March 23, 2010
 
Carpenter Fund Manager GP, LLC
5 Park Plaza, Suite 950
Irvine, CA  92614
 
Re:  Dividend Payment in Kind and Exchange of Preferred Stock
 
Gentlemen:

This letter will confirm our agreement regarding Series B Mandatorily
Convertible Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”) of
Bridge Capital Holdings (the “Company”) and Series B-1 Mandatorily Convertible
Cumulative Perpetual Preferred Stock (“Series B-1 Preferred Stock”) of the
Company, which the Company originally issued and sold pursuant to the terms of a
Stock Purchase Agreement dated December 4, 2008, as amended, and entered into
between the Company, and Carpenter Fund Manager GP, LLC (the “Manager”) on
behalf of and as General Partner of each of the following investment-related
limited partnerships: Carpenter Community BancFund, L.P.; Carpenter Community
BancFund-A, L.P.; and Carpenter Community BancFund-CA, L.P. (collectively, the
“Investors”).  The Manager and the Company are collectively referred to herein
as the “Parties” and individually referred to herein as a “Party.”
 
The rights preferences and privileges of the Series B and Series B-1 Preferred
Stock is set forth in the Certificate of Determination of the Series B Preferred
Stock and the Series B-1 Preferred Stock (the “Certificate of
Determination”).  Capitalized terms used but not otherwise defined herein have
the definitions set forth in the Certificate of Determination.
 
The terms and conditions of this letter agreement are set forth below.
 
1.           Background
 
The Parties entered a Stock Purchase Agreement dated as of December 4, 2008 and
as amended on December 18, 2008 (the “Stock Purchase Agreement”).  Pursuant to
the terms of the Stock Purchase Agreement, on December 17, 2008, the Company
sold 131,901 shares of its Series B Preferred Stock and 168,099 of its Series
B-1 Preferred Stock to the Investors for aggregate consideration of
$30.0 million.  From the original date of issuance to the date of this letter
agreement, the Investors are the record holders of all outstanding shares of the
Series B Preferred Stock and all outstanding shares of the Series B-1 Preferred
Stock.
 
1

--------------------------------------------------------------------------------

The Company has paid dividends on the Series B and Series B-1 Preferred Stock
for some periods, and has accrued (but not yet paid) dividends for certain
periods.  The Parties desire to enter into an agreement with respect to
dividends that will (i) settle in full the obligations of the Company with
respect to dividends on the Series B and Series B-1 Preferred Stock that have
not yet been declared, but are to become payable as of March 31, 2010, by
delivery of debt that is convertible into shares of the Company’s Common Stock
at a price per share based on the Closing Price of the Common Stock on the date
hereof and (ii) provide for the payment of those dividends that were heretofore
declared and are currently in arrears, in the aggregate amount of $1,389,041.10,
by delivery of shares of the Company’s Common Stock at a price per share based
on the Closing Price of the Common Stock on the date hereof.

The Parties also desire to enter into an agreement providing that in exchange
for all outstanding shares of Series B and Series B-1 Preferred Stock, the
Company will issue $30 million in aggregate amount of the Company’s Common Stock
to the Investors (pro rata) at a price per share based on the Closing Price of
the Common Stock on the date hereof.
 
2.           Payment with Respect to March 31, 2010 Dividend
 
a.           Payment in Kind.  The Company agrees to declare the dividend with
respect to the Series B and Series B-1 Preferred Stock for the quarter ended
March 31, 2010 and to pay that dividend by delivery to the Investors of
unsecured promissory notes (“Notes”) in the respective amounts set forth on
Exhibit A, which Notes are convertible into shares of the Company’s Common Stock
at a price per share based on the Closing Price of the Common Stock on the date
hereof, as provided in the form of Notes set forth in Exhibit B.

b.           Procedures.  Subject to the terms and conditions hereof, on March
31, 2010 the Company shall issue and deliver Notes to be issued pursuant to
Section 3(b) above at the offices of the Manager.
 
3.           Payment with Respect to Accrued Dividends
 
a.           Acknowledgement of Dividend Amounts.  The Company acknowledges that
dividends have been declared and remain unpaid on the Series B and Series B-1
Preferred Stock with respect to accruals as of September 30, 2009 and December
31, 2009, in the aggregate amount of $1,389,041.10.

b.           Agreement Regarding Payment.  The Company agrees to pay the
aggregate sum of such dividends, to the Investors in shares of the Company’s
Common Stock at a price per share based on the Closing Price of the Common Stock
on the date hereof.
 
c.           Procedures.  Subject to the terms and conditions hereof, on March
31, 2010, the Company shall issue and deliver certificates representing the
aggregate shares of Common Stock to be issued pursuant to Section 2(a) above at
the offices of the Manager, or evidence of book-entry record ownership of the
aggregate shares of Common Stock shall be delivered by the Company at the
offices of the Manager as well as any cash paid in lieu of fractional shares.
 
4.           Exchange of Preferred Stock for Common Stock
 
a.           Exchange.  The Company agrees that in exchange for all outstanding
shares of Series B and Series B-1 Preferred Stock to be surrendered by the
Investors, the Company shall issue $30 million in aggregate amount of the
Company’s Common Stock (at a price per share based on the Closing Price of the
Common Stock on the date hereof) to the Investors; provided, however that cash
may be issued solely in lieu of fractional shares.
 
2

--------------------------------------------------------------------------------

 
b.           Conversion Procedures.  Subject to the terms and conditions hereof,
on March 31, 2010, the Investors shall surrender to the Company at the offices
of the Company certificates representing 131,901 shares of Series B Preferred
Stock and certificates representing 168,099 Series B-1 Preferred Stock in
exchange for Common Stock.  Subject to the terms and conditions hereof, on March
31, 2010, the Company shall issue and deliver certificates representing the
aggregate shares of Common Stock to be issued pursuant to Paragraph 4(a) above
at the offices of the Manager, or evidence of book-entry record ownership of the
aggregate shares of Common Stock shall be delivered by the Company at the
offices of the Manager as well as any cash paid in lieu of fractional
shares.  The attached Exhibit A reflects the number of shares to be delivered to
the respective Investors, inclusive of those exchanged for the Series B and
Series B-1 Preferred Stock pursuant to this Section 4 and those paid in respect
of dividends pursuant to Section 3.
 
5.           Representations and Warranties
 
The Company represents and warrants to the Manager and the Investors that as of
the date of this letter agreement, the Company has all requisite legal and
corporate power and authority to execute and deliver this letter agreement and
perform its obligations under the terms of this letter agreement and has
obtained all required board and shareholder approval to enter into this letter
agreement.
 
The Manager, on behalf of itself and the Investors, hereby represents and
warrants to the Company, that as of the date of this letter agreement, the
Manager has all requisite legal power and authority to execute and deliver this
letter agreement and to carry out and perform its obligations under the terms of
this letter agreement.
 
6.           Covenants
 
Each Party shall and shall cause its affiliates to, cooperate and consult with
the other and use reasonable best efforts to prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to obtain all necessary permits, consents, orders,
approvals and authorizations of, or any exemption by, all third parties and any
federal, state or local governmental authority, court, government or
self-regulatory organization, commission or any regulatory, administrative or
other agency, or any department thereof, necessary or advisable to consummate
the transactions contemplated by this letter agreement, and to perform the
covenants contemplated hereby.
 
Each Party shall execute, and cause its affiliates to execute, as applicable,
and deliver such further certificates, agreements and other documents and to
take such other actions as the other parties may reasonably request to
consummate or implement such transactions or to evidence such events or matters.
 
Without limiting the generality of the foregoing, Company shall instruct its
stock transfer agent to issue certificates representing the Common Stock to the
respective Investors, and to include appropriate restrictive legends on such
certificates.  The Parties acknowledge and agree that the registration rights
provided for in the Stock Purchase Agreement with respect to the Series B and
Series B-1 Preferred Stock, and any Common Stock issued upon conversion thereof
or paid in kind as dividends upon such Preferred Stock shall apply to the Common
Stock issued hereunder.
 
3

--------------------------------------------------------------------------------

 
7.           Binding Effect
 
The provisions of this letter agreement shall be binding upon and inure to the
benefit of the Parties hereto and each of their respective successors and
assigns.
 
8.           Governing Law
 
This letter agreement shall be governed by and construed in accordance with the
internal laws of the State of California.
 
9.           Severability of Provisions
 
In case any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect in any jurisdiction, as to such jurisdiction, such
provision shall be ineffective to the extent of such invalidity, illegality or
unenforceability, and the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
 
10.           Counterparts
 
This Agreement may be executed in two counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other party.
 
Very truly yours,
 
Bridge Capital Holdings
 
/s/  Thomas A. Sa
By:  Thomas A. Sa
 
Title: Executive Vice President
Chief Financial Officer

AGREED AND ACCEPTED:
 
CARPENTER COMMUNITY BANCFUND, L.P.,
CARPENTER COMMUNITY BANCFUND-A, L.P.,
CARPENTER COMMUNITY BANCFUND-CA, L.P.
By:          CARPENTER FUND MANAGER GP, LLC
Their:      General Partner

/s/ John B. Flemming
By:
John B. Flemming
Its:
Managing Member

 
 
4

--------------------------------------------------------------------------------

 

Exhibit A
 
Schedule of Investors
 
 
Name & Address
 
Shares of
Common
Stock to be
received in
conversion of
Preferred
Shares
(Sec. 4)
   
Shares of
Common
Stock to be
received in
respect of
accrued
dividends
(Sec. 3)
   

Total Shares
of Common
Stock
   

Note
Amounts 
(Sec. 2)
 
Carpenter Community BancFund, LP
c/o Carpenter Fund Manager GP LLC
5 Park Plaza
Suite 950
Irvine, CA  92614
    115,390       6,043       121,433     $ 25,701.27                          
         
Carpenter Community BancFund-A, LP
c/o Carpenter Fund Manager GP LLC
5 Park Plaza
Suite 950
Irvine, CA  92614
    3,283,097       152,138       3,435,235     $ 731,279.95                    
               
Carpenter Community BancFund-CA, LP
c/o Carpenter Fund Manager GP LLC
5 Park Plaza
Suite 950
Irvine, CA  92614
    147,612       6,009       153,621     $ 32,879.53  
TOTAL
                    3,710,289     $ 789,860.75  

 
 
5

--------------------------------------------------------------------------------

 

Exhibit B
 
Form of Notes
  
NOTE

THE SECURITIES EVIDENCED HEREBY AND ISSUABLE PURSUANT TO THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY
APPLICABLE STATE SECURITIES LAWS (“BLUE SKY LAWS”).  ANY TRANSFER OF THIS NOTE
AND SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE
ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER OR IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SUCH REGISTRATION IS UNNECESSARY
IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND BLUE SKY LAWS.

Bridge Capital Holdings
a California corporation

10% CONVERTIBLE UNSECURED NOTE

$_______________
March 31, 2010

FOR VALUE RECEIVED, Bridge Capital Holdings, a California corporation (the
“Company”), promises to pay to the order of _______________________ (“Holder”),
on the Repayment Date (defined in paragraph 4), in lawful money of the United
States and in immediately available funds, the principal amount of
_________________________ Dollars and ______ cents ($_______________), and all
accrued and unpaid interest, unless earlier converted in accordance with the
terms hereof.

1.      Terms.  This 10% Convertible Unsecured Note (this “Note”) is being
issued and delivered by the Company pursuant to Section 2 of that certain letter
agreement dated March 23, 2010 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the “Letter Agreement”),
by and among the Company, Carpenter Community BancFund, L.P., Carpenter
Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P..  Unless
otherwise set forth herein, all capitalized terms used herein without definition
shall have the meanings given to such terms in the Letter Agreement.
 
 
 

--------------------------------------------------------------------------------

 

2.      Interest.  Subject to paragraph 3 of this Note, interest on this Note
shall compound monthly in arrears, calculated on a 360-day year at a rate per
month equal to one-twelfth (1/12th) of ten percent (10%).  Interest on this Note
shall accrue on and from the date hereof until all amounts outstanding are paid
in full.  In no event shall interest or any other amount paid or agreed to be
paid under this Note exceed the highest lawful rate permissible under applicable
usury laws.  If fulfillment of any provision hereof shall be deemed by a court
of competent and final jurisdiction to violate any applicable usury
restrictions, then the obligation to be fulfilled shall be automatically reduced
to the limit of such highest lawful rate, and any amount received in excess of
such limit shall be applied to reduce the unpaid principal balance hereof and
not to the payment of interest.
 
3.      Payments.  The principal amount and all accrued and unpaid interest
thereon shall be payable from the Company to Holder on the Repayment Date (as
defined in paragraph 4).
 
4.      Repayment Date.  To the extent not previously paid, and unless exchanged
for other debt securities of the Company or converted as provided in paragraph
11, this Note, together with all accrued but unpaid interest hereon, shall be
due and payable, in immediately available funds, on the first to occur of the
following:  (i) March 31, 2011, or (ii) a Change in Control (such date, or such
earlier date as provided herein, the “Repayment Date”).  As used herein, a
“Change in Control” shall means (A) the merger, consolidation or other
reorganization of the Company, with or into one or more entities, as a result of
which the outstanding shares of the Company immediately prior to such merger or
consolidation are, or are to be, converted (x) solely into cash or non-voting
securities of the surviving or resulting entity, or (y) at least in part into
voting securities of the surviving or resulting entity, but such voting
securities will represent less than fifty percent (50%) of the outstanding
voting securities of the surviving or resulting entity; (B) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the company to a
person that was not a shareholder thereof on the date of this Agreement; or (C)
a person who is not an Investor or a Shareholder or an affiliate thereof as of
the date of this Agreement acquires directly or indirectly eighty percent (80%)
or more of the Company’s outstanding voting securities.  Holder shall surrender
this Note, duly endorsed to the Company, upon receipt of full payment of
outstanding principal and accrued but unpaid interest.
 
5.      Each of the following shall constitute an “Event of Default” under this
Note:

(a)   The Company shall fail to pay when due (whether at stated maturity, by
acceleration or otherwise) any payment of principal, interest or any other sum
payable hereunder, which such breach is not cured within five (5) business days
following written notice thereof from Holder.

(b)  A breach by the Company of any representation, warranty, covenant or other
obligation under this Note or the Letter Agreement, which breach is not cured
within thirty (30) days following written notice thereof from Holder.

(c)  A final judgment or judgments shall be entered against the Company in the
aggregate amount of $1,000,000 (net of insurance proceeds, if any), and such
judgment or judgments shall remain unstayed, unvacated, undischarged or
unsatisfied for 30 calendar days.

 
 

--------------------------------------------------------------------------------

 

(d)  The Company shall default (unless waived) in the performance or observance
(subject to any applicable grace period) of any agreement, covenant or condition
with respect to any indebtedness in an amount in excess of $1,000,000 (including
indebtedness created under this Note) if the effect of such default is to
accelerate the maturity of any such indebtedness or to permit the holder or
holders of any such indebtedness, or any trustee or agent for such holders, to
cause such indebtedness to become due and payable prior to its expressed
maturity or, if such indebtedness is a guaranty and the default has the effect,
under the terms of such guaranty, of permitting the holder or holders to call
upon such guaranty in advance of nonpayment of the guaranteed indebtedness.

(e)   The Company shall (i) institute a voluntary case seeking liquidation or
reorganization under any bankruptcy law, or shall consent to the institution of
an involuntary case thereunder against it; (ii) file a petition initiating or
shall otherwise institute any similar proceeding under any other applicable
federal or state law, or shall consent thereto; (iii) apply for, or by consent
or acquiescence there shall be an appointment of, a receiver, liquidator,
sequestrator, trustee or other officer with similar powers, or the Company shall
make an assignment for the benefit of creditors; (iv) have an involuntary case
commenced seeking the liquidation or reorganization of the Company under any
bankruptcy law, or any similar proceeding against the Company under any other
applicable federal or state law and such case is not dismissed within sixty (60)
calendar days from the commencement thereof; or (v) have any other similar
relief be granted against the Company under any applicable federal or state law.
 
6.      Usury.  Regardless of any other provision of this Note or the Letter
Agreement to the contrary, if for any reason the effective rate of interest
under this Note should exceed the maximum lawful rate of interest, then the
effective rate of interest under this Note shall be deemed reduced to, and shall
be, such maximum lawful rate of interest, and (a) the amount which would
otherwise be excessive interest shall be deemed applied to the reduction of the
outstanding principal amount and not the payment of interest, and (b) if the
loan evidenced by this Note has been or is paid in full, the excess principal
payment under the foregoing clause (a) shall be returned to the Company.  The
parties agree that any such application of excessive interest to the outstanding
principal amount or the refunding of such excess interest shall be a complete
settlement and acquittance thereof.

7.      Remedies.  If any Event of Default shall occur, then, and in every such
event, and at any time thereafter during the continuance of such event, the
Holder may demand that all amounts outstanding hereunder shall be forthwith due
and payable, together with any unpaid accrued fees and all other liabilities
accrued hereunder, provided that if an Event of Default shall occur as a result
of the circumstances described in paragraph 5(e), all amounts outstanding
hereunder shall be forthwith due and payable, together with any unpaid accrued
fees and all other liabilities accrued hereunder without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Company, and Holder may, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Company, exercise any and all rights and remedies accorded to Holder under this
Note or any other governing law.  All rights, powers and remedies hereunder or
afforded at law are cumulative.  No delay or omission by Holder to exercise any
right, power or remedy granted under this Note shall impair such right, power or
remedy or be construed to be a waiver of any Event of Default or an acquiescence
thereof, and any single or partial exercise of any such right, power or remedy
shall not preclude other or further exercise thereof or the exercise of any
other right, power or remedy.  The nonprevailing party agrees to pay all costs
associated with any action regarding the collection or enforcement of this Note
when incurred, including reasonable attorneys’ fees.

 
 

--------------------------------------------------------------------------------

 

8.      Prepayments.  This Note may not be prepaid in whole or in part prior to
August 31, 2010.  This Note may be prepaid in whole or in part on or after
August 31, 2010, provided that all accrued and unpaid interest on this Note (or,
if prepayment is partial, upon the portion of the principal that is being
repaid) shall be paid concurrent with such prepayment.

9.      No Impairment; Waivers; Reinstatement.  No provision of this Note shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place,
at the time, and in the currency herein prescribed.  The Company hereby waives,
to the full extent permitted by law, presentment, demand for payment or other
performance, notice of nonpayment or other nonperformance, protest, notice of
protest, notice of dishonor and all other notices or demands in connection with
the delivery, acceptance, performance or default of this Note.  Notwithstanding
anything herein to the contrary, this Note shall remain in full force and effect
and continue to be effective should any petition be filed by or against the
Company for liquidation or reorganization, should the Company become insolvent
or make an assignment for any benefit of creditors or should a receiver or
trustee be appointed for all or any significant part of the Company’s assets,
and shall continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the obligations, whether as a “voidable
preference,” “fraudulent conveyance” or otherwise, all as though such payment,
or any part thereof, is rescinded, reduced, restored or returned.

10.    Notices.  Except as otherwise provided herein, all notices hereunder
shall be in writing and shall be sent and deemed received in accordance with
Section 10.2 of the Stock Purchase Agreement.

11.    Conversion Rights.  Holder shall have the right, but not the obligation,
to convert all or any part of this Note into the Company’s Common Stock at the
rate of one share for each Eight Dollars and 46 cents ($8.46) in Note principal
amount.
 
If Holder elects to convert this Note into Common Stock, Holder shall give
notice to the Company of this election.

 
 

--------------------------------------------------------------------------------

 

Upon the conversion of this Note into Common Stock, in lieu of any fractional
shares to which Holder would otherwise be entitled, the Company shall pay Holder
cash equal to such fraction multiplied by the issue price of such Common Stock.
 
As promptly as practicable after the conversion of this Note, the Company at its
expense will issue and deliver to Holder, upon surrender of this Note, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion.
 
12.    Miscellaneous.  The provisions of this Note shall inure to the benefit of
Holder and its successors and assigns.  No other person shall be deemed to be a
third-party beneficiary of this Note or shall have any rights hereunder.  Any
assignment of this Note shall become effective only upon delivery of written
notice to the Company indicating the name and address of the assignee.  The
Company may not assign this Note or any of the rights, duties or obligations
hereunder without the prior written consent of Holder.  No amendment,
modification, termination or waiver of any provision of this Note, and no
consent to any departure therefrom, shall be effective without the written
consent of the Holder.  Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given, if
consented to in writing by the Holder.  This Note shall be governed by, and
construed in accordance with, the internal laws (without regard to choice of law
principles) of the State of California.  If any of the provisions in this Note
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Note.
 
           IN WITNESS WHEREOF, the Company has executed this 10% Convertible
Unsecured Note as of the date first written above.
 

 
BRIDGE CAPITAL HOLDINGS
 
a California corporation
     
By:  __________________________
     
Title: _________________________

 
 

--------------------------------------------------------------------------------