Exhibit 10.1

EXECUTION COPY

 

 

 

INVESTMENT AGREEMENT

dated as of November 3, 2010

among

CAPITAL BANK CORPORATION,

CAPITAL BANK

and

NORTH AMERICAN FINANCIAL HOLDINGS, INC.

 

 

 

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TABLE OF CONTENTS

ARTICLE I

 

PURCHASE; CLOSING   

1.1

   Purchase      1   

1.2

   Closing      1    ARTICLE II    REPRESENTATIONS AND WARRANTIES   

2.1

   Disclosure      6   

2.2

   Representations and Warranties of the Company and the Bank      7   

2.3

   Representations and Warranties of Purchaser      31    ARTICLE III   
COVENANTS   

3.1

   Filings; Other Actions      34   

3.2

   Access, Information and Confidentiality      36   

3.3

   Conduct of the Business      36   

3.4

   Acquisition Proposals      41   

3.5

   Repurchase      44   

3.6

   D&O Indemnification      44   

3.7

   Notice of Developments      45    ARTICLE IV    ADDITIONAL AGREEMENTS   

4.1

   Governance Matters      45   

4.2

   Legend      46   

4.3

   Exchange Listing      46   

4.4

   Registration Rights      46   

4.5

   Officers, Employees and Benefit Plans      46   

4.6

   Reservation for Issuance      47   

4.7

   Rights Offering      47   

4.8

   Trust Preferred Exchange Offer      47   

4.9

   Purchaser Tender Offer      48   

4.10

   Use of Capital Bank Brand      48   

 

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ARTICLE V    TERMINATION   

5.1

   Termination      48   

5.2

   Effects of Termination      50   

5.3

   Fees      50    ARTICLE VI    MISCELLANEOUS   

6.1

   Survival      51   

6.2

   Expenses      51   

6.3

   Amendment; Waiver      51   

6.4

   Counterparts and Facsimile      52   

6.5

   Governing Law      52   

6.6

   Notices      52   

6.7

   Entire Agreement, Assignment.      53   

6.8

   Interpretation; Other Definitions      53   

6.9

   Captions      54   

6.10

   Severability      54   

6.11

   No Third Party Beneficiaries      54   

6.12

   Time of Essence      54   

6.13

   Certain Adjustments      54   

6.14

   Public Announcements      55   

6.15

   Specific Performance; Limitation on Damages      55   

 

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INDEX OF DEFINED TERMS

 

Term

    

Location of Definition

409A Plan

     2.2(s)(8)

Acquisition Agreement

     3.4(b)

Acquisition Proposal

     3.4(c)

Adverse Recommendation Change

     3.4(b)

Affiliate

     6.9(a)

Agency

     2.2(w)(5)(D)

Agreement

     Preamble

Articles of Incorporation

     2.2(a)(1)

Authorizations

     2.2(a)(1)

Bank

     Preamble

Bank Charter

     2.2(a)(2)

beneficial owner

     6.9(g)

beneficially own

     6.9(g)

Benefit Plan

     2.2(s)(1)

Burdensome Condition

     1.2(c)(2)(F)

business day

     6.9(e)

Capitalization Date

     2.2(b)

CERCLA

     2.2(v)

Charge-Offs

     1.2(c)(2)(L)

Closing

     1.2(a)

Closing Date

     1.2(a)

Closing Expense Reimbursement

     6.2

Code

     2.2(j)

Common Stock

     Recitals

Company

     Preamble

Company 10-K

     2.1(c)(2)(A)

Company Insurance Policies

     2.2(x)

Company Preferred Stock

     2.2(b)

Company Recommendation

     3.1(b)

Company Reports

     2.2(h)(1)

Company Representative

     3.2(a)

Company Significant Agreement

     2.2(m)(i)

Company’s knowledge

     2.1(d)

Confidentiality Agreement

     3.2(b)

control

     6.9(a)

controlled by

     6.9(a)

CVRs

     Recitals

Disclosure Schedule

     2.1(a)

EESA

     2.2(s)(10)

ERISA

     2.2(s)(1)

ERISA Affiliate

     2.2(s)(1)

Exchange Act

     2.2(h)(1)

Existing D&O Policies

     1.2(c)(2)(H)(i)

Expense Reimbursement

     5.3(c)

 

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FDIC

     2.2(a)(2)

Federal Reserve

     1.2(c)(1)(B)

GAAP

     2.2(g)

Governmental Entity

     1.2(c)(1)(A)

herein

     6.9(d)

hereof

     6.9(d)

hereunder

     6.9(d)

include

     6.9(c)

included

     6.9(c)

includes

     6.9(c)

including

     6.9(c)

knowledge of the Company

     2.1(d)

Legacy Shareholder

     4.7

Liens

     1.2(b)(1)

Loans

     2.2(w)(1)

Loan Tape

     2.2(w)(9)

Material Adverse Effect

     2.1(b)

NASDAQ

     1.2(c)(2)(I)

North Carolina Commissioner

     1.2(c)(1)(B)

Notice of Recommendation Change

     3.4(b)

or

     6.9(b)

Per Share Purchase Price

     1.2(b)(2)

person

     6.9(f)

Pool

     2.2(w)(8)

Previously Disclosed

     2.1(c)

Proprietary Rights

     2.2(y)

Purchased Shares

     1.1

Purchaser

     Preamble

Purchaser Designees

     1.2(c)(2)(G)

Record Date

     4.7

Registration Rights Agreement

     4.4

Regulatory Agreement

     2.2(u)

Resigning Directors

     1.2(c)(2)(G)

Representatives

     3.4(a)

Repurchase

     Recitals

Required Approvals

     2.2(f)

Rights

     4.7

Rights Offering

     4.7

Sarbanes-Oxley Act

     2.2(h)(2)

SEC

     2.1(c)(2)(A)

Securities Act

     2.2(h)(1)

Series A Preferred

     Recitals

Shareholder Meeting

     3.1(b)

Shareholder Proposal

     3.1(b)

SRO

     2.2(h)(1)

Subsidiaries

     2.2(a)(1)

 

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Subsidiary

     2.2(a)(1)

Superior Proposal

     3.4(c)

Tax Return

     2.2(j)

Taxes

     2.2(j)

Termination Fee

     5.3(c)

Treasury

     Recitals

Treasury Warrants

     Recitals

Trust Preferred Securities

     2.2(d)(2)

under common control with

     6.9(a)

VA

     2.2(w)(5)

Voting Debt

     2.2(b)

 

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LIST OF SCHEDULES AND EXHIBITS

 

Schedule A

   List of Subsidiaries

Exhibit A

   Terms of Contingent Value Rights

Exhibit B

   Terms of Repurchase

Exhibit C

   Form of Registration Rights Agreement

 

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INVESTMENT AGREEMENT, dated as of November 3, 2010 (this “Agreement”), among
Capital Bank Corporation, a corporation organized under the laws of the State of
North Carolina (the “Company”), Capital Bank, a North Carolina state-chartered
banking corporation and a banking subsidiary of the Company (the “Bank”), and
North American Financial Holdings, Inc., a Delaware corporation (“Purchaser”).

RECITALS:

WHEREAS, the Company intends to issue and sell to Purchaser, and Purchaser
intends to purchase from the Company, as an investment in the Company,
71,000,000 shares of common stock, no par value, of the Company (the “Common
Stock”) at a purchase price of $2.55 per share on the terms and conditions
described herein;

WHEREAS, in addition to the purchase price described above, the Company shall,
immediately prior to the issuance of shares of Common Stock to Purchaser, issue
to the holders of its Common Stock (excluding the Purchaser) non-transferable
contingent value rights (the “CVRs”) on substantially the terms set forth in
Exhibit A.

WHEREAS, in connection with the investment by Purchaser, the Company shall enter
into a binding definitive agreement with the United States Department of the
Treasury (“Treasury”), pursuant to which, among other things and subject to the
terms and conditions set forth therein, following the Closing, the Company will
redeem and/or purchase from Treasury all of the outstanding shares of the
Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series
A Preferred”) (including all obligations with respect to accrued but unpaid
dividends on the Series A Preferred) and related warrants to purchase shares of
Company Common Stock (the “Treasury Warrants”) (the “Repurchase”) (the terms of
the Repurchase being set forth in Exhibit B).

WHEREAS, the Company intends to amend its Articles of Incorporation and its
bylaws, in form and substance reasonably satisfactory to Purchaser, to permit
the transactions contemplated by this Agreement; and

NOW, THEREFORE, in consideration of the premises, and of the representations,
warranties, covenants and agreements set forth herein, the parties agree as
follows:

ARTICLE I

PURCHASE; CLOSING

1.1 Purchase. On the terms and subject to the conditions set forth herein, at
the Closing, Purchaser will purchase from the Company, and the Company will
issue and sell to Purchaser, 71,000,000 shares of Common Stock (the “Purchased
Shares”).

1.2 Closing.

(a) The Closing. The closing of the purchase and sale of the Purchased Shares
referred to in Section 1.1 (the “Closing”) shall occur at 10:00 a.m., New York

 

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City time, on the third business day after the satisfaction or, if permissible,
waiver (by the party entitled to grant such waiver) of the conditions to the
Closing set forth in this Agreement (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to fulfillment or waiver
of those conditions), at the offices of Wachtell, Lipton, Rosen & Katz, 51 West
52nd Street, New York, New York 10019 or such other date or location as agreed
by the parties. The date of the Closing is referred to as the “Closing Date.”

(b) Closing Deliveries. Subject to the satisfaction or waiver on the Closing
Date of the applicable conditions to the Closing set forth in Section 1.2(c), at
the Closing:

(1) the Company will deliver to Purchaser (A) the Closing Expense Reimbursement
in accordance with Section 6.2 hereof, by wire transfer of immediately available
funds to an account or accounts designated by Purchaser, and (B) the Purchased
Shares, as evidenced by one or more certificates dated the Closing Date and
bearing the appropriate legends as set forth herein and free and clear of all
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (other than restrictions on transfer imposed by applicable securities
laws) (collectively, “Liens”); and

(2) Purchaser will deliver to the Company, by wire transfer of immediately
available funds to an account or accounts designated by the Company, an amount
equal to the product of $2.55 per share (the “Per Share Purchase Price”)
multiplied by the number of Purchased Shares.

(c) Closing Conditions. (1) The obligation of Purchaser, on the one hand, and
the Company and the Bank, on the other hand, to effect the Closing is subject to
the fulfillment or written waiver by Purchaser, the Company and the Bank prior
to the Closing of the following conditions:

(A) no provision of any applicable law or regulation and no judgment,
injunction, order or decree of any court, administrative agency or commission or
other governmental authority or instrumentality, whether federal, state, local
or foreign (each, a “Governmental Entity”) shall prohibit the Closing or shall
prohibit or restrict Purchaser or its Affiliates from owning or voting any
Purchased Shares, and no lawsuit or formal administrative proceeding shall have
been commenced by any Governmental Entity seeking to effect any of the
foregoing;

(B) any Required Approvals of the North Carolina Office of the Commissioner of
Banks (the “North Carolina Commissioner”) and the Board of Governors of the
Federal Reserve System (the “Federal Reserve”) required to consummate the
transactions contemplated by this Agreement shall have been made or obtained and
shall be in full force and effect as of the Closing Date; and

 

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(C) the holders of shares of Common Stock of the Company shall have approved the
Shareholder Proposal by the requisite vote of such holders.

(2) The obligation of Purchaser to purchase the Purchased Shares at the Closing
is also subject to the fulfillment or written waiver by Purchaser prior to the
Closing of each of the following conditions:

(A) all representations and warranties of the Company and the Bank contained in
this Agreement shall be true and correct (without regard to materiality or
Material Adverse Effect qualifiers contained therein), both individually and in
the aggregate, except where the failure of such representations and warranties
to be so true and correct, individually or in the aggregate, has not had and
would not be reasonably expected to have a Material Adverse Effect (other than
the representations and warranties set forth in Sections 2.2(b), (d)(1), (o),
(z), and (bb), which shall be true and correct in all material respects (subject
to materiality or Material Adverse Effect qualifiers contained therein)) as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date (except to the extent any such representation and warranty
expressly relates to a specified earlier date, in which case such representation
and warranty need only be true and correct as of such specified earlier date);

(B) each of the Company and the Bank shall have performed in all material
respects all obligations required to be performed by it at or prior to Closing;

(C) Purchaser shall have received a certificate signed on behalf of each of the
Company and the Bank by a senior executive officer certifying to the effect that
the conditions set forth in Sections 1.2(c)(2)(A) and 1.2(c)(2)(B) have been
satisfied;

(D) since June 30, 2010, no fact, event, change, condition, development,
circumstance or effect shall have occurred that, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect;

(E) Purchaser shall have entered into a binding definitive agreement with the
Treasury to, following the Closing, purchase and/or redeem all of the issued and
outstanding shares of the Series A Preferred (including all obligations with
respect to accrued but unpaid dividends on the Series A Preferred) and the
Treasury Warrants in accordance with the terms set forth in Exhibit B and such
agreement shall remain in full force and effect;

(F) (i) no Required Approval issued by any Governmental Entity shall impose or
contain any restraint, condition, change or

 

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requirement, and (ii) no law, regulation, policy, consent order, interpretation
or guidance shall have been enacted, issued, promulgated, enforced or entered by
a Governmental Entity since the date of this Agreement, that, in the case of
clause (i) and clause (ii), individually or in the aggregate, is adverse to
Purchaser or any of its Affiliates in any material respect (in the case of
clause (ii), “adverse” shall mean reducing the benefit or increasing the burden
of the transactions contemplated hereby), as determined by Purchaser in its sole
good faith judgment (any restraint, condition, change, requirement, law,
regulation, policy, interpretation or guidance of the type described in this
clause (F), a “Burdensome Condition”).

(G) each of the individuals designated by the Purchaser in its sole discretion
prior to the Closing (the “Purchaser Designees”) shall have been appointed to
the Board of Directors of the Company and of the Bank, and an equal number of
individuals shall have resigned from the Board of Directors of the Company and
of the Bank (the “Resigning Directors”), in each case effective as of the
Closing, such that immediately after the Closing, the Purchaser Designees
constitute a majority of the Board of Directors of each of the Company and the
Bank;

(H) either (i) the existing directors and officers liability and errors and
omissions insurance policies of the Company, the Bank and any Subsidiary (the
“Existing D&O Policies”) shall remain in full force and effect as of the date of
this Agreement and shall continue in full force and effect until they expire
upon the expiration dates set forth in Section 2.2(x) of the Company Disclosure
Schedule and the insurers thereunder shall have provided to the Company an
endorsement in writing to the effect that neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated by this
Agreement shall result in a termination of such policies, or a reduction in
coverage of any such policies; or (ii) the Company shall have obtained a policy
(or policies) of directors and officers liability and errors and omissions
insurance coverage with insurance carriers believed to be financially sound and
reputable with coverage substantially identical to the coverage provided by the
Existing D&O Policies;

(I) the shares of Common Stock included in the Purchased Shares shall have been
authorized for listing on the NASDAQ Stock Market (“NASDAQ”) or such other
market on which the Common Stock is then listed or quoted, subject to official
notice of issuance;

(J) the Company shall have entered into the Registration Rights Agreement
pursuant to Section 4.4, having the terms set forth in Exhibit C;

 

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(K) As measured immediately prior to the Closing and excluding any deposits
withdrawn by Purchaser or its controlled Affiliates, core deposits (i.e., money
market, demand, checking, savings and transactional accounts for retail
customers) of the Bank shall not have decreased by more than twenty percent
(20%) from the amount thereof as of September 30, 2010;

(L) Excluding Charge-Offs made at the written direction of Purchaser or any
controlled Affiliate of Purchaser, (i) the Charge-Offs in any completed calendar
fiscal quarter commencing after September 30, 2010 shall not exceed $30,000,000
and (ii) the Charge-Offs in the most recent interim quarterly period commencing
after the date hereof and ending five calendar days prior to the Closing Date
shall not exceed an amount equal to $30,000,000 pro-rated by the number of days
in such interim quarterly period; for the purposes of this Section 1.2(c)(2)(L),
“Charge-Offs” shall mean the loans charged-off as reflected in the Company
Reports, if then publicly filed, and otherwise derived from the books and
records of the Bank in a manner consistent with past practice, with the
preparation of the financial statements in the Company Reports and with the
Company’s or Bank’s written policies in effect as of the date of this Agreement;
and three calendar days prior to the Closing Date, the Company shall provide
Purchaser with a schedule reporting Charge-Offs for the periods referred to in
clauses (i) and (ii);

(M) The Board of Directors of the Company shall have declared a distribution of
the CVRs, effective immediately prior to the Closing, pursuant to a contingent
value right agreement substantially on the terms set forth on Exhibit A and in
form and substance reasonably acceptable to the Purchaser; and

(3) The obligations of the Company and the Bank to effect the Closing are
subject to the fulfillment or written waiver by both of the Company and the Bank
prior to the Closing of the following additional conditions:

(A) all representations and warranties of Purchaser contained in this Agreement
shall be true and correct (without regard to materiality or material adverse
effect qualifiers contained therein) in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except to the extent any such representation and warranty
expressly relates to a specified earlier date, in which case such representation
and warranty need only be true and correct as of such specified earlier date,
and except where the failure of any such representation or warranty to be true
and correct would not, individually or in the aggregate, impair in any material
respect the ability of Purchaser to consummate the transactions contemplated by
this Agreement;

 

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(B) Purchaser shall have performed in all material respects all obligations
required to be performed by it at or prior to the Closing; and

(C) the Company and the Bank each shall have received a certificate signed on
behalf of Purchaser by a senior executive officer certifying to the effect that
the conditions set forth in Sections 1.2(c)(3)(A) and (B) have been satisfied.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

2.1 Disclosure. (a) On or prior to the date hereof, the Company and the Bank
delivered to Purchaser and Purchaser delivered to the Company and the Bank a
schedule (a “Disclosure Schedule”) setting forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Section 2.2 with respect to
the Company or the Bank, or in Section 2.3 with respect to Purchaser, or to one
or more covenants contained in Article III.

(b) “Material Adverse Effect” means any fact, event, change, condition,
development, circumstance or effect that, individually or in the aggregate,
(1) is or would be reasonably likely to be material and adverse to the business,
assets, liabilities, properties, results of operations or condition (financial
or otherwise) of the Company, the Bank and the Subsidiaries, taken as a whole
(provided, however, that with respect to this clause (1), a “Material Adverse
Effect” shall not be deemed to include any fact, event, change, condition,
development, circumstance or effect to the extent resulting from actions or
omissions by the Company taken with the prior written consent of Purchaser or as
expressly required by this Agreement), or (2) materially impairs or would be
reasonably likely to materially impair the ability of the Company or the Bank to
perform its obligations under this Agreement or to consummate the Closing.
Notwithstanding the foregoing, any adverse change, event or effect to the extent
arising from: (i) conditions generally affecting the United States economy or
generally affecting the banking industry except to the extent the Company and
the Bank are affected in a disproportionate manner as compared to other
community banks in the southeastern United States; (ii) national or
international political or social conditions, including terrorism or the
engagement by the United States in hostilities or acts of war except to the
extent the Company and the Bank are affected in a disproportionate manner as
compared to other community banks in the southeastern United States;
(iii) changes in any laws issued by any Governmental Entity except to the extent
the Company and the Bank are affected in a disproportionate manner as compared
to other community banks in the southeastern United States; (iv) any action
taken by Purchaser prior to or at the Closing; (v) any failure, in and of
itself, by the Company or the Bank to meet any internal or disseminated
projections, forecasts or revenue or earnings predictions for any period
(provided that any underlying causes of such failure shall not be excluded in
determining whether a Material Adverse Effect has occurred or would reasonably
be expected to occur); (vi) any compliance by the Company or the Bank with any
express written request made by Purchaser; or (vii) the

 

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public announcement, pendency or completion of the transactions contemplated by
this Agreement, including any action taken in response thereto by any person
with which the Company or the Bank does business shall not, in any such case, be
taken into account in determining whether a “Material Adverse Effect” has
occurred or would reasonably be expected to occur.

(c) “Previously Disclosed” with regard to (1) a party means information set
forth in its Disclosure Schedule, and (2) the Company or the Bank means
information publicly disclosed by the Company in (A) its Annual Report on Form
10-K for the fiscal year ended December 31, 2009, as filed by it with the
Securities and Exchange Commission (“SEC”) on March 10, 2010 (the “Company
10-K”), (B) its Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2010 and June 30, 2010, as filed by it with the SEC on May 10, 2010
and August 6, 2010, respectively, or (C) any Current Report on Form 8-K filed or
furnished by it with the SEC since January 1, 2010 and publicly available prior
to the date of this Agreement (excluding any risk factor disclosures contained
in such documents under the heading “Risk Factors” and any disclosure of risks
included in any “forward-looking statements” disclaimer or other statements that
are similarly non-specific and are predictive or forward-looking in nature).

(d) “To the knowledge of the Company,” “to the knowledge of the Bank,” or any
similar phrase means, with respect to any fact or matter, the actual knowledge
of B. Grant Yarber, Michael R. Moore and Mark Redmond, without any duty to
investigate.

2.2 Representations and Warranties of the Company and the Bank. The Company and
the Bank, jointly and severally, represent and warrant to Purchaser, as of the
date of this Agreement and as of the Closing Date (except to the extent made
only as of a specified date in which case as of such date), that, except as
Previously Disclosed:

(a) Organization and Authority. (1) The Company is, and at the Closing Date will
be, a corporation duly organized, validly existing and in good standing under
the laws of the State of North Carolina. The Company is a bank holding company
duly registered under the Bank Holding Company Act of 1956, as amended. The
Company has, and at the Closing Date will have, the power and authority
(corporate, governmental, regulatory and otherwise) and has or will have all
necessary approvals, orders, licenses, certificates, permits and other
governmental authorizations (collectively, the “Authorizations”) to own or lease
all of the assets owned or leased by it and to conduct its business in all
material respects in the manner Previously Disclosed, and has the corporate
power and authority to own its properties and assets and to carry on its
business as it is now being conducted. The Company is, and at the Closing Date
will be, duly licensed or qualified to do business and in good standing as a
foreign corporation in all jurisdictions (A) in which the nature of the
activities conducted by the Company requires such qualification and (B) in which
the Company owns or leases real property, other than such failures that would
not have any material impact on the Company. The Articles of Incorporation, as
amended, of the Company (the “Articles of Incorporation”) comply in all material
respects with applicable law. A complete and correct copy of the Articles of
Incorporation and bylaws of the Company, as amended and as currently in effect,
has been delivered or made available to Purchaser. The Company’s direct and
indirect subsidiaries (other than the Bank) (each a “Subsidiary” and
collectively the “Subsidiaries”) are listed on Schedule A to this Agreement.

 

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(2) The Bank is a wholly owned subsidiary of the Company and is a corporation
and state chartered bank duly organized, validly existing and in good standing
under the laws of the State of North Carolina. The deposit accounts of the Bank
are insured up to applicable limits by the Deposit Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation (the “FDIC”); all
premiums and assessments required to be paid in connection therewith have been
paid when due; and no proceedings for the termination or revocation of such
insurance are pending or, to the knowledge of the Company, threatened. The Bank
has the power and authority (corporate, governmental, regulatory and otherwise)
and has or will have all necessary Authorizations to own or lease all of the
assets owned or leased by it and to conduct its business in all material
respects in the manner Previously Disclosed. The Bank is duly licensed or
qualified to do business and in good standing in all jurisdictions (A) in which
the nature of the activities conducted by the Bank requires such qualification
and (B) in which the Bank owns or leases real property, other than such failures
that would not have nor reasonably be expected to have a Material Adverse
Effect. The charter (“Bank Charter”) of the Bank complies in all material
respects with applicable law. A complete and correct copy of the Bank Charter
and the bylaws of the Bank, as amended and as currently in effect, has been
delivered or made available to Purchaser.

(3) Each of the Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Each such Subsidiary has the power and authority
(corporate, governmental, regulatory and otherwise) and has or will have all
necessary Authorizations to own or lease all of the assets owned or leased by it
and to conduct its business in all material respects as Previously Disclosed.
Each such Subsidiary is duly licensed or qualified to do business and in good
standing as a foreign corporation or other legal entity in all jurisdictions
(A) in which the nature of the activities conducted by such Subsidiary requires
such qualification and (B) in which such Subsidiary owns or leases real
property, other than such failures that would not have nor reasonably be
expected to have a Material Adverse Effect. The articles or certificate of
incorporation, certificate of trust or other organizational document of each
Subsidiary comply in all material respects with applicable law. A complete and
correct copy of the articles or certificate of incorporation or certificate of
trust and bylaws of each Subsidiary (or similar governing documents), as amended
and as currently in effect, has been delivered or made available to Purchaser.

(b) Capitalization. The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock and 100,000 shares of preferred stock, no par
value, of the Company (the “Company Preferred Stock”). As of the close of
business on October 29, 2010 (the “Capitalization Date”), there were no more
than 12,880,954 shares of Common Stock outstanding (which includes restricted
shares) and 41,279 shares of

 

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Series A Preferred and no other shares of Company Preferred Stock outstanding.
Since the Capitalization Date and through the date of this Agreement, except in
connection with this Agreement and the transactions contemplated hereby, and as
set forth in Section 2.2(b) of the Company Disclosure Schedule, the Company has
not (1) issued or authorized the issuance of any shares of Common Stock or
Company Preferred Stock, or any securities convertible into or exchangeable or
exercisable for shares of Common Stock or Company Preferred Stock, (2) reserved
for issuance any shares of Common Stock or Company Preferred Stock or
(3) repurchased or redeemed, or authorized the repurchase or redemption of, any
shares of Common Stock or Company Preferred Stock. As of the close of business
on the Capitalization Date, other than in respect of shares of Common Stock
reserved for issuance in connection with the Treasury Warrants or any stock
option or other equity incentive plan in respect of which an aggregate of no
more than 2,591,328 shares of Common Stock have been reserved for issuance, no
shares of Common Stock or Company Preferred Stock were reserved for issuance.
All of the issued and outstanding shares of Common Stock and Company Preferred
Stock have been duly authorized and validly issued and are fully paid and
nonassessable, and have been issued in compliance with all federal and state
securities laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities. No
bonds, debentures, notes or other indebtedness having the right to vote on any
matters on which the shareholders of the Company may vote (“Voting Debt”) are
issued and outstanding. As of the date of this Agreement, except (A) pursuant to
any cashless exercise provisions of any Company stock options or pursuant to the
surrender of shares to the Company or the withholding of shares by the Company
to cover tax withholding obligations under the Benefit Plans, (B) the warrant to
purchase up to 749,619 shares of Common Stock sold by the Company to the
Treasury pursuant to that certain Letter Agreement and Securities Purchase
Agreement dated as of December 12, 2008 and (C) as set forth elsewhere in this
Section 2.2(b) or on the Company Disclosure Schedule, the Company does not have
and is not bound by any outstanding subscriptions, options, calls, commitments
or agreements of any character calling for the purchase or issuance of, or
securities or rights convertible into or exchangeable for, any shares of Common
Stock or Company Preferred Stock or any other equity securities of the Company
or Voting Debt or any securities representing the right to purchase or otherwise
receive any shares of capital stock of the Company (including any rights plan or
agreement). Section 2.2(b) of the Company Disclosure Schedule sets forth a table
listing the outstanding series of trust preferred and subordinated debt
securities of the Company and the Bank and certain information with respect
thereto, including the holders of such securities as of the date of this
Agreement, and all such information is accurate and complete to the knowledge of
the Company and the Bank.

(c) Subsidiaries. With respect to the Bank and each of the Subsidiaries, (1) all
the issued and outstanding shares of such entity’s capital stock have been duly
authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and (2) there are no outstanding options
to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into or exchangeable for, or
any contracts or commitments to issue or sell, shares of such entity’s capital
stock, any

 

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other equity security or any Voting Debt, or any such options, rights,
convertible securities or obligations. Except as set forth in Section 2.2(c) of
the Company Disclosure Schedule, the Company owns, directly or indirectly, all
of the issued and outstanding shares of capital stock of each of the Bank and
the Subsidiaries, free and clear of all Liens. Except as set forth in
Section 2.2(c) of the Company Disclosure Schedule, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
person that is not a Subsidiary or the Bank.

(d) Authorization. (1) Each of the Company and the Bank has the full legal
right, corporate power and authority to enter into this Agreement and the other
agreements referenced herein to which it will be a party and to carry out its
obligations hereunder and thereunder. The execution, delivery and performance of
this Agreement and the other agreements referenced herein to which each of the
Company and the Bank will be a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Boards of
Directors of each of the Company and the Bank. This Agreement has been, and the
other agreements referenced herein to which they will be a party, when executed,
will be, duly and validly executed and delivered by the Company and the Bank
and, assuming due authorization, execution and delivery by Purchaser, is and
will be a valid and binding obligation of each of the Company and the Bank
enforceable against each of the Company and the Bank in accordance with its
terms (except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors’ rights or by general
equity principles). No other corporate proceedings are necessary for the
execution and delivery by the Company or the Bank of this Agreement and the
other agreements referenced herein to which it will be a party, the performance
by them of their obligations hereunder and thereunder or the consummation by
them of the transactions contemplated hereby, subject to receipt of the approval
by the Company’s shareholders of the Shareholder Proposal. The only vote of the
shareholders of the Company required in connection with the approval of the
Shareholder Proposal is the affirmative vote of the holders of not less than a
majority of the outstanding Common Stock voting at the meeting at which such a
vote is taken. All shares of Common Stock outstanding on the record date for a
meeting at which a vote is taken with respect to the Shareholder Proposal shall
be eligible to vote on such proposal.

(2) Neither the execution and delivery by the Company or the Bank of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by the Company or the Bank with any of the provisions hereof, will
(A) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event that, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or result in
the loss of any benefit or creation of any right on the part of any third party
under, or accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation of any Liens upon any
of the material properties or assets of the Company, the Bank or any Subsidiary
under any of the terms, conditions or provisions of (i) its certificate of
incorporation or bylaws (or similar governing documents) or the certificate of
incorporation, charter, bylaws

 

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or other governing instrument of any Subsidiary or (ii) except for defaults that
would not have nor reasonably be expected to have a Material Adverse Effect, any
material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Company, the Bank or
any Subsidiary is a party or by which it may be bound, including without
limitation the trust preferred securities issued by Capital Bank Statutory Trust
I, Capital Bank Statutory Trust II, or Capital Bank Statutory Trust III or the
related indentures (collectively, the “Trust Preferred Securities”), or to which
the Company, the Bank or any Subsidiary or any of the properties or assets of
the Company, the Bank or any Subsidiary may be subject, or (B) except for
violations that would not have nor reasonably be expected to have a Material
Adverse Effect, assuming the consents referred to in Section 2.2(f) are duly
obtained, violate any law, statute, ordinance, rule, regulation, permit,
concession, grant, franchise or any judgment, ruling, order, writ, injunction or
decree applicable to the Company, the Bank or any Subsidiary or any of their
respective properties or assets.

(e) Accountants. Grant Thornton LLP, who has expressed its opinion with respect
to the consolidated financial statements contained in the Company 10-K, is as of
the date of such opinion a registered independent public accountant, within the
meaning of the Code of Professional Conduct of the American Institute of
Certified Public Accountants, as required by the Securities Act and the rules
and regulations promulgated thereunder and by the rules of the Public Accounting
Oversight Board.

(f) Consents. Schedule 2.2(f) of the Company Disclosure Schedule lists all
governmental and any other material consents, approvals, authorizations,
applications, registrations and qualifications that are required to be obtained
in connection with or for the consummation of the transactions contemplated by
this Agreement (the “Required Approvals”). Other than the securities or blue sky
laws of the various states and the Required Approvals, no material notice to,
registration, declaration or filing with, exemption or review by, or
authorization, order, consent or approval of, any Governmental Entity or SRO, or
expiration or termination of any statutory waiting period, is necessary for the
consummation by the Company or the Bank of the transactions contemplated by this
Agreement.

(g) Financial Statements. The Company has previously made available to Purchaser
copies of (1) the consolidated statements of financial condition of the Company,
the Bank and the Subsidiaries as of December 31 for the fiscal years 2008 and
2009, and the related consolidated statements of operations, of comprehensive
income, of changes in shareholders’ equity, and of cash flows for the fiscal
years 2007 through 2009, inclusive, as reported in the Company 10-K, in each
case accompanied by the audit report of Grant Thornton LLP, and (2) the
unaudited consolidated statements of financial condition of the Company, the
Bank and the Subsidiaries as of June 30, 2010 and the related unaudited
consolidated statements of operations, of comprehensive income, of changes in
shareholders’ equity and of cash flows for the six-month periods ended June 30,
2009 and June 30, 2010. The December 31, 2009 consolidated statement of
financial condition of the Company (including the related notes, where
applicable) fairly presents in all material respects the consolidated financial
position of the Company, the Bank and

 

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the Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 2.2(g) (including the related notes, where
applicable) fairly present in all material respects, and the financial
statements to be filed by the Company with the SEC after the date of this
Agreement will fairly present in all material respects (subject, in the case of
the unaudited statements, to recurring audit adjustments normal in nature and
amount), the results of the consolidated operations, comprehensive income,
changes in shareholders’ equity, cash flows and the consolidated financial
position of the Company, the Bank and the Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) in all material respects
complies, and the financial statements to be filed by the Company with the SEC
after the date of this Agreement will comply, with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been, and the financial statements to be filed by the Company
with the SEC after the date of this Agreement will be, prepared in accordance
with generally accepted accounting principles (“GAAP”) consistently applied
during the periods involved, except as indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q. There is no
transaction, arrangement or other relationship between the Company, the Bank or
any Subsidiary and an unconsolidated or other Affiliated entity that is not
reflected on the financial statements specified in this Section 2.2(g). The
books and records of the Company, the Bank and the Subsidiaries in all material
respects have been, and are being, maintained in accordance with applicable
legal and accounting requirements and reflect only actual transactions. The
dismissal of Grant Thornton LLP as independent public accountants of the Company
on March 12, 2010 was not as a result of or in connection with any disagreements
with the Company on a matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. Elliott Davis PLLC has not
resigned or been dismissed as independent public accountants of the Company as a
result of or in connection with any disagreements with the Company on a matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure.

(h) Reports. (1) Since December 31, 2008, the Company, the Bank and each
Subsidiary has timely filed all material reports, registrations, documents,
filings, statements and submissions, together with any amendments thereto, that
it was required to file with any Governmental Entity or self-regulatory
organization (“SRO”) (the foregoing, collectively, the “Company Reports”) and
has paid all material fees and assessments due and payable in connection
therewith. As of their respective dates of filing, the Company Reports complied
in all material respects with all statutes and applicable rules and regulations
of the applicable Governmental Entities or SROs. To the knowledge of the
Company, as of the date of this Agreement, there are no outstanding comments
from the SEC or any other Governmental Entity or any SRO with respect to any
Company Report. In the case of each such Company Report filed with or furnished
to the SEC, such Company Report did not, as of its date or if amended prior to
the date of this Agreement, as of the date of such amendment, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made in it, in light
of the circumstances under which they were made, not misleading and complied as
to form in all material respects with the

 

12

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applicable requirements of the Securities Act of 1933, as amended (the
“Securities Act”), and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). With respect to all other Company Reports, the Company Reports
were complete and accurate in all material respects as of their respective
dates, or the dates of their respective amendments. No executive officer of the
Company, the Bank or any Subsidiary has failed in any respect to make the
certifications required of him or her under Section 302 or 906 of the
Sarbanes-Oxley Act. Copies of all Company Reports not otherwise publicly filed
have, to the extent allowed by applicable law, been made available to Purchaser
by the Company. Except for normal examinations conducted by a Governmental
Entity or SRO in the regular course of the business of the Company, the Bank and
the Subsidiaries, no Governmental Entity or SRO has initiated any proceeding or,
to the knowledge of the Company, investigation into the business or operations
of the Company, the Bank or any Subsidiary since December 31, 2008. To the
knowledge of the Company and the Bank, there is no unresolved violation,
criticism or exception by any Governmental Entity or SRO with respect to any
report or statement relating to any examinations of the Company, the Bank or any
of the Subsidiaries.

(2) The Company (i) keeps books, records and accounts that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company, the Bank and the Subsidiaries, and (ii) maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with management’s
general or specific authorization, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets, (C) access to assets is permitted only in
accordance with management’s general or specific authorization and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company (A) has implemented and maintains disclosure controls
and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that
material information relating to the Company, including the Bank and the
Subsidiaries, is made known to the chief executive officer and the chief
financial officer of the Company by others within those entities, and (B) has
disclosed, based on its most recent evaluation prior to the date hereof, to the
Company’s outside auditors and the audit committee of the Board of Directors
(x) any significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that are reasonably likely to adversely affect
the Company’s ability to record, process, summarize and report financial
information and (y) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal
controls over financial reporting. Since December 31, 2008, (A) none of the
Company, the Bank or any Subsidiary or, to the knowledge of the Company or the
Bank, any director, officer, employee, auditor, accountant or representative of
the Company, the Bank or any Subsidiary has received or otherwise had or
obtained knowledge of any material complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of the Company, the Bank or

 

13

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any Subsidiary or their respective internal accounting controls, including any
material complaint, allegation, assertion or claim that the Company, the Bank or
any Subsidiary has engaged in questionable accounting or auditing practices, and
(B) no attorney representing the Company, the Bank or any Subsidiary, whether or
not employed by the Company, the Bank or any Subsidiary, has reported evidence
of a material violation of securities laws, breach of fiduciary duty or similar
violation by the Company or any of its officers, directors, employees or agents
to the Company’s Board of Directors or any committee thereof or to any director
or officer of the Company. The Company is otherwise in compliance in all
material respects with all applicable provisions of the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley Act”), as amended and the rules and regulations
promulgated thereunder and as of the date of this Agreement, the Company has no
knowledge of any reason that its outside auditors and its chief executive
officer and chief financial officer shall not be able to give the certifications
and attestations required pursuant to the rules and regulations adopted pursuant
to Section 404 of the Sarbanes Oxley Act, without qualification, when next due.

(i) Properties and Leases. The Company, the Bank and the Subsidiaries have good
and marketable title to all real properties and all other properties and assets,
tangible or intangible, owned by them (other than any assets or properties
classified as other real estate owned), in each case free from Liens that would
impair in any material respect the value thereof or interfere with the use made
or to be made thereof by them in any material respect. The Company, the Bank and
the Subsidiaries own or lease all properties as are necessary to their
operations as now conducted. The Company, the Bank and the Subsidiaries hold all
leased real or personal property under valid and enforceable leases with no
exceptions that would interfere with the use made or to be made thereof by them
in any material respect. None of the Company, the Bank or any Subsidiary or, to
the knowledge of the Company, any other party thereto is in default under any
lease described in the immediately preceding sentence. There are no condemnation
or eminent domain proceedings pending or, to the knowledge of the Company,
threatened in writing, with respect to any of the real properties necessary to
the operations of the Company, the Bank and the Subsidiaries as now conducted.
None of the Company, the Bank or any of the Subsidiaries has, within the last
two (2) years, made any material title claims, or has outstanding any material
title claims, under any policy of title insurance respecting any parcel of real
property.

(j) Taxes. Except as set forth in Section 2.2(j) of the Company Disclosure
Schedule, (1) each of the Company, the Bank and the Subsidiaries has duly and
timely filed (including, pursuant to applicable extensions granted without
penalty) all material Tax Returns required to be filed by it and all such Tax
Returns are correct and complete in all material respects. Each of the Company,
the Bank and the Subsidiaries have paid in full, or made adequate provision in
the financial statements of the Company (in accordance with GAAP) for, all Taxes
shown as due on such Tax Returns; (2) no material deficiencies for any Taxes
have been proposed, asserted or assessed against or with respect to any Taxes
due by, or Tax Returns of, the Company, the Bank or any of the Subsidiaries
which deficiencies have not since been resolved; and (3) there are no material
Liens for Taxes upon the assets of either the Company, the Bank or the

 

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Subsidiaries except for statutory Liens for Taxes not yet due or that are being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP have been provided. None of the Company, the
Bank or any of the Subsidiaries has been a “distributing corporation” or a
“controlled corporation” in any distribution occurring during the last two years
in which the parties to such distribution treated the distribution as one to
which Section 355 the U.S. Internal Revenue Code of 1986, as amended and the
Treasury Regulations promulgated thereunder (the “Code”) is applicable. None of
the Company, the Bank or any Subsidiary has engaged in any transaction that is
the same as or substantially similar to a “reportable transaction” for United
States federal income tax purposes within the meaning of Treasury Regulations
section 1.6011-4. None of the Company, the Bank or any of the Subsidiaries has
engaged in a transaction of which it made disclosure to any taxing authority to
avoid penalties under Section 6662(d) or any comparable provision of state,
foreign or local law. None of the Company, the Bank or any of the Subsidiaries
has participated in any “tax amnesty” or similar program offered by any taxing
authority to avoid the assessment of penalties or other additions to Tax. The
Company, the Bank and each of the Subsidiaries have complied in all respects
with all requirements to report information for Tax purposes to any individual
or taxing authority, and have collected and maintained all requisite
certifications and documentation in valid and complete form with respect to any
such reporting obligation, including, without limitation, valid Internal Revenue
Service Forms W-8 and W-9. No claim has been made by a Tax Authority in a
jurisdiction where the Company, the Bank or any of the Subsidiaries, as the case
may be, does not file Tax Returns that the Company, the Bank or any of such
Subsidiaries, as the case may be, is or may be subject to Tax by that
jurisdiction. None of the Company, the Bank or any of the Subsidiaries has
granted any waiver, extension or comparable consent regarding the application of
the statute of limitations with respect to any Taxes or Tax Return that is
outstanding, nor has any request for any such waiver or consent been made. None
of the Company, the Bank or any of the Subsidiaries has been or is in violation
(or with notice or lapse of time or both, would be in violation) of any
applicable law relating to the payment or withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or any similar provisions of state, local or foreign law). Each of the
Company, the Bank and its Subsidiaries has duly and timely withheld from
employee salaries, wages and other compensation and paid over to the appropriate
taxing authority all amounts required to be so withheld and paid over for all
periods under all applicable laws. No audits or material investigations by any
taxing authority relating to any Tax Returns of any of the Company, the Bank or
any of the Subsidiaries is in progress, nor has the Company, the Bank or any of
the Subsidiaries received notice from any taxing authority of the commencement
of any audit not yet in progress. There are no outstanding powers of attorney
enabling any person or entity not a party to this Agreement to represent the
Company, the Bank or any Subsidiary with respect to Tax matters. None of the
Company, the Bank or any of the Subsidiaries has applied for, been granted, or
agreed to any accounting method change for which it will be required to take
into account any adjustment under Code Section 481 or any similar provision.
There are no material elections regarding Taxes affecting the Company, the Bank
or any of the Subsidiaries. None of the Company, the Bank or any of the
Subsidiaries has undergone an “ownership change” within the meaning of Code
Section

 

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382(g) provided that the Company makes no representations as to whether the
execution of this Agreement or the consummation of the transactions contemplated
hereby will constitute an “ownership change” under Code Section 382(g). For
purposes of this Agreement, “Taxes” shall mean all taxes, charges, levies,
penalties or other assessments imposed by any United States federal, state,
local or foreign taxing authority, including any income, excise, property,
sales, transfer, franchise, payroll, withholding, social security, abandoned or
unclaimed property or other taxes, together with any interest, penalties or
additions to tax attributable thereto, and any payments made or owing to any
other person measured by such taxes, charges, levies, penalties or other
assessment, whether pursuant to a tax indemnity agreement, tax sharing payment
or otherwise (other than pursuant to commercial agreements or Benefit Plans).
For purposes of this Agreement, “Tax Return” shall mean any return, report,
information return or other document (including any related or supporting
information) required to be filed with any taxing authority with respect to
Taxes, including, without limitation, all information returns relating to Taxes
of third parties, any claims for refunds of Taxes and any amendments or
supplements to any of the foregoing.

(k) Absence of Certain Changes. Since December 31, 2009, and except as
Previously Disclosed, (1) the Company, the Bank and the Subsidiaries have
conducted their respective businesses in all material respects in the ordinary
and usual course of business and consistent with prior practice, (2) none of the
Company, the Bank or any Subsidiary has issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, except
borrowings in the ordinary course of business, (3) except for publicly disclosed
ordinary dividends on the Common Stock and outstanding Company Preferred Stock,
the Company has not made or declared any distribution in cash or in kind to its
shareholders or issued or repurchased any shares of its capital stock or other
equity interests, (4) no fact, event, change, condition, development,
circumstance or effect has occurred that has had or would reasonably be expected
to have a Material Adverse Effect and (5) no material default (or event that,
with notice or lapse of time, or both, would constitute a material default)
exists on the part of the Company, the Bank or any Subsidiary or, to their
knowledge, on the part of any other party, in the due performance and observance
of any term, covenant or condition of any agreement to which the Company, the
Bank or any Subsidiary is a party and that would, individually or in the
aggregate, constitute a Material Adverse Effect.

(l) No Undisclosed Liabilities. Except as set forth in Section 2.2(l) of the
Company Disclosure Schedule, none of the Company, the Bank or any of the
Subsidiaries has any liabilities or obligations of any nature and is not an
obligor under any guarantee, keepwell or other similar agreement (absolute,
accrued, contingent or otherwise) except for (1) liabilities or obligations
reflected in or reserved against in the Company’s consolidated balance sheet as
of June 30, 2010, (2) current liabilities that have arisen since June 30, 2010
in the ordinary and usual course of business and consistent with past practice
and that have either been Previously Disclosed or would not have, individually
or in the aggregate, a material impact on the Company, the Bank or any
Subsidiary and (3) contractual liabilities under (other than liabilities arising
from any breach or violation of) agreements made in the ordinary and usual
course of business and consistent with past practice and that have either been
Previously Disclosed or would not have, individually or in the aggregate, a
material impact on the Company, the Bank or any Subsidiary.

 

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(m) Commitments and Contracts. (i) The Company has Previously Disclosed or
provided (by hard copy, electronic data room or otherwise) to Purchaser or its
representatives true, correct and complete copies of, each of the following
written contracts to which the Company, the Bank or any Subsidiary is a party
(each, a “Company Significant Agreement”):

(1) any contract or agreement which is a “material contract” within the meaning
of Item 601(b)(10) of Regulation S-K to be performed in whole or in part after
the date of this Agreement;

(2) any contract or agreement with respect to the employment or service of any
current or former directors, officers, employees or consultants of the Company,
the Bank or any of the Subsidiaries;

(3) any contract or agreement with any director, officer, employee or Affiliate
of the Company, the Bank or any of the Subsidiaries;

(4) any contract or agreement materially limiting the freedom of the Company,
the Bank or any Subsidiary to engage in any line of business or to compete with
any other person or prohibiting the Company, the Bank or any Subsidiary from
soliciting customers, clients or employees, in each case whether in any
specified geographic region or business or generally;

(5) any contract or agreement with a labor union or guild (including any
collective bargaining agreement);

(6) any contract or agreement which grants any person a right of first refusal,
right of first offer or similar right with respect to any material properties,
assets or businesses of the Company, the Bank or the Subsidiaries;

(7) any trust indenture, mortgage, promissory note, loan agreement or other
contract, agreement or instrument for the borrowing of money, any currency
exchange, commodities or other hedging arrangement or any leasing transaction of
the type required to be capitalized in accordance with GAAP, in each case, where
the Company, the Bank or any Subsidiary is a lender, borrower or guarantor other
than those entered into in the ordinary course of business; and

(8) any contract or agreement entered into since January 1, 2005 (and any
contract or agreement entered into at any time to the extent that material
obligations remain as of the date hereof) relating to the acquisition or
disposition of any material business or material assets (whether by merger, sale
of stock or assets or otherwise), which acquisition or disposition is not yet
complete or where such contract contains continuing material obligations,
including continuing material indemnity obligations, of the Company, the Bank or
any of the Subsidiaries;

 

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(9) any agreement of guarantee, support or indemnification by the Company, the
Bank or any Subsidiary, assumption or endorsement by the Company, the Bank or
any Subsidiary of, or any similar commitment by the Company, the Bank or any
Subsidiary with respect to, the obligations, liabilities (whether accrued,
absolute, contingent or otherwise) or indebtedness of any other person other
than those entered into in the ordinary course of business;

(10) any alliance, cooperation, joint venture, stockholders’ partnership or
similar agreement involving a sharing of profits or losses relating to the
Company, the Bank or any Subsidiary;

(11) any agreement, option or commitment or right with, or held by, any third
party to acquire, use or have access to any assets or properties, or any
interest therein, of the Company, the Bank or any Subsidiary;

(12) any material contract or agreement that would require any consent or
approval of a counterparty as a result of the consummation of the transactions
contemplated by this Agreement; and

(13) any contract not listed above that is material to the financial condition,
results of operations or business of the Company, the Bank or any Subsidiary.

(ii) (A) Each of the Company Significant Agreements has been duly and validly
authorized, executed and delivered by the Company, the Bank or any Subsidiary
and is binding on the Company, the Bank and the Subsidiaries, as applicable, and
to the Company’s knowledge, is in full force and effect; (B) the Company, the
Bank and each of the Subsidiaries, as applicable, are in all material respects
in compliance with and have in all material respects performed all obligations
required to be performed by them to date under each Company Significant
Agreement; (C) as of the date hereof, none of the Company, the Bank or any of
the Subsidiaries has received notice of any material violation or default (or
any condition that with the passage of time or the giving of notice would cause
such a violation of or a default) by any party under any Company Significant
Agreement; and (D) no other party to any Company Significant Agreement is, to
the knowledge of the Company, in default in any material respect thereunder.

(n) Offering of Purchased Shares. Neither the Company nor any person acting on
its behalf has taken any action (including any offering of any securities of the
Company) under circumstances that would require the integration of such offering
with the offering of any of the Purchased Shares or CVRs to be issued pursuant
to this Agreement, in each case under the Securities Act, and the rules and
regulations of the SEC promulgated thereunder, which might subject the offering,
issuance or sale of any of the Purchased Shares to Purchaser or the CVRs to the
Company’s shareholders (excluding the Purchaser) pursuant to this Agreement to
the registration requirements of the Securities Act.

 

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(o) Status of Purchased Shares. The Purchased Shares to be issued pursuant to
this Agreement have been duly authorized by all necessary corporate action, in
each case subject to the approval of the Shareholder Proposal. When issued,
delivered and sold against receipt of the consideration therefor as provided in
this Agreement, the Purchased Shares will be validly issued, fully paid and
nonassessable, will not be issued in violation of or subject to preemptive
rights of any other shareholder of the Company and will not result in the
violation or triggering of any price-based antidilution adjustments under any
agreement to which the Company, the Bank or any Subsidiary is a party. The
voting rights of the holders of the Purchased Shares will be enforceable in
accordance with the terms of the Articles of Incorporation, the bylaws of the
Company and applicable law.

(p) Litigation and Other Proceedings. None of the Company, the Bank or any
Subsidiary is a party to any, and there are no pending or, to the Company’s
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
(1) against the Company, the Bank or any Subsidiary (excluding those of the type
contemplated by the following clause (2)) that, if adversely determined, would
reasonably be expected, individually or in the aggregate, to result in damages,
costs or any other liability owed by the Company, the Bank or such Subsidiary,
as applicable, in excess of $1,000,000 or (2) challenging the validity or
propriety of the transactions contemplated by this Agreement. There is no
material injunction, order, judgment, decree or regulatory restriction (other
than regulatory restrictions of general application that apply to similarly
situated companies) imposed upon the Company, the Bank, any Subsidiary or the
assets of the Company, the Bank or any Subsidiary. There is no material
unresolved violation, criticism or exception by any Governmental Entity with
respect to any report or relating to any examinations or inspections of the
Company, the Bank or any Subsidiary.

(q) Compliance with Laws. (1) The Company, the Bank and each Subsidiary have all
material permits, licenses, franchises, authorizations, orders and approvals of,
and have made all filings, applications and registrations with, Governmental
Entities and SROs that are required in order to permit them to own or lease
their properties and assets and to carry on their business as presently
conducted. Each of the Company, the Bank and each Subsidiary are and have been
in compliance in all material respects with and is not in default or violation
in any material respect of, and none of them is, to the knowledge of the
Company, under investigation with respect to or, to the knowledge of the
Company, has been threatened to be charged with or given notice of any material
violation of, any applicable material domestic (federal, state or local) or
foreign law, statute, ordinance, license, rule, regulation, policy or guideline,
order, demand, writ, injunction, decree or judgment of any Governmental Entity
or SRO. Except for statutory or regulatory restrictions of general application,
no Governmental Entity or SRO has placed any material restriction on the
business or properties of the Company, the Bank or any Subsidiary. Except as set
forth in Section 2.2(q) of the Company Disclosure Schedule, since December 31,
2008, none of the Company, the Bank or any Subsidiary has received any
notification or communication from any Governmental Entity or SRO (A) asserting
that the Company, the Bank or any Subsidiary is not in material compliance with
any statutes, regulations or ordinances, (B) threatening to revoke any permit,
license,

 

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franchise, authorization, order or approval, or (C) threatening or contemplating
revocation or limitation of, or which would have the effect of revoking or
limiting, FDIC deposit insurance.

(2) Except as would not be material to the Company, the Bank and the
Subsidiaries, taken as a whole, the Bank and each Subsidiary have properly
administered all accounts for which the Bank or any Subsidiary acts as a
fiduciary, including accounts for which the Bank or any Subsidiary serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment adviser, in accordance with the terms of the governing documents,
applicable state and federal law and regulation and common law in all material
respects. None of the Bank or any Subsidiary, or any director, officer or
employee of the Bank or any Subsidiary, has committed any breach of trust with
respect to any such fiduciary account that would be material to the Bank and the
Subsidiaries, taken as a whole, and the accountings for each such fiduciary
account are true and correct in all material respects and accurately reflect in
all material respects the assets of such fiduciary account.

(r) Labor. Employees of the Company, the Bank and the Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements
otherwise in effect with respect to such employees. No labor organization or
group of employees of the Company, the Bank or any Subsidiary has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority. There are no
organizing activities, strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances, or other material labor disputes pending or
to the Company’s knowledge threatened against or involving the Company, the Bank
or any Subsidiary. The Company, the Bank and each Subsidiary believe that their
relations with their employees are good. No executive officer of the Company,
the Bank or any Subsidiary (as defined in Rule 501(f) promulgated under the
Securities Act) has notified the Company, the Bank or any Subsidiary that such
officer intends to leave the Company, the Bank or any Subsidiary or otherwise
terminate such officer’s employment with the Company, the Bank or any
Subsidiary. No executive officer of the Company, the Bank or any Subsidiary is,
or to the Company’s knowledge is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company, the Bank or any Subsidiary to
any liability with respect to any of the foregoing matters. The Company, the
Bank and the Subsidiaries are in compliance with all notice and other
requirements under the Worker Adjustment and Retraining Notification Act of
1988, and any other similar applicable foreign, state, or local laws relating to
facility closings and layoffs.

(s) Company Benefit Plans.

(1) (A) Section 2.2(s)(1)(A) of the Company Disclosure Schedule sets forth a
complete list of each Benefit Plan. With respect to each Benefit Plan,

 

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except as set forth in Section 2.2(s)(1)(A) of the Company Disclosure Schedule,
the Company, the Bank and the Subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), the Code and all laws and
regulations applicable to such Benefit Plan; and (B) each Benefit Plan has been
administered in all material respects in accordance with its terms. “Benefit
Plan” means any employee welfare benefit plan within the meaning of Section 3(1)
of ERISA, any employee pension benefit plan within the meaning of Section 3(2)
of ERISA, and any bonus, incentive, deferred compensation, vacation, stock
purchase, stock option, severance, employment, change of control, fringe
benefit, or other compensation or employee benefit plan, program, agreement,
arrangement or policy sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (an “ERISA Affiliate”), that together with the Company would be
deemed a “single employer” within the meaning of section 4001(b) of ERISA, or to
which the Company, the Bank, any Subsidiary or any of their respective ERISA
Affiliates is party, whether written or oral, for the benefit of any director,
former director, consultant, former consultant, employee or former employee of
the Company, the Bank or any Subsidiary.

(2) With respect to each Benefit Plan, the Company has heretofore delivered or
made available to Purchaser or Previously Disclosed true and complete copies of
each of the following documents, to the extent applicable: (A) a copy of the
Benefit Plan and any amendments thereto (or if the Plan is not a written Plan, a
description thereof); (B) a copy of the two most recent annual reports and
actuarial reports, and the most recent report prepared with respect thereto in
accordance with Statement of Financial Accounting Standards No. 87; (C) a copy
of the most recent Summary Plan Description required under ERISA with respect
thereto; (D) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement and the latest financial
statements thereof; and (E) the most recent determination letter received from
the Internal Revenue Service with respect to each Plan intended to qualify under
section 401 of the Code.

(3) Except as set forth in Section 2.2(s)(3) of the Company Disclosure Schedule,
no claim has been made, or to the knowledge of the Company threatened, against
the Company, the Bank or any of the Subsidiaries related to the employment and
compensation of employees or any Benefit Plan, including, without limitation,
any claim related to the purchase of employer securities or to expenses paid
under any defined contribution pension plan other than ordinary course claims
for benefits.

(4) No Benefit Plans are subject to Title IV or described in Section 3(37) of
ERISA, and none of the Company, the Bank or its Subsidiaries has at any time
within the past six (6) years sponsored or contributed to, or has or had within
the past six (6) years any liability or obligation in respect of, any plan
subject to Title IV or described in Section 3(37) of ERISA. Except as set forth
in Section 2.2(s)(4)

 

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of the Company Disclosure Schedule, neither the Company, the Bank, nor any
Subsidiary has incurred any current or projected liability in respect of
post-retirement health, medical or life insurance benefits for Company
Employees, except as required to avoid an excise tax under Section 4980B of the
Code or comparable State benefit continuation laws.

(5) Each Benefit Plan intended to be “qualified” within the meaning of section
401(a) of the Code is so qualified and the trusts maintained thereunder are
exempt from taxation under section 501(a) of the Code, and, to the knowledge of
the Company, no condition exists that could reasonably be expected to jeopardize
any such qualification or exemption.

(6) None of the Company, the Bank or any Subsidiary, any Benefit Plan, any trust
created thereunder, or any trustee or administrator thereof has engaged in a
transaction in connection with which the Company, the Bank or any Subsidiary,
any Benefit Plan, any such trust, or any trustee or administrator thereof, or
any party dealing with any Benefit Plan or any such trust could be subject to
either a civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a
tax imposed pursuant to section 4975 or 4976 of the Code.

(7) There has been no material failure of a Benefit Plan that is a group health
plan (as defined in section 5000(b)(1) of the Code) to meet the requirements of
section 4980B(f) of the Code with respect to a qualified beneficiary (as defined
in section 4980B(g) of the Code).

(8) Each Benefit Plan that is a “non-qualified deferred compensation plan”
within the meaning of Section 409A(d)(1) of the Code (a “409A Plan”) complies in
all material respects with the requirements of Section 409A of the Code and the
guidance promulgated thereunder. From January 1, 2005 through December 31, 2008,
each 409A Plan and any award thereunder was maintained in good faith operational
compliance with the requirements of (i) Section 409A of the Code and
(ii) (x) the proposed regulations issued thereunder, (y) the final regulations
issued thereunder or (z) Internal Revenue Service Notice 2005-1. From and after
January 1, 2009, each 409A Plan and any award thereunder has been maintained in
operational compliance with the requirements of Section 409A of the Code the
final regulations issued thereunder. As of and since December 31, 2008, each
409A Plan and any award thereunder has been in documentary compliance with the
requirements of Section 409A of the Code and the final regulations issued
thereunder. No payment to be made under any 409A Plan is or will be subject to
the interest and additional tax payable pursuant to Section 409A(a)(1)(B) of the
Code. None of the Company, the Bank or any Subsidiary is party to, or otherwise
obligated under, any contract, agreement, plan or arrangement that provides for
the gross-up of taxes imposed by Section 409A(a)(1)(B) of the Code.

(9) (A) Except as set forth in Section 2.2(s)(9) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement, nor

 

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the consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, “excess parachute
payment” (within the meaning of Section 280G of the Code), forgiveness of
indebtedness or otherwise) becoming due to any current or former employee,
officer or director of the Company, the Bank or any Subsidiary from the Company,
the Bank or any Subsidiary under any Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any Benefit Plan, (iii) result in any
acceleration of the time of payment or vesting of any such benefits,
(iv) require the funding or increase in the funding of any such benefits or
(v) result in any limitation on the right of the Company, the Bank or any
Subsidiary to amend, merge, terminate or receive a reversion of assets from any
Benefit Plan or related trust and (B) none of the Company, the Bank or any
Subsidiary has taken, or permitted to be taken, any action that required, and no
circumstances exist that will require the funding, or increase in the funding,
of any benefits, or will result, in any limitation on the right of the Company,
the Bank or any Subsidiary to amend, merge, terminate any Benefit Plan or
receive a reversion of assets from any Benefit Plan or related trust.

(10) The Company, the Bank and the Subsidiaries will be in compliance, as of the
Closing Date, with Sections 111 and 302 of the Emergency Economic Stabilization
Act of 2008, as amended by the U.S. American Recovery and Reinvestment Act of
2009, including all guidance issued thereunder by a Governmental Entity
(collectively “EESA”). Except as set forth in Section 2.2(s)(10) of the Company
Disclosure Schedule, without limiting the generality of the foregoing, each
employee of the Company, the Bank, and the Subsidiaries who is subject to the
limitations imposed under EESA has executed a waiver of claims against the
Company, the Bank and the Subsidiaries with respect to limiting or reducing
rights to compensation for so long as the EESA limitations are required to be
imposed.

(t) Risk Management Instruments. All material derivative instruments, including,
swaps, caps, floors and option agreements, whether entered into for the
Company’s own account, or for the account of the Bank or one or more of the
Subsidiaries, were entered into (1) only in the ordinary and usual course of
business and consistent with past practice, (2) in accordance with commercially
reasonable banking practices and in all material respects with all applicable
laws, rules, regulations and regulatory policies and (3) with counterparties
believed to be financially responsible at the time; and each of them constitutes
the valid and legally binding obligation of the Company, the Bank or one of the
Subsidiaries, enforceable in accordance with its terms. None of the Company, the
Bank or the Subsidiaries, or, to the knowledge of the Company, any other party
thereto, is in breach of any of its material obligations under any such
agreement or arrangement.

(u) Agreements with Regulatory Agencies. Except as set forth in Section 2.2(u)
of the Company Disclosure Schedule, none of the Company, the Bank or any
Subsidiary is subject to any cease-and-desist or other similar order or
enforcement action issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is

 

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subject to any capital directive by, or has adopted any board resolutions at the
request of, any Governmental Entity or SRO (each item in this sentence, a
“Regulatory Agreement”), nor has the Company, the Bank or any Subsidiary been
advised since December 31, 2008 by any Governmental Entity or SRO that it is
considering issuing, initiating, ordering, or requesting any such Regulatory
Agreement. The Company, the Bank and each Subsidiary are in compliance in all
material respects with each Regulatory Agreement to which it is a party or
subject, and none of the Company, the Bank or any Subsidiary has received any
notice from any Governmental Entity or SRO indicating that either the Company,
the Bank or any Subsidiary is not in compliance in all material respects with
any such Regulatory Agreement.

(v) Environmental Liability. The Company, the Bank and the Subsidiaries have,
and at the Closing Date will have complied in all material respects with all
laws, regulations, ordinances and orders relating to public health, safety or
the environment (including without limitation all laws, regulations, ordinances
and orders relating to releases, discharges, emissions or disposals to air,
water, land or groundwater, to the withdrawal or use of groundwater, to the use,
handling or disposal of polychlorinated biphenyls, asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances, pollutants or contaminants, or to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances), the violation of which
would or might have a material impact on the Company, the Bank or any Subsidiary
or the consummation of the transactions contemplated by this Agreement. There is
no legal, administrative, arbitral or other proceeding, claim, action or notice
of any nature seeking to impose, or that could result in the imposition of, on
the Company, the Bank or any Subsidiary, any liability or obligation of the
Company, the Bank or any Subsidiary with respect to any environmental health or
safety matter or any private or governmental, environmental health or safety
investigation or remediation activity of any nature arising under common law or
under any local, state or federal environmental, health or safety statute,
regulation or ordinance, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”), pending or, to
the Company’s knowledge, threatened against the Company, the Bank or any
Subsidiary or any property in which the Company, the Bank or any Subsidiary has
taken a security interest the result of which has had or would reasonably be
expected to have a Material Adverse Effect; to the Company’s knowledge, there is
no reasonable basis for, or circumstances that could reasonably be expected to
give rise to, any such proceeding, claim, action, investigation or remediation;
and to the Company’s knowledge, none of the Company, the Bank or any Subsidiary
is subject to any agreement, order, judgment, decree, letter or memorandum by or
with any Governmental Entity or third party that could impose any such
environmental obligation or liability.

(w) Loan Portfolio.

(1) Except as set forth in Section 2.2(w)(1) of the Company Disclosure Schedule,
as of the date hereof, none of the Company, the Bank or any Subsidiary is a
party to (A) any written or oral loan, loan agreement, note or borrowing
arrangement (including leases, credit enhancements, commitments, guarantees and
interest-bearing assets) (collectively, “Loans”), other than any Loan the

 

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unpaid principal balance of which does not exceed $50,000, under the terms of
which the obligor was, as of March 31, 2010, over 90 days delinquent in payment
of principal or interest or in default of any other provision, or (B) Loan in
excess of $50,000 with any director, executive officer or five percent or
greater shareholder of the Company, the Bank or any Subsidiary, or to the
knowledge of the Company, any person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing. Section 2.2(w)
of the Company Disclosure Schedule sets forth (x) all of the Loans in original
principal amount in excess of $50,000 of the Company, the Bank or any of the
Subsidiaries that as of March 31, 2010 were classified by the Company or the
Bank or any regulatory examiner as “Other Loans Specially Mentioned,” “Special
Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit
Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import,
together with the principal amount of and accrued and unpaid interest on each
such Loan as of March 31, 2010 and the identity of the borrower thereunder,
(y) by category of Loan (i.e., commercial, consumer, etc.), all of the other
Loans of the Company, the Bank and the Subsidiaries that as of March 31, 2010
were classified as such, together with the aggregate principal amount of and
accrued and unpaid interest on such Loans by category as of March 31, 2010 and
(z) each asset of the Company or the Bank that as of March 31, 2010 was
classified as “Other Real Estate Owned” and the book value thereof.

(2) Each Loan of the Company, the Bank or any of the Subsidiaries (A) is
evidenced by notes, agreements or other evidences of indebtedness that are true,
genuine and what they purport to be, (B) to the extent secured, has been secured
by valid Liens which have been perfected and (C) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws
of general applicability relating to or affecting creditors’ rights and to
general equity principles.

(3) Each outstanding Loan (including Loans held for resale to investors) has
been solicited and originated and is administered and serviced (to the extent
administered and serviced by the Company, the Bank or any Subsidiary), and the
relevant Loan files are being maintained in all material respects in accordance
with the relevant loan documents, the Company’s and the Bank’s underwriting
standards (and, in the case of Loans held for resale to investors, the
underwriting standards, if any, of the applicable investors) and with all
applicable requirements of federal, state and local laws, regulations and rules.

(4) Except as set forth in Section 2.2(w)(4) of the Company Disclosure Schedule,
none of the agreements pursuant to which the Company, the Bank or any of the
Subsidiaries has sold Loans or pools of Loans or participations in Loans or
pools of Loans contains any obligation to repurchase such Loans or interests
therein.

 

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(5) Each of the Company, the Bank and the Subsidiaries, as applicable, is
approved by and is in good standing: (A) as a supervised mortgagee by the
Department of Housing and Urban Development to originate and service Title I FHA
mortgage loans; (B) as a GNMA I and II Issuer by the Government National
Mortgage Association; (C) by the Department of Veteran’s Affairs (“VA”) to
originate and service VA loans; and (D) as a seller/servicer by the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation to
originate and service conventional residential mortgage Loans (each such entity
being referred to herein as an “Agency”).

(6) Except as set forth in Section 2.2(w)(6) of the Company Disclosure Schedule,
none of the Company, the Bank or any of the Subsidiaries is now nor has it ever
been since December 31, 2008 subject to any fine, suspension, settlement or
other agreement or other administrative agreement or sanction by, or any
reduction in any loan purchase commitment from, any Agency or any federal or
state agency relating to the origination, sale or servicing of mortgage or
consumer Loans. None of the Company, the Bank or any of the Subsidiaries has
received any notice, nor does it have any reason to believe as of the date of
this Agreement, that any Agency proposes to limit or terminate the underwriting
authority of the Company, the Bank or any of the Subsidiaries or to increase the
guarantee fees payable to any such Agency.

(7) Each of the Company, the Bank and the Subsidiaries is in compliance in all
material respects with all applicable federal, state and local laws, rules and
regulations, including the Truth-In-Lending Act and Regulation Z, the Equal
Credit Opportunity Act and Regulation B, the Real Estate Settlement Procedures
Act and Regulation X, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act and all Agency and other investor and mortgage insurance company
requirements relating to the origination, sale and servicing of mortgage and
consumer Loans.

(8) To the knowledge of the Company, each Loan included in a pool of Loans
originated, acquired or serviced by the Company, the Bank or any of the
Subsidiaries (a “Pool”) meets all eligibility requirements (including all
applicable requirements for obtaining mortgage insurance certificates and loan
guaranty certificates) for inclusion in such Pool. All such Pools have been
finally certified or, if required, recertified in accordance with all applicable
laws, rules and regulations, except where the time for certification or
recertification has not yet expired. To the knowledge of the Company, no Pools
have been improperly certified, and no Loan has been bought out of a Pool
without all required approvals of the applicable investors.

(9) The information with respect to each Loan set forth in the Loan Tape, and,
to the knowledge of the Company, any third party information set forth in the
Loan Tape is true, correct and accurate as of the dates specified therein, or,
if no such date is indicated therein, as of June 30, 2010. As used herein, “Loan
Tape” means a data storage disk produced by the Company from its management
information systems regarding the Loans.

 

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(x) Insurance. The Company, the Bank and each of the Subsidiaries maintain, and
have maintained for the two years prior to the date of this Agreement, insurance
underwritten by insurers of recognized financial responsibility, of the types
and in the amounts that the Company, the Bank and the Subsidiaries reasonably
believe are adequate for their respective businesses and as constitute
reasonably adequate coverage against all risks customarily insured against by
banking institutions and their subsidiaries of comparable size and operations,
including, but not limited to, insurance covering all real and personal property
owned or leased by the Company, the Bank and any Subsidiary against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, with such deductibles as are customary for companies in the same or
similar business. True, correct and complete copies of all policies and binders
of insurance currently maintained in respect of the assets, properties,
business, operations, employees, officers or directors of the Company, the Bank
and the Subsidiaries, excluding such policies pursuant to which the Company, the
Bank, any Subsidiary or an Affiliate of any them acts as the insurer and that
are identified with respective expiration dates on Section 2.2(x) of the Company
Disclosure Schedule (collectively, the “Company Insurance Policies”), and all
correspondence relating to any material claims under the Company Insurance
Policies, have been previously made available to Purchaser. All of the Company
Insurance Policies are in full force and effect, the premiums due and payable
thereon have been or will be timely paid through the Closing Date, and there is
no breach or default (and no condition exists or event has occurred which, with
the giving of notice or lapse of time or both, would constitute such a breach or
default) by the Company, the Bank or any of the Subsidiaries under any of the
Company Insurance Policies or, to the knowledge of the Company, by any other
party to the Company Insurance Policies, except for any such breach or default
that would not reasonably be expected to have, individually or in the aggregate,
a material impact on the Company, the Bank or any Subsidiary. None of the
Company, the Bank or any of the Subsidiaries has received any written notice of
cancellation or non-renewal of any Company Insurance Policy nor, to the
knowledge of the Company, is the termination of any such policies threatened,
and there is no claim for coverage by the Company, the Bank or any of the
Subsidiaries, pending under any of such Company Policies as to which coverage
has been questioned, denied or disputed by the underwriters of such Company
Policies or in respect of which such underwriters have reserved their rights.

(y) Intellectual Property. The Company, the Bank and the Subsidiaries own, or
are licensed or otherwise possess rights to use free and clear of all Liens all
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets, applications and other unpatented or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names (collectively, “Proprietary Rights”) used in or necessary for the
conduct of the business of the Company, the Bank and the Subsidiaries as now
conducted and as proposed to be conducted as Previously Disclosed, except where
the failure to own such Proprietary Rights would not have any material impact on
the Company, the Bank or any Subsidiary. The Company, the Bank and the
Subsidiaries have the right to use all Proprietary Rights

 

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used in or necessary for the conduct of their respective businesses without
infringing the rights of any person or violating the terms of any licensing or
other agreement to which the Company, the Bank or any Subsidiary is a party and,
to the Company’s knowledge, no person is infringing upon any of the Proprietary
Rights, except where the infringement of or lack of a right to use such
Proprietary Rights would not have any material impact on the Company, the Bank
or any Subsidiary. Except as Previously Disclosed, no charges, claims or
litigation have been asserted or, to the Company’s knowledge, threatened against
the Company, the Bank or any Subsidiary contesting the right of the Company, the
Bank or any Subsidiary to use, or the validity of, any of the Proprietary Rights
or challenging or questioning the validity or effectiveness of any license or
agreement pertaining thereto or asserting the misuse thereof, and, to the
Company’s knowledge, no valid basis exists for the assertion of any such charge,
claim or litigation. All licenses and other agreements to which the Company, the
Bank or any Subsidiary is a party relating to Proprietary Rights are in full
force and effect and constitute valid, binding and enforceable obligations of
the Company, the Bank or such Subsidiary, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles, as the case may be, and there have not been and there currently are
not any defaults (or any event that, with notice or lapse of time, or both,
would constitute a default) by the Company, the Bank or any Subsidiary under any
license or other agreement affecting Proprietary Rights used in or necessary for
the conduct of the business of the Company, the Bank or any Subsidiary, except
for defaults, if any, which would not have any material impact on the Company,
the Bank or any Subsidiary. The validity, continuation and effectiveness of all
licenses and other agreements relating to the Proprietary Rights and the current
terms thereof will not be affected by the transactions contemplated by this
Agreement.

(z) Anti-takeover Provisions Not Applicable. The Company has taken all action
required to be taken by it in order to exempt this Agreement and the
transactions contemplated hereby from, and this Agreement and the transactions
contemplated hereby are exempt from, any anti-takeover or similar provisions of
the Articles of Incorporation, and its bylaws and the requirements of any
“moratorium,” “control share,” “fair price,” “affiliate transaction,” “business
combination” or other antitakeover laws and regulations of any state, including
the North Carolina Business Corporation Act.

(aa) Knowledge as to Conditions. As of the date of this Agreement, each of the
Company and the Bank knows of no reason why any regulatory approvals and, to the
extent necessary, any other approvals, authorizations, filings, registrations
and notices required for the consummation of the transactions contemplated by
this Agreement will not be obtained or that any Required Approval will not be
granted without the imposition of a Burdensome Condition, provided, however,
that neither the Company nor the Bank makes any representation or warranty with
respect to the management, capital or ownership structure of Purchaser or any of
its Affiliates.

(bb) Brokers and Finders. Except as set forth in Section 2.2(bb) of the Company
Disclosure Schedule, none of the Company, the Bank or any Subsidiary or any of
their respective officers, directors, employees or agents has employed any
broker or

 

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finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder’s fees, and no broker or finder has acted directly
or indirectly for the Company, the Bank or any Subsidiary, in connection with
this Agreement or the transactions contemplated hereby.

(cc) Related Party Transactions.

(1) Except as set forth in Section 2.2(cc) of the Company Disclosure Schedule or
as part of the normal and customary terms of an individual’s employment or
service as a director, none of the Company, the Bank or any of the Subsidiaries
is party to any extension of credit (as debtor, creditor, guarantor or
otherwise), contract for goods or services, lease or other agreement with any
(A) affiliate, (B) insider or related interest of an insider, (C) shareholder
owning 5% or more of the outstanding Common Stock or related interest of such a
shareholder, or (D) to the knowledge of the Company, and other than credit and
consumer banking transactions in the ordinary course of business, employee who
is not an executive officer. For purposes of the preceding sentence, the term
“affiliate” shall have the meaning assigned in Regulation W issued by the
Federal Reserve, as amended, and the terms “insider,” “related interest,” and
“executive officer” shall have the meanings assigned in the Federal Reserve’s
Regulation O, as amended.

(2) Except as set forth in Section 2.2(cc) of the Company Disclosure Schedule,
the Bank is in compliance with, and has since December 31, 2008, complied with,
Sections 23A and 23B of the Federal Reserve Act, its implementing regulations,
and the Federal Reserve’s Regulation O.

(dd) Foreign Corrupt Practices. None of the Company, the Bank or any Subsidiary,
or, to the knowledge of the Company, any director, officer, agent, employee or
other person acting on behalf of the Company, the Bank or any Subsidiary has, in
the course of its actions for, or on behalf of, the Company, the Bank or any
Subsidiary (A) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity;
(B) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (C) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (D) made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.

(ee) Customer Relationships.

(1) Each trust or wealth management customer of the Company, the Bank or any
Subsidiary has been in all material respects originated and serviced (A) in
conformity with the applicable policies of the Company, the Bank and the
Subsidiaries, (B) in accordance with the terms of any applicable instrument or
agreement governing the relationship with such customer, (C) in accordance with
any instructions received from such customers, (D) consistent with each

 

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customer’s risk profile and (E) in compliance with all applicable laws and the
Company’s, the Bank’s and the Subsidiaries’ constituent documents, including any
policies and procedures adopted thereunder. Each instrument or agreement
governing a relationship with a trust or wealth management customer of the
Company, the Bank or any Subsidiary has been duly and validly executed and
delivered by the Company, the Bank and each Subsidiary and, to the knowledge of
the Company, the other contracting parties, each such instrument of agreement
constitutes a valid and binding obligation of the parties thereto, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium and
other similar laws affecting creditors’ rights generally and by general
principles of equity, and the Company, the Bank and the Subsidiaries and the
other parties thereto have duly performed in all material respects their
obligations thereunder and the Company, the Bank and the Subsidiaries and such
other person is in compliance with each of the terms thereof.

(2) No instrument or agreement governing a relationship with a trust or wealth
management customer of the Company, the Bank or any Subsidiary provides for any
material reduction of fees charged (or in other compensation payable to the
Company, the Bank or any Subsidiary thereunder) at any time subsequent to the
date of this Agreement.

(3) None of the Company, the Bank or any Subsidiary or any of their respective
directors or senior officers (A) is the beneficial owner of any interest in any
of the accounts maintained on behalf of any trust or wealth management customer
of the Company, the Bank or any Subsidiary or (B) is a party to any contract
pursuant to which it is obligated to provide service to, or receive compensation
or benefits from, any of the trust or wealth management customers of the
Company, the Bank or any Subsidiary after the Closing Date.

(4) Each account opening document, margin account agreement, investment advisory
agreement and customer disclosure statement with respect to any trust or wealth
management customer of the Company, the Bank or any Subsidiary conforms in all
material respects to the forms provided to Purchaser prior to the Closing Date.

(5) Except as would not have any material impact on the Company, the Bank or any
Subsidiary, all other books and records primarily related to the trust and
wealth management businesses of the Company, the Bank and each Subsidiary
include documented risk profiles signed by each such customer.

(ff) Investment Company; Investment Adviser. Neither the Company, the Bank nor
any Subsidiary is required to be registered as, and is not an affiliate of, and
immediately following the Closing will not be required to register as, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended. Neither the Company, the Bank nor any Subsidiary is required to be
registered, licensed or qualified as an investment adviser under the Investment
Advisers Act of 1940, as amended, or in another capacity thereunder with the SEC
or any other Governmental Entity.

 

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2.3 Representations and Warranties of Purchaser. Purchaser hereby represents and
warrants to the Company and the Bank, as of the date of this Agreement and as of
the Closing Date (except to the extent made only as of a specified date, in
which case as of such date), that, except as Previously Disclosed:

(a) Organization and Authority. Purchaser is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, is
duly qualified to do business and is in good standing in all jurisdictions where
its ownership or leasing of property or the conduct of its business requires it
to be so qualified, and Purchaser has the power and authority and governmental
authorizations to own its properties and assets and to carry on its business in
all material respects as it is now being conducted.

(b) Authorization. (1) Purchaser has the power and authority to enter into this
Agreement and the other agreements referenced herein to which it will be a party
and to carry out its obligations hereunder and thereunder. The execution,
delivery and performance of this Agreement and the other agreements referenced
herein to which it will be a party by Purchaser and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by
Purchaser’s board of directors, and no further approval or authorization by any
of its shareholders or other equity owners, as the case may be, is required.
This Agreement has been, and the other agreements referenced herein to which it
will be a party, when executed, will be, duly and validly executed and delivered
by Purchaser and assuming due authorization, execution and delivery by both the
Company and the Bank, is and will be a valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms (except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws of general applicability
relating to or affecting creditors’ rights or by general equity principles).

(2) Neither the execution, delivery and performance by Purchaser of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by Purchaser with any of the provisions hereof, will (A) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event that, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of any Lien upon any of the properties or assets of
Purchaser under any of the terms, conditions or provisions of (i) its
certificate of incorporation or similar governing documents or (ii) any material
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Purchaser is a party or by which it may
be bound, or to which Purchaser or any of the properties or assets of Purchaser
may be subject, or (B) subject to compliance with the statutes and regulations
referred to in Section 2.3(b)(3), violate any law, statute, ordinance, rule or
regulation, permit, concession, grant, franchise or any judgment,

 

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ruling, order, writ, injunction or decree applicable to Purchaser or any of its
properties or assets except in the case of clauses (A)(ii) and (B) for such
violations, conflicts and breaches as would not reasonably be expected to
materially and adversely affect Purchaser’s ability to perform its obligations
under this Agreement or consummate the transactions contemplated hereby.

(3) Assuming the Company’s and the Bank’s representations contained in
Section 2.2(f) are true and correct and other than the securities or blue sky
laws of the various states or as set forth in Section 2.3(b)(3) of the Purchaser
Disclosure Schedule, no material notice to, registration, declaration or filing
with, exemption or review by, or authorization, order, consent or approval of,
any Governmental Entity, or expiration or termination of any statutory waiting
period, is necessary for the consummation by Purchaser of the transactions
contemplated by this Agreement.

(c) Restricted Securities; Limitation on Resale. Purchaser acknowledges that the
Purchased Shares have not been registered under the Securities Act or under any
state securities laws and Purchaser understands that the Purchased Shares are
“restricted securities” under applicable federal and state securities laws and
that, pursuant to these laws, the Purchaser must hold the Purchased Shares
indefinitely unless they are registered with the SEC and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company filed a
registration statement for a public offering of its Common Stock, which was
withdrawn effective September 30, 2010. Purchaser understands that this offering
is not intended to be part of the withdrawn public offering, and that Purchaser
will not be able to rely on the protection of Section 11 of the Securities Act
with respect to the offer and sale of the Purchased Shares.

(d) Purchase for Investment. Purchaser (1) is acquiring the Purchased Shares
pursuant to an exemption from registration under the Securities Act solely for
investment with no present intention to resell or distribute any of the
Purchased Shares to any person, (2) will not sell or otherwise dispose of any of
the Purchased Shares, except in compliance with the registration requirements or
exemption provisions of the Securities Act and any other applicable securities
laws, (3) has such knowledge, sophistication and experience in financial and
business matters and in investments of this type that it is capable of
evaluating the merits and risks of its investment in the Purchased Shares, of
making an informed investment decision and of bearing the economic risk of such
investment for an indefinite period of time, and (4) is an “accredited investor”
(as that term is defined by Rule 501 of the Securities Act ). Purchaser has not
been formed for the specific purpose of acquiring the Purchased Shares.
Purchaser has had an opportunity to discuss the business, management, financial
affairs of the Company and of the Bank and the terms and conditions of the
offering of the Purchased Shares with management of the Company and of the Bank
and has had an opportunity to review the facilities of the Company and the Bank.
The foregoing, however, does not limit or modify the representations and
warranties of the Company or of the Bank in Section 2.2 of this Agreement or the
right of Purchaser to rely thereon.

 

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(e) Financial Capability. Purchaser currently has, and at the Closing will have,
available funds necessary to pay the funds described in Section 1.2(b)(2) and to
consummate the Closing on the terms and conditions contemplated by this
Agreement.

(f) No General Solicitation. Neither Purchaser, nor any of its officers,
directors, employees, agents, stockholders or partners has either directly or
indirectly, including through a broker or finder (i) engaged in any general
solicitation, or (ii) published any advertisement in connection with the offer
and sale of the Purchased Shares.

(g) Brokers and Finders. Except for UBS Investment Bank, neither Purchaser nor
its Affiliates, any of their respective officers, directors, employees or agents
has employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder’s fees, and no broker or
finder has acted directly or indirectly for Purchaser, in connection with this
Agreement or the transactions contemplated hereby, in each case, whose fees the
Company, the Bank or any Subsidiary would be required to pay (other than
pursuant to the reimbursement of expenses provisions of Section 6.2).

(h) Litigation and Other Proceedings. Neither Purchaser nor any Affiliate of
Purchaser is a party to any, and there are no pending or, to Purchaser’s
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
(i) against Purchaser or any Affiliate of Purchaser (excluding those of the type
contemplated by the following clause (ii)) that, if adversely determined, would
reasonably be expected to have a material adverse effect on Purchaser or
(ii) challenging the validity or propriety of the transactions contemplated by
this Agreement. There is no material injunction, order, judgment, decree or
regulatory restriction (other than regulatory restrictions of general
application that apply to similarly situated companies) imposed upon Purchaser
or any of its Affiliates or their respective assets. There is no material
unresolved violation, criticism or exception by any Governmental Entity with
respect to any report or relating to any examinations or inspections of
Purchaser or any of its Affiliates.

(i) Compliance with Laws. Each of Purchaser and its Affiliates is and has been
in compliance in all material respects with and is not in default or violation
in any material respect of, and none of them is, to the knowledge of Purchaser,
under investigation with respect to or, to the knowledge of Purchaser, has been
threatened to be charged with or given notice of any material violation of, any
applicable material domestic (federal, state or local) or foreign law, statute,
ordinance, license, rule, regulation, policy or guideline, order, demand, writ,
injunction, decree or judgment of any Governmental Entity, except for such
noncompliance that has not had nor reasonably would be expected to have a
material adverse effect on Purchaser.

(j) Agreements with Regulatory Agencies. None of Purchaser or any of its
Affiliates is subject to any Regulatory Agreement, nor has Purchaser or any of
its Affiliates been advised since December 31, 2009 by any Governmental Entity
or SRO that it is considering issuing, initiating, ordering, or requesting any
such Regulatory

 

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Agreement. Purchaser and its Affiliates are in compliance in all material
respects with each Regulatory Agreement to which it is a party or subject, and
none of Purchaser and its Affiliates has received any notice from any
Governmental Entity or SRO indicating that either Purchaser and its Affiliates
is not in compliance in all material respects with any such Regulatory
Agreement.

(k) Knowledge as to Conditions. As of the date of this Agreement, Purchaser
knows of no reason why any regulatory approvals and, to the extent necessary,
any other approvals, authorizations, filings, registrations, and notices
required for the consummation of the transactions contemplated by this Agreement
will not be obtained.

ARTICLE III

COVENANTS

3.1 Filings; Other Actions.

(a) Subject to the conditions set forth in this Agreement and the last sentence
of this Section 3.1(a), Purchaser, on the one hand, and the Company and the
Bank, on the other hand, will cooperate and consult with the other and use
reasonable best efforts to prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to obtain all necessary permits, consents, orders, approvals and
authorizations of, or any exemption by, all third parties and Governmental
Entities, including, without limitation, the Required Approvals, and the
expiration or termination of any applicable waiting period, necessary or
advisable to consummate the transactions contemplated by this Agreement, at the
earliest practicable date, and to perform the covenants contemplated by this
Agreement. Each party shall execute and deliver both before and after the
Closing such further certificates, agreements and other documents and take such
other actions as the other party may reasonably request to consummate or
implement such transactions or to evidence such events or matters. In
furtherance (but not in limitation) of the foregoing, Purchaser shall use
reasonable best efforts to file any required applications, notices or other
filings with the Federal Reserve Board and the North Carolina Commissioner
within twenty (20) calendar days of the date hereof. Purchaser and the Company
will have the right to review in advance, and to the extent practicable, each
will consult with the other with respect to, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
such other party, and any of their respective Affiliates, which appears in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions to which it will be
party contemplated by this Agreement. In exercising the foregoing right, each of
the parties hereto agrees to act reasonably and as promptly as practicable. Each
party hereto agrees to keep the other party apprised of the status of matters
referred to in this Section 3.1(a). Purchaser shall promptly furnish the Company
and the Bank, and the Company and the Bank shall promptly furnish Purchaser, to
the extent permitted by applicable law, with copies of written communications
received by it or their subsidiaries from, or delivered by any of the foregoing
to, any Governmental Entity in respect of the transactions

 

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contemplated by this Agreement. Notwithstanding anything in this Agreement to
the contrary, Purchaser shall not be required to furnish the Company with any
(1) personal biographical or financial information of any of the directors,
officers, employees, managers or partners of Purchaser or any of its present of
former Affiliates (other than the personal biographical information of any of
the directors, officers, employees, managers, investors or partners of Purchaser
or any of its present of former Affiliates required to be disclosed by the
Company by reason of the fact that such person will be appointed or elected to
the Company’s Board of Directors) or (2) proprietary and non-public information
related to the organizational terms of, or investors in, Purchaser or any of its
present or former Affiliates. Notwithstanding anything to the contrary herein,
nothing contained in this Agreement shall require Purchaser or any of its
present or former Affiliates to take or refrain from taking or agree to take or
refrain from taking any action or suffer to exist any condition, limitation,
restriction or requirement that individually or in the aggregate with any other
actions, conditions, limitations, restrictions or requirements would or would be
reasonably likely to result in a Burdensome Condition.

(b) The Company shall call and hold a special meeting of its shareholders (the
“Shareholder Meeting”), as promptly as practicable following the date hereof to
vote on a proposal (the “Shareholder Proposal”) to (1) amend the Articles of
Incorporation to increase the number of authorized shares of Common Stock to at
least 300,000,000 shares, (2) approve the issuance and sale of the Purchased
Shares and (3) to consummate the Rights Offering. The Board of Directors of the
Company shall unanimously recommend to the Company’s shareholders that such
shareholders vote in favor of the Shareholder Proposal (subject to any legally
required abstentions and subject to Section 3.4(b)) (such recommendation, the
“Company Recommendation”) and Purchaser shall vote all shares owned by it in
favor of the Shareholder Proposal. In connection with such meeting, the Company
shall promptly prepare (and Purchaser will reasonably cooperate with the Company
to prepare) and file with the SEC a preliminary proxy statement, shall use its
reasonable best efforts to respond to any comments of the SEC or its staff and
to cause a definitive proxy statement related to such shareholders’ meeting to
be mailed to the Company’s shareholders not more than five business days after
clearance thereof by the SEC, and shall use its reasonable best efforts to
solicit proxies for such shareholder approval. The Company shall notify
Purchaser promptly of the receipt of any comments from the SEC or its staff with
respect to the proxy statement and of any request by the SEC or its staff for
amendments or supplements to such proxy statement or for additional information
and will supply Purchaser with copies of all correspondence between the Company
or any of its representatives, on the one hand, and the SEC or its staff, on the
other hand, with respect to such proxy statement. If at any time prior to such
shareholders’ meeting there shall occur any event that is required to be set
forth in an amendment or supplement to the proxy statement, the Company shall as
promptly as practicable prepare and mail to its shareholders such an amendment
or supplement. Each of Purchaser and the Company agrees promptly to correct any
information provided by it or on its behalf for use in the proxy statement if
and to the extent that such information shall have become false or misleading in
any material respect, and the Company shall, as promptly as practicable, prepare
and mail to its shareholders an amendment or supplement to correct such
information to the extent required by applicable laws and

 

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regulations. The Company shall consult with Purchaser prior to filing any proxy
statement, or any amendment or supplement thereto, and provide Purchaser with a
reasonable opportunity to comment thereon. For the avoidance of doubt, the
obligations of the Company to call and hold the Shareholder Meeting and to file,
finalize and mail the proxy statement related thereto shall not be affected by
the receipt of any Acquisition Proposal or by any Adverse Recommendation Change.

3.2 Access, Information and Confidentiality.

(a) From the date hereof until the Closing Date, the Company and the Bank will
permit Purchaser and Purchaser’s officers, directors, employees, accountants,
counsel, financial advisors, agents and other representatives to visit and
inspect, at Purchaser’s expense (subject to Section 6.2), the properties of the
Company, the Bank and the Subsidiaries, to examine the corporate books and
records and to discuss the affairs, finances and accounts of the Company, the
Bank and the Subsidiaries with the officers, directors, employees, accountants,
counsel, financial advisors, agents and other representatives of the Company
(the “Company Representatives”), all upon reasonable notice and at such
reasonable times and as often as Purchaser may reasonably request. Any
investigation pursuant to this Section 3.2 shall be conducted during normal
business hours and in such manner as not to interfere unreasonably with the
conduct of the business of the Company, the Bank or any Subsidiary, and nothing
herein shall require any Company Representative to disclose any information to
the extent (1) prohibited by applicable law or regulation, or (2) that such
disclosure would reasonably be expected to cause a violation of any agreement to
which such Company Representative is a party as of the date of this Agreement or
would cause a significant risk of a loss of privilege to the Company, the Bank
or any Subsidiary (provided that the Company and the Bank shall make appropriate
substitute disclosure arrangements under circumstances where such restrictions
apply).

(b) All information furnished by the Company, the Bank or any Subsidiary to
Purchaser or any of its representatives pursuant hereto shall be subject to, and
Purchaser shall hold all such information in confidence in accordance with, the
provisions of the confidentiality agreement between North American Financial
Holdings, Inc. and the Company (the “Confidentiality Agreement”).

3.3 Conduct of the Business. Each of the Company and the Bank agree that, prior
to the earlier of the Closing Date and the termination of this Agreement
pursuant to Section 5.1, except as Previously Disclosed in Section 3.3 of the
Company Disclosure Schedule or as otherwise expressly permitted or required by
this Agreement, without the prior written consent of Purchaser (not to be
unreasonably withheld or delayed), it will not, and will cause each of the
Subsidiaries not to:

(1) Ordinary Course. Fail to carry on its business in the ordinary and usual
course of business and in all material respects consistent with past practice or
fail to use reasonable best efforts to maintain and preserve its business
(including its organization, assets, properties, goodwill and insurance
coverage) and to preserve its current business relationships with customers,
strategic partners, suppliers, distributors and others having business dealings
with it.

 

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(2) Operations. Enter into any new line of business or materially change its
lending, investment, underwriting, risk and asset liability management, and
other banking and operating policies in effect as of June 30, 2010, except as
required by applicable law or policies imposed by any Governmental Entity.

(3) Deposits. Alter materially its interest rate or fee pricing policies with
respect to depository accounts of the Bank or waive any material fees with
respect thereto.

(4) Capital Expenditures. Make any capital expenditures on information
technology or systems or in excess of $100,000 individually or $1,000,000 in the
aggregate in any fiscal quarter, other than as required pursuant to Previously
Disclosed commitments already entered into.

(5) Material Contracts. Except as permitted by Section 4.5(a), terminate, enter
into, amend, modify (including by way of interpretation) or renew any material
contract, other than in the ordinary course of business and consistent with past
practice.

(6) Capital Stock. Issue, sell or otherwise permit to become outstanding, or
dispose of or encumber or pledge, or authorize or propose the creation of, any
additional shares of its stock or any additional options or other rights, grants
or awards with respect to the Common Stock, and any shares of Common Stock
issued pursuant to the exercise of stock options or vesting of restricted stock,
in each case only to the extent outstanding as of the date of this Agreement and
set forth in Section 2.2(b) of the Company Disclosure Schedule.

(7) Dividends, Distributions, Repurchases. Make, declare, pay or set aside for
payment any dividend on or in respect of, or declare or make any distribution on
any shares of its capital stock (other than dividends from its wholly owned
Subsidiaries to it or another of its wholly owned Subsidiaries) or directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise
acquire, any shares of its stock or any options or other rights, grants or
awards with respect to the Common Stock or other securities provided that
nothing herein shall prohibit the making, declaration, payment, or setting aside
for payment of dividends or distributions with respect to the Series A Preferred
or the Trust Preferred Securities in accordance with the terms thereof.

(8) Dispositions. Sell, transfer, mortgage, encumber or otherwise dispose of or
discontinue any of its material assets, deposits, business or properties, except
for sales, transfers, mortgages, encumbrances or other dispositions or
discontinuances (including without limitation dispositions of problem assets or
mortgage loans held for sale which are sold at or above the value reflected for
such assets or loans on the Company’s books as of the date

 

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hereof) in the ordinary and usual course of business consistent with past
practice and in a transaction that individually or taken together with all other
such transactions is not material to it and the Subsidiaries, taken as a whole.

(9) Incurrence of Indebtedness. Incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise become
responsible for the obligations of, any other person, except in the ordinary and
usual course of business and consistent with past practice.

(10) Extensions of Credit and Interest Rate Instruments. Make, renew or amend
(except in the ordinary and usual course of business and consistent with past
practice where there has been no material change in the relationship with the
borrower or in an attempt to mitigate loss with respect to the borrower) any
extension of credit in excess of $2,500,000 in accordance with the Company’s
policies or enter into, renew or amend any interest rate swaps, caps, floors or
option agreements or other interest rate risk management arrangements, whether
entered into for the account of it or for the account of a customer of it or one
of the Subsidiaries, except in the ordinary and usual course of business and
consistent with past practice.

(11) Acquisitions. Acquire (other than by way of foreclosures, acquisitions of
control in a fiduciary or similar capacity, acquisitions of loans or
participation interests, or in satisfaction of debts previously contracted in
good faith, in each case in the ordinary and usual course of business and
consistent with past practice) all or any portion of the assets, business,
deposits or properties of any other person.

(12) Banking Offices. File any application to establish, or to relocate or
terminate the operations of, any banking office.

(13) Constituent Documents. Amend its certificate of incorporation or bylaws or
similar organizational documents.

(14) Accounting Practices. Implement or adopt any change in its accounting
principles, practices or methodologies, other than as may be required by GAAP as
concurred by Elliott Davis PLLC, its independent auditors, or applicable
accounting requirements of a Governmental Entity.

(15) Tax Matters. Make, change or revoke any Tax accounting method or Tax
election, prepare any Tax Returns inconsistent in any material respect with past
practice, file any amended Tax Return, consent to any extension or waiver of any
statute of limitations with respect to Tax, enter into any closing agreement,
settle any material Tax claim or assessment, or surrender any right to claim a
refund of Taxes.

(16) Claims. Settle any action, suit, claim or proceeding against it, except for
an action, suit, claim or proceeding that is settled in the ordinary and usual
course of business and consistent with past practice in an amount or for

 

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consideration not in excess of $150,000 individually or $1,500,000 in the
aggregate and that would not impose any material restriction on the business of
the Company, the Bank or the Subsidiaries or, after the Closing, Purchaser or
any of its Affiliates.

(17) Compensation. Terminate, enter into, amend, modify (including by way of
interpretation) or renew any employment, officer, consulting, severance, change
in control or similar contract, agreement or arrangement with any director,
officer, employee or consultant, or grant any salary or wage increase or
increase any employee benefit, including incentive or bonus payments (or, with
respect to any of the preceding, communicate any intention to take such action)
or pay to any such individual any amount or benefit not due, except to make
changes that are required by applicable law or by the terms of a Benefit Plan
existing as of the date hereof and disclosed on Section 2.2(s)(1)(A) of the
Company Disclosure Schedule.

(18) Benefit Arrangements. Terminate, enter into, establish, adopt, amend,
modify (including by way of interpretation), make new grants or awards under or
renew any Benefit Plan (or any arrangement that would following the applicable
action be a Benefit Plan), amend the terms of any outstanding equity-based
award, take any action to accelerate the vesting, exercisability or payment (or
fund or secure the payment) of stock options, restricted stock or other
compensation or benefits payable thereunder or add any new participants to any
non-qualified retirement plans (or, with respect to any of the preceding,
communicate any intention to take such action), except as required by applicable
law or by the terms of a Benefit Plan existing as of the date hereof and
disclosed on Section 2.2(s)(1)(A) of the Company Disclosure Schedule.

(19) Labor Matters. Effectuate (1) a plant closing (as defined in the Worker
Adjustment and Retraining Notification Act of 1988, and any other similar
applicable foreign, state, or local laws relating to plant closings and layoffs)
affecting any site of employment or one or more facilities or operating units
within any site of employment of the Company, the Bank or any of the
Subsidiaries; (2) a mass layoff as defined in such laws affecting any site of
employment of the Company, the Bank or any of the Subsidiaries; or (3) any
similar action under such laws requiring notice to employees in the event of an
employment loss or layoff.

(20) Intellectual Property. (1) Grant, extend, amend (except as required in the
diligent prosecution of the Proprietary Rights owned (beneficially, and of
record where applicable) by or developed for the Company, the Bank and the
Subsidiaries), waive, or modify any material rights in or to, sell, assign,
lease, transfer, license, let lapse, abandon, cancel, or otherwise dispose of,
or extend or exercise any option to sell, assign, lease, transfer, license, or
otherwise dispose of, any Proprietary Rights, or (2) fail to exercise a right of
renewal or extension under any material agreement under which the Company, the
Bank or any of the Subsidiaries is licensed or otherwise permitted by a third
party to use any Proprietary Rights (other than “shrink wrap” or “click through”
licenses).

 

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(21) Communication. Make any written or oral communications to the officers or
employees of the Company, the Bank or any of the Subsidiaries pertaining to
compensation or benefit matters that are affected by the transactions
contemplated by this Agreement without providing Purchaser with a copy or
written description of the intended communication and a reasonable period of
time to review and comment on such communication; provided, however, that the
foregoing shall not prevent senior management or human resources personnel of
the Company, the Bank or any Subsidiary from orally answering questions of
individual employees pertaining to compensation or benefit matters with respect
to such individual employee that are affected by the transactions contemplated
by this Agreement on an individual basis with such employee.

(22) Related Party Transactions. Engage in (or modify in a manner adverse to the
Company, the Bank or the Subsidiaries) any transactions (except for any ordinary
course banking relationships permitted under applicable law) with any Affiliate
of the Company or any director or officer (senior vice president or above) of
the Company, the Bank or the Subsidiaries (or any Affiliate of any such person).

(23) Receivership or Liquidation. Commence a voluntary procedure for
reorganization, arrangement, adjustment, relief or composition of indebtedness
or bankruptcy, receivership or a similar proceeding, or consent to the entry of
an order for relief in an involuntary procedure for reorganization, arrangement,
adjustment, relief or composition of indebtedness or bankruptcy, receivership or
a similar proceeding or consent to the appointment of a receiver, liquidator,
custodian or trustee, in each case, with respect to the Company, the Bank or any
of the Subsidiaries, or any other liquidation or dissolution of the Company, the
Bank or any of the Subsidiaries.

(24) Credit Policy; Underwriting. Make or permit any exceptions or changes to
the Company’s or the Bank’s credit, underwriting, lending, investment, risk and
asset-liability management and other material banking or operating policies in
effect as of the date hereof except as to update these policies to conform to
recent regulatory or accounting guidance or to update these policies to address
recently identified internal audit or regulatory examination deficiencies, in
each case to reduce the Bank’s risk exposure.

(25) Adverse Actions. Notwithstanding any other provision hereof, knowingly take
any action that is reasonably likely to result in any of the conditions set
forth in Section 1.2(c) not being satisfied or materially impair its ability to
perform its obligations under this Agreement or to consummate the transactions
contemplated hereby, except as required by applicable law or this Agreement.

 

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(26) Commitments. Enter into any contract with respect to, or otherwise agree or
commit to do, any of the foregoing.

3.4 Acquisition Proposals.

(a) No Solicitation or Negotiation. The Company and the Bank agree that none of
the Company, the Bank or any of the Subsidiaries or any of the officers or
directors of the Company, the Bank or any of the Subsidiaries shall, and that
they shall instruct and use their reasonable best efforts to cause their and the
Subsidiaries’ employees, investment bankers, attorneys, accountants and other
advisors or representatives (such directors, officers, employees, investment
bankers, attorneys, accountants and other advisors or representatives,
collectively, “Representatives”) not to (it being understood and agreed that any
violation of the restrictions set forth in this Section 3.4 by a Representative,
whether or not such Representative is so authorized and whether or not such
Representative is purporting to act on behalf of the Company, the Bank or any
Subsidiary or otherwise, shall be deemed to be a breach of this Agreement by the
Company and the Bank), directly or indirectly:

(1) initiate, solicit or knowingly facilitate or encourage any inquiries or the
making of any proposal or offer that constitutes, or could reasonably be
expected to lead to, any Acquisition Proposal;

(2) make or authorize any statement, recommendation or solicitation in support
of any Acquisition Proposal;

(3) engage in, continue or otherwise participate in any discussions or
negotiations or enter into an agreement regarding, or provide any non-public
information or data to any person relating to, any Acquisition Proposal; or

(4) otherwise knowingly facilitate any effort or attempt to make an Acquisition
Proposal.

Notwithstanding the foregoing, at any time prior to obtaining the approval of
the Shareholder Proposal, in response to a bona fide written Acquisition
Proposal that the Board of Directors of the Company determines in good faith
(after consultation with outside counsel and a financial advisor of nationally
recognized reputation) constitutes or is reasonably likely to lead to a Superior
Proposal, and which Acquisition Proposal was not solicited after the date of
this Agreement and was made after the date of this Agreement and prior to the
Shareholder Meeting and did not otherwise result from a breach of this
Section 3.4(a), the Company and the Bank may, subject to compliance with
Section 3.4(f), (x) furnish information with respect to the Company and the Bank
to the person making such Acquisition Proposal (provided that all such
information has previously been provided to the Purchaser or is provided to the
Purchaser prior to or substantially concurrent with the time it is provided to
such person) pursuant to a customary confidentiality agreement not less
restrictive of such person than the Confidentiality Agreement (other than with
respect to standstill provisions), and (y) participate in discussions regarding
the terms of such Acquisition Proposal and the negotiation of such terms with,
and only with, the person making such Acquisition Proposal.

 

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(b) Change in Recommendation. Except as set forth below, neither the Board of
Directors of the Company nor any committee thereof shall (i) (A) withdraw (or
modify in any manner adverse to the Purchaser), or propose publicly to withdraw
(or modify in any manner adverse to the Purchaser), the Company Recommendation
or any other approval, recommendation or declaration of advisability by the
Board of Directors of the Company or any such committee thereof with respect to
this Agreement or (B) approve, recommend or declare advisable, or propose
publicly to approve, recommend or declare advisable, any Acquisition Proposal
(any action in this clause (i) being referred to as a “Adverse Recommendation
Change”) or (ii) approve, recommend or declare advisable, or propose publicly to
approve, recommend or declare advisable, or allow the Company, the Bank, or any
of their Affiliates to execute or enter into, any letter of intent, memorandum
of understanding, agreement in principle, merger agreement, acquisition
agreement, option agreement, joint venture agreement, alliance agreement,
partnership agreement or other agreement or arrangement (an “Acquisition
Agreement”) constituting or related to, or that is intended to or would
reasonably be expected to lead to, any Acquisition Proposal, or requiring, or
reasonably expected to cause, the Company or the Bank to abandon, terminate,
delay or fail to consummate, or that would otherwise impede, interfere with or
be inconsistent with, the transactions contemplated by this Agreement, or
requiring, or reasonably expected to cause, the Company or the Bank to fail to
comply with this Agreement (other than a confidentiality agreement referred to
in Section 3.4(a)). Notwithstanding the foregoing, at any time prior to
obtaining the approval of the Shareholder Proposal, the Board of Directors of
the Company may make an Adverse Recommendation Change in favor of a Superior
Proposal if the Board of Directors of the Company determines in good faith
(after consultation with outside counsel and a financial advisor of nationally
recognized reputation) that the failure to do so would be a breach of its
fiduciary duties under applicable Law; provided, however, that the Company shall
not be entitled to exercise its right to make an Adverse Recommendation Change
until after the second Business Day following the Purchaser’s receipt of written
notice (a “Notice of Recommendation Change”) from the Company advising the
Purchaser that the Board of Directors of the Company intends to take such action
and specifying the reasons therefor, including the terms and conditions of the
Superior Proposal that is the basis of the proposed action by the Board of
Directors of the Company (it being understood and agreed that any amendment to
any material term of such Superior Proposal shall require a new Notice of
Recommendation Change and a new two business-day period). In determining whether
to make an Adverse Recommendation Change, the Board of Directors of the Company
shall take into account any changes to the terms of this Agreement proposed by
the Purchaser in response to a Notice of Recommendation Change or otherwise.

(c) Definitions. For purposes of this Agreement, the term “Acquisition Proposal”
means (1) any proposal or offer with respect to a merger, joint venture,
partnership, consolidation, dissolution, liquidation, tender offer,
recapitalization, reorganization, rights offering, share exchange, business
combination or similar transaction involving the Company, the Bank or any of the
Subsidiaries and (2) any

 

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acquisition by any person resulting in, or proposal or offer, that, if
consummated, would result in any person becoming the beneficial owner, directly
or indirectly, in one or a series of related transactions, of ten percent
(10%) or more of the total voting power of any class of equity securities of the
Company or the Bank or those of any of the Subsidiaries, or ten percent (10%) or
more of the consolidated total assets (including, without limitation, equity
securities of any subsidiaries) of the Company, in each case other than the
transactions contemplated by this Agreement. For purposes of this Agreement, the
term “Superior Proposal” means any bona fide written proposal or offer made by a
third party or group pursuant to which such third party or group would acquire,
directly or indirectly more than 50% of the Common Stock or assets of the
Company, the Bank, or their Subsidiaries (i) on terms which the Board of
Directors of the Company determines in good faith (after consultation with
outside counsel and a financial advisor of nationally recognized reputation) to
be superior from a financial point of view to the holders of Common Stock than
the transactions contemplated by this Agreement (including any changes proposed
by the Purchaser to the terms of this Agreement) and (ii) that is reasonably
likely to be completed, taking into account all financial, regulatory, legal and
other aspects of such proposal on or before the date that the transactions
contemplated by this Agreement are reasonably likely to be completed.

(d) Federal Securities Laws. Nothing contained in this Section 3.4 shall
prohibit the Company from taking and disclosing to its shareholders a position
required by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act;
provided, however, that compliance with such rules shall not in any way limit or
modify the effect that any action taken pursuant to such rules has under any
other provision of this Agreement, including under Article V hereof.

(e) Existing Discussions. The Company and the Bank each agrees that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal and, between the date hereof and the Closing, take
such action as is necessary to enforce any “standstill” provisions or provisions
of similar effect to which the Company is a party or of which the Company is a
beneficiary. The Company and the Bank each agrees that it will take the
necessary steps to promptly inform the individuals or entities referred to in
the first sentence hereof of the obligations undertaken in this Section 3.4. The
Company and the Bank each also agrees that it will promptly request each person
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring the Company, the Bank or any of the Subsidiaries to
return or destroy all confidential information heretofore furnished to such
person by or on behalf of it or any of the Subsidiaries.

(f) Notice; Specific Performance. The Company and the Bank each agrees that it
will promptly (and, in any event, within 24 hours) notify Purchaser if any
inquiries, proposals or offers with respect to an Acquisition Proposal are
received by, any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with, the Company, the Bank
or any Subsidiary or any of their respective Representatives indicating, in
connection with such notice, the name of such person and the material terms and
conditions of any proposals or offers (including, if

 

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applicable, copies of any written requests, proposals or offers, including
proposed agreements) and thereafter shall keep Purchaser informed, on a current
basis, of the status and terms of any such proposals or offers (including any
amendments thereto) and the status of any such discussions or negotiations,
including any change in the Company’s or the Bank’s intentions as previously
notified. Notwithstanding anything contained herein to the contrary, each of the
Company and the Bank agrees that a non-exclusive right and remedy for
noncompliance with this Section 3.4 is to have such provision specifically
enforced by any court having equity jurisdiction; it being acknowledged and
agreed that any such breach will cause irreparable injury to Purchaser and that
money damages may not provide an adequate remedy to Purchaser.

3.5 Repurchase. The Company and the Bank shall use reasonable best efforts to
enter into and maintain in effect a definitive agreement with the Treasury
providing for the Repurchase on the terms set forth in Exhibit B prior to the
Closing; provided that Purchaser shall be responsible for all communications
and/or negotiations with the Treasury in respect of such definitive agreement
and neither the Company nor the Bank shall, without the prior written consent of
Purchaser, contact or communicate with the Treasury in respect of the
Repurchase. Purchaser shall provide the Company and the Bank with the reasonable
opportunity to participate in substantive telephone conversations and meetings
that Purchaser or its representatives may have from time to time with any
Treasury with respect to the Repurchase. Subject to the foregoing, Purchaser
will permit the Company to review in advance, and to the extent practicable,
will consult with the Company with respect to, in each case subject to
applicable laws relating to the exchange of information, all the information and
documentation relating to the Repurchase.

3.6 D&O Indemnification.

(a) On or before the Closing, the Company shall offer to enter into a customary
Directors & Officers Indemnification Agreement with each director serving on its
Board of Directors, including each of the Purchaser Designees and any other
directors or officers of the Company, the Bank or any of the Subsidiaries
designated by or affiliated with Purchaser in form and substance reasonably
satisfactory to such individuals.

(b) From and after the Closing, to the extent permitted by applicable law and in
accordance with the Articles of Incorporation and the Company’s bylaws, the
Company shall indemnify, defend and hold harmless, and provide advancement of
defense costs and other expenses to, each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Closing, an officer or
director of the Company or any of its subsidiaries against all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts that are paid in
settlement of or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director or officer of the Company, the
Bank or any of its Subsidiaries, and pertaining to any matter existing or
occurring, or any acts or omissions occurring, at or prior to the Closing,
whether asserted or claimed prior to, at or after the Closing (including
matters, acts or omissions occurring in connection with the approval of this
Agreement and the consummation of the transactions contemplated hereby).
Notwithstanding anything in this Agreement to the

 

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contrary, prior to the Closing, the Company may purchase tail insurance coverage
under its current policies of directors’ and officers’ liability insurance for a
term not to exceed six years from the Closing with respect to claims arising
from facts or events which occurred prior to the Closing; provided, however,
that the total premium payment for such insurance shall not exceed three times
the amount of the last premium paid by the Company in respect of such insurance
prior to the date hereof; provided further that if the Company is unable to
maintain such policy (or any substitute policy) as a result of the preceding
proviso, the Company shall obtain as much comparable insurance as is available
for such annual premium amount.

3.7 Notice of Developments. Each party to this Agreement will give prompt
written notice to each of the other parties of any adverse development causing a
breach of any of its own representations and warranties contained in Article II
of this Agreement. No disclosure by any party pursuant to this Section 3.7 shall
be deemed to amend or supplement the Disclosure Schedules or to prevent or cure
any misrepresentation or breach of warranty.

ARTICLE IV

ADDITIONAL AGREEMENTS

4.1 Governance Matters.

(a) Prior to the Closing, the Company and the Bank shall use reasonable best
efforts to cause the Resigning Directors to resign from their respective Boards
of Directors and, if such Resigning Directors do not resign, the Company and the
Bank shall take all requisite corporate action to remove such Resigning
Directors or increase the size of their respective Boards of Directors to
accommodate the appointment of each of the Purchaser Designees to their
respective Boards of Directors effective as of the Closing, to elect or appoint
each of the Purchaser Designees to their respective Boards of Directors
effective as of the Closing, and to permit the Purchaser Designees to constitute
a majority of each of their respective Boards of Directors immediately after the
Closing.

(b) Following the Closing, the Purchaser, the Company and the Bank shall take
all requisite action to re-elect Mr. Oscar A. Keller III and one other member of
the Company’s board as of the date hereof (the “Nominee”) to the Company’s and
the Bank’s Boards of Directors until the consolidation of the Company and the
Bank with the other bank holding companies and banks controlled by the
Purchaser, at which time the Purchaser shall take all requisite action to elect
Mr. Keller and the Nominee to such consolidated bank and bank holding company
Boards of Directors. In addition, immediately following the Closing, the
Purchaser shall take all requisite corporate action to elect or appoint
Mr. Keller and the Nominee to the Board of Directors of the Purchaser.

(c) Following the Closing, the Purchaser, the Company and the Bank shall take
all requisite action to (i) establish a Loan Portfolio Committee (the “Loan
Portfolio Committee”) as a committee of the Board of Directors of the Bank,
which Loan Portfolio Committee shall monitor and review the status of the Bank’s
loan portfolio and any the level of credit losses, payments, collections and
savings realized in such portfolio and (ii) elect or appoint Mr. Oscar A. Keller
III as the chairman of the Loan Portfolio Committee.

 

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(d) Following the Closing, the Purchaser shall take all requisite action to
establish an advisory board of directors for North Carolina and South Carolina
and invite all member of the Company’s board as of the date hereof to serve on
such board.

4.2 Legend. (a) Purchaser agrees that all certificates or other instruments
representing the Purchased Shares will bear a legend substantially to the
following effect:

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.

(b) Upon request of Purchaser, upon receipt by the Company of an opinion of
counsel reasonably satisfactory to the Company to the effect that such legend is
no longer required under the Securities Act and applicable state laws, the
Company shall promptly cause the legend set forth above to be removed from any
certificate for any securities purchased pursuant to this Agreement (or issued
upon exercise thereof).

4.3 Exchange Listing. The Company shall promptly use its reasonable best efforts
to cause the Purchased Shares to be approved for listing on the NASDAQ or such
other nationally recognized securities exchange on which the Common Stock may be
listed, if any, subject to official notice of issuance, as promptly as
practicable, and in any event before the Closing if permitted by the rules of
the NASDAQ.

4.4 Registration Rights. Prior to the Closing, the Company shall enter into the
Registration Rights Agreement with Purchaser in substantially the form attached
as Exhibit C (the “Registration Rights Agreement”).

4.5 Officers, Employees and Benefit Plans.

(a) Prior to Closing, the Bank shall be permitted to enter into amendments to
employment agreements, in form and substance reasonably satisfactory to
Purchaser, with B. Grant Yarber, Michael Moore, and Mark Redmond to provide for
the continued employment of such individuals under the applicable employment
agreement until November 3, 2011). Except with respect to the individuals listed
in the preceding sentence who have executed amendments prior to the date their
contract would automatically renew (the “Renewal Date”), the Company, if
requested by Purchaser, will prior to the Renewal Date give timely notice of
non-renewal to any employee with an employment agreement that would
automatically renew but for such notice; it being understood that Purchaser
shall be provided the opportunity to meet with any such individual prior to the
Renewal Date to evaluate whether notice of non-renewal should

 

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be delivered. It is the intention of Purchaser to maintain in place the
management team of the Bank, subject to the establishment of, and acceptance of,
performance criteria in accordance with the Purchaser’s anticipated business
plan. Notwithstanding the foregoing, nothing in this Agreement, including this
Section 4.5, shall be construed to guarantee or extend any offer of employment
to, or to prevent the termination of employment of any employee or the amendment
or termination of any particular Benefit Plan to the extent permitted by its
terms.

(b) The Purchaser, the Company and the Bank agree, subject to any legal or
regulatory restrictions or limitations, immediately following the Closing to pay
the change in control payments described in Section 4.5(b) of the Company
Disclosure Schedule. In addition, the Purchaser and Company acknowledge and
agree that, at Closing, all options to purchase Company common stock and all
Company restricted stock awards shall fully vest pursuant to their terms
pursuant to their terms to the extent permitted by Sections 111 and 302 of EESA
or other applicable law.

4.6 Reservation for Issuance. The Company will reserve that number of shares of
Common Stock sufficient for issuance of the Purchased Shares; provided that
solely to the extent the Company is unable to reserve such number of shares
under the Articles of Incorporation the Company will reserve such sufficient
number of shares of Common Stock following the approval of the Shareholder
Proposal pursuant to Section 3.1(b).

4.7 Rights Offering. Following the Closing, and subject to compliance with all
applicable law, including the Securities Act, the Company shall distribute to
each holder of record of Common Stock (each holder to whom a distribution is
made, a “Legacy Shareholder”), as of the close of business on the Record Date,
non-transferable rights (the “Rights”) to purchase Common Stock at a purchase
price per share equal to the Per Share Purchase Price. The “Record Date” shall
be the date established by agreement of the Company and Purchaser provided in no
event shall the record date be earlier than the date of the Shareholder Meeting
or later than the day prior to the Closing Date. Each Legacy Shareholder shall
receive Rights to purchase a number of shares of Common Stock proportional to
the number of shares of Common Stock held by such Legacy Shareholder on the
Record Date, provided that (a) the maximum number of shares of Common Stock with
respect to which such Rights, in the aggregate, may be exercised is 5,000,000
shares and (b) no Legacy Shareholder shall be permitted to exercise any Rights
to the extent that, immediately following such exercise, such Legacy Shareholder
(alone or acting in concert with any other holder of Common Stock) would own,
control or have the power to vote in excess of 4.9% of the outstanding shares of
the Common Stock. The transactions described in the foregoing sentences,
including the purchase and sale of shares of Common Stock upon the exercise of
the Rights, shall be referred to herein as the “Rights Offering.” The Rights
Offering will not contain any oversubscription round or a backstop by any
shareholder (including Purchaser). The completion of the Rights Offering will be
conditioned upon the Closing.

4.8 Trust Preferred Exchange Offer. Following the date hereof, and subject to
compliance with all applicable law, the Company and the Bank may proceed with
discussions with the applicable trustees regarding a potential exchange offer
for the Trust Preferred Securities, provided, however, that no offer may be
initiated or consummated without the prior written consent of Purchaser.

 

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4.9 Purchaser Tender Offer. Following the date hereof, and subject to compliance
with all applicable law, the Purchaser may, in its sole discretion and at any
time, conduct a tender offer to purchase up to 5,250,000 additional shares of
Common Stock for $2.55 per share from the holders of Common Stock other than the
Purchaser, and the Company and the Bank shall cooperate in such tender offer in
all respects, including by providing information for any required filings with
respect thereto. The foregoing sentence shall not limit any ability of the
Purchaser to otherwise purchase or conduct an offer shares of Common Stock in
accordance with applicable law.

4.10 Use of Capital Bank Brand. Following the date hereof, the Purchaser intends
to use the logos, brands, trademarks and service marks of the Company and the
Bank to market the businesses of other banks and bank holding companies in which
it has a majority equity interest. Subject to compliance with all applicable
law, the Company and the Bank shall cooperate with the Purchaser in permitting
such uses of their logos, brands, trademarks and service marks, including by
entering into license, sublicense, use right or non-suit agreements and making
any filings or applications that may be required by applicable law with respect
thereto.

ARTICLE V

TERMINATION

5.1 Termination. This Agreement may be terminated prior to the Closing:

(a) by mutual written agreement of the Company, the Bank and Purchaser;

(b) by Purchaser, upon written notice to the Company and the Bank, or by the
Company, upon written notice to Purchaser, in the event that the Closing Date
does not occur on or before the date that is 150 calendar days from the date
hereof; provided, however, that the respective rights to terminate this
Agreement pursuant to this Section 5.1(b) shall not be available to any party
whose failure (or, in the case of the Company, the failure of the Bank) to
fulfill any obligation under this Agreement shall have been the cause of, or
shall have resulted in, the failure of the Closing Date to occur on or prior to
such date;

(c) by the Company or Purchaser, upon written notice to the other, in the event
that any Governmental Entity shall have issued any order, decree or injunction
or taken any other action restraining, enjoining or prohibiting any of the
transactions contemplated by this Agreement, and such order, decree, injunction
or other action shall have become final and nonappealable;

(d)

(1) by Purchaser or the Company, if the definitive agreement to be entered into
between Purchaser and the Treasury as set forth in Section 1.2(c)(2)(E) has not
been received on or before the date that is 90 calendar days

 

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from the date hereof, provided that, (A) prior to Purchaser terminating this
Agreement, Purchaser shall have complied with its obligations under Section 3.5
in all material respects, and (B) prior to the Company terminating this
Agreement, the Company shall have complied with its obligations under
Section 3.5 in all material respects;

(2) by Purchaser or the Company, if the Required Approvals to be granted by the
North Carolina Commissioner and the Federal Reserve have not been granted on or
before the date that is 120 calendar days from the date hereof provided that,
(A) prior to Purchaser terminating this Agreement, Purchaser shall have complied
with its obligations under Section 3.1(a) in all material respects, and
(B) prior to the Company terminating this Agreement, the Company shall have
complied with its obligations under Section 3.1(a) in all material respects; or

(3) by Purchaser or the Company, if Purchaser or any of its Affiliates, or the
Company, receives written notice from or is otherwise advised by a Governmental
Entity that it will not grant (or intends to rescind or revoke if previously
approved) any Required Approval or receives written notice from such
Governmental Entity that it will not grant such Required Approval on the terms
contemplated by this Agreement without imposing any Burdensome Condition,
provided that, (A) prior to Purchaser terminating this Agreement, Purchaser
shall have complied with its obligations under Section 3.1(a) in all material
respects, and (B) prior to the Company terminating this Agreement, the Company
shall have complied with its obligations under Section 3.1(a) in all material
respects;

(e) by the Company, if neither the Company nor the Bank is in material breach of
any of the terms of this Agreement, and there has been a breach of any
representation, warranty, covenant or agreement made by Purchaser in this
Agreement, or any such representation and warranty shall have become untrue
after the date of this Agreement, such that the condition set forth in
Section 1.2(c)(3)(A) or (B) would not be satisfied and such breach is not
curable or, if curable, is not cured within thirty (30) days after written
notice thereof is given by the Company to Purchaser;

(f) by Purchaser, if Purchaser is not in material breach of any of the terms of
this Agreement, and there has been a breach of any representation, warranty,
covenant or agreement made by the Company or the Bank in this Agreement, or any
such representation and warranty shall have become untrue after the date of this
Agreement, such that the condition set forth in Section 1.2(c)(2)(A) or
(B) would not be satisfied and such breach is not curable or, if curable, is not
cured within thirty (30) days after written notice thereof is given by Purchaser
to the Company and the Bank;

(g) by Purchaser on or prior to the day before the date of the Shareholder
Meeting (as may be adjourned or postponed), if the Company or the Bank shall
have breached the covenants contained in Section 3.4 hereof or if the Company’s
Board of Directors shall have made any Adverse Recommendation Change; and

 

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(h) by Purchaser or the Company, if the approval of the Shareholder Proposal is
not obtained at the Shareholder Meeting.

5.2 Effects of Termination. In the event of any termination of this Agreement as
provided in Section 5.1, subject to Section 5.3, this Agreement (other than
Section 3.2(b) and Articles V and VI, which shall remain in full force and
effect) shall forthwith become wholly void and of no further force and effect;
provided that nothing herein shall relieve any party from liability for fraud or
intentional breach of this Agreement.

5.3 Fees.

(a) If, after the date hereof, an Acquisition Proposal is made to the Company,
the Bank, any Subsidiary, or the Company’s shareholders generally, or becomes
public and thereafter this Agreement is terminated pursuant to Section 5.1(g),
Section 5.1 (h) or Section 5.1(f) on the basis of a breach of a covenant or
agreement made by the Company or the Bank in this Agreement, the Company and the
Bank shall be jointly and severally obligated to pay to Purchaser (1) an amount
equal to the Expense Reimbursement promptly, but in any event not later than two
(2) business days, following such termination and (2) if within twelve months
after such termination the Company and/or the Bank enters into a definitive
agreement to effect, or consummates, an Acquisition Proposal, an amount equal to
the Termination Fee promptly, but in any event not later than two (2) business
days, following the consummation of such Acquisition Proposal.

(b)

(1) If this Agreement is terminated pursuant to Section 5.1(e) due to a breach
of a covenant, Purchaser shall be obligated to pay to the Company an amount
equal to One Million dollars ($1,000,000) in respect of the Company’s and the
Bank’s out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby promptly, but in any event not later than two
(2) business days, following such termination.

(2) If this Agreement is terminated pursuant to Section 5.1(f) due to a breach
of a covenant, the Company and the Bank shall be jointly and severally obligated
to pay to Purchaser an amount equal to the Expense Reimbursement promptly, but
in any event not later than two (2) business days, following such termination.

(c) “Termination Fee” means an amount in cash equal to five million dollars
($5,000,000), which Termination Fee shall be paid by wire transfer of
immediately available funds to the account or accounts designated by Purchaser
at the time specified in this Section 5.3. “Expense Reimbursement” means an
amount in cash equal to five hundred thousand dollars ($500,000) in respect of
Purchaser’s out-of-pocket expenses incurred in connection with due diligence,
the negotiation and preparation of this Agreement. To the extent not paid when
due, any amount payable pursuant to this Section 5.3 shall accrue interest at a
rate equal to eighteen percent (18%) per annum or, if lower, the maximum rate
allowable by law.

 

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(d) Each of the Company, the Bank and Purchaser acknowledges that the agreements
contained in this Section 5.3 are an integral part of the transactions
contemplated by this Agreement. The amounts payable pursuant to Section 5.3
hereof constitute liquidated damages and not a penalty and shall be the sole
monetary remedy in the event a Termination Fee, Expense Reimbursement or expense
reimbursement by Purchaser is paid in connection with a termination of this
Agreement on the bases specified in Section 5.3 hereof. In the event that the
Company or the Bank shall fail to make any payment pursuant to this Section 5.3
when due, the Company and the Bank shall be jointly and severally obligated to
reimburse Purchaser for all reasonable expenses actually incurred or accrued by
Purchaser (including reasonable expenses of counsel) in connection with the
collection under and enforcement of this Section 5.3. In the event Purchaser
fails to make any payment pursuant to this Section 5.3 when due, Purchaser shall
be obligated to reimburse the Company and the Bank for all reasonable expenses
actually incurred or accrued by the Company and the Bank (including reasonable
expenses of counsel) in connection with the collection under and enforcement of
this Section 5.3.

ARTICLE VI

MISCELLANEOUS

6.1 Survival. None of the representations and warranties set forth in this
Agreement shall survive the Closing. Except as otherwise provided herein, all
covenants and agreements contained herein, other than those which by their terms
are to be performed in whole or in part after the Closing Date, shall terminate
as of the Closing Date.

6.2 Expenses. Subject to Section 5.3, each of the parties will bear and pay all
other costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated pursuant to this Agreement; except that if the Closing
occurs, the Company and the Bank shall jointly and severally be obligated to
reimburse Purchaser, without duplication, for all of its reasonable
out-of-pocket expenses incurred in connection with due diligence, the
negotiation and preparation of this Agreement and undertaking of the
transactions contemplated pursuant to this Agreement (including all stamp and
other Taxes payable with respect to the issuance of the Purchased Stock and
CVRs, filing fees, fees and expenses of attorneys, consultants and accounting
and financial advisers incurred by or on behalf of Purchaser or its Affiliates
in connection with the transactions contemplated pursuant to this Agreement)
(the “Closing Expense Reimbursement”).

6.3 Amendment; Waiver. No amendment or waiver of any provision of this Agreement
will be effective with respect to any party unless made in writing and signed by
an officer or a duly authorized representative of such party. No failure or
delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The conditions to each party’s obligation to
consummate the Closing are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by applicable law. No
waiver of any party to this Agreement, as the case may be, will be effective
unless it is in a writing signed by a duly authorized officer of the

 

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waiving party that makes express reference to the provision or provisions
subject to such waiver. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.

6.4 Counterparts and Facsimile. For the convenience of the parties hereto, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
will together constitute the same agreement. Executed signature pages to this
Agreement may be delivered by facsimile or pdf and such facsimiles or pdfs will
be deemed as sufficient as if actual signature pages had been delivered.

6.5 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of North Carolina applicable to contracts
made and to be performed entirely within such State. The parties hereby
irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the federal courts of the United States of America located in the State of
North Carolina, or, if jurisdiction in such federal courts is not available, the
courts of the State of North Carolina, for any actions, suits or proceedings
arising out of or relating to this Agreement and the transactions contemplated
hereby.

6.6 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to another will be in writing and will be deemed to have
been duly given (a) on the date of delivery if delivered personally or by
telecopy or facsimile, upon confirmation of receipt, (b) on the first business
day following the date of dispatch if delivered by a recognized next-day courier
service, or (c) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.

 

  (a) If to Purchaser:

 

North American Financial Holdings, Inc. 4725 Piedmont Row Drive Charlotte, North
Carolina 28210 Attn:    Christopher G. Marshall Telephone:    (704) 554-5901
Fax:    (704) 964-2442 with a copy to (which copy alone shall not constitute
notice): Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York
10019 Attn:    David E. Shapiro Telephone:    (212) 403-1000 Fax:    (212)
403-2000

 

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  (b) If to the Company or the Bank:

Capital Bank Corporation

333 Fayetteville Street, Suite 700

Raleigh, North Carolina 27601

Attention: B. Grant Yarber, President

Telephone: (919) 645-3494 Fax: (919) 645-6353

with a copy to (which copy alone shall not constitute notice):

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.

150 Fayetteville Street, Suite 2500

Raleigh, North Carolina 27601

Attention: Margaret N. Rosenfeld, Esq.

Telephone: (919) 821-6714

Fax: (919) 821-6800.

6.7 Entire Agreement, Assignment. (a) This Agreement (including the Exhibits,
Schedules and Disclosure Schedules hereto) constitutes the entire agreement, and
except for the Confidentiality Agreement, supersedes all other prior agreements,
understandings, representations and warranties, both written and oral, among the
parties, with respect to the subject matter hereof; and (b) this Agreement will
not be assignable by operation of law or otherwise (any attempted assignment in
contravention hereof being null and void); provided that Purchaser may assign
its rights and obligations under this Agreement to any person, but only if
immediately after the Closing, North American Financial Holdings, Inc. and/or
its Affiliates shall collectively own at least a majority of the pro forma
outstanding Common Stock of the Company; provided further, that no such
assignment shall relieve Purchaser of its obligations hereunder.

6.8 Interpretation; Other Definitions. Wherever required by the context of this
Agreement, the singular shall include the plural and vice versa, and the
masculine gender shall include the feminine and neuter genders and vice versa,
and references to any agreement, document or instrument shall be deemed to refer
to such agreement, document or instrument as amended, supplemented or modified
from time to time. All article, section, paragraph or clause references not
attributed to a particular document shall be references to such parts of this
Agreement, and all exhibit, annex and schedule references not attributed to a
particular document shall be references to such exhibits, annexes and schedules
to this Agreement. In addition, the following terms are ascribed the following
meanings:

(a) the term “Affiliate” means, with respect to any person, any person directly
or indirectly controlling, controlled by or under common control with, such
other person. For purposes of this definition, “control” (including, with
correlative meanings, the terms “controlled by” and “under common control with”)
when used with respect to any person, means the possession, directly or
indirectly, of the power to cause the direction of management or policies of
such person, whether through the ownership of voting securities by contract or
otherwise;

(b) the word “or” is not exclusive;

 

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(c) the words “including,” “includes,” “included” and “include” are deemed to be
followed by the words “without limitation”; and

(d) the terms “herein,” “hereof” and “hereunder” and other words of similar
import refer to this Agreement as a whole and not to any particular section,
paragraph or subdivision;

(e) “business day” means any day except Saturday, Sunday and any day that shall
be a legal holiday or a day on which banking institutions in the State of New
York or in the State of North Carolina generally are authorized or required by
law or other governmental action to close;

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

(g) a person shall be deemed to “beneficially own” any securities of which such
person is considered to be a “beneficial owner” under Rule 13d-3 under the
Exchange Act.

6.9 Captions. The article, section, paragraph and clause captions herein are for
convenience of reference only, do not constitute part of this Agreement and will
not be deemed to limit or otherwise affect any of the provisions hereof.

6.10 Severability. If any provision of this Agreement or the application thereof
to any person (including the officers and directors of the parties hereto) or
circumstance is determined by a court of competent jurisdiction to be invalid,
void or unenforceable, the remaining provisions hereof, or the application of
such provision to persons or circumstances other than those as to which it has
been held invalid or unenforceable, will remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination,
the parties shall negotiate in good faith in an effort to agree upon a suitable
and equitable substitute provision to effect the original intent of the parties.

6.11 No Third Party Beneficiaries. Nothing contained in this Agreement, express
or implied, including Section 4.5 hereof, is intended to confer upon any person
other than the parties hereto, any benefit, right or remedies, except that the
provisions of Sections 3.6, 4.1(b) and 4.1(c) shall inure to the benefit of the
persons referred to in such Sections.

6.12 Time of Essence. Time is of the essence in the performance of each and
every term of this Agreement.

6.13 Certain Adjustments. Without limiting the generality of Purchaser’s rights
and remedies under this Agreement, if the representations and warranties set
forth in Section 2.2(b) shall not be true and correct as of the Closing Date
(other than as a result of an exchange of the Trust Preferred Securities to
which Purchaser has previously consented in writing), the number of shares of
Common Stock to be purchased hereunder shall be, at Purchaser’s option,
proportionately adjusted to provide Purchaser the same economic effect as
contemplated by this Agreement in the absence of such failure to be true and
correct.

 

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6.14 Public Announcements. Subject to each party’s disclosure obligations
imposed by law or regulation or the rules of any stock exchange upon which its
securities are listed, the parties hereto will cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement and any of the transactions
contemplated by this Agreement, and none of the Company, the Bank or Purchaser
will make any such news release or public disclosure without first consulting
with the other two parties, and, in each case, also receiving the other’s
consent (which shall not be unreasonably withheld or delayed) and each party
shall coordinate with the party whose consent is required with respect to any
such news release or public disclosure.

6.15 Specific Performance; Limitation on Damages.

(a) The Company and the Bank agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed by them in
accordance with their specific terms. It is accordingly agreed that Purchaser
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedies to which Purchaser is entitled at law or equity.
Notwithstanding anything to the contrary herein, in no event shall Purchaser be
responsible to the Company or the Bank for any consequential, special or
punitive damages.

(b) Notwithstanding anything to the contrary in this Agreement, the parties
acknowledge that neither the Company nor the Bank shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement by Purchaser or
any remedy to enforce specifically the terms and provisions of this Agreement.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of the parties hereto as of the date first herein above
written.

 

CAPITAL BANK CORPORATION By:  

/s/ B. Grant Yarber

  Name: B. Grant Yarber   Title: President and Chief Executive Officer CAPITAL
BANK By:  

/s/ B. Grant Yarber

  Name: B. Grant Yarber   Title: President and Chief Executive Officer

[Signature Page to Investment Agreement]

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of the parties hereto as of the date first herein above
written.

 

NORTH AMERICAN FINANCIAL HOLDINGS, INC.   By:  

/s/ R. Eugene Taylor

    Name: R. Eugene Taylor     Title: Chairman and Chief Executive Officer

[Signature Page to Investment Agreement]

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Schedule A

 

Name of Subsidiary

  

State or Other Jurisdiction of

Incorporation/Organization

Capital Bank Investment Services, Inc.    North Carolina Capital Bank Statutory
Trust I    Delaware Capital Bank Statutory Trust II    Delaware Capital Bank
Statutory Trust III    Delaware CB Trustee, LLC    North Carolina

 

Schedule 1

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Exhibit A

Form of Contingent Value Rights

Exhibit A

Term Sheet for Contingent Value Rights

 

Recipients    Immediately prior to the Closing, existing shareholders of the
Company as of a predetermined record date mutually agreeable to the Purchaser
and the Company will be issued one right (a “CVR”) for each share of Common
Stock owned by such shareholder. Each CVR would entitle the holder to a cash
payment based on the amount of Credit Losses (as defined below) prior to the
Maturity Date up to a maximum of $0.75 per CVR in the aggregate. Maturity Date
   5 years from the Closing Date Settlement Obligation at Maturity   

If the amount of Credit Losses is less than the Stipulated Amount, the Issuer
will pay to holders of the CVRs, within 60 days of the Maturity Date, an amount
equal to:

 

(A) If the difference between the Stipulated Amount and the amount of Credit
Losses expressed on a per CVR basis (such difference, the “Loss Shortfall”) is
less than or equal to $0.20, then 100% of the Loss Shortfall; and

 

(B) If the Loss Shortfall is greater $0.20, then $0.20 plus 50% of the excess of
the Loss Shortfall over $0.20 with a maximum of $.75 per CVR.

 

If the amount of Credit Losses equals or exceeds the Stipulated Amount (as
defined below), the CVRs will expire and the Company shall not be required to
make any payment with respect to them.

Credit Losses    “Credit Losses” means the Charge-Offs for any loans existing as
of the date hereof for the period commencing on the date hereof and ending on
the Maturity Date less any recoveries in respect of such Charge-Offs. Stipulated
Amount    $103,000,000. Determinations    All determinations with respect to
Credit Losses calculations for purposes of the CVRs and amounts payable in
respect of the CVRs shall be made by the Loan Portfolio Committee of the
Company’s Board of Directors in its sole discretion. Early Redemption    The
Company may redeem the CVRs at any time at a price of $0.75 per CVR. Voting
rights    Any modifications of the terms of the CVRs that are adverse to the
holders will require the consent of the holders of a majority of the CVRs.
Otherwise, no voting rights attach to the CVRs. Dividend rights    None. Merger,
Acquisition or Change in Control    In the event that the Company experiences a
Change in Control, all rights under the CVRs shall be redeemed upon closing at
$0.75 per CVR.

 

Exhibit A-1

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Change in Control    A “Change in Control” shall mean any transaction resulting
in the holders of the equity interests of the Parent immediately prior to such
transaction owning, directly or indirectly, less than 50% of the equity
interests of the Parent immediately following such transaction. For purposes of
the preceding sentance, the “Parent” shall mean the ultimate holder that
directly or indirectly owns or controls, by share ownership, contract or
otherwise, a majority of the equity interests of the Company. Transferability;
Attachment; Death    The rights of a holder of a CVR may not be assigned or
transferred except by will or the laws of descent or distribution. The CVR shall
not be subject, in whole or in part, to attachment, execution, or levy of any
kind, and any attempt to sell, pledge, assign, hypothecate, transfer or
otherwise dispose of the CVR shall be void. If a holder of a CVR should die, the
designee, legal representative, or legatee, the successor trustee of such
holder’s inter vivos trust or the person who acquired the right to the CVR by
reason of the death of such holder (individually, a “Successor”) shall succeed
to such holder’s rights with respect to the CVR.

 

Exhibit A-2

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Exhibit B

Terms of Repurchase

The Company shall have entered into a binding definitive agreement with the
Treasury to redeem and/or purchase, on terms and conditions reasonably
acceptable to Purchaser, all of the outstanding shares of the Series A Preferred
(including all obligations with respect to accrued but unpaid dividends on the
Series A Preferred) and the Treasury Warrants in exchange for an aggregate cash
purchase price equal to fifty percent (50%) (or such greater amount as
Purchaser, in its sole discretion, may consent in writing) of the sum of (i) the
aggregate liquidation value of the outstanding Series A Preferred and (ii) the
amount of accrued but unpaid dividends on the Series A Preferred. For the
avoidance of doubt, at the Closing, such agreement shall remain in full force
and effect.

 

Exhibit B-1

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Exhibit C

Form of Registration Rights Agreement

 

Exhibit C-1