THIRD AMENDMENT TO CREDIT AGREEMENT,
WAIVER, CONSENT AND FORBEARANCE AGREEMENT
     THIS THIRD AMENDMENT TO CREDIT AGREEMENT, WAIVER, CONSENT AND FORBEARANCE
AGREEMENT (this “Amendment”), dated as of June 20, 2006, is entered into by and
among the Lenders signatory hereto, WELLS FARGO FOOTHILL, INC., a California
corporation, in its capacity as agent for the Lenders and Bank Product Providers
(in such capacity “Agent”). PCA LLC, a Delaware limited liability company
(“PCA”). each of PCA’s Subsidiaries identified on the signature pages hereof
(such Subsidiaries, together with PCA, are referred to hereinafter each
individually as a “Borrower”, and individually and collectively, jointly and
severally, as the “Borrowers”). Terms used herein without definition shall have
the meanings ascribed to them in the Credit Agreement defined below.
RECITALS
     A. The Lenders signatory thereto, Agent, Borrowers and Parent Guarantor
have previously entered into that certain Credit Agreement dated July 15, 2005,
as amended by that certain First Amendment to Credit Agreement, dated August 11,
2005, by and among the Agent, the Borrowers and the Lenders signatory thereto
and that certain Second Amendment to Credit Agreement, dated December 5, 2005 ,
by and among the Agent, the Borrowers and the Lenders signatory thereto (as
amended, modified and supplemented from time to time, the “Credit Agreement”),
pursuant to which the Lenders have made certain loans and financial
accommodations available to Borrowers and Parent Guarantor, among others, has
guaranteed such obligations.
     B. Borrowers have failed to deliver to Agent consolidated and consolidating
financial statements of Parent Guarantor and its Subsidiaries for their fiscal
year ended January 29, 2006 as set forth in Schedule 5.3(c) of the Credit
Agreement (the “Reporting Event of Default”) and have advised Agent that such
financial statements will be delivered with a “going concern” qualification (the
“Anticipated Qualification Event of Default” and together with the Reporting
Event of Default, the “Financial Statement Defaults”). Borrowers have requested
that Agent and the Lenders waive the Financial Statement Defaults.
     C. Borrowers have failed, after the expiration of a thirty-day grace
period, to make an interest payment (the “Goldman Payment”) due June 14, 2006
(the “Goldman Event of Default”) to GS Mezzanine Partners II, L.P. and GS
Mezzanine Partners II Offshore, L.P. (collectively, “Goldman”) in respect of the
13 3/4% Senior Subordinated Notes Due 2010 issued by PCA and guaranteed by
certain of the Credit Parties pursuant to that certain Purchase Agreement, dated
as of June 27, 2002 among PCA, Parent Guarantor (as successor in interest to PCA
International Inc., a North Carolina corporation), the Credit Parties named
therein, Goldman, and the purchasers named therein (as amended, modified and
supplemented from time to time, the “Goldman Purchase Agreement”). Borrowers
have requested that Agent and the Lenders forbear from exercising any remedies
under the Loan Documents with respect to the Goldman Event of Default in order
to allow Borrowers to obtain from Goldman a postponement of the Goldman Payment
and waiver of all events of default arising under the Goldman Purchase Agreement
as a result of the failure to timely make the Goldman Payment (any document
effecting such a postponement and waiver being the “Goldman Amendment”).
     D. Pursuant to the terms of the Agfa Contract, Agfa has agreed to forbear
(the “Agfa Forbearance”) from exercising its rights and remedies with respect to
outstanding amounts owed to Agfa (the “Agfa Indebtedness”) by the Borrowers
until June 15, 2006 pending the implementation of a new sales contract between
Agfa and the Borrowers. Borrowers have not and do not anticipate implementing
such a contract and have not made payment on the Agfa Indebtedness which event
gives Agfa the right to institute action against the Credit Parties to the
extent not prohibited by the Agfa Subordination Agreement. Borrowers have
informed Agent that they intend to make arrangements with Agfa to reinstate the
Agfa Forbearance.
     E. Borrowers have requested that Agent and the Lenders amend the definition
of Consolidated EBITDA in the Credit Agreement on the terms and conditions set
forth herein.

 

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     F. Borrowers are entering into this Amendment with the understanding and
agreement that, except as specifically provided herein, none of the Lender
Group’s rights or remedies as set forth in the Credit Agreement or any other
Loan Document is being waived or modified by the terms of this Amendment.
AGREEMENT
     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
     1. Amendments to Credit Agreement.
          (a) Clause (ii)(E) of the definition of “Consolidated EBITDA” in
Schedule 1.1 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
               “(E) during periods prior to July 30, 2006, Consolidated Non-Cash
Charges of up to $2,320,000 in the aggregate at any time reported during such
periods, minus (or plus),”
          (b) Section 11 of the Credit Agreement is hereby amended by replacing
the notice party Morrison & Foerster LLP appearing therein with the following
notice party:
BINGHAM MCCUTCHEN LLP
355 South Grand Avenue, Suite 4400
Los Angeles, California 90071
Attn: Sandra L. Montgomery, Esq.
Fax No. (213) 680-6499
     2. Waiver of Financial Statement Defaults. Subject to the terms of
Section 8 hereof, Agent and the Lenders hereby waive enforcement of the Lender
Group’s rights against Borrowers arising from the Financial Statement Defaults;
provided, however, nothing herein shall be deemed a waiver with respect to any
other or future failure of Borrowers to comply fully with Section 5.3 and
Schedule 5.3(c) of the Credit Agreement (as amended or modified by this
Amendment). This waiver shall be effective only for the specific defaults
comprising the Financial Statement Defaults, and in no event shall this waiver
be deemed to be a waiver of enforcement of any of the Lender Group’s rights with
respect to any other Defaults or Events of Default now existing or hereafter
arising. Nothing contained in this Amendment nor any communications between
Borrowers and any member of the Lender Group shall be a waiver of any rights or
remedies the Lender Group has or may have against Borrowers, except as
specifically provided herein. Except as specifically provided herein, each
member of the Lender Group hereby reserves and preserves all of its rights and
remedies against Borrowers under the Credit Agreement and the other Loan
Documents.

     3. Agreement to Forbear.
          (a) For the Forbearance Term (as defined below), neither Agent nor any
Lender shall take any action or commence any proceedings with respect to the
enforcement of any of its rights or remedies under the Loan Documents as a
result of the Goldman Event of Default. The parties agree that neither the
foregoing agreement by Agent and the Lenders nor the acceptance by Agent or any
Lender of any of the payments provided for in the Credit Agreement or any other
Loan Document, nor any payment prior to the date hereof shall, however,
(i) excuse any party from any of its obligations under the Loan Documents, or
(ii) toll the running of any time periods applicable to any such rights and
remedies, including, without limitation, any time periods within which any
Borrower may cure Defaults under the Credit Agreement or any other Loan Document
or otherwise. Each Borrower agrees that it will not assert laches, waiver or any
other defense to the enforcement of any of the Loan Documents based upon the
foregoing agreement by Agent and the Lenders to

 

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forbear or the acceptance by Agent or any Lender of any of the payments provided
for in the Financing Agreements or any payment prior to the date hereof.
          (b) As used herein, “Forbearance Term” shall mean the period
commencing upon the effectiveness of this Amendment and continuing until the
earliest to occur of: (i) the institution of any actions or exercising of any
remedies by Goldman or Agfa with respect to any Credit Party or any of their
respective assets or properties or issuance of any notice by Goldman or Agfa of
its intention to do so, (ii) if Goldman shall refuse to enter into the Goldman
Amendment or require that the applicable Credit Parties enter into an amendment
to the Goldman Purchase Agreement that is not on terms satisfactory to Agent, or
(iii) any other Default or Event of Default under any of the Loan Documents, and
(iv) July 31, 2006.
     4. Termination of Agreement to Forbear. Each Borrower acknowledges and
agrees that upon the termination of Lender’s agreement to forbear as provided in
Section 3 hereof, Agent and the Lenders shall be entitled to exercise any or all
of their remedies under the Loan Documents including, without limitation, the
appointment of a receiver, the acceleration of the Obligations and the
enforcement of Agent’s Liens, as a result of the Goldman Event of Default, and
at any time Agent and the Lenders shall be entitled to exercise any or all of
their remedies under the Loan Documents as a result of any other Default or
Event of Default.
     5. Release: Covenant Not to Sue.
          (a) Each Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender Group, and any and all of their respective
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing (each a “Released Party”), from any and all claims, demands
or causes of action of any kind, nature or description, whether arising in law
or equity or upon contract or tort or under any state or federal law or
otherwise, which such Borrower has had, now has or has made claim to have
against any such person for or by reason of any act, omission, matter, cause or
thing whatsoever arising from the beginning of time to and including the date of
this Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown. It is the intention of Borrowers in providing
this release that the same shall be effective as a bar to each and every claim,
demand and cause of action specified, and in furtherance of this intention it
waives and relinquishes all rights and benefits under Section 1542 of the Civil
Code of the State of California (or any comparable provision of any other
applicable law), which provides:
“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him might have materially affected his settlement with the debtor.”
Each Borrower acknowledges that it may hereafter discover facts different from
or in addition to those now known or believed to be true with respect to such
claims, demands, or causes of action and agree that this instrument shall be and
remain effective in all respects notwithstanding any such differences or
additional facts. Each Borrower understands, acknowledges and agrees that the
release set forth above may be pleaded as a full and complete defense and may be
used as a basis for an injunction against any action, suit or other proceeding
which may be instituted, prosecuted or attempted in breach of the provisions of
such release.
          (b) Each Borrower, on behalf of itself and its successors, assigns,
and other legal representatives, hereby absolutely, unconditionally and
irrevocably, covenants and agrees with and in favor of each Released Party above
that it will not sue (at law, in equity, in any regulatory proceeding or
otherwise) any Released Party on the basis of any claim released, remised and
discharged by such Borrower pursuant to the above release. If any Borrower or
any of its successors, assigns or other legal representations violates the
foregoing covenant, such Borrower, for itself and its successors, assigns and
legal representatives, agrees to pay, in addition to such other damages as any
Released Party may sustain as a result of such violation, all attorneys’ fees
and costs incurred by such Released Party as a result of such violation.

 

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     6. Amendment Fee. In consideration of the agreements set forth herein,
Borrowers hereby agree to pay to Agent an amendment fee in the amount of $25,000
(the “Amendment Fee”), which fee is non-refundable when paid and is fully-earned
as of and due and payable on the date of this Amendment.
     7. Effectiveness of this Amendment. Agent must have received the following
items and/or the following items shall have been satisfied, in form and content
acceptable to Agent, before this Amendment, and the waivers provided for herein
are effective.
          (a) Amendment; Acknowledgements and Releases. This Amendment and the
attached Acknowledgement and Release by Guarantors each fully executed in a
sufficient number of counterparts for distribution to all parties.
          (b) Amendment Fee. The Amendment Fee, which may be paid as a charge to
Borrowers’ Loan Account.
          (c) Representations and Warranties. The representations and warranties
set forth herein and in the Credit Agreement must be true and correct.
          (d) Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this Amendment shall
have been delivered or executed or recorded, as required by Agent.
     8. Conditions Subsequent.
          (a) Borrowers’ failure to deliver to Agent consolidated and
consolidating financial statements of Parent Guarantor and its Subsidiaries for
their fiscal year ended January 29, 2006 (as audited by independent certified
public accounts reasonably acceptable to Agent and certified, without any
qualifications (except for the “going concern” qualification) by such
accountants to have been prepared in accordance with GAAP) by June 23, 2006
shall constitute an Event of Default under the Credit Agreement.
          (b) If Borrowers shall fail, prior to the termination of the
Forbearance Term, to procure the reinstatement of the Agfa Forbearance for a
period satisfactory to Agent, then such event shall constitute an Event of
Default under the Credit Agreement.
     9. Consent. Agent and the Lenders hereby consent to the applicable Credit
Parties entering into the Goldman Amendment to the extent the Goldman Amendment
(a) postpones the Goldman Payment to a date satisfactory to Agent, (b) waives
all events of default arising under the Goldman Purchase Agreement as a result
of the applicable Credit Parties’ failure to timely make the Goldman Payment and
(c) is otherwise satisfactory to Agent in form and substance.
     10. Representations and Warranties. Each Borrower represents and warrants
as follows:
          (a) Authority. Each Borrower has the requisite corporate power and
authority to execute and deliver this Amendment, and to perform its obligations
hereunder and under the Loan Documents (as amended or modified hereby) to which
it is a party. The execution, delivery and performance by each Borrower of this
Amendment have been duly approved by all necessary corporate action and no other
corporate proceedings are necessary to consummate such transactions.
          (b) Enforceability. This Amendment has been duly executed and
delivered by each Borrower. This Amendment and each Loan Document (as amended or
modified hereby) is the legal, valid and binding obligation of each Borrower,
enforceable against each Borrower in accordance with its terms, and is in full
force and effect.

 

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          (c) Representations and Warranties. The representations and warranties
contained in each Loan Document (other than any such representations or
warranties that, by their terms, are specifically made as of a date other than
the date hereof) are correct on and as of the date hereof as though made on and
as of the date hereof.
          (d) Due Execution. The execution, delivery and performance of this
Amendment are within the power of each Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on any Borrower.
          (e) No Default. After giving effect to the waiver contained in this
Amendment, no event has occurred and is continuing that constitutes a Default or
an Event of Default.
          (f) No Duress. This Amendment has been entered into without force or
duress, of the free will of each Borrower. Each Borrower’s decision to enter
into this Amendment is a fully informed decision and such Borrower is aware of
all legal and other ramifications of such decision.
          (g) Counsel. Each Borrower has read and understands this Amendment,
has consulted with and been represented by legal counsel in connection herewith,
and has been advised by its counsel of its rights and obligations hereunder and
thereunder.
     11. Choice of Law, etc. This Amendment is a Loan Document. The validity of
this Amendment, the construction, interpretation, and enforcement hereof, and
the rights of the parties hereto with respect to all matters arising hereunder
or related hereto shall be determined under, governed by, and construed in
accordance with the laws of the state of New York.
     12. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
or other similar method of electronic transmission shall be effective as
delivery of a manually executed counterpart of this Amendment.
     13. Reference to and Effect on the Loan Documents.
          (a) Upon and after the effectiveness of this Amendment, each reference
in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of
like import referring to the Credit Agreement, and each reference in the other
Loan Documents to “the Credit Agreement”, “thereof” or words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as modified and amended hereby.
          (b) Except as specifically amended above, the Credit Agreement and all
other Loan Documents, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed and shall constitute the
legal, valid, binding and enforceable obligations of the Credit Parties to the
Lender Group.
          (c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Lender Group under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
          (d) To the extent that any terms and conditions in any of the Loan
Documents shall contradict or be in conflict with any terms or conditions of the
Credit Agreement, after giving effect to this

 

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Amendment, such terms and conditions are hereby deemed modified or amended
accordingly to reflect the terms and conditions of the Credit Agreement as
modified or amended hereby.
     14. Ratification and Reaffirmation. Each Borrower hereby restates, ratifies
and reaffirms each and every term and condition set forth in the Credit
Agreement, as amended hereby, and the Loan Documents effective as of the date
hereof. Each Borrower hereby acknowledges that the Loan Documents and the
Obligations constitute the valid and binding obligations of Borrowers
enforceable against Borrowers in accordance with their respective terms, and
each Borrower hereby reaffirms its obligations under the Loan Documents. Agent’s
and the Lenders’ entry into this Amendment or any of the documents referenced
herein, negotiations with any party with respect to any Loan Document, conduct
of any analysis or investigation of any Collateral, acceptance of any payment
from any Borrower or any other party of any payments made prior to the date
hereof, or any other action or failure to act on the part of Agent or any Lender
shall not constitute, except to the extent of the specific amendments contained
in this Amendment, (a) a modification of any Loan Document, or (b) a waiver of
any Default or Event of Default under any Loan Document.
     15. Integration. This Amendment, together with the other Loan Documents,
incorporates all negotiations of the parties hereto with respect to the subject
matter hereof and is the final expression and agreement of the parties hereto
with respect to the subject matter hereof.
     16. Severability. In case any provision in this Amendment shall be invalid,
illegal or unenforceable, such provision shall be severable from the remainder
of this Amendment and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
     17. Incorporation of Recitals. The recitals to this Amendment are hereby
incorporated herein by this reference and represented by the Borrowers to be
true and correct.
     18. Submission of Amendment. The submission of this Amendment to the
parties or their agents or attorneys for review or signature does not constitute
a commitment by Agent or the Lenders to waive any of the Lender Group’s rights
and remedies under the Loan Documents, and this Amendment shall have no binding
force or effect until all of the conditions to the effectiveness of this
Amendment have been satisfied as set forth herein.
[signature pages follow]

 

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     IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.

              BORROWERS:   PCA LLC,         a Delaware limited liability company
   
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary    
 
                AMERICAN STUDIOS, INC.,         a North Carolina corporation    
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary    
 
                PCA PHOTO CORPORATION OF CANADA, INC.,         a North Carolina
corporation    
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary    
 
                PCA NATIONAL LLC,         a Delaware limited liability company  
 
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary    

 

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                  HOMETOWN THREADS LLC,         a Delaware limited liability
company    
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary    

                      PCA NATIONAL OF TEXAS L.P.,         a Texas limited
partnership    
 
               
 
      By:   PCA NATIONAL LLC,    
 
          a Delaware limited liability company    
 
      Its:   General Partner    
 
               
 
      By:   /s/ [ILLEGIBLE]    
 
               
 
               
 
      Its:   EVP & Secretary    

              AGENT AND A LENDER:   WELLS FARGO FOOTHILL, INC.,         a
California corporation    
 
           
 
  By:        
 
           
 
           
 
  Its:        
 
           

 

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                  HOMETOWN THREA DS LLC,         a Delaware limited liability
company    
 
           
 
  By:        
 
           
 
           
 
  Its:        
 
           

                      PCA NATIONAL OF TEXAS L.P.,         a Texas limited
partnership    
 
               
 
      By:   PCA NATIONAL LLC,    
 
          a Delaware limited liability company    
 
      Its:   General Partner    
 
               
 
      By:        
 
               
 
               
 
      Its:        
 
               

              AGENT AND A LENDER:   WELLS FARGO FOOTHILL, INC.,         a
California corporation    
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   Vice President    

 

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ACKNOWLEDGEMENT AND RELEASE BY GUARANTORS
     In connection with the foregoing Third Amendment to Credit Agreement,
Waiver, Consent and Forbearance Agreement (the “Amendment”), each of the
undersigned, being a Guarantor (as defined in the Credit Agreement referenced in
the Amendment) under their respective Guaranties (as defined in the Credit
Agreement referenced in the Amendment), hereby acknowledges and agrees to the
Amendment and confirms and agrees that its Guaranty is and shall continue to be,
in full force and effect and is hereby ratified and confirmed in all respects
except that, upon the effectiveness of, and on and after the date of the
Amendment, each reference in such Guaranty to the Credit Agreement (as defined
in the Amendment), “thereunder”, “thereof” or words of like import referring to
the Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended or modified by the Amendment. Although Agent and the Lenders have
informed Guarantors of the matters set forth above, and Guarantors have
acknowledged the same, each Guarantor understands and agrees that neither the
Lender Group nor the Bank Product Providers have any duty under the Credit
Agreement, any Guaranty or any other agreement with any Guarantor to so notify
any Guarantor or to seek such an acknowledgement, and nothing contained herein
is intended to or shall create such a duty as to any transaction hereafter.
     Each Guarantor hereby absolutely and unconditionally releases and forever
discharges each Released Party (as defined in the Amendment), from any and all
claims, demands or causes of action of any kind, nature or description, whether
arising in law or equity or upon contract or tort or under any state or federal
law or otherwise, which such Guarantor has had, now has or has made claim to
have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and including
the date hereof, whether such claims, demands and causes of action are matured
or unmatured or known or unknown. It is the intention of each Guarantor in
providing this release that the same shall be effective as a bar to each and
every claim, demand and cause of action specified[, and in furtherance of this
intention it waives and relinquishes all rights and benefits under Section 1542
of the Civil Code of the State of California (or any comparable provision of any
other applicable law), which provides:
“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him might have materially affected his settlement with the debtor.”
     Each Guarantor acknowledges that it may hereafter discover facts different
from or in addition to those now known or believed to be true with respect to
such claims, demands, or causes of action and agree that this instrument shall
be and remain effective in all respects notwithstanding any such differences or
additional facts. Each Guarantor understands, acknowledges and agrees that the
release set forth above may be pleaded as a full and complete defense and may be
used as a basis for an injunction against any action, suit or other proceeding
which may be instituted, prosecuted or attempted in breach of the provisions of
such release. Each Guarantor, on behalf of itself and its successors, assigns,
and other legal representatives, hereby absolutely, unconditionally and
irrevocably, covenants and agrees with and in favor of each Released Party above
that it will not sue (at law, in equity, in any regulatory proceeding or
otherwise) any Released Party on the basis of any claim released, remised and
discharged by such Guarantor pursuant to the above release. If any Guarantor or
any of its successors, assigns or other legal representations violates the
foregoing covenant, such Guarantor, for itself and its successors, assigns and
legal representatives, agrees to pay, in addition to such other damages as any
Released Party may sustain as a result of such violation, all attorneys’ fees
and costs incurred by such Released Party as a result of such violation.

 

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                  PORTRAIT CORPORATION OF AMERICA, INC.,         a Delaware
corporation    
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary    
 
                PCA FINANCE CORP.,         a Delaware corporation    
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary    
 
                PHOTO CORPORATION OF AMERICA,         a North Carolina
corporation    
 
           
 
  By:   /s/ [ILLEGIBLE]    
 
           
 
           
 
  Its:   EVP & Secretary