Document:

ex4-1.htm

 

EXHIBIT 4.1

 

 

SUBORDINATED NOTE

 

DNB FINANCIAL CORPORATION

 

Subordinated Note due March 6, 2025

 

THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE “FDIC”) OR ANY OTHER GOVERNMENT AGENCY OR FUND.

 

THIS OBLIGATION IS SUBORDINATED AND JUNIOR IN RIGHT OF PAYMENT TO THE OBLIGATIONS OF ISSUER TO ITS GENERAL AND SECURED CREDITORS AND IS UNSECURED.  IT IS INELIGIBLE AS COLLATERAL FOR ANY EXTENSION OF CREDIT BY DNB FINANCIAL CORPORATION (“ISSUER”) OR ANY OF ITS SUBSIDIARIES.

 

THIS NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS NOTE IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SUBORDINATED NOTE PURCHASE AGREEMENT, DATED AS OF MARCH 5, 2015, BETWEEN ISSUER AND THE NOTEHOLDER (THE “AGREEMENT”), A COPY OF WHICH IS ON FILE WITH ISSUER. THE NOTE REPRESENTED BY THIS INSTRUMENT MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH THE AGREEMENT WILL BE VOID.

 

THIS NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF $10,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF.  ANY ATTEMPTED TRANSFER OF THIS NOTE IN A DENOMINATION OF LESS THAN $10,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.  ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS NOTE FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PAYMENTS ON THIS NOTE, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS NOTE.

 

 

  

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CERTAIN ERISA CONSIDERATIONS:

 

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

 

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

 

  

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THIS SUBORDINATED NOTE IS NOT A DEPOSIT AND IT IS NOT INSURED

BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.

 

 

 

Certificate Number                                           D-2015-1

$9,750,000 

March 5, 2015

 

DNB FINANCIAL CORPORATION

Subordinated Note due March 6, 2025

 

1.  Payment.

 

(a)  DNB Financial Corporation, a Pennsylvania corporation (“Issuer”), for value received, hereby promises to pay to Jersey Shore State Bank, or registered assigns (the “Noteholder”), the principal sum of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS (U.S.) ($9,750,000), plus accrued but unpaid interest, on March 6, 2025 (the “Maturity Date”) and to pay interest on such principal amount at the rates and times provided herein.  This Subordinated Note (this “Note” or this “Subordinated Note”) is issued pursuant to the terms of that certain Subordinated Note Purchase Agreement of even date herewith by and between Issuer and the Noteholder (as may be amended, restated, supplemented or modified from time to time, the “Agreement”). All capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Agreement.

 

(b)  During the period commencing on the date funds are advanced to the Issuer and continuing up to and including the last day of the 60th month after the date hereof (the “Conversion Date”), interest on the outstanding principal balance hereof shall accrue at the rate of 4.25% per annum (computed on the basis of a 360-day year of twelve 30-day months).  On the day immediately succeeding the Conversion Date, the interest rate applicable to the outstanding principal amount due hereunder will be adjusted to float at the Wall Street Journal’s Prime Rate plus 100 basis points (1.00%); provided that the interest rate applicable to the outstanding principal balance hereof after the Conversion Date shall at no time be less than 3.0% or more than 5.75% per annum.  Interest will be due and payable quarterly on each January 1, April 1, July 1, and October 1 (each, an “Interest Payment Date”), commencing April 1, 2015.

 

(c)  Any payment of principal of or interest on this Note that would otherwise become due and payable on a day which is not a Business Day shall become due and payable on the next succeeding Business Day, with the same force and effect as if made on the date for payment of such principal or interest, and no interest shall accrue in respect of such payment by reason of such delay.  The term “Business Day” means any day that is not a Saturday or Sunday and that is not a day on which banks in the Commonwealth of Pennsylvania are generally authorized or required by law or executive order to be closed.  In the event that any payment of principal or interest is not received by the Noteholder within fifteen (15) days after the date such payment is due, the Issuer shall pay to the Noteholder a late payment fee equal to five percent (5.0%) of the payment that was due.

 

 

  

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(d)  All percentages resulting from any calculation of the interest rate on this Note will be rounded to the nearest one hundred-thousandth of a percentage point with five one millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation on this Note will be rounded to the nearest cent (with one-half cent being rounded upward).  Each calculation of the interest rate on this Note by Issuer will (in the absence of manifest error) be final and binding on the Noteholder and Issuer.

 

2.  Subordinated Note.  This Note is the Subordinated Note referred to in the Subordinated Note Purchase Agreement by and between the Noteholder and the Issuer dated March 5, 2015.

 

3.  Subordination.  The indebtedness of Issuer evidenced by the Subordinated Notes, including the principal and interest on this Note, shall be subordinate and junior in right of payment to the following, whether now outstanding or subsequently created, assumed or incurred (collectively, “Senior Indebtedness”):  (a) all indebtedness of Issuer for borrowed or purchased money, whether or not evidenced by bonds, debentures, securities, notes or other written instruments; (b) any deferred obligations of Issuer for the payment of the purchase price of property, goods, materials, assets or services purchased or acquired by Issuer and accrued liabilities arising in the ordinary course of business; (c) all obligations, contingent or otherwise, of Issuer in respect of any letters of credit, bankers’ acceptances, security purchase facilities and similar credit transactions; (d) any capital lease obligations of Issuer; (e) all obligations of Issuer in respect of interest rate swap, cap or other agreements, interest rate future or option contracts, currency swap agreements, currency future or option contacts, commodity contracts and other similar arrangements; (f) any obligation of Issuer to its general creditors, as defined for purposes of the capital adequacy regulations of the Board of Governors of the Federal Reserve System applicable to Issuer, as the same may be amended or modified from time to time (the “Capital Adequacy Regulations”); (g) all obligations of the type referred to in clauses (a) through (f) of other persons for the payment of which Issuer is responsible or liable as obligor, guarantor or otherwise; and (h) all obligations of the types referred to in clauses (a) through (g) of other persons secured by a lien on any property or asset of Issuer; except “Senior Indebtedness” does not include (i) this Note, (ii) any obligation that by its terms is on parity with this Subordinated Note, (iii) any indebtedness between Issuer and any of its subsidiaries or affiliates or (iv) the Junior Subordinated Indebtedness (as defined below).

 

In the event of any insolvency, dissolution, assignment for the benefit of creditors, reorganization, restructuring of debt, marshaling of assets and liabilities or similar proceedings or any liquidation or winding up of or relating to Issuer, whether voluntary or involuntary, holders of Senior Indebtedness shall be entitled to be paid in full before any payment shall be made on account of the principal of or interest on this Note.  In the event of any such proceeding, after payment in full of all sums owing with respect to the Senior Indebtedness, the registered holder of this Note from time to time (the “Noteholder”), together with the holders of any obligations of Issuer ranking on a parity with this Note, shall be entitled to be paid from the remaining assets of Issuer the unpaid principal thereof and the unpaid interest thereon before any payment or other distribution, whether in cash, property or otherwise, shall be made on account of any capital stock or any present or future obligations of Issuer ranking junior to this Note (collectively, “Junior Subordinated Indebtedness”), which includes any obligation that by its terms is expressly subordinated to this Note.

 

 

 

  

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

 

Nothing herein shall impair the obligation of Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note in accordance with its terms.  Nothing herein shall act to prohibit, limit or impede Issuer from issuing additional debt of Issuer having the same rank as this Note or which may be junior or senior in rank to this Note.

 

4.  Merger and Sale of Assets.  Issuer shall not consolidate or merge into another entity or convey, transfer or lease its properties and assets substantially as an entirety to any person, unless:

 

(a)  the continuing entity which results from such consolidation or merger, if not Issuer, or the person which acquires by conveyance or transfer or which leases the properties and assets of Issuer substantially as an entirety shall be a corporation, association or other legal entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and expressly assumes the due and punctual payment of the principal of and interest on this Note according to their terms, and the due and punctual performance of all covenants and conditions hereof on the part of Issuer to be performed or observed; and

 

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

 

5.  Events of Default; Acceleration.  If any of the following events shall occur and be continuing (each an “Event of Default”):

 

(a)  Issuer or any major subsidiary depository institution (as defined for purposes of the Capital Adequacy Regulations, a “Major Subsidiary Depository Institution”) of Issuer shall commence a voluntary case under any applicable bankruptcy, insolvency, liquidation, reorganization or other similar law now or hereafter in effect, or shall consent to the appointment of a receiver, liquidator, trustee or other similar official in any liquidation, insolvency or similar proceeding with respect to Issuer or all or substantially all of its property, or shall make an assignment for the benefit of creditors; or

 

(b)  a court or other governmental agency or body having jurisdiction shall enter a decree or order for the appointment of a receiver, liquidator, trustee or other similar official in any liquidation, insolvency or similar proceeding with respect to Issuer or a Major Subsidiary Depository Institution of Issuer or all or substantially all of the property of Issuer or a Major Subsidiary Depository Institution of Issuer, or for the winding up of the affairs or business of Issuer or a Major Subsidiary Depository Institution, and such decree or order shall have remained in force for 60 days; or

 

 

  

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(c)  Issuer is notified that it is considered an institution in “troubled condition” within the meaning of 12 U.S.C. Section 1831i and the regulations promulgated thereunder; or

 

(d)  Issuer (a) becomes insolvent or is unable to pay its debts as they mature, (b) makes an assignment for the benefit of creditors, or (c) admits in writing its inability to pay its debts as they mature; or

 

(e)  Issuer materially breaches any of the representations, warranties or covenants made by it in the Agreement and such breach continues for 30 days after written notice from the Noteholder to Issuer thereof; provided that if such breach cannot be reasonably cured within such 30 day period, Issuer shall have a reasonable additional period of time, not to exceed an additional 60 days, to cure such breach, as long as it is doing so diligently and in good faith; or

 

(f)  Issuer fails to make any required payment of principal or interest hereunder when due and payable (and, in the case of payment of interest, such failure to pay shall have continued for 30 calendar days);

 

then, in the case of an Event of Default described in the foregoing clauses (a) or (b), unless the principal of this Note already shall have become due and payable, the Noteholder of this Note, by notice in writing to Issuer, may declare the principal amount of this Note to be due and payable immediately and, upon any such declaration the same shall become and shall be immediately due and payable.  Issuer waives demand, presentment for payment, notice of nonpayment, notice of protest, and all other notices.

 

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

 

During the continuance of such an Event of Default described in Section 5(f), Issuer shall not (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of Issuer’s capital stock, (b) make any payment of principal or interest or premium, if any, on or repay, repurchase or redeem any debt securities of Issuer that rank equal with or junior to this Note, or (c) make any payments under any guarantee that ranks equal with or junior to this Note, other than (i) any dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of Issuer’s common stock, (ii) any declaration of a noncash dividend in connection with the implementation of a stockholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (iii) as a result of a reclassification of Issuer’s capital stock or the exchange or conversion of one class or series of Issuer’s capital stock for another class or series of Issuer’s capital stock, (iv) the purchase of fractional interests in shares of Issuer’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, or (v) purchases of any class of Issuer’s common stock related to the issuance of common stock or rights under any of benefit plans for Issuer’s directors, officers or employees or any of Issuer’s dividend reinvestment plans.

 

 

  

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7.  Redemption; Prepayment; Capital Treatment Event Redemption .  Issuer, in its discretion, shall have the right to redeem or prepay any or all of this Note, in whole or in part, without premium or penalty, at any time after the Conversion Date and prior to the Maturity Date, but in all cases in a principal amount with integral multiples of $1,000, on any Interest Payment Date at a price of 100% of the principal amount of this Note to be redeemed or prepaid on such date, plus interest accrued and unpaid to the date of redemption or prepayment.  If less than the entire amount of this Note is to be redeemed or prepaid, the notice of redemption or prepayment shall state the portion of the principal amount to be redeemed or prepaid and shall state that on and after the date fixed for redemption or prepayment, upon surrender of this Note, a new Note in principal amount equal to the unpaid portion thereof will be issued.

 

If all or any portion of this Note ceases to be deemed to be Tier 2 Capital due to a change in applicable capital regulations (a “Capital Treatment Event”), Issuer shall have the right to redeem, on any Interest Payment Date, all or a portion of this Note at a price equal to 100% of the principal amount of this Note to be redeemed, plus accrued but unpaid interest to the date of redemption.

 

In the case of any redemption or prepayment of this Note, Issuer will give notice to the Noteholder not less than 30 nor more than 45 calendar days prior to the redemption or prepayment date as to the aggregate principal amount to be redeemed or prepaid.

 

Any such redemption or prepayment shall be subject to the prior approval of the Board of Governors of the Federal Reserve System (or its designee) or any successor agency to the extent such approval shall then be required by law, regulation or policy.

 

8.  Repayment; Payment Procedures.  Issuer shall repay the aggregate principal amount of this Note plus all accrued but unpaid interest thereon in full on the Maturity Date.  Payment of the principal and interest payable on the Maturity Date will be made by check, or by wire transfer in immediately available funds to a bank account in the United States designated by the registered Noteholder if such Noteholder shall have previously provided wire instructions to Issuer, upon presentation and surrender of this Note at the Payment Office (as defined in Section 13 below) or at such other place or places as Issuer shall designate by notice to the registered Noteholder as the Payment Office, provided that this Note is presented to Issuer in time for Issuer to make such payments in such funds in accordance with its normal procedures.  Payments of interest (other than interest payable on the Maturity Date) shall be made by wire transfer in immediately available funds (if such Noteholder shall have previously provided wire transfer instructions to Issuer) or check mailed to the registered Noteholder as such person’s address appears on the Security Register (as defined below).  Interest payable on any Interest Payment Date shall be payable to the Noteholder in whose name this Note is registered at the close of business on the December 15, March 15, June 15 or September 15, as the case may be (whether or not a Business Day), next preceding such Interest Payment Date (such date being referred to herein as the “Regular Record Date”) for such Interest Payment Date, except that interest not paid on the Interest Payment Date, if any, will be paid to the Noteholder in whose name this Note is registered at the close of business on a special record date fixed by Issuer (a “Special Record Date”) notice of which shall be given to the holder not less than 10 calendar days prior to such Special Record Date.  (The Regular Record Date and Special Record Date are referred to herein collectively as the “Record Dates”).  To the extent permitted by applicable law, interest shall accrue, at the rate at which interest accrues on the principal of this Note, on any amount of principal or interest on this Note not paid when due.  All payments on this Note shall be applied first to accrued interest and then the balance, if any, to principal.  Presentment and surrender of this Note are hereby waived by Issuer.

 

 

 

  

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

 

10.  Registration of Transfer; Security Register.  Except as otherwise provided herein, this Note is transferable in whole or in part, and may be exchanged for a like aggregate principal amount of Subordinated Notes of other authorized denominations, by the Noteholder in person, or by his attorney duly authorized in writing, at the Payment Office (as defined in Section 13 below).  Issuer shall maintain a register providing for the registration of the Subordinated Notes and any exchange or transfer thereof (the “Security Register”).  Upon surrender or presentation of this Note for exchange or registration of transfer, Issuer shall execute and deliver in exchange therefor a Subordinated Note or Subordinated Notes in substantially the form hereof of like aggregate principal amount, each in a minimum denomination of $10,000 or any amount in excess thereof which is an integral multiple of $1,000 (and, in the absence of an opinion of counsel satisfactory to Issuer to the contrary, bearing the restrictive legend(s) set forth hereinabove) and that is or are registered in such name or names requested by the Noteholder.  Any Note presented or surrendered for registration of transfer or for exchange shall be duly endorsed and accompanied by a written instrument of transfer in such form as is attached hereto and incorporated herein, duly executed by the Noteholder or his attorney duly authorized in writing, with such tax identification number or other information for each person in whose name a Subordinated Note is to be issued, and accompanied by evidence of compliance with any restrictive legend(s) appearing on such Subordinated Note or Subordinated Notes as Issuer may reasonably request to comply with applicable law.  No exchange or registration of transfer of this Note shall be made during the period on or after the 15 day immediately preceding the Maturity Date.  This Note is subject to the restrictions on transfer of the Agreement, a copy of which is on file with Issuer.

 

11.  Charges and Transfer Taxes.  No service charge (other than any cost of delivery) shall be imposed for any exchange or registration of transfer of this Note, but Issuer may require the payment of a sum sufficient to cover any stamp or other tax or governmental fee or charge that may be imposed in connection therewith (or presentation of evidence that such tax, charge or fee has been paid).

 

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

 

 

 

  

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13.  Notices.  All notices to Issuer under this Note shall be in writing and addressed to Issuer at DNB Financial Corporation, 4 Brandywine Avenue, Downingtown, Pennsylvania 19335, Attention: Gerald F. Sopp, CFO, or to such other address as Issuer may notify to the Noteholder (the “Payment Office”).  All notices to the Noteholder shall be in writing and sent by overnight mail to the Noteholder at his or its address as set forth in the Security Register.

 

14.  Denominations.  This Note is issuable only as a fully registered Note without interest coupons in minimum denominations of $10,000 or any amount in excess thereof which is an integral multiple of $1,000.

 

15.  Absolute and Unconditional Obligation of Issuer.  No provisions of this Note shall alter or impair the obligation of Issuer, which is absolute and unconditional, to pay the principal and interest on this Note at the times, places and rate, and in the coin or currency, herein prescribed.

 

16.  Waiver and Consent.

 

(a)  Any consent or waiver given by the Noteholder of this Note shall be conclusive and binding upon such Noteholder and upon all future Noteholders of this Note and of any Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.

 

(b)  No delay or omission of the Noteholder to exercise any right or remedy accruing upon any Event of Default shall impair such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein.

 

(c)  Any insured depository institution which shall be a Noteholder of this Note or which otherwise shall have any beneficial ownership interest in this Note shall, by its acceptance of such Note (or beneficial interest therein), be deemed to have waived any right of offset with respect to the indebtedness evidenced thereby.

 

17.  Further Issues.  Provided that such notes qualify as Tier 2 Capital (as defined in the Agreement), Issuer may, without the consent of the Noteholder, create and issue additional notes having the same terms and conditions of this Note (except for the issue date, interest rate, issue price, and maturity date) so that such further notes shall be consolidated and form a single series with this Note.  Any such issuance will either be registered or issued pursuant to an exemption from registration under the Securities Act.

 

18.  Governing Law; Interpretation.  This Note shall be governed by and construed in accordance with applicable federal law of the United States of America and the laws of the Commonwealth of Pennsylvania, without regard to conflict of laws principles of said state.  This Note is intended to meet the criteria for qualification of the outstanding principal as Tier 2 Capital under the Capital Adequacy Regulations, and the terms hereof shall be interpreted in a manner to satisfy such intent.

 

 

  

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WITNESS WHEREOF, the undersigned has caused this Note to be duly executed and attested and its corporate seal to be hereunto affixed.

 

	
ATTEST:

 

 

 

	 	
DNB FINANCIAL CORPORATION

 

 

By

	Name: Gerald F. Sopp 

Title:   Chief Financial Officer and

             Executive Vice President

	 	Name: William S. Latoff 

Title: Chairman and CEO

 

 

 

 

 

  

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ASSIGNMENT AGREEMENT

 

To assign this Note, fill in the form below:

I or we assign and transfer this Note to:

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

 

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

 

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

 

Date:                                                                Your Signature:  ____________________________                                                                         

Signature Guarantee:  ________________________________________________                                                                                                                                        

(Signature must be guaranteed)

Sign exactly as your name appears on the other side of this Note.

 

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

 

The undersigned hereby certifies that it □ is / □ is not an Affiliate of Issuer and that, to its knowledge, the proposed transferee □ is / □ is not an Affiliate of Issuer.

 

In connection with any transfer or exchange of any of the Notes evidenced by this certificate occurring prior to the date that is one year after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by Issuer or any Affiliate of Issuer, the undersigned confirms that such Notes are being:

 

CHECK ONE BOX BELOW:

 

	
  

	
(1)

	
□

	

acquired for the undersigned’s own account, without transfer; or

 

	
  

	
(2)

	
□

	
transferred to Issuer; or

 

	
  

	
(3)

	
□

	
transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”); or

 

	
  

	
(4)

	
□

	
transferred pursuant to an effective registration statement under the Securities Act; or

 

	
  

	
(5)

	
□

	
transferred pursuant to and in compliance with Regulation S under the Securities Act; or

 

 

 

  

  

  

 

 

	
  

	
(6)

	
□

	
transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) or an “accredited investor” (as defined in Rule 501(a)(4) under the Securities Act), that has furnished a signed letter containing certain representations and agreements; or

 

	
  

	
(7)

	
□

	
transferred pursuant to another available exemption from the registration requirements of the Securities Act.

 

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

 

	 	 	 	 
	
 

 Signature Guarantee: 

 

	 	 	Signature
	 	 	 	 
	 (Signature must be guaranteed) 	 	 	 Signature

 

                                                                           

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 under the Exchange Act.

 

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

 

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

 

 

 

 

Dated:_________________________ex10-1.htm

EXHIBIT 10.1

 

 

SUBORDINATED NOTE PURCHASE AGREEMENT

 

This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of March 5, 2015, and is made by and between DNB Financial Corporation (the “Issuer”), and Jersey Shore State Bank (the “Noteholder”).  Capitalized terms that are not otherwise defined shall have the meanings set forth in Section 1 hereof.

 

RECITALS:

 

WHEREAS, Issuer is a Pennsylvania corporation and the parent company of DNB First, National Association (the “Bank”), a national banking association;

 

WHEREAS, Issuer wishes to issue and sell its unsecured subordinated note in the principal amount of $9,750,000 in substantially the form attached to this Agreement as Exhibit A (the “Subordinated Note”) to Noteholder, which Subordinated Note is intended to qualify as Tier 2 Capital;

 

WHEREAS, Issuer and Noteholder are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act; and

 

WHEREAS, Noteholder wishes to purchase from Issuer the Subordinated Note in accordance with the terms, subject to the conditions and in reliance on, the recitals, representations, warranties, covenants and agreements set forth herein and in the Subordinated Note.

 

NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows:

 

AGREEMENT:

 

1.  DEFINITIONS.

 

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

 

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

 

 

  

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

 

“Anti-Money Laundering Laws” has the meaning set forth in Section 4.6.7.

 

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

 

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

 

“Closing” has the meaning set forth in Section 2.4.

 

“Closing Date” means March 5, 2015.

 

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

 

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

 

“Economic Sanctions” has the meaning set forth in Section 4.6.8.3.

 

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

 

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

 

“FDIC” means the Federal Deposit Insurance Corporation.

 

“Federal Reserve” means the Board of Governors of the United States Federal Reserve.

 

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

 

“Governmental Agency(ies)” means, individually or collectively, any federal, state, county or local governmental department, commission, board, regulatory authority or agency with jurisdiction over Issuer or the Bank.

 

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

 

“Government Lists” has the meaning set forth in Section 4.6.8.1.

 

“Hazardous Materials” means oil, flammable explosives, asbestos, urea formaldehyde insulation, polychlorinated biphenyls, radioactive materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances which are “hazardous substances,” “hazardous wastes,” “hazardous materials” or “toxic substances” under the Hazardous Materials Laws and/or other applicable environmental laws, ordinances or regulations.

 

 

  

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“Hazardous Materials Laws” mean any laws, regulations, permits, licenses or requirements pertaining to the protection, preservation, conservation or regulation of the environment which relates to real property, including without limitation: the Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environment Response, Compensation and Liability Act of 1980, as amended (including the Superfund Amendments and Reauthorization Act of 1986), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, as amended, 29 U.S.C. Section 651, the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; and all comparable state laws, orders and regulations.

 

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

 

“Issuer” has the meaning set forth in the preamble hereto and shall include any successor to Issuer by merger.

 

“Issuer’s Liabilities” means Issuer’s obligations under this Agreement and the Subordinated Note.

 

“Issuer’s Reports” means (i) its annual report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the SEC, and (ii) its quarterly reports on Form 10-Q for each quarterly period in 2014 ending after December 31, 2013, as filed with the SEC.

 

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

 

“Material Adverse Effect” means, with respect to any Person, any change or effect that (i) is or would be reasonably likely to be material and adverse to the financial position, results of operations, business or prospects of such Person or its Subsidiaries, taken as a whole, or (ii) would materially impair the ability of any Person to perform its respective obligations under this Agreement or the Subordinated Note, or otherwise materially impede the consummation of the transactions contemplated hereby; provided, however, that “Material Adverse Effect” shall not be deemed to include the impact of (1) changes in banking and similar laws, rules or regulations of general applicability or interpretations thereof by Governmental Agencies, (2) changes in GAAP or regulatory accounting requirements applicable to financial institutions and their holding companies generally, (3) changes after the date of this Agreement in general economic or capital market conditions affecting financial institutions or their market prices generally and not specifically related to Issuer or the Noteholder, (4) direct effects of compliance with this Agreement on the operating performance of Issuer or Noteholder, including expenses incurred by Issuer or the Noteholder in consummating the transactions contemplated by this Agreement, and (5) the effects of any action or omission taken by Issuer at the request of or with the prior written consent of the Noteholder, and vice versa, or as otherwise contemplated by this Agreement and the Subordinated Note.

 

 

  

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“Maturity Date” means March 6, 2025.

 

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

 

“OCC” means the Office of the Comptroller of the Currency.

 

“OFAC” has the meaning set forth in Section 4.6.8.1.

 

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

 

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

 

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

 

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

 

“Subordinated Note” has the meaning set forth in the Recitals, as amended, restated, supplemented or modified from time to time, and each Subordinated Note delivered in substitution or exchange for such Subordinated Note.

 

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

 

“Tax” and “Taxes” mean all federal, state, local or foreign income, gross income, gains, gross receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, custom duties, unemployment or other taxes of any kind whatsoever, together with any interest, additions or penalties thereto and any interest in respect of such interest and penalties.

 

“Tax Returns” means any return, declaration or other report (including elections, declarations, schedules, estimates and information returns) with respect to any Taxes.

 

 

  

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“Tier 2 Capital” has the meaning given to the term “Tier 2 capital” in Appendix A to 12 C.F.R. Part 225 (“Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure”), as amended, modified and supplemented and in effect from time to time or any replacement thereof.

 

“USA PATRIOT Act” has the meaning set forth in Section 4.6.7.

 

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

 

2.  SUBORDINATED DEBT.

 

2.1.  General Matters.

 

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

 

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

 

2.2.  Maturity Date.  On the Maturity Date, all sums due and owing under this Agreement and the Subordinated Note shall be repaid in full.  Issuer acknowledges and agrees that Noteholder has not made any commitment, either express or implied, to extend the terms of the Subordinated Note past the Maturity Date, and shall not extend such terms beyond the Maturity Date unless Issuer and the Noteholder hereafter specifically otherwise agree in writing in their sole and absolute discretion.

 

 

  

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2.3.  Unsecured Obligations.  The obligations of Issuer to the Noteholder under the Subordinated Note shall be unsecured.

 

2.4.  The Closing.  The execution and delivery of the Agreement and Subordinated Note (the “Closing”) shall occur at the offices of Issuer at 10:00 a.m. (local time) on the Closing Date, or at such other place or time or on such other date as the parties hereto may agree.

 

2.5.  Payments.

 

2.5.1.  Issuer agrees that matters concerning prepayments, payments and application of payments shall be as set forth in this Agreement and in the Subordinated Note.

 

2.5.2.  Issuer in its sole discretion shall have the right to appoint a payment agent in order to make any payments due pursuant to this Agreement and in the Subordinated Note.

 

2.5.3.  The Issuer shall pay to the Noteholder a late charge of five percent (5.0%) of any payment of interest or principal not received by the Noteholder within fifteen (15) days after the date such payment is due.

 

2.6.  Right of Offset.  Noteholder hereby expressly waives any right of offset it may have against Issuer.

 

3.  DISBURSEMENT.

 

3.1.  Disbursement.  At the Closing Date, assuming all of the terms and conditions set forth in Section 3.2 have been satisfied by Issuer and Issuer has executed and delivered or caused to be executed and delivered to Noteholder this Agreement and the Subordinated Note and any other related documents, certificates and opinions, each in form and substance reasonably satisfactory to the Noteholder, Noteholder shall disburse the principal amount of  the Subordinated Note to Issuer in exchange for the Subordinated Note (the “Disbursement”).

 

3.2.  Conditions Precedent to Disbursement.  In conjunction with and as additional (but independent) supporting evidence for certain of the covenants, representations and warranties made by Issuer herein, prior to and as a condition of the Disbursement, Issuer shall deliver or cause to be delivered to Noteholder or otherwise satisfy each of the following:

 

3.2.1.  Transaction Documents.  This Agreement and the Subordinated Note.

 

3.2.2.  Secretary’s Certificate. A certificate of the Secretary of Issuer certifying: (i) Issuer’s Certificate of Incorporation, as amended, as in effect at the time of the Closing; (ii) Issuer’s Amended and Restated Bylaws as in effect at the time of the Closing; (iii) resolutions approved by the Board of Directors authorizing the transactions contemplated hereby; and (iv) a corporate subsistence certificate with respect to Issuer issued by the Secretary of State of the Commonwealth of Pennsylvania, dated a recent date before the date of the Closing.

 

 

 

  

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3.2.3.  Incumbency Certificate. An incumbency certificate of the Secretary of Issuer certifying the names of the officer or officers of Issuer authorized to sign this Agreement, the Subordinated Note and the other documents provided for in this Agreement, together with a sample of the true signature of each such officer.  Noteholder may conclusively rely on such certificate until formally advised by a like certificate of any changes therein.

 

3.2.4.  Representations and Warranties.  The representations and warranties of Issuer contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects). The Noteholder shall have received a certificate, dated the Closing Date, signed on behalf of Issuer by the Chief Executive Officer and the Chief Financial Officer, to such effect.

 

3.2.5.  Issuer’s Reports.  Issuer shall have delivered to the Noteholder copies of Issuer’s Reports, unless such reports are available on the SEC’s website.

 

3.2.6.  Legal Opinion.  A legal opinion of Issuer’s counsel, dated as of the Closing Date, in form and substance acceptable to the Noteholder.

 

3.2.7.  Other Documents.  Such other certificates, affidavits, schedules, resolutions, opinions, notes and/or other documents which are provided for hereunder or as the Noteholder may reasonably request.

 

4.  REPRESENTATIONS AND WARRANTIES OF ISSUER.

 

Issuer hereby represents and warrants to the Noteholder as follows:

 

4.1.  Organization and Authority.

 

4.1.1.  Organization Matters.

 

4.1.1.1  Issuer is validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Issuer has full corporate power and authority to carry on its business as now conducted. Issuer is duly licensed or qualified to do business in the States of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification, except where failure to be so licensed or qualified would not reasonably be expected to have a Material Adverse Effect on Issuer. The Articles of Incorporation, as amended, and the Amended and Restated Bylaws of Issuer, copies of which have been made available to the Noteholder, are true, complete and correct copies of such documents as in full force and effect as of the date of this Agreement.

 

4.1.1.2  The deposit accounts of the Bank are insured by the FDIC to the fullest extent permitted by law.  Neither Issuer nor the Bank has received any notice or other information indicating that the Bank is not an “insured depository institution” as defined in 12 U.S.C. Section 1813, nor has any event occurred which could reasonably be expected to adversely affect the status of the Bank as an FDIC-insured institution.

 

 

  

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4.1.2.  Subsidiaries.  Each Subsidiary of Issuer is validly existing and in good standing under the laws of its jurisdiction of organization, and each Subsidiary has all requisite power and authority, corporate or otherwise, and possesses all material licenses necessary, to conduct its business and own its properties as presently conducted, except where failure possess such licenses would not reasonably be expected to have a Material Adverse Effect on such Subsidiary.

 

4.2.  No Impediment to Transactions.

 

4.2.1.  Transaction is Legal and Authorized.  The issuance of the Subordinated Note, the borrowing evidenced by the Subordinated Note, the execution of this Agreement and the Subordinated Note, and the performance by Issuer of its obligations under this Agreement and the Subordinated Note are within the corporate powers of Issuer.  This Agreement and the Subordinated Note have been duly authorized, executed and delivered by Issuer, and, assuming due authorization, execution and delivery by the other parties thereto, are the legal, valid and binding obligations of Issuer, enforceable in accordance with their terms, except as the enforceability of this Agreement and the Subordinated Note may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and subject to general principles of equity.

 

4.2.2.  No Defaults or Restrictions.  Neither the execution and delivery of this Agreement or the Subordinated Note nor compliance with their terms and conditions will violate, conflict with or result in a breach of, or constitute a default under:  (i) the Articles of Incorporation, as amended, or the Amended and Restated Bylaws of Issuer or any Subsidiary of Issuer, in each case as in effect on the date hereof; (ii) any of the terms, obligations, covenants, conditions or provisions of any material contract, agreement, indenture, mortgage, deed of trust, pledge, bank loan or credit agreement, or any other agreement or instrument to which Issuer or any Subsidiary of Issuer is now a party or by which any of them or any of their properties is bound or affected; (iii) any judgment, order, writ, injunction, decree or demand of any court, arbitrator, grand jury, or Governmental Agency applicable to and having jurisdiction over the conduct of their respective businesses or the ownership of Issuer or any Subsidiary or their respective properties; or (iv) any statute, rule or regulation applicable to Issuer, except, in the case of items (ii), (iii) or (iv), for such violations and conflicts that would not reasonably be expected to have, singularly or in the aggregate, a Material Adverse Effect on Issuer.  None of Issuer or any Subsidiary of Issuer is in default in any material respect in the performance, observance or fulfillment of any of the terms, obligations, covenants, conditions or provisions contained in any indenture or other agreement creating, evidencing or securing Indebtedness of any kind or pursuant to which any such Indebtedness is issued, or other agreement or instrument to which Issuer or any Subsidiary of Issuer is a party or by which Issuer or any such Subsidiary or their respective properties may be bound or affected where such defaults would have, singularly or in the aggregate, a Material Adverse Effect on Issuer.

 

 

 

  

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4.2.3.  Governmental Consent.  Other than those required under the securities or blue sky laws of the various states, no governmental orders, permissions, consents, approvals or authorizations are required to be obtained by Issuer that have not been obtained, and no registrations or declarations are required to be filed by Issuer that have not been filed in connection with, or, contemplation of the execution and delivery of, and performance under, this Agreement and the Subordinated Note.

 

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

 

4.4.  Financial Condition.

 

4.4.1.  Issuer Financial Statements.  The consolidated financial statements of Issuer included in Issuer’s Reports (including the related notes, where applicable) (i) have been prepared from, and are in accordance with, the books and records of Issuer; (ii) fairly present in all material respects the consolidated results of operations, cash flows, changes in stockholders’ equity and consolidated financial position of Issuer, for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to recurring year-end audit adjustments normal in nature and amount); and (iii) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto.  The books and records of Issuer have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements.  Issuer does not have any material liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due), except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Issuer included in its quarterly report on Form 10-Q for the quarter ended September 30, 2014 (including any notes thereto) and for liabilities incurred in the ordinary course of business consistent with past practice since September 30, 2014 or in connection with this Agreement and the transactions contemplated hereby.

 

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

 

 

  

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4.5.  No Material Adverse Change.  Since September 30, 2014, there has been no development or event which has had or would reasonably be expected to have a Material Adverse Effect on Issuer or any Subsidiary of Issuer.

 

4.6.  Legal Matters.

 

4.6.1.  Compliance with Law.  Issuer and each of its Subsidiaries (i) have complied with and (ii) to Issuer’s knowledge, are not under investigation with respect to, and have not been threatened to be charged with or given any notice of any material violation of any applicable statutes, rules, regulations, orders and restrictions of any Governmental Agency having jurisdiction over the conduct of their respective businesses or the ownership of their respective properties, except where any such failure to comply or violation would not reasonably be expected to have a Material Adverse Effect on Issuer or any such Subsidiary.

 

4.6.2.  Regulatory Enforcement Actions.  None of Issuer, any Subsidiary of Issuer, or, to Issuer’s knowledge, any of their respective officers or directors is now operating under any restrictions, agreements, memoranda, or commitments (other than restrictions of general application) imposed by any Governmental Agency having jurisdiction over issuer, its Subsidiaries or such officers or directors, nor are, to Issuer’s knowledge, (a) any such restrictions threatened, or (b) any agreements, memoranda or commitments being sought by any Governmental Agency, where such restrictions, agreement, memoranda or commitments would reasonably be expected to have a Material Adverse Effect on Issuer or any such Subsidiary or to have a Material Adverse Effect on the Issuer’s ability to may any payment of principal or on interest on the Subordinated Note when such payment is due.

 

4.6.3.  Pending Litigation.  There are no material actions, suits, proceedings or written agreements pending, or, to Issuer’s knowledge, threatened or proposed, against Issuer or any Subsidiary of Issuer at law or in equity or before or by any federal, state, or municipal court or Governmental Agency having jurisdiction over Issuer or its Subsidiaries, that, either separately or in the aggregate, would reasonably be expected to affect the issuance or payment of the Subordinated Note; and none of Issuer or any Subsidiary of Issuer is a party to or named as subject to the provisions of any order, writ, injunction, or decree of, or any written agreement with, any federal, state or municipal court or Governmental Agency having jurisdiction over Issuer or its Subsidiaries, that either separately or in the aggregate, will have a Material Adverse Effect on the Issuer.

 

4.6.4.  Environmental.  No Property is or, to Issuer’s knowledge, has been a site for the use, generation, manufacture, storage, treatment, release, discharge, disposal, transportation or presence of any Hazardous Materials, and neither Issuer nor any Subsidiary of Issuer has engaged in such activities.  Each Property, and Issuer and each such Subsidiary, are in compliance with all Hazardous Materials Laws.  There are no claims or actions pending or, to Issuer’s knowledge, threatened against Issuer or any such Subsidiary or any Property by any Governmental Agency or by any other Person relating to any Hazardous Materials or pursuant to any Hazardous Materials Law.

 

 

  

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4.6.5.  Brokerage Commissions.  Neither Issuer nor any Subsidiary of Issuer is obligated to pay any brokerage commission or finder’s fee to any Person in connection with the transactions contemplated by this Agreement.

 

4.6.6.  No Registration.  Assuming the accuracy and completeness of the Noteholder’s representations and warranties in Sections 6.4 through 6.11 of this Agreement, Issuer is not required to register the offer and sale of the Subordinated Note to the Noteholder under the Securities Act.

 

4.6.7.  Anti-Money Laundering.  Issuer and its Subsidiaries are in compliance in all material respects with the applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transaction Reporting Act of 1970, as amended, including as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the “USA PATRIOT Act”) and the rules and regulations thereunder and any other applicable anti-money laundering statute, rule, or regulation (the “Anti-Money Laundering Laws”). Issuer and its Subsidiaries have established compliance programs to ensure compliance with the requirements of the Anti-Money Laundering Laws. There is no charge, investigation, action, suit or proceeding before any court, regulatory authority or governmental agency or body pending or, to the best knowledge of Issuer and its Subsidiaries, threatened regarding the compliance by Issuer and its Subsidiaries with any applicable anti-money laundering statue, rule or regulation.

 

4.6.8.  Compliance with Economic Sanctions.

 

4.6.8.1  Neither Issuer nor any of its Subsidiaries is acting or has acted at any time, directly or indirectly, on behalf of any persons or entities whose name appears on the Annex to the Executive Order No. 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) or are included on any relevant lists maintained by the Office of Foreign Assets Control (“OFAC”) of U.S. Department of Treasury, including the Specially Designated Nationals and Blocked Persons List, the Foreign Sanctions Evaders List, and the Sectoral Sanctions Identifications List, and any similar list maintained by the U.S. Department of State, or other U.S. government agencies, all as may be amended from time to time (such lists, collectively, the “Government Lists”).

 

4.6.8.2  Neither Issuer nor any of its Subsidiaries engages, or has engaged, in business activities or transactions with or for the benefit of any persons or countries subject to any sanctions administered by OFAC, including any persons in Cuba, Iran, Sudan, Syria or North Korea, or any person on any relevant lists maintained by OFAC, the U.S. Department of State or other U.S. government agencies, including the Government Lists.

 

 

 

  

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4.6.8.3  The operations of Issuer and its Subsidiaries are not in contravention of, and since January 1, 2009 have not violated, any applicable economic sanctions laws, including laws administered and enforced by the U.S. government or pursuant to the Trading with the Enemy Act, the International Emergency Economic Powers Act, the Iran Sanctions Act, the Comprehensive Iran Sanctions, Accountability, and Divestment Act, the National Defense Authorization Act for Fiscal Year 2012, the National Defense Authorization Act for Fiscal Year 2013, the Iran Threat Reduction and Syria Human Rights Act of 2012, the Iran Freedom and Counter-Proliferation Act of 2012, Executive Order 13660 of March 6, 2014, Executive Order 13661 of March 17, 2014, Executive Order 13662 of March 20, 2014, and any executive order or regulations issued pursuant to any of the foregoing (collectively, “Economic Sanctions”).  No proceeding before any government authority involving Issuer or its Subsidiaries with respect to Economic Sanctions is pending or, to Issuer’s knowledge, is threatened, nor have there been any such proceedings within the past five years.

 

4.6.9.  Taxes. Issuer and its Subsidiaries have filed all Tax Returns that they were required to file under applicable laws and regulations, other than Tax Returns that are not yet due or for which a request for extension was filed. All such Tax Returns were correct and complete in all material respects and have been prepared in substantial compliance with all applicable laws and regulations. All Taxes due and owing by and Issuer and its Subsidiaries (whether or not shown on any Tax Return) have been paid other than Taxes that have been reserved or accrued on the balance sheet of Issuer and which Issuer is contesting in good faith.

 

4.6.10.  Title to Property.  Issuer and its Subsidiaries have good and sufficient title to their respective property including, without limitation, all property reflected in the most recent audited Issuer’s Reports except for assets sold, collected or otherwise disposed of in the ordinary course of Issuer’s business.  All material Leases are valid and subsisting and are in full force and effect in all material respects.

 

4.6.11.  Use of Proceeds. Issuer will use the proceeds from the sale of the Subordinated Note for general corporate purposes. The use of such proceeds does not and will not violate Section 7 of the Exchange of Act of 1934, as amended, or any regulations issued pursuant thereto.

 

4.7.  Issuer Status.

 

4.7.1.  Investment Company Act.  Issuer is not an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

 

4.8.  No Misstatement.  The Issuer’s Reports when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended.  No such Issuer’s Report, at the time it was filed with the Commission, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading.

 

 

  

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4.9.  Representations and Warranties Generally.  All representations, warranties, covenants and agreements made in this Agreement shall be deemed to have been relied upon by the Noteholder and, furthermore, shall continue in full force and effect as long as there remains unperformed any obligations to the Noteholder hereunder or under the Subordinated Note.

 

5.  GENERAL COVENANTS, CONDITIONS AND AGREEMENTS.

 

Issuer hereby further covenants and agrees with each Noteholder as follows:

 

5.1.  Compliance with Transaction Documents.  Issuer shall comply with, observe and timely perform each and every one of the covenants, agreements and obligations under this Agreement and the Subordinated Note.

 

5.2.  Compliance with Laws.

 

5.2.1.  Generally.  Issuer shall comply and cause each Subsidiary of Issuer to comply in all material respects with all applicable statutes, rules, regulations, orders and restrictions in respect of the conduct of their respective businesses and the ownership of their respective properties, except, in each case, where such noncompliance would not reasonably be expected to have a Material Adverse Effect on Issuer or such Subsidiary.

 

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

 

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

 

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

 

 

  

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5.2.5.  Corporate Existence.  Issuer shall do or cause to be done all things reasonably necessary to maintain, preserve and renew its corporate existence and that of all Subsidiaries of Issuer and its and their rights and franchises, and comply in all material respects with all related laws applicable to Issuer or such Subsidiaries; provided, however, that Issuer may consummate a merger in which (a) Issuer is the surviving entity or (b) if Issuer is not the surviving entity, the surviving entity assumes, by operation of law or otherwise, all of the obligations of Issuer under the Subordinated Note. Should a merger occur, Issuer or the surviving entity shall obtain and maintain in effect all licenses, certificates, permits, franchise and other governmental authorizations necessary to (a) the ownership of Issuer’s property and the property of its Subsidiaries and (b) the conduct of Issuer’s business and the business of its Subsidiaries.

 

5.3.  Tier 2 Capital.  If all or any portion of the Subordinated Note ceases to be deemed to be Tier 2 Capital under the risk-based capital rules of the Federal Reserve as in effect as of the date of this Agreement (and that will become effective with respect to Issuer as of January 1, 2015), other than due to the limitation imposed on the capital treatment of subordinated debt during the five years immediately preceding the Maturity Date of the Subordinated Note, Issuer will immediately notify the Noteholder, and thereafter Issuer and the Noteholder will work together in good faith to execute and deliver all agreements as reasonably necessary in order to restructure the applicable portions of the obligations evidenced by the Subordinated Note to qualify as Tier 2 Capital. 

 

6.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE NOTEHOLDER.

 

Each Noteholder hereby represents and warrants to Issuer, severally and not jointly, as follows:

 

6.1.  Legal Power and Authority.  It has all necessary power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.  It is an entity validly existing under the laws its jurisdiction of organization.

 

 

  

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6.2.  The Agreement.  This Agreement has been duly and validly authorized, executed and delivered by it, and, assuming due authorization, execution and delivery by the Issuer, constitutes its legal, valid and binding obligations, enforceable in accordance with the terms of this Agreement, except as the enforceability of this Agreement and the Subordinated Note may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and subject to general principles of equity.

 

6.3.  No Conflicts.  Neither the execution, delivery or performance of this Agreement nor the consummation of any of the transactions contemplated hereby will conflict with, violate, constitute a breach of or a default (with the passage of time or otherwise) under (i) its organizational documents, (ii) any agreement to which it is party, (iii) any law applicable to it, or (iv) any order, writ, judgment, injunction, decree, determination or award binding upon or affecting it; except, in the case of items (ii), (iii) or (iv), for such violations and conflicts that would not reasonably be expected to have, singularly or in the aggregate, a Material Adverse Effect on the Noteholder.

 

6.4.  Accredited Investor.  It is and will be on the Closing Date an “accredited investor,” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

6.5.  Purchase for Own Account. It is purchasing the Subordinated Note(s) for its own account, for investment and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or other applicable securities laws, or pursuant to an exemption therefrom or in a transaction not subject thereto.

 

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

 

6.7.  Private Placement; No Registration of Securities.  It understands and acknowledges that the Subordinated Note is being sold by Issuer without registration under the Securities Act in reliance on the exemption from federal and state registration set forth in, respectively, Rule 506 of Regulation D promulgated under Section 4(a)(2) of the Securities Act and Section 18 of the Securities Act, or any state securities laws, and accordingly, may be resold, pledged or otherwise transferred only if exemptions from the Securities Act and applicable state securities laws are available to it.  It further understands and acknowledges that Issuer will not be obligated in the future to register the Subordinated Note under the Securities Act, the Securities Exchange Act of 1934, as amended, or under any state securities laws.  Issuer has not made and is not making any representation, warranty or covenant, express or implied, as to the availability of any exemption from registration under the Securities Act or any applicable state securities laws for the resale, pledge or other transfer of the Subordinated Note, or that the Subordinated Note(s) purchased by the Noteholder will ever be able to be lawfully resold, pledged or otherwise transferred.

 

6.8.  Ability to Bear Economic Risk of Investment.  It recognizes that an investment in the Subordinated Note involves substantial risk.  It has the ability to bear the economic risk of the prospective investment in the Subordinated Note, including the ability to hold the Subordinated Note indefinitely, and further including the ability to bear a complete loss of all of its investment in Issuer.

 

 

  

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6.9.  No Offering Memorandum.  It acknowledges that: (i) it is not being provided with the disclosures that would be required if the offer and sale of the Subordinated Note was registered under the Securities Act, nor is it being provided with any offering circular or prospectus prepared in connection with the offer and sale of the Subordinated Note; (ii) it has conducted its own examination of Issuer, the Subsidiaries of Issuer and the terms of the Subordinated Note to the extent it deems necessary to make its decision to invest in the Subordinated Note; and (iii) it has availed itself of public access to financial and other information concerning Issuer and its Subsidiaries to the extent it deems necessary to make its decision to purchase the Subordinated Note.

 

6.10.  Information.  It acknowledges that it and its advisors have been furnished with all materials relating to the business, finances and operations of Issuer and its Subsidiaries that have been requested by Noteholder or its advisors and have been given the opportunity to ask questions of, and to receive answers from, persons acting on behalf of Issuer concerning terms and conditions of the transactions contemplated by this Agreement in order to make an informed and voluntary decision to enter into this Agreement.

 

6.11.  Investment Decision.  It has made its own investment decision based upon its own judgment, due diligence and advice from such advisors as it has deemed necessary and not upon any view expressed by any other person or entity.  Neither such inquiries nor any other due diligence investigations conducted by it or its advisors or representatives, if any, shall modify, amend or affect its right to rely on Issuer’s representations and warranties contained herein.  It is not relying upon, and has not relied upon, any advice, statement, representation or warranty made by any Person by or on behalf of Issuer, except for the express statements, representations and warranties of Issuer made or contained in this Agreement.  Furthermore, it acknowledges that (1) no Person has performed any due diligence review on behalf of Noteholder and (2) nothing in this Agreement or any other materials presented by or on behalf of Issuer to Noteholder in connection with the purchase of the Subordinated Note constitutes legal, tax or investment advice.

 

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

 

7.  MISCELLANEOUS.

 

7.1.  Prohibition on Assignment.  Issuer may not assign, transfer or delegate any of its rights under this Agreement or the Subordinated Note without the prior written consent of the Noteholder.

 

 

  

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7.2.  Waiver or Amendment.  No waiver or amendment of any term, provision, condition, covenant or agreement contained in this Agreement or the Subordinated Note shall be effective except with the consent of the Noteholder.  No failure to exercise or delay in exercising, by any holder of the Subordinated Note, of any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right or remedy provided by law.  The rights and remedies provided in this Agreement are cumulative and not exclusive of any right or remedy provided by law or equity.  No notice or demand on Issuer in any case shall, in itself, entitle Issuer to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Noteholder to any other or further action in any circumstances without notice or demand.  No consent or waiver, expressed or implied, by Noteholder to or of any breach or default by Issuer in the performance of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the same or any other obligations of Issuer hereunder.  Failure on the part of Noteholder to complain of any acts or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by Noteholder of its rights hereunder or impair any rights, powers or remedies on account of any breach or default by Issuer.

 

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

 

7.4.  Usury; Revival of Liabilities.  All agreements between Issuer and the Noteholder (including, without limitation, this Agreement and the Subordinated Note) are expressly limited so that in no event whatsoever shall the amount paid or agreed to be paid to the Noteholder exceed the highest lawful rate of interest permissible under the laws of the Commonwealth of Pennsylvania.  If the Noteholder shall ever receive as interest an amount which would be deemed unlawful, such interest shall be applied to the payment of the principal of the Subordinated Note (whether or not then due and payable) and not to the payment of interest.  To the extent that the Noteholder receive any payment on account of Issuer’s Liabilities and any such payment(s) and/or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, subordinated and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment(s) or proceeds received, Issuer’s Liabilities or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment(s) and/or proceeds had not been received by the Noteholder and applied on account of Issuer’s Liabilities; provided, however, if the Noteholder successfully contests any such invalidation, declaration, set aside, subordination or other order to pay any such payment and/or proceeds to any third party, the revived Issuer’s Liabilities shall be deemed satisfied.

 

 

 

  

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7.5.  Notices.  Any notice which any party hereto may be required or may desire to give hereunder shall be deemed to have been given if in writing and if delivered personally, or if mailed, postage prepaid, by United States registered or certified mail, return receipt requested, or if delivered by a nationally recognized commercial courier (such as Federal Express), addressed:

 

	
If to Issuer:

	
DNB Financial Corporation

4 Brandywine Avenue

Downingtown, Pennsylvania 19335

Attention:  Gerald Sopp, CFO

Phone: (484) 359-3138

Fax: (484) 359-3176

 

	
With a copy to (which shall not constitute notice):

	
Stradley Ronon Stevens & Young, LLP

Great Valley Corporate Center

30 Valley Stream Parkway

Malvern, Pennsylvania 19355

Attn: Valentino DiGiorgio, III

Phone: (610) 640-5804

Fax: (610) 640-1965

 

	
If to the Noteholder:

	
Jersey Shore State Bank

300 Market Street

Williamsport, PA  17701

Attn:  Brian L. Knepp, CFO

Phone: (570) 320-2030

Fax: (570) 320-2046

 

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

 

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

 

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

 

 

  

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

 

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

 

7.10.  Choice of Law.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to its laws or principles of conflict of laws.  Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of a federal or state court sitting in the Commonwealth of Pennsylvania, in any action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that all claims in respect of such action or proceeding shall be heard and determined exclusively in any such court, and (c) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court. Each of the parties hereto waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto. To the extent permitted by applicable law, any party hereto may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 7.5. Nothing in this Section 7.10, however, shall affect the right of any party to serve legal process in any other manner permitted by law.  Nothing herein shall be deemed to limit any rights, powers or privileges which Noteholder may have pursuant to any law of the United States of America or any rule, regulation or order of any department or agency thereof, and nothing herein shall be deemed to make unlawful any transaction or conduct by the Noteholder which is lawful pursuant to, or which is permitted by, any of the foregoing.

 

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

 

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

 

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

 

 

  

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7.14.  Knowledge; Discretion.  All references herein to the Noteholder’s or Issuer’s knowledge shall be deemed to mean the knowledge of such party based on commercially reasonable inquiry.  All references herein to Issuer’s knowledge shall be deemed to refer to the knowledge of Issuer and each Subsidiary of Issuer.  Unless specified to the contrary herein, all references herein to an exercise of discretion or judgment by the Noteholder, to the making of a determination or designation by the Noteholder, to the application of the Noteholder’s discretion or opinion, to the granting or withholding of the Noteholder’s consent or approval, to the consideration of whether a matter or thing is satisfactory or acceptable to the Noteholder, or otherwise involving the decision making of the Noteholder, shall be deemed to mean that such the Noteholder shall decide in its sole and absolute discretion. 

 

7.15.  Waiver Of Right To Jury Trial.  TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ISSUER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS AGREEMENT OR THE SUBORDINATED NOTE, OR ANY OTHER STATEMENTS OR ACTIONS OF ISSUER OR THE NOTEHOLDER.  ISSUER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL.  ISSUER FURTHER ACKNOWLEDGES THAT (a) IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER, (b) THIS WAIVER HAS BEEN REVIEWED BY ISSUER AND ISSUER’S COUNSEL AND IS A MATERIAL INDUCEMENT FOR NOTEHOLDER TO ENTER INTO THIS AGREEMENT AND THE SUBORDINATED NOTE AND (c) THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF SUCH TRANSACTION DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

 

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Subordinated Note Purchase Agreement to be executed by their duly authorized representatives as of the date first above written.

 

 

 

	 	 	  
ISSUER:

DNB Financial Corporation

	 	 	  
 

By: 

	 
	 	 	 	Name: William S. Latoff 
Title: Chairman and CEO

	 	 	 	 

 

 

[ISSUER SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]

 

  

  

  

 

                                                                         

 

	 	 	  
NOTEHOLDER:

Jersey Shore State Bank

 

 

	 	 	By: 	 
	 	 	 	Name: Richard A. Grafmyre 
Title: President

 

 

 

 

[NOTEHOLDER SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]

  

  

  

                                                                

EXHIBIT A

 

Form of Unsecured Promissory Note

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