ex4-5.htm


    Exhibit 4.5



    


    
      


       

      THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND
OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH
THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR
OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE
VOID.

    

    
      


       

      WARRANT

    

    
      to
purchase

    

    
      186,311

    

    
      Shares
of Common Stock

    

    
      


       

      of
DNB Financial Corporation

    

    
      


       

      Issue
Date: January 30, 2009

    

    
      


       

      1.       Definitions. Unless
the context otherwise requires, when used herein the following terms shall have
the meanings indicated.

    

    
      


       

      “Affiliate” has the meaning
ascribed to it in the Purchase Agreement.

    

    
      


       

      “Appraisal Procedure” means a
procedure whereby two independent appraisers, one chosen by the Company and one
by the Original Warrantholder, shall mutually agree upon the determinations then
the subject of appraisal. Each party shall deliver a notice to the other
appointing its appraiser within 15 days after the Appraisal Procedure is
invoked. If within 30 days after appointment of the two appraisers they are
unable to agree upon the amount in question, a third independent appraiser shall
be chosen within 10 days thereafter by the mutual consent of such first two
appraisers. The decision of the third appraiser so appointed and chosen shall be
given within 30 days after the selection of such third appraiser. If three
appraisers shall be appointed and the determination of one appraiser is
disparate from the middle determination by more than twice the amount by which
the other determination is disparate from the middle determination, then the
determination of such appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be binding and
conclusive upon the

    

    
      


      
      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    
      Company
and the Original Warrantholder; otherwise, the average of all three
determinations shall be binding upon the Company and the Original Warrantholder.
The costs of conducting any Appraisal Procedure shall be borne by the
Company.

    

    
      


       

      “Board of Directors” means the
board of directors of the Company, including any duly authorized committee
thereof.

    

    
      


       

      “Business Combination” means a
merger, consolidation, statutory share exchange or similar transaction that
requires the approval of the Company’s stockholders.

    

    
      


       

      “business day” means any day
except Saturday, Sunday and any day on which banking institutions in the State
of New York generally are authorized or required by law or other governmental
actions to close.

    

    
      


       

      “Capital Stock” means (A) with
respect to any Person that is a corporation or company, any and all shares,
interests, participations or other equivalents (however designated) of capital
or capital stock of such Person and (B) with respect to any Person that is not a
corporation or company, any and all partnership or other equity interests of
such Person.

    

    
      


       

      “Charter” means, with respect
to any Person, its certificate or articles of incorporation, articles of
association, or similar organizational document.

    

    
      


       

      “Common Stock” has the meaning
ascribed to it in the Purchase Agreement.

    

    
      


       

      “Company” means the Person
whose name, corporate or other organizational form and jurisdiction of
organization is set forth in Item 1 of Schedule A hereto.

    

    
      


       

      “conversion” has the meaning
set forth in Section 13(B).

       

    

    
      “convertible securities” has
the meaning set forth in Section 13(B).

       

    

    
      “CPP” has the meaning ascribed
to it in the Purchase Agreement.

    

    
      


       

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

    

    
      


       

      “Exercise Price” means the
amount set forth in Item 2 of Schedule A hereto.

    

    
      


       

      “Expiration Time” has the
meaning set forth in Section 3.

    

    
      


       

      “Fair Market Value” means,
with respect to any security or other property, the fair market value of such
security or other property as determined by the Board of Directors, acting in
good faith or, with respect to Section 14, as determined by the Original
Warrantholder acting in good faith. For so long as the Original Warrantholder
holds this Warrant or any portion thereof, it may object in writing to the Board
of Director’s calculation of fair market value within 10 days of receipt of
written notice thereof. If the Original Warrantholder and the Company are unable
to agree on fair market value during the 10-day period following the delivery of
the Original Warrantholder’s objection, the Appraisal Procedure may be invoked
by either party to

    

    
       

    

     

    
      
        
        

      

      
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    determine
Fair Market Value by delivering written notification thereof not later than the
30th
day after delivery of the Original Warrantholder’s objection.

    
      


       

      “Governmental Entities” has
the meaning ascribed to it in the Purchase Agreement.

       

    

    
      “Initial Number” has the
meaning set forth in Section 13(B).

       

    

    
      “Issue Date” means the date
set forth in Item 3 of Schedule A hereto.

    

    
       

      “Market Price” means, with
respect to a particular security, on any given day, the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the last closing bid and ask prices regular way, in either case on
the principal national securities exchange on which the applicable securities
are listed or admitted to trading, or if not listed or admitted to trading on
any national securities exchange, the average of the closing bid and ask prices
as furnished by two members of the Financial Industry Regulatory Authority, Inc.
selected from time to time by the Company for that purpose. “Market Price” shall
be determined without reference to after hours or extended hours trading. If
such security is not listed and traded in a manner that the quotations referred
to above are available for the period required hereunder, the Market Price per
share of Common Stock shall be deemed to be (i) in the event that any portion of
the Warrant is held by the Original Warrantholder, the fair market value per
share of such security as determined in good faith by the Original Warrantholder
or (ii) in all other circumstances, the fair market value per share of such
security as determined in good faith by the Board of Directors in reliance on an
opinion of a nationally recognized independent investment banking corporation
retained by the Company for this purpose and certified in a resolution to the
Warrantholder. For the purposes of determining the Market Price of the Common
Stock on the "trading day" preceding, on or following the occurrence of an
event, (i) that trading day shall be deemed to commence immediately after the
regular scheduled closing time of trading on the New York Stock Exchange or, if
trading is closed at an earlier time, such earlier time and (ii) that trading
day shall end at the next regular scheduled closing time, or if trading is
closed at an earlier time, such earlier time (for the avoidance of doubt, and as
an example, if the Market Price is to be determined as of the last trading day
preceding a specified event and the closing time of trading on a particular day
is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market
Price would be determined by reference to such 4:00 p.m. closing
price).

    

    
       

      “Ordinary Cash Dividends”
means a regular quarterly cash dividend on shares of Common Stock out of surplus
or net profits legally available therefor (determined in accordance with
generally accepted accounting principles in effect from time to time), provided that Ordinary Cash
Dividends shall not include any cash dividends paid subsequent to the Issue Date
to the extent the aggregate per share dividends paid on the outstanding Common
Stock in any quarter exceed the amount set forth in Item 4 of Schedule A hereto,
as adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction.

    

    
       

      “Original Warrantholder” means
the United States Department of the Treasury. Any actions specified to be taken
by the Original Warrantholder hereunder may only be taken by such Person and not
by any other Warrantholder.

    

    
       

      
        
          
          

        

        
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      “Permitted Transactions” has
the meaning set forth in Section 13(B).

    

    
      


       

      “Person” has the meaning given
to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act.

    

    
      


       

      “Per Share Fair Market Value”
has the meaning set forth in Section 13(C).

    

    
      


       

      “Preferred Shares” means the
perpetual preferred stock issued to the Original Warrantholder on the Issue Date
pursuant to the Purchase Agreement.

    

    
      


       

      “Pro Rata Repurchases” means
any purchase of shares of Common Stock by the Company or any Affiliate thereof
pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or
14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any
other offer available to substantially all holders of Common Stock, in the case
of both (A) or (B), whether for cash, shares of Capital Stock of the Company,
other securities of the Company, evidences of indebtedness of the Company or any
other Person or any other property (including, without limitation, shares of
Capital Stock, other securities or evidences of indebtedness of a subsidiary),
or any combination thereof, effected while this Warrant is outstanding. The
“Effective Date” of a
Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or
exchange by the Company under any tender or exchange offer which is a Pro Rata
Repurchase or the date of purchase with respect to any Pro Rata Repurchase that
is not a tender or exchange offer.

    

    
      


       

      “Purchase Agreement” means the
Securities Purchase Agreement – Standard Terms incorporated into the Letter
Agreement, dated as of the date set forth in Item 5 of Schedule A hereto, as
amended from time to time, between the Company and the United States Department
of the Treasury (the “Letter
Agreement”), including all annexes and schedules
thereto.

    

    
      


       

      “Qualified Equity Offering”
has the meaning ascribed to it in the Purchase Agreement.

    

    
      


       

      “Regulatory Approvals” with
respect to the Warrantholder, means, to the extent applicable and required to
permit the Warrantholder to exercise this Warrant for shares of Common Stock and
to own such Common Stock without the Warrantholder being in violation of
applicable law, rule or regulation, the receipt of any necessary approvals and
authorizations of, filings and registrations with, notifications to, or
expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder.

    

    
      


       

      “SEC” means the U.S.
Securities and Exchange Commission.

    

    
      


       

      “Securities Act” means the
Securities Act of 1933, as amended, or any successor statute, and the rules and
regulations promulgated thereunder.

    

    
      


       

      “Shares” has the meaning set
forth in Section 2.

    

    
      


       

      “trading day” means (A) if
the shares of Common Stock are not traded on any national or regional securities
exchange or association or over-the-counter market, a business day or (B) if the
shares of Common Stock are traded on any national or regional securities
exchange or

    

    
      


       

      
        
          
          

        

        
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      association
or over-the-counter market, a business day on which such relevant exchange or
quotation system is scheduled to be open for business and on which the shares of
Common Stock (i) are not suspended from trading on any national or regional
securities exchange or association or over-the-counter market for any period or
periods aggregating one half hour or longer; and (ii) have traded at least once
on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the shares
of Common Stock.

    

    
      


       

      “U.S. GAAP” means United
States generally accepted accounting principles. “Warrantholder” has the
meaning set forth in Section 2.

    

    
      


       

      “Warrant” means this Warrant,
issued pursuant to the Purchase Agreement.

    

    
      


       

      2. Number of Shares; Exercise Price.
This certifies that, for value received, the United States Department of the
Treasury or its permitted assigns (the “Warrantholder”) is entitled,
upon the terms and subject to the conditions hereinafter set forth, to acquire
from the Company, in whole or in part, after the receipt of all applicable
Regulatory Approvals, if any, up to an aggregate of the number of fully paid and
nonassessable shares of Common Stock set forth in Item 6 of Schedule A hereto,
at a purchase price per share of Common Stock equal to the Exercise Price. The
number of shares of Common Stock (the “Shares”) and the Exercise
Price are subject to adjustment as provided herein, and all references to
“Common Stock,” “Shares” and “Exercise Price” herein shall be deemed to include
any such adjustment or series of adjustments.

    

    
      


       

      3. Exercise of Warrant;
Term. Subject to Section 2, to the extent permitted by applicable laws
and regulations, the right to purchase the Shares represented by this Warrant is
exercisable, in whole or in part by the Warrantholder, at any time or from time
to time after the execution and delivery of this Warrant by the Company on the
date hereof, but in no event later than 5:00 p.m., New York City time on the
tenth anniversary of the Issue Date (the “Expiration Time”), by (A) the surrender
of this Warrant and Notice of Exercise annexed hereto, duly completed and
executed on behalf of the Warrantholder, at the principal executive office of
the Company located at the address set forth in Item 7 of Schedule A hereto (or
such other office or agency of the Company in the United States as it may
designate by notice in writing to the Warrantholder at the address of the
Warrantholder appearing on the books of the Company), and (B) payment of the
Exercise Price for the Shares thereby purchased:

    

    
      


       

      (i) by
having the Company withhold, from the shares of Common Stock that would
otherwise be delivered to the Warrantholder upon such exercise, shares of Common
stock issuable upon exercise of the Warrant equal in value to the aggregate
Exercise Price as to which this Warrant is so exercised based on the Market
Price of the Common Stock on the trading day on which this Warrant is exercised
and the Notice of Exercise is delivered to the Company pursuant to this Section
3, or

    

    
      


       

      (ii) with
the consent of both the Company and the Warrantholder, by tendering in cash, by
certified or cashier’s check payable to the order of the Company, or by wire
transfer of immediately available funds to an account designated by the
Company.

    

    
      


       

      
        
          
          

        

        
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      If the
Warrantholder does not exercise this Warrant in its entirety, the Warrantholder
will be entitled to receive from the Company within a reasonable time, and in
any event not exceeding three business days, a new warrant in substantially
identical form for the purchase of that number of Shares equal to the difference
between the number of Shares subject to this Warrant and the number of Shares as
to which this Warrant is so exercised. Notwithstanding anything in this Warrant
to the contrary, the Warrantholder hereby acknowledges and agrees that its
exercise of this Warrant for Shares is subject to the condition that the
Warrantholder will have first received any applicable Regulatory
Approvals.

    

    
      


       

      4. Issuance of Shares;
Authorization; Listing. Certificates for Shares issued upon exercise of
this Warrant will be issued in such name or names as the Warrantholder may
designate and will be delivered to such named Person or Persons within a
reasonable time, not to exceed three business days after the date on which this
Warrant has been duly exercised in accordance with the terms of this Warrant.
The Company hereby represents and warrants that any Shares issued upon the
exercise of this Warrant in accordance with the provisions of Section 3 will be
duly and validly authorized and issued, fully paid and nonassessable and free
from all taxes, liens and charges (other than liens or charges created by the
Warrantholder, income and franchise taxes incurred in connection with the
exercise of the Warrant or taxes in respect of any transfer occurring
contemporaneously therewith). The Company agrees that the Shares so issued will
be deemed to have been issued to the Warrantholder as of the close of business
on the date on which this Warrant and payment of the Exercise Price are
delivered to the Company in accordance with the terms of this Warrant,
notwithstanding that the stock transfer books of the Company may then be closed
or certificates representing such Shares may not be actually delivered on such
date. The Company will at all times reserve and keep available, out of its
authorized but unissued Common Stock, solely for the purpose of providing for
the exercise of this Warrant, the aggregate number of shares of Common Stock
then issuable upon exercise of this Warrant at any time. The Company will (A)
procure, at its sole expense, the listing of the Shares issuable upon exercise
of this Warrant at any time, subject to issuance or notice of issuance, on all
principal stock exchanges on which the Common Stock is then listed or traded and
(B) maintain such listings of such Shares at all times after issuance. The
Company will use reasonable best efforts to ensure that the Shares may be issued
without violation of any applicable law or regulation or of any requirement of
any securities exchange on which the Shares are listed or
traded.

    

    
      


       

      5. No Fractional Shares or
Scrip. No fractional Shares or scrip representing fractional Shares shall
be issued upon any exercise of this Warrant. In lieu of any fractional Share to
which the Warrantholder would otherwise be entitled, the Warrantholder shall be
entitled to receive a cash payment equal to the Market Price of the Common Stock
on the last trading day preceding the date of exercise less the pro-rated
Exercise Price for such fractional share.

    

    
      


       

      6. No Rights as Stockholders;
Transfer Books. This Warrant does not entitle the Warrantholder to any
voting rights or other rights as a stockholder of the Company prior to the date
of exercise hereof. The Company will at no time close its transfer books against
transfer of this Warrant in any manner which interferes with the timely exercise
of this Warrant.

    

    
       

      
        
          
          

        

        
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      7. Charges, Taxes and
Expenses. Issuance of certificates for Shares to the Warrantholder upon
the exercise of this Warrant shall be made without charge to the Warrantholder
for any issue or transfer tax or other incidental expense in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company.

    

    
      


       

      8. Transfer/Assignment.

    

    


    
      


       

      (A) Subject
to compliance with clause (B) of this Section 8, this Warrant and all rights
hereunder are transferable, in whole or in part, upon the books of the Company
by the registered holder hereof in person or by duly authorized attorney, and a
new warrant shall be made and delivered by the Company, of the same tenor and
date as this Warrant but registered in the name of one or more transferees, upon
surrender of this Warrant, duly endorsed, to the office or agency of the Company
described in Section 3. All expenses (other than stock transfer taxes) and other
charges payable in connection with the preparation, execution and delivery of
the new warrants pursuant to this Section 8 shall be paid by the
Company.

    

    
      


       

      (B) The
transfer of the Warrant and the Shares issued upon exercise of the Warrant are
subject to the restrictions set forth in Section 4.4 of the Purchase Agreement.
If and for so long as required by the Purchase Agreement, this Warrant shall
contain the legends as set forth in Sections 4.2(a) and 4.2(b) of the Purchase
Agreement.

    

    


    
       

      9. Exchange and Registry of
Warrant. This Warrant is exchangeable, upon the surrender hereof by the
Warrantholder to the Company, for a new warrant or warrants of like tenor and
representing the right to purchase the same aggregate number of Shares. The
Company shall maintain a registry showing the name and address of the
Warrantholder as the registered holder of this Warrant. This Warrant may be
surrendered for exchange or exercise in accordance with its terms, at the office
of the Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.

    

    
      


       

      10. Loss, Theft, Destruction or
Mutilation of Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and in the case of any such loss, theft or destruction, upon receipt of
a bond, indemnity or security reasonably satisfactory to the Company, or, in the
case of any such mutilation, upon surrender and cancellation of this Warrant,
the Company shall make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of Shares as provided for in such lost,
stolen, destroyed or mutilated Warrant.

    

    
      


       

      11. Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of any action
or the expiration of any right required or granted herein shall not be a
business day, then such action may be taken or such right may be exercised on
the next succeeding day that is a business day.

    

    
      


       

      12. Rule 144 Information.
The Company covenants that it will use its reasonable best efforts to timely
file all reports and other documents required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations promulgated by
the SEC thereunder (or, if the Company is not required to file such reports, it
will, upon the request of any

    

    
      
 

    

    
      
        
        

      

      
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      Warrantholder,
make publicly available such information as necessary to permit sales pursuant
to Rule 144 under the Securities Act), and it will use reasonable best efforts
to take such further action as any Warrantholder may reasonably request, in each
case to the extent required from time to time to enable such holder to, if
permitted by the terms of this Warrant and the Purchase Agreement, sell this
Warrant without registration under the Securities Act within the limitation
of the exemptions provided by (A) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (B) any successor rule or regulation
hereafter adopted by the SEC. Upon the written request of any Warrantholder, the
Company will deliver to such Warrantholder a written statement that it has
complied with such requirements.

    

    
      


       

      13.     Adjustments and Other
Rights. The Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall be subject to adjustment from time to time as
follows; provided, that
if more than one subsection of this Section 13 is applicable to a single event,
the subsection shall be applied that produces the largest adjustment and no
single event shall cause an adjustment under more than one subsection of this
Section 13 so as to result in duplication:

    

    
      


       

      (A) Stock Splits, Subdivisions,
Reclassifications or Combinations. If the Company shall (i) declare and
pay a dividend or make a distribution on its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify the outstanding
shares of Common Stock into a smaller number of shares, the number of Shares
issuable upon exercise of this Warrant at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the Warrantholder
after such date shall be entitled to purchase the number of shares of Common
Stock which such holder would have owned or been entitled to receive in respect
of the shares of Common Stock subject to this Warrant after such date had this
Warrant been exercised immediately prior to such date. In such event, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted to the number obtained by dividing (x) the
product of (1) the number of Shares issuable upon the exercise of this Warrant
before such adjustment and (2) the Exercise Price in effect immediately prior to
the record or effective date, as the case may be, for the dividend,
distribution, subdivision, combination or reclassification giving rise to this
adjustment by (y) the new number of Shares issuable upon exercise of the Warrant
determined pursuant to the immediately preceding sentence.

    

    
      


       

      (B) Certain Issuances of Common
Shares or Convertible Securities. Until
the earlier of (i) the date on which the Original Warrantholder no longer holds
this Warrant or any portion thereof and (ii) the third anniversary of the Issue
Date, if the Company shall issue shares of Common Stock (or rights or warrants
or other securities exercisable or convertible into or exchangeable
(collectively, a “conversion”) for shares of
Common Stock) (collectively, “convertible securities”)
(other than in Permitted Transactions (as defined below) or a transaction to
which subsection (A) of this Section 13 is applicable) without consideration or
at a consideration per share (or having a conversion price per share) that is
less than 90% of the Market Price on the last trading day preceding the date of
the agreement on pricing such shares (or such convertible securities) then, in
such event:

    

    


    
      
        
        

      

      
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      (A) the
number of Shares issuable upon the exercise of this Warrant immediately prior to
the date of the agreement on pricing of such shares (or of such convertible
securities) (the “Initial
Number”) shall be increased to the number obtained by multiplying the
Initial Number by a fraction (A) the numerator of which shall be the sum of (x)
the number of shares of Common Stock of the Company outstanding on such date and
(y) the number of additional shares of Common Stock issued (or into which
convertible securities may be exercised or convert) and (B) the denominator of
which shall be the sum of (I) the number of shares of Common Stock outstanding
on such date and (II) the number of shares of Common Stock which the aggregate
consideration receivable by the Company for the total number of shares of Common
Stock so issued (or into which convertible securities may be exercised or
convert) would purchase at the Market Price on the last trading day preceding
the date of the agreement on pricing such shares (or such convertible
securities); and

    

    
      


       

      (B) the
Exercise Price payable upon exercise of the Warrant shall be adjusted by
multiplying such Exercise Price in effect immediately prior to the date of the
agreement on pricing of such shares (or of such convertible securities) by a
fraction, the numerator of which shall be the number of shares of Common Stock
issuable upon exercise of this Warrant prior to such date and the denominator of
which shall be the number of shares of Common Stock issuable upon exercise of
this Warrant immediately after the adjustment described in clause (A)
above.

    

    
      


       

      For
purposes of the foregoing, the aggregate consideration receivable by the Company
in connection with the issuance of such shares of Common Stock or convertible
securities shall be deemed to be equal to the sum of the net offering price
(including the Fair Market Value of any non-cash consideration and after
deduction of any related expenses payable to third parties) of all such
securities plus the minimum aggregate amount, if any, payable upon exercise or
conversion of any such convertible securities into shares of Common Stock; and
“Permitted
Transactions” shall mean issuances (i) as consideration for or to fund
the acquisition of businesses and/or related assets, (ii) in connection with
employee benefit plans and compensation related arrangements in the ordinary
course and consistent with past practice approved by the Board of Directors,
(iii) in connection with a public or broadly marketed offering and sale of
Common Stock or convertible securities for cash conducted by the Company or its
affiliates pursuant to registration under the Securities Act or Rule 144A
thereunder on a basis consistent with capital raising transactions by comparable
financial institutions and (iv) in connection with the exercise of preemptive
rights on terms existing as of the Issue Date. Any adjustment made pursuant to
this Section 13(B) shall become effective immediately upon the date of such
issuance.

    

    
      


       

      (C)     Other Distributions.
In case the Company shall fix a record date for the making of a distribution to
all holders of shares of its Common Stock of securities, evidences of
indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash
Dividends, dividends of its Common Stock and other dividends or distributions
referred to in Section 13(A)), in each such case, the Exercise Price in effect
prior to such record date shall be reduced immediately thereafter to the price
determined by multiplying the Exercise Price in effect immediately prior to the
reduction by the quotient of (x) the Market Price of the Common Stock on the
last trading day preceding the first date on which the Common Stock trades
regular way on the principal

    

    
      
 

    

    
      
        
        

      

      
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      national
securities exchange on which the Common Stock is listed or admitted to trading
without the right to receive such distribution, minus the amount of cash and/or
the Fair Market Value of the securities, evidences of indebtedness, assets,
rights or warrants to be so distributed in respect of one share of Common Stock
(such amount and/or Fair Market Value, the “Per Share Fair Market Value”)
divided by (y) such Market Price on such date specified in clause (x); such
adjustment shall be made successively whenever such a record date is fixed. In
such event, the number of Shares issuable upon the exercise of this Warrant
shall be increased to the number obtained by dividing (x) the product of (1) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment, and (2) the Exercise Price in effect immediately prior to the
distribution giving rise to this adjustment by (y) the new Exercise Price
determined in accordance with the immediately preceding sentence. In the case of
adjustment for a cash dividend that is, or is coincident with, a regular
quarterly cash dividend, the Per Share Fair Market Value would be reduced by the
per share amount of the portion of the cash dividend that would constitute an
Ordinary Cash Dividend. In the event that such distribution is not so made, the
Exercise Price and the number of Shares issuable upon exercise of this Warrant
then in effect shall be readjusted, effective as of the date when the Board of
Directors determines not to distribute such shares, evidences of indebtedness,
assets, rights, cash or warrants, as the case may be, to the Exercise Price that
would then be in effect and the number of Shares that would then be issuable
upon exercise of this Warrant if such record date had not been
fixed.

    

    
      
 

      
        (D)           Certain
Repurchases of Common Stock. In case the Company effects a Pro Rata Repurchase
of Common Stock, then the Exercise Price shall be reduced to the price
determined by multiplying the Exercise Price in effect immediately prior to the
Effective Date of such Pro Rata Repurchase by a fraction of which the numerator
shall be (i) the product of (x) the number of shares of Common Stock outstanding
immediately before such Pro Rata Repurchase and (y) the Market Price of a share
of Common Stock on the trading day immediately preceding the first public
announcement by the Company or any of its Affiliates of the intent to effect
such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro
Rata Repurchase, and of which the denominator shall be the product of (i) the
number of shares of Common Stock outstanding immediately prior to such Pro Rata
Repurchase minus the number of shares of Common Stock so repurchased and (ii)
the Market Price per share of Common Stock on the trading day immediately
preceding the first public announcement by the Company or any of its Affiliates
of the intent to effect such Pro Rata Repurchase. In such event, the number of
shares of Common Stock issuable upon the exercise of this Warrant shall be
increased to the number obtained by dividing (x) the product of (1) the number
of Shares issuable upon the exercise of this Warrant before such adjustment, and
(2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase
giving rise to this adjustment by (y) the new Exercise Price determined in
accordance with the immediately preceding sentence. For the avoidance of doubt,
no increase to the Exercise Price or decrease in the number of Shares issuable
upon exercise of this Warrant shall be made pursuant to this Section
13(D).

      

       

      (E)           Business
Combinations. In case of any Business Combination or reclassification
of
Common Stock (other than a reclassification of Common Stock referred to in
Section 13(A)), the
Warrantholder’s right to receive Shares upon exercise of this Warrant shall be
converted into the right
to exercise this Warrant to acquire the number of shares of stock or other
securities or property
(including cash) which the Common Stock issuable (at the time of such Business
Combination
or reclassification) upon exercise of this Warrant immediately prior to
such


    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
       

      Business
Combination or reclassification would have been entitled to receive upon
consummation of such Business Combination or reclassification; and in any such
case, if necessary, the provisions set forth herein with respect to the rights
and interests thereafter of the Warrantholder shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to the Warrantholder’s
right to exercise this Warrant in exchange for any shares of stock or other
securities or property pursuant to this paragraph. In determining the kind and
amount of stock, securities or the property receivable upon exercise of this
Warrant following the consummation of such Business Combination, if the holders
of Common Stock have the right to elect the kind or amount of consideration
receivable upon consummation of such Business Combination, then the
consideration that the Warrantholder shall be entitled to receive upon exercise
shall be deemed to be the types and amounts of consideration received by the
majority of all holders of the shares of common stock that affirmatively make an
election (or of all such holders if none make an election).

    

    
      


       

      (F)           Rounding of Calculations;
Minimum Adjustments. All calculations under this Section
13 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest
one- hundredth
(1/100th) of a share, as the case may be. Any provision of this Section 13 to
the contrary
notwithstanding, no adjustment in the Exercise Price or the number of Shares
into which
this Warrant is exercisable shall be made if the amount of such adjustment would
be less than
$0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount
shall be carried
forward and an adjustment with respect thereto shall be made at the time of and
together with any
subsequent adjustment which, together with such amount and any other amount or
amounts
so carried forward, shall aggregate $0.01 or 1/10th of a share of Common Stock,
or more.

    

    
      


       

      (G)           Timing of Issuance of
Additional Common Stock Upon Certain Adjustments. In any case
in which the provisions of this Section 13 shall require that an adjustment
shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence
of such event (i) issuing to the Warrantholder of this Warrant exercised after
such record
date and before the occurrence of such event the additional shares of Common
Stock issuable
upon such exercise by reason of the adjustment required by such event over and
above the
shares of Common Stock issuable upon such exercise before giving effect to such
adjustment and (ii)
paying to such Warrantholder any amount of cash in lieu of a fractional share of
Common
Stock; provided, however, that the Company
upon request shall deliver to such Warrantholder
a due bill or other appropriate instrument evidencing such Warrantholder’s right
to
receive such additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.

    

    
      


       

      (H)     Completion of Qualified
Equity Offering. In the event the Company (or any successor by Business
Combination) completes one or more Qualified Equity Offerings on or prior to
December 31, 2009 that result in the Company (or any such successor ) receiving
aggregate gross proceeds of not less than 100% of the aggregate liquidation
preference of the Preferred Shares (and any preferred stock issued by any such
successor to the Original Warrantholder under the CPP), the number of shares of
Common Stock underlying the portion of this Warrant then held by the Original
Warrantholder shall be thereafter reduced by a number of shares of Common Stock
equal to the product of (i) 0.5 and (ii) the number of shares
underlying

    

    
      
 

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

    

    
       

      the
Warrant on the Issue Date (adjusted to take into account all other theretofore
made adjustments pursuant to this Section 13).

    

    
      


       

      (I)      Other Events. For so long as
the Original Warrantholder holds this Warrant or any portion thereof, if any
event occurs as to which the provisions of this Section 13 are not strictly
applicable or, if strictly applicable, would not, in the good faith judgment of
the Board of Directors of the Company, fairly and adequately protect the
purchase rights of the Warrants in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make such
adjustments in the application of such provisions, in accordance with such
essential intent and principles, as shall be reasonably necessary, in the good
faith opinion of the Board of Directors, to protect such purchase rights as
aforesaid. The Exercise Price or the number of Shares into which this Warrant is
exercisable shall not be adjusted in the event of a change in the par value of
the Common Stock or a change in the jurisdiction of incorporation of the
Company.

    

    
      


       

      (J)      Statement Regarding
Adjustments. Whenever the Exercise Price or the number of Shares into
which this Warrant is exercisable shall be adjusted as provided in Section 13,
the Company shall forthwith file at the principal office of the Company a
statement showing in reasonable detail the facts requiring such adjustment and
the Exercise Price that shall be in effect and the number of Shares into which
this Warrant shall be exercisable after such adjustment, and the Company shall
also cause a copy of such statement to be sent by mail, first class postage
prepaid, to each Warrantholder at the address appearing in the Company’s
records.

    

    
      


       

      (K)     Notice of Adjustment
Event. In the event that the Company shall propose to take any action of
the type described in this Section 13 (but only if the action of the type
described in this Section 13 would result in an adjustment in the Exercise Price
or the number of Shares into which this Warrant is exercisable or a change in
the type of securities or property to be delivered upon exercise of this
Warrant), the Company shall give notice to the Warrantholder, in the manner set
forth in Section 13(J), which notice shall specify the record date, if any, with
respect to any such action and the approximate date on which such action is to
take place. Such notice shall also set forth the facts with respect thereto as
shall be reasonably necessary to indicate the effect on the Exercise Price and
the number, kind or class of shares or other securities or property which shall
be deliverable upon exercise of this Warrant. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
10 days prior to the date so fixed, and in case of all other action, such notice
shall be given at least 15 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.

    

    
      


       

      (L)     Proceedings Prior to Any
Action Requiring Adjustment. As a condition precedent to the taking of
any action which would require an adjustment pursuant to this Section 13, the
Company shall take any action which may be necessary, including obtaining
regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable
national securities exchange or stockholder approvals or exemptions, in order
that the Company may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock that the Warrantholder is entitled to
receive upon exercise of this Warrant pursuant to this Section
13.

    

    
      
 

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

    

    
       

       (M)    Adjustment Rules. Any
adjustments pursuant to this Section 13 shall be made successively whenever an
event referred to herein shall occur. If an adjustment in Exercise Price made
hereunder would reduce the Exercise Price to an amount below par value of the
Common Stock, then such adjustment in Exercise Price made hereunder shall reduce
the Exercise Price to the par value of the Common Stock.

    

    
      


       

      14. Exchange. At any time
following the date on which the shares of Common Stock of the Company are no
longer listed or admitted to trading on a national securities exchange (other
than in connection with any Business Combination), the Original Warrantholder
may cause the Company to exchange all or a portion of this Warrant for an
economic interest (to be determined by the Original Warrantholder after
consultation with the Company) of the Company classified as permanent equity
under U.S. GAAP having a value equal to the Fair Market Value of the portion of
the Warrant so exchanged. The Original Warrantholder shall calculate any Fair
Market Value required to be calculated pursuant to this Section 14, which shall
not be subject to the Appraisal Procedure.

    

    
      


      15. No Impairment. The
Company will not, by amendment of its Charter or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Warrantholder.

    

    
      


       

      16. Governing Law. This Warrant will be governed by and
construed in accordance with the federal law of the United States if and to the
extent such law is applicable, and otherwise in
accordance with the laws of the State of New York applicable to contracts made and to be
performed entirely
within such State. Each of the Company and the Warrantholder agrees (a) to
submit to the exclusive jurisdiction and venue of the United States District
Court for the District of Columbia for any civil action, suit or proceeding
arising out of or relating to this Warrant or the
transactions contemplated hereby, and (b) that notice may be served upon the
Company at the address in Section 20 below and upon the Warrantholder at the
address for the Warrantholder set forth in the registry maintained by the Company pursuant to Section 9
hereof. To the extent permitted by applicable law, each of the Company and the
Warrantholder hereby unconditionally waives trial by jury in any civil legal
action or proceeding relating to the Warrant or the transactions contemplated hereby or
thereby.

    

    
      


       

      17. Binding Effect. This
Warrant shall be binding upon any successors or assigns of the
Company.

    

    
      


       

      18. Amendments. This
Warrant may be amended and the observance of any term of this Warrant may be
waived only with the written consent of the Company and the
Warrantholder.

    

    
      


       

      19
..     Prohibited Actions.
The Company agrees that it will not take any action which would entitle the
Warrantholder to an adjustment of the Exercise Price if the total number of
shares of Common Stock issuable after such action upon exercise of this Warrant,
together with

    

    
      


       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

    
       

      all
shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon the exercise of all outstanding options, warrants, conversion and
other rights, would exceed the total number of shares of Common Stock then
authorized by its Charter.

    

    
      


       

      20. Notices. Any notice,
request, instruction or other document to be given hereunder by any party to the
other will be in writing and will be deemed to have been duly given (a) on the
date of delivery if delivered personally, or by facsimile, upon confirmation of
receipt, or (b) on the second business day following the date of dispatch if
delivered by a recognized next day courier service. All notices hereunder shall
be delivered as set forth in Item 8 of Schedule A hereto, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice.

    

    
      


       

      21. Entire Agreement.
This Warrant, the forms attached hereto and Schedule A hereto (the terms of
which are incorporated by reference herein), and the Letter Agreement (including
all documents incorporated therein), contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or undertakings with respect
thereto.

    

    
      


       

      [Remainder
of page intentionally left blank]

    

    
       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

    

    


    
      [Form
of Notice of Exercise]

    

    
      Date:                          

    

    
      


       

      TO:    [Company]

    

    
      


       

      RE:    Election
to Purchase Common Stock

    

    
      


       

      The
undersigned, pursuant to the provisions set forth in the attached Warrant,
hereby agrees to subscribe for and purchase the number of shares of the Common
Stock set forth below covered by such Warrant. The undersigned, in accordance
with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price
for such shares of Common Stock in the manner set forth below. A new warrant
evidencing the remaining shares of Common Stock covered by such Warrant, but not
yet subscribed for and purchased, if any, should be issued in the name set forth
below.

    

    
      


       

      Number of
Shares of Common Stock

    

    
      


       

      Method of
Payment of Exercise Price (note if cashless exercise pursuant to Section 3(i) of
the Warrant or cash exercise pursuant to Section 3(ii) of the Warrant, with
consent of the Company and the Warrantholder)

    

    
      


       

      Aggregate
Exercise Price:

    

    
      


       

      Holder:


      By:


      Name:


      Title:

    

    
      
 

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

    
       

      IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a
duly authorized officer.

       

      


    

    
      	
              
                 

              

              
                Dated:
      January 30, 2009

              

              
                 

              

              
                 

              

            	 
      
	 
      	
              
                COMPANY:

              

              
                DNB
      FINANCIAL CORPORATION

              

              
                 

              

              
                 

              

              
                By:      /s/
      William S.
      Latoff                                                      

              

              
                Name:
      William S. Latoff

              

              
                Title:   Chairman
      & CEO

              

              
                 

              

              
                 

              

              
                 

              

            
	 
      	
              
                Attest:

              

              
                 

              

              
                 

              

              
                By:      /s/
      Gerald F. Sopp                                                      

              

              
                Name:
      Gerald F. Sopp

              

              
                Title:   Secretary

              

              
                 

              

            


    

    
      


    

    
      
 

    

    
      


    

    
      [Signature
Page to Warrant]

    

    
      


    

    
 

    
      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

    

    
      SCHEDULE
A

    

    
      	
              
                Item 1

              

            	 
      
	
              
                Name:

              

            	 
      
	
              
                Corporate
      or other organizational form:

              

            	
              
                Business
      corporation

              

            
	
              
                Jurisdiction
      of organization:

              

              
                 

              

            	
              
                Pennsylvania

              

            
	
              
                Item 2

              

            	 
      
	
              
                Exercise
      Price: 1

              

              
                 

              

            	
              
                $9.46

              

            
	
              
                Item 3

              

            	 
      
	
              
                Issue
      Date:

              

              
                 

              

            	
              
                January
      30, 2009

              

            
	
              
                Item 4

              

            	 
      
	
              
                Amount
      of last dividend declared prior to the Issue Date:

              

              
                 

              

            	
              
                $0.065
      per common share

              

            
	
              
                Item 5

              

            	 
      
	
              
                Date
      of Letter Agreement between the Company and the United States Department
      of the Treasury:

              

              
                 

              

            	
              
                January
      30, 2009

              

              
                 

              

            
	
              
                Item 6

              

            	 
      
	
              
                Number
      of shares of Common Stock:

              

              
                 

              

            	
              
                186,311

              

            
	
              
                Item 7

              

            	 
      
	
              
                Company’s
      address:

              

              
                 

              

            	
              
                4
      Brandywine Avenue

              

              
                Downingtown,
      PA 19335

              

            
	
              
                Item 8

              

            	 
      
	
              
                Notice
      information:

              

            	
              
                (1)           Gerald
      F. Sopp

              

              
                EVP & CFO

              

              
                DNB Financial
      Corporation

              

              
                4 Brandywine
      Avenue

              

              
                Downingtown, PA
      19335

              

              
                Facsimile: (484)
      359-3176

              

              
                 

              

              
                (2)           Stradley
      Ronon Stevens & Young,LLP

              

              
                30 Valley Stream
      Parkway

              

              
                Malvern, PA
      19355

              

              
                Attn: David F. Scranton,
      Esquire

              

              
                Facsimile: (610)
      640-1965

              

            


    

    
      


    

    
      


    

    
      ________________________________

    

    
      


    

    
      
        	
                1

              	
                Initial
      exercise price to be calculated based on the average of closing prices of
      the Common Stock on the 20 trading days ending on the last trading day
      prior to the date the Company’s application for participation in the
      Capital Purchase Program was approved by the United States Department of
      the Treasury.