SDN BANCORP, INC.
COMMON STOCK
SUBSCRIPTION AGREEMENT
March 22, 1996
SDN Bancorp, Inc.
135 Saxony Road
Encinitas, California 92023-0926
Attn: Robert P. Keller, President and Chief Executive Officer
Dear Sirs:
1. Introduction. SDN Bancorp, Inc., a Delaware
corporation
and bank holding company ("SDN"), is offering to Dartmouth
Capital
Group, L.P., a Delaware limited partnership ("DCG" or the
"Subscriber"), shares of Common Stock, par value $0.01 per share
(the "Holdco Common Stock"), of a corporate successor and
intended
holding company to SDN, in organization ("Holdco"). Hereinafter,
the shares of Common Stock offered hereunder may be referred to
as
the "Holdco Shares". Capitalized terms used in this letter and
not
otherwise defined shall have the respective meanings assigned to
them in that certain Agreement and Plan of Reorganization between
SDN and Commerce Security Bank ("CSB") anticipated to be executed
within the near future (as hereafter executed, and as may be
thereafter amended, the "Reorganization Agreement").
SDN intends, by its execution of the Reorganization
Agreement,
to agree to form Holdco and to cause Holdco to acquire CSB. DCG
has entered into another Subscription Agreement (the "SDN Stock
Subscription") substantially simultaneously herewith pursuant to
which DCG has agreed to purchase up to $16.0 million (the "CSB
Commitment Amount") of SDN common stock to provide funds to SDN
for
SDN to consummate the Reorganization.
In the event of a Dissenting Share Capital Shortfall (as
hereinafter defined) arising from the contingencies described in
Section 2 below, Holdco may require funds after the Closing. DCG
desires to commit, solely in the event of such a Dissenting Share
Capital Shortfall and solely to the extent required herein, to
purchase Holdco Shares on the terms provided herein.
DCG hereby agrees with SDN as follows:
2. Funding Contingencies. This Subscription
Agreement is
intended to provide funds to Holdco solely in the event that
Holdco
requires additional capital in order to make payments to holders
of
Dissenting CSB Shares in connection with the Reorganization
where,
in the absence of such additional capital, such payments would
cause one or more of Holdco's capital ratios levels to fall to
levels below those mandated by prudent banking practice or by any
agreement with any bank regulator that is binding upon Holdco (a
"Dissenting Share Capital Shortfall"). DCG's obligations
hereunder
shall accrue only if Holdco has determined, in its reasonable
discretion, that there exists such a Dissenting Share Capital
Shortfall.
3. Purchase, Sale, Payment and Delivery of the
Shares. DCG
hereby irrevocably subscribes for, and commits to purchase from
Holdco, an amount (the "Purchase Amount") equal to the lesser of
the Dissenting Share Capital Shortfall or the arithmetic
difference
between the CSB Commitment Amount and the amount actually funded
by
DCG to SDN in contemplation of the Reorganization pursuant to the
SDN Stock Subscription. The price per share will be $3.95, the
book value per share of the Common Stock at December 31, 1995.
3.Funding Notices. In the event that Holdco determines that
there exists a Dissenting Share Capital Shortfall, Holdco will
deliver to the Subscriber one or more written notices ("Funding
Notices") indicating the basis for its determination of the
existence and amount the Dissenting Share Capital Shortfall and
the
Purchase Amount, and instructing the Subscriber to deliver the
payment for the Purchase Amount into an account maintained by
Holdco or its agent.
4. Payment. Not less than three (3) business days after
the
delivery of any Funding Notice (or such longer period as Holdco
may
specify in such Funding Notice), the Subscriber shall transfer
payment for the Purchase Amount to the account specified therein
in
immediately available funds. Holdco shall deliver to the
Subscriber and/or the Subscriber's designee(s), promptly
following
receipt of the Subscriber's payment for Shares, certificate(s)
evidencing the Shares purchased.
5. Successors. This Agreement shall inure to
the
benefit of
and be binding upon SDN, Holdco (upon its formation), the
Subscriber and their respective successors and permitted assigns.
SDN agrees to cause Holdco to execute a counterpart of this
Agreement promptly following upon Holdco's formation, whereupon
Holdco will be deemed to have ratified this Agreement and agree
to
be bound by this Agreement in all respects. Nothing expressed
herein is intended or shall be construed to give any person other
than the persons referred to in the two preceding sentences any
legal or equitable right, remedy or claim under or in respect of
this Agreement.
7. Termination. This Agreement shall terminate,
without
action by either party, upon the earliest to occur of the
following: (i) upon the last date for CSB Shareholders to perfect
their respective rights to dissent to the Reorganization pursuant
to Section 1300 et seq. of the California Corporations Code, in
the
event that no CSB Shareholder so perfects his or her rights; (ii)
upon the payment of all amounts to which holders of Dissenting
CSB
Shares are hereafter determined (by agreement, by order of a
court
of competent jurisdiction or otherwise) to be entitled; (iii)
upon
the termination of the January 24, 1996 Letter of Intent between
SDN and CSB in accordance with it terms; or (iv) upon the
termination of the Reorganization Agreement in accordance with
its
terms.
6. APPLICABLE LAW. THIS AGREEMENT SHALL BE
ENFORCED,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS
THEREOF.
Very truly yours,
DARTMOUTH CAPITAL GROUP, L.P.
By: Dartmouth Capital Group, Inc.
Its: General Partner
By:
Name: Robert P. Keller
Title: President
This Subscription Agreement is hereby
confirmed and accepted as of the date first
above written.
SDN BANCORP, INC.
By:
Name: Robert P. Keller
Title: President and Chief Executive Officer
RATIFICATION BY HOLDCO:
Holdco hereby ratifies, joins in and agrees to be
bound by this Subscription Agreement in all respects.
______________________________
[Holdco Name]
By:
Name: Robert P. Keller
Title: President and Chief Executive Officer