Exhibit 10.1

 

SUBORDINATED NOTE PURCHASE AGREEMENT

 

This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of June
25, 2020, and is made by and among Delmar Bancorp, a Maryland corporation
(“Company”), and the purchaser of the Subordinated Note identified on the
signature page hereto (the “Purchaser”).

 

RECITALS

 

WHEREAS, Company has requested that the Purchaser purchase from Company a
Subordinated Note (as defined herein) in the principal amount set forth on
Purchaser’s signature page (the “Subordinated Note Amount”), which amount is
intended to meet the qualifications for inclusion as Tier 2 Capital (as defined
herein);

 

WHEREAS, the Purchaser is an “accredited investor” as such term is defined by
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the “Securities
Act”), as well as a “qualified institutional buyer” as such term is defined in
Rule 144A promulgated under the Securities Act (“QIB”);

 

WHEREAS, the offer and sale of the Subordinated Note by Company is being made
pursuant to one or more available exemptions from the registration requirements
of the Securities Act, including Section 4(a)(2) of the Securities Act and the
provisions of Rule 506(b) of Regulation D promulgated thereunder; and

 

WHEREAS, Purchaser is willing to purchase from Company a Subordinated Note in
the Subordinated Note Amount in accordance with the terms, subject to the
conditions and in reliance on, the recitals, representations, warranties,
covenants and agreements set forth herein and in the Subordinated Note.

 

NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto hereby agree as
follows:

 

AGREEMENT

 

1.            DEFINITIONS.

 

1.1              Defined Terms. The following capitalized terms generally used
in this Agreement and in the Subordinated Note have the meanings defined or
referenced below. Certain other capitalized terms used only in specific sections
of this Agreement may be defined in such sections.

 

“Affiliate(s)” means, with respect to any Person, such Person’s immediate family
members, partners, members or parent and subsidiary corporations, and any other
Person directly or indirectly controlling, controlled by, or under common
control with said Person and their respective Affiliates.

 

   

 

 

“Agreement” has the meaning set forth in the preamble hereto.

 

“Articles” has the meaning set forth in Section 3.2.1.2.

 

“Bank” refers either to The Bank of Delmarva, a Delaware-chartered non-member
bank with its principal place of business located in Seaford, Delaware
(“Delmarva”),or Virginia Partners Bank, a Virginia-chartered state member bank
with its principal place of business located in Fredericksburg, Virginia,
(“Virginia Partners”), as applicable; “Banks” refers to Delmarva and Virginia
Partners collectively.

 

“Bank Holding Company Act” has the meaning set forth in Section 3.2.1.6.

 

“Business Day” means any day other than a Saturday, Sunday or any other day on
which banking institutions in the State of Maryland are permitted or required by
any applicable law or executive order to close.

 

“Bylaws” has the meaning set forth in Section 3.2.1.2.

 

“Closing” has the meaning set forth in Section 2.5.

 

“Closing Date” means June 25, 2020.

 

“Common Stock” means the Company’s common stock, $0.01 par value per share.

 

“Company” has the meaning set forth in the preamble hereto and shall include any
successors to Company.

 

“Company’s Reports” means (i) audited consolidated financial statements of
Company and the Banks, as applicable, as of and for the year ended December 31,
2019; (ii) the unaudited consolidated financial statements of Company and the
Banks, as applicable, for the quarter ended March 31, 2020, (iii) Company’s
Parent Company Only Financial Statements for Small Holding Companies (FR Y-9SP)
as of and for the year ended December 31, 2019 filed with the FRB, and (iv) each
of the Banks’ consolidated reports of condition and income (or call report) as
of and for the year ended December 31, 2019 filed with the Federal Financial
Institutions Examination Council’s Central Data Repository.

 

“Condition or Release” means any presence, use, storage, transportation,
discharge, disposal, release or threatened release of any Hazardous Materials.

 

“Control” (including the terms “controlling,” “controlled by,” and “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.

 

“Disbursement” has the meaning set forth in Section 3.1.

 

“Equity Interest” means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person which is not a corporation, and any
and all warrants, options or other rights to purchase any of the foregoing.

 

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“Event of Default” has the meaning set forth in the Subordinated Note.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“FDIC” means the Federal Deposit Insurance Corporation.

 

“Financial Advisor” means Piper Sandler & Co., independent financial advisor to
Company in connection with this Agreement.

 

“FRB” means the Board of Governors of the Federal Reserve System.

 

“GAAP” means generally accepted accounting principles in effect from time to
time in the United States of America.

 

“Governmental Agency(ies)” means, individually or collectively, any federal,
state, county or local governmental department, commission, board, regulatory
authority or agency (including each applicable Regulatory Agency) with
jurisdiction over Company, either Bank or any of their Subsidiaries.

 

“Governmental Licenses” has the meaning set forth in Section 4.3.

 

“Hazardous Materials” means oil, flammable explosives, asbestos, urea
formaldehyde insulation, polychlorinated biphenyls, radioactive materials,
hazardous wastes, toxic or contaminated substances or similar materials,
including any substances which are “hazardous substances,” “hazardous wastes,”
“hazardous materials” or “toxic substances” under the Hazardous Materials Laws
and/or other applicable environmental laws, ordinances or regulations.

 

“Hazardous Materials Laws” mean any laws, regulations, permits, licenses or
requirements pertaining to the protection, preservation, conservation or
regulation of the environment which relates to real property, including: the
Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et
seq.; the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (including the Superfund Amendments and Reauthorization Act
of 1986), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act,
as amended, 29 U.S.C. Section 651, the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and
Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking
Water Act, 42 U.S.C. Section 300f et seq.; and all comparable state and local
laws, laws of other jurisdictions or orders and regulations.

 

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“Indebtedness” means: (i) all items arising from the borrowing of money that,
according to GAAP as in effect from time to time, would be included in
determining total liabilities as shown on the consolidated balance sheet of
Company or any Subsidiary of Company; and (ii) all obligations secured by any
lien on property owned by Company or any Subsidiary whether or not such
obligations shall have been assumed; provided, however, Indebtedness shall not
include deposits or other indebtedness created, incurred or maintained in the
ordinary course of Company’s or the Banks’ business (including without
limitation federal funds purchased, advances from any Federal Home Loan Bank,
secured deposits of municipalities, letters of credit issued by Company or the
Banks, repurchase arrangements, interest rate swaps and financing through the
Paycheck Protection Program Liquidity Facility) and consistent with customary
banking practices and applicable laws and regulations.

 

“Leases” means all leases, licenses or other documents providing for the use or
occupancy of any portion of any Property, including all amendments, extensions,
renewals, supplements, modifications, sublets and assignments thereof and all
separate letters or separate agreements relating thereto.

 

“Material Adverse Effect” means any change or effect that (i) is or would be
reasonably likely to be material and adverse to the financial condition, results
of operations, business or assets of the Company, either Bank and/or their
respective Subsidiaries, or (ii) would materially impair the ability of the
Company, either Bank and/or their respective Subsidiaries to perform its
respective obligations under any of the Transaction Documents, or otherwise
materially impede the consummation of the transactions contemplated hereby or
thereby; provided, however, that “Material Adverse Effect” shall not be deemed
to include the impact of (1) changes in banking and similar laws, rules or
regulations of general applicability or interpretations thereof by Governmental
Agencies, (2) changes in GAAP or regulatory accounting requirements applicable
to financial institutions and their holding companies generally, (3) changes
after the date of this Agreement in general economic or capital market
conditions affecting financial institutions or their market prices generally and
not specifically related to Company, Bank, or Purchaser, (4) pandemics,
epidemics, disease outbreaks, and other public health emergencies, including the
Coronavirus disease (COVID-19), (5) direct effects of compliance with this
Agreement on the operating performance of Company, the Banks, or Purchaser,
including expenses incurred by Company, the Banks, or Purchaser in consummating
the transactions contemplated by this Agreement, and (6) the effects of any
action or omission taken by Company or the Banks with the prior written consent
of Purchaser, and vice versa, or as otherwise contemplated by this Agreement and
the Subordinated Note.

 

“Maturity Date” means July 1, 2030.

 

“Person” means an individual, a corporation (whether or not for profit), a
partnership, a limited liability company, a joint venture, an association, a
trust, an unincorporated organization, a government or any department or agency
thereof (including a Governmental Agency) or any other entity or organization.

 

“Property” means any real property owned or leased by Company or any Affiliate
or Subsidiary of Company.

 

“Purchaser” has the meaning set forth in the preamble hereto.

 

“QIB” has the meaning set forth in the Recitals.

 

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“Regulation D” means Regulation D promulgated under the Securities Act.

 

“Regulatory Agencies” means any federal or state agency charged with the
supervision or regulation of depository institutions or holding companies of
depository institutions, or engaged in the insurance of depository institution
deposits, or any court, administrative agency or commission or other authority,
body or agency having supervisory or regulatory authority with respect to
Company, the Banks or any of their Subsidiaries.

 

“Regulatory Approval” has the meaning set forth in Section 3.2.1.6.

 

“Securities Act” has the meaning set forth in the Recitals.

 

“State Regulator” has the meaning set forth in Section 3.2.1.6.

 

“Subordinated Note” means the Subordinated Note in the form attached as Exhibit
A hereto, as amended, restated, supplemented or modified from time to time, and
each Subordinated Note delivered in substitution or exchange for such
Subordinated Note (any one or more Subordinated Notes into which this
Subordinated Note may be subdivided, exchanged, or substituted in the future
referred to, collectively, with this Subordinated Note, as the “Subordinated
Notes”).

 

“Subordinated Note Amount” has the meaning set forth in the Recitals.

 

“Subsidiary” means with respect to any Person, any corporation or entity in
which a majority of the outstanding Equity Interest is directly or indirectly
owned by such Person.

 

“Tier 2 Capital” has the meaning given to the term “Tier 2 capital” in 12 C.F.R.
Part 217, 12 C.F.R. Part 225, and 12 C.F.R. Part 250, as amended, modified and
supplemented and in effect from time to time or any replacement thereof.

 

“Transaction Documents” has the meaning set forth in Section 3.2.1.1.

 

1.2              Interpretations. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
“hereof”, “herein” and “hereunder” and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The word “including” when used in this Agreement
without the phrase “without limitation,” shall mean “including, without
limitation.” All references to time of day herein are references to Eastern Time
unless otherwise specifically provided. All references to this Agreement and the
Subordinated Note shall be deemed to be to such documents as amended, modified
or restated from time to time. With respect to any reference in this Agreement
to any defined term, (i) if such defined term refers to a Person, then it shall
also mean all heirs, legal representatives and permitted successors and assigns
of such Person, and (ii) if such defined term refers to a document, instrument
or agreement, then it shall also include any amendment, replacement, extension
or other modification thereof.

 

1.3              Exhibits Incorporated. All Exhibits attached are hereby
incorporated into this Agreement.

 

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2.            SUBORDINATED DEBT.

 

2.1              Certain Terms. Subject to the terms and conditions herein
contained, Company proposes to issue and sell to the Purchaser a Subordinated
Note in an amount equal to the Subordinated Note Amount. Purchaser agrees to
purchase the Subordinated Note from Company on the Closing Date in accordance
with the terms of, and subject to the conditions and provisions set forth in,
this Agreement and the Subordinated Note. The Subordinated Note Amount shall be
disbursed in accordance with Section 3.1. The Subordinated Note shall bear
interest per annum as set forth in the Subordinated Note. The unpaid principal
balance of the Subordinated Note plus all accrued but unpaid interest thereon
shall be due and payable on the Maturity Date, or such earlier date on which
such amount shall become due and payable on account of (i) acceleration by
Purchaser in accordance with the terms of the Subordinated Note and this
Agreement or (ii) Company’s delivery of a notice of redemption or repayment in
accordance with the terms of the Subordinated Note.

 

2.2              Subordination. The Subordinated Note shall be subordinated in
accordance with the subordination provisions set forth therein.

 

2.3              Maturity Date. On the Maturity Date, all sums due and owing
under this Agreement and the Subordinated Note shall be repaid in full. Company
acknowledges and agrees that Purchaser has not made any commitments, either
express or implied, to extend the terms of the Subordinated Note past its
Maturity Date, and shall not extend such terms beyond the Maturity Date unless
Company and Purchaser hereafter specifically otherwise agree in writing.

 

2.4              Unsecured Obligations. The obligations of Company to Purchaser
under the Subordinated Note shall be unsecured and not covered by a guarantee of
the Company or any Affiliate of the Company.

 

2.5              The Closing. The execution and delivery of the Transaction
Documents (the “Closing”) shall occur on the Closing Date at such place or time
or on such other date as the parties hereto may agree.

 

2.6              Payments. Company agrees that matters concerning payments and
application of payments shall be as set forth in this Agreement and in the
Subordinated Note.

 

2.7              Right of Offset. Purchaser hereby expressly waives any right of
offset Purchaser may have against Company or any of its Subsidiaries.

 

2.8              Use of Proceeds. Company shall use the net proceeds from the
sale of the Subordinated Note for general corporate purposes, which may include,
without limitation, investments in the Banks as regulatory capital, repayment or
redemption of outstanding Indebtedness, providing capital to support organic
growth or growth through strategic acquisitions, and capital expenditures.

 

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3.            DISBURSEMENT.

 

3.1         Disbursement. On the Closing Date, assuming all of the terms and
conditions set forth in Section 3.2 have been satisfied by Company or waived by
the Purchaser and Company has executed and delivered to Purchaser this Agreement
and such Purchaser’s Subordinated Note and any other related documents in form
and substance reasonably satisfactory to Purchaser, Purchaser shall disburse the
Subordinated Note Amount, which is set forth on Purchaser’s signature page, in
immediately available funds to Company in exchange for a Subordinated Note with
a principal amount equal to such Subordinated Note Amount (the “Disbursement”).
Company will deliver to the Purchaser one or more certificates representing the
Subordinated Note in definitive form (or provide evidence of the same with the
original to be delivered by Company by overnight delivery on the next business
day in accordance with the delivery instructions of Purchaser), registered in
such names and denominations as Purchaser may request.

 

3.2         Conditions Precedent to Disbursement.

 

3.2.1          Conditions to the Purchaser’s Obligation. The obligation of
Purchaser to consummate the purchase of the Subordinated Note to be purchased by
it at Closing and to effect the Disbursement is subject to the fulfillment of or
delivery by or at the direction of Company to such Purchaser, on or prior to the
Closing Date, of each of the following (or written waiver by such Purchaser
prior to the Closing of such delivery):

 

3.2.1.1       Transaction Documents. This Agreement and the Subordinated Note
(collectively, the “Transaction Documents”), each duly authorized and executed
by Company.

 

3.2.1.2       Authority Documents.

 

(a)A copy, certified by the Secretary or Assistant Secretary of Company, of the
articles of incorporation of Company and all amendments thereto as in effect as
of the Closing Date (the “Articles”);

 

(b)A certificate of status of Company issued by the Maryland State Department of
Assessments and Taxation;

 

(c)A copy, certified by the Secretary or Assistant Secretary, of the bylaws of
Company and all amendments thereto as in effect as of the Closing Date (the
“Bylaws”);

 

(d)A copy, certified by the Secretary or Assistant Secretary of Company, of the
resolutions of the board of directors of Company, and any committee thereof,
authorizing the execution, delivery and performance of the Transaction
Documents;

 

(e)An incumbency certificate of the Secretary or Assistant Secretary of Company
certifying the names of the officer or officers of Company authorized to sign
the Transaction Documents and the other documents provided for in this
Agreement; and

 

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(f)The opinion of Troutman Sanders LLP, counsel to Company, dated as of the
Closing Date, substantially in the form set forth at Exhibit B attached hereto
addressed to the Purchaser.

 

3.2.1.3       Representations and Warranties. The representations and warranties
of Company set forth in Section 4 of this Agreement that do not contain a
“Material Adverse Effect” qualification or other express materiality or similar
qualification shall have been true and correct as of the date hereof and shall
be true and correct as of the Closing Date, except where the failure of such
representations and warranties to be so true and correct does not have a
Material Adverse Effect; provided, however, that representations and warranties
made as of a specified date need only be true and correct as of such date. The
representations and warranties of Company set forth in Section 4 of this
Agreement that contain a “Material Adverse Effect” qualification or any other
express materiality or similar qualification shall have been true and correct as
of the date hereof and shall be true and correct as of the Closing Date;
provided, however, that representations and warranties made as of a specified
date need only be true and correct as of such date.

 

3.2.1.4       Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.

 

3.2.1.5       Other Requirements. Such other additional information regarding
Company, the Banks and any other Subsidiary of Company or the Banks and their
respective assets, liabilities (including any liabilities arising from, or
relating to, legal proceedings) and contracts as a Purchaser may reasonably
require.

 

3.2.1.6       Consents and Approvals. The Company shall file any required
applications, filings and notices required in connection with this Agreement, as
applicable, with (i) the FRB (under the Bank Holding Company Act of 1956, as
amended (“Bank Holding Company Act”)), and (ii) the Office of the Commissioner
of Financial Regulation of the Maryland State Department of Labor, Licensing and
Regulation (the “State Regulator”), and receive approval of, or consent or
nonobjection to, the foregoing applications, filings and notices (“Regulatory
Approval”).

 

3.2.2         Conditions to Company’s Obligation. The obligation of Company to
consummate the sale of the Subordinated Note and to effect the Closing is
subject to delivery by Purchaser to the Company of this Agreement, duly
authorized and executed by such Purchaser, and the purchase price from the
Purchaser in an amount equal to the stated principal amount of the Subordinated
Note.

 

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4.            REPRESENTATIONS AND WARRANTIES OF COMPANY.

 

Company hereby represents and warrants to Purchaser as follows:

 

4.1          Organization and Authority.

 

4.1.1          Organization Matters of Company and Its Subsidiaries.

 

4.1.1.1        Company is a bank holding company registered with the FRB under
the Bank Holding Company Act of 1956, as amended. Company is a business
corporation validly existing and in good standing under the laws of the State of
Maryland and has all requisite corporate power and authority to conduct its
business and activities as presently conducted, to own its properties, and to
perform its obligations under the Transaction Documents. Company is duly
qualified as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.

 

4.1.1.2        The entities listed on Schedule 4.1.1.2 are the only direct or
indirect Subsidiaries of the Company. Each Subsidiary of the Company and the
Banks either has been duly organized and is validly existing as a corporation or
limited liability company, or, in the case of the Banks, has been duly chartered
and is validly existing, in the case of Delmarva as a Delaware chartered bank,
and in the case of Virginia Partners, as a Virginia-chartered bank, in each case
in good standing under the laws of the jurisdiction of its incorporation or
formation, has corporate or limited liability company power and authority to
own, lease and operate its properties and to conduct its business and is duly
qualified as a foreign entity to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except where
the failure so to qualify or to be in good standing would not result in a
Material Adverse Effect. All of the issued and outstanding shares of capital
stock or other equity interests in each Subsidiary of the Company have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
by the Company, directly or through Subsidiaries of the Company, free and clear
of any security interest, mortgage, pledge, lien, encumbrance or claim; none of
the outstanding shares of capital stock of, or other equity interests in, any
Subsidiary of the Company were issued in violation of the preemptive or similar
rights of any security holder of such Subsidiary of the Company or any other
Person.

 

4.1.1.3        The deposit accounts of the Banks are insured by the FDIC up to
applicable limits. Neither Company nor Bank has received any notice or other
information indicating that either Bank is not an “insured depository
institution” as defined in 12 U.S.C. Section 1813, nor has any event occurred
which could reasonably be expected to adversely affect the status of either Bank
as an FDIC-insured institution. Company and its Subsidiaries have made payment
of all franchise and similar taxes in all of the respective jurisdictions in
which they are incorporated, chartered or qualified, except for any such taxes
(i) where the failure to pay such taxes will not have a Material Adverse Effect,
(ii) the validity of which is being contested in good faith or (iii) for which
proper reserves have been set aside on the books of Company or any applicable
Subsidiary of Company, as the case may be.

 

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4.1.2          Capital Stock and Related Matters. The Articles of Company
authorize Company to issue 40,000,000 shares of capital stock, all of which
shares are initially classified as Common Stock; the Board of Directors of
Company may classify and reclassify any unissued shares of capital stock,
including as shares of preferred stock, by setting or changing in any one or
more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions and dividends, qualifications or
terms or conditions of redemption of such shares of stock. As of the date of
this Agreement, there are 17,809,185 shares of Common Stock issued and
outstanding and zero shares of the Company’s preferred stock issued and
outstanding. All of the outstanding capital stock of the Banks is owned
beneficially and of record by Company and has been duly authorized and validly
issued and is fully paid and non-assessable. All of the outstanding capital
stock of Company has been duly authorized and validly issued and is fully paid
and non-assessable. There are, as of the date hereof, no outstanding options,
rights, warrants or other agreements or instruments obligating Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of Company or obligating Company to grant, extend or enter
into any such agreement or commitment to any Person other than Company except
pursuant to Company’s equity incentive plans duly adopted by Company’s Board of
Directors.

 

4.2         No Impediment to Transactions.

 

4.2.1          Transaction is Legal and Authorized. The issuance of the
Subordinated Note, the borrowing of the Subordinated Note Amount, the execution
of the Transaction Documents and compliance by Company with all of the
provisions of the Transaction Documents are within the corporate and other
powers of Company.

 

4.2.2          Agreement. This Agreement has been duly authorized, executed and
delivered, and, assuming due authorization, execution and delivery by the
Purchaser, constitutes the legal, valid and binding obligation of Company,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors’ rights generally or by general
equitable principles.

 

4.2.3          Subordinated Note. The Subordinated Note has been duly authorized
by Company and when executed by Company and issued, delivered to and paid for by
the Purchaser in accordance with the terms of the Agreement, will have been duly
executed, issued and delivered, and will constitute legal, valid and binding
obligations of Company, enforceable in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors’ rights
generally or by general equitable principles.

 

4.2.4          Exemption from Registration. Neither the Company, nor any of its
Subsidiaries or Affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the
Subordinated Note. Assuming the accuracy of the representations and warranties
of Purchaser set forth in this Agreement, the Subordinated Note will be issued
in a transaction exempt from the registration requirements of the Securities
Act.

 

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4.2.5              No Defaults or Restrictions. Neither the execution and
delivery of the Transaction Documents nor compliance with their respective terms
and conditions will (whether with or without the giving of notice or lapse of
time or both) (i) violate, conflict with or result in a breach of, or constitute
a default under: (1) the Articles or Bylaws of Company; (2) any of the terms,
obligations, covenants, conditions or provisions of any corporate restriction or
of any contract, agreement, indenture, mortgage, deed of trust, pledge, bank
loan or credit agreement, or any other agreement or instrument to which Company
or either Bank, as applicable, is now a party or by which it or any of its
properties may be bound or affected; (3) any judgment, order, writ, injunction,
decree or demand of any court, arbitrator, grand jury, or Governmental Agency
applicable to Company or either Bank; or (4) any statute, rule or regulation
applicable to Company, except, in the case of items (2), (3) or (4), for such
violations and conflicts that would not reasonably be expected to have,
singularly or in the aggregate, a Material Adverse Effect, or (ii) result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any property or asset of Company, either Bank or any of their
Subsidiaries. Neither Company, either of the Banks nor any of their Subsidiaries
are in default in the performance, observance or fulfillment of any of the
terms, obligations, covenants, conditions or provisions contained in any
indenture or other agreement creating, evidencing or securing Indebtedness of
any kind or pursuant to which any such Indebtedness is issued, or any other
agreement or instrument to which Company, either Bank or any of their
Subsidiaries, as applicable, is a party or by which Company, either Bank or any
of their Subsidiaries, as applicable, or any of their properties may be bound or
affected, except, in each case, only such defaults that would not reasonably be
expected to have, singularly or in the aggregate, a Material Adverse Effect.

 

4.2.6              Governmental Consent. Except as contemplated under Section
3.2.1.6. above, no governmental orders, permissions, consents, approvals or
authorizations are required to be obtained by Company that have not been
obtained, and no registrations or declarations are required to be filed by
Company that have not been filed in connection with, or, in contemplation of,
the execution and delivery of, and performance under, the Transaction Documents,
except for applicable requirements, if any, of the Securities Act, the Exchange
Act or state securities laws or “blue sky” laws of the various states and any
applicable federal or state banking laws and regulations. The Company and Bank
have received from the Regulatory Agencies any required approval of, or consent
or nonobjection to, the issuance and sale of the Subordinated Note contemplated
by this Agreement.

 

4.3         Possession of Licenses and Permits. Each of Company, the Banks and
their Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, “Governmental Licenses”) issued by the appropriate
Governmental Agencies necessary to conduct the business now operated by them
except where the failure to possess such Governmental Licenses would not,
singularly or in the aggregate, have a Material Adverse Effect; Company and each
Subsidiary of Company are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except where the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not have a Material Adverse
Effect; and neither Company nor any Subsidiary of Company has received any
notice of proceedings relating to the revocation or modification of any such
Governmental Licenses.

 

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4.4         Financial Condition.

 

4.4.1              Company Financial Statements. The financial statements of
Company included in Company’s Reports (including the related notes, where
applicable), which have been provided to or are publicly available to Purchaser
(i) have been prepared from, and are in accordance with, the books and records
of Company or the Banks, as applicable; (ii) fairly present in all material
respects the results of operations, cash flows, changes in stockholders’ equity
and financial position of Company and its consolidated Subsidiaries, for the
respective fiscal periods or as of the respective dates therein set forth
(subject in the case of unaudited statements to recurring year-end audit
adjustments normal in nature and amount), as applicable; (iii) complied as to
form, as of their respective dates of filing in all material respects with
applicable accounting and banking requirements as applicable, with respect
thereto; and (iv) have been prepared in accordance with GAAP consistently
applied during the periods involved, except, in each case, as indicated in such
statements or in the notes thereto. The books and records of Company and the
Banks have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements.
Neither Company nor Bank has any material liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due), except for those liabilities that are reflected or reserved against on the
consolidated balance sheet (or notes thereto) of Company contained in Company’s
Reports for Company’s most recently completed quarterly or annual fiscal period,
as applicable, and for liabilities incurred in the ordinary course of business
consistent with past practice or in connection with this Agreement and the
transactions contemplated hereby.

 

4.4.2              Absence of Default. Since December  31, 2019, no event has
occurred which either of itself or with the lapse of time or the giving of
notice or both, would give any creditor of Company the right to accelerate the
maturity of any material Indebtedness of Company. Company is not in default
under any other Lease, agreement or instrument, or any law, rule, regulation,
order, writ, injunction, decree, determination or award, non-compliance with
which could reasonably be expected to result in a Material Adverse Effect.

 

4.4.3              Solvency. After giving effect to the consummation of the
transactions contemplated by this Agreement, Company has capital sufficient to
carry on its business and is solvent and able to pay its debts as they mature.
No transfer of property is being made and no Indebtedness is being incurred in
connection with the transactions contemplated by this Agreement with the intent
to hinder, delay or defraud either present or future creditors of Company or any
Subsidiary of Company.

 

4.4.4              Ownership of Property. Company, the Banks and each of their
Subsidiaries have good and marketable title as to all real property owned by
such entity and good title to all assets and properties owned by Company and
such Subsidiary in the conduct of its businesses, whether such assets and
properties are real or personal, tangible or intangible, including assets and
property reflected in the most recent consolidated balance sheet of the Company
contained in Company’s Reports or acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of in the ordinary
course of business, since the date of such consolidated balance sheet), subject
to no encumbrances, liens, mortgages, security interests or pledges, except (i)
those items which secure liabilities for public deposits or statutory
obligations or any discount with, borrowing from or other obligations to the
Federal Home Loan Bank or FRB, inter-bank credit facilities, reverse repurchase
agreements or any transaction by the Banks acting in a fiduciary capacity, (ii)
statutory liens for amounts not yet due or delinquent or that are being
contested in good faith and (iii) such liens that do not, individually or in the
aggregate, materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by Company,
either Bank or any of their Subsidiaries. Company, the Banks and each of their
Subsidiaries, as lessee, has the right under valid and existing Leases of real
and personal properties that are material to Company or such Subsidiary, as
applicable, in the conduct of its business to occupy or use all such properties
as presently occupied and used by it. Such existing Leases and commitments to
Lease constitute or will constitute operating Leases for both tax and financial
accounting purposes except as otherwise disclosed in the Company’s Reports and
the Lease expense and minimum rental commitments with respect to such Leases and
Lease commitments are as disclosed in all material respects in the Company’s
Reports.

 

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4.5        No Material Adverse Change. Since December 31, 2019, there has been
no development or event which has had or could reasonably be expected to have a
Material Adverse Effect.

 

4.6         Legal Matters.

 

4.6.1              Compliance with Law. Company, the Banks and each of their
Subsidiaries (i) have complied with and (ii) are not under investigation with
respect to, and, to Company’s knowledge, have not been threatened to be charged
with or given any notice of any material violation of any applicable statutes,
rules, regulations, orders and restrictions of any domestic or foreign
government, or any instrumentality or agency thereof, having jurisdiction over
the conduct of its business or the ownership of its properties, except where any
such failure to comply or violation would not reasonably be expected to have a
Material Adverse Effect. Company, the Banks and each of their Subsidiaries are
in compliance with, and at all times prior to the date hereof have been in
compliance with, (x) all statutes, rules, regulations, orders and restrictions
of any domestic or foreign government, or any Governmental Agency, applicable to
it, and (y) their own privacy policies and written commitments to their
respective customers, consumers and employees, concerning data protection, the
privacy and security of personal data, and the nonpublic personal information of
their respective customers, consumers and employees, in each case except where
any such failure to comply, would not result, individually or in the aggregate,
in a Material Adverse Effect. At no time during the two years prior to the date
hereof has the Company, either Bank or any of their Subsidiaries received any
notice asserting any violations of any of the foregoing, except for any
violations that (A) have been resolved or (B) that have not had, and are not
reasonably expected to have, a Material Adverse Effect.

 

4.6.2              Regulatory Enforcement Actions. Company and its Subsidiaries
are in compliance in all material respects with all laws administered by and
regulations of any Governmental Agency applicable to it or to them, the failure
to comply with which would have a Material Adverse Effect. None of Company, its
Subsidiaries, nor any of their respective officers or directors is now operating
under any restrictions, agreements, memoranda, commitment letter, supervisory
letter or similar regulatory correspondence, or other commitments (other than
restrictions of general application) imposed by any Governmental Agency, nor
are, to Company’s knowledge, (i) any such restrictions threatened, (ii) any
agreements, memoranda, commitment letters, supervisory letters or similar
regulatory correspondence, or other commitments being sought by any Governmental
Agency, or (iii) any legal or regulatory violations previously identified by, or
penalties or other remedial action previously imposed by, any Governmental
Agency that remain unresolved.

 

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4.6.3              Pending Litigation. There are no actions, suits, proceedings
or written agreements pending, or, to Company’s knowledge, threatened or
proposed, against Company, either Bank or any of their Subsidiaries at law or in
equity or before or by any federal, state, municipal, or other governmental
department, commission, board, or other administrative agency, domestic or
foreign, that, either separately or in the aggregate, would reasonably be
expected to have a Material Adverse Effect or affect issuance or payment of the
Subordinated Note; and neither Company, either Bank nor any of their
Subsidiaries is a party to or named as subject to the provisions of any order,
writ, injunction, or decree of, or any written agreement with, any court,
commission, board or agency, domestic or foreign, that either separately or in
the aggregate, will have a Material Adverse Effect.

 

4.6.4              Environmental. No Property is or, to the Company’s knowledge,
has been a site for the use, generation, manufacture, storage, treatment,
release, threatened release, discharge, disposal, transportation or presence of
any Hazardous Materials, and neither Company, either Bank nor any of their
Subsidiaries have engaged in such activities. There are no claims or actions
pending or, to Company’s knowledge, threatened against Company, either Bank or
any of their Subsidiaries by any Governmental Agency or by any other Person
relating to any Hazardous Materials or pursuant to any Hazardous Materials Law.

 

4.6.5              Brokerage Commissions. Except for fees payable to its
Financial Advisor, neither Company nor any Affiliate of Company is obligated to
pay any brokerage commission or finder’s fee to any Person in connection with
the transactions contemplated by this Agreement.

 

4.6.6              Investment Company Act. Neither Company, either Bank nor any
of their Subsidiaries is an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
as amended.

 

4.7         No Material Misstatement or Omission. None of the representations,
warranties, covenants and agreements contained in this Agreement or in any
certificate or other document delivered to Purchaser by or on behalf of Company,
either Bank or any of their Subsidiaries pursuant to or in connection with this
Agreement contains any untrue statement of a material fact or omits to state a
material fact or any fact necessary to make the statements contained therein not
misleading in light of the circumstances when made or furnished to Purchaser.

 

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4.8         Internal Accounting Controls. Each of Company and the Banks has
established and maintains a system of internal control over financial reporting
that pertains to the maintenance of records that accurately and fairly reflect
the transactions and dispositions of Company’s assets (on a consolidated basis),
provides reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP and that
Company’s and the Banks’ receipts and expenditures are being made only in
accordance with authorizations of Company management and Board of Directors, and
provides reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets of Company on a
consolidated basis that could have a Material Adverse Effect. Such internal
control over financial reporting is effective to provide reasonable assurance
regarding the reliability of Company’s financial reporting and the preparation
of Company’s financial statements for external purposes in accordance with GAAP.
Since the conclusion of Company’s last completed fiscal year there has not been
and there currently is not (i) any significant deficiency or material weakness
in the design or operation of its internal control over financial reporting
which is reasonably likely to adversely affect its ability to record, process,
summarize and report financial information, or (ii) any fraud, whether or not
material, that involves management or other employees who have a role in
Company’s or the Banks’ internal control over financial reporting. Company
(A) has implemented and maintains disclosure controls and procedures reasonably
designed and maintained to ensure that material information relating to Company
is made known to the Chief Executive Officer and the Chief Financial Officer of
Company by others within Company and (B) has disclosed, based on its most recent
evaluation prior to the date hereof, to Company’s outside auditors and the audit
committee of Company’s Board of Directors any significant deficiencies and
material weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect Company’s
internal controls over financial reporting. Such disclosure controls and
procedures are effective for the purposes for which they were established.

 

4.9         Tax Matters. Company and each Bank have (i) filed all material
foreign, U.S. federal, state and local tax returns, information returns and
similar reports that they are required to file (taking into account extensions)
with governmental tax agencies, and all such tax returns are true, correct and
complete in all material respects, and (ii) paid all material taxes required to
be paid by them (taking into account extensions) and any other material tax
assessment, fine or penalty levied against them other than taxes (x) currently
payable without penalty or interest, or (y) being contested in good faith by
appropriate proceedings.

 

4.10       Exempt Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in this Agreement, no registration
under the Securities Act is required for the offer and sale of the Subordinated
Note by the Company to the Purchaser.

 

4.11       Representations and Warranties Generally. The representations and
warranties of Company set forth in this Agreement and in any certificate or
other document delivered to Purchaser by or on behalf of Company, either Bank or
any of their Subsidiaries pursuant to or in connection with this Agreement that
do not contain a “Material Adverse Effect” qualification or other express
materiality or similar qualification are true and correct as of the date hereof
and as of the Closing Date, except where the failure of such representations and
warranties to be so true and correct does not have a Material Adverse Effect;
provided, however, that any such representations and warranties made as of a
specified date need only be true and correct as of such date. The
representations and warranties of Company set forth in this Agreement and in any
certificate or other document delivered to Purchaser by or on behalf of Company,
either Bank or any of their Subsidiaries pursuant to or in connection with this
Agreement that contain a “Material Adverse Effect” qualification or any other
express materiality or similar qualification are true and correct as of the date
hereof and as of the Closing Date; provided, however, that any such
representations and warranties made as of a specified date need only be true and
correct as of such date.

 

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5.            GENERAL COVENANTS, CONDITIONS AND AGREEMENTS.

 

Company hereby further covenants and agrees with the Purchaser as follows:

 

5.1         Compliance with Transaction Documents. Company shall comply with,
observe and timely perform each and every one of the covenants, agreements and
obligations under the Transaction Documents.

 

5.2         Affiliate Transactions. Company shall not itself, nor shall it
cause, permit or allow any of its Subsidiaries to enter into any transaction,
including the purchase, sale or exchange of property or the rendering of any
service, with any Affiliate of Company except in the ordinary course of business
and pursuant to the reasonable requirements of Company’s or such Affiliate’s
business and upon terms consistent with applicable laws and regulations and
reasonably found by the appropriate board(s) of directors to be fair and
reasonable and no less favorable to Company or such Affiliate than would be
obtained in a comparable arm’s length transaction with a Person not an
Affiliate.

 

5.3         Compliance with Laws.

 

5.3.1              Generally. Company shall comply and cause each Bank and each
of their other Subsidiaries to comply in all material respects with all
applicable statutes, rules, regulations, orders and restrictions in respect of
the conduct of its business and the ownership of its properties, except, in each
case, where such noncompliance would not reasonably be expected to have a
Material Adverse Effect.

 

5.3.2              Regulated Activities. Company shall not itself, nor shall it
cause, permit or allow either Bank or any of their Subsidiaries to (i) engage in
any business or activity not permitted by all applicable laws and regulations,
except where such business or activity would not reasonably be expected to have
a Material Adverse Effect or (ii) make any loan or advance secured by the
capital stock of another bank or depository institution, or acquire the capital
stock, assets or obligations of or any interest in another bank or depository
institution, in each case other than in accordance with applicable laws and
regulations and safe and sound banking practices.

 

5.3.3              Taxes. Company shall, and shall cause each Bank and any of
their Subsidiaries to, promptly pay and discharge (i) all taxes, assessments and
other governmental charges imposed upon Company, either Bank or any of their
Subsidiaries or upon the income, profits, or property of Company, either Bank or
any of their Subsidiaries and (ii) all claims for labor, material or supplies
that, if unpaid, might by law become a lien or charge upon the property of
Company, either Bank or any of their Subsidiaries. Notwithstanding the
foregoing, none of Company, either Bank or any of their Subsidiaries shall be
required to pay any such tax, assessment, charge or claim, so long as the
validity thereof is being contested in good faith by appropriate proceedings,
and appropriate reserves therefor shall be maintained on the books of Company,
each Bank and such other Subsidiary.

 

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5.3.4              Corporate Existence. Company will do or cause to be done all
things necessary to preserve and keep in full force and effect: (i) the
corporate existence of the Company; (ii) the existence (corporate or other) of
each subsidiary of the Company and the Banks; and (iii) the rights (constituent
governing documents and statutory), licenses and franchises of the Company and
each subsidiary of the Company and the Banks; provided, however, that the
Company will not be required to preserve the existence (corporate or other) of
any of its subsidiaries (other than the Banks) or any such right, license or
franchise of the Company or any of its subsidiaries (other than the Banks) if
the Board of Directors of the Company determines that the preservation thereof
is no longer desirable in the conduct of the business of the Company and its
subsidiaries taken as a whole and that the loss thereof will not be
disadvantageous in any material respect to the Noteholders; provided further
that the Company may in its discretion merge the Banks into one another.

 

5.3.5              Dividends, Payments, and Guarantees During Event of Default.
Upon the occurrence of an Event of Default (as defined under the Subordinated
Note), until such Event of Default is cured by the Company or waived by the
Purchaser in accordance with Section 17 of the Subordinated Notes, Company shall
not, except as may be required by any federal or state Governmental Agency, (a)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of its capital stock; (b)
make any payment of principal of, or interest or premium, if any, on, or repay,
repurchase or redeem any of Company’s Indebtedness that ranks equal with or
junior to the Subordinated Notes; or (c) make any payments under any guarantee
that ranks equal with or junior to the Subordinated Note, other than: (i) any
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, any class of Company’s Common Stock; (ii)
any declaration of a non-cash dividend in connection with the implementation of
a shareholders’ rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto;
(iii) as a result of a reclassification of Company’s capital stock or the
exchange or conversion of one class or series of Company’s capital stock for
another class or series of Company’s capital stock; (iv) the purchase of
fractional interests in shares of Company’s capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged; or (v) purchases of any class of Company’s Common Stock
related to the issuance of Common Stock or rights under any benefit plans for
Company’s directors, officers or employees or any of Company’s dividend
reinvestment plans (including any repurchases or acquisitions in connection with
the forfeiture of any stock award, cashless or net exercise of any option, or
acceptance of Common Stock in lieu of an award recipient’s tax obligations under
any equity award).

 

5.3.6              Tier 2 Capital. If all or any portion of the Subordinated
Note ceases to qualify for inclusion as Tier 2 Capital, other than due to the
limitation imposed on the capital treatment of subordinated debt during the five
(5) years immediately preceding the Maturity Date of the Subordinated Note,
Company will immediately notify the Purchaser, and thereafter, the Company and
the Purchaser will work together in good faith to execute and deliver all
agreements as reasonably necessary in order to restructure the applicable
portions of the obligations evidenced by the Subordinated Note to qualify as
Tier 2 Capital.

 

 17 

 

 

5.3.7              Environmental Matters. Except as would not, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect,
Company shall: (a) exercise, and cause each Bank and each of their Subsidiaries
to exercise, due diligence in order to comply in all material respects with all
Hazardous Materials Laws; and (b) promptly take any and all necessary remedial
action in connection with any Condition or Release or threatened Condition or
Release on, under or about any Property in order to comply in all material
respects with all applicable Hazardous Materials Laws; provided, however, that
Company shall not be deemed to be in breach of the foregoing covenant if and to
the extent it has not taken such remedial actions due to (x) its diligent
pursuit of an available statutory or administrative exemption from compliance
with the relevant Hazardous Materials Law from the appropriate Governmental
Agency (and no penalties for non-compliance with the relevant Hazardous
Materials Law(s) shall accrue as a result of such non-compliance, without rebate
or waiver if such exemption or waiver is granted), or (y) is actively and
diligently contesting in good faith any Governmental Agency’s order,
determination or decree with respect to the applicability or interpretation of
any such relevant Hazardous Materials Law and/or the actions required under such
laws or regulations in respect of such Condition or Release. In the event
Company, either Bank or any other Subsidiary of Company or the Banks undertakes
any remedial action with respect to such Hazardous Material on, under or about
any Property, Company, each Bank or such other Subsidiary shall conduct and
complete such remedial action in compliance with all applicable Hazardous
Materials Laws and in accordance with the policies, orders and directives of all
Governmental Agencies.

 

5.4         Absence of Control. It is the intent of the parties to this
Agreement that in no event shall Purchaser, by reason of any of the Transaction
Documents, be deemed to control, directly or indirectly, Company, and Purchaser
shall not exercise, or be deemed to exercise, directly or indirectly, a
controlling influence over the management or policies of Company

 

5.5         Rule 144A Information. While the Subordinated Note remains a
“restricted security” within the meaning of the Securities Act, Company will
make available, upon request, to any seller of such Subordinated Note the
information specified in Rule 144A(d)(4) under the Securities Act, unless
Company is then subject to Section 13 or 15(d) of the Exchange Act.

 

6.            REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.

 

Purchaser hereby represents and warrants to Company, and covenants with Company,
as follows:

 

6.1         Legal Power and Authority. Purchaser has all necessary power and
authority to execute, deliver and perform Purchaser’s obligations under this
Agreement and to consummate the transactions contemplated hereby. Purchaser is
an entity duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization or incorporation.

 

6.2         Authorization and Execution. The execution, delivery and performance
of this Agreement has been duly authorized by all necessary action on the part
of such Purchaser, and this Agreement has been duly authorized, executed and
delivered, and, assuming due authorization, execution and delivery by the other
parties hereto, is a legal, valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors’ rights
generally or by general equitable principles.

 

6.3         No Conflicts. Neither the execution, delivery or performance of the
Transaction Documents nor the consummation of any of the transactions
contemplated thereby will conflict with, violate, constitute a breach of or a
default (whether with or without the giving of notice or lapse of time or both)
under (i) Purchaser’s organizational documents, (ii) any agreement to which
Purchaser is party, (iii) any law applicable to Purchaser or (iv) any order,
writ, judgment, injunction, decree, determination or award binding upon or
affecting Purchaser.

 

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6.4         Purchase for Investment. Purchaser is purchasing the Subordinated
Note for Purchaser’s own account and not with a view to distribution and with no
present intention of reselling, distributing or otherwise disposing of the same.
Purchaser has no present or contemplated agreement, undertaking, arrangement,
obligation, Indebtedness or commitment providing for, or which is likely to
compel, a disposition of the Subordinated Note in any manner.

 

6.5         Institutional Accredited Investor. Purchaser is and will be on the
Closing Date (i) an institutional “accredited investor” as such term is defined
in Rule 501(a) of Regulation D and as contemplated by subsections (1), (2), (3)
and (7) of Rule 501(a) of Regulation D, and has no less than $5,000,000 in total
assets and (ii) a QIB.

 

6.6         Financial and Business Sophistication. Purchaser has such knowledge
and experience in financial and business matters that Purchaser is capable of
evaluating the merits and risks of Purchaser’s prospective investment in the
Subordinated Note. Purchaser has relied solely upon Purchaser’s own knowledge
of, and/or the advice of Purchaser’s own legal, financial or other advisors with
regard to, the legal, financial, tax and other considerations involved in
deciding to invest in the Subordinated Note.

 

6.7         Ability to Bear Economic Risk of Investment. Purchaser recognizes
that an investment in the Subordinated Note involves substantial risk. Purchaser
has the ability to bear the economic risk of Purchaser’s prospective investment
in the Subordinated Note, including the ability to hold the Subordinated Note
indefinitely, and further including the ability to bear a complete loss of all
of Purchaser’s investment in Company.

 

6.8          Information. Purchaser acknowledges that: (i) Purchaser is not
being provided with the disclosures that would be required if the offer and sale
of the Subordinated Note were registered under the Securities Act, nor is
Purchaser being provided with any offering circular or prospectus prepared in
connection with the offer and sale of the Subordinated Note; (ii) Purchaser has
conducted Purchaser’s own examination of Company and the terms of the
Subordinated Note to the extent Purchaser deems necessary to make Purchaser’s
decision to invest in the Subordinated Note; (iii) Purchaser has availed itself
of publicly available financial and other information concerning Company to the
extent Purchaser deems necessary to make Purchaser’s decision to purchase the
Subordinated Note; and (iv) Purchaser has not received or relied on any form of
general solicitation or general advertising (within the meaning of Regulation D)
from Company or any party acting on Company’s behalf in connection with the
offer and purchase of the Subordinated Note.

 

6.9          Access to Information. Purchaser acknowledges that Purchaser and
Purchaser’s advisors have been furnished with all materials relating to the
business, finances and operations of Company that have been requested by
Purchaser and Purchaser’s advisors and have been given the opportunity to ask
questions of, and to receive answers from, Persons acting on behalf of Company
concerning terms and conditions of the transactions contemplated by this
Agreement in order to make an informed and voluntary decision to enter into this
Agreement.

 

 19 

 

 

6.10       Investment Decision. Purchaser has made Purchaser’s own investment
decision based upon Purchaser’s own judgment, due diligence, and advice from
such advisors as Purchaser has deemed necessary and not upon any view expressed
by any other Person, including the Financial Advisor. Neither such inquiries nor
any other due diligence investigations conducted by it or its advisors or
representatives, if any, shall modify, amend or affect its right to rely on
Company’s representations and warranties contained herein. Purchaser is not
relying upon, and has not relied upon, any advice, statement, representation or
warranty made by any Person by or on behalf of Company, including the Financial
Advisor, except for the express statements, representations and warranties of
Company made or contained in this Agreement. Furthermore, Purchaser acknowledges
that (i) the Financial Advisor has not performed any due diligence review on
behalf of Purchaser and (ii) nothing in this Agreement or any other materials
presented by or on behalf of Company to Purchaser in connection with the
purchase of the Subordinated Note constitutes legal, tax or investment advice.

 

6.11       Private Placement; No Registration; Restricted Legends. Purchaser
understands and acknowledges that the Subordinated Note comes within the
definition of “restricted securities” under Rule 144 of the Securities Act and
is being sold by Company without registration under the Securities Act in
reliance on the exemption from federal registration set forth in Section 4(a)(2)
of the Securities Act or any state securities laws, and accordingly, may be
resold, pledged or otherwise transferred only in compliance with the
registration requirements of federal and state securities laws or if exemptions
from the Securities Act and applicable state securities laws are available to
Purchaser. Purchaser is not subscribing for the Subordinated Note as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting. Purchaser further
acknowledges and agrees that all certificates or other instruments representing
the Subordinated Note will bear the restrictive legend set forth in the form of
Subordinated Note. Purchaser further acknowledges Purchaser’s primary
responsibilities under the Securities Act and, accordingly, will not sell or
otherwise transfer the Subordinated Note or any interest therein without
complying with the requirements of the Securities Act and the rules and
regulations promulgated thereunder and the requirements set forth in this
Agreement. Neither the Company nor its Financial Advisor have or has made or are
or is making any representation, warranty or covenant, express or implied, as to
the availability of any exemption from registration under the Securities Act or
any applicable state securities laws for the resale, pledge or other transfer of
the Subordinated Note, or that the Subordinated Note purchased by Purchaser will
ever be able to be lawfully resold, pledged or otherwise transferred.

 

6.12       Role of Financial Advisor. Purchaser will purchase the Subordinated
Note directly from Company and not from the Financial Advisor, and Purchaser
understands that neither the Financial Advisor nor any other broker or dealer
has any obligation to make a market in the Subordinated Notes. Purchaser
understands that the Financial Advisor has acted solely as a financial advisor
to the Company and not as placement agent or underwriter in connection with
offer and sale of the Subordinated Note.

 

6.13       Tier 2 Capital. If all or any portion of the Subordinated Note ceases
to qualify for inclusion as Tier 2 Capital, other than due to the limitation
imposed on the capital treatment of subordinated debt during the five (5) years
immediately preceding the Maturity Date of the Subordinated Note, Company will
immediately notify the Purchaser, and thereafter, the Company and the Purchaser
will work together in good faith to execute and deliver all agreements as
reasonably necessary in order to restructure the applicable portions of the
obligations evidenced by the Subordinated Note to qualify as Tier 2 Capital.

 

 20 

 

 

6.14       Accuracy of Representations. Purchaser understands that the Company
is relying and will rely upon the truth and accuracy of the foregoing
representations, acknowledgements and agreements in connection with the
transactions contemplated by this Agreement, and agrees that if any of the
representations or acknowledgements made by it are no longer accurate as of the
Closing Date, or if any of the agreements made by it are breached on or prior to
the Closing Date, it shall promptly notify the Company.

 

7.            MISCELLANEOUS.

 

7.1         Prohibition on Assignment by Company. Except as described in Section
8(b) (Merger or Sale of Assets) of the Subordinated Note, Company may not
assign, transfer or delegate any of its rights or obligations under this
Agreement or the Subordinated Note without the prior written consent of
Purchaser. In addition, in accordance with the terms of the Subordinated Note,
any transfer of such Subordinated Note must be made in accordance with the
Assignment Form attached thereto and the requirements and restrictions thereof.

 

7.2         Time of the Essence. Time is of the essence with respect to this
Agreement.

 

7.3         Waiver or Amendment. No waiver or amendment of any term, provision,
condition, covenant or agreement herein or in the Subordinated Notes shall be
effective except with the prior written consent of Purchaser. Notwithstanding
the foregoing, Company may amend or supplement the Subordinated Notes without
the consent of Purchaser to cure any ambiguity, defect or inconsistency or to
provide for uncertificated Subordinated Notes in addition to or in place of
certificated Subordinated Notes, or to make any change that does not adversely
affect the rights of Purchaser. No failure to exercise or delay in exercising,
by Purchaser, of any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof, or the exercise of any
other right or remedy provided by law. The rights and remedies provided in this
Agreement are cumulative and not exclusive of any right or remedy provided at
law or in equity. No notice or demand on Company in any case shall, in and of
itself, entitle Company to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of Purchaser to any
other or further action in any circumstances without notice or demand. No
consent or waiver, express or implied, by Purchaser to or of any breach or
default by Company in the performance of its obligations hereunder shall be
deemed or construed to be a consent or waiver to or of any other breach or
default in the performance of the same or any other obligations of Company
hereunder. Failure on the part of Purchaser to complain of any acts or failure
to act or to declare an Event of Default, irrespective of how long such failure
continues, shall not constitute a waiver by Purchaser of its rights hereunder or
impair any rights, powers or remedies on account of any breach or default by
Company.

 

 21 

 

 

7.4         Severability. Any provision of this Agreement which is unenforceable
or invalid or contrary to law, or the inclusion of which would adversely affect
the validity, legality or enforcement of this Agreement, shall be of no effect
and, in such case, all the remaining terms and provisions of this Agreement
shall subsist and be fully effective according to the tenor of this Agreement
the same as though any such invalid portion had never been included herein.
Notwithstanding any of the foregoing to the contrary, if any provisions of this
Agreement or the application thereof are held invalid or unenforceable only as
to particular persons or situations, the remainder of this Agreement, and the
application of such provision to persons or situations other than those to which
it shall have been held invalid or unenforceable, shall not be affected thereby,
but shall continue valid and enforceable to the fullest extent permitted by law.

 

7.5         Notices. Any notice which any party hereto may be required or may
desire to give hereunder shall be deemed to have been given if in writing and if
delivered personally, or if mailed, postage prepaid, by United States registered
or certified mail, return receipt requested, or if delivered by a responsible
overnight commercial courier promising next business day delivery, addressed:

 

if to Company:

Delmar Bancorp

2245 Northwood Drive

Salisbury, Maryland 21801

Attention: Lloyd B. Harrison, III

Chief Executive Officer

 

with a copy to:

Troutman Sanders LLP

The Troutman Sanders Building

1001 Haxall Point

Richmond, Virginia 23219

Tel: (804)697-1200

Fax: (804)697-1339

Attention: Jacob A. Lutz, III, Esq.

 

if to Purchaser: To the address indicated on Purchaser’s signature page.

 

or to such other address or addresses as the party to be given notice may have
furnished in writing to the party seeking or desiring to give notice, as a place
for the giving of notice; provided that no change in address shall be effective
until five (5) Business Days after being given to the other party in the manner
provided for above. Any notice given in accordance with the foregoing shall be
deemed given when delivered personally or, if mailed, three (3) Business Days
after it shall have been deposited in the United States mails as aforesaid or,
if sent by overnight courier, the Business Day following the date of delivery to
such courier (provided next business day delivery was requested).

 

7.6         Successors and Assigns. This Agreement shall inure to the benefit of
the parties and their respective heirs, legal representatives, successors and
assigns; except that, unless the Purchaser consents in writing, no assignment
made by Company in violation of this Agreement shall be effective or confer any
rights on any purported assignee of Company.

 

 22 

 

 

7.7         No Joint Venture. Nothing contained herein or in any document
executed pursuant hereto and no action or inaction whatsoever on the part of the
Purchaser, shall be deemed to make a Purchaser a partner or joint venturer with
Company.

 

7.8         Documentation. All documents and other matters required by any of
the provisions of this Agreement to be submitted or furnished to the Purchaser
shall be in form and substance satisfactory to such Purchaser.

 

7.9         Entire Agreement. This Agreement and the Subordinated Note along
with the Exhibits thereto constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended in any manner other than by supplemental written agreement executed by
the parties hereto. No party, in entering into this Agreement, has relied upon
any representation, warranty, covenant, condition or other term that is not set
forth in this Agreement or in the Subordinated Note.

 

7.10       Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina without giving effect to
its laws or principles of conflict of laws. Nothing herein shall be deemed to
limit any rights, powers or privileges which the Purchaser may have pursuant to
any law of the United States of America or any rule, regulation or order of any
department or agency thereof and nothing herein shall be deemed to make unlawful
any transaction or conduct by a Purchaser which is lawful pursuant to, or which
is permitted by, any of the foregoing.

 

7.11       No Third Party Beneficiary. This Agreement is made for the sole
benefit of Company and the Purchaser, and no other Person shall be deemed to
have any privity of contract hereunder nor any right to rely hereon to any
extent or for any purpose whatsoever, nor shall any other Person have any right
of action of any kind hereon or be deemed to be a third party beneficiary
hereunder.

 

7.12       Legal Tender of United States. All payments hereunder shall be made
in coin or currency which at the time of payment is legal tender in the United
States of America for public and private debts.

 

7.13      Reinstatement of Obligations. To the extent that Purchaser receives
any payment on account of Company’s obligations under the Subordinated Note and
any such payment and/or any part thereof is subsequently invalidated, declared
to be fraudulent or preferential, set aside, subordinated and/or required to be
repaid to a trustee, receiver or any other Person under any bankruptcy act,
state or federal law, common law or equitable cause, then to the extent of such
payment received, Company’s obligations under the Subordinated Note or part
thereof intended to be satisfied shall be revived and continue in full force and
effect, as if such payment(s) had not been received by Purchaser and applied on
account of Company’s obligations; provided, however, if Purchaser successfully
contests any such invalidation, declaration, set aside, subordination or other
order to pay any such payment to any third party, the Company’s obligations to
Purchaser that otherwise would have been revived pursuant to this subsection
shall be deemed satisfied.

 

 23 

 

 

7.14      Captions; Counterparts. Captions contained in this Agreement in no way
define, limit or extend the scope or intent of their respective provisions. This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument. In the event that any signature is
delivered by facsimile transmission, or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.

 

7.15       Knowledge; Discretion. All references herein to Purchaser’s or
Company’s knowledge shall be deemed to mean the knowledge of such party based on
the actual knowledge of such party’s Chief Executive Officer and Chief Financial
Officer or such other persons holding equivalent offices, and such knowledge as
would reasonably be expected to come to the attention of such officers in the
performance of their respective duties. Unless specified to the contrary herein,
all references herein to an exercise of discretion or judgment by the Purchaser,
to the making of a determination or designation by the Purchaser, to the
application of the Purchaser’s discretion or opinion, to the granting or
withholding of the Purchaser’s consent or approval, to the consideration of
whether a matter or thing is satisfactory or acceptable to the Purchaser, or
otherwise involving the decision making of the Purchaser, shall be deemed to
mean that such Purchaser shall decide using the reasonable discretion or
judgment of a prudent lender.

 

7.16      Waiver Of Right To Jury Trial. TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING
IN ANY WAY IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS, OR ANY OTHER
STATEMENTS OR ACTIONS OF COMPANY OR PURCHASER. THE PARTIES ACKNOWLEDGE THAT THEY
HAVE BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF THEIR OWN FREE WILL. THE PARTIES
FURTHER ACKNOWLEDGE THAT (I) THEY HAVE READ AND UNDERSTAND THE MEANING AND
RAMIFICATIONS OF THIS WAIVER, (II) THIS WAIVER HAS BEEN REVIEWED BY THE PARTIES
AND THEIR COUNSEL AND IS A MATERIAL INDUCEMENT FOR ENTRY INTO THIS AGREEMENT AND
(III) THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF SUCH TRANSACTION DOCUMENTS AS
IF FULLY INCORPORATED THEREIN.

 

7.17       Expenses. Except as otherwise provided in this Agreement, each of the
parties will bear and pay all other costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated pursuant to this
Agreement.

 

7.18      Survival. Each of the representations and warranties set forth in this
Agreement shall survive the consummation of the transactions contemplated hereby
for a period of one year after the date hereof. Except as otherwise provided
herein, all covenants and agreements contained herein shall survive until, by
their respective terms, they are no longer operative.

 

[Signature Pages Follow]

 

 24 

 

 

IN WITNESS WHEREOF, Company has caused this Subordinated Note Purchase Agreement
to be executed by its duly authorized representative as of the date first above
written.

 

  COMPANY:         DELMAR BANCORP         By: /s/ Lloyd B. Harrison, III   Name:
Lloyd B. Harrison, III   Title: Chief Executive Officer

 

[Company Signature Page to Subordinated Note Purchase Agreement]

 

   

 

 

IN WITNESS WHEREOF, the Purchaser has caused this Subordinated Note Purchase
Agreement to be executed by its duly authorized representative as of the date
first above written.

 

  PURCHASER:           [PURCHASER’S NAME]         By:                   Name:  
  Title:           Address of Purchaser:         [_____]     [_____]     [_____]
          Address for Delivery of Note:         [_____]     [_____]     [_____]
          Principal Amount of Subordinated Note Purchased:         $[_____]  

 

[Purchaser Signature Page to Subordinated Note Purchase Agreement]

 

   

 

 

EXHIBIT A

 

FORM OF SUBORDINATED NOTE

 

 Exhibit A-1 

 

 

EXHIBIT A

 

DELMAR BANCORP

 

6.000% FIXED TO FLOATING RATE SUBORDINATED NOTE DUE JULY 1, 2030

 

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS NOT A DEPOSIT AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY OR FUND.

 

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS SUBORDINATED AND JUNIOR
IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS (AS DEFINED IN SECTION 3
(SUBORDINATION) OF THIS SUBORDINATED NOTE) OF DELMAR BANCORP, A MARYLAND
CORPORATION (THE “COMPANY”), INCLUDING OBLIGATIONS OF THE COMPANY TO ITS GENERAL
AND SECURED CREDITORS AND IS UNSECURED. IT IS INELIGIBLE AS COLLATERAL FOR ANY
EXTENSION OF CREDIT BY THE COMPANY OR ANY OF ITS SUBSIDIARIES.

 

IN THE EVENT OF LIQUIDATION, ALL HOLDERS OF SENIOR INDEBTEDNESS OF THE COMPANY
SHALL BE ENTITLED TO BE PAID IN FULL WITH SUCH INTEREST AS MAY BE PROVIDED BY
LAW BEFORE ANY PAYMENT SHALL BE MADE ON ACCOUNT OF PRINCIPAL OF OR INTEREST ON
THIS SUBORDINATED NOTE. AFTER PAYMENT IN FULL OF ALL SUMS OWING TO SUCH HOLDERS
OF SENIOR INDEBTEDNESS, THE HOLDER OF THIS SUBORDINATED NOTE, TOGETHER WITH THE
HOLDERS OF ANY OBLIGATIONS OF THE COMPANY RANKING ON A PARITY WITH THE
SUBORDINATED NOTES, SHALL BE ENTITLED TO BE PAID FROM THE REMAINING ASSETS OF
THE COMPANY THE UNPAID PRINCIPAL AMOUNT OF THIS SUBORDINATED NOTE PLUS ACCRUED
AND UNPAID INTEREST THEREON BEFORE ANY PAYMENT OR OTHER DISTRIBUTION, WHETHER IN
CASH, PROPERTY OR OTHERWISE, SHALL BE MADE (i) with respect to any obligation
that by its terms expressly is junior in the right of payment to the
Subordinated Notes, (ii) WITH RESPECT TO any indebtedness between the Company
and any of its subsidiaries or affiliates or (iII) on account OF ANY SHARES OF
CAPITAL STOCK OF THE COMPANY.

 

THIS SUBORDINATED NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM
DENOMINATIONS OF $100,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
ANY ATTEMPTED TRANSFER OF THIS SUBORDINATED NOTE IN A DENOMINATION OF LESS THAN
$100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH
PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SUBORDINATED
NOTE FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PAYMENTS ON
THIS SUBORDINATED NOTE, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO
INTEREST WHATSOEVER IN THIS SUBORDINATED NOTE.

 

  A-1 

 

 

THIS SUBORDINATED NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL
AND STATE SECURITIES LAWS. THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE
STATE SECURITIES LAWS, OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS
SUBORDINATED NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

 

CERTAIN ERISA CONSIDERATIONS:

 

THE HOLDER OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, BY ITS ACCEPTANCE
HEREOF OR THEREOF AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE
BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT
TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
(“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
“CODE”) (EACH, A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN
ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON
INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS SUBORDINATED NOTE
OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION
CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE
EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SUBORDINATED NOTE, OR ANY INTEREST
HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE
WITH RESPECT TO SUCH PURCHASE AND HOLDING. ANY PURCHASER OR HOLDER OF THIS
SUBORDINATED NOTE OR ANY INTEREST HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY
ITS PURCHASE AND HOLDING THEREOF THAT EITHER: (I) IT IS NOT AN EMPLOYEE BENEFIT
PLAN OR OTHER PLAN TO WHICH TITLE I OF ERISA OR SECTION 4975 OF THE CODE IS
APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH EMPLOYEE
BENEFIT PLAN OR OTHER PLAN, OR ANY OTHER PERSON OR ENTITY USING THE “PLAN
ASSETS” OF ANY SUCH PLAN OR OTHER PLAN TO FINANCE SUCH PURCHASE OR (II) SUCH
PURCHASE OR HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION
406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH FULL EXEMPTIVE RELIEF IS NOT
AVAILABLE UNDER APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

 

ANY FIDUCIARY OF ANY PLAN WHO IS CONSIDERING THE ACQUISITION OF THIS
SUBORDINATED NOTE OR ANY INTEREST HEREIN SHOULD CONSULT WITH HIS OR HER LEGAL
COUNSEL PRIOR TO ACQUIRING THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN.

 

  A-2 

 

 

  No. [__________] CUSIP Accredited Investors: 247035 AB4 / US247035AB45    
CUSIP QIBs: 247035 AA6 / US247035AA61

 

DELMAR BANCORP

 

6.000% FIXED TO FLOATING RATE SUBORDINATED NOTE DUE JULY 1, 2030

 

1.           Subordinated Notes. This subordinated note is one of an issue of
notes of Delmar Bancorp, a Maryland corporation (the “Company”), designated as
the “6.000% Fixed to Floating Rate Subordinated Notes due July 1, 2030” (the
“Subordinated Notes”) issued pursuant to that Subordinated Note Purchase
Agreement, dated as of the date upon which this Subordinated Note was originally
issued (the “Issue Date”), between the Company and the one or more purchasers of
the Subordinated Notes identified in the signature pages thereto (the “Purchase
Agreement”).

 

2.           Payment. The Company, for value received, promises to pay to
[_____], or its registered assigns, the principal sum of [_____] Dollars (U.S.)
($[_____]) plus accrued but unpaid interest on July 1, 2030 (the “Maturity
Date”) and to pay interest thereon (i) from and including the original issue
date of the Subordinated Notes to but excluding July 1, 2025 or the earlier
redemption date contemplated by Section 4 (Redemption) of this Subordinated Note
(the “Fixed Rate Period”), at the rate of 6.000% per annum, computed on the
basis of a 360-day year consisting of twelve 30-day months and payable
semi-annually in arrears on January 1 and July 1 of each year (each payment
date, a “Fixed Interest Payment Date”), beginning January 1, 2021, and (ii) from
and including July 1, 2025 to but excluding the Maturity Date or earlier
redemption date contemplated by Section 4 (Redemption) of this Subordinated Note
(the “Floating Rate Period”), at the rate per annum, reset quarterly, equal to
the Floating Interest Rate (as defined below) determined on the Floating
Interest Determination Date (as defined below) of the applicable interest period
plus 590 basis points, computed on the basis of a 360-day year and the actual
number of days elapsed and payable quarterly in arrears (each quarterly period,
a “Floating Interest Period”) on January 1, April 1, July 1, and October 1 of
each year (each payment date, a “Floating Interest Payment Date”). Dollar
amounts resulting from this calculation shall be rounded to the nearest cent,
with one-half cent being rounded up. The term “Floating Interest Determination
Date” means the date upon which the Floating Interest Rate is determined by the
Calculation Agent (as defined below) pursuant to the Three-Month Term SOFR
Conventions (as defined below).

 

(a)          An “Interest Payment Date” is either a Fixed Interest Payment Date
or a Floating Interest Payment Date, as applicable.

 

(b)          The “Floating Interest Rate” means:

 

(i)           initially Three-Month Term SOFR (as defined below).

 

(ii)          Notwithstanding the foregoing clause (i) of this Section 2(b):

 

(1)               If the Calculation Agent, reasonably determines in good faith
prior to the relevant Floating Interest Determination Date that a Benchmark
Transition Event and its related Benchmark Replacement Date (each of such terms
as defined below) have occurred with respect to Three-Month Term SOFR, then the
Company shall promptly provide notice of such determination to the Noteholders
(as defined below) and Section 2(c) (Effect of Benchmark Transition Event) will
thereafter apply to all determinations, calculations and quotations made or
obtained for the purposes of calculating the Floating Interest Rate payable on
the Subordinated Notes during a relevant Floating Interest Period.

 

  A-3 

 

 

(2)               However, if the Calculation Agent reasonably determines in
good faith that a Benchmark Transition Event and its related Benchmark
Replacement Date have occurred with respect to Three-Month Term SOFR, but for
any reason the Benchmark Replacement has not been determined as of the relevant
Floating Interest Determination Date, the Floating Interest Rate for the
applicable Floating Interest Period will be equal to the Floating Interest Rate
on the last Floating Interest Determination Date for the Subordinated Notes, as
determined by the Calculation Agent.

 

(iii)        If the then-current Benchmark is Three-Month Term SOFR and any of
the foregoing provisions concerning the calculation of the interest rate and the
payment of interest during the Floating Rate Period are inconsistent with any of
the Three-Month Term SOFR Conventions determined by the Company, then the
relevant Three-Month Term SOFR Conventions will apply.

 

(c)          Effect of Benchmark Transition Event.

 

(i)          If the Calculation Agent reasonably determines in good faith that a
Benchmark Transition Event and its related Benchmark Replacement Date have
occurred prior to the Reference Time (as defined below) in respect of any
determination of the Benchmark (as defined below) on any date, the Benchmark
Replacement will replace the then-current Benchmark for all purposes relating to
the Subordinated Notes during the relevant Floating Interest Period in respect
of such determination on such date and all determinations on all subsequent
dates.

 

(ii)         In connection with the implementation of a Benchmark Replacement,
the Company will have the right to make Benchmark Replacement Conforming Changes
from time to time, and such changes shall become effective without consent from
the relevant Noteholders or any other party.

 

(iii)        Any determination, decision or election that may be made by the
Company or by the Calculation Agent pursuant to the benchmark transition
provisions set forth herein, including any determination with respect to a
tenor, rate or adjustment or of the occurrence or non-occurrence of an event,
circumstance or date, and any decision to take or refrain from taking any action
or any selection:

 

(1)               will be conclusive and binding absent manifest error;

 

(2)               if made by the Company, will be made in the Company’s sole
discretion;

 

(3)               if made by the Calculation Agent, will be made after
consultation with the Company, and the Calculation Agent will not make any such
determination, decision or election to which the Company reasonably objects; and

 

  A-4 

 

 

(4)          notwithstanding anything to the contrary in this Subordinated Note
or the Purchase Agreement, shall become effective without consent from the
relevant Noteholders or any other party.

 

(iv)        For the avoidance of doubt, after a Benchmark Transition Event and
its related Benchmark Replacement Date have occurred, interest payable on this
Subordinated Note for the Floating Rate Period will be an annual rate equal to
the sum of the applicable Benchmark Replacement and the spread specified on the
face hereof.

 

(v)          As used in this Subordinated Note, the following terms have the
meanings as set forth below:

 

(1)          “Benchmark” means, initially, Three-Month Term SOFR; provided that
if a Benchmark Transition Event and its related Benchmark Replacement Date have
occurred with respect to Three-Month Term SOFR or the then-current Benchmark,
then “Benchmark” means the applicable Benchmark Replacement.

 

(2)          “Benchmark Replacement” means the Interpolated Benchmark with
respect to the then-current Benchmark; provided that if (a) the Calculation
Agent cannot determine the Interpolated Benchmark as of the Benchmark
Replacement Date or (b) the then-current Benchmark is Three-Month Term SOFR and
a Benchmark Transition Event and its related Benchmark Replacement Date have
occurred with respect to Three-Month Term SOFR (in which event no Interpolated
Benchmark with respect to Three-Month Term SOFR shall be determined), then
“Benchmark Replacement” means the first alternative set forth in the order below
that can be determined by the Calculation Agent, as of the Benchmark Replacement
Date:

 

a.                  The sum of (i) Compounded SOFR and (ii) the Benchmark
Replacement Adjustment;

 

b.                  the sum of: (i) the alternate rate of interest that has been
selected or recommended by the Relevant Governmental Body as the replacement for
the then-current Benchmark for the applicable Corresponding Tenor and (ii) the
Benchmark Replacement Adjustment;

 

c.                  the sum of: (i) the ISDA Fallback Rate and (ii) the
Benchmark Replacement Adjustment;

 

d.                  the sum of: (i) the alternate rate of interest that has been
selected by the Company as the replacement for the then-current Benchmark for
the applicable Corresponding Tenor giving due consideration to any
industry-accepted rate of interest as a replacement for the then-current
Benchmark for U.S. dollar denominated floating rate notes at such time and
(ii) the Benchmark Replacement Adjustment.

 

(3)          “Benchmark Replacement Adjustment” means the first alternative set
forth in the order below that can be determined by the Calculation Agent, as of
the Benchmark Replacement Date:

 

a.                   the spread adjustment, or method for calculating or
determining such spread adjustment, (which may be a positive or negative value
or zero) that has been selected or recommended by the Relevant Governmental Body
for the applicable Unadjusted Benchmark Replacement;

 

  A-5 

 

 

b.                  if the applicable Unadjusted Benchmark Replacement is
equivalent to the ISDA Fallback Rate, then the ISDA Fallback Adjustment;

 

c.                   the spread adjustment (which may be a positive or negative
value or zero) that has been selected by the Company giving due consideration to
any industry-accepted spread adjustment, or method for calculating or
determining such spread adjustment, for the replacement of the then-current
Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar
denominated floating rate notes at such time.

 

(4)         “Benchmark Replacement Conforming Changes” means, with respect to
any Benchmark Replacement, any technical, administrative or operational changes
(including changes to the definition of “Floating Interest Period,” timing and
frequency of determining rates with respect to each Floating Interest Period and
making payments of interest, rounding of amounts or tenors and other
administrative matters) that the Company reasonably decides in good faith may be
appropriate to reflect the adoption of such Benchmark Replacement in a manner
substantially consistent with market practice (or, if the Company reasonably
decides in good faith that adoption of any portion of such market practice is
not administratively feasible or if the Company reasonably determines in good
faith that no market practice for use of the Benchmark Replacement exists, in
such other manner as the Company determines in good faith is reasonably
necessary).

 

(5)         “Benchmark Replacement Date” means the earliest to occur of the
following events with respect to the then-current Benchmark:

 

a.                   in the case of clause (a) of the definition of “Benchmark
Transition Event,” the relevant Reference Time in respect of any determination;

 

b.                  in the case of clause (b) or (c) of the definition of
“Benchmark Transition Event,” the later of (i) the date of the public statement
or publication of information referenced therein and (ii) the date on which the
administrator of the Benchmark permanently or indefinitely ceases to provide the
Benchmark; or

 

c.                   in the case of clause (d) of the definition of “Benchmark
Transition Event,” the date of such public statement or publication of
information referenced therein.

 

For the avoidance of doubt, if the event giving rise to the Benchmark
Replacement Date occurs on the same day as, but earlier than, the Reference Time
in respect of any determination, the Benchmark Replacement Date will be deemed
to have occurred prior to the Reference Time for purposes of such determination.

 

  A-6 

 

 

(6)          “Benchmark Transition Event” means the occurrence of one or more of
the following events with respect to the then-current Benchmark:

 

a.                  if the Benchmark is Three-Month Term SOFR, (i) the Relevant
Governmental Body has not selected or recommended a forward-looking term rate
for a tenor of three months based on SOFR, (ii) the development of a
forward-looking term rate for a tenor of three months based on SOFR that has
been recommended or selected by the Relevant Governmental Body is not complete
or (iii) the Company reasonably determines in good faith that the use of a
forward-looking rate for a tenor of three months based on SOFR is not
administratively feasible;

 

b.                  a public statement or publication of information by or on
behalf of the administrator of the Benchmark announcing that such administrator
has ceased or will cease to provide the Benchmark, permanently or indefinitely,
provided that, at the time of such statement or publication, there is no
successor administrator that will continue to provide the Benchmark;

 

c.                   a public statement or publication of information by the
regulatory supervisor for the administrator of the Benchmark, the central bank
for the currency of the Benchmark, an insolvency official with jurisdiction over
the administrator for the Benchmark, a resolution authority with jurisdiction
over the administrator for the Benchmark or a court or an entity with similar
insolvency or resolution authority over the administrator for the Benchmark,
which states that the administrator of the Benchmark has ceased or will cease to
provide the Benchmark permanently or indefinitely, provided that, at the time of
such statement or publication, there is no successor administrator that will
continue to provide the Benchmark; or

 

d.                  a public statement or publication of information by the
regulatory supervisor for the administrator of the Benchmark announcing that the
Benchmark is no longer representative.

 

(7)          “Calculation Agent” means such bank or other entity as may be
appointed by the Company to act as Calculation Agent for the Subordinated Notes
during the Floating Rate Period, which entity may, but need not, be the Company
or an Affiliate (as defined below) of the Company.

 

(8)          “Compounded SOFR” means the compounded average of SOFRs for the
applicable Corresponding Tenor, with the rate, or methodology for this rate, and
conventions for this rate being established by the Company or its designee in
accordance with:

 

a.                   the rate, or methodology for this rate, and conventions for
this rate selected or recommended by the Relevant Governmental Body for
determining compounded SOFR; provided that:

 

b.                  if, and to the extent that, the Company or its designee
reasonably determines in good faith that Compounded SOFR cannot be determined in
accordance with clause (a) above, then the rate, or methodology for this rate,
and conventions for this rate that have been selected by the Company or its
designee giving due consideration to any industry-accepted market practice for
U.S. dollar denominated floating rate notes at such time.

 

For the avoidance of doubt, the calculation of Compounded SOFR will exclude the
Benchmark Replacement Adjustment.

 

  A-7 

 

 

(9)          “Corresponding Tenor” with respect to a Benchmark Replacement means
a tenor (including overnight) having approximately the same length (disregarding
Business Day adjustment) as the applicable tenor for the then-current Benchmark.

 

(10)         “FRBNY” means the Federal Reserve Bank of New York.

 

(11)         “FRBNY’s Website” means the website of the FRBNY at
http://www.newyorkfed.org, or any successor source.

 

(12)         “Interpolated Benchmark” with respect to the Benchmark means the
rate determined for the Corresponding Tenor by interpolating on a linear basis
between: (1) the Benchmark for the longest period (for which the Benchmark is
available) that is shorter than the Corresponding Tenor and (2) the Benchmark
for the shortest period (for which the Benchmark is available) that is longer
than the Corresponding Tenor.

 

(13)         “ISDA” means the International Swaps and Derivatives Association,
Inc. or any successor thereto.

 

(14)         “ISDA Definitions” means the 2006 ISDA Definitions published by the
ISDA or any successor thereto, as amended or supplemented from time to time, or
any successor definitional booklet for interest rate derivatives published from
time to time.

 

(15)         “ISDA Fallback Adjustment” means the spread adjustment (which may
be a positive or negative value or zero) that would apply for derivatives
transactions referencing the ISDA Definitions to be determined upon the
occurrence of an index cessation event with respect to the Benchmark for the
applicable tenor.

 

(16)        “ISDA Fallback Rate” means the rate that would apply for derivatives
transactions referencing the ISDA Definitions to be effective upon the
occurrence of an index cessation date with respect to the Benchmark for the
applicable tenor excluding the applicable ISDA Fallback Adjustment.

 

(17)         “Reference Time” with respect to any determination of a Benchmark
means (1) if the Benchmark is Three-Month Term SOFR, the time determined by the
Calculation Agent after giving effect to the Three-Month Term SOFR Conventions,
and (2) if the Benchmark is not Three-Month Term SOFR, the time determined by
the Calculation Agent after giving effect to the Benchmark Replacement
Conforming Changes.

 

(18)         “Relevant Governmental Body” means the Board of Governors of the
Federal Reserve System (the “Federal Reserve”) and/or the FRBNY, or a committee
officially endorsed or convened by the Federal Reserve and/or the FRBNY or any
successor thereto.

 

(19)         “SOFR” means the daily Secured Overnight Financing Rate provided by
the FRBNY, as the administrator of the benchmark (or a successor administrator),
on the FRBNY’s Website.

 

  A-8 

 

 

(20)         “Term SOFR” means the forward-looking term rate for the
Corresponding Tenor based on SOFR that has been selected or recommended by the
Relevant Governmental Body.

 

(21)         “Term SOFR Administrator” means any entity designated by the
Relevant Governmental Body as the administrator of Term SOFR (or a successor
administrator).

 

(22)         “Three-Month Term SOFR” means the rate for Term SOFR for a tenor of
three months that is published by the Term SOFR Administrator at the Reference
Time for any Floating Interest Period, as determined by the Calculation Agent
after giving effect to the Three-Month Term SOFR Conventions; provided, however,
that in the event Three-Month Term SOFR calculated as described in the foregoing
clause is less than zero, Three-Month Term SOFR shall be deemed to be zero.

 

(23)         “Three-Month Term SOFR Conventions” means any determination,
decision or election with respect to any technical, administrative or
operational matter (including with respect to the manner and timing of the
publication of Three-Month Term SOFR, or changes to the definition of “Floating
Interest Period”, timing and frequency of determining Three-Month Term SOFR with
respect to each Floating Interest Period and making payments of interest,
rounding of amounts or tenors, and other administrative matters) that the
Company reasonably decides in good faith may be appropriate to reflect the use
of Three-Month Term SOFR as the Benchmark in a manner substantially consistent
with market practice (or, if the Company reasonably decides in good faith that
adoption of any portion of such market practice is not administratively feasible
or if the Company reasonably determines in good faith that no market practice
for the use of Three-Month Term SOFR exists, in such other manner as the Company
determines in good faith is reasonably necessary).

 

(24)         “Unadjusted Benchmark Replacement” means the Benchmark Replacement
excluding the Benchmark Replacement Adjustment.

 

(d)          In the event that any Fixed Interest Payment Date during the Fixed
Rate Period falls on a day that is not a Business Day (as defined below), the
interest payment due on that date shall be postponed to the next day that is a
Business Day and no additional interest shall accrue as a result of that
postponement. In the event that any Floating Interest Payment Date during the
Floating Rate Period falls on a day that is not a Business Day (as defined
below), the interest payment due on that date shall be postponed to the next day
that is a Business Day and interest shall accrue to but excluding the date
interest is paid. However, if the postponement would cause the day to fall in
the next calendar month during the Floating Interest Period, the Floating
Interest Payment Date shall instead be brought forward to the immediately
preceding Business Day. The term “Business Day” means any day other than a
Saturday or Sunday or any other day on which banking institutions in the State
of Maryland are permitted or required by law or executive order to be closed.

 

  A-9 

 

 

3.            Subordination.

 

(a)           The indebtedness of the Company evidenced by this Subordinated
Note, including the principal and interest on this Subordinated Note, shall be
subordinate and junior in right of payment to the prior payment in full of all
existing claims of creditors of the Company whether now outstanding or
subsequently created, assumed, guaranteed or incurred (collectively, “Senior
Indebtedness”), which shall consist of principal of (and premium, if any) and
interest, if any, on: (i) all indebtedness and obligations of, or guaranteed or
assumed by, the Company for money borrowed, whether or not evidenced by bonds,
debentures, securities, notes or other similar instruments; (ii) any deferred
obligations of the Company for the payment of the purchase price of property or
assets acquired other than in the ordinary course of business; (iii) all
obligations, contingent or otherwise, of the Company in respect of any letters
of credit, bankers’ acceptances, security purchase facilities and similar direct
credit substitutes; (iv) any capital lease obligations of the Company; (v) all
obligations of the Company in respect of interest rate swap, cap or other
agreements, interest rate future or option contracts, currency swap agreements,
currency future or option contracts, commodity contracts and other similar
arrangements or derivative products; (vi) all obligations that are similar to
those in clauses (i) through (v) of other Persons for the payment of which the
Company is responsible or liable as obligor, guarantor or otherwise arising from
an off-balance sheet guarantee; (vii) all obligations of the types referred to
in clauses (i) through (vi) of other Persons secured by a lien on any property
or asset of the Company; and (viii) in the case of (i) through (vii) above, all
amendments, renewals, extensions, modifications and refundings of such
indebtedness and obligations; except “Senior Indebtedness” does not include (A)
the Subordinated Notes, (B) any obligation that by its terms expressly is junior
to, or ranks equally in right of payment with, the Subordinated Notes, or (C)
any indebtedness between the Company and any of its subsidiaries or Affiliates.
This Subordinated Note is not secured by any assets of the Company or any of its
subsidiaries or Affiliates. The term “Affiliate(s)” means, with respect to any
Person, such Person’s immediate family members, partners, members or parent and
subsidiary corporations, and any other Person directly or indirectly
controlling, controlled by, or under common control with said Person and their
respective Affiliates. The term “Person” as used in this Subordinated Note means
an individual, a corporation (whether or not for profit), a partnership, a
limited liability company, a joint venture, an association, a trust, an
unincorporated organization, a government or any department or agency thereof or
any other entity or organization. The term “control” (including the terms
“controlling,” “controlled by,” and “under common control with”) means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.

 

(b)           In the event of any liquidation of the Company, holders of Senior
Indebtedness of the Company shall be entitled to be paid in full with such
interest as may be provided by law before any payment shall be made on account
of principal of or interest on this Subordinated Note. Additionally, in the
event of any insolvency, dissolution, assignment for the benefit of creditors or
any liquidation or winding up of or relating to the Company, whether voluntary
or involuntary, holders of Senior Indebtedness shall be entitled to be paid in
full before any payment shall be made on account of the principal of or interest
on the Subordinated Notes, including this Subordinated Note. In the event of any
such proceeding, after payment in full of all sums owing with respect to the
Senior Indebtedness, the registered holders of the Subordinated Notes from time
to time (each a “Noteholder” and, collectively, the “Noteholders”), together
with the holders of any obligations of the Company ranking on parity with the
Subordinated Notes, shall be entitled to be paid from the remaining assets of
the Company the unpaid principal thereof, and the unpaid interest thereon before
any payment or other distribution, whether in cash, property or otherwise, shall
be made (i) with respect to any obligation that by its terms expressly is junior
to in the right of payment to the Subordinated Notes, (ii) with respect to any
indebtedness between the Company and any of its subsidiaries or Affiliates or
(iii) on account of any capital stock.

 

  A-10 

 

 

(c)          If there shall have occurred and be continuing (i) a default in any
payment with respect to any Senior Indebtedness or (ii) an event of default with
respect to any Senior Indebtedness as a result of which the maturity thereof is
accelerated, unless and until such payment default or event of default shall
have been cured or waived or shall have ceased to exist, no payments shall be
made by the Company with respect to the Subordinated Notes. The provisions of
this paragraph shall not apply to any payment with respect to which the
immediately preceding paragraph of this Section 3 (Subordination) would be
applicable.

 

(d)         Nothing herein shall act to prohibit, limit or impede the Company
from issuing additional debt of the Company having the same rank as the
Subordinated Notes or which may be junior or senior in rank to the Subordinated
Notes. Each Noteholder, by its acceptance hereof, further acknowledges and
agrees that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration for each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Subordinated Notes, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness, and such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold or in continuing to hold such
Senior Indebtedness.

 

4.Redemption.

 

(a)           Redemption Prior to Fifth Anniversary. This Subordinated Note
shall not be redeemable by the Company in whole or in part prior to July 1,
2025, except in the event of a: (i) Tier 2 Capital Event (as defined below);
(ii) Tax Event (as defined below); or (iii) Investment Company Event (as defined
below). Upon the occurrence of a Tier 2 Capital Event, a Tax Event or an
Investment Company Event, the Company may redeem this Subordinated Note, subject
to Section 4(f) (Regulatory Approvals) hereof, in whole or in part at any time,
upon giving not less than ten (10) business days’ notice to the holder of this
Subordinated Note at an amount equal to 100% of the outstanding principal amount
being redeemed plus accrued but unpaid interest, to but excluding the redemption
date. “Tier 2 Capital Event” means the receipt by the Company of an opinion of
counsel to the Company to the effect that there is, or within one hundred twenty
(120) days after receipt of such opinion there will be, a material risk that
this Subordinated Note does not qualify as “Tier 2” Capital (as defined by the
Federal Reserve) (or its then equivalent) as a result of a change in law or
regulation, or interpretation or application thereof, by any judicial,
legislative or regulatory authority that becomes effective after the date of
issuance of this Subordinated Note. “Tax Event” means the receipt by the Company
of an opinion of counsel to the Company that as a result of any amendment to, or
change (including any final and adopted (or enacted) prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, there exists a material risk that interest
payable by the Company on the Subordinated Notes is not, or within one hundred
twenty (120) days after the receipt of such opinion will not be, deductible by
the Company, in whole or in part, for United States federal income tax purposes.
“Investment Company Event” means the receipt by the Company of an opinion of
counsel to the Company to the effect that there is a material risk that the
Company is or, within one hundred twenty (120) days after the receipt of such
opinion will be, required to register as an investment company pursuant to the
Investment Company Act of 1940, as amended.

 

  A-11 

 

 

(b)           Redemption on or after Fifth Anniversary. On or after July 1,
2025, subject to the provisions of Section 4(f) (Regulatory Approvals) hereof,
this Subordinated Note shall be redeemable at the option of and by the Company,
in whole or in part from time to time upon any Interest Payment Date, at an
amount equal to 100% of the outstanding principal amount being redeemed plus
accrued but unpaid interest, to but excluding the redemption date, but in all
cases in a principal amount with integral multiples of $1,000. In addition, the
Company may redeem all or a portion of the Subordinated Notes, at any time upon
the occurrence of a Tier 2 Capital Event, Tax Event or an Investment Company
Event.

 

(c)           Partial Redemption. If less than the then-outstanding principal
amount of this Subordinated Note is redeemed, (i) a new Subordinated Note shall
be issued representing the unredeemed portion without charge to the Noteholder
and (ii) such redemption shall be effected on a pro rata basis as to the
Noteholders. For purposes of clarity, upon a partial redemption, a like
percentage of the principal amount of every Subordinated Note held by every
Noteholder shall be redeemed.

 

(d)           No Redemption at Option of Noteholder. This Subordinated Note is
not subject to redemption at the option of the Noteholder.

 

(e)           Effectiveness of Redemption. If notice of redemption has been duly
given and notwithstanding that this Subordinated Note has been called for
redemption but has not yet been surrendered for cancellation, on and after the
date fixed for redemption interest shall cease to accrue on the portion of this
Subordinated Note called for redemption, this Subordinated Note shall no longer
be deemed outstanding with respect to the portion called for redemption and all
rights with respect to the portion of this Subordinated Note called for
redemption shall forthwith on such date fixed for redemption cease and terminate
unless the Company shall default in the payment of the redemption price, except
only the right of the Noteholder to receive the amount payable on such
redemption, without interest. For purposes of clarity, any redemption made
pursuant to the terms of this Subordinated Note shall be made on a pro rata
basis, and, to the extent applicable and for purposes of a redemption processed
through The Depository Trust Company (DTC), on a “Pro Rata Pass-Through
Distribution of Principal” basis, among all of the Subordinated Notes
outstanding at the time thereof.

 

(f)            Regulatory Approvals. Any redemption pursuant to this Section 4
shall be subject to receipt of any and all required federal and state regulatory
approvals or non-objections, including, but not limited to, the consent of the
Federal Reserve. In the case of any redemption of this Subordinated Note
pursuant to paragraphs (b) or (c) of this Section 4, the Company will give the
Noteholder notice of redemption, which notice shall indicate the aggregate
principal amount of Subordinated Notes to be redeemed, not less than thirty (30)
nor more than forty-five (45) calendar days prior to the redemption date.

 

  A-12 

 

 

(g)           Purchase and Resale of the Subordinated Notes. Subject to any
required federal and state regulatory approvals and the provisions of this
Subordinated Note, the Company shall have the right to purchase any of the
Subordinated Notes at any time in the open market, private transactions or
otherwise. If the Company purchases any Subordinated Notes, it may, in its
discretion, hold, resell or cancel any of the purchased Subordinated Notes.

 

5.            Events of Default; Acceleration; Compliance Certificate.

 

Notwithstanding any cure periods provided for below, the Company shall promptly
(but in no event later than five (5) Business Days following the Company
becoming aware of the occurrence of such event) notify the Noteholders in
writing when the Company becomes aware of the happening of any event described
below. Regardless of whether the Company has provided the forgoing notice, each
of the following events shall constitute an “Event of Default”:

 

(a)           the entry of a decree or order for relief in respect of the
Company by a court having jurisdiction in the premises in an involuntary case or
proceeding under any applicable bankruptcy, insolvency, or reorganization law,
now or hereafter in effect of the United States or any political subdivision
thereof, and such decree or order will have continued unstayed and in effect for
a period of sixty (60) consecutive calendar days;

 

(b)           the commencement by the Company of a voluntary case under any
applicable bankruptcy, insolvency or reorganization law, now or hereafter in
effect of the United States or any political subdivision thereof, or the consent
by the Company to the entry of a decree or order for relief in an involuntary
case or proceeding under any such law;

 

(c)           the Company (i) becomes insolvent or is unable to pay its debts as
they mature, (ii) makes an assignment for the benefit of creditors, (iii) admits
in writing its inability to pay its debts as they mature or (iv) ceases to be a
bank holding company under the Bank Holding Company Act of 1956, as amended;

 

(d)           the failure of the Company to pay any installment of interest on
any of the Subordinated Notes as and when the same will become due and payable,
and the continuation of such failure for a period of fifteen (15) calendar days;

 

(e)           the failure of the Company to pay all or any part of the principal
of any of the Subordinated Notes as and when the same will become due and
payable;

 

(f)           the liquidation of the Company (for the avoidance of doubt,
“liquidation” does not include any merger, consolidation, sale of equity or
assets or reorganization (exclusive of a reorganization in bankruptcy) of the
Company or any of its subsidiaries);

 

(g)           the failure of the Company to perform any other covenant or
agreement on the part of the Company contained in this Subordinated Note, and
the continuation of such failure for a period of thirty (30) days after the date
on which notice specifying such failure, stating that such notice is a “Notice
of Default” hereunder and demanding that the Company remedy the same, will have
been given, in the manner set forth in Section 21 (Notices), to the Company by a
Noteholder;

 

  A-13 

 

 

(h)           the default by the Company under any bond, debenture, note or
other evidence of indebtedness for money borrowed by the Company having an
aggregate principal amount outstanding of at least $1,000,000, whether such
indebtedness now exists or is created or incurred in the future, which default
(i) constitutes a failure to pay any portion of the principal of such
indebtedness when due and payable after the expiration of any applicable grace
period or (ii) results in such indebtedness becoming due or being declared due
and payable prior to the date on which it otherwise would have become due and
payable without, in the case of clause (i), such indebtedness having been
discharged or, in the case of clause (ii), without such indebtedness having been
discharged or such acceleration having been rescinded or annulled; or

 

(i)             any certification made to any Noteholder pursuant to the
Purchase Agreement by the Company or otherwise made in writing to any Noteholder
in connection with or as contemplated by the Purchase Agreement or this
Subordinated Note by the Company shall be materially incorrect or false as of
the delivery date of such certification, or any representation to any Noteholder
by the Company as to the financial condition or credit standing of the Company
is or proves to be materially false or misleading.

 

Unless the principal amount of this Subordinated Note already shall have become
due and payable, if an Event of Default set forth in Section 5(a) or Section
5(b) above shall have occurred and be continuing, then the principal amount of
this Subordinated Note, and accrued and unpaid interest, if any, on the
Subordinated Note will become and be immediately due and payable without any
declaration or other act on the part of the Noteholder, and the Company waives
demand, presentment for payment, notice of nonpayment, notice of protest, and
all other notices. Notwithstanding the foregoing, because the Company treats the
Subordinated Notes as Tier 2 Capital, upon the occurrence of an Event of Default
other than an Event of Default described in Section 5(a) or Section 5(b), no
Noteholder may accelerate the Maturity Date of the Subordinated Notes and make
the principal of, and any accrued and unpaid interest on, the Subordinated
Notes, immediately due and payable. The Company, within forty-five (45) calendar
days after the receipt of written notice from any Noteholder of the occurrence
of an Event of Default with respect to this Subordinated Note, shall mail to all
Noteholders, at their addresses shown on the Security Register (as defined in
Section 13 (Registration of Transfer, Security Register) below), such written
notice of Event of Default, unless such Event of Default shall have been cured
or waived before the giving of such notice as certified by the Company in
writing.

 

6.            Failure to Make Payments. In the event of an Event of Default
under Section 5(d) or Section 5(e) above, the Company will, upon demand of the
Noteholder, pay to the Noteholder the amount then due and payable on this
Subordinated Note for principal and interest (without acceleration of the
Subordinated Note in any manner), with interest on the overdue principal and
interest at the per annum rate borne by this Subordinated Note, to the extent
permitted by applicable law. If the Company fails to pay such amount upon such
demand, the Noteholder may, among other things, institute a judicial proceeding
for the collection of the sums so due and unpaid, may prosecute such proceeding
to judgment or final decree and may enforce the same against the Company and
collect the amounts adjudged or decreed to be payable in the manner provided by
law out of the property of the Company.

 

  A-14 

 

 

Upon the occurrence of an Event of Default, until such Event of Default is cured
by the Company or waived by the Noteholders in accordance with Section 17
(Waiver and Consent) hereof, except as may be required by any federal or state
bank regulatory agency, the Company shall not: (a) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company’s capital stock; (b) make any payment of
principal or interest or premium, if any, on or repay, repurchase or redeem any
indebtedness of the Company that ranks equal with or junior to the Subordinated
Notes; or (c) make any payments under any guarantee that ranks equal with or
junior to the Subordinated Notes, other than: (i) any dividends or distributions
in shares of, or options, warrants or rights to subscribe for or purchase shares
of, any class of the Company’s common stock; (ii) any declaration of a non-cash
dividend in connection with the implementation of a shareholders’ rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto; (iii) as a result of a
reclassification of the Company’s capital stock or the exchange or conversion of
one class or series of the Company’s capital stock for another class or series
of the Company’s capital stock; (iv) the purchase of fractional interests in
shares of the Company’s capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged;
or (v) purchases of any class of the Company’s common stock related to the
issuance of common stock or rights under any benefit plans for the Company’s
directors, officers or employees or any of the Company’s dividend reinvestment
plans (including, without limitation, any repurchases or acquisitions in
connection with the forfeiture of any stock award, cashless or net exercise of
any option, or acceptance of common stock in lieu of an award recipient’s tax
obligations under any equity award) (the foregoing clauses (i) through (v) are
collectively referred to as the “Permitted Dividends”). The limitations imposed
by the provisions of this Section 6 shall apply whether or not the Noteholder
has notified the Company of an Event of Default.

 

7.            Affirmative Covenants of the Company; Compliance Certificate.

 

(a)          Notice of Certain Events. To the extent permitted by applicable
statute, rule or regulation, the Company shall provide written notice to the
Noteholder, at its addresses shown on the Security Register, of the occurrence
of any of the following events as soon as practicable, but in no event later
than fifteen (15) Business Days following the Company becoming aware of the
occurrence of such event:

 

(i)           The total risk-based capital ratio, Tier 1 risk-based capital
ratio, common equity Tier 1 risk-based capital ratio or leverage ratio of either
The Bank of Delmarva or Virginia Partners Bank, the Company’s subsidiary banks
(each individually, a “Bank” and collectively, the “Banks”), becomes less than
ten percent (10.0%), eight percent (8.0%), six and one-half percent (6.50%) or
five percent (5.0%), respectively, as of the end of any calendar quarter
(provided that, to the extent either Bank has opted into the community bank
leverage ratio framework, no notice need be given until such Bank ceases to be a
qualifying community banking organization, as defined under 12 CFR § 3.12);

 

(ii)          The Company, or any of the Company’s subsidiaries, or any officer
of the Company (in such capacity), becomes subject to any formal, written
regulatory enforcement action (as defined by the applicable state or federal
bank regulatory authority);

 

(iii)         The ratio of non-performing assets to total assets of either Bank,
as calculated by the Company in the ordinary course of business and consistent
with past practices, becomes greater than five percent (5.0%), as of the end of
any calendar quarter;

 

  A-15 

 

 

(iv)         The appointment, resignation, removal or termination of the chief
executive officer, president, chief operating officer, chief financial officer,
chief credit officer, chief lending officer or any director of the Company;

 

(v)          There is a change known to the Company in ownership of 25% or more
of the outstanding securities of the Company entitled to vote for the election
of directors; or

 

(vi)         The Company issues any additional Indebtedness.

 

(b)         Payment of Principal and Interest. The Company covenants and agrees
for the benefit of the Noteholder that it will duly and punctually pay the
principal of, and interest on, this Subordinated Note, in accordance with the
terms hereof.

 

(c)          Maintenance of Office. The Company will maintain an office or
agency in the City of Salisbury, Maryland where Subordinated Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Subordinated Notes may be
served.

 

The Company may also from time to time designate one or more other offices or
agencies where the Subordinated Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission will in any manner relieve the Company of
its obligation to maintain an office or agency in the State of Maryland. The
Company will give prompt written notice to the Noteholders of any such
designation or rescission and of any change in the location of any such other
office or agency.

 

(d)          Corporate Existence. The Company will do or cause to be done all
things necessary to preserve and keep in full force and effect: (i) the
corporate existence of the Company; (ii) the existence (corporate or other) of
each subsidiary of the Company and the Banks; and (iii) the rights (constituent
governing documents and statutory), licenses and franchises of the Company and
each subsidiary of the Company and the Banks; provided, however, that the
Company will not be required to preserve the existence (corporate or other) of
any of its subsidiaries (other than the Banks) or any such right, license or
franchise of the Company or any of its subsidiaries (other than the Banks) if
the Board of Directors of the Company determines that the preservation thereof
is no longer desirable in the conduct of the business of the Company and its
subsidiaries taken as a whole and that the loss thereof will not be
disadvantageous in any material respect to the Noteholders; provided further
that the Company may in its discretion merge the Banks into one another.

 

(e)          Maintenance of Properties. The Company will, and will cause each
subsidiary of the Company and the Banks to, cause all its properties used or
useful in the conduct of its business to be maintained and kept in good
condition, repair and working order, ordinary wear and tear excepted, and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section 7(e) will prevent the Company or
any subsidiary from discontinuing the operation and maintenance of any of their
respective properties if such discontinuance is, in the reasonable judgment of
the Board of Directors of the Company or of any subsidiary, as the case may be,
desirable in the conduct of its business and that the discontinuance thereof
will not be disadvantageous in any material respect to the Noteholders.

 

  A-16 

 

 

(f)           Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any term, provision or condition set forth in
Section 7(c) (Maintenance of Office), Section 7(d) (Corporate Existence), or
Section 7(e) (Maintenance of Properties) above, with respect to this
Subordinated Note if before the time for such compliance the Noteholders of at
least a majority in aggregate principal amount of the outstanding Subordinated
Notes, by act of such Noteholders, either will waive such compliance in such
instance or generally will have waived compliance with such term, provision or
condition, but no such waiver will extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver will
become effective, the obligations of the Company in respect of any such term,
provision or condition will remain in full force and effect.

 

(g)          Tier 2 Capital. If all or any portion of the Subordinated Notes
ceases to qualify for inclusion as Tier 2 Capital, other than due to the
limitation imposed on the capital treatment of subordinated debt during the five
(5) years immediately preceding the Maturity Date of the Subordinated Notes, the
Company will immediately notify the Noteholders and thereafter the Company and
the Noteholders will work together in good faith to execute and deliver all
agreements as reasonably necessary in order to restructure the applicable
portions of the obligations evidenced by the Subordinated Notes to qualify as
Tier 2 Capital; provided, however, that nothing contained in this Section 7(g)
(Tier 2 Capital) shall limit the Company’s right to redeem the Subordinated
Notes upon the occurrence of a Tier 2 Capital Event pursuant to Section 4(a)
(Redemption Prior to Fifth Anniversary) or Section 4(b) (Redemption on or after
Fifth Anniversary).

 

(h)          Compliance with Laws. The Company and each subsidiary of the
Company and the Banks shall comply with the requirements of all laws,
regulations, orders and decrees applicable to it or its properties, except for
such noncompliance that would not reasonably be expected to have a Material
Adverse Effect (as such term is defined in the Purchase Agreement).

 

(i)           Taxes and Assessments. The Company shall punctually pay and
discharge all material taxes, assessments, and other governmental charges or
levies imposed upon it or upon its income or upon any of its properties;
provided, however, that no such taxes, assessments or other governmental charges
need be paid if they are being contested in good faith by the Company.

 

(j)           Financial Statements; Access to Records.

 

(i)            Not later than forty-five (45) days following the end of each
quarterly period for which the Company has not submitted a Consolidated
Financial Statements for Holding Companies Reporting Form FR Y-9C to the Federal
Reserve, upon request, the Company shall provide the Noteholder with a copy of
the Company’s unaudited consolidated balance sheet and statement of income
(loss) for and as of the end of such immediately preceding fiscal quarter,
prepared in accordance with past practice. Quarterly financial statements, if
required herein, shall be unaudited and need not comply with GAAP.

 

  A-17 

 

 

(ii)           Not later than one hundred twenty (120) days from the end of each
fiscal year, upon request the Company shall provide the Noteholder with copies
of the Company’s audited financial statements consisting of the consolidated
balance sheet of the Company as of the fiscal year end and the related
statements of income (loss) and retained earnings, stockholders’ equity and cash
flows for the fiscal year then ended. Such financial statements shall be
prepared in accordance with GAAP applied on a consistent basis throughout the
period involved.

 

(k)          Company Statement as to Compliance. The Company will deliver to
Noteholder, within one hundred twenty (120) days after the end of each fiscal
year, an Officer’s Certificate covering the preceding calendar year, stating
whether or not, to the best of his or her knowledge, (i) the Company is in
default in the performance and observance of any of the terms, provisions and
conditions of this Subordinated Note (without regard to notice requirements or
periods of grace) and if the Company will be in default, specifying all such
defaults and the nature and status thereof of which he or she may have
knowledge; and (ii) any event or events have occurred that in the reasonable
judgment of the management of the Company would have a Material Adverse Effect.

 

8.            Negative Covenants of the Company.

 

(a)          Limitation on Dividends. The Company shall not declare or pay any
dividend or make any distribution on capital stock or other equity securities of
any kind of the Company if the Company is not “well capitalized” for regulatory
purposes immediately prior to the declaration of such dividend or distribution,
except for Permitted Dividends.

 

(b)         Merger or Sale of Assets. The Company shall not merge into another
entity or convey, transfer or lease substantially all of its properties and
assets to any Person, unless:

 

(i)            the continuing entity into which the Company is merged or the
Person which acquires by conveyance or transfer or which leases substantially
all of the properties and assets of the Company shall be a corporation,
association or other legal entity organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
expressly assumes the due and punctual payment of the principal of and any
premium and interest on the Subordinated Notes according to their terms, and the
due and punctual performance of all covenants and conditions hereof on the part
of the Company to be performed or observed; provided, however, that no express
assumption shall be required by any successor by merger to the Company to the
extent such legal successor assumes the Company’s obligations hereunder by
operation of law; and

 

(ii)           immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing.

 

  A-18 

 

 

(c)           Continuance of Business. Other than in connection with a
transaction which complies with Section 8(b), the Company shall not take any
action, omit to take any action or enter into any other transaction that would
have the effect of: (i) the Company ceasing to be a bank holding company under
the Bank Holding Company Act of 1956, as amended (provided, however, for the
avoidance of doubt, nothing herein is intended to prohibit Company from electing
to be a financial holding company or, following such an election, exiting
financial holding company status), (ii) the liquidation or dissolution of the
Company or either Bank, (iii) either Bank ceasing to be an “insured depository
institution” under Section 3(c)(2) of the Federal Deposit Insurance Act, as
amended or (iv) the Company owning less than one hundred percent (100%) of the
capital stock of either Bank; provided, however, for the avoidance of doubt,
nothing in this Section shall prohibit the Company from restructuring either or
both of the Banks to conduct business under a single banking charter.

 

9.            Denominations. The Subordinated Notes are issuable only in
registered form without interest coupons in minimum denominations of $100,000
and integral multiples of $1,000 in excess thereof.

 

10.          Charges and Transfer Taxes. No service charge will be made for any
registration of transfer or exchange of this Subordinated Note, or any
redemption or repayment of this Subordinated Note, or any conversion or exchange
of this Subordinated Note for other types of securities or property, but the
Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges that may be imposed in connection with the transfer
or exchange of this Subordinated Note from the Noteholder requesting such
transfer or exchange.

 

11.          Payment Procedures. Payment of the principal and interest payable
on the Maturity Date will be made by check, by wire transfer or by Automated
Clearing House (ACH) transfer in immediately available funds to a bank account
in the United States designated by the registered Noteholder if such Noteholder
shall have previously provided wire or ACH instructions to the Company, upon
presentation and surrender of this Subordinated Note at the Payment Office (as
defined in Section 21 (Notices) below) or at such other place or places as the
Company shall designate by notice to the registered Noteholders as the Payment
Office, provided that this Subordinated Note is presented to the Company in time
for the Company to make such payments in such funds in accordance with its
normal procedures. Payments of interest (other than interest payable on the
Maturity Date) shall be made on each Interest Payment Date by wire transfer in
immediately available funds or check mailed to the registered Noteholder, as
such Person’s address appears on the Security Register. Interest payable on any
Interest Payment Date shall be payable to the Noteholder in whose name this
Subordinated Note is registered at the close of business on the fifteenth (15th)
calendar day prior to the applicable Interest Payment Date, without regard to
whether such date is a Business Day, except that interest not paid on the
Interest Payment Date, if any, will be paid to the holder in whose name this
Subordinated Note is registered at the close of business on a special record
date fixed by the Company (a “Special Record Date”), notice of which shall be
given to the Noteholder not less than ten (10) calendar days prior to such
Special Record Date. To the extent permitted by applicable law, interest shall
accrue, at the rate at which interest accrues on the principal of this
Subordinated Note, on any amount of principal or interest on this Subordinated
Note not paid when due. All payments on this Subordinated Note shall be applied
first against costs and expenses of the Noteholder, if any, for which the
Company is liable under this Subordinated Note; then against interest due
hereunder; and then against principal due hereunder. The Noteholder acknowledges
and agrees that the payment of all or any portion of the outstanding principal
amount of this Subordinated Note and all interest hereon shall be pari passu in
right of payment and in all other respects to the other Subordinated Notes. In
the event that the Noteholder receives payments in excess of the Noteholder’s
pro rata share of the Company’s payments to the holders of all of the
Subordinated Notes, then the Noteholder shall hold in trust all such excess
payments for the benefit of the other Noteholders and shall pay such amounts
held in trust to such other holders upon demand by such Noteholders.

 

  A-19 

 

 

12.          Form of Payment. Payments of principal of and interest on this
Subordinated Note shall be made in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.

 

13.          Registration of Transfer, Security Register. Except as otherwise
provided herein, or in the Purchase Agreement between Noteholder and the
Company, and subject to limitations on transfer under applicable state and
federal securities laws, this Subordinated Note is transferable in whole or in
part, and may be exchanged for a like aggregate principal amount of Subordinated
Notes of other authorized denominations, by the Noteholder in person, or by its
attorney duly authorized in writing, at the Payment Office or the offices of the
Registrar. The Company or its agent (the “Registrar”) shall maintain a register
providing for the registration of the Subordinated Notes and any exchange or
transfer thereof (the “Security Register”). Upon surrender or presentation of
this Subordinated Note for exchange or registration of transfer, the Company or
the Registrar shall execute and deliver in exchange therefor a Subordinated Note
or Subordinated Notes of like aggregate principal amount, each in a minimum
denomination of $100,000 or any amount in excess thereof which is an integral
multiple of $1,000 (and, in the absence of an opinion of counsel satisfactory to
the Company to the contrary, bearing the restrictive legend(s) set forth
hereinabove) and that is or are registered in such name or names requested by
the Noteholder. Any Subordinated Note presented or surrendered for registration
of transfer or for exchange shall be duly endorsed and accompanied by a written
instrument of transfer in such form as is attached hereto and incorporated
herein, duly executed by the Noteholder or its attorney duly authorized in
writing, with such tax identification number (including, without limitation, an
appropriate and properly executed Internal Revenue Service Form W-9 or
appropriate type of Form W-8) or other information for each Person in whose name
a Subordinated Note is to be issued, and accompanied by evidence of compliance
with any restrictive legend(s) appearing on such Subordinated Note or
Subordinated Notes as the Company may reasonably request to comply with
applicable law. No exchange or registration of transfer of this Subordinated
Note shall be made on or after (i) the fifteenth (15th) day immediately
preceding the Maturity Date or (ii) the due delivery of notice of redemption.

 

14.          Successors and Assigns. This Subordinated Note shall be binding
upon the Company and inure to the benefit of the Noteholder and its respective
successors and permitted assigns. The Noteholder may assign all, or any part of,
or any interest in, the Noteholder’s rights and benefits hereunder only to the
extent and in the manner permitted by the terms of this Subordinated Note, the
Purchase Agreement, and under applicable securities laws and regulations. To the
extent of any such assignment, such assignee shall have the same rights and
benefits against the Company and shall agree to be bound by and to comply with
the terms and conditions of the Purchase Agreement as it would have had if it
were the Noteholder hereunder.

 

15.          Priority. The Subordinated Notes rank pari passu among themselves
and pari passu, in the event of any insolvency proceeding, dissolution,
assignment for the benefit of creditors, reorganization, restructuring of debt,
marshaling of assets and liabilities or similar proceeding or any liquidation or
winding up of the Company, with all other present or future unsecured
subordinated debt obligations of the Company, except any unsecured subordinated
debt that, pursuant to its express terms, is senior or subordinate in right of
payment to the Subordinated Notes.

 

  A-20 

 

 

16.              Ownership. Prior to due presentment of this Subordinated Note
for registration of transfer, the Company may treat the holder in whose name
this Subordinated Note is registered in the Security Register as the absolute
owner of this Subordinated Note for receiving payments of principal and interest
on this Subordinated Note and for all other purposes whatsoever, whether or not
this Subordinated Note be overdue, and the Company shall not be affected by any
notice to the contrary.

 

17.              Waiver and Consent.

 

    (a)                This Subordinated Note may be amended or waived pursuant
to, and in accordance with, the provisions set forth herein and as set forth in
Section 7.3 of the Purchase Agreement. Any such consent or waiver given by the
Noteholder shall be conclusive and binding upon such Noteholder and upon all
subsequent holders of this Subordinated Note and of any Subordinated Note issued
upon the registration of transfer hereof or in exchange therefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Subordinated Note. No delay or omission of the Noteholder to exercise any right
or remedy accruing upon any Event of Default shall impair such right or remedy
or constitute a waiver of any such Event of Default or an acquiescence therein.
Any insured depository institution that shall be a Noteholder or that otherwise
shall have any beneficial ownership interest in this Subordinated Note shall, by
its acceptance of such Subordinated Note (or beneficial interest therein), be
deemed to have waived any right of offset with respect to the indebtedness
evidenced thereby.

 

    (b)                No waiver or amendment of any term, provision, condition,
covenant or agreement in the Subordinated Notes shall be effective except with
the consent of the Noteholders holding more than fifty percent (50%) in
aggregate principal amount (excluding any Subordinated Notes held by the Company
or any of its Affiliates) of the Subordinated Notes at the time outstanding;
provided, however, that without the consent of each Noteholder of an affected
Subordinated Note, no such amendment or waiver may: (i) reduce the principal
amount of the Subordinated Note; (ii) reduce the rate of or change the time for
payment of interest on any Subordinated Note; (iii) extend the maturity of any
Subordinated Note; (iv) change the currency in which payment of the obligations
of the Company under the Subordinated Notes are to be made; (v) lower the
percentage of aggregate principal amount of outstanding Subordinated Notes
required to approve any amendment of the Subordinated Notes; (vi) make any
changes to Section 4(c) (Partial Redemption), Section 5 (Events of Default;
Acceleration), Section 6 (Failure to Make Payments), Section 15 (Priority), or
Section 17 (Waiver and Consent) of the Subordinated Notes that adversely affects
the rights of any Noteholder; or (vii) disproportionately and adversely affect
the rights of any of the holders of the then outstanding Subordinated Notes.
Notwithstanding the foregoing, the Company may amend or supplement the
Subordinated Notes without the consent of the Noteholders to cure any ambiguity,
defect or inconsistency or to provide for uncertificated Subordinated Notes in
addition to or in place of certificated Subordinated Notes, or to make any
change that does not adversely affect the rights of any Noteholder of any of the
Subordinated Notes. No failure to exercise or delay in exercising, by any
Noteholder of the Subordinated Notes, of any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege preclude any other or further exercise thereof, or
the exercise of any other right or remedy provided by law. The rights and
remedies provided in this Subordinated Note are cumulative and not exclusive of
any right or remedy provided by law or equity. No notice or demand on the
Company in any case shall, in itself, entitle the Company to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Noteholders to any other or further action in any
circumstances without notice or demand. No consent or waiver, express or
implied, by the Noteholders to or of any breach or default by the Company in the
performance of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance of the
same or any other obligations of the Company hereunder. Failure on the part of
the Noteholders to complain of any acts or failure to act or to declare an Event
of Default, irrespective of how long such failure continues, shall not
constitute a waiver by the Noteholders of their rights hereunder or impair any
rights, powers or remedies on account of any breach or default by the Company.

 

A-21

 

 

18.              Absolute and Unconditional Obligation of the Company. No
provisions of this Subordinated Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal and interest
on this Subordinated Note at the times, places and rate, and in the coin or
currency, herein prescribed. No delay or omission of the Noteholder to exercise
any right or remedy accruing upon any Event of Default shall impair such right
or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein.

 

19.              No Sinking Fund; Convertibility. This Subordinated Note is not
entitled to the benefit of any sinking fund. This Subordinated Note is not
convertible into or exchangeable for any of the equity securities, other
securities or assets of the Company or any subsidiary of the Company.

 

20.              No Recourse Against Others. No recourse under or upon any
obligation, covenant or agreement contained in this Subordinated Note, or for
any claim based thereon or otherwise in respect thereof, will be had against any
past, present or future shareholder, employee, officer, or director, as such, of
the Company or of any predecessor or successor, either directly or through the
Company or any predecessor or successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of this Subordinated Note by the Noteholder and
as part of the consideration for the issuance of this Subordinated Note.

 

21.              Notices. All notices to the Company under this Subordinated
Note shall be in writing and addressed to the Company at:

 

Delmar Bancorp

2245 Northwood Drive

Salisbury, Maryland 21801

Attention: John W. Breda, President and Chief Operating Officer

 

and

 

Virginia Partners Bank

410 William Street

Fredericksburg, Virginia 22401

Attention: Lloyd B. Harrison, III, Chief Executive Officer

 

A-22

 

 

with a copy to

 

Troutman Sanders LLP

The Troutman Sanders Building

1001 Haxall Point, Richmond, Virginia 23219

Attention: Jacob A. Lutz, III, Esq.

 

or to such other address as the Company may notify to the Noteholder (the
“Payment Office”). All notices to the Noteholders shall be in writing and sent
by first-class mail to each Noteholder at his or its address as set forth in the
Security Register.

 

22.              Further Issues. The Company may, without the consent of the
Noteholders, create and issue additional notes having the same terms and
conditions of the Subordinated Notes (except for the Issue Date and issue price)
so that such further notes shall be consolidated and form a single series with
the Subordinated Notes.

 

23.              Governing Law; Interpretation. THIS SUBORDINATED NOTE WILL BE
DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NORTH CAROLINA AND
WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NORTH CAROLINA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. IT IS
INTENDED THAT THIS SUBORDINATED NOTE SHALL MEET THE CRITERIA FOR QUALIFICATION
OF THE OUTSTANDING PRINCIPAL AS TIER 2 CAPITAL UNDER THE REGULATORY GUIDELINES
OF THE FEDERAL RESERVE, AND THE TERMS HEREOF SHALL BE INTERPRETED IN A MANNER TO
SATISFY SUCH INTENT.

 

[Signature Page Follows]

 

A-23

 

 

IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note to be duly
executed and attested.

      DELMAR BANCORP        By:     Name: Lloyd B. Harrison   Title: Chief
Executive Officer

 

    ATTEST:       Name: John W. Breda   Title: President & Chief Operating
Officer  

  

[Signature Page to Subordinated Note]

 

 

 

ASSIGNMENT FORM

 

[Capitalized terms used herein but not defined have the meanings assigned in the
Subordinated Note]

 

To assign this Subordinated Note of Delmar Bancorp, fill in the form below: (I)
or (we) assign and transfer this Subordinated Note to:

  

(Print or type assignee’s name, address and zip code)

  

(Insert assignee’s social security or tax I.D. No.)

 

and irrevocably appoint _______________________ agent to transfer this
Subordinated Note on the books of the Company. The agent may substitute another
to act for him.

 

Date:___________________  Your
signature:________________________________________

(Sign exactly as your name appears on the face of this Subordinated Note)

  

  FOR EXECUTION BY AN ENTITY:           Entity name:             By:       Name:
      Title:          

      Tax Identification No:  

 

Signature Guarantee:

(Signatures must be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program), pursuant to Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)).

 

The undersigned certifies that he/she/it [is / is not] (circle one) an Affiliate
of the Company and that, to its knowledge, the proposed transferee [is / is not]
(circle one) an Affiliate of the Company.

 

In connection with any transfer or exchange of this Subordinated Note occurring
prior to the date that is one year after the later of the date of original
issuance of this Subordinated Note and the last date, if any, on which this
Subordinated Note was owned by the Company or any Affiliate of the Company, the
undersigned confirms that this Subordinated Note is being:

 

A-25

 

 

CHECK ONE BOX BELOW:

 

□ (1) acquired for the undersigned’s own account, without transfer; □ (2)
transferred to the Company; □ (3) transferred in accordance and in compliance
with Rule 144A under the Securities Act of 1933, as amended (the “Securities
Act”); □ (4) transferred under an effective registration statement under the
Securities Act; □ (5) transferred in accordance with and in compliance with
Regulation S under the Securities Act; □ (6) transferred to an institutional
“accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act); □ (7) transferred to an “accredited investor” (as defined in
Rule 501(a)(4) under the Securities Act), not referred to in item (6) that has
been provided with the information designated under Section 4(d) of the
Securities Act; or □ (8) transferred in accordance with another available
exemption from the registration requirements of the Securities Act.

 

Unless one of the boxes is checked, the Company will refuse to register this
Subordinated Note in the name of any person other than the registered holder
thereof; provided, however, that if box (5), (6), (7) or (8) is checked, the
Company may require, prior to registering any such transfer of this Subordinated
Note, in its sole discretion, such legal opinions, certifications and other
information as the Company may reasonably request to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act such as the exemption
provided by Rule 144 under such Act.

 

  Signature:     (Sign exactly as your name appears on the face of this
Subordinated Note)

 

      FOR EXECUTION BY AN ENTITY:       Entity name:    

      By:    

  Name:       Title:    

 

  Tax Identification No.:  

  

Signature Guarantee:

(Signatures must be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program), pursuant to Exchange Act
Rule 17Ad-l5).

 

A-26

 

 

TO BE COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.

 

The undersigned represents and warrants that it is purchasing this Subordinated
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a “qualified
institutional buyer” within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.

      Date:     Signature:             Print name:        

          FOR EXECUTION BY AN ENTITY:           Entity name:        

          By:  

    Name:       Title:  

          Tax Identification No.:  

  

A-27

 

 

EXHIBIT B

 

FORM OF OPINION OF COUNSEL

 

1.                     The Company (i) has been incorporated and is validly
existing and in good standing under the laws of its state of incorporation, (ii)
has all requisite power and authority to carry on its business and to own, lease
and operate its properties and assets as described in Company’s Reports and
(iii) is duly qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which the
nature of such businesses or the ownership or leasing of such properties
requires such qualification, except where the failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse Effect.

 

2.                     The Company is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended.

 

3.                     Company has all necessary power and authority to execute,
deliver and perform its obligations under the Transaction Documents and to
consummate the transactions contemplated by the Transaction Documents.

 

4.                     The Agreement has been duly and validly authorized,
executed and delivered by Company. The Agreement constitutes a legal, valid and
binding obligation of Company, enforceable against Company in accordance with
its terms.

 

5.                     The Subordinated Note has been duly and validly
authorized by Company and when issued and delivered to and paid for by Purchaser
in accordance with the terms of the Agreement, will have been duly executed,
issued and delivered and will constitute a legal, valid and binding obligation
of Company, enforceable against Company in accordance with its terms.

 

6.                     Assuming the accuracy of the representations and
warranties of, and compliance with the covenants and agreements by, Purchaser
set forth in the Agreement, the Subordinated Note will be issued in a
transaction exempt from the registration requirements of the Securities Act.

 

7.                     The issuance and sale of the Subordinated Note by the
Company, the compliance by the Company with all of the provisions of the
Agreement and the consummation of the transactions therein contemplated do not
and will not, whether with or without the giving of notice or passage of time or
both, (A) result in any violation of the provisions of the Company Articles or
the Bylaws or (B) result in any violation of any law, statute or any order, rule
or regulation of any federal, state, local or foreign court, arbitrator,
regulatory authority or governmental agency or body having jurisdiction over the
Company or any of its properties, except with respect to subsection (B) for such
violation as would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect.

  

* The opinion letter of counsel will be subject to customary limitations,
qualifications and carveouts.

 

Exhibit B-1

 

 

Schedule 4.1.1.2 – Direct and Indirect Subsidiaries

 

Name of Entity  Jurisdiction of Organization   Ownership Interest  Delmar
Bancorp    Maryland      The Bank of Delmarva   Delaware    100.00% (d/b/a in
New Jersey as Liberty Bell Bank, a division of The Bank of Delmarva)          
Delmarva Real Estate Holdings, LLC   Maryland    100.00% Davie Circle, LLC 
 Delaware    100.00% Delmarva BK Holdings, LLC   Maryland    100.00% FBW, LLC 
 Maryland    50.00% Virginia Partners Bank   Virginia    100.00% (d/b/a in
Maryland as Maryland Partners Bank (a division of Virginia Partners Bank))      
    Bear Holdings, Inc.   Virginia    100.00% 410 William Street, LLC 
 Virginia    100.00% Johnson Mortgage Company, LLC   Virginia    51.00%