Prepared by MERRILL CORPORATION









AGREEMENT




This

Agreement (this “Agreement”) is entered into as of December 13, 2001, by and

among the holders of the Series A 10% Noncumulative Convertible Preferred Stock

(the “Series

A Preferred”) of South Bay Bank, National Association (“SBB”)

whose names are set forth below (each, a “Holder,” and collectively, the “Holders”),

SBB and National Mercantile Bancorp, a California corporation (“NMB”).  Each initially capitalized term not

otherwise defined herein shall have the meaning set forth in the Consolidation

Agreement (as defined below).




RECITALS




WHEREAS,

the Agreement and Plan of Reorganization (the “Consolidation Agreement”),

dated July 18, 2001, by and between SBB and NMB, and the Redemption

Agreement (the “Redemption Agreement”), dated July 18, 2001, by and among

SBB and the Holders, contemplate that SBB would redeem all outstanding shares

of Series A Preferred upon the terms set forth in the Redemption Agreement

prior to the closing of the consolidation of SBB and an interim bank subsidiary

of NMB pursuant to the Consolidation Agreement (the “Consolidation Closing”);




WHEREAS,

NMB has determined that it would be preferable if SBB did not redeem all of the

Series A Preferred held by the Holders, and concurrently herewith NMB and

SBB are amending the Consolidation Agreement to provide that SBB will redeem

only the shares of Series A Preferred which NMB requests be redeemed;




WHEREAS,

NMB has determined to request that SBB redeem only the shares of Series A

Preferred held by Willard W. McLagen (the “McLagen Shares”), and the other Holders are

willing to permit SBB to redeem the McLagen Shares without redeeming their

shares of Series A Preferred;




WHEREAS,

NMB has requested that SBB and the Holders agree to amend the terms and

conditions of the Series A Preferred, and on the terms and subject to the

conditions of this Agreement, SBB and the Holders are willing to agree to such

amendments;




NOW,

THEREFORE, in consideration of the mutual promises contained herein, and other

good and valuable consideration, the sufficiency of which is hereby

acknowledged, the parties agree as follows:




1.             Amendments

to Articles of Association.




 




1.1           The

Holders hereby agree to vote (by vote or written consent) for the following

amendments (the “Amendments”)to

the Articles of Association of SBB (the “Articles”) to be effective if and only if

the Consolidation Closing occurs:




1.1.1            Dividends.  Article Fifth, Section 2 of the

Articles shall be amended as follows:







Section

2(a) shall be amended in its entirety to read as follows:




“(i) Holders

of shares of Series A Preferred shall be entitled to receive noncumulative

cash dividends, payable quarterly in arrears for such quarter, when, as and if

declared by the Board of Directors out of funds legally available therefor, for

each quarterly period (each, a “Dividend Period”) commencing on the

first day of each January, April, July and October and ending on and including

the day next preceding the first day of the next Dividend Period, at a rate of

10.0% per annum per stated value of each share through ________, and at a rate

of 8.5% per annum per stated value of each share thereafter.




“(ii) Dividends

for any Dividend Period shall be declared (if at all) no later than 30 days

following the end of such Dividend Period. 

In connection with the declaration of any dividend on the Series A

Preferred, the Board of Directors shall specify to which Dividend Period the

dividends apply.




The

blank shall be completed with the date of Consolidation Closing.




Section

2 shall be amended by adding new paragraph (e) to read as follows:




“(e)         For purposes of this Section 2,

references to the ‘current Dividend Period’ as of any date shall mean the

Dividend Period in which such date occurs unless such date is within the first

calendar month of a Dividend Period, in which event such reference shall mean

the immediately preceding Dividend Period. 

As an example, for the period of January 2002, the ‘current Dividend

Period’ would be the calendar quarter ending December 31, 2001.”




1.1.2            Conversion

Right.  Article Fifth, Section 5,

of the Articles shall be deleted in its entirety, such that the Holders shall

have no conversion rights with respect to their shares of Series A

Preferred.




1.1.3            Designation

of Series A Preferred.  Article

Fifth, Section 1(a) shall be amended in its entirety to read as follows:




“(a)  The designation of such series of serial

preferred stock shall be the Series A 8.5% Noncumulative Perpetual Preferred

Stock (the “Series A Preferred”). 

The Series A Preferred shall have a stated value of $25.00 per share,

and the number of shares of such series is 200,000.”




1.2           SBB

represents that the Board of Directors of SBB has approved the Amendments, and

agrees to take such actions as may be necessary or appropriate to effect the

Amendments, assuming the Consolidation Closing occurs.




1.3           The

Holders agree to execute such written consent or consents, or attend and vote

in person or by proxy at a meeting, before and/or after the Consolidation

Closing, as may be required to approve Amendments under applicable law and regulation

and the Articles and Bylaws of SBB.







2.             Exchange Right.  If the Consolidation Closing

occurs, NMB agrees that the Holders may exchange their Series A Preferred

for shares of NMB Common Stock (“NMB Common”) on the following terms and

subject to the following conditions:




2.1           Each

share of Series A Preferred shall be exchangeable at any time and from time to

time after June 30, 2005, at the option of the Holder thereof, into the

number of shares of NMB Common equal to the result obtained by dividing the

stated value of $25.00 per share by the Exchange Price.  The “Exchange Price” shall be an amount equal to

50% of the book value per share of the NMB Common, on a fully diluted basis, as

of June 30, 2005, as determined by the Board of Directors of NMB in

accordance with generally accepted accounting principles as then applied to

NMB, subject to adjustment from time to time as provided in this

Section 2.  NMB shall notify each

Holder of the Exchange Price as soon as is practicable following June 30,

2005.




2.2           The

exchange of shares of Series A Preferred may be effected by any Holder

upon the surrender for transfer to NMB at the principal office of NMB of the

certificate or certificates for such shares of Series A Preferred to be

exchanged, duly endorsed for transfer to NMB, accompanied by a written notice

stating that such Holder elects to exchange all or a specified whole number of

such shares in accordance with the provisions of this Section 2.  Such exchange shall be deemed to have been

made at the close of business on the date of giving such notice and of such

surrender of the certificate or certificates representing the shares of

Series A Preferred to be exchanged, so that all rights of the Holder

thereof as to the shares being exchanged shall cease except for the right to

receive shares of NMB Common and accrued and unpaid dividends previously

declared with respect to the shares of Series A Preferred being exchanged

as of the end of the fiscal quarter of SBB immediately preceding the date of

such exchange, in each case in accordance herewith.




2.3           In

case any shares of Series A Preferred are to be called by NMB pursuant to

Section 3 below, the right of exchange set forth in this Section 2

shall cease and terminate as to the shares of Series A Preferred to be so

called by NMB, at the close of business on the business day immediately

preceding the date fixed for such call unless NMB shall default in the payment

of the call price therefor, as provided below.




2.4           In

connection with the exchange of any shares of Series A Preferred, no

fractions of shares of NMB Common shall be issued, but in lieu thereof, NMB

shall pay a cash adjustment in respect of such fractional interest in an amount

equal to such fractional interest multiplied by the Exchange Price.  If more than one share of Series A

Preferred shall be surrendered for exchange by the same Holder at the same

time, the number of full shares of NMB Common issuable on exchange thereof

shall be computed on the basis of the total number of shares of Series A

Preferred so surrendered.







2.5           NMB

shall at all times from and after the Consolidation Closing reserve and keep

available, free from preemptive rights, for issuance upon the exchange of

shares of Series A Preferred, such number of its authorized but unissued shares

of NMB Common as will from time to time be sufficient to permit the exchange of

all outstanding shares of Series A Preferred.  Prior to the delivery of any securities that NMB shall be

obligated to deliver upon exchange of the Series A Preferred, NMB shall

comply with all applicable federal and state laws and regulations requiring

action to be taken by NMB; provided, however, that NMB may refuse

to permit exchange of any shares of Series A Preferred if the Board of

Directors shall determine that the issuance of NMB Common in connection with

such exchange cannot be effected pursuant to available exemptions from

registration and qualification under applicable federal and state securities

laws and regulations, unless the Holder seeking to exchange such shares agrees

to pay all costs and expenses of NMB in connection with such registration and

qualification.  All shares of NMB Common

delivered upon exchange of the Series A Preferred will upon delivery be

duly and validly issued and fully paid and nonassessable, free of all liens and

charges and not subject to any preemptive rights.




2.6           The

Exchange Price shall be subject to adjustment from time to time as follows:




2.6.1            Stock

Splits and Combinations.  In case

NMB shall at any time or from time to time after June 30, 2005

(a) subdivide or split the outstanding shares of NMB Common,

(b) combine or reclassify the outstanding shares of NMB Common into a

smaller number of shares, (c) pay any dividend respecting the NMB Common

in shares of NMB Common, or (d) issue by reclassification of the shares of

NMB Common any shares of capital stock of NMB, then, and in each such case, the

Exchange Price in effect immediately prior to such event or the record date

therefor, whichever is earlier, shall be adjusted so that the Holder of any

shares of Series A Preferred thereafter surrendered for exchange shall be

entitled to receive the number of shares of NMB Common or other securities of

NMB such Holder would have owned or have been entitled to receive after the

occurrence of any of the events described above, had such shares of

Series A Preferred been surrendered for exchange immediately prior to the

occurrence of such event or the record date therefor, whichever is

earlier.  An adjustment made pursuant to

this Section 2.6.1 shall become effective at the close of business on the

day upon which such corporate action becomes effective.  Such adjustment shall be made successively

whenever any event listed above shall occur.







2.6.2            Issuance

of Rights or Warrants.  In case NMB

shall issue after June 30, 2005 to all holders of the NMB Common rights or

warrants expiring within 45 days entitling such holders to subscribe for

or purchase NMB Common at a price per share less than the Current Market Price

(as defined below), the Exchange Price in effect immediately prior to the close

of business on the record date fixed for determination of shareholders entitled

to receive such rights or warrants shall be reduced by multiplying such

Exchange Price by a fraction, the numerator of which is the sum of (a) the

number of shares of NMB Common outstanding at the close of business on such

record date and (b) the number of shares of NMB Common that the aggregate

offering price of the total number of shares of NMB Common so offered for subscription

or purchase would purchase at such Current Market Price, and the denominator of

which is the sum of (c) the number of shares of NMB Common outstanding at

the close of business on such record date and (d) the number of additional

shares of NMB Common so offered for subscription or purchase.  For purposes of this Section 2.6.2, the

issuance of rights or warrants to subscribe for or purchase securities

convertible into NMB Common shall be deemed to be the issuance of rights or

warrants to purchase NMB Common into which such securities are convertible, at

an aggregate offering price equal to the sum of the aggregate offering price of

such securities and the minimum aggregate amount (if any) payable upon

conversion of such securities into NMB Common. 

Such adjustment shall be made successively whenever any such event shall

occur.  The “Current Market Price” shall

mean, as applicable, the average daily closing prices for shares of the NMB

Common for the five consecutive trading days selected by the Board of Directors

of NMB commencing not more than 20 trading days before, and ending not later

than the date of such event and the date immediately preceding the record date

fixed in connection with such event, utilizing for any day within such five-day

period for which actual trades are not reported, the mid-point between the

closing bid and asked prices for such day as reported on NASDAQ, or on any

exchange on which the NMB Common is then listed or, if not so listed, by the

principal market maker then making a market in such shares, or if such shares

are not listed on any exchange or the NASD Stock Market, or traded by a market

maker, the price determined in good faith by the Board of Directors of NMB.




2.6.3            Distribution

of Indebtedness, Securities or Assets. 

In case NMB shall distribute to all holders of the NMB Common after

June 30, 2005 (whether by dividend, or in a merger, or consolidation, or

otherwise) evidences of indebtedness, shares of capital stock of any class or

series, other securities, cash or assets, the Exchange Price in effect

immediately prior to the close of business on the record date fixed for

determination of shareholders entitled to receive such distribution shall be

reduced by multiplying such Exchange Price by a fraction, the numerator of

which is the Current Market Price on such record date less the fair market

value (as determined by the Board of Directors of NMB, whose determination in

good faith shall be conclusive) of the portion of such evidences of

indebtedness, shares of capital stock, other securities, cash and assets so

distributed applicable to one share of NMB Common, and the denominator of which

is the Current Market Price. Such adjustment shall be made successively

whenever any such event shall occur.




2.7           It

shall be a condition to the Holder’s right to exchange shares of Series A

Preferred for NMB Common that the representations and warranties in

Section 4 shall be true and correct as of the date of exercise of the

right.




2.8           Anything

in this Section 2 to the contrary notwithstanding, NMB shall not be

required to give effect to any adjustment in the Exchange Price unless and

until the net effect of one or more adjustments (each of which shall be carried

forward until counted toward adjustment), determined as above provided, shall

have resulted in a change of the Exchange Price by at least 1%, and when the

cumulative net effect of more than one adjustment so determined shall be to

change the Exchange Price by at least 1%, such change in the Exchange Price

shall thereupon be given effect.  In the

event that, at any time as a result of the provisions of this Section 5,

the holder of shares of Series A Preferred upon subsequent conversion

shall become entitled to receive any shares of capital stock of NMB other than

NMB Common, the number of such other shares so receivable upon conversion of

shares of Series A Preferred shall thereafter be subject to adjustment

from time to time in a manner and on terms as nearly equivalent as practicable

to the provisions contained herein.







2.9           In

case any transaction or event (including, without limitation, any merger,

consolidation, sale of assets, tender or exchange offer, reclassification,

compulsory share exchange or liquidation) shall occur after the date of the

Consolidation Closing, in which all or substantially all outstanding NMB Common

is converted into or exchanged for stock, other securities, cash or assets

(each, a “Fundamental

Change”), the Holder of each share of Series A Preferred

outstanding immediately prior to the occurrence of such Fundamental Change

shall have the right upon any subsequent exchange made pursuant to this

Agreement to receive (but only out of legally available funds, to the extent

required by applicable law) the kind and amount of stock, other securities,

cash and assets that such Holder would have received if such share had been

exchanged for NMB Common immediately prior thereto.




2.10         There

shall be no adjustment of the Exchange Price in case of the issuance of any

stock of NMB in a merger, consolidation, reorganization, acquisition,

reclassification, recapitalization or other similar transaction except as set

forth in this Section 2.




2.11         In

any case in which this Section 2 requires that an adjustment as a result

of any event become effective from and after a record date, NMB may elect to

defer until after the occurrence of such event (a) issuing to the Holder

of any shares of Series A Preferred exchanged after such record date and

before the occurrence of such event the additional shares of NMB Common

issuable upon such exchange over and above the shares issuable on the basis of

the Exchange Price in effect immediately prior to adjustment and

(b) paying to such Holder any amount in cash in lieu of a fractional share

of NMB Common.




2.12         If

NMB shall take a record of the holders of NMB Common for the purpose of

entitling them to receive a dividend or other distribution, and shall

thereafter and before the distribution to shareholders thereof legally abandon

its plan to pay or deliver such dividend or distribution, then thereafter no

adjustment in the number of shares of NMB Common issuable upon exercise of the

right of exchange granted by this Section 2 or in the Exchange Price then

in effect shall be required by reason of the taking of such record.




2.13         The

Board of Directors of NMB shall have the power to resolve any ambiguity or

correct any error in this Section 2, and its action in so doing shall be

final and conclusive.




2.14         The

Holders hereby acknowledge that notwithstanding anything in this Agreement or

the Articles to the contrary, the occurrence of the Consolidation Closing will

not entitle them to convert their Series A Preferred into common stock of

SBB or into the consideration being received by the holders of SBB Common Stock

in the Consolidation.




3.             Call Option of NMB.  NMB may, at

its sole option, at any time or from time to time after the Consolidation

Closing, call all and not less than all of the shares of Series A

Preferred then outstanding, on the following terms and subject to the following

conditions:




3.1           Consideration.  The consideration for each share

Series A Preferred called by NMB shall be either (at the option of NMB)

(a) cash in an amount equal to $25.00 plus dividends declared and unpaid

for the then-current Dividend Period (as defined in the Articles) (without

accumulation of accrued and unpaid dividends for prior Dividend Periods unless

previously declared and without interest) to the date fixed for such demand

(the “Call

Price”); or (b) that number of shares of NMB Common as each

Holder would be entitled to if the shares of Series A Preferred subject to

the call were exchanged in accordance with the provisions of Section 2

above at the then-current Exchange Price, except that if the Call Date is prior

to June 30, 2005, the “Exchange Price” shall be an amount equal to

50% of the book value per share of the NMB Common, on a fully diluted basis, as

of the end of the fiscal quarter most recently ended as of the Call Date.







3.2           Notice

of Call.  In the event NMB shall

call shares of Series A Preferred, notice of such call shall be given by

first-class mail, postage pre-paid, mailed not less than 20 days nor more

than 60 days prior to the date fixed for the call, to each Holder, at such

Holder’s address as the same appears on the books of SBB.  Each notice shall state:  (a) the date fixed for the call (the “Call Date”);

(b) the Call Price (specifying the amount of declared and unpaid dividends

to be included therein) and the manner in which such Call Price is to be paid

and delivered; and (c) the place or places where certificates for such

shares are to be surrendered for payment of the Call Price.  No defect in the notice of the call or in

the mailing thereof shall affect the validity of the call proceedings, and the

failure to give notice to any Holder to be so called shall not affect the

validity of the notice given to the other Holders.




3.3           Effect

of Date of Call; Failure to Surrender Certificate.  If such notice of call shall have been duly

mailed, then, notwithstanding that any certificate for shares of Series A Preferred

so called shall not have been surrendered for transfer to NMB, all shares of

Series A Preferred so called shall no longer be deemed to be owned by the

Holder thereof and all rights with respect to such shares of Series A

Preferred shall forthwith be deemed to have been transferred to NMB upon the

Call Date, except for the right of the Holders thereof to receive from NMB at

any time thereafter consideration from NMB in the form of either the Call Price

or shares of NMB Common, as the case may be. 

SBB agrees not to effect any transfers of the Series A Preferred by a

Holder following the Call Date, except for the transfer to NMB or its

assigns.  All dividends and

distributions which are declared with respect to the Series A Preferred

following the Call Date shall be payable to NMB or its assigns, and not to the

Holders and each Holder hereby authorizes and instructs SBB to pay such

dividends and distributions directly to NMB or its assigns.  Each Holder hereby irrevocably appoints NMB,

with full power of substitution, as its proxy any time after the Call Date to

vote its shares of Series A Preferred, and instructs SBB to ignore any

voting instructions or consents by such Holder from and after the Call

Date.  No interest shall accrue on the

Call Price or any shares of NMB Common issuable in exchange for the

Series A Preferred.  The procedure

for surrender of certificates upon any such call will be as set forth in

Section 2.2.




3.4           Limitation

on Exercise of Call Right.  NMB may

not exercise its call right under this Section 3 after June 30, 2005 with

respect to a Holder’s shares of Series A Preferred if prior to such exercise

the Holder has properly exercised his exchange right under Section 2 of this

Agreement.




4.             Representations, Warranties and Agreements of the Holders. 

Each Holder represents and warrants to NMB that as of the date hereof

and at the time of any exchange of shares of Series A Preferred pursuant

to Section 2 of this Agreement, and agrees with NMB, as follows:




4.1           Holder

will acquire the shares of NMB Common (the “Shares”) for such Holder’s

own account, for investment purposes only.







4.2           Holder

is an “accredited investor” as that term is defined in Rule 501(a) under

Regulation D promulgated pursuant to the Securities Act of 1933, as amended (the

“Securities

Act”).




4.3           Holder

has such knowledge and experience in financial and business matters that Holder

is capable of evaluating the merits and risks of an investment in the Shares

and in protecting his or her own interest in connection with the investment.




4.4           Holder

understands that the Shares have not been registered under the Securities Act

or under any state securities laws. 

Holder is familiar with the provisions of the Securities Act and

Rule 144 thereunder and understands that the restrictions on transfer

placed on the Shares may result in Holder being required to hold the Shares for

an indefinite period of time.




4.5           Holder

believes that he or she has received all the information he or she considers

necessary or appropriate for deciding whether to invest in the Shares, and

Holder has had an opportunity to ask questions and receive answers from NMB and

its officers and directors regarding the business, prospects and financial

condition of NMB.




4.6           Holder

agrees not to sell, assign, transfer or otherwise dispose of, with or without

consideration (“Transfer”) any of the Shares except pursuant to an effective

registration statement under the Securities Act or an exemption from

registration.  As a further condition to

any such Transfer, except in the event that such Transfer is made pursuant to

an effective registration statement under the Securities Act, if in the

reasonable opinion of counsel to NMB any Transfer of the Shares by the

contemplated transferee thereof would not be exempt from the registration and

prospectus delivery requirements of the Securities Act, NMB may require the

contemplated transferee to furnish NMB with an investment letter setting forth

such information and agreements as may be reasonably requested by NMB to ensure

compliance by such transferee with the Securities Act.  Holder agrees to comply with any and all

procedures for any such sale, assignment or transfer of the Shares set forth in

this Agreement.




4.7           Each

certificate evidencing the Shares will bear either the following legends

or  similar legends:




“THE

SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE

SECURITIES ACT OF 1933 (THE “ACT”) AND ARE “RESTRICTED SHARES” AS THAT TERM IS

DEFINED IN RULE 144 UNDER THE ACT. 

THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED

EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR

PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT.”




“THE

SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CALL OPTION AND PROXY IN

FAVOR OF BY NATIONAL MERCANTILE BANCORP PURSUANT TO AN AGREEMENT BETWEEN

NATIONAL MERCANTILE BANCORP AND THE REGISTERED HOLDER HEREOF, A COPY OF WHICH

IS ON FILE AT THE OFFICE OF THE ISSUER.”







Each

Holder agrees to deliver to NMB upon demand the certificate or certificates

evidencing such Holder’s Series A Preferred for inclusion of these legends.




4.8           All

shares of Series A Preferred delivered to NMB in exchange for shares of

NMB Common will upon surrender to NMB be free of all liens and charges.




5.             Registration

Rights.




 




5.1           If

at any time after the earlier of the Commencement Date or June 30, 2005,

NMB shall determine to register any NMB Common under the Securities Act for

sale in connection with a public offering of NMB Common for cash (other than

pursuant to an employee benefit plan), NMB will give written notice thereof to

the holders of Registrable Shares, and will include in such registration any

Registrable Shares which such holders (“Requesting Holders”) may request be

included delivered to NMB within 15 days after the notice given by NMB; provided,

however, if the representative of the underwriters of the offering shall

refuse in writing to include in the offering all of the shares of NMB Common

requested by NMB and others (including Requesting Holders), the shares to be

included shall be allocated first to NMB, second to persons with contractual

priority as to inclusion in such registration, including without limitation the

registration rights of certain registration rights holders under that certain

Registration Rights Agreement dated June 30, 1997 between NMB and the Conrad

Company, and third among the Requesting Holders and others based on the

respective number of shares of NMB Common held by such persons (the Registrable

Shares which are included in the registration shall be referred to as the “Included

Shares”).  If NMB decides not

to, and does not, file a registration statement with respect to such

registration, or after filing determines to withdraw the same before the

effective date there of, NMB will so inform the Requesting Holders, and NMB

will not be obligated to complete the registration of the Included Shares

included therein.




5.2           If

NMB shall receive from any Holder(s) (the “Initiating Holders”) whose Registrable

Shares constitute more than 25% of the Registrable Shares a written request

that NMB effect a registration of such shares under the Securities Act, NMB

will, as soon as reasonably practicable thereafter, send notice thereof to the

other Holders and effect such registration to permit or facilitate the sale and

distribution of the Registrable Shares requested to be included in the

registration by the Initiating Holders and all other Holders who request that

Registrable Shares be included by written notice to NMB within 15 days

after the notice given by NMB (the “Included Shares”); provided, however,

that NMB:  (a) shall not be

obligated to effect such registration, qualification or compliance hereunder:

(i) prior to the Commencement Date; or (ii) on more than one

occasion; and (b) shall not be obligated to maintain the effectiveness of

the registration statement more than 90 days; and (c) may delay the filing

of any such registration statement by up to 90 days if the Board of

Directors of NMB determines that the filing would be materially detrimental to

NMB because of potential corporate transactions or events pending which may be

required to be disclosed in such registration statement and with respect to

which disclosure would be damaging to NMB; (d) acknowledges that the registration

rights contemplated by this Section 5.2 are subordinate to the rights of

certain registration rights holders including, without limitation, the holders

of certain registration rights under that certain Registration Rights Agreement

dated June 30, 1997 between NMB and the Conrad Company.







5.3           In

connection with any registration under this Section 5, NMB will:




5.3.1            furnish

to each Requesting Holder a copy of the registration statement and each

amendment to the registration statement and such number of copies of the final

prospectus included in the registration statement as the Requesting Holder may

reasonably request in order to facilitate the distribution of the Included

Shares owned by such Holder;




5.3.2            notify

the Requesting Holders of the issuance of any stop order by the SEC in

connection with the registration statement; and




5.3.3            pay

all costs and expenses of such registration other than underwriting discounts

or brokerage fees or commissions in connection with the sale of Included Shares

and fees and costs of accountants, attorneys or others retained by Requesting

Holders.




5.4           As

a condition to including Registrable Shares in the registration statement, each

Requesting Holder must provide (a) to NMB such information regarding

itself, the Registrable Shares held by it and the intended method of

distribution of such Shares as shall be required to effect the registration of

the Registrable Shares and, (b) if the offering is being underwritten, to

the underwriters such powers of attorney, indemnities and other documents as

may be reasonably requested by the managing underwriter.




5.5           Following

the effectiveness of the registration statement, upon receipt from NMB of a

notice that the registration statement contains an untrue statement of material

fact or omits to state any material fact required to be stated therein or

necessary to make the statements therein not misleading in light of the

circumstances under which they were made, each Requesting Holder will

immediately discontinue disposition of Included Shares pursuant to the

registration statement until NMB notifies the Requesting Holder that it may

resume sales of Included Shares and, if necessary, provides to the Requesting

Holder copies of the supplemental or amended prospectus.  In such event, each Requesting Holder agrees

to deliver to NMB all copies, other than permanent file copies then in Holder’s

possession, of the most recent prospectus covering the Included Shares.  If the registration is a demand registration

pursuant to Section 5.2, NMB will use its best efforts to do all things

necessary, as soon as reasonably practicable, to amend, modify or otherwise

correct the registration statement and the untrue statement of material fact or

omission of material fact unless the same relates to a material corporate

transaction, event or development, the disclosure of which would be, in the

judgment of the Board of Directors of NMB, materially detrimental to NMB, in

which event NMB may delay the amendment of the registration statement for up to

90 days; provided, however, that amount of time for any such

delay shall be added to amount of time NMB shall be required to maintain the

registration statement effective under Section 5.2.







5.6           In

connection with any registration pursuant to this Section 5, NMB agrees to

indemnify and hold harmless each Requesting Holder, its officers, directors and

agents, and each person, if any, who controls such Requesting Holder within the

meaning of Section 15 of the Securities Act or Section 20 of the

Exchange Act from and against any and all losses, claims, damages and

liabilities caused by (a) any violation or alleged violation by NMB of the

Securities Act, Exchange Act, any state securities laws or any rule or

regulation promulgated under the Securities Act, Exchange Act or any state

securities laws, (b) any untrue statement or alleged untrue statement of a

material fact contained in any registration statement or prospectus relating to

the Included Shares (as amended or supplemented if NMB shall have furnished any

amendments or supplements thereto) or any preliminary prospectus, or

(c) caused by any omission or alleged omission to state therein a material

fact required to be stated therein or necessary to make the statements therein

not misleading in light of the circumstances under which they were made, except

insofar as such losses, claims, damages or liabilities are caused by any such

untrue statement or omission or alleged untrue statement or omission based upon

information furnished in writing to NMB by the Requesting Holder or on such

Holder’s behalf expressly for use therein; provided that with respect to

any untrue statement or omission or alleged untrue statement or omission made

in any preliminary prospectus, or in any prospectus, as the case may be, the

indemnity agreement contained in this paragraph shall not apply to the extent

that any such loss, claim, damage, liability or expense results from the fact

that a current copy of the prospectus (or, in the case of a prospectus, the

prospectus as amended or supplemented) was not sent or given to the person

asserting any such loss, claim, damage, liability or expense at or prior to the

written confirmation of the sale of the Included Shares concerned to such

person.




5.7           Each

Requesting Holder agrees to indemnify and hold harmless NMB, its officers,

directors and agents and each person, if any, who controls NMB within the

meaning of either Section 15 of the Securities Act or Section 20 of

the Exchange Act to the same extent as the foregoing indemnity from NMB to the Requesting

Holder, but only (i) with respect to information furnished in writing by

the Requesting Holder or on such Holder’s behalf expressly for use in any

registration statement or prospectus relating to the Registrable Shares, or any

amendment or supplement thereto, or any preliminary prospectus or (ii) to

the extent that any loss, claim, damage, liability or expense described in

Section 5.6 results from the fact that a current copy of the prospectus

(or, in the case of a prospectus, the prospectus as amended or supplemented)

was not sent or given to the person asserting any such loss, claim, damage,

liability or expense at or prior to the written confirmation of the sale of the

Registrable Shares concerned to such person.




5.8           In

case any proceeding (including any governmental investigation) shall be

instituted involving any person in respect of which indemnity may be sought

pursuant to this Section 5, such person (an “Indemnified Party”) shall

promptly notify the person against whom such indemnity may be sought (the “Indemnifying

Party”) in writing and the Indemnifying Party shall assume the

defense thereof, including the employment of counsel reasonably satisfactory to

such Indemnified Party, and shall assume the payment of all fees and expenses; provided

that the failure or delay of any Indemnified Party so to notify the

Indemnifying Party shall not relieve the Indemnifying Party of its obligations

hereunder except to the extent that the Indemnifying Party is materially

prejudiced by such failure or delay to notify. 

In any such proceeding, any Indemnified Party shall have the right to

retain its own counsel, but the fees and expenses of such counsel shall be at

the expense of such Indemnified Party unless (a) the Indemnifying Party

and the Indemnified Party shall have mutually agreed to the retention of such

counsel or (b) in the reasonable judgment of such Indemnified Party

representation of both parties by the same counsel would be inappropriate due

to actual or potential differing interests between them.  It is understood that the Indemnifying Party

shall not, in connection with any proceeding or related proceedings in the same

jurisdiction, be liable for the reasonable fees and expenses of more than one

separate firm of attorneys (in addition to any local counsel) at any time for

all such Indemnified Parties (including all of the Requesting Holders) and that

all such fees and expenses shall be reimbursed as they are incurred.  In the case of any such separate firm for

the Indemnified Parties, the Indemnified Parties shall designate such firm in

writing to the Indemnifying Party.  The

Indemnifying Party shall not be liable for any settlement of any proceeding

effected without its written consent (which consent shall not be unreasonably

withheld or delayed), but if settled with such consent, or if there be a final

judgment for the plaintiff, the Indemnifying Party shall indemnify and hold

harmless such Indemnified Parties from and against any loss or liability (to

the extent stated above) by reason of such settlement or judgment.  No Indemnifying Party shall, without the

prior written consent of the Indemnified Party, effect any settlement of any

pending or threatened proceeding in respect of which any Indemnified Party is

or could have been a party and indemnity could have been sought hereunder by

such Indemnified Party, unless such settlement includes an unconditional

release of such Indemnified Party from all liability arising out of such

proceeding.







5.9           The

registration rights under this Section 5 for any Holder shall terminate at

the earlier to occur of:  (a) such

time after one year from the date that the Holder acquires the Registrable

Shares that such shares first represent less than 1% of the outstanding NMB

Common; and (b) two years following the Commencement Date.




5.10         For

purposes of this Agreement, the “Commencement Date” shall mean the date any

Holder receives NMB Common in exchange for its Series A Preferred and the

“Registrable

Shares” means the NMB Common acquired or which may be acquired upon

exchange of the Series A Preferred and any shares of NMB Common issued as

a dividend on such shares or as a result of a stock split with respect to such

shares, provided that any such shares shall cease being Registrable

Shares when sold pursuant to Rule 144 (or a successor rule) or pursuant to

an effective registration statement under the Securities Act.




6.             Missed Dividends on Series A Preferred.




6.1           NMB

agrees that if the Consolidation Closing occurs, for any Dividend Period (as

defined in the Articles) commencing with the first Dividend Period after the

Consolidation Closing and ending with the Dividend Period for the quarter

ending June 30, 2005, if the Capital Condition exists and SBB does not declare

the full dividend under Section 2 of the Articles by the end of the calendar

month following the Dividend Period, NMB will issue to each holder of Series A

Preferred (other than NMB) a number of shares of NMB Common equal to (rounded

to the nearest whole number of shares): (a) the dollar amount of the missed

dividends payable with respect to such holder’s Series A Preferred for such

Dividend Period, divided by (b) the book value per share of NMB Common, on a

fully diluted basis, as of the last day of the related Dividend Period.




6.2           The

“Capital

Condition” shall be deemed to exist for a Dividend Period if: (a) as

of the last day of such Dividend Period, and assuming payment of the full

dividends on the Series A Preferred under Section 2 of the Articles for such

Period, SBB would be in compliance with all applicable regulatory capital

requirements and would be “well-capitalized” under the Prompt Corrective Action

rules applicable to national banks (or any successor category which is the

highest rated category under such rules or any successor rules); (b) the

payment of such dividend would not violate any law, rule, regulation, order,

consent decree or regulatory agreement or directive applicable to SBB; and (c)

any regulatory approval required with respect to the payment of such dividend

shall have been obtained without the imposition of any condition which the

Board of Directors of SBB or NMB deems unacceptable.







7.             Appointment as Directors.  




7.1           NMB

agrees that if the Consolidation Closing occurs, until the Dunn Termination

Date and for long as NMB controls SBB, NMB shall cause Stanley L. Dunn (“Dunn”)

to be elected or appointed as a director of SBB.  The “Dunn Termination Date” shall mean the

earliest to occur of the date: (a) the John C. Dunn Trust (the “Dunn Trust”)

owns of record less than 40,000 shares of Series A Preferred; (b) the OCC, the

FRB or any other applicable regulatory agency or body issues any order or

directive to the effect that Dunn may not, or otherwise advises NMB or SBB in

writing that Dunn should not, be a director of SBB or should be removed as a director

of SBB; (c) the date Dunn becomes subject to any matter described in Item

401(f) of Regulation S-K which would be required to be disclosed in a proxy

statement filed with the SEC under Section 14 of the Securities Exchange Act of

1934, as amended (and regardless of whether SBB files proxy statements under

such Section 14); or (d) the death or disability of Dunn.




7.2           NMB

agrees that if the Consolidation Closing occurs, until the Diorio Termination

Date and for long as NMB controls SBB, NMB shall cause Philip C. Diorio (‘Diorio”)

to be elected or appointed as a director of SBB.  The “Diorio Termination Date” shall mean the

earliest to occur of the date: (a) the Philip C. Diorio, M.D. Inc. Retirement

Trust Fund (the “Diorio Trust”) owns of record less than 10,000 shares of

Series A Preferred; (b) the OCC, the FRB or any other applicable regulatory

agency or body issues any order or directive to the effect that Diorio may not,

or otherwise advises NMB or SBB in writing that Diorio should not, be a director

of SBB; (c) the date Diorio becomes subject to any matter described in Item

401(f) of Regulation S-K which would be required to be disclosed in a proxy

statement filed with the SEC under Section 14 of the Securities Exchange Act of

1934, as amended (and regardless of whether SBB files proxy statements under

such Section 14); or (d) the death or disability of Diorio.




8.             Transfer of Series A Preferred.  No Holder

may Transfer any shares of Series A Preferred other than to NMB or its

assigns unless the transferee agrees in writing, in form and substance

reasonably satisfactory to NMB, to be bound by the obligations of the

transferor under this Agreement.  SBB

agrees not to register any such transfer unless this condition has been

satisfied.




9.             Redemption of McLagen Shares.  Assuming the

Consolidation Closing is to occur, NMB agrees to request that SBB redeem the

McLagen Shares, and the other Holders acknowledge and agree that SBB may redeem

the McLagen Shares without redeeming any of their shares of Series A Preferred.







10.           Termination. 

This Agreement shall terminate upon the termination of the Consolidation

Agreement if such termination occurs without the Consolidation Closing

occurring.




11.           Miscellaneous.




 




11.1         Notices.  All notices, demands or other communications

hereunder shall be in writing and shall be deemed to have been duly given if

(a) delivered in person, on the date actually given, (b) by United

States mail, certified or registered, with return receipt requested, on the

date which is two Business Days after the date of mailing, or (c) if sent

by facsimile transmission, with a copy mailed on the same day in the manner

provided in (a) above, on the date transmitted provided receipt is

confirmed by telephone:




	

  (i)            If to NMB to:


  
	

   


  
	

  National Mercantile Bancorp


  1840 Century Park East


  Los Angeles, CA  90067


  Attention: Scott A.

  Montgomery, CEO


  Telecopy No.: (310)

  201-0629


  
	

   


  
	

  With copies to:


  
	

   


  
	

  Troy &

  Gould, P.C.


  1801 Century Park East


  Los Angeles, California 90067


  Attention: Alan B. Spatz


  Telecopy No.:

  (310) 789-1431


  
	

   


  
	

  (ii)           If to the Holders or any Holder to

  the address set forth next to the name of each such Holder on the attached

  Exhibit A


   


  
	

  (iii)          If to South Bay Bank:


  
	

   


  
	

  South Bay Bank, N.A.


  2200 Sepulvada

  Boulevard


  Torrance, California

  90501


  Attention:  Chief Executive Officer


  
	

   


  





or

at such other address as may have been furnished by such Person in writing to

the other parties.




11.2         Severability.  Should any Section or any part of a Section

within this Agreement be rendered void, invalid or unenforceable by any court

of law for any reason, such invalidity or unenforceability shall not void or

render invalid or unenforceable any other Section or part of a Section in this

Agreement.







11.3         Governing

Law.  THIS AGREEMENT SHALL BE

GOVERNED BY AND CONSTRUED BOTH AS TO VALIDITY AND PERFORMANCE AND ENFORCED IN

ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO

THE CHOICE OF LAW PRINCIPLES THEREOF.




11.4         Headings.  Section headings and subheadings used in

this Agreement are for convenience only and shall not affect the meaning or

construction of this Agreement.




11.5         No

Adverse Construction.  The rule that

a contract is to be construed against the party drafting the contract is hereby

waived, and shall have no applicability in construing this Agreement.




11.6         Counterparts.  This Agreement may be executed in one or

more counterparts, each of which shall be deemed an original but all of which

together shall constitute one and the same instrument.




11.7         Costs

and Attorneys’ Fees.  In the event

that any lawsuit, proceeding or other similar action is instituted concerning

or arising out of this Agreement,  the

prevailing party shall recover all of such party’s costs, and reasonable

attorneys’ fees incurred in each and every such Action, including any and all

appeals or petitions therefrom.




11.8         Successors

and Assigns.  All rights, covenants

and agreements of the parties contained in this Agreement shall, except as

otherwise provided herein, be binding upon and inure to the benefit of their

respective successors and assigns.




11.9         Amendment.  This Agreement may be amended at any time

only by the mutual written agreement of NMB and the Holders and, if the

amendment affects SBB directly, the agreement of SBB.




11.10       Entire

Agreement.  This Agreement and the attached

Exhibit, contain the entire understanding of the parties and there are no

further or other agreements or understandings, written or oral, in effect

between the parties relating to the subject matter hereof unless expressly

referred to herein.







IN WITNESS WHEREOF, the parties hereto have executed

and delivered this Agreement as of the date first above written.




	

   


  	

  National Mercantile

  Bancorp


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

  By:


  	

  /s/ Scott A. Montgomery


  	

   


  
	

   


  	

   


  	

  Scott A. Montgomery,

  Chief Executive Officer 


  and President


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  By:


  	

  /s/ David Brown


  	

   


  
	

   


  	

   


  	

  David Brown, Chief

  Financial Officer


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  South Bay Bank,

  National Association


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  By:


  	

  /s/ Kenneth M. Miller


  	

   


  
	

   


  	

   


  	

  Kenneth M. Miller, Chairman of the Board


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  By:


  	

  /s/ Charles W. Calhoun


  	

   


  
	

   


  	

   


  	

  Charles W. Calhoun, Chief Executive Officer 


  and President


  	

   


  
					














 




	

   


  	

  THE HOLDERS  


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

  JOHN C. DUNN TRUST


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

  /s/ Stanley L. Dunn 


  	

   


  
	

   


  	

  By:


  	

  Stanley L. Dunn 


  	

   


  
	

   


  	

  Its:


  	

  Trustee


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  /s/ John C. Dunn, Jr.


  	

   


  
	

   


  	

  By:


  	

  John C. Dunn, Jr.


  	

   


  
	

   


  	

  Its:


  	

  Trustee


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  PHILIP C. DIORIO, M.D.,

  INC.,


  	

   


  
	

   


  	

  A RETIREMENT TRUST FUND


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  /s/ Philip C. Diorio


  	

   


  
	

   


  	

  By:


  	

  Philip C. Diorio


  	

   


  
	

   


  	

  Its:


  	

  Trustee


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

  /s/ Willard W. McLagen


  	

   


  
	

   


  	

  Willard W. McLagen