan & Rhein Workout Fund II-A, L.P., a Delaware limited partnership (collectively the "Purchaser"). WHEREAS, pursuant to the Stock Purchase Agreement, dated as of January 31, 1995 (the "Stock Purchase Agreement"), by and among the Company and Purchaser, Purchaser has agreed to purchase 510,121 shares of the Company's Common Stock, no par value (the "Common Stock") and additional shares of Common Stock pursuant to Section 1.3 of the Stock Purchase Agreement (the "Additional Shares", together with the Common Stock, the "Shares"); WHEREAS, to induce Purchaser to purchase the Shares, the Company has agreed to provide the registration rights set forth in this Agreement; WHEREAS, the execution and delivery of this Agreement is a condition to the obligation of the Purchaser to purchase the Shares as set forth in Section 4.12 of the Stock Purchase Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: 1. Definitions. As used herein, the following terms shall have the following respective meanings: "Affiliate" shall mean, with respect to any Person, any Person controlling, controlled by or under common control with such Person and shall include any Person 20% or more of whose outstanding voting power is owned by the specified Person either directly or indirectly through subsidiaries. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Holder" shall mean Purchaser and each Permitted Assignee. "NASD" shall have the meaning set forth in Section 5(a)(xiv) hereof. "Permitted Assignee" shall have the meaning set forth in Section 11 hereof. Page 40 of 62 Pages "Person" shall mean any individual, corporation, association, partnership, group (as defined in Section 13(d)(3) of the Exchange Act), joint venture, business trust or unincorporated organization, or a government or any agency or political subdivision thereof. "Registrable Shares" shall mean any Common Stock which may be (i) issued pursuant to the Stock Purchase Agreement, or (ii) issued or distributed in respect of the Common Stock referred to in clause (i) above by way of stock dividend or stock split or other distribution, recapitalization or reclassification. As to any particular Registrable Share, such Registrable Share shall cease to be a Registrable Share when (x) it shall have been sold, transferred or otherwise disposed of or exchanged pursuant to a registration statement under the Securities Act or (y) it shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act. "Registration Expenses" shall have the meaning set forth in Section 7(b) hereof. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. 2. Required Registration. (a) Requirement. The Company shall prepare and file with the SEC not later than six months after the conclusion of the Rights Offering (as defined in the Stock Purchase Agreement), a registration statement in compliance with the Securities Act covering the offer and sale of the Registrable Shares and shall use its best efforts to cause such registration statement to be declared effective. (b) Registration Statement Form. If the registration required pursuant to this Section 2 is proposed by the Company to be effected by the filing of a registration statement on Form S-3 (or any successor or similar short-form registration statement) in connection with an underwritten public offering, and if the managing underwriter or underwriters shall advise the Company in writing that, in its opinion, the use of another form of registration statement is of material importance to the success of such proposed offering, then such registration shall be effected on such other form; provided, however, that if a registration statement is filed on a form other than Form S-3 (or other than a successor to Form S-3 or a similar short-form registration statement) in connection with an underwritten offering, the Company shall be required to cause such registration to remain effective only for such reasonable period as is necessary to complete such underwritten offering. Page 41 of 62 Pages (c) Effective Registration Statement. Except as otherwise provided in subsection (b) above, the Company shall cause the registration required pursuant to this Section 2 to remain effective as long as the Holders (or their permitted assigns) own Registrable Shares or such shorter period as may be required pursuant to applicable laws or regulations; provided, however, that the Company shall be permitted to terminate the registration required pursuant to this Section 2 if (and for so long as) the Holders (together with all permitted assigns whether required to be aggregated or not under applicable law relating to resales of "restricted" stock) shall be eligible, in the joint opinion of counsel to the Holders and the Company, (i) at any time after the second anniversary of the Second Closing Date, to sell all Registrable Shares owned by them in a three-month period subject to the volume limitations of Rule 144 of the General Rules and Regulations of the Securities Act (or any successor or similar rule) or (ii) after the third anniversary of the Second Closing Date, to sell immediately all Registrable Shares owned by them pursuant to Rule 144(k) of the General Rules and Regulations under the Securities Act (or any similar or successor rule). If at any time the Company, by unanimous vote of its Board of Directors, determines that it is necessary to suspend sales by the Holders under any registration required under this Section 2 in order to permit the Company to consummate a transaction which the Board of Directors has determined is material to the Company and in the Company's best interests, the Company may, by a written request certifying to the foregoing, request that the Holders consent to the suspension of sales pursuant to such registration for a period sufficient to permit the consummation of the proposed transaction (but not to exceed 120 days), and the Holders shall not unreasonably withhold such consent. Without limiting the reasonable grounds upon which Holders may withhold their consent to such a suspension of sales, the Company acknowledges that the existence of an order from any regulatory authority requiring the Holders to divest all or any portion of their Registrable Shares shall constitute a reasonable basis for withholding such consent and shall cause any suspension period in effect at the time of the issuance of such an order to end promptly. (d) Priority in Registration. If the required registration pursuant to this Section 2 involves an underwritten offering and the managing underwriter or underwriters in good faith advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Shares) exceeds the largest number of securities which can be sold in such offering without having an adverse effect on such offering (including the price at which such securities can be sold), then the Company will include in such registration (i) first, 100% of the Registrable Shares required to be registered pursuant to Section 2(a) hereof (provided that if the number of Registrable Shares required to be registered pursuant to Section 2(a) hereof exceeds the number which the Page 42 of 62 Pages Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of such Registrable Shares to be included in such registration by the Holders shall be allocated pro rata among such Holders on the basis of the relative number of Registrable Shares each such Holder has required to be included in such registration); (ii) second, to the extent that the number of Registrable Shares required to be registered pursuant to Section 2(a) hereof is less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of shares of equity securities the Company requests to be included in such registration for the Company's account; and (iii) third, to the extent that the number of Registrable Shares required to be included in such registration pursuant to Section 2(a) hereof and the securities which the Company proposes to sell for its own account are, in the aggregate, less than the number of equity securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of other securities proposed to be sold by any other Person which, in the opinion of such managing underwriter or underwriters, can be sold without having the adverse effect referred to above (provided that if the number of such securities of such other Persons requested to be registered exceeds the number which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of such securities to be included in such registration pursuant to this Section 2(d) shall be allocated pro rata among all such other Persons on the basis of the relative number of securities each such Person has requested to be include in such registration). 3. Holdback Agreements. If any registration of Registrable Shares shall be in connection with an underwritten public offering, the Company agrees not to effect any public sale or distribution (except in connection with such public offering) of any of its equity securities or of any security convertible into or exchangeable or exercisable for any of its equity securities (in each case other than as part of such underwritten public offering) during the 90-day period (or such lesser period as the managing underwriter or underwriters may permit) beginning on the effective date of such registration, and the Company also agrees to use its best efforts to cause any member of the Company's management and any holder of five percent (5%) or more of the Company's Common Stock to so agree. 4. Incidental Registrations Relating to Underwritten Offerings. (a) Right to Include Registrable Shares. If at any time when the Holders own Registrable Shares the Company shall determine to file a registration statement under the Securities Act in connection with an underwritten public offering of any equity securities either by it or by any holders of its outstanding equity securities, the Company will give prompt Page 43 of 62 Pages written notice of its determination to Holders and of such Holders' rights under this Section 4, at least 10 days prior to the anticipated filing date of such registration statement. Upon the written request of Holders made within 10 days after the receipt of any such notice from the Company, (which request shall specify the Registrable Shares intended to be disposed of by such Holders), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Shares which the Company has been so requested to register by the Holders thereof. The Holders requesting to be included in the Company's registration relating to an underwritten offering must sell their Registrable Shares to the underwriters on the same terms and conditions as apply to the Company or such other Persons whose shares are offered pursuant to such registration statement, with such differences, including any with respect to indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings; provided however, that the Holders requesting to be included in such registration may elect, in writing prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration. No registration effected under this Section 4 shall relieve the Company of its obligations to effect the registration required under Section 2 hereof. (b) Priority in Registrations. If the managing underwriter or underwriters involved in a registration pursuant to this Section 4 in good faith advises the Company in writing that, in its opinion, the number of securities which the Company, the Holders and any other Persons intend to include in such registration exceeds the largest number of securities which can be sold in such offering without having an adverse effect on such offering (including the price at which such securities can be sold), then the Company will include in such registration (i) first, 100% of the securities which (a) the Company proposes to sell for its own account and/or (b) any other Person or Persons who, by exercising contractual demand Registration Rights, caused such registration statement to be filed ("Demand Rights Sellers") propose to sell for their own account; (ii) second, to the extent that the number of securities which the Company and any Demand Rights Sellers propose to sell for their own account is, in the aggregate, less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of other securities requested to be included in the offering for the account of the Holders which, in the opinion of such managing underwriter or underwriters, can be sold without having the adverse effect referred to above; and (iii) third, to the extent that the number of securities which the Company proposes to sell for its own account and the Holders and any Demand Rights Sellers propose to sell for their own account is, in the aggregate, less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, such number of other securities requested to Page 44 of 62 Pages be included in the offering for the account of other Persons which, in the opinion of such managing underwriter or underwriters, can be sold without having the adverse effect referred to above. 5. Registration Procedures. (a) If and whenever the Company is required by the provisions to Sections 2 or 4 hereof to use its best efforts to effect or cause the registration of Registrable Shares, the Company shall as expeditiously as possible: (i) prepare and file with the SEC a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become effective; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period provided for in Section 2 or such shorter period until the shares covered thereunder are sold and to comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder with respect to the disposition of all the securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Holders hereof set forth in such registration statement; provided, that (A) before filing a registration statement (including an initial filing) or prospectus, or any amendments or supplements thereto, the Company will furnish to the Holders of the Registrable Shares covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review and comment of the Holders, and (B) the Company will notify each Holder of Registrable Shares covered by such registration statement of any stop order issued or threatened by the SEC, any other order suspending the use of any preliminary prospectus or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, and take all reasonable actions required to prevent the entry of such stop order, other order or suspension or to remove it if entered; (iii) furnish to each Holder and each underwriter, if applicable, of Registrable Shares covered by such registration statement such number of copies of the registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as each Holder of Page 45 of 62 Pages Registrable Shares covered by such registration statement may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such Holder; (iv) use its best efforts to register or qualify such Registrable Shares covered by such registration statement under the state securities or blue sky laws of such jurisdictions as each Holder of Registrable Shares covered by such registration statement and, if applicable, each underwriter, may reasonably request, and do any and all other acts and things which may be reasonably necessary to consummate the disposition in such jurisdictions of the Registrable Shares owed by such Holder, except that the Company shall not for any purpose (A) be required to qualify generally to do business as a foreign corporation or a broker-dealer in any jurisdiction where, but for the requirements of this clause (iv), it would not be obligated to be so qualified (B) subject itself to taxation in any such jurisdiction or (C) consent to service of process in any such jurisdiction; (v) use its best efforts to cause such Registrable Shares covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Holders thereof to consummate the disposition of such Registrable Shares; (vi) if at any time when a prospectus relating to the Registrable Shares is required to be delivered under the Securities Act any event shall have occurred as the result of which any such prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, promptly give written notice thereof to each Holder and the managing underwriter or underwriters, if any, of such Registrable Shares and prepare and furnish to each such Holder a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (vii) enter into such customary agreements (including an underwriting agreement in customary form) and take such other actions as each Holder of Registrable Shares being sold or the underwriter or underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Shares, including customary indemnification and opinions; Page 46 of 62 Pages (viii) in connection with any underwritten offering which includes Registrable Shares, use its best efforts to obtain a "comfort" letter or letters from the Company's independent public accountants in customary form and covering matters of the type customarily covered by "comfort" letters as the Holders or the underwriters retained by such Holders shall reasonably request; (ix) subject to reasonable and customary confidentiality undertakings, make available for inspection by representatives of any Holder of Registrable Shares covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by such Holders or any such underwriter, upon the reasonable request of any Holder all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause all of the Company's and its subsidiaries' officers, directors and employees to supply all information and respond to all inquiries reasonably requested by such Holders or any such representative, underwriter, attorney, accountant or agent in connection with such registration statement; (x) promptly prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after initial filing of the registration statement), provide copies of such document to counsel to the Holders of Registrable Shares covered by such registration statement and to the managing underwriter or underwriters, if any, make the Company's representatives available for discussion of such document and make such reasonable and appropriate changes in such document prior to the filing thereof as counsel for such Holders or underwriters may reasonably request; (xi) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder; (xii) use its best efforts to provide a CUSIP number for all Registrable Shares not later than the effective date of the applicable registration statement, and provide the applicable transfer agents with printed certificates for the Registrable Shares which are in a form eligible for deposit with the Depository Trust Company; (xiii) notify counsel for the Holders of Registrable Shares included in such registration statement Page 47 of 62 Pages and the managing underwriter or underwriters, if any, promptly, and confirm the notice in writing, (A) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment prospectus shall have been filed, (B) of the receipt of any comments from the SEC and (C) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information; and (xiv) cooperate with each seller of Registrable Shares and each underwriter, if any, participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (b) Each Holder of Registrable Shares hereby agrees that, upon receipt of any notice from the Company of the happening of any event of the type described in Section 5(a)(vi) hereof, such Holder shall forthwith discontinue disposition of such Registrable Shares covered by such registration statement or related prospectus until Holder's receipt of the copies of the supplemental or amended prospectus contemplated by Section 5(a)(vi) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies in such Holder's possession, of the prospectus covering such Registrable Shares at the time of receipt of such notice. (c) Each Holder hereby agrees to provide the Company, upon receipt of its request, with such information about such Holder to enable the Company to comply with the requirements of the Securities Act and to execute such certificates as the Company may reasonably request in connection with such information and otherwise to cooperate to the extent necessary to satisfy any requirements of law relating to the registration and qualification of Registrable Shares. 6. Underwritten Registrations. Subject to the provisions of Sections 2, 3 and 4 hereof, any of the Registrable Shares covered by a registration statement may be sold in an underwritten offering at the discretion of the Holder thereof. 7. Expenses. (a) The Registration Expenses of all registrations in accordance with Sections 2 and Section 4 hereof shall be borne by the Company. (b) The fees, costs and expenses of registration to be borne as provided in Section 7(a) hereof shall include, without limitation, all expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all SEC or NASD registration and filing fees Page 48 of 62 Pages and expenses, reasonable fees and expenses of any "qualified independent underwriter" and its counsel as may be required by the rules of the NASD, fees and expenses of compliance with securities or blue sky laws (including without limitation reasonable fees and disbursements of counsel for the underwriters, if any, or for the selling Holders, in connection with blue sky qualifications of the Registrable Shares), rating agency fees, printing expenses (including expenses of printing certificates for Registrable Shares and prospectuses), messenger, telephone and delivery expenses, the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange or national market system on which similar securities issued by the Company are then listed, fees and disbursements of counsel for the Company and all independent certified public accountants (including the expenses of any annual audit, special audit and "cold comfort" letters required by or incident to such performance and compliance), securities laws liability insurance (if the Company decides to obtain such insurance), the fees and disbursements of underwriters customarily paid by issuers of securities (including, without limitation, expenses relating to "road shows" and other marketing activities), the reasonable fees of one counsel retained in connection with each such registration by the Holders of a majority of the Registrable Shares being registered, the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, and fees and expenses of other persons retained by the Company (collectively, "Registration Expenses"). The term "Registration Expenses" shall not include any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Shares by such Holders. 8. Indemnification. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act pursuant to Sections 2 or 4 hereof, the Company will, and it hereby does, indemnify and hold harmless, to the extent permitted by law, each of the Holders of any Registrable Shares covered by such registration statement, each Affiliate of such Holder and their respective directors and officers or general and limited partners (and the directors, officers, general and limited partners, Affiliates and controlling Persons thereof), each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act (collectively, the "Indemnified Parties"), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Company's consent and including reasonable attorneys' fees and disbursements) (collectively, "Damages") to which any Indemnified Party may become subject under the Securities Act, state securities or blue sky laws, common law or otherwise, insofar as Page 49 of 62 Pages such Damages (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and, subject to subsection (c) of this Section 8, the Company will reimburse such Indemnified Party for any out-of-pocket legal or any other expenses reasonably incurred by it in connection with investigating or defending any such Damages, action or proceeding; provided, however, that the Company shall not be liable to any Indemnified Party in any such case to the extent that any such Damages (or action or proceeding in respect thereof) or expense arises out of or is based upon either (a) any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment or supplement thereto or in any such preliminary, final or summary prospectus or a document incorporated by reference into any of the foregoing in reliance upon and in conformity with written information furnished to the Company by such Holder or underwriter specifically for use in the preparation thereof or (b) any untrue statement or alleged untrue statement or omission or alleged omission which was made in a preliminary prospectus included in such registration statement but corrected in the final prospectus included in such registration statement but only if and only to the extent that any damages or expenses related thereto were caused solely by a failure by the Holders to comply or to cause its agents to comply with the prospectus delivery requirements under applicable law. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any Indemnified party and shall survive the transfer of such securities by such Holder. (b) Indemnification by the Holders and Underwriters. The Company may require, as a condition to including any Registrable Shares in any registration statement filed in accordance with Sections 2 or 4 hereof, that the Company shall have received an undertaking reasonably satisfactory to it from the Holders of such Registrable Shares and any underwriter or underwriters to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 8(a) hereof) the Company with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged Page 50 of 62 Pages omission was made in reliance upon and in conformity with written information furnished to the Company by such Holders or such underwriter specifically for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing; provided, that no such Holder shall be liable for any indemnity claims in excess of the amount of proceeds received by such Holder from the sale of Registrable Shares. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders or underwriters, or any of their respective affiliates, directors, officers or controlling Persons, and shall survive the transfer of such securities by such Holders. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 8, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, that the failure of the indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 8, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that the indemnified party shall have the right to employ counsel to represent the indemnified party and its respective controlling persons, directors, officers, general or limited partners, employees or agents who may be subject to liability arising out of any claim in respect of which indemnification may be sought by the indemnified party against such indemnifying party under this Section 8 if (1) the employment of such counsel shall have been authorized in writing by such indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have promptly employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action or proceeding and then only until the indemnifying party shall have employed such counsel, or (iii) any indemnified party shall have reasonably concluded that there may be defenses available to such indemnified party or its respective controlling persons, directors, officers, employees or agents which are in conflict with or in addition to those available to the indemnifying party, and in that event the reasonable fees and expenses of one firm of Page 51 of 62 Pages separate counsel for the indemnified party shall be paid by the indemnifying party. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution. If the indemnification provided for in this Section 8 shall for any reason be unavailable to any indemnified party under Section 8(a) or 8(b) hereof or is insufficient to hold it harmless in respect of any Damages, or any action in respect thereof referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such Damages or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the indemnified party and indemnifying party or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the indemnified party and indemnifying party with respect to the statements or omissions which resulted in such Damages, or action in respect thereof, as well as any other relevant equitable considerations. Notwithstanding any other provision of this Section 8(d), no Holder shall be required to contribute an amount greater than the dollar amount of the proceeds received by such Holder with respect to the sale of any such Registrable Shares. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Other Indemnification. Indemnification similar to that specified in the preceding subdivisions of this Section 8 (with appropriate modifications) shall be given by the Company and each Holder of Registrable Shares with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. (f) Non-Exclusivity. The obligation of the parties under this Section 8 shall be in addition to any liability which any party may otherwise have to any other party. 9. Rule 144. The Company covenants that it will file in a timely manner the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Shares, make publicly available such information), and it will take such further action as any Holder of Registrable Shares may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Shares without registration under the Securities Act Page 52 of 62 Pages within the limitations of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder of Registrable Shares, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 10. Limited Liability. Notwithstanding any other provision of this Agreement, neither the general partners, limited partners or managing directors, or any directors or officers of any general or limited partners, nor any future general partners, limited partners or managing directors, if any, of Holders shall have any personal liability for performance of any obligation of the Holders under this agreement. 11. Assignability. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Purchaser. Purchaser and any Permitted Assignee (as defined below) shall have the right to assign its rights under this Agreement only to (i) any Person who received Registrable Shares through a distribution made by Purchaser to its partners and (ii) any Person who purchases or otherwise acquires not less than ten percent (10%) of Purchaser's Registrable Shares (in either case, a "Permitted Assignee"). In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Company shall also be for the benefit of and enforceable by any Permitted Assignee, subject to the provisions contained herein. The Company may not assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the Holders of a majority of the Registrable Shares. 12. Notices. Any and all notices, designations, consents, offers, acceptances or any other communications shall be given in writing by either (a) personal delivery to and receipted for by the addressee or by (b) telecopy or registered or certified mail which shall be addressed, in the case of the Company, to: SDNB Financial Corp., 1420 Kettner Boulevard, San Diego, CA 92112, Attn: Murray Galinson; in the case of Holders, the address or addresses thereof appearing on the books of the Company or of the transfer agent and registrar for its Common Stock. All such notices and communications shall be deemed to have been duly given and effective: (i) when delivered by hand, if personally delivered; (ii) two business days after being deposited in the mail, postage prepaid, if mailed; or (iii) when receipt acknowledged, if telecopied. 13. No Inconsistent Agreements. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement. Page 53 of 62 Pages 14. Specific Performance. The Company acknowledges that the rights granted to the Holders in this Agreement are of a special, unique and extraordinary character, and that any breach of this Agreement by the Company could not be compensated for by damages. Accordingly, if the Company breaches its obligations under this Agreement, the Holders shall be entitled, in addition to any other remedies that they may have, to enforcement of this Agreement by a decree of specific performance requiring the Company to fulfill its obligations under this Agreement. The Company consents to personal jurisdiction in any such action brought in the United States District Court for the Southern District of New York or any such other court and to service of process upon it in the manner set forth in Section 12 hereof. 15. Severability. If any provision of this Agreement or any portion thereof is finally determined to be unlawful or unenforceable, such provision or portion thereof shall be deemed to be severed from this Agreement. Every other provision, and any portion of such an invalidated provision that is not invalidated by such a determination, shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, together, shall constitute one and the same instrument. 17. Defaults. A default by any party to this Agreement in such party's compliance with any of the conditions or covenants hereof or performance of any of the obligations of such party hereunder shall not constitute a default by any other party. 18. Amendments, Waivers. This Agreement may not be amended, modified or supplemented and no waivers of or consents to departures from the provisions hereof may be given unless consented to in writing by the Company and the Holders of a majority of the Registrable Shares; provided, however, that no such amendment, supplement, modification or waiver shall deprive any Holder of any rights under Sections 2 or 4 hereof without the consent of such Holder. 19. Captions. The captions contained in this Agreement are for reference purposes only and are not part of this Agreement. 20. Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 21. Entire Agreement. This Agreement, together with the Stock Purchase Agreement, contains the entire agreement among Page 54 of 62 Pages the parties hereto with respect to the transactions contemplated herein and understandings among the parties relating to the subject matter hereof. Any and all previous agreements and understandings between the parties hereto regarding the subject matter hereof (other than the Stock Purchase Agreement and such other agreements and instruments contemplated thereby) are, whether written or oral, superseded by this Agreement. 22. Governing Law. This Agreement is made pursuant to and shall be construed in accordance with the laws of the State of California. The parties hereto submit to the non-exclusive jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Agreement. Page 55 of 62 Pages IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date aforesaid. SDNB FINANCIAL CORP. By: /s/ Murray L. Galinson -------------------------- Name: Murray L. Galinson Title: President/CEO WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II, L.P. By: WHR Management Corp., its General Partner By: /s/ James P. Heffernan -------------------------- Name: James P. Heffernan Title: President WHITMAN HEFFERNAN & RHEIN WORKOUT FUND II-A, L.P. By: WHR Management Corp., its General Partner By: /s/ James P. Heffernan -------------------------- Name: James P. Heffernan Title: President Page 56 of 62 Pages EX-3 4 SEC. 2.8 OF THE AGREEMENT OF LTD PARTNERSHIP OF FUND II EXHIBIT 3 SECTION 2.8 OF THE AGREEMENT OF LIMITED PARTNERSHIP OF FUND II 2.8 WHR Fund II. WHR Fund II is a sister partnership to the Partnership and will, as more fully described below, make investments and dispose of investments on a pro rata basis with, and on the same terms as, the Partnership. All actions taken by the Partnership with respect to Acquired Securities, including but not limited to acquisitions, sales, exchanges, conversions or other dispositions, distributions, and the exercise of voting or other rights of securities holders, but excluding actions taken pursuant to Sections 8.4(a), 8.4(b), 9.12(d), 11.1(b) or the second sentence of Section 9.9(b)(iii) hereof or the corresponding provision of the Agreement of Limited Partnership of WHR Fund II, shall be taken simultaneously with the same action being taken by WHR Fund II. Except pursuant to the second sentence of Section 9.9(b)(iii) hereof or the corresponding provisions of the Agreement of Limited Partnership of WHR Fund II, all purchases of Acquired Securities shall be ratable on the basis of the aggregate Commitments of the Partners in the Partnership and "Commitments" (as defined in its Agreement of Limited Partnership) of the partners in WHR Fund II. All other such simultaneous actions shall be ratable, and all costs and expenses directly associated with such securities shall be borne ratably, on the basis of the respective amounts of the particular class of Acquired Securities held or being acquired by the Partnership and WHR Fund II. All reductions in management fees required by Section 4.10(a)(iv) hereof, and (except as otherwise provided in this Section 2.8) all reimbursements or uses of funds pursuant to Section 4.10(b) hereof and the corresponding provision of the Agreement of Limited Partnership of WHR Fund II shall be made ratably on the basis of the respective aggregate Commitments of the Partners in the Partnership and "Commitments" (as defined in its Agreement of Limited Partnership) of the partners in WHR Fund II. Page 57 of 62 Pages EX-4 5 SEC. 2.8 OF THE AGREEMENT OF LTD PARTNERSHIP OF FUND II-A EXHIBIT 4 SECTION 2.8 OF THE AGREEMENT OF LIMITED PARTNERSHIP OF FUND II-A 2.8 WHR Fund II-A. WHR Fund II-A is a sister partnership to the Partnership and will, as more fully described below, make investments and dispose of investments on a pro rata basis with, and on the same terms as, the Partnership. All actions taken by the Partnership with respect to Acquired Securities, including but not limited to acquisitions, sales, exchanges, conversions or other dispositions, distributions, and the exercise of voting or other rights of securities holders, but excluding actions taken pursuant to Sections 8.4(a), 8.4(b), 9.12(d), 11.1(b) or the second sentence of Section 9.9(b)(iii) hereof or the corresponding provision of the Agreement of Limited Partnership of WHR Fund II-A, shall be taken simultaneously with the same action being taken by WHR Fund II-A. Except pursuant to the second sentence of Section 9.9(b)(iii) hereof or the corresponding provisions of the Agreement of Limited Partnership of WHR Fund II-A, all purchases of Acquired Securities shall be ratable on the basis of the aggregate Commitments of the Partners in the Partnership and "Commitments" (as defined in its Agreement of Limited Partnership) of the partners in WHR Fund II-A. All other such simultaneous actions shall be ratable, and all costs and expenses directly associated with such securities shall be borne ratably, on the basis of the respective amounts of the particular class of Acquired Securities held or being acquired by the Partnership and WHR Fund II-A. All reductions in management fees required by Section 4.10(a)(iv) hereof, and (except as otherwise provided in this Section 2.8) all reimbursements or uses of funds pursuant to Section 4.10(b) hereof and the corresponding provision of the Agreement of Limited Partnership of WHR Fund II-A shall be made ratably on the basis of the respective aggregate Commitments of the Partners in the Partnership and "Commitments" (as defined in its Agreement of Limited Partnership) of the partners in WHR Fund II-A. Page 58 of 62 Pages EX-5 6 FEDERAL RESERVE BANK LETTER DATED MARCH 9, 1995 FEDERAL RESERVE BANK OF SAN FRANCISCO 101 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94105 March 9, 1995 John T. Collins, Esq. Steptoe & Johnson 1330 Connecticut Avenue, N.W. Washington, D.C. 20036 Dear Mr. Collins: We have completed our analysis of the Notice of Change in Control involving Whitman Heffernan & Rhein Management Corporation, Whitman Heffernan & Rhein Workout Fund II, L.P., and Whitman Heffernan & Rhein Workout Fund II-A, L.P., all of Bronxville, New York (collectively "Notificants"), for the proposed acquisition of 24.9 percent of the outstanding voting shares of SDNB Financial Corporation, Inc., San Diego, California ("SDNB"), which owns 100 percent of San Diego National Bank, San Diego, California ("Bank"), submitted pursuant to the Change in Bank Control Act of 1978. The Federal Reserve System does not intend to disapprove the proposed transaction and consummation may proceed immediately. In consideration of this proposal, we have determined that all factors required to be considered under the Change in Bank Control Act are consistent with approval. This determination is specifically conditioned upon compliance by Notificants with all the commitments and representations made in connection with this notice, including the following. Notificants have committed that they will not directly or indirectly: 1. Seek or accept representation on the board of directors of SDNB or its subsidiary bank, Bank, except that Notificants may have a nonvoting observer attend the board of directors meetings of SDNB and Bank and may designate a director for the board of directors of SDNB under the conditions set forth below; 2. Take action causing SDNB or Bank to become a subsidiary of Notificants; 3. Acquire or retain shares that would cause the combined interests of Notificants and their officers, directors, trustees, and affiliates to exceed 24.9 percent of the Page 59 of 62 Pages outstanding voting securities of SDNB or 24.9 percent of the equity of SDNB; 4. Exercise or attempt to exercise a controlling influence over the management or policies of SDNB or Bank; 5. Have or seek to have any representative serve as an officer, agent, or employee of SDNB or Bank; 6. Propose a director or slate of directors in opposition to a nominee or slate of nominees proposed by the management or board of directors of SDNB or Bank; 7. Solicit or participate in soliciting proxies with respect to any matter presented to the shareholders of SDNB or Bank; 8. Attempt to influence the dividend policies or practices of SDNB or Bank; 9. Attempt to influence the loan and credit decisions or policies of SDNB or Bank, the pricing of services, any personnel decisions, the location of any offices, branching, the hours of operation, or similar activities of SDNB or Bank, except that this commitment shall not apply to the execution of board responsibilities by a director designated under the conditions set forth below; 10. Enter into any other banking or nonbanking transaction with SDNB or Bank, except that (a) Notificants may establish and maintain deposit accounts with Bank, provided that the aggregate balances of all such accounts do not exceed $500,000 and that the accounts are maintained on substantially the same terms as those prevailing for comparable accounts of persons unaffiliated with SDNB, (b) Bank and Danielson Trust Company may continue their trust referral arrangement provided that the referral income received by Bank from Danielson Trust Company shall not exceed on an annual basis an amount equal to one percent (1%) of the shareholders equity of Bank and such arrangement will be on arms-length basis and on substantially the same terms and conditions that would be offered to others in similar circumstances not affiliated with SDNB and (c) Notificants, as the mortgagee on the building occupied by SDNB and Bank, will not use this mortgage lending relationship to exert or attempt to exert control over SDNB or Bank; 11. Dispose or threaten to dispose of shares of SDNB in any manner as a condition of specific action or nonaction by SDNB; In connection with Notificants' proposal to designate a member of the board of SDNB in the event that such designation becomes necessary for notificants to retain their qualification under ERISA as a "venture capital operating company," Notificants Page 60 of 62 Pages commit: 12. To make such a designation only after providing notice to Board staff and demonstrating to the Board's satisfaction that Notificants' ERISA qualification is in jeopardy without the representation; 13. That such designation would be solely for the purpose of complying with ERISA and would not be for the purpose of exercising control over SDNB pursuant to the Bank Holding Company Act; 14. That Notificants will not seek to designate a director at SDNB without first designating, to the extent possible, a director at all other investments made by Notificants; 15. To reduce their aggregate holdings of SDNB shares to less than 15 percent of the total voting shares of SDNB and to less than 15 percent of the total equity of SDNB. Notificants will make this reduction as soon as possible, but no later than six months following the director's designation. Notificants may request, and the Board may grant, an extension of this time period if Notificants are not likely to divest the required shares within this period and demonstrate that they have exercised reasonable efforts in good faith to divest the required shares; 16. To cease having a nonvoting observer attend meetings of the board of directors of SDNB at the time of designation; 17. That Notificants will submit the name of proposed director to the Board for its review prior to designating this individual, and to accommodate any reasonable objection of the Board in selecting the designated individual; and 18. That Notificants will not designate as a director of SDNB any officer, board member, management official, or partner of Whitman Heffernan & Rhein Management Corporation, or any of its affiliates. Based on the facts of record, including the commitments set forth above, it appears that upon consummation of this proposal, Notificants would not acquire control or the ability to exercise a controlling influence over SDNB or Bank for purposes of the Bank Holding Company Act. The commitments and conditions relied upon in reaching this decision are deemed to be conditions imposed in writing by the Federal Reserve System in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law. Please advise us in writing when the transaction has been consummated. If the transaction has not been consummated within one year from this date, or if the terms, conditions Page 61 of 62 Pages transaction has not been consummated within one year from this date, or if the terms, conditions or parties to the transaction change, this Reserve Bank should be consulted to determine whether any additional action or notification would be required. Very truly yours, /s/ KENNETH R. BINNING --------------------------- Kenneth R. Binning Director Banking Regulation cc: Mr. Murray L. Galinson, SDNB Financial Corporation Board of Governors Comptroller of the Currency - Western District Federal Deposit Insurance Corporation - Regional Office California State Banking Department Office of Thrift Supervision - Regional Office Page 62 of 62 Pages -----END PRIVACY-ENHANCED MESSAGE-----