Exhibit 10.1

EXECUTION VERSION

SUBORDINATED NOTE PURCHASE AGREEMENT

This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of
June 30, 2016, and is made by and among Franklin Financial Network, Inc., a
Tennessee corporation (“Company”), and the several purchasers of the
Subordinated Notes (each a “Purchaser” and collectively, the “Purchasers”).

RECITALS

WHEREAS, Company has requested that the Purchasers purchase from Company
$20,000,000 in aggregate principal amount of Subordinated Notes (as defined
herein), which aggregate amount is intended to qualify as Tier 2 Capital (as
defined herein).

WHEREAS, Company has engaged Stephens Inc. as its exclusive placement agent
(“Placement Agent”) for the offering of the Subordinated Notes.

WHEREAS, each of the Purchasers is an institutional “accredited investor” as
such term is contemplated by Rule 501 of Regulation D (“Regulation D”)
promulgated under the Securities Act (as defined below), as well as a “qualified
institutional buyer” as such term is defined in Rule 144A promulgated under the
Securities Act.

WHEREAS, the sale of the Subordinated Notes by Company is being made pursuant to
Rule 506(b) of Regulation D.

WHEREAS, each Purchaser is willing to purchase from Company a Subordinated Note
in the principal amount set forth on the signature page to this Agreement
executed by such Purchaser (the “Subordinated Note Amount”) in accordance with
the terms, subject to the conditions and in reliance on, the recitals,
representations, warranties, covenants and agreements set forth herein and in
the Subordinated Notes.

NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto hereby agree as
follows:

AGREEMENT

1. DEFINITIONS.

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

“Affiliate(s)” means, (i) with respect to any Person, such Person’s immediate
family members, partners, members or parent and subsidiary corporations, and any
other Person directly or indirectly controlling, controlled by, or under common
control with said Person and their respective Affiliates, and (ii) with respect
to Company, shall include any Person beneficially owning or holding, directly or
indirectly, ten percent (10%) or more of any class of voting or equity interest
of Company or any Subsidiary of Company or any Person of which Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
ten percent (10%) or more of any class of voting or equity interests.

“Bank” means Franklin Synergy Bank, a Tennessee state bank and wholly owned
subsidiary of Company.

 

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EXECUTION VERSION

 

“Bank Regulatory Authority(ies)” means the FDIC, the FRB, the Department of
Financial Institutions, the CFPB and any other federal or state bank regulatory
authorities with jurisdiction over Company, Bank or any of Company’s other
subsidiaries.

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

“CFPB” means the Consumer Financial Protection Bureau.

“Closing” has the meaning set forth in Section 2.5.

“Closing Date” has the meaning set forth in Section 2.5.

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations
and published interpretations thereunder.

“Commission” shall mean the Securities and Exchange Commission.

“Company” has the meaning set forth in the preamble hereto and shall include any
successors to Company.

“Company’s Liabilities” means Company’s obligations under the Transaction
Documents.

“Company’s SEC Reports” means (i) Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015, (ii) Company’s Definitive Proxy Statement
on Schedule 14A related to its 2016 Annual Meeting of Shareholders,
(iii) Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2016, and (iv) any Current Report on Form 8-K, each as filed or
furnished by Company with the Commission pursuant to the requirements of the
Exchange Act.

“CRA” has the meaning set forth in Section 4.7.2.

“Department of Financial Institutions” means the Tennessee Department of
Financial Institutions.

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

“Dollars” or “$” means a dollar or other equivalent unit of legal tender for
payment of public or private debts in the United States.

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

“Environmental Laws” means any federal, state, local or foreign statute, law,
rule, regulation, ordinance, code, policy or rule of common law or any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating to the
release or threatened release of Hazardous Materials or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.

 

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EXECUTION VERSION

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder.

“ERISA Affiliate” means, with respect to Company or a Subsidiary, any member of
any group of organizations described in Sections 414(b), (c), (m) or (o) of the
Code or Section 4001(b) of ERISA of which Company or such Subsidiary is a
member.

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

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.

“Existing Subordinated Notes” means Company’s issued and outstanding
Fixed-to-Floating Rate Subordinated Notes due 2026, initially issued in the
aggregate principal amount of $40,000,000 pursuant to that certain Indenture and
that certain Supplemental Indenture, each by and between Company and U.S. Bank
National Association, as Trustee, and each dated March 31, 2016.

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended, and the
rules and regulations thereunder.

“FDIC” means the Federal Deposit Insurance Corporation.

“Fixed Interest Payment Date” means January 1and July 1of each year, beginning
January 1, 2017.

“Floating Interest Payment Date” means January 1, April 1, July 1 and
October 1of each year, beginning October 1, 2021.

“FRB” means the Board of Governors of the Federal Reserve System.

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

“Governmental Agency(ies)” means any arbitrator, court, governmental body,
regulatory body, administrative agency or other authority, body or agency having
jurisdiction over Company or any of its Subsidiaries or any of their respective
properties, assets or operations.

“Governmental Licenses” has the meaning set forth in Section 4.4.

“Hazardous Materials” means chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products,
asbestos-containing materials or mold.

“Hazardous Materials Laws” mean any laws, regulations, permits, licenses or
requirements pertaining to the protection, preservation, conservation or
regulation of the environment which relates to real property, including: the
Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et
seq.; the Comprehensive Environment Response, Compensation and Liability Act of
1980, as amended (including the Superfund Amendments and Reauthorization Act of
1986), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act,
as amended, 29 U.S.C.

 

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EXECUTION VERSION

 

Section 651; the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, as
amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, 42 U.S.C.
Section 300f et seq.; and all comparable state and local laws, laws of other
jurisdictions or orders and regulations.

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

“Intellectual Property” has the meaning set forth in Section 4.5.4.2.

“Interest Payment Date” means either a Fixed Interest Payment Date or a Floating
Interest Payment Date, as applicable.

“Interest Period” means each three-month period beginning on a scheduled
Interest Payment Date.

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

“LIBOR” means the 3-month USD LIBOR, which will be the offered rate for 3-month
deposits in U.S. dollars, as that rate appears on the Reuters Screen LIBOR01
Page (or any successor page thereto) as of 11:00 a.m., London time, as observed
two London banking days prior to the first day of the applicable floating rate
interest period. If 3-month USD LIBOR is not so displayed as of such time with
respect to any applicable floating rate interest period, then Company will
request the principal London offices of at least two banks to provide a
quotation of their rates for deposits in U.S. dollars for a period comparable to
the applicable floating rate interest period and the 3-month USD LIBOR for such
floating rate interest period shall be the arithmetic mean of such quotations. A
“London banking day” is a day on which commercial banks and foreign currency
markets settle payments and are open for general business in London.

“Material Adverse Effect” means, with respect to any Person, any change or
effect that (i) is or would be reasonably likely to be material and adverse to
the financial position, results of operations, business or assets of such
Person, or (ii) would materially impair the ability of any Person to perform its
respective obligations under any of the Transaction Documents, or otherwise
materially impede the consummation of the transactions contemplated hereby.

“Money Laundering Laws” has the meaning set forth in Section 4.14.2.

“More Favorable Provision” has the meaning set forth in Section 8.6.

“More Favorable Provision Certificate” has the meaning set forth in Section 8.6.

 

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EXECUTION VERSION

 

“Paying Agent Agreement” is that certain Paying Agent, Registrar and Transfer
Agent Agreement by and between Company and U.S. Bank.

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

“Placement Agent” has the meaning provided in the Recitals.

“Property” means any real property owned or leased by Company or any Affiliate
or Subsidiary.

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

“Redemption Date” with respect to any Subordinated Note or portion thereof to be
redeemed, means the date fixed by Company for such redemption by or under this
Agreement or such Subordinated Note.

“Regulation D” has the meaning set forth in the Recitals.

“Regulatory Agencies” means any federal or state agency charged with the
supervision or regulation of depositary institutions or holding companies of
depositary institutions, or engaged in the insurance of depositary institution
deposits, or any court, administrative agency or commission or other authority,
body or agency having supervisory or regulatory authority with respect to
Company, Bank or any Subsidiaries.

“Sanctions” has the meaning set forth in Section 4.14.3.

“Secondary Market Transaction” has the meaning set forth in Section 5.7.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.

“Security Register” means a register maintained by U.S. Bank on behalf of
Company providing for the registration of the Subordinated Notes and any
exchange or transfer thereof.

“Stated Maturity” means July 1, 2026.

“Subordinated Note” means the Subordinated Note (or collectively, the
“Subordinated Notes”) in the form attached as Exhibit A hereto, as amended,
restated, supplemented or modified from time to time, and each Subordinated Note
delivered in substitution or exchange for such Subordinated Note.

“Subordinated Note Amount” has the meaning set forth in the Recitals.

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

“Tier 2 Capital” has the meaning given to the term “Tier 2 Capital” under the
FRB’s regulatory capital rules and guidelines (or, as and if applicable, the
capital adequacy rules or regulations of any successor appropriate federal
banking agency) as then in effect and applicable, for so long as any
Subordinated Note is outstanding. “Appropriate federal banking agency” means the
“appropriate federal banking agency” with respect to Company as that term is
defined in Section 3(q) of the Federal Deposit Insurance Act or any successor
provision.

 

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EXECUTION VERSION

 

“Transaction Documents” has the meaning set forth in Section 3.2.1.

“USA Patriot Act” means United States Public Law 107-56, Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time,
and the rules and regulations promulgated thereunder from time to time in
effect.

“U.S. Bank” means U.S. Bank National Association.

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

1.3 Exhibits Incorporated. All Exhibits attached are hereby incorporated into
this Agreement.

2. SUBORDINATED DEBT.

2.1 General Matters.

2.1.1 Certain Terms. Subject to the terms and conditions herein contained,
Company proposes to issue and sell to the Purchasers, severally and not jointly,
Subordinated Notes in an amount equal to the aggregate of the Subordinated Note
Amounts. Purchasers, severally and not jointly, each agree to purchase the
Subordinated Notes from Company on the Closing Date in accordance with the terms
of, and subject to the conditions and provisions set forth in, this Agreement
and the Subordinated Notes. As a several (and not joint) obligation, no
Purchaser shall have any liability to any Person for the performance or
non-performance of any obligation by any other Purchaser hereunder. The
Subordinated Note Amounts shall be disbursed in accordance with Section 3.1. The
Subordinated Notes shall bear interest per annum as set forth in the
Subordinated Notes. The unpaid principal balance of the Subordinated Notes plus
all accrued but unpaid interest thereon shall be due and payable on the Stated
Maturity, or such earlier date on which such amount shall become due and payable
on account of (i) acceleration by Purchasers in accordance with the terms of the
Subordinated Notes and this Agreement or (ii) Company’s delivery of a notice of
redemption or prepayment in accordance with the terms of the Subordinated Notes.

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

 

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EXECUTION VERSION

 

2.2 The Subordinated Notes.

2.2.1 Computation of Interest. From and including the original issue date of the
Subordinated Notes (June 30, 2016) to but excluding July 1, 2021, the rate at
which the Subordinated Notes shall bear interest shall be 7.00% per annum,
computed by Company on the basis of a 360-day year consisting of twelve 30-day
months and payable semi-annually in arrears on Fixed Interest Payment Dates.
From and including July 1, 2021 to but excluding the Stated Maturity, the rate
at which the Subordinated Notes shall bear interest shall be a floating rate
equal to LIBOR determined in good faith by Company on the determination date of
the applicable Interest Period plus 604 basis points, computed on the basis of a
360-day year and the actual number of days elapsed and payable quarterly in
arrears on Floating Interest Payment Dates. Any payment of principal of or
interest on the Subordinated Notes that would otherwise become due and payable
on a day which is not a Business Day will become due and payable on the next
succeeding Business Day, with the same force and effect as if made on the date
for payment of such principal or interest, and no interest will accrue in
respect of such payment for the period after such day.

2.2.2 Evidence of Payment Obligation. The payment obligation of Company shall be
further evidenced by the Subordinated Notes.

2.3 Maturity Date. On the Stated Maturity, all sums due and owing under this
Agreement and the Subordinated Notes shall be repaid in full. Company
acknowledges and agrees that Purchasers have not made any commitments, either
express or implied, to extend the terms of the Subordinated Notes past their
Stated Maturity, and shall not extend such terms beyond the Stated Maturity
unless Company and Purchasers hereafter specifically otherwise agree in writing.

2.4 Unsecured Obligations. The obligations of Company to Purchasers under the
Subordinated Notes shall be unsecured and not covered by a guarantee of Company
or an Affiliate of Company.

2.5 The Closing. The execution and delivery of the Transaction Documents (the
“Closing”) shall occur at the offices of Company at 10:00 a.m., or at such other
place as the parties hereto may agree, simultaneously with the execution and
delivery of this Agreement. The date of the Closing is hereinafter referred to
as the “Closing Date”.

2.6 Payments. Company agrees that matters concerning payments and application of
payments shall be as set forth in this Agreement and in the Subordinated Notes.

2.7 Right of Offset. Each Purchaser hereby expressly waives any right of offset
it may have against Company.

2.8 Use of Proceeds. Company shall use the net proceeds from the sale of
Subordinated Notes for general corporate purposes.

 

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EXECUTION VERSION

 

3. DISBURSEMENT.

3.1 Disbursement. On the Closing Date, assuming all of the terms and conditions
set forth in Section 3.2 have been satisfied by Company and Company has executed
and delivered to Purchasers each of the Agreement and the Subordinated Notes and
any other related documents in form and substance reasonably satisfactory to
Purchasers, each Purchaser shall countersign and deliver the Agreement and
disburse its respective Subordinated Note Amount in immediately available funds
to Company in exchange for a Subordinated Note with a principal amount equal to
such Subordinated Note Amount (the “Disbursement”). Company will deliver to the
respective Purchaser one or more certificates representing the Subordinated
Notes in definitive form (or provide evidence of the same with the original to
be delivered by Company by overnight delivery on the next calendar day in
accordance with the delivery instructions of Purchaser), registered in such
names and denominations as such Purchasers may request. Such sale of
Subordinated Notes to each Purchaser shall occur contemporaneously.

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

3.2.1 Transaction Documents. This Agreement and the Subordinated Notes
(collectively, the “Transaction Documents”), each duly authorized and executed
by Company.

3.2.2 Authority Documents.

3.2.2.1 A copy, certified by the Secretary or Assistant Secretary of Company, of
the Charter of Company;

3.2.2.2 A certificate of existence of Company issued by the Secretary of State
of the State of Tennessee;

3.2.2.3 A copy, certified by the Secretary or Assistant Secretary, of the Bylaws
of Company;

3.2.2.4 A copy, certified by the Secretary or Assistant Secretary of Company, of
the resolutions of the board of directors of Company authorizing the execution,
delivery and performance of the Transaction Documents;

3.2.2.5 An incumbency certificate of the Secretary or Assistant Secretary of
Company certifying the names of the officer or officers of Company authorized to
sign the Transaction Documents and the other documents provided for in this
Agreement, together with a sample of the true signature of each such officer (a
Purchaser may conclusively rely on such certificate until formerly advised by a
like certificate of any changes therein); and

3.2.2.6 The opinion of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC,
counsel to Company, dated as of the Closing Date, substantially in the form set
forth at Exhibit B attached hereto addressed to the Purchasers and Placement
Agent.

3.2.3 Other Requirements. Such other additional information regarding Company,
Bank and any other Subsidiary and their respective assets, liabilities
(including any liabilities arising from, or relating to, legal proceedings) and
contracts as a Purchaser may reasonably require.

 

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EXECUTION VERSION

 

3.2.4 Other Documents. Such other certificates, affidavits, schedules,
resolutions, notes and/or other documents which are provided for hereunder or as
a Purchaser may reasonably request.

3.2.5 CUSIP Number. The CUSIP Number for the Subordinated Notes is 35352P AB0.

4. REPRESENTATIONS AND WARRANTIES OF COMPANY.

Company hereby represents and warrants to each Purchaser as follows:

4.1 Organization and Authority.

4.1.1 Organization Matters of Company and Its Subsidiaries.

4.1.1.1 Company has been duly organized and is validly existing as a corporation
in good standing under the laws of the State of Tennessee and has corporate
power and authority to own, lease and operate its properties and to conduct its
business as currently operated and conducted and to enter into and perform its
obligations under the Transaction Documents; and Company is duly qualified as a
foreign corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not, singly or in the
aggregate, result in a Material Adverse Effect.

4.1.1.2 Bank is a bank chartered under the laws of the State of Tennessee to
transact business as a state-chartered bank and the charter of Bank is in full
force and effect. Bank is the only “significant subsidiary” of Company (as such
term is defined in Rule 1-02 of Regulation S-X promulgated pursuant to the
Securities Act). Each of Bank and each other Subsidiary of Company has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or other organization, has corporate or
similar power and authority to own, lease and operate its properties and to
conduct its business as currently operated and conducted and is duly qualified
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
to be in good standing would not, singly or in the aggregate, result in a
Material Adverse Effect. All of the issued and outstanding capital stock of each
of Bank and each other Subsidiary of Company has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by Company,
directly or through other subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity. None of the outstanding
shares of capital stock of Bank or any other Subsidiary of Company were issued
in violation of the preemptive or similar rights of any securityholder of Bank
or such other Subsidiary. The only Subsidiaries of Company are (A) the
subsidiaries listed on Exhibit 21.1 to Company’s Annual Report on Form 10-K for
the year ended December 31, 2015 as filed with the Commission on March 15, 2016
and (B) certain other subsidiaries which, considered in the aggregate as a
single subsidiary, do not constitute a “significant subsidiary” as defined in
Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act.

4.1.1.3 Bank is an “insured depository institution” within the meaning of
Section 3(c)(2) of the Federal Deposit Insurance Act, as amended, and to
Company’s knowledge, no proceeding for the termination or revocation of deposit
insurance is pending or, to Company’s knowledge, threatened against Bank. To
Company’s knowledge, neither Bank, Company or any of its other Subsidiaries is a
party to or subject to any order, decree, agreement, memorandum of understanding
or other regulatory enforcement action, proceeding or order with or by, or is a
party to or recipient of a commitment letter, supervisory letter or similar
undertaking to or from, or is subject to any directive by, any Bank Regulatory
Authority.

 

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EXECUTION VERSION

 

4.1.2 Capitalization. The Charter of Company, dated April 5, 2007, as amended by
the Articles of Amendment to the Charter dated November 15, 2007, June 17,
2010, September 26, 2011, September 27, 2011 and March 10, 2015, authorizes
Company to issue 20,000,000 shares of common stock and 1,000,000 shares of
preferred stock. As of June 28, 2016, there were 10,688,177 shares of Company’s
common stock issued and outstanding and no shares of Company’s preferred stock
outstanding (such shares of capital stock outstanding are exclusive of any
subsequent issuances, if any, pursuant to reservations, agreements or employee
benefit plans of Company or pursuant to the exercise of Company’s outstanding
convertible securities or options). The outstanding shares of capital stock of
Company have been duly authorized and validly issued and are fully paid and
non-assessable. None of the outstanding shares of capital stock of Company were
issued in violation of the preemptive or other similar rights of any
securityholder of Company. All of the outstanding shares of capital stock of
Bank are owned beneficially and of record by Company and have been duly
authorized and validly issued and are fully paid and non-assessable.

4.2 Taxes. All United States federal income tax returns of Company and its
Subsidiaries required by law to be filed have been filed and all taxes shown by
such returns or otherwise assessed, which are due and payable, have been paid,
except assessments against which appeals have been or will be promptly taken and
as to which adequate reserves have been provided. The United States federal
income tax returns of Company through the fiscal year ended December 31, 2015
have been settled and no assessment in connection therewith has been made
against Company. Company and its Subsidiaries have filed all other tax returns
that are required to have been filed by them pursuant to applicable foreign,
state, local or other law except insofar as the failure to file such returns
would not, singly or in the aggregate, reasonably be expected to result in a
Material Adverse Effect, and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by Company and its Subsidiaries, except for
such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been established by Company. The charges, accruals and
reserves on the books of Company in respect of any income and corporation tax
liability for any years not finally determined are adequate to meet any
assessments or re-assessments for additional income tax for any years not
finally determined, except to the extent of any inadequacy that would not,
singly or in the aggregate, result in a Material Adverse Effect.

4.3 No Impediment to Transactions.

4.3.1 Transaction is Legal and Authorized. The issuance of the Subordinated
Notes, the borrowing of the aggregate of the Subordinated Note Amounts, the
execution and delivery of the Transaction Documents and compliance by Company
with all of the provisions of the Transaction Documents are within the corporate
and other powers of Company.

4.3.2 Agreement. This Agreement has been duly authorized, executed and delivered
by the Company, and, assuming due authorization, execution and delivery by the
other parties hereto, constitutes the legal, valid and binding obligations of
Company, enforceable in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors’ rights generally or by general
equitable principles.

4.3.3 Subordinated Notes. The Subordinated Notes have been duly authorized by
Company and, when duly executed, authenticated, issued and delivered to the
Purchasers and paid for as provided herein, will constitute valid and legally
binding obligations of Company, enforceable against Company in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors’ rights generally or by general equitable principles.

 

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EXECUTION VERSION

 

4.3.4 Exemption from Registration. Neither Company, nor any of its Subsidiaries
or Affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Subordinated Notes.
Assuming the accuracy of the representations and warranties of each Purchaser
set forth in this Agreement, the Subordinated Notes will be issued in a
transaction exempt from the registration requirements of the Securities Act.

4.3.5 Absence of Violations, Defaults and Conflicts. Neither Company nor any of
its Subsidiaries is (i) in violation of its charter, by-laws or similar
organizational document, (ii) in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which Company or any of its Subsidiaries is a
party or by which it or any of them may be bound or to which any of the
properties, assets or operations of Company or any of its Subsidiaries is
subject (collectively, “Agreements and Instruments”), except for such defaults
that would not, singly or in the aggregate, result in a Material Adverse Effect,
or (iii) in violation of any law, statute, rule, regulation, judgment, order,
writ or decree of any Governmental Agency, except for such violations that would
not, singly or in the aggregate, result in a Material Adverse Effect. The
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated by the Transaction Documents and
compliance by Company with its obligations under the Transaction Documents have
been duly authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of Company or any of its
Subsidiaries pursuant to, the Agreements and Instruments (except for such
conflicts, breaches, defaults or Repayment Events or liens, charges or
encumbrances that would not, singly or in the aggregate, result in a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter, by-laws or similar organizational document of Company or any of
its Subsidiaries or any law, statute, rule, regulation, judgment, order, writ or
decree of any Governmental Agency. As used herein, a “Repayment Event” means any
event or condition which gives the holder of any note, debenture or other
financing instrument or agreement (or any person acting on such holder’s behalf)
the right to require the repurchase, redemption or repayment of all or a portion
of such financing by Company or any of its Subsidiaries.

4.3.6 Absence of Further Requirements. Except for a Current Report on Form 8-K
and a Form D to be filed by Company with the Commission and certain filings to
be made pursuant to state securities “blue sky” laws, no filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of, any Governmental Agency is necessary or required for the due
authorization, execution, delivery or performance by Company of its obligations
under the Transaction Documents or for the offering, issuance or sale of the
Subordinated Notes hereunder or the consummation of the transactions
contemplated by the Transaction Documents.

4.3.7 No Prohibition by Regulators. Company has not received notice, nor is it
aware, of any order, action, suit, proceeding, or proclamation of any entity
having regulatory authority over it or its business operations, including any
Governmental Agency, that would preclude or would be violated by Company’s
entering into the Transaction Documents and delivery of the Subordinated Notes.

4.3.8 No Integration. Neither Company nor any Affiliates of Company has, prior
to the date of this Agreement, made any sale or offer for sale, or solicited any
offer to buy, or otherwise negotiated in respect of any security (as defined in
Section 2 of the Securities Act) that will be integrated with the offer or sale
of the Subordinated Notes in a manner that would require the registration under
the Securities Act of the sale of the Subordinated Notes to the Purchasers.

 

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4.4 Possession of Licenses and Permits. Company and its Subsidiaries possess
such permits, licenses, approvals, consents and other authorizations
(collectively, “Governmental Licenses”) issued by the appropriate Governmental
Agencies necessary to conduct the business now operated by them, except where
the failure so to possess would not, singly or in the aggregate, result in a
Material Adverse Effect. Company and its Subsidiaries are in compliance with the
terms and conditions of all Governmental Licenses, except where the failure so
to comply would not, singly or in the aggregate, result in a Material Adverse
Effect. All of the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not, singly or in the
aggregate, result in a Material Adverse Effect. Neither Company nor any of its
Subsidiaries has received any notice of proceedings relating to the revocation
or modification of any Governmental Licenses.

4.5 Financial Condition.

4.5.1 Company Financial Statements. The financial statements included in
Company’s SEC Reports, together with the related schedules and notes, present
fairly the financial position of Company and its consolidated subsidiaries at
the dates indicated and the statement of operations, stockholders’ equity and
cash flows of Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with GAAP
applied on a consistent basis throughout the periods involved. The supporting
schedules, if any, present fairly in accordance with GAAP the information
required to be stated therein.

4.5.2 Absence of Default. Since the date of the latest audited financial
statements, no event has occurred which either of itself or with the lapse of
time or the giving of notice or both, would give any creditor of Company the
right to accelerate the maturity of any material Indebtedness of Company.
Company is not in default under any other lease, agreement or instrument, or any
law, rule, regulation, order, writ, injunction, decree, determination or award,
non-compliance with which could reasonably be expected to result in a Material
Adverse Effect on Company.

4.5.3 Solvency. After giving effect to the consummation of the transactions
contemplated by the Transaction Documents, Company has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage and is solvent and able to pay its debts as they
mature. No transfer of Property or assets is being made and no indebtedness is
being incurred in connection with the transactions contemplated by this
Agreement with the intent to hinder, delay or defraud either present or future
creditors of Company or any Subsidiary.

4.5.4 Title to Property; Possession of Intellectual Property.

4.5.4.1 Company and its Subsidiaries have good and marketable title to all real
property owned by them and good title to all other properties owned by them, in
each case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except those that are not
material and do not, singly or in the aggregate, materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by Company or any of its Subsidiaries; and all of the leases and
subleases material to the business of Company and its Subsidiaries, considered
as one enterprise, are in full force and effect, and neither Company nor any
such Subsidiary has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of Company or any of its Subsidiaries
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of Company or such Subsidiary to the continued possession
of the leased or subleased premises under any such lease or sublease.

 

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4.5.4.2 Company and its Subsidiaries own or possess, or can acquire on
reasonable terms, adequate rights to acquire all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks, trade names or other intellectual
property (collectively, “Intellectual Property”) necessary to carry on the
business now operated by them, except where the failure to own, possess, employ,
or acquire such Intellectual Property rights, singly or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, and neither
Company nor any of its Subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect the
interest of Company or any of its Subsidiaries therein, and which infringement
or conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would, singly or in the
aggregate, result in a Material Adverse Effect.

4.6 No Material Adverse Effect. Since the date of the latest audited financial
statements included in Company’s SEC Reports, (i) there has been no development
or event which has had or could reasonably be expected to have a Material
Adverse Effect on Company or any of its Subsidiaries; (ii) there have been no
transactions entered into by Company or any of its Subsidiaries, other than
transactions disclosed in Company’s filings with the Commission and transactions
entered into in the ordinary course of business, which are material with respect
to Company and its Subsidiaries considered as one enterprise, and (iii) there
has been no dividend or distribution of any kind declared, paid or made by
Company on any class or series of its capital stock other than dividends paid on
Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series A (“Series A
Preferred Stock”) , all outstanding shares of which were redeemed by Company on
March 25, 2016.

4.7 Legal Matters.

4.7.1 Compliance with Law. Company and each of its Subsidiaries (i) have
complied with and (ii) to Company’s knowledge, are not under investigation with
respect to, and have not been threatened to be charged with any violation of any
applicable statutes, rules, regulations, orders and restrictions of any domestic
or foreign government, or any instrumentality or agency thereof, including each
applicable Regulatory Agency, having jurisdiction over the conduct of its
business or the ownership of its Properties or assets, except where any such
failure to comply or violation would not reasonably be expected to have a
Material Adverse Effect on Company or any of its Subsidiaries.

4.7.2 Banking Regulations. Company and each of its Subsidiaries are in material
compliance with all applicable laws administered by, and regulations of, the
Bank Regulatory Authorities. Company is duly registered as a bank holding
company and qualified as a financial holding company under the Bank Holding
Company Act of 1956, as amended. Other than Bank, Company does not own or
control any depositary institution within the meaning of Section 3(c)(1) of the
Federal Deposit Insurance Act, as amended. The deposit accounts of Bank are
insured up to applicable limits by the FDIC, and no proceedings for the
modification, termination or revocation of such insurance are pending or, to the
knowledge of Company, threatened. Neither Company nor Bank or any of Company’s
other Subsidiaries is a party to or subject to any order, decree, agreement
memorandum of understanding or other regulatory enforcement action, proceeding
or order with or by, or is a party to or recipient of a commitment letter,
supervisory letter or similar undertaking to or from, or is subject to any
directive by, any Bank Regulatory Authority. There is no unresolved violation,
criticism or exception by any Bank Regulatory Authority with respect to any
examination of Company, Bank or any of Company’s other Subsidiaries, which might

 

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reasonably be expected to result in a Material Adverse Effect. Bank is “well
capitalized” as that term is defined at 12 CFR 325, Subpart B. Bank has received
a Community Reinvestment Act (“CRA”) rating of “satisfactory” and has not been
informed by the Bank Regulatory Authorities, or otherwise has any reason to
believe, that such rating may be changed to less than “satisfactory” for CRA
purposes.

4.7.3 Absence of Proceedings. There is no action, suit, proceeding, inquiry or
investigation before or brought by any Governmental Agency now pending or, to
the knowledge of Company, threatened, against or affecting Company or any of its
Subsidiaries, which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely affect
their respective properties or assets or the consummation of the transactions
contemplated in the Transaction Documents or the performance by Company of its
obligations under the Transaction Documents; and the aggregate of all pending
legal or governmental proceedings to which Company or any such Subsidiary is a
party or of which any of their respective properties or assets is the subject,
including ordinary routine litigation incidental to the business, could not,
singly or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

4.7.4 Environmental. Except as would not, singly or in the aggregate, reasonably
be expected to result in a Material Adverse Effect, (i) neither Company nor any
of its Subsidiaries is in violation of any Environmental Laws, (ii) Company and
its Subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are each in compliance with their
requirements, (iii) there are no pending or, to the knowledge of Company,
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating to any Environmental Law against Company
or any of its Subsidiaries and (iv) to the knowledge of Company, there are no
events or circumstances that would reasonably be expected to form the basis of
an order for clean-up or remediation, or an action, suit or proceeding by any
private party or Governmental Entity, against or affecting Company or any of its
Subsidiaries relating to Hazardous Materials or any Environmental Laws.

4.7.5 No Broker Fees. Except for commissions paid to Placement Agent, neither
Company nor any Subsidiary or Affiliate of Company is obligated to pay any
broker, finder or other party any brokerage or finder’s fee or any other fee,
commission or payment as a result of the transactions contemplated by this
Agreement.

4.7.6 Investment Company Act. Company is not required, and upon the issuance and
sale of the Subordinated Notes and the application of the net proceeds therefrom
as herein contemplated will not be required, to register as an “investment
company” under the Investment Company Act of 1940, as amended.

4.7.7 Not a U.S. Real Property Holding Corporation. Company is not, and has not
been, a U.S. real property holding corporation within the meaning of Section 897
of the Code.

4.7.8 No Burdensome Agreements. None of Company, Bank or any other Subsidiary of
Company is a party to any agreement, instrument or undertaking or subject to any
other restriction (i) which currently has a Material Adverse Effect on Company,
(ii) under or pursuant to which Company, Bank or any other Subsidiary of Company
is or will be required to place (or under which any other Person may place) a
lien upon any of its material Properties or assets securing Indebtedness either
upon demand or upon the happening of a condition, with or without such demand,
or (iii) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Indebtedness of Company that would be violated by its entering
into this Agreement and its issuance of the Subordinated Notes, except, in each
case, for liens securing advances by the Federal Home Loan Bank and the Federal
Reserve Bank of Atlanta as disclosed in the Company’s SEC Reports or entered
into in the ordinary course of business.

 

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4.8 No Misstatement. No information, exhibit, report, schedule or document, when
viewed together as a whole, furnished by Company to Purchasers in connection
with the negotiation, execution or performance of this Agreement contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements contained therein not misleading in light of the
circumstances when made or furnished to Purchasers and as of the Closing Date.

4.9 SEC Reports. Company is subject to, and is in compliance in all material
respects with, the reporting requirements of Section 13 and Section 15(d), as
applicable, of the Exchange Act. Company’s SEC Reports at the time they were
filed with the Commission, complied in all material respects with the
requirements of the Exchange Act and did not and do not include any untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they are made,
not misleading.

4.10 Accounting Controls and Disclosure Controls. Company and each of its
Subsidiaries maintain effective internal control over financial reporting (as
defined under Rule 13a-15 and 15d-15 of the rules and regulations promulgated
under the Exchange Act) and a system of internal accounting controls sufficient
to provide reasonable assurances that (i) transactions are executed in
accordance with management’s general or specific authorization,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. Since the end of Company’s most recent
audited fiscal year, there has been (a) no material weakness in Company’s
internal control over financial reporting (whether or not remediated) and (b) no
change in Company’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, Company’s
internal control over financial reporting. Company and each of its Subsidiaries
maintain an effective system of disclosure controls and procedures (as defined
in Rule 13a-15 and Rule 15d-15 of the rules and regulations promulgated under
the Exchange Act) that are designed to ensure that information required to be
disclosed by Company in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms, and is accumulated and
communicated to Company’s management, including its principal executive officer
or officers and principal financial officer or officers, as appropriate, to
allow timely decisions regarding disclosure.

4.11 Compliance with the Sarbanes-Oxley Act. There is and has been no failure on
the part of Company or any of Company’s directors or officers, in their
capacities as such, to comply in all material respects with any provision of the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in
connection therewith, including Section 402 related to loans and Sections 302
and 906 related to certifications.

4.12 Independent Accountants. The accountants who certified the financial
statements and the related schedules and notes included in the Company’s SEC
Reports are independent public accountants as required by the Securities Act,
the Exchange Act and the Public Company Accounting Oversight Board.

4.13 ERISA. Company and each ERISA Affiliate are in compliance in all material
respects with all presently applicable provisions of ERISA, except as would not,
singly or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. No “reportable event” (as defined in ERISA) has occurred with
respect to any “employee benefit plan” (as defined in ERISA) established or
maintained by Company, its Subsidiaries or their ERISA Affiliates that would,
singly or in the aggregate,

 

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reasonably be expected to result in a Material Adverse Effect. Except as would
not, singly or in the aggregate, reasonably be expected to result in a Material
Adverse Effect, (i) Company and each of its Subsidiaries or their ERISA
Affiliates have not incurred and do not expect to incur liability under
(a) Title IV of ERISA with respect to termination of, or withdrawal from, any
“employee benefit plan” or (b) Sections 412, 4971, 4975 or 4980B of the Code and
(ii) each “employee benefit plan” for which Company and each of its Subsidiaries
or any of their ERISA Affiliates would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.

4.14 Foreign Assets Control Regulations, Etc.

4.14.1 Foreign Corrupt Practices Act. None of Company, any of its Subsidiaries
or, to the knowledge of Company, any director, officer, agent, employee,
Affiliate or other person acting on behalf of Company or any of its Subsidiaries
is aware of or has taken any action, directly or indirectly, that would result
in a violation by such persons of the FCPA, including, without limitation,
making use of the mails or any means or instrumentality of interstate commerce
corruptly in furtherance of an offer, payment, promise to pay or authorization
of the payment of any money, or other property, gift, promise to give, or
authorization of the giving of anything of value to any “foreign official” (as
such term is defined in the FCPA) or any foreign political party or official
thereof or any candidate for foreign political office, in contravention of the
FCPA, and Company and, to the knowledge of Company, its Affiliates have
conducted their businesses in compliance with the FCPA and have instituted and
maintain policies and procedures designed to ensure, and which are reasonably
expected to continue to ensure, continued compliance therewith.

4.14.2 Money Laundering Laws. The operations of Company and its Subsidiaries are
and have been conducted at all times in compliance with applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, the money laundering statutes of
all jurisdictions, the rules and regulations thereunder and any related or
similar rules, regulations or guidelines, issued, administered or enforced by
any Governmental Agency (collectively, the “Money Laundering Laws”); and no
action, suit or proceeding by or before any Governmental Entity involving
Company or any of its Subsidiaries with respect to the Money Laundering Laws is
pending or, to the best knowledge of Company, threatened.

4.14.3 Office of Foreign Assets Control. None of Company, any of its
Subsidiaries or, to the knowledge of Company, any director, officer, agent,
employee, Affiliate or representative of Company or any of its Subsidiaries is
an individual or entity currently the subject or target of any sanctions
administered or enforced by the United States Government, including, without
limitation, the U.S. Department of the Treasury’s Office of Foreign Assets
Control, the United Nations Security Council, the European Union, Her Majesty’s
Treasury, or other relevant sanctions authority (collectively, “Sanctions”), nor
is Company located, organized or resident in a country or territory that is the
subject of Sanctions; and Company will not directly or indirectly use the
proceeds of the sale of the Subordinated Notes, or lend, contribute or otherwise
make available such proceeds to any Subsidiaries, joint venture partners or
other Person, to fund any activities of or business with any Person, or in any
country or territory, that, at the time of such funding, is the subject of
Sanctions or in any other manner that will result in a violation by any Person
(including any Person participating in the transaction, whether as underwriter,
advisor, investor or otherwise) of Sanctions.

4.15 Representations and Warranties Generally. The representations and
warranties of Company set forth in this Agreement that do not contain a
“Material Adverse Effect” qualification or other express materiality or similar
qualification are true and correct in all material respects (i) as of the

 

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Closing Date and (ii) as otherwise specifically provided herein. The
representations and warranties of Company set forth in this Agreement that
contain a “Material Adverse Effect” qualification or any other express
materiality or similar qualification are true and correct (a) as of the Closing
Date and (b) as otherwise specifically provided herein. None of the
representations, warranties, covenants and agreements made in this Agreement or
in any certificate or other document delivered to Purchasers by or on behalf of
Company pursuant to or in connection with this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained therein not misleading in light of the circumstances
when made and as of the Closing Date. Such representations and warranties shall
be deemed to have been relied upon by each Purchaser notwithstanding a
Purchaser’s review of any documents or materials delivered by Company to a
Purchaser pursuant to the terms hereof and notwithstanding any investigation
heretofore or hereafter made by Purchasers or on their behalf (and Company
hereby acknowledges such reliance by each Purchaser), provided that each
Purchaser represents that as of the date of this Agreement it has no actual
knowledge that any of Company’s representations or warranties is or might be
inaccurate; and the covenants and agreements of Company to the Purchasers that
by their nature are to be performed in the future shall continue in full force
and effect so long as they remain unperformed.

5. GENERAL COVENANTS, CONDITIONS AND AGREEMENTS.

Company hereby further covenants and agrees with each Purchaser as follows:

5.1 Compliance with Transaction Documents. Company shall comply with, observe
and timely perform each and every one of its covenants, agreements, undertakings
and obligations under the Transaction Documents.

5.2 Affiliate Transactions. Company shall not itself, nor shall it cause, permit
or allow any Subsidiary to enter into any transaction, including, the purchase,
sale or exchange of Property or other assets or the rendering of any service,
with any Affiliate of Company except in the ordinary course of business and
pursuant to the reasonable conduct of Company’s or such Affiliate’s business and
upon terms consistent with applicable laws and regulations and reasonably found
by the appropriate board(s) of directors to be fair and reasonable and no less
favorable to Company or such Affiliate than would be obtained in a comparable
arm’s length transaction with a Person not an Affiliate.

5.3 Compliance with Laws.

5.3.1 Generally. Company shall comply and cause each of its Subsidiaries to
comply with all applicable laws, statutes, rules, regulations, orders and
restrictions in respect of the conduct of its business and the ownership of its
properties, including without limitation Hazardous Materials Law, except, in
each case, where such noncompliance would not reasonably be expected to have a
Material Adverse Effect on Company.

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

 

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

5.3.4 Corporate Existence. Company shall do or cause to be done all things
reasonably necessary to maintain, preserve and renew its corporate existence and
that of its Subsidiaries and its and their rights and franchises, and comply in
all material respects with all related laws applicable to Company or its
Subsidiaries. Company in its sole discretion, and without consent of Purchasers,
may dissolve any of its subsidiaries that are not “significant subsidiaries” (as
defined in Article 1, Rule 1-02 of Regulation S-X promulgated pursuant to the
Securities Act) and are no longer conducting material business activities at the
date of dissolution.

5.3.5 Use of Proceeds; Margin Regulations. Company will apply the proceeds of
the sale of the Subordinated Notes as set forth in Section 2.8 of this
Agreement. No part of the proceeds from the sale of the Subordinated Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the FRB (12 CFR
221), or for the purpose of buying or carrying or trading in any securities
under such circumstances as to involve Company in a violation of Regulation X of
the FRB (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of the FRB (12 CFR 220). Margin stock does not constitute more than
twenty-five percent (25%) of the value of the consolidated assets of Company and
its Subsidiaries and Company does not have any present intention that margin
stock will constitute more than twenty-five percent (25%) of the value of such
assets. As used in this Section 5.3.5, the terms “margin stock” and “purpose of
buying or carrying” shall have the meanings assigned to them in said Regulation
U.

5.3.6 Dividends, Payments, and Guarantees During Event of Default. During the
continuance of an Event of Default and except as required by any federal or
state Governmental Agency, Company agrees not to (i) declare or pay any
dividends on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock, (ii) make any payment of principal of, or
interest or premium, if any, on, or repay, repurchase or redeem any of Company’s
debt that ranks equal with the Subordinated Notes, including, without
limitation, the Existing Subordinated Notes, or junior to the Subordinated
Notes, or (iii) make any payments under any guarantee that ranks equal with or
junior to the Subordinated Notes, other than (a) any dividends or distributions
in shares of, or options, warrants or rights to subscribe for or purchase shares
of, any class of Company’s common stock, (b) any declaration of a dividend in
connection with the implementation of a shareholders’ rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) as a result of a
reclassification of Company’s capital stock or the exchange or conversion of one
class or series of Company’s capital stock for another class or series of
Company’s capital stock, (d) the purchase of fractional interests in shares of
Company’s capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, or
(e) purchases of any class of Company’s common stock related to the issuance of
common stock or rights under any benefit plans for Company’s directors, officers
or employees or any of Company’s dividend reinvestment plans.

5.3.7 Limitation Upon Disposition of Voting Stock of Bank. Except as set forth
below, Company will not sell, assign, pledge, transfer or otherwise dispose of,
or permit the issuance of, or permit a direct or indirect majority owned entity
of Company to sell, assign, pledge, transfer or otherwise dispose of, any shares
of voting stock or any securities convertible into or options, warrants or
rights to subscribe for or purchase shares of voting stock of (i) Bank, or
(ii) any Subsidiary which owns shares of

 

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voting stock or any securities convertible into or options, warrants or rights
to subscribe for or purchase shares of voting stock of Bank; provided, however,
that nothing in this Section 5.3.7 shall prohibit any dispositions made by
Company or any Subsidiary (a) acting in a fiduciary capacity for any Person
other than Company or any Subsidiary, or (b) to Company or any of its
wholly-owned Subsidiaries. Notwithstanding the foregoing, sales, assignments,
pledges, transfers, issuances or other dispositions of shares of voting stock or
securities convertible into or options, warrants or rights to subscribe for or
purchase shares of voting stock of Bank or any Subsidiary which owns shares of
voting stock or any securities convertible into or options, warrants or rights
to subscribe for or purchase shares of voting stock of Bank, may be made where:
(1) the sales, assignments, pledges, transfers, issuances or other dispositions
are made, in the minimum amount required by law, to any Person for the purpose
of the qualification of such Person to serve as a director, or (2) the sales,
assignments, pledges, transfers, issuances or other dispositions are made in
compliance with an order of a court or regulatory authority of competent
jurisdiction, or (3) the sales, assignments, pledges, transfers, issuances or
other dispositions are made in connection with a merger or consolidation of Bank
with or into a wholly-owned subsidiary of Bank or Company if, after such merger
or consolidation with such entity, Company owns, directly or indirectly, not
less than the percentage of voting stock of the surviving entity of such
transaction as it owned of Bank prior to such transaction, or (4) the sales,
assignments, pledges, transfers, issuances or other dispositions are for fair
market value (as determined by the board of directors of Company) and, after
giving effect to such disposition or issuance and any potential dilution,
Company and its wholly-owned Subsidiaries will own directly or indirectly not
less than 80% of the voting stock of Bank or such Subsidiary, or (5) Bank sells
additional shares of voting stock to its stockholders at any price, if, after
such sale, Company owns, directly or indirectly, not less than the percentage of
voting stock of Bank it owned prior to such sale, or (6) a pledge is made or a
lien is created to secure loans or other extensions of credit by Bank subject to
Section 23A of the Federal Reserve Act, or (7) the sales, assignments, pledges,
transfers, issuances, mortgages, encumbrances, liens, charges of any kind or
other dispositions are made in connection with the renewal, refinancing or
incurrence of any Indebtedness ranking senior to the Subordinated Notes.

5.3.8 Limitation Upon Creation of Liens on Capital Stock of Bank. Except as
provided in Section 5.3.7 hereof, Company will not at any time, directly or
indirectly, create, assume, incur or suffer to be created, assumed or incurred
or to exist any mortgage, pledge, encumbrance or lien or charge of any kind upon
(i) any shares of capital stock of Bank (other than directors’ qualifying
shares), or (ii) any shares of capital stock of a Subsidiary which owns capital
stock of Bank; provided, however, that, notwithstanding the foregoing, Company
may incur or suffer to be incurred or to exist upon such capital stock (a) liens
for taxes, assessments or other governmental charges or levies which are not yet
due or are payable without penalty or of which the amount, applicability or
validity is being contested by Company in good faith by appropriate proceedings
and Company shall have set aside on its books adequate reserves with respect
thereto (segregated to the extent required by GAAP), or (b) the lien of any
judgment, if such judgment shall not have remained undischarged, or unstayed on
appeal or otherwise, for more than sixty (60) days.

5.3.9 Tier 2 Capital. If all or any portion of the Subordinated Notes ceases to
be deemed to be Tier 2 Capital, other than due to the limitation imposed on the
capital treatment of subordinated debt during the five (5) years immediately
preceding the Stated Maturity of the Subordinated Notes as provided in 12 C.F.R.
Part 217.20(d)(iv), Company will immediately notify the Purchasers, and
thereafter Company and the Purchasers will work together in good faith to
execute and deliver, subject to Section 8.3, all agreements as reasonably
necessary in order to restructure the applicable portions of the obligations
evidenced by the Subordinated Notes to qualify as Tier 2 Capital.

 

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5.4 No Integration. Company shall not, and shall use its commercially reasonable
efforts to ensure that no Affiliate of Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that will be integrated with the
offer or sale of the Subordinated Notes in a manner that would require the
registration under the Securities Act of the sale of the Subordinated Notes to
the Purchasers.

5.5 Absence of Control. It is the intent of the parties to this Agreement that
in no event shall Purchasers, by reason of any of the Transaction Documents, be
deemed to control, directly or indirectly, Company, and Purchasers shall not
exercise, or be deemed to exercise, directly or indirectly, a controlling
influence over the management or policies of Company.

5.6 Secondary Market Transactions. To the extent and so long as not violative of
Section 6.4 hereof, each Purchaser shall have the right at any time and from
time to time to securitize its Subordinated Notes or any portion thereof in a
single asset securitization or a pooled loan securitization of rated single or
multi-class securities secured by or evidencing ownership interests in the
Subordinated Notes (each such securitization is referred to herein as a
“Secondary Market Transaction”). In connection with any such Secondary Market
Transaction, Company shall, at Company’s expense, cooperate with Purchasers and
otherwise reasonably assist Purchasers in satisfying the market standards to
which Purchasers customarily adhere or which may be reasonably required in the
marketplace or by applicable rating agencies in connection with any such
Secondary Market Transaction, but in no event shall Company be required to incur
any material costs or expenses in connection therewith. Subject to any written
confidentiality obligation, including the terms of any nondisclosure agreement
between Purchaser and Company, all information regarding Company may be
furnished to any Person reasonably deemed necessary by Purchaser in connection
with participation in such Secondary Market Transaction. All documents,
financial statements, appraisals and other data relevant to Company or the
Subordinated Notes may be retained by any such Person subject to the terms of
any nondisclosure agreement between Purchaser and Company.

5.7 Bloomberg and DTC. Company shall use commercially reasonable efforts to
cause the Subordinated Notes to be quoted on Bloomberg and to be registered in
the name of The Depository Trust Company as contemplated by Section 8(a) of the
Subordinated Note.

5.8 Rule 144A Information. While any Subordinated Notes remain “restricted
securities” within the meaning of the Securities Act, Company shall use
commercially reasonable efforts to (i) make and keep public information
available, as those terms are understood and defined in Rule 144(c)(1) under the
Securities Act or any similar or analogous rule promulgated under the Securities
Act and (ii) (a) file with the Commission, in a timely manner, all reports and
other documents required of Company under the Exchange Act, and (b) if at any
time Company is not required to file such reports, make available, upon the
request of any Purchaser or subsequent holder of any Subordinated Notes, such
information necessary to permit sales pursuant to Rule 144A under the Securities
Act (including the information required by Rule 144A(d)(4) under the Securities
Act).

6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASERS.

Each Purchaser hereby represents and warrants to Company, and covenants with
Company, severally and not jointly, as follows:

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

 

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6.2 Authorization and Execution. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the part of such
Purchaser, and this Agreement is a legal, valid and binding obligation of such
Purchaser, enforceable against such Purchaser in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors’ rights generally or by general equitable principles.

6.3 No Conflicts. Neither the execution, delivery or performance of the
Transaction Documents nor the consummation of any of the transactions
contemplated thereby will conflict with, violate, constitute a breach of or a
default (with the passage of time or otherwise) under (i) its organizational
documents, (ii) any agreement to which it is party, (iii) any law applicable to
it or (iv) any order, writ, judgment, injunction, decree, determination or award
binding upon or affecting it.

6.4 Purchase for Investment. It is purchasing the Subordinated Note for its own
account and not with a view to distribution and with no present intention of
reselling, distributing or otherwise disposing of the same. It has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for, or which is likely to compel, a disposition of the
Subordinated Notes in any manner.

6.5 Institutional Accredited Investor; Qualified Institutional Buyer. It is and
will be on the Closing Date an institutional “accredited investor” as such term
is defined in Rule 501(a) of Regulation D and as contemplated by subsections
(1), (2), (3) and (7) of Rule 501(a) of Regulation D, and has no less than
$5,000,000 in total assets. It is and will be on the Closing Date a “qualified
institutional buyer” as such term is defined in Rule 144A under the Securities
Act.

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

6.7 Private Placement; No Registration of Securities. It understands and
acknowledges that the Subordinated Notes are being sold by Company without
registration under the Securities Act in reliance on the exemption from federal
and state registration set forth in, respectively, Rule 506(b) of Regulation D
promulgated under Section 4(a)(2) of the Securities Act and Section 18 of the
Securities Act, or any state securities laws, and accordingly, may be resold,
pledged or otherwise transferred only if exemptions from the Securities Act and
applicable state securities laws are available to it. It further understands and
acknowledges that, Company will not be obligated in the future to register the
Subordinated Notes under the Securities Act or the Exchange Act, or under any
state securities laws. Neither Placement Agent nor Company has made or is making
any representation, warranty or covenant, express or implied, as to the
availability of any exemption from registration under the Securities Act or any
applicable state securities laws for the resale, pledge or other transfer of the
Subordinated Notes, or that the Subordinated Note(s) purchased by it will ever
be able to be lawfully resold, pledged or otherwise transferred.

6.8 Ability to Bear Economic Risk of Investment. It recognizes that an
investment in the Subordinated Notes involves substantial risk. It has the
ability to bear the economic risk of the prospective investment in the
Subordinated Notes, including the ability to hold the Subordinated Notes
indefinitely, and further including the ability to bear a complete loss of all
of its investment in Company. It has adequate means of providing for its current
needs and personal contingencies and has no need for liquidity in this
investment.

 

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6.9 Information. It acknowledges that: (i) it is not being provided with the
disclosures that would be required if the offer and sale of the Subordinated
Notes were registered under the Securities Act, nor is it being provided with
any registration statement, offering circular, prospectus or prospectus
supplement prepared in connection with the offer and sale of the Subordinated
Notes, the Existing Subordinated Notes or any other securities of Company or any
of its Subsidiaries; (ii) it has conducted its own examination of Company and
the terms of the Subordinated Notes to the extent it deems necessary to make its
decision to invest in the Subordinated Notes; (iii) it has availed itself of
publicly available financial and other information concerning Company to the
extent it deems necessary to make its decision to purchase the Subordinated
Notes (including meeting with representatives of Company); and (iv) it has not
received nor relied on any form of general solicitation or general advertising
(within the meaning of Regulation D) from Company in connection with the offer
or sale of the Subordinated Notes. It has reviewed the information set forth in
Company’s SEC Reports and the exhibits and schedules thereto and the information
contained in the online data room established by Company on Ansarada, as of
June 24, 2016.

6.10 Access to Information. It acknowledges that it and its advisors have been
furnished with all materials relating to the business, finances and operations
of Company that have been requested of it or its advisors and have been given
the opportunity to ask questions of, and to receive answers from, persons acting
on behalf of Company concerning terms and conditions of the transactions
contemplated by this Agreement in order to make an informed and voluntary
decision to enter into this Agreement. It has reviewed the information set forth
in Exhibit C hereto regarding “Risk Factors” pertaining to Company. It is not
subscribing for Subordinated Notes as a result of or subsequent to any
advertisement, article, notice or other communication published in any website,
newspaper, magazine or similar media or broadcast over television or radio, or
any solicitation of a subscription by a person other than representatives of
Company.

6.11 Investment Decision. It has made its own investment decision based upon its
own judgment, due diligence and advice from such advisors as it has deemed
necessary and not upon any view expressed by any other person or entity,
including the Placement Agent. Neither such inquiries nor any other due
diligence investigations conducted by it or its advisors or representatives, if
any, shall modify, amend or affect its right to rely on Company’s
representations and warranties contained herein. It is not relying upon, and has
not relied upon, any advice, statement, representation or warranty made by any
Person by or on behalf of Company, including, without limitation, the Placement
Agent, except for the express statements, representations and warranties of
Company made or contained in this Agreement. Furthermore, it acknowledges that
(i) the Placement Agent has not performed any due diligence review on behalf of
it and (ii) nothing in this Agreement or any other materials presented by or on
behalf of Company to it in connection with the purchase of the Subordinated
Notes constitutes legal, tax or investment advice.

6.12 Placement Agent. It will purchase the Subordinated Note(s) directly from
Company and not from Placement Agent and understands that neither Placement
Agent nor any other broker or dealer has any obligation to make a market in the
Subordinated Notes.

6.13 Tier 2 Capital. If all or any portion of the Subordinated Notes ceases to
be deemed to be Tier 2 Capital, other than due to the limitation imposed on the
capital treatment of subordinated debt during the five (5) years immediately
preceding the Stated Maturity of the Subordinated Notes as provided in 12 C.F.R.
Part 217.20(d)(iv), Company will immediately notify the Purchasers, and
thereafter Company and the Purchasers will work together in good faith to
execute and deliver all agreements as reasonably necessary in order to
restructure the applicable portions of the obligations evidenced by the
Subordinated Notes to qualify as Tier 2 Capital.

 

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

6.15 Representations and Warranties Generally. The representations and
warranties of Purchaser set forth in this Agreement are true and correct in all
material respects (i) as of the Closing Date and (ii) as otherwise specifically
provided herein. Any certificate signed by a duly authorized representative of
Purchaser and delivered to Company or to counsel for Company shall be deemed to
be a representation and warranty by Purchaser to Company as to the matters set
forth therein.

7. INDEMNIFICATION.

7.1 Each Purchaser, severally and not jointly, agrees to indemnify and hold
harmless Company, and the officers and directors thereof, and each other Person,
if any, who “controls” any thereof within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses reasonably incurred in investigating, preparing or
defending against any litigation or regulatory action commenced or threatened or
any claim whatsoever) arising out of or based upon any written false
representation or warranty or breach or failure by such Purchaser to comply with
any covenant or agreement made by Purchaser herein or in the Subordinated Notes.

7.2 Company agrees to indemnify and hold harmless each Purchaser and its
respective advisors, directors, officers, shareholders, members, partners,
employees, agents and Affiliates (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) and each other Person, if any, who “controls” any
thereof and the directors, officers, shareholders, agents, members, partners,
employees or Affiliates (and any other Persons with a functionally equivalent
role of a Person holding such titles notwithstanding a lack of such title or any
other title) of such controlling person within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses reasonably incurred in investigating, preparing or
defending against any litigation or regulatory action commenced or threatened or
any claim whatsoever) arising out of or based upon any false representation or
warranty or breach or failure by Company to comply with any covenant or
agreement made by Company herein or in the Subordinated Notes.

8. MISCELLANEOUS.

8.1 Prohibition on Assignment by Company. Except as described in Section 4
(Merger and Sale of Assets) of the Subordinated Notes, Company may not assign,
transfer or delegate any of its rights under this Agreement or the Subordinated
Notes without the prior written consent of Purchasers. In addition, in
accordance with the terms of the Subordinated Notes, any transfer of such
Subordinated Notes must be made in accordance with the Assignment Form attached
thereto and the requirements and restrictions thereof.

8.2 Time of the Essence. Time is of the essence of this Agreement.

8.3 Waiver or Amendment. No waiver or amendment of any term, provision,
condition, covenant or agreement herein or in the Subordinated Notes shall be
effective except with the consent of the holders of not less than fifty percent
(50%) in aggregate principal amount (excluding any Subordinated Notes held by
Company or any of its Affiliates) of the Subordinated Notes at the time
outstanding; provided, however, that without the consent of each holder of an
affected Subordinated Note, no such amendment or waiver may: (i) reduce the
principal amount of the Subordinated Note; (ii) reduce the rate of or change the
time for payment of interest on any Subordinated Note; (iii) extend the maturity
of any

 

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Subordinated Note, (iv) change the currency in which payment of the obligations
of Company under this Agreement and the Subordinated Notes are to be made;
(v) lower the percentage of aggregate principal amount of outstanding
Subordinated Notes required to approve any amendment of this Agreement or the
Subordinated Notes, (vi) make any changes to Section 9 (Failure to Make a
Payment) of the Subordinated Notes that adversely affects the rights of any
holder of a Subordinated Note; or (vii) disproportionately affect any of the
holders of the then outstanding Subordinated Notes. Notwithstanding the
foregoing, Company may amend or supplement the Subordinated Notes without the
consent of the holders of the Subordinated Notes to cure any ambiguity, defect
or inconsistency or to provide for uncertificated Subordinated Notes in addition
to or in place of certificated Subordinated Notes. No failure to exercise or
delay in exercising, by a Purchaser or any holder of the Subordinated Notes, of
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege preclude
any other or further exercise thereof, or the exercise of any other right or
remedy provided by law. The rights and remedies provided in this Agreement are
cumulative and not exclusive of any right or remedy provided by law or equity.
No notice or demand on Company in any case shall, in itself, entitle Company to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of Purchasers to any other or further action
in any circumstances without notice or demand. No consent or waiver, express or
implied, by Purchasers to or of any breach or default by Company in the
performance of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance of the
same or any other obligations of Company hereunder. Failure on the part of
Purchasers to complain of any acts or failure to act or to declare an Event of
Default, irrespective of how long such failure continues, shall not constitute a
waiver by Purchasers of their rights hereunder or impair any rights, powers or
remedies on account of any breach or default by Company.

8.4 Registration, Exchange, and Substitution of Subordinated Notes.

8.4.1 Registration of Notes; Paying Agent Agreement. U.S. Bank shall keep a
Security Register on behalf of Company for the registration and registration of
transfers of Subordinated Notes. The name and address of each holder of one or
more Subordinated Notes, each transfer thereof and the name and address of each
transferee of one or more Subordinated Notes shall be registered in such
register. Prior to due presentment for registration of transfer, the Person in
whose name any Subordinated Note shall be registered shall be deemed and treated
as the owner and holder thereof for all purposes hereof, and Company shall not
be affected by any notice or knowledge to the contrary. Company shall give to
any holder of a Subordinated Note promptly upon request therefor, a complete and
correct copy of the names and addresses of all registered holders of
Subordinated Notes. The parties agree and acknowledge that Company and U.S. Bank
have entered into that certain Paying Agent Agreement dated as of the date
hereof whereby U.S. Bank will act as Paying Agent, Registrar and Transfer Agent
for the Subordinated Notes. To the extent of any conflict between the terms of
this Agreement and those of the Paying Agent Agreement, the terms of the Paying
Agent Agreement shall control.

8.4.2 Transfer and Exchange of Notes. Upon surrender of any Subordinated Note to
(i) Company at the address and to the attention of the designated officer (all
as specified in this Agreement) or (ii) U.S. Bank National Association,
Corporate Trust Services, 333 Commerce Street, Suite 800, Nashville, TN 37201,
for registration of transfer or exchange (and in the case of a surrender for
registration of transfer accompanied by a written instrument of transfer duly
executed by the registered holder of such Subordinated Note or such holder’s
attorney duly authorized in writing and accompanied by the relevant name,
address and other information for notices of each transferee of such
Subordinated Note or part thereof), within ten (10) Business Days thereafter,
U.S. Bank shall execute and deliver one or more new Subordinated Notes (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Subordinated
Note. Each such new Subordinated Note shall be payable to such Person as such
holder may request and shall

 

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be substantially in the form of the initial Subordinated Notes delivered
hereunder. Each such new Subordinated Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Subordinated
Note or dated the date of the surrendered Subordinated Note if no interest shall
have been paid thereon. U.S. Bank may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such
transfer of Subordinated Notes. Subordinated Notes shall be transferred only in
authorized denominations and in a minimum amount of $50,000 and multiples of
$25,000 in excess thereof. Any transferee, by its acceptance of Subordinated
Note registered in its name (or the name of its nominee), shall be deemed to
have made the representations set forth in Section 6.5 hereof.

8.4.3 Replacement of Notes. Upon receipt by (i) Company at the address and to
the attention of the designated officer (all as specified in this Agreement) or
(ii) U.S. Bank National Association, Corporate Trust Services, 333 Commerce
Street, Suite 800, Nashville, TN 37201, of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any
Subordinated Note (which evidence shall be, in the case of a holder of
Subordinated Notes, notice from such holder of such ownership and such loss,
theft, destruction or mutilation), and

(i) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to U.S. Bank (provided that if the holder of such Subordinated Note
is, or is a nominee for, an original Purchaser or another holder of a
Subordinated Note with a minimum net worth of at least the principal amount of
the replaced Subordinated Note or an “accredited investor” as defined in
Section 6.5 hereof, such Person’s own unsecured agreement of indemnity shall be
deemed to be satisfactory), or

(ii) in the case of mutilation, upon surrender and cancellation thereof, within
ten Business Days thereafter, U.S. Bank shall execute and deliver, in lieu
thereof, a new Subordinated Note, dated and bearing interest from the date to
which interest shall have been paid on such lost, stolen, destroyed or mutilated
Subordinated Note or dated the date of such lost, stolen, destroyed or mutilated
Subordinated Note if no interest shall have been paid thereon.

8.5 Notes Held by Company, etc. Solely for the purpose of determining whether
the holders of the requisite percentage of the aggregate principal amount of
Subordinated Notes then outstanding approved or consented to any amendment,
waiver or consent to be given under this Agreement or the Subordinated Notes, or
have directed the taking of any action provided herein or in the Subordinated
Notes to be taken upon the direction of the holders of a specified percentage of
the aggregate principal amount of Subordinated Notes then outstanding,
Subordinated Notes directly or indirectly owned by Company or any of its
Affiliates shall be deemed not to be outstanding.

8.6 Other Agreements. In the event that Company has entered into or shall,
directly or indirectly, enter into or otherwise consent to any other agreements
concerning the incurrence of Indebtedness on parity with the Subordinated Notes,
which other agreement (i) gives or grants to any Person (a) covenants (excluding
covenants of Company to pay a specific rate of interest, fees or premiums on
such other Indebtedness, but including, without limitation, all other covenants
such as financial covenants or financial covenant levels) which are more
restrictive or more favorable to the Person which is a party to such other
agreement in any material respect or (b) additional or greater rights or
remedies (including, without limitation, more stringent or shorter periods of
time that must elapse prior to such Person’s right to exercise remedies under
such other agreement upon the occurrence of a default or event of default
thereunder) in any material respect or (ii) waives the rights that Company may
assert in any action to enforce the other agreement (such more favorable
covenants or greater rights or remedies or waivers in the foregoing clauses
(i) and (ii), each, a “More Favorable Provision”), in each case than are given
or granted to Purchasers hereunder, then Company shall provide Purchasers a copy
of such other

 

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agreement(s), and the More Favorable Provision(s) therein shall automatically be
incorporated into this Section 8.6, without further action by any party to this
Agreement, for so long as such other agreement remains in effect; provided, that
in determining whether such other agreement provides for More Favorable
Provisions, a certificate of an officer of Company (“More Favorable Provision
Certificate”) delivered to the Purchasers at least ten (10) days prior to such
agreement taking effect together with a copy of such draft agreement, stating
whether any More Favorable Provisions are included in the agreement and
identifying those provisions shall be conclusive evidence as to whether the
agreement includes any More Favorable Provisions unless any Purchaser notifies
Company within such ten (10) day period that it disagrees with such
determination. Failure by the Purchasers to provide timely notice of their
disagreement to the determination set forth in the More Favorable Provision
Certificate shall be deemed to be the consent of the Purchasers as to Company’s
determination set forth therein. Upon receipt by Purchasers of a More Favorable
Provision Certificate, Purchasers may elect, upon written consent of Purchasers
holding at least 67% of the aggregate principal amount of the Subordinated Notes
at such time outstanding, that any More Favorable Provision therein shall not be
incorporated into this Section 8.6 and, upon such determination, any
incorporation of such More Favorable Provision into this Section 8.6 shall be
deemed to be void ab initio and of no force and effect.

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

8.8 Revival of Liabilities. To the extent that a Purchaser receives any payment
on account of Company’s Liabilities and any such payment(s) and/or proceeds or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, subordinated and/or required to be repaid to a trustee,
receiver or any other Person under any bankruptcy act, state or federal law,
common law or equitable cause, then to the extent of such payment(s) or proceeds
received, Company’s Liabilities or part thereof intended to be satisfied shall
be revived and continue in full force and effect, as if such payment(s) and/or
proceeds had not been received by such Purchaser and applied on account of
Company’s Liabilities; provided, however, if such Purchaser successfully
contests any such invalidation, declaration, set aside, subordination or other
order to pay any such payment and/or proceeds to any third party, the revived
Company’s Liabilities shall be deemed satisfied.

8.9 Notices. Any notice which any party hereto may be required or may desire to
give hereunder shall be deemed to have been given if in writing and if delivered
personally, or if mailed, postage prepaid, by United States registered or
certified mail, return receipt requested, or if delivered by a responsible
overnight commercial courier promising next business day delivery, addressed:

 

if to Company:

     Franklin Financial Network, Inc.      722 Columbia Avenue      Franklin,
Tennessee 37064      Attention: Richard E. Herrington

with a copy to:

     Baker, Donelson, Bearman, Caldwell & Berkowitz, PC      211 Commerce
Street, Suite 800      Nashville, Tennessee 37201      Attention: Steven J.
Eisen and Mark L. Miller

if to Purchasers:

     To the addresses indicated on the signature pages

 

26

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EXECUTION VERSION

 

or to such other address or addresses as the party to be given notice may have
furnished in writing to the party seeking or desiring to give notice, as a place
for the giving of notice; provided that no change in address shall be effective
until five (5) Business Days after being given to the other party in the manner
provided for above. Any notice given in accordance with the foregoing shall be
effective upon receipt if received during normal business hours or, if not
received during normal business hours, on the next Business Day.

8.10 Successors and Assigns. This Agreement shall inure to the benefit of the
parties and their respective heirs, legal representatives, successors and
assigns; except that (i) unless a Purchaser consents in writing, no assignment
made by Company in violation of this Agreement shall be effective or confer any
rights on any purported assignee of Company, and (ii) unless such assignment
complies with the Assignment Form attached to the Subordinated Notes, no
assignment made by Purchaser shall be effective or confer any rights on any
purported assignee of Purchaser. The term “successors and assigns” will not
include a purchaser of any of the Subordinated Notes from any Purchaser merely
because of such purchase.

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

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

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

8.14 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to its
laws or principles of conflict of laws. Nothing herein shall be deemed to limit
any rights, powers or privileges which a Purchaser may have pursuant to any law
of the United States of America or any rule, regulation or order of any
department or agency thereof and nothing herein shall be deemed to make unlawful
any transaction or conduct by a Purchaser which is lawful pursuant to, or which
is permitted by, any of the foregoing.

8.15 No Third Party Beneficiary. This Agreement is made for the sole benefit of
Company and the Purchasers, and no other person shall be deemed to have any
privity of contract hereunder nor any right to rely hereon to any extent or for
any purpose whatsoever, nor shall any other person have any right of action of
any kind hereon or be deemed to be a third party beneficiary hereunder;
provided, that Placement Agent may rely on the representations and warranties
contained herein to the same extent as if it were a party to this Agreement.

 

27

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EXECUTION VERSION

 

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

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

8.18 Knowledge; Discretion. All references herein to Company’s knowledge shall
be deemed to mean the knowledge of Company based on the actual or constructive
knowledge, after due inquiry, of the Company’s Chief Executive Officer and Chief
Financial Officer or such other persons holding equivalent offices, or
individuals performing similar functions. Unless specified to the contrary
herein, all references herein to an exercise of discretion or judgment by a
Purchaser, to the making of a determination or designation by a Purchaser, to
the application of a Purchaser’s discretion or opinion, to the granting or
withholding of a Purchaser’s consent or approval, to the consideration of
whether a matter or thing is satisfactory or acceptable to a Purchaser, or
otherwise involving the decision making of a Purchaser, shall be deemed to mean
that such Purchaser shall decide using the reasonable discretion or judgment of
a prudent lender.

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

8.20 Expenses. Except as otherwise provided in this Agreement, 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 including any fees related to due diligence and attorneys’ fees.

8.21 Survival. Each of the representations and warranties set forth in this
Agreement shall survive the consummation of the transactions contemplated hereby
for a period of one year after the date hereof. Except as otherwise provided
herein, all covenants and agreements contained herein shall survive until, by
their respective terms, they are no longer operative.

[Signature Pages Follow]

 

28

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EXECUTION VERSION

 

IN WITNESS WHEREOF, Company has caused this Subordinated Note Purchase Agreement
to be executed by its duly authorized representative as of the date first above
written.

 

COMPANY: FRANKLIN FINANCIAL NETWORK, INC. By:       Name:   Title:

 

[Company Signature Page]

--------------------------------------------------------------------------------

EXECUTION VERSION

 

IN WITNESS WHEREOF, the Purchaser has caused this Subordinated Note Purchase
Agreement to be executed by its duly authorized representative as of the date
first above written.

 

PURCHASER: By:       Name:   Title:

 

Address:            

 

Subordinated Note Amount: $    

 

[Purchaser Signature Page]

--------------------------------------------------------------------------------

EXECUTION VERSION

 

EXHIBIT A

FORM OF SUBORDINATED NOTE

(See Attached)

 

--------------------------------------------------------------------------------

FORM OF SUBORDINATED NOTE

FRANKLIN FINANCIAL NETWORK, INC.

7.00% FIXED-TO-FLOATING RATE SUBORDINATED NOTE DUE 2026

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE (THIS “NOTE”) IS NOT A
DEPOSIT, SAVINGS ACCOUNT OR OTHER OBLIGATION OF ANY BANK OR SAVINGS ASSOCIATION
AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE “FDIC”) OR
ANY OTHER GOVERNMENT AGENCY OR FUND. SECURITIES ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING LOSS OF VALUE.

THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED AND JUNIOR IN RIGHT OF
PAYMENT TO THE CLAIMS OF CREDITORS (OTHER THAN CREDITORS OF EXISTING
SUBORDINATED DEBT) OF FRANKLIN FINANCIAL NETWORK, INC. (THE “ISSUER”) AND
DEPOSITORS OF FRANKLIN SYNERGY BANK (THE “BANK”), INCLUDING OBLIGATIONS OF THE
ISSUER TO ITS GENERAL AND SECURED CREDITORS AND IS UNSECURED. IT IS INELIGIBLE
AS COLLATERAL FOR ANY EXTENSION OF CREDIT BY THE ISSUER OR ANY OF ITS
SUBSIDIARIES. IN THE EVENT OF LIQUIDATION OF THE ISSUER ALL DEPOSITORS OF THE
BANK AND CREDITORS OF THE ISSUER SHALL BE ENTITLED TO BE PAID IN FULL WITH SUCH
INTEREST AS MAY BE PROVIDED BY LAW BEFORE ANY PAYMENT SHALL BE MADE ON ACCOUNT
OF PRINCIPAL OF OR INTEREST ON THIS NOTE. AFTER PAYMENT IN FULL OF ALL SUMS
OWING TO SUCH DEPOSITORS OF THE BANK AND CREDITORS OF THE ISSUER, THE HOLDER OF
THIS NOTE SHALL BE ENTITLED TO BE PAID FROM THE REMAINING ASSETS OF THE ISSUER
THE UNPAID PRINCIPAL AMOUNT OF THIS NOTE PLUS ACCRUED AND UNPAID INTEREST
THEREON BEFORE ANY PAYMENT OR OTHER DISTRIBUTION, WHETHER IN CASH, PROPERTY OR
OTHERWISE, SHALL BE MADE ON ACCOUNT OF ANY SHARES OF CAPITAL STOCK OF THE
ISSUER.

THIS NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF
$50,000 AND MULTIPLES OF $25,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF
THIS NOTE IN A DENOMINATION OF LESS THAN $50,000 SHALL BE DEEMED TO BE VOID AND
OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT
TO BE THE HOLDER OF THIS NOTE FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO,
THE RECEIPT OF PAYMENTS ON THIS NOTE, AND SUCH PURPORTED TRANSFEREE SHALL BE
DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS NOTE.

THIS NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE
SECURITIES LAWS. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS NOTE IS ISSUED SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SUBORDINATED NOTE PURCHASE
AGREEMENT DATED JUNE 30, 2016 BETWEEN THE ISSUER AND THE PURCHASERS REFERRED TO
THEREIN (THE “PURCHASE AGREEMENT”), A COPY OF WHICH IS ON FILE WITH THE ISSUER.
THE NOTE REPRESENTED BY THIS INSTRUMENT MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE PURCHASE AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN
COMPLIANCE WITH THE PURCHASE AGREEMENT WILL BE VOID.

 

1

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CERTAIN ERISA CONSIDERATIONS:

THE HOLDER OF THIS NOTE, OR ANY INTEREST HEREIN, BY ITS ACCEPTANCE HEREOF OR
THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN
EMPLOYEE BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR
ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), A TRUSTEE OR OTHER PERSON ACTING
ON BEHALF OF ANY SUCH PLAN, OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN
ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, OR (ii) THAT SUCH
PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S.
DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38,
90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF
THIS NOTE, OR ANY INTEREST HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE. THIS NOTE MAY NOT BE PURCHASED BY OR TRANSFERRED TO
ANY PLAN OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS UNLESS THE
PURCHASE OR TRANSFER WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION
UNDER SECTION 406 OF ERISA, SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION
UNDER ANY APPLICABLE SIMILAR LAWS.

ANY FIDUCIARY OF ANY PLAN WHO IS CONSIDERING THE ACQUISITION OF THIS NOTE OR ANY
INTEREST HEREIN SHOULD CONSULT WITH HIS OR HER LEGAL COUNSEL PRIOR TO ACQUIRING
THIS NOTE OR ANY INTEREST HEREIN.

 

2

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No. [    ]

CUSIP 35352P AB0

FRANKLIN FINANCIAL NETWORK, INC.

7.00% FIXED-TO-FLOATING RATE SUBORDINATED NOTE DUE 2026

1. Subordinated Notes. This Subordinated Note (this “Note”) is one of a duly
authorized issue of notes of Franklin Financial Network, Inc. (the “Issuer”)
designated as the “7.00% Fixed-to-Floating Rate Subordinated Notes due 2026”
(the “Subordinated Notes”), initially limited in aggregate principal amount to
$20,000,000.

2. Payment.

(a) The Issuer, for value received, hereby promises to pay to the order of
[                ], or its registered assigns (the “Holder”), the principal sum
of [                ] (U.S.) ($[                ]) plus accrued but unpaid
interest on July 1, 2026 (the “Stated Maturity”) and to pay interest on such
principal amount (i) from and including the original issue date of the
Subordinated Notes (June 30, 2016) to but excluding July 1, 2021, at the rate of
7.00% per annum (computed on the basis of a 360-day year consisting of twelve
30-day months and payable semi-annually in arrears on January 1 and July 1 of
each year (each, a “Fixed Interest Payment Date”) beginning on January 1, 2017,
and (ii) from and including July 1, 2021 to but excluding the Stated Maturity,
at the rate per annum, reset quarterly, equal to LIBOR determined on the
determination date of the applicable interest period plus 604 basis points,
computed on the basis of a 360-day year and the actual number of days elapsed
and payable quarterly in arrears on January 1, April 1, July 1 and October 1 of
each year (each, a “Floating Interest Payment Date”). An “Interest Payment Date”
is either a Fixed Interest Payment Date or a Floating Interest Payment Date, as
applicable. “LIBOR” means the 3-month USD LIBOR, which will be the offered rate
for 3-month deposits in U.S. dollars, as that rate appears on the Reuters Screen
LIBOR01 Page (or any successor page thereto) as of 11:00 a.m., London time, as
observed two London banking days prior to the first day of the applicable
floating rate interest period. If 3-month USD LIBOR is not so displayed as of
such time with respect to any applicable floating rate interest period, then the
Issuer will request the principal London offices of at least two banks to
provide a quotation of their rates for deposits in U.S. dollars for a period
comparable to the applicable floating rate interest period and the 3-month USD
LIBOR for such floating rate interest period shall be the arithmetic mean of
such quotations. A “London banking day” is a day on which commercial banks and
foreign currency markets settle payments and are open for general business in
London.

(b) Any payment of principal of or interest on this Note that would otherwise
become due and payable on a day which is not a Business Day shall become due and
payable on the next succeeding Business Day, with the same force and effect as
if made on the date for payment of such principal or interest, and no interest
shall accrue in respect of such payment for the period after such day. The term
“Business Day” means any day other than a Saturday, Sunday or any other day on
which banking institutions in the City of New York, New York or the State of
Tennessee are permitted or required by any applicable law or executive order to
close.

3. Subordination. The indebtedness of the Issuer evidenced by the Subordinated
Notes, including the principal and interest on this Note, shall be subordinate
and junior in right of payment to the prior payment in full of all existing
claims of creditors of the Issuer and depositors of the Issuer’s wholly owned
subsidiary, Franklin Synergy Bank (the “Bank”), whether now outstanding or
subsequently created, assumed or incurred (collectively, “Senior Indebtedness”),
which shall consist of: (a) the principal of, and premium, if any, and interest
in respect of indebtedness of the Issuer for purchased or borrowed money,
whether or not evidenced by securities, notes, debentures, bonds or other
similar

 

3

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instruments issued by the Issuer; (b) all capital lease obligations of the
Issuer; (c) all obligations of the Issuer issued or assumed as the deferred
purchase price of property, all conditional sale obligations of the Issuer and
all obligations of the Issuer under any conditional sale or title retention
agreement, but excluding trade accounts payable in the ordinary course of
business; (d) all obligations of the Issuer arising from off-balance sheet
guarantees and direct credit substitutes, including obligations in respect of
any letters of credit, bankers’ acceptances, security purchase facilities and
similar credit transactions; (e) all obligations of the Issuer associated with
derivative products, including obligations in respect of interest rate swap, cap
or other agreements, interest rate future or options contracts, currency swap
agreements, currency future or option contracts and other similar agreements;
(f) all obligations of the type referred to in clauses (a) through (e) of other
persons for the payment of which the Issuer is responsible or liable as obligor,
guarantor or otherwise; (g) all obligations of the type referred to in clauses
(a) through (f) of other persons secured by any lien on any property or asset of
the Issuer, whether or not such obligation is assumed by the Issuer; and (h) any
deferrals, renewals or extensions of any of the obligations of the type referred
to in clauses (a) through (g); except “Senior Indebtedness” does not include
(i) the Subordinated Notes, (ii) any obligation that by its terms expressly is
junior to, or ranks equally in right of payment with, the Subordinated Notes,
including, without limitation, the Existing Subordinated Notes (as defined
below), (iii) any indebtedness between the Issuer and any of its subsidiaries or
Affiliates (as the term “Affiliate(s)” is defined in the Purchase Agreement),
(iv) trade accounts payable arising in the ordinary course of business; or
(v) the Junior Subordinated Indebtedness (as defined below). This Note is not
secured by any assets of the Issuer and not covered by a guarantee of the Issuer
or of an Affiliate of the Issuer.

In the event of liquidation of the Issuer, holders of Senior Indebtedness of the
Issuer shall be entitled to be paid in full with such interest as may be
provided by law before any payment shall be made on account of principal of or
interest on the Subordinated Notes, including this Note. Additionally, in the
event of any insolvency, dissolution, assignment for the benefit of creditors,
reorganization, restructuring of debt, marshaling of assets and liabilities or
similar proceedings or any liquidation or winding up of or relating to the
Issuer, whether voluntary or involuntary, holders of Senior Indebtedness shall
be entitled to be paid in full before any payment shall be made on account of
the principal of or interest on the Subordinated Notes, including this Note. In
the event of any such proceeding, after payment in full of all sums owing with
respect to the Senior Indebtedness, the Holders, together with the holders of
any obligations of the Issuer ranking on a parity with the Subordinated Notes
(including, without limitation, the Issuer’s issued and outstanding
Fixed-to-Floating Rate Subordinated Notes due 2026, initially issued in the
aggregate principal amount of $40,000,000 pursuant to that certain Indenture and
that certain Supplemental Indenture, each by and between the Issuer and U.S.
Bank National Association, as Trustee, and each dated March 31, 2016 (the
“Existing Subordinated Notes”)), shall be entitled to be paid from the remaining
assets of the Issuer the unpaid principal thereof, and the unpaid interest
thereon before any payment or other distribution, whether in cash, property or
otherwise, shall be made on account of any capital stock or any present or
future obligations of the Issuer ranking junior to the Subordinated Notes
(collectively, “Junior Subordinated Indebtedness”).

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

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

 

4

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4. Merger and Sale of Assets. The Issuer shall not consolidate with or merge
with or into any other entity, except for mergers and consolidations in which
the Issuer continues as the surviving entity, or sell, lease or otherwise
transfer all or substantially all of its properties and assets to convey,
transfer or lease substantially all of its properties and assets to any entity,
unless:

(a) the continuing entity into which the Issuer is merged or the person which
acquires by conveyance or transfer or which leases substantially all of the
properties and assets of the Issuer shall be a corporation, partnership, trust,
limited liability company, association or other legal entity organized and
existing under the laws of the United States, any State thereof or the District
of Columbia and expressly assumes all of the Issuer’s obligations in connection
with the Subordinated Notes and this Note; and

(b) no Default or Event of Default exists or will exist immediately after giving
effect to such transaction.

For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise), directly or indirectly, of the properties and assets, substantially
as an entirety, of the Bank, the Issuer’s interest in which constitutes the
Issuer’s properties and assets substantially as an entirety, shall be deemed to
be the transfer of the Issuer’s properties and assets substantially as an
entirety.

5. Events of Default and Defaults.

(a) Each of the following events shall constitute an “Event of Default”:

(i) the entry of a decree or order by a court having jurisdiction in the
premises for relief in respect of the Issuer or the Bank under Title 11 of the
United States Code, as now constituted or as hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or reorganization law, or
appointing a receiver, trustee or other similar official (except for the
appointment of a conservator) of the Issuer or the Bank of substantially all of
its property, or ordering the dissolution, winding-up or liquidation of its
affairs under any such law and the continuance of any such decree or order
unstayed and in effect for a period of sixty (60) consecutive days; or

(ii) the filing by the Issuer or the Bank of a petition or answer or consent
seeking relief under Title 11 of the United States Code, as now constituted or
as hereinafter amended, or any other applicable federal or state bankruptcy,
insolvency or reorganization law or other similar law, or the consent by it to
the institution of proceedings thereunder or to the filing of any such petition
or to the appointment or taking possession of a receiver, trustee, custodian or
other similar official (except for the appointment of a conservator) of the
Issuer or the Bank of substantially all of its property under any such law.

(b) Each of the following shall constitute a “Default”:

(i) default in the payment of any interest on any Subordinated Notes as and when
the same shall become due and payable, and continuance of such default for a
period of thirty (30) days;

(ii) default in the payment of the principal of any Subordinated Notes as and
when the same shall become due and payable, whether at Stated Maturity or
otherwise; or

 

5

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(iii) default in the performance, or breach, of any covenant or warranty of the
Issuer in respect of the Subordinated Notes (other than a covenant or warranty a
default in the performance of which or the breach of which is elsewhere in this
Note specifically dealt with) and continuance of such default or breach (without
such default or breach having been waived in accordance with the provisions of
this Note) for a period of ninety (90) days after there has been given to the
Issuer by the Holder(s) of at least 25% in principal amount of the Subordinated
Notes, a written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a “Notice of Default” hereunder.

(c) Upon the occurrence of an Event of Default or a Default, the Issuer shall
promptly notify all Holders, at their addresses shown on the Security Register
(as defined in Section 13 below), of such Event of Default or Default.

6. Acceleration.

(a) Unless the principal amount of this Note already shall have become due and
payable, if an Event of Default occurs and is continuing, then the Holder(s) of
not less than 25% in aggregate principal amount of the Subordinated Notes may
declare the principal of all the Subordinated Notes to be due and payable
immediately, by a notice in writing to the Issuer, and upon any such declaration
such principal shall become immediately due and payable. The Issuer, within
ninety (90) days after the receipt of written notice from any Holder(s) of not
less than 25% in aggregate principal amount of the Subordinated Notes of the
occurrence of an Event of Default, shall mail to all Holders, at their addresses
shown on the Security Register (as defined in Section 13 below), such written
notice of Event of Default, unless such Event of Default shall have been cured
or waived before the giving of such notice as certified by the Issuer in
writing.

(b) Any time after a declaration of acceleration with respect to the
Subordinated Notes has been made, the Holder(s) of a majority in aggregate
principal amount of the Subordinated Notes (voting as one class), by written
notice to the Issuer, may rescind and annul such declaration and its
consequences if:

(i) the Issuer has paid (A) all overdue interest on all Subordinated Notes that
has become due other than by such declaration of acceleration, and (B) the
principal of all Subordinated Notes that has become due other than by such
declaration of acceleration and any interest thereon; and

(ii) all Events of Default or Defaults with respect to the Subordinated Notes,
other than the nonpayment of the principal of the Subordinated Notes that has
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 7 below.

7. Waiver of Past Defaults.

(a) The Holder(s) of a majority in aggregate principal amount of the
Subordinated Notes may on behalf of the Holders of all the Subordinated Notes
waive any past default hereunder, except a default in the payment of the
principal of or interest on any Subordinated Notes.

(b) Upon any such waiver, such default shall cease to exist, and any Event of
Default or Default arising from such default shall be deemed to have been cured
for every purpose in respect of the Subordinated Notes; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon.

8. Global Notes.

(a) Provided that applicable depositary eligibility requirements are met and any
requisite approval of any Governmental Agency has been obtained, upon the
written election of the holders of a majority in principal amount of outstanding
Subordinated Notes, the Issuer shall use its commercially

 

6

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reasonable efforts to provide that the Subordinated Notes owned by holders that
are “Qualified Institutional Buyers”, as defined in Rule 144A under the
Securities Act, shall be issued in the form of one or more global Subordinated
Notes registered in the name of The Depository Trust Issuer (each a “Global
Note”) or another organization registered as a clearing agency under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and designated
as Depositary by the Issuer or any successor thereto (the “Depositary”) or a
nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor.

(b) Notwithstanding any other provision herein, no Global Note may be exchanged
in whole or in part for Subordinated Notes registered, and no transfer of a
Global Note in whole or in part may be registered, in the name of any Person
other than the Depositary for such Global Note or a nominee thereof unless
(i) such Depositary advises the Issuer in writing that such Depositary is no
longer willing or able to properly discharge its responsibilities as Depositary
with respect to such Global Note, and no qualified successor is appointed by the
Issuer within ninety (90) days of receipt by the Issuer of such notice,
(ii) such Depositary ceases to be a clearing agency registered under the
Exchange Act and no successor is appointed by the Issuer within ninety (90) days
after obtaining knowledge of such event, (iii) the Issuer elects to terminate
the book-entry system through the Depositary or (iv) an Event of Default shall
have occurred and be continuing. Upon the occurrence of any event specified in
clause (i), (ii), (iii) or (iv) above, the Issuer or its agent shall notify the
Depositary and instruct the Depositary to notify all owners of beneficial
interests in such Global Note of the occurrence of such event and of the
availability of Subordinated Notes to such owners of beneficial interests
requesting the same.

(c) If any Global Note is to be exchanged for other Subordinated Notes or
canceled in part, or if another Subordinated Note is to be exchanged in whole or
in part for a beneficial interest in any Global Note, then either (i) such
Global Note shall be so surrendered for exchange or cancellation as provided in
this Section 8 or (ii) the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
canceled, or equal to the principal amount of such other Subordinated Note to be
so exchanged for a beneficial interest therein, as the case may be, by means of
an appropriate adjustment made on the records of the Issuer or Registrar,
whereupon the Issuer or the Registrar, in accordance with the applicable rules
and procedures of the Depositary (“Applicable Depositary Procedures”), shall
instruct the Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a Global
Note by the Depositary, accompanied by registration instructions, the Issuer
shall execute and deliver any Subordinated Notes issuable in exchange for such
Global Note (or any portion thereof) in accordance with the instructions of the
Depositary.

(d) Every Subordinated Note executed and delivered upon registration of transfer
of, or in exchange for or in lieu of, a Global Note or any portion thereof shall
be executed and delivered in the form of, and shall be, a Global Note, unless
such Subordinated Note is registered in the name of a Person other than the
Depositary for such Global Note or a nominee thereof.

(e) The Depositary or its nominee, as the registered owner of a Global Note,
shall be the holder of such Global Note for all purposes under this Note, and
owners of beneficial interests in a Global Note shall hold such interests
pursuant to Applicable Depositary Procedures. Accordingly, any such owner’s
beneficial interest in a Global Note shall be shown only on, and the transfer of
such interest shall be effected only through, records maintained by the
Depositary or its nominee or its Depositary participants. The Registrar shall be
entitled to deal with the Depositary for all purposes relating to a Global Note
(including the payment of principal and interest thereon and the giving of
instructions or directions by owners of beneficial interests therein and the
giving of notices) as the sole holder of the Subordinated Note and shall have no
obligations to the owners of beneficial interests therein. The Registrar shall
have no liability in respect of any transfers effected by the Depositary.

 

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(f) The rights of owners of beneficial interests in a Global Note shall be
exercised only through the Depositary and shall be limited to those established
by law and agreements between such owners and the Depositary and/or its
participants.

(g) No holder of any beneficial interest in any Global Note held on its behalf
by a Depositary shall have any rights with respect to such Global Note, and such
Depositary may be treated by the Issuer and any agent of the Issuer as the owner
of such Global Note for all purposes whatsoever. Neither the Issuer nor any
agent of the Issuer will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of a Global Note or maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. Notwithstanding the foregoing,
nothing herein shall prevent the Issuer or any agent of the Issuer from giving
effect to any written certification, proxy or other authorization furnished by a
Depositary or impair, as between a Depositary and such holders of beneficial
interests, the operation of customary practices governing the exercise of the
rights of the Depositary (or its nominee) as Holder of any Subordinated Note.

9. Failure to Make a Payment. In the event of failure by the Issuer to make any
required payment of principal or interest on this Note (and, in the case of
payment of interest, such failure to pay shall have continued for thirty
(30) days), the Issuer will, upon demand of the Holder, pay to the Holder the
amount then due and payable on this Note for principal and interest (without
acceleration of this Note in any manner), with interest on the overdue principal
and interest at the rate borne by this Note, to the extent permitted by
applicable law. If the Issuer fails to pay such amount upon such demand, the
Holder may, among other things, institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same against the Issuer and collect
the amounts adjudged or decreed to be payable in the manner provided by law out
of the property of the Issuer.

Upon the occurrence of a failure by the Issuer to make any required payment of
principal or interest on this Note, the Issuer shall not (a) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Issuer’s capital stock or make
any guarantee payments with respect to the foregoing, (b) make any payment of
principal or interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Issuer that rank equal with or junior to the Subordinated
Notes, including, without limitation, the Existing Subordinated Notes or
(c) make any payments under any guarantee that ranks equal with or junior to the
Subordinated Notes, other than (i) any dividends or distributions in shares of,
or options, warrants or rights to subscribe for or purchase shares of, any class
of the Issuer’s common stock; (ii) any declaration of a dividend in connection
with the implementation of a shareholders’ rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto; (iii) as a result of a reclassification of the Issuer’s
capital stock or the exchange or conversion of any class or series of the
Issuer’s capital stock for another class or series of the Issuer’s capital stock
or of any class or series of the Issuer’s indebtedness for any class or series
of the Issuer’s capital stock; (iv) the purchase of fractional interests in
shares of the Issuer’s capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged;
or (v) purchases of any class of the Issuer’s common stock related to the
issuance of common stock or rights under any benefit plans for the Issuer’s
directors, officers or employees or any of the Issuer’s dividend reinvestment
plans.

10. Redemption.

(a) Redemption Prior to Fifth Anniversary. This Note shall not be redeemable by
the Issuer prior to July 1, 2021, except upon the occurrence of a Capital Event,
a Tax Event or an Investment Company Event (each as defined below), following
which the Issuer may redeem this Note in whole at

 

8

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any time, or in part from time to time, upon giving not less than thirty
(30) nor more than sixty (60) days’ prior written notice to the Holder of this
Note at a price equal to 100% of the principal amount of the Subordinated Notes
plus accrued but unpaid interest thereon to but excluding the redemption date.

“Capital Event” means the receipt by the Issuer of an opinion of independent
bank regulatory counsel to the effect that, as a result of (i) any amendment to,
or change (including any announced prospective change) in, the laws, rules or
regulations of the United States (including, for the avoidance of doubt, any
agency or instrumentality of the United States, including the Board of Governors
of the Federal Reserve System (the “FRB”) and other appropriate federal bank
regulatory agencies) or any political subdivision of or in the United States
that is enacted or becomes effective after the date of issuance of this Note,
(ii) any proposed change in those laws, rules or regulations that is announced
or becomes effective after the initial issuance of the Subordinated Notes, or
(iii) any official administrative decision or judicial decision or
administrative action or other official pronouncement interpreting or applying
such laws, rules or regulations that is announced or becomes effective after the
date of issuance of this Note, the Subordinated Notes then outstanding do not
constitute, or within ninety (90) days of the date of such opinion will not
constitute, “Tier 2 Capital” (or its equivalent) for purposes of the capital
adequacy rules of the FRB (or, as and if applicable, the capital adequacy rules
or regulations of any successor appropriate federal banking agency) as then in
effect and applicable. “Appropriate federal banking agency” means the
“appropriate federal banking agency” with respect to us as that term is defined
in Section 3(q) of the Federal Deposit Insurance Act or any successor provision.

“Tax Event” means the receipt by the Issuer of an opinion of counsel to the
Issuer experienced in such matters to the effect that as a result of any
amendment to, or change (including any final and adopted (or enacted)
prospective change) in, the laws, rules or regulations of the United States or
any political subdivision or taxing authority thereof or therein, or as a result
of any official administrative pronouncement or judicial decision interpreting
or applying such laws, rules or regulations, there exists a material risk that
interest payable by the Issuer on the Subordinated Notes is not, or within
ninety (90) days after the receipt of such opinion will not be, deductible by
the Issuer, in whole or in part, for United States federal income tax purposes.

“Investment Company Event” means the Issuer becoming required to register as an
investment company pursuant to the Investment Company Act of 1940, as amended.

(b) Redemption on or After Fifth Anniversary. On or after July 1, 2021, this
Note shall be redeemable by the Issuer, in whole at any time, or in part from
time to time, upon giving not less than thirty (30) nor more than sixty
(60) days’ prior written notice to the Holder of this Note. Any such redemption
shall occur on an Interest Payment Date at an amount equal to 100% of the
principal amount of the Subordinated Notes to be redeemed plus accrued but
unpaid interest thereon to but excluding the redemption date.

(c) Partial Redemption. If less than the then outstanding principal amount of
this Note is redeemed, (i) a new Subordinated Note shall be issued representing
the unredeemed portion without charge to the Holder thereof and (ii) such
partial redemption shall be effected on a pro rata basis as to the Holders.

(d) No Repayment at Option of Holder. This Note shall not be subject to
repayment at the option of the Holders, in whole or in part, prior to the Stated
Maturity.

(e) Regulatory Approvals. Any such redemption or repayment prior to the Stated
Maturity shall be subject to receipt of any and all federal and state regulatory
approvals, including, but not limited to, the prior approval of the FRB, to the
extent then required under applicable laws or regulations, including capital
regulations.

 

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(f) Notices of Redemption. Notices of redemption will be mailed by first class
mail, postage prepaid, or emailed (with delivery receipt requested) at least
thirty (30) but not more than sixty (60) days before the redemption date, which
notice may be conditional, to each Holder at such Holder’s registered mailing
address or email address. The principal amount of this Note to be paid shall
mature and become due and payable (unless any condition specified in the
applicable notice of redemption has occurred) on the date fixed for such
payment, together with accrued but unpaid interest on such principal amount
accrued to such date.

(g) Effectiveness of Redemption. If notice of redemption has been duly given and
notwithstanding that this Note has been called for redemption but has not yet
been surrendered for cancellation, on and after the date fixed for redemption
interest shall cease to accrue on this Note, this Note shall no longer be deemed
outstanding and all rights with respect to this Note shall forthwith on such
date fixed for redemption cease and terminate unless the Issuer shall default in
the payment of the redemption price, except only the right of the Holder hereof
to receive the amount payable on such redemption, without interest.

(h) Purchase and Resale of the Subordinated Notes. Subject to any required
federal and state regulatory approvals and the provisions of this Note, the
Issuer shall have the right to purchase any of the Subordinated Notes at any
time in the open market, private transactions or otherwise. If the Issuer
purchases any Subordinated Notes, it may, in its discretion, hold, resell or
cancel any of the purchased Subordinated Notes.

11. Payment Procedures. Unless and until the Subordinated Notes shall be
evidenced by a global note held by Depository Trust Company, payment of the
principal and interest payable on the Stated Maturity will be made by check, or
by wire transfer in immediately available funds to a bank account in the United
States designated by the registered Holder of this Note if such Holder shall
have previously provided wire instructions to the Issuer, upon presentation and
surrender of this Note at the Payment Office (as defined in Section 16 below) or
at such other place or places as the Issuer shall designate by notice to the
registered Holders as the Payment Office, provided that this Note is presented
to the Issuer in time for the Issuer to make such payments in such funds in
accordance with its normal procedures. Payments of interest (other than interest
payable on the Stated Maturity) shall be made by wire transfer in immediately
available funds or check mailed to the registered Holder, as such person’s
address appears on the Security Register. Interest payable on any Interest
Payment Date shall be payable to the Holder in whose name this Note is
registered at the close of business the fifteenth calendar day prior to the
applicable Interest Payment Date (such date being referred to herein as the
“Regular Record Date”), without regard to whether the Regular Record Date is a
Business Day, for such Interest Payment Date, except that interest not paid on
the Interest Payment Date, if any, will be paid to the Holder in whose name this
Note is registered at the close of business on a special record date fixed by
the Issuer (a “Special Record Date”), notice of which shall be given to the
Holder not less than ten (10) days prior to such Special Record Date. (The
Regular Record Date and Special Record Date are referred to herein collectively
as the “Record Dates”). To the extent permitted by applicable law, interest
shall accrue, at the rate at which interest accrues on the principal of this
Note, on any amount of principal or interest on this Note not paid when due. All
payments on this Note shall be applied first against interest due hereunder; and
then against principal due hereunder. Holder acknowledges and agrees that the
payment of all or any portion of the outstanding principal amount of this Note
and all interest hereon shall be pari passu in right of payment and in all other
respects to the other Subordinated Notes. In the event Holder receives payments
in excess of its pro rata share of the Issuer’s payments to the holders of all
of the Subordinated Notes, then Holder shall hold in trust all such excess
payments for the benefit of the holders of the other Subordinated Notes and
shall pay such amounts held in trust to such other holders upon demand by such
holders.

 

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12. Form of Payment; Maintenance of Payment Office. Payments of principal and
interest on this Note shall be made in such coin or currency of the United
States as at the time of payment shall be legal tender for the payment of public
and private debts. Until the date on which all of the Subordinated Notes shall
have been surrendered or delivered to the Issuer for cancellation or
destruction, or become due and payable and a sum sufficient to pay the principal
and interest on all Subordinated Notes shall have been made available for
payment and either paid or returned to the Issuer as provided herein, and in the
Purchase Agreement, the Issuer shall at all times maintain an office or agency
in Franklin, Tennessee where Subordinated Notes may be presented or surrendered
for payment.

13. Registration of Transfer, Security Register. Except as otherwise provided
herein, this Note is transferable in whole or in part, and may be exchanged for
a like aggregate principal amount of Subordinated Notes of other authorized
denominations, by the Holder in person, or by his attorney duly authorized in
writing, at the Payment Office. U.S. Bank National Association (“U.S. Bank”) has
entered into that certain Paying Agent, Registrar and Transfer Agent Agreement
with the Issuer as of even date hereof (the “Paying Agent Agreement”). U.S. Bank
shall maintain a register providing for the registration of the Subordinated
Notes and any exchange or transfer thereof (the “Security Register”). Upon
surrender or presentation of this Note for exchange or registration of transfer,
U.S. Bank shall execute and deliver in exchange therefor a Subordinated Note or
Subordinated Notes of like aggregate principal amount, each in a minimum
denomination of $50,000 or any amount in excess thereof which is an integral
multiple of $25,000 (and, in the absence of an opinion of counsel satisfactory
to U.S. Bank to the contrary, bearing the restrictive legend(s) set forth
hereinabove) and that is or are registered in such name or names requested by
the Holder. Any Subordinated Note presented or surrendered for registration of
transfer or for exchange shall be duly endorsed and accompanied by a written
instrument of transfer in such form as is attached hereto and incorporated
herein, duly executed by the Holder or his attorney duly authorized in writing,
with such tax identification number or other information for each person in
whose name a Subordinated Note is to be issued, and accompanied by evidence of
compliance with any restrictive legend(s) appearing on such Subordinated Note or
Subordinated Notes as the Issuer may reasonably request to comply with
applicable law. No exchange or registration of transfer of this Note shall be
made on or after the fifteenth day immediately preceding the Stated Maturity.
This Note is subject to the restrictions on transfer of the Purchase Agreement
between the Issuer and the Purchasers identified therein, who were the original
holders of the Subordinated Notes, a copy of which is on file with the Issuer.

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

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

16. Notices. All notices to the Issuer under this Note shall be in writing and
addressed to the Issuer at 722 Columbia Avenue, Franklin, Tennessee 37064,
Attention: Richard E. Herrington, or to such other address as the Issuer may
notify to the Holder (the “Payment Office”). All notices to the Holders shall be
in writing and sent by first-class mail to each Holder at his or its address as
set forth in the Security Register. Any such notice shall be effective upon
receipt if received during normal business hours or, if not received during
normal business hours, on the next Business Day.

 

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17. Denominations. The Subordinated Notes are issuable only as fully registered
notes without interest coupons in minimum denominations of $50,000 or any amount
in excess thereof which is an integral multiple of $25,000.

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

19. Waiver and Consent. Any written consent or waiver given by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Subordinated Note issued upon the registration
of transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note. This Note may be also
amended or waived pursuant to, and in accordance with, the provisions of
Section 8.3 of the Purchase Agreement.

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

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

20. No Sinking Fund; Convertibility. This Note is not entitled to the benefit of
any sinking fund or any compensating balance or any other funds or assets
subject to a legal right of offset, as defined by applicable state law. This
Note is not convertible into or exchangeable for any of the equity securities,
other securities or assets of the Issuer or any subsidiary.

21. No Recourse Against Others. No recourse under or upon any obligation,
covenant or agreement contained in this Note, or for any claim based thereon or
otherwise in respect thereof, will be had against any past, present or future
shareholder, employee, officer, or director, as such, of the Issuer or of any
predecessor or successor, either directly or through the Issuer or any
predecessor or successor, under any rate of law, statute or constitutional
provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released
by the acceptance of this Note by the Holder of this Note and as part of the
consideration for the issuance of this Note.

22. Further Issues. The Issuer may, without the consent of the holders of the
Subordinated Notes, create and issue additional notes having the same terms and
conditions of the Subordinated Notes (except for the issue date and issue price)
so that such further notes shall be consolidated and form a single series with
the Subordinated Notes.

23. Governing Law; Interpretation. This Note shall be governed by and construed
in accordance with applicable federal law and the laws of the State of New York,
without regard to conflict of laws principles of said state. This Note is
intended to meet the criteria for qualification of the outstanding principal as
Tier 2 capital under the regulatory guidelines of the FRB, and the terms hereof
shall be interpreted in a manner to satisfy such intent.

 

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24. Priority. The Subordinated Notes rank pari passu among themselves and pari
passu, in the event of any insolvency proceeding, dissolution, assignment for
the benefit of creditors, reorganization, restructuring of debt, marshaling of
assets and liabilities or similar proceeding or any liquidation or winding up of
the Issuer, with all other present or future unsecured subordinated debt
obligations of the Issuer, including, without limitation, the Existing
Subordinated Notes, except any unsecured subordinated debt that, pursuant to its
express terms, is subordinate in right of payment to the Subordinated Notes.

[Signature Page Follows]

 

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

 

FRANKLIN FINANCIAL NETWORK, INC. By:    

Name:   Title:  

 

ATTEST:  

 

Name: Title:

 

[Signature Page to Subordinated Note]

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ASSIGNMENT FORM

To assign this Note, fill in the form below:

I or we assign and transfer this Note to:

 

  (Print or type assignee’s name, address and zip code)   (Insert assignee’s
social security or tax I.D. No.)

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

 

Date:

  Your Signature:     

 

Signature Guarantee:

        (Signature must be guaranteed)   Sign exactly as your name appears on
the other side of this Note.

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

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

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

 

(1)

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

(2)

   ¨         transferred to the Issuer; or

(3)

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

(4)

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

(5)

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

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(6)

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

(7)

   ¨         transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933, as amended.

Unless one of the boxes is checked, the Issuer will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered holder thereof; provided, however, that if box (5), (6) or (7) is
checked, the Issuer may require, prior to registering any such transfer of the
Notes, in its sole discretion, such legal opinions, certifications and other
information as the Issuer may reasonably request to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, as amended, such as
the exemption provided by Rule 144 under such Act.

 

            Signature

Signature Guarantee:

             

Signature (must be guaranteed)

     Signature

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

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

The undersigned represents and warrants that it is purchasing this Note for its
own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a “qualified institutional buyer”
within the meaning of Rule 144A under the Securities Act of 1933, as amended,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Issuer as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned’s foregoing representations in order to claim the exemption from
registration provided by Rule 144A.

 

 

 

Signature Date:    

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EXECUTION VERSION

 

EXHIBIT B

OPINION OF COUNSEL

 

  1. Company is a corporation validly existing under the laws of the State of
Tennessee and is in good standing under such laws. Company is a registered bank
holding company and qualified as a financial holding company under the Bank
Holding Company Act of 1956, as amended.

 

  2. Bank is a state-chartered bank validly existing under the laws of the State
of Tennessee and is in good standing under such laws and holds the requisite
authority from the Tennessee Department of Financial Institutions to do business
as a Tennessee state-chartered bank.

 

  3. Each of Company and Bank (i) has all corporate or similar power and
authority to own, lease and operate its properties and to conduct its business
as currently operated and conducted and (ii) is duly qualified to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not, singly or in the aggregate, result in a
Material Adverse Effect.

 

  4. Company has the requisite corporate power and authority to execute, deliver
and perform all of its obligations under the Transaction Documents in accordance
with the terms thereof.

 

  5. The Agreement has been duly authorized, executed and delivered by Company.

 

  6. The Subordinated Notes have been duly authorized by Company and, when duly
executed, authenticated, issued and delivered to the Purchasers and paid for as
provided in the Agreement, will constitute valid and legally binding obligations
of Company, enforceable against Company in accordance with their terms, except
as enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors’ rights
generally or by general equitable principles.

 

  7. The execution and delivery by Company of the Transaction Documents and the
performance on the date hereof by Company of its obligations thereunder,
including the issuance by Company of the Subordinated Notes, do not and will not
result in a violation of (a) its Charter, as amended, or Bylaws, as amended, or
(b) any applicable law or any order, writ, injunction or decree of the United
States or the State of Tennessee known to us and applicable to Company.

 

  8. Assuming the accuracy of the representations and warranties of the
Purchasers and Company set forth in the Agreement, the offer and sale of the
Subordinated Notes in accordance with the Agreement will be issued in a
transaction exempt from the registration requirements of the Securities Act.

 

  9. Neither Company nor Bank is an “investment company” as such term is defined
in the Investment Company Act of 1940, as amended.

 

Ex. B-1

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EXECUTION VERSION

 

EXHIBIT C

RISK FACTORS

An investment in the Subordinated Notes involves a number of risks. You should
read carefully and consider the following risks before making an investment
decision. The realization of any of the risks described below could have a
material adverse effect on our business, financial condition, results of
operations, and/or future prospects. If this were to happen, our ability to pay
interest and principal on the Subordinated Notes could be adversely impacted and
you could lose all or part of your investment. The order of these risk factors
does not reflect their relative importance or likelihood of occurrence.

As used in these Risk Factors, unless the context otherwise indicates, any
reference to “our company,” “the company,” “us,” “we” and “our” refers to
Franklin Financial Network, Inc. together with its consolidated subsidiaries
(including Franklin Synergy Bank), any reference to “FFN” refers to Franklin
Financial Network, Inc. only and any reference to the “Bank” refers to our
banking subsidiary, Franklin Synergy Bank.

Risks Relating to Our Current Business

We May Not Be Able to Implement Our Growth Strategy Effectively

Our business has grown quickly. Furthermore, our strategy focuses on organic
growth, supplemented by opportunistic acquisitions. We may not be able to
execute aspects of our growth strategy to sustain our historical rate of growth
or may not be able to grow at all. More specifically, we may not be able to
generate sufficient new loans and deposits within acceptable risk and expense
tolerances, obtain the personnel or funding necessary for additional growth or
find suitable acquisition candidates. Various factors, such as economic
conditions and competition, may impede or prohibit the growth of our operations,
the opening of new branches and the consummation of acquisitions.

Competition For Deposits and Loans Is Expected To Be Intense, and No Assurance
Can Be Given That We Will Be Successful in Our Efforts to Compete with Other
Financial Institutions

The commercial banking industry in Williamson County, Tennessee consists of 32
banks and 2 savings and loan institutions, with 102 total offices and total
deposits of $6.8 billion as of June 30, 2015, which is the most recent date such
information has been released by the FDIC. The commercial banking industry in
Rutherford County, Tennessee consists of 20 banks and no savings and loan
institutions, with 76 total offices and total deposits of $3.5 billion as of
June 30, 2015, which is the most recent date such information has been released
by the FDIC. Offices affiliated with out-of-state financial institutions have
entered Tennessee in recent years to offer all financial services, including
lending and deposit gathering activities. Also, changes to laws on interstate
banking and branching now permit banks and bank holding companies headquartered
outside Tennessee to move into Williamson County and Rutherford County more
easily. In addition, there are credit unions, finance companies, securities
brokerage firms, and other types of businesses offering financial services.
Technological advances and the growth of e-commerce have made it possible for
non-financial institutions to offer products and services that traditionally
have been offered by banking institutions. Competition for deposit and loan
opportunities in our market area is expected to be intense because of existing
competitors and the geographic expansion into the market area by other
institutions. No assurance can be given that we will be successful in our
efforts to compete with other such institutions.

 

Ex. C-1

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EXECUTION VERSION

 

There Can Be No Assurance That the Bank Will Not Incur Excessive Loan Losses

An allowance for loan losses account is accumulated through monthly provisions
against income. This account is a valuation allowance established for probable
incurred credit losses inherent in the loan portfolio. Banks are susceptible to
risks associated with their loan portfolios. The Bank’s loan customers may
include a disproportionate number of individuals and entities seeking to
establish a new banking relationship because they are dissatisfied with the
amount or terms of credit offered by their current banks, or they may have
demonstrated less than satisfactory performance in previous banking
relationships. If the Bank lends to individuals who have demonstrated less than
satisfactory performance in previous banking relationships, the Bank could
experience disproportionate loan losses, which could have a significantly
negative impact on the Bank’s earnings. Although management is aware of the
potential risks associated with extending credit to customers with whom they
have not had a prior lending relationship, there can be no assurance that the
Bank will not incur excessive loan losses. Bank regulators may disagree with the
Bank’s characterization of the collectability of loans and may require the Bank
to downgrade credits and increase our provision for loan losses that would
negatively impact results of operations and capital levels.

Changes in Interest Rates May Reduce the Bank’s Profitability

We incur interest rate risk. The Bank’s profitability is dependent, to a large
extent, upon net interest income, which is the difference between its interest
income on interest-earning assets, such as loans and investment securities and
interest expense on interest-bearing liabilities, such as deposits and
borrowings. The Bank will continue to be affected by changes in interest rates
and other economic factors beyond its control, particularly to the extent that
such factors affect the overall volume of our lending and deposit activities.
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are “interest rate sensitive” and by
monitoring an institution’s interest rate sensitivity “gap.” An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income. During
a period of falling interest rates, a negative gap would tend to result in an
increase in net interest income while a positive gap would tend to adversely
affect net interest income. Furthermore, an increase in interest rates may
negatively affect the market value of securities in our investment portfolio. A
reduction in the market value of our portfolio will increase the unrealized loss
position of our available-for-sale investments. Any of these events could
materially adversely affect our results of operations or financial condition.

If We Fail to Effectively Manage Credit Risk and Interest Rate Risk, Our
Business and Financial Condition Will Suffer

We must effectively manage credit risk. There are risks inherent in making any
loan, including risks with respect to the period of time over which the loan may
be repaid, risks relating to proper loan underwriting and guidelines, risks
resulting from changes in economic and industry conditions, risks inherent in
dealing with individual borrowers and risks resulting from uncertainties as to
the future value of collateral. There is no assurance that our credit risk
monitoring and loan approval procedures are, or will be, adequate or will reduce
the inherent risks associated with lending. Our credit administration personnel,
policies and procedures may not adequately adapt to changes in economic or any
other conditions affecting customers and the quality of our loan portfolio. Any
failure to manage such credit risks may materially adversely affect our business
and our consolidated results of operations and financial condition.

 

Ex. C-2

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EXECUTION VERSION

 

The Bank Depends on Its Ability to Attract Deposits

The acquisition of local deposits is a primary objective of the Bank. If
customers move money out of bank deposits and into other investments, we would
lose a relatively low-cost source of funds, increasing our funding costs and
reducing our net interest income and net income. In addition to the traditional
deposit accounts solicited in its community, the Bank also solicits local
deposits through the Internet and will offer Internet-only deposit accounts to
supplement traditional depository accounts. The Bank is a member of the Federal
Home Loan Bank (“FHLB”) for use as a general funding source and may use Internet
funds and brokered deposits to balance funding needs. The ability of the Bank to
accept brokered deposits is dependent on its ability to be “well capitalized.”

The Bank May Be Required to Rely on Secondary Sources of Liquidity to Meet
Withdrawal Needs or Fund Operations, and There Can Be No Assurance That These
Sources Will Be Sufficient to Meet Future Liquidity Demands

The primary source of the Bank’s funds is customer deposits and loan repayments.
While scheduled loan repayments are a relatively stable source of funds, they
are subject to the ability of borrowers to repay the loans. The ability of
borrowers to repay loans can be adversely affected by a number of factors,
including changes in general economic conditions, adverse trends or events
affecting business industry groups, reductions in real estate values or markets,
business closings or lay-offs, inclement weather, natural disasters and
international instability. Additionally, deposit levels may be affected by a
number of factors, including rates paid by competitors, general interest rate
levels, returns available to customers on alternative investments and general
economic conditions. Accordingly, the Bank may be required from time to time to
rely on secondary sources of liquidity to meet withdrawal demands or otherwise
fund operations. These sources include Internet funds, brokered certificates of
deposit, investment securities, borrowings from the Board of Governors of the
Federal Reserve (the “Federal Reserve”), FHLB advances, and federal funds lines
of credit from correspondent banks. While management believes that these sources
are currently adequate, there can be no assurance that they will be sufficient
to meet future liquidity demands. The Bank may be required to slow or
discontinue loan growth, capital expenditures or other investments or liquidate
assets should these sources not be adequate.

Economic Challenges, Especially Those Affecting the Local Economy Where We
Operate, Could Affect Our Financial Condition and Results of Operations

If the communities in which we operate do not grow or if prevailing local or
national economic conditions are unfavorable, our business may not succeed.
Adverse economic conditions to the extent they develop in our primary market
area, which currently is limited to Williamson County and Rutherford County,
Tennessee and the surrounding areas, could reduce our growth rate, affect the
ability of our customers to repay their loans, and generally affect our
financial condition and results of operations. Moreover, management cannot give
any assurance that we will benefit from any market growth or favorable economic
conditions in our primary market area if they do occur. Continued adverse market
or economic conditions may increase the risk that the Bank’s borrowers will be
unable to timely make their loan payments. Furthermore, even if the Bank’s
borrowers continue to make timely loan payments, a deterioration in the real
estate market could cause a decline in the appraised values of such mortgaged
properties. In the event of such a deterioration, the Bank may be forced to
write down the value of the loans, which could have a negative effect on the
Bank’s capital ratios and earnings.

 

Ex. C-3

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EXECUTION VERSION

 

The Bank’s loan portfolio is real-estate focused. While real estate lending is
the expertise of our lending staff and management, risks associated with this
type of lending are heavily influenced by the economic environment. In addition,
the market value of the real estate securing loans as collateral could be
adversely affected by unfavorable changes in market and economic conditions.

As of March 31, 2016, approximately 78% of the Bank’s total loans were
real-estate secured. One-to-four family residential properties accounted for 20%
of the Bank’s portfolio, owner-occupied commercial real estate was 5% and other
commercial real estate was 24% of the total loan portfolio. Total construction
and land development lending accounted for 29% of total loans with custom-built
residential homes representing 6%, other residential construction lending
totaling 11%, commercial construction lending totaling 6% and land development
lending totaling 6%. Other real estate lending, including multi-family and
farmland, accounted for less than 1% of the total loan portfolio. A sustained
period of increased payment delinquencies, foreclosures, or losses caused by
continuing adverse market or economic conditions in the state of Tennessee, or
more specifically the Bank’s market area in Williamson County and Rutherford
County in Middle Tennessee, could adversely affect the value of our assets,
revenues, results of operations, and financial condition.

Our Financial Condition and Results of Operations Could be Affected if Long-Term
Business Strategies Are Not Effectively Executed

Although the Bank’s primary focus in the near term will be organically growing
its balance sheet, over the longer term, management may pursue a growth strategy
for the Bank’s business through de novo branching. The Bank’s prospects must be
considered in light of the risks, expenses, and difficulties occasionally
encountered by financial services companies in growth stages, which may include
the following:

 

  •   Operating Results: There is no assurance that existing offices or future
offices will maintain or achieve deposit levels, loan balances, or other
operating results necessary to avoid losses or produce profits. The Bank’s
growth strategy necessarily entails growth in overhead expenses as it routinely
adds new offices and staff. Historical results may not be indicative of future
results or results that may be achieved as the Bank continues to increase the
number and concentration of the Bank’s branch offices.

 

  •   Development of Offices: There are considerable costs involved in opening
branches, and new branches generally do not generate sufficient revenues to
offset their costs until they have been in operation for at least a year or
more. Accordingly, de novo branches may be expected to negatively impact
earnings during this period of time until the branches reach certain economies
of scale.

 

  •   Regulatory and Economic Factors: Growth and expansion plans may be
adversely affected by a number of regulatory and economic developments or other
events. Failure to obtain required regulatory approvals, changes in laws and
regulations, or other regulatory developments and changes in prevailing economic
conditions or other unanticipated events may prevent or adversely affect
continued growth and expansion. Failure to successfully address the issues
identified above could have a material adverse effect on the Bank’s business,
future prospects, financial condition, or results of operations, and could
adversely affect the Bank’s ability to successfully implement its longer term
business strategy.

 

Ex. C-4

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EXECUTION VERSION

 

The Accuracy of Our Financial Statements and Related Disclosures Could be
Affected if the Judgments, Assumptions or Estimates Used in Our Critical
Accounting Policies are Inaccurate

The preparation of financial statements and related disclosure in conformity
with accounting principles generally accepted in the United States requires us
to make judgments, assumptions and estimates that affect the amounts reported in
our consolidated financial statements and accompanying notes. Our critical
accounting policies, which are included in the section entitled “MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of our
Annual Report on Form 10-K for the year ended December 31, 2015 as filed with
the Securities and Exchange Commission (“SEC”) on March 15, 2016, describe those
significant accounting policies and methods used in the preparation of our
consolidated financial statements that we consider “critical” because they
require judgments, assumptions and estimates that materially affect our
consolidated financial statements and related disclosures. As a result, if
future events differ significantly from the judgments, assumptions and estimates
in our critical accounting policies, those events or assumptions could have a
material impact on our consolidated financial statements and related
disclosures.

Negative Public Opinion or Failure to Maintain Our Reputation in the Communities
We Serve Could Adversely Affect Our Business and Prevent Us from Growing Our
Business

As a community bank, our reputation within the communities we serve is critical
to our success. We have set ourselves apart from our competitors by building
strong personal and professional relationships with our customers and by being
an active member of the communities we serve. As such, we strive to enhance our
reputation by recruiting, hiring and retaining employees who share our core
values of being an integral part of the communities we serve and delivering
superior service to our customers. If our reputation is negatively affected by
the actions of our employees or otherwise, we may be less successful in
attracting new customers, and our business, financial condition, results of
operations and prospects could be materially and adversely affected. Further,
negative public opinion can expose us to litigation and regulatory action as we
seek to implement our growth strategy, such as delays in regulatory approval
based on unfounded complaints, which could impede the timeliness of regulatory
approval for acquisitions we may make.

The Obligations Associated with Being a Public Company Require Significant
Resources and Management Attention, Which Have Increased Our Costs of Operations
and May Divert Focus from Our Business Operations

We have only recently been required to file periodic reports with the SEC. As a
public company, we are required to file periodic reports containing our
consolidated financial statements with the SEC within a specified time following
the completion of quarterly and annual periods. As a public company, we also now
incur significant legal, accounting, insurance and other expenses. Compliance
with these reporting requirements and other rules of the SEC and the rules of
the New York Stock Exchange (“NYSE”) or any exchange on which our common stock
may be listed in the future have increased our legal and financial compliance
costs and have made some activities more time consuming and costly. Furthermore,
the need for corporate infrastructure demanded of a public company may divert
management’s attention from implementing our growth strategy, which could
prevent us from successfully implementing our strategic initiatives and
improving our business, results of operations and financial condition. We have
made, and will continue to make, changes to our internal controls and procedures
for financial reporting and accounting systems to meet our reporting obligations
as a public company. However, we cannot predict or estimate the amount of
additional costs we may incur in order to comply with these requirements. We
anticipate that these costs will materially increase our general and
administrative expenses.

 

Ex. C-5

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EXECUTION VERSION

 

If We Fail to Correct Any Material Weakness That We Identify in Our Internal
Control over Financial Reporting or Otherwise Fail to Maintain Effective
Internal Control over Financial Reporting, We May Not Be Able to Report Our
Financial Results Accurately and Timely

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting and for evaluating and reporting on our system
of internal control. Our internal control processes are designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles (“GAAP”). As a public company, we are
required to comply with the Sarbanes-Oxley Act and other rules that govern
public companies. In particular, we are required to certify our compliance with
Section 404 of the Sarbanes-Oxley Act, which requires us to furnish annually a
report by management on the effectiveness of our internal control over financial
reporting. In addition, unless we remain an emerging growth company and elect
additional transitional relief available to emerging growth companies, our
independent registered public accounting firm will be required to report on the
effectiveness of our internal control over financial reporting, beginning as of
the first annual report after ceasing to be an emerging growth company.

If we identify material weaknesses in our internal control over financial
reporting in the future and we cannot comply with the requirements of the
Sarbanes-Oxley Act in a timely manner or attest that our internal control over
financial reporting is effective, or if our independent registered public
accounting firm cannot express an opinion as to the effectiveness of our
internal control over financial reporting when required, we may not be able to
report our financial results accurately and timely. As a result, investors,
counterparties and customers may lose confidence in the accuracy and
completeness of our financial reports; our liquidity, access to capital markets
and perceptions of our creditworthiness could be adversely affected; and the
market price of our common stock could decline. In addition, we could become
subject to investigations by the stock exchange on which our securities are
listed, the SEC, the Federal Reserve, the FDIC, or other regulatory authorities,
which could require additional financial and management resources. These events
could have an adverse effect on our business, financial condition and results of
operations.

A Failure in, or Breach of, Our Operational or Security Systems or
Infrastructure, or Those of Our Third Party Vendors and Other Service Providers
or Other Third Parties, Including as a Result of Cyber Attacks, Could Disrupt
Our Businesses, Result in the Disclosure or Misuse of Confidential or
Proprietary Information, Damage Our Reputation, Increase Our Costs, and Cause
Losses

We rely heavily on communications and information systems to conduct our
business. Information security risks for financial institutions such as us have
generally increased in recent years in part because of the proliferation of new
technologies, the use of the Internet and telecommunications technologies to
conduct financial transactions, and the increased sophistication and activities
of organized crime, hackers, and terrorists, activists, and other external
parties. As customer, public, and regulatory expectations regarding operational
and information security have increased, our operating systems and
infrastructure must continue to be safeguarded and monitored for potential
failures, disruptions, and breakdowns. Our business, financial, accounting, and
data processing systems, or other operating systems and facilities, may stop
operating properly or become disabled or damaged as a result of a number of
factors, including events that are wholly or partially beyond our control. For
example, there could be electrical or telecommunication outages; natural
disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics;
events arising from local or larger scale political or social matters, including
terrorist acts; and as described below, cyber attacks.

 

Ex. C-6

--------------------------------------------------------------------------------

EXECUTION VERSION

 

Our business relies on its digital technologies, computer and email systems,
software and networks to conduct its operations. Although we have information
security procedures and controls in place, our technologies, systems and
networks and our customers’ devices may become the target of cyber attacks or
information security breaches that could result in the unauthorized release,
gathering, monitoring, misuse, loss, or destruction of our or our customers’ or
other third parties’ confidential information. Third parties with whom we do
business or who facilitate our business activities, including financial
intermediaries, or vendors that provide service or security solutions for our
operations, and other unaffiliated third parties, could also be sources of
operational and information security risk to us, including from breakdowns or
failures of their own systems or capacity constraints. In addition, hardware,
software or applications we develop or procure from third parties may contain
defects in design or manufacture or other problems that could unexpectedly
compromise information security.

While we have disaster recovery and other policies and procedures designed to
prevent or limit the effect of the failure, interruption or security breach of
our information systems, there can be no assurance that any such failures,
interruptions or security breaches will not occur or, if they do occur, that
they will be adequately addressed. Our risk and exposure to these matters remain
heightened because of the evolving nature of these threats. As a result, cyber
security and the continued development and enhancement of our controls,
processes, and practices designed to protect our systems, computers, software,
data, and networks from attack, damage or unauthorized access remain a focus for
us. As threats continue to evolve, we may be required to expend additional
resources to continue to modify or enhance our protective measures or to
investigate and remediate information security vulnerabilities. Disruptions or
failures in the physical infrastructure or operating systems that support our
businesses and clients, or cyber attacks or security breaches of the networks,
systems or devices that our clients use to access our products and services,
could result in client attrition, regulatory fines, penalties or intervention,
reputation damage, reimbursement or other compensation costs, and/or additional
compliance costs, any of which could have a material effect on our results of
operations or financial condition. Furthermore, if such attacks are not detected
immediately, their effect could be compounded. To date, to our knowledge, we
have not experienced any material impact relating to cyber-attacks or other
information security breaches.

The Bank Is Subject to General Banking Risks

Several risks are inherent in the business of banking. Factors outside the
Bank’s control, such as instability in interest rates, a depressed economy,
government regulation, and federal monetary policy, for example, could adversely
impact the banking industry. Banks are also exposed to risk of loss as a result
of fraud, embezzlement, insider abuse, and mismanagement. Extensions of credit
create a risk that loans cannot, or will not, be repaid.

Earnings are affected by the ability of the Bank to properly originate,
underwrite and service loans. The Bank could sustain losses if it incorrectly
assesses the creditworthiness of its borrowers or fails to detect or respond to
deterioration in asset quality in a timely manner. Rapid changes in loan and
deposit terms could result in a risk of loss from changes in interest rates. In
managing its loans and investments (assets) and its borrowings and deposits
(liabilities), the Bank will run the risk of having insufficient liquid assets
to meet withdrawal requests.

Beyond general banking risk, we will take limited risk in mortgage banking,
wealth management, trust services or other financial services being offered.
Such risks could have a material adverse effect on our business, financial
condition, results of operations and prospects.

 

Ex. C-7

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EXECUTION VERSION

 

Because We Engage in Lending Secured By Real Estate and May Be Forced to
Foreclose on the Collateral Property and Own The Underlying Real Estate, We May
Be Subject to the Increased Costs and Risk Associated with the Ownership of Real
Property, Which Could Have an Adverse Effect on Our Business or Results of
Operations

A significant portion of our loan portfolio is secured by real estate property.
During the ordinary course of business, we may foreclose on and take title to
properties securing certain loans, in which case, we are exposed to the risks
inherent in the ownership of real estate. The amount that we, as a mortgagee,
may realize after a default is dependent upon factors outside of our control,
including:

 

  •   general or local economic conditions;

 

  •   environmental cleanup liability;

 

  •   neighborhood values;

 

  •   interest rates;

 

  •   real estate tax rates;

 

  •   operating expenses of the mortgaged properties;

 

  •   supply of and demand for rental units or properties;

 

  •   ability to obtain and maintain adequate occupancy of the properties;

 

  •   zoning laws;

 

  •   governmental rules, regulations and fiscal policies; and

 

  •   tornadoes or other natural or man-made disasters.

Certain expenditures associated with the ownership of real estate, principally
real estate taxes and maintenance costs, may also adversely affect our operating
expenses.

We Are Subject to Environmental Liability Risk Associated with Lending
Activities

A significant portion of our loan portfolio is secured by real estate, and we
could become subject to environmental liabilities with respect to one or more of
these properties. During the ordinary course of business, we may foreclose on
and take title to properties securing defaulted loans. In doing so, there is a
risk that hazardous or toxic substances could be found on these properties. If
hazardous conditions or toxic substances are found on these properties, we may
be liable for remediation costs, as well as for personal injury and property
damage, civil fines and criminal penalties regardless of when the hazardous
conditions or toxic substances first affected any particular property.
Environmental laws may require us to incur substantial expenses to address
unknown liabilities and may materially reduce the affected property’s value or
limit our ability to use or sell the affected property. In addition, future laws
or more stringent interpretations or enforcement policies with respect to
existing laws may increase our exposure to environmental liability. Although we
have policies and procedures to perform an environmental review before
initiating any foreclosure action on nonresidential real property, these reviews
may not be sufficient to detect all potential environmental hazards. The
remediation costs and any other financial liabilities associated with an
environmental hazard could have a material adverse effect on us.

 

Ex. C-8

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EXECUTION VERSION

 

Our Loan Portfolio Includes a Meaningful Amount of Real Estate Construction and
Development Loans, Which Have a Greater Credit Risk Than Residential Mortgage
Loans

The percentage of loans in real estate construction and development in our
portfolio was approximately 29% of total loans at March 31, 2016. These loans
make up approximately 24% of our non-performing loans at March 31, 2016. This
type of lending is generally considered to have relatively high credit risks
because the principal is concentrated in a limited number of loans with
repayment dependent on the successful completion and operation of the related
real estate project. The credit quality of many of these loans deteriorated
during the challenging economic period of 2008 to 2012 due to the adverse
conditions in the real estate market during that period and that type of
deterioration could occur again. Weakness in residential real estate market
prices in the Middle Tennessee area as well as demand could result in price
reductions in home and land values adversely affecting the value of collateral
securing the construction and development loans that we hold. Should we
experience the return of these adverse economic and real estate market
conditions we may experience increases in non-performing loans and other real
estate owned, increased losses and expenses from the management and disposition
of non-performing assets (“NPAs”), increases in provision for loan losses, and
increases in operating expenses as a result of the allocation of management time
and resources to the collection and work out of loans, all of which would
negatively impact our financial condition and results of operations.

We Are Dependent on Key Personnel

We are materially dependent on the performance of our executive management team,
loan officers, and other support personnel. The loss of the services of any of
these employees could have a material adverse effect on our business, results of
operations, and financial condition. Many of these key officers have important
customer relationships, which are instrumental to the Bank’s operations. Changes
in key personnel and their responsibilities may be disruptive to our business
and could have a material adverse effect on our business, financial condition,
and results of operations. Management believes that future results also will
depend, in part, upon attracting and retaining highly skilled and qualified
management, especially in the new market areas into which we may enter, as well
as in sales and marketing personnel. Competition for such personnel is intense,
and management cannot be sure that we will be successful in attracting or
retaining such personnel.

Risks Related to the Regulation of Our Business

We Are Subject to Extensive Regulation

We are subject to extensive governmental regulation and control. Compliance with
state and federal banking laws has a material effect on our business and
operations. Our operations will at all times be subject to state and federal
banking laws, regulations, and procedures. The laws and regulations applicable
to the banking industry could change at any time and are subject to
interpretation, and management cannot predict the effects of these changes on
our business and profitability. Because government regulation greatly affects
the business and financial results of all commercial banks and bank holding
companies, the cost of compliance could adversely affect our ability to operate
profitably. Non-banking financial institutions, such as securities brokerage
firms, insurance companies, and money market funds are now permitted to offer
services which compete directly with services offered by banks.

The Regulatory Environment for the Financial Services Industry Is Being
Significantly Impacted by Financial Regulatory Reform Initiatives, Which May
Adversely Impact Our Business, Results of Operations and Financial Condition.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”) contains comprehensive provisions governing the practices and
oversight of financial institutions and other participants in the financial
markets. The Dodd-Frank Act established, among other requirements, a new
financial industry regulator, the Consumer Financial Protection Board (“CFPB”),
to centralize

 

Ex. C-9

--------------------------------------------------------------------------------

EXECUTION VERSION

 

responsibility for consumer financial protection with broad rulemaking authority
to administer and carry out the purposes and objectives of the “Federal consumer
financial laws and to prevent evasions thereof,” with respect to all financial
institutions that offer financial products and services to consumers, including
deposit products, residential mortgages, home-equity loans and credit cards and
contains provisions on mortgage-related matters, such as steering incentives,
determinations as to a borrower’s ability to repay and prepayment penalties. The
CFPB is also authorized to prescribe rules applicable to any covered person or
service provider, identifying and prohibiting “unfair, deceptive, or abusive
acts or practices” in connection with any transaction with a consumer for a
consumer financial product or service, or the offering of a consumer financial
product or service (“UDAAP authority”). The ongoing broad rulemaking powers of
the CFPB and its UDAAP authority have the potential to have a significant impact
on the operations of financial institutions offering consumer financial products
or services. The CFPB has indicated that they are examining proposing new rules
on overdrafts and other consumer financial products or services and if any such
rule limits our ability to provide such financial products or services it may
have an adverse effect on our business. Additional legislative or regulatory
action that may impact our business may result from the multiple studies
mandated under the Dodd-Frank Act. Although the applicability of certain
elements of the Dodd-Frank Act is limited to institutions with more than $10
billion in assets, there can be no guarantee that such applicability will not be
extended in the future or that regulators or other third parties will not seek
to impose such requirements on institutions with less than $10 billion in
assets.

The evolving regulatory environment causes uncertainty with respect to the
manner in which we conduct our businesses and requirements that may be imposed
by our regulators. Regulators have implemented and continue to propose new
regulations and issue supervisory guidance and have been increasing their
examination and enforcement action activities. We expect that regulators will
continue taking formal enforcement actions against financial institutions in
addition to addressing supervisory concerns through non-public supervisory
actions or findings. We are unable to predict the nature, extent or impact of
any additional changes to statutes or regulations, including the interpretation,
implementation or enforcement thereof, which may occur in the future.

The impact of the evolving regulatory environment on our business and operations
depends upon a number of factors including final implementing regulations,
guidance and interpretations of the regulatory agencies, supervisory priorities
and actions, the actions of our competitors and other marketplace participants,
and the behavior of consumers. The evolving regulatory environment could require
us to limit or change our business practices, limit our product offerings,
require continued investment of management time and resources in compliance
efforts, limit fees we can charge for services, require us to meet more
stringent capital, liquidity and leverage ratio requirements, increase costs,
impact the value of our assets, or otherwise adversely affect our businesses.
The regulatory environment and enhanced examination and supervisory expectations
and scrutiny can also potentially impact our ability to pursue business
opportunities and obtain required regulatory approvals for potential investments
and acquisitions.

Compliance and other regulatory requirements and expenditures have increased
significantly for us and other financial services firms, and we expect them to
continue to increase as regulators adopt new rules, interpret existing rules and
increase their scrutiny of financial institutions, including controls and
operational processes. We may face additional compliance and regulatory risk to
the extent that we enter into new lines of business or new business arrangements
with third-party service providers, alternative payment providers or other
industry participants, including providers or participants that may not be
regulated financial institutions. The additional expense, time and resources
needed to comply with ongoing regulatory requirements may adversely impact our
business and results of operations. In addition, regulatory findings and ratings
could negatively impact our business strategies.

 

Ex. C-10

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EXECUTION VERSION

 

We Are Affected by Governmental Monetary Policies

Like all regulated financial institutions, we are affected by monetary policies
implemented by the Federal Reserve and other federal instrumentalities. A
primary instrument of monetary policy employed by the Federal Reserve is the
restriction or expansion of the money supply through open market operations.
This instrument of monetary policy frequently causes volatile fluctuations in
interest rates, and it can have a direct, adverse effect on the operating
results of financial institutions. Borrowings by the United States government to
finance the government debt may also cause fluctuations in interest rates and
have similar effects on the operating results of such institutions.

The Impact of the Changing Regulatory Capital Requirements and Recently Adopted
Capital Rules Is Uncertain

Under recently adopted rules by the Federal Reserve and FDIC, the leverage and
risk-based capital ratios of bank holding companies may not be lower than the
leverage and risk-based capital ratios for insured depository institutions.
These rules became effective as to FFN and the Bank on January 1, 2015 and
include new minimum risk-based capital and leverage ratios. Moreover, these
rules refine the definition of what constitutes “capital” for purposes of
calculating those ratios. The new minimum capital level requirements applicable
to bank holding companies and banks subject to the rules are: (i) a new common
equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of
6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged
from current rules); and (iv) a Tier 1 leverage ratio of 4% for all
institutions. The rules also establish a “capital conservation buffer” of 2.5%
(to be phased in over three years) above the new regulatory minimum capital
ratios, and result in the following minimum ratios once the capital conservation
buffer is fully phased in: (i) a common equity Tier 1 risk-based capital ratio
of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total
risk-based capital ratio of 10.5%. The capital conservation buffer requirement
is to be phased in beginning in January 2016 at 0.625% of risk-weighted assets
and would increase each year until fully implemented in January 2019. An
institution will be subject to limitations on paying dividends, engaging in
share repurchases and paying discretionary bonuses if its capital levels fall
below the buffer amounts. These limitations establish a maximum percentage of
eligible retained income that could be utilized for such actions.

The application of these more stringent capital requirements to FFN and the Bank
could, among other things, result in lower returns on invested capital, require
the raising of additional capital, and result in regulatory actions if FFN or
the Bank were to be unable to comply with such requirements. Furthermore, the
imposition of liquidity requirements in connection with the implementation of
the final rules could result in FFN or the Bank having to lengthen the term of
their funding, restructure their business models and/or increase their holdings
of liquid assets. Implementation of changes to asset risk weightings for
risk-based capital calculations, items included or deducted in calculating
regulatory capital and/or additional capital conservation buffers could result
in management modifying its business strategy and could limit FFN’s and the
Bank’s ability to make distributions, including paying dividends or buying back
shares.

The Expanding Body of Federal, State and Local Regulation and/or the Licensing
of Loan Servicing, Collections or Other Aspects of Our Business May Increase the
Cost of Compliance And the Risks of Noncompliance

We service our own loans, and loan servicing is subject to extensive regulation
by federal, state and local governmental authorities as well as to various laws
and judicial and administrative decisions imposing requirements and restrictions
on those activities. The volume of new or modified laws and regulations has
increased in recent years and, in addition, some individual municipalities have
begun to enact laws that restrict loan servicing activities including delaying
or temporarily preventing foreclosures or forcing the

 

Ex. C-11

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EXECUTION VERSION

 

modification of certain mortgages. If regulators impose new or more restrictive
requirements, we may incur additional significant costs to comply with such
requirements which may further adversely affect us. In addition, our failure to
comply with these laws and regulations could possibly lead to: civil and
criminal liability; loss of licensure; damage to our reputation in the industry;
fines and penalties and litigation, including class action lawsuits; and
administrative enforcement actions. Any of these outcomes could materially and
adversely affect our business, financial condition, results of operations and
prospects.

Federal and State Regulators Periodically Examine Our Business and We May Be
Required to Remediate Adverse Examination Findings

The Federal Reserve, the FDIC, and the Tennessee Department of Financial
Institutions (“TDFI”) periodically examine our business, including our
compliance with laws and regulations. If, as a result of an examination, a
banking agency were to determine that our financial condition, capital
resources, asset quality, earnings prospects, management, liquidity or other
aspects of any of our operations had become unsatisfactory, or that we were in
violation of any law or regulation, they may take a number of different remedial
actions as they deem appropriate. These actions include the power to enjoin
“unsafe or unsound” practices, to require affirmative action to correct any
conditions resulting from any violation or practice, to issue an administrative
order that can be judicially enforced, to direct an increase in our capital, to
restrict our growth, to assess civil money penalties, to fine or remove officers
and directors and, if it is concluded that such conditions cannot be corrected
or there is an imminent risk of loss to depositors, to terminate our deposit
insurance and place us into receivership or conservatorship. Any regulatory
action against us could have an adverse effect on our business, financial
condition and results of operations.

Our FDIC Deposit Insurance Premiums and Assessments May Increase

The deposits of our subsidiary bank are insured by the FDIC up to legal limits
and, accordingly, subject our bank subsidiary to the payment of FDIC deposit
insurance assessments. The Bank’s regular assessments are based on its average
consolidated total assets minus average tangible equity as well as by risk
classification, which includes regulatory capital levels and the level of
supervisory concern. High levels of bank failures since the beginning of the
financial crisis and increases in the statutory deposit insurance limits have
increased resolution costs to the FDIC and put significant pressure on the
Deposit Insurance Fund (“DIF”). In order to maintain a strong funding position
and restore the reserve ratios of the DIF, the FDIC has, in the past, increased
deposit insurance assessment rates and charged a special assessment to all
FDIC-insured financial institutions. Further increases in assessment rates or
special assessments may occur in the future, especially if there are significant
additional financial institution failures. Any future special assessments,
increases in assessment rates or required prepayments in FDIC insurance premiums
could reduce our profitability or limit our ability to pursue certain business
opportunities, which could have an adverse effect on our business, financial
condition and results of operations.

We Are Required to Act As a Source of Financial and Managerial Strength For Our
Bank in Times of Stress

Under federal law and longstanding Federal Reserve policy, we are expected to
act as a source of financial and managerial strength to our bank, and to commit
resources to support our bank if necessary. We may be required to commit
additional resources to our bank at times when we may not be in a financial
position to provide such resources or when it may not be in our, or our
shareholders’ or creditors’, best interests to do so. Providing such support is
more likely during times of financial stress for us and our bank, which may make
any capital we are

 

Ex. C-12

--------------------------------------------------------------------------------

EXECUTION VERSION

 

required to raise to provide such support more expensive than it might otherwise
be. In addition, any capital loans we make to our bank are subordinate in right
of payment to depositors and to certain other indebtedness of our bank. In the
event of our bankruptcy, any commitment by us to a federal banking regulator to
maintain the capital of our bank will be assumed by the bankruptcy trustee and
entitled to priority of payment.

Future Acquisitions Generally Will Require Regulatory Approvals and Failure to
Obtain Them Would Restrict Our Growth

We may decide to explore complementing and expanding our products and services
by pursuing strategic acquisitions. Generally, any acquisition of target
financial institutions, branches or other banking assets by us will require
approval by and cooperation from, a number of governmental regulatory agencies,
possibly including the Federal Reserve, and the FDIC, as well as state banking
regulators. In acting on applications, federal banking regulators consider,
among other factors:

 

  •   The effect of the acquisition on competition;

 

  •   The financial condition, liquidity, results of operations, capital levels
and future prospects of the applicant and the bank(s) involved;

 

  •   The quantity and complexity of previously consummated acquisitions;

 

  •   The managerial resources of the applicant and the bank(s) involved;

 

  •   The convenience and needs of the community, including the record of
performance under the Community Reinvestment Act;

 

  •   The effectiveness of the applicant in combating money-laundering
activities;

 

  •   The applicant’s regulatory compliance record; and

 

  •   The extent to which the acquisition would result in greater or more
concentrated risk to the stability of the United States banking or financial
system.

Such regulators could deny our application based on the above criteria or other
considerations, which would restrict our growth, or the regulatory approvals may
not be granted on terms that are acceptable to us. For example, we could be
required to sell branches as a condition to receiving regulatory approvals and
such a condition may not be acceptable to us or may reduce the benefit of any
acquisition.

We Face a Risk of Noncompliance and Enforcement Action with the Bank Secrecy Act
and Other Anti-Money Laundering Statutes and Regulations

The Bank Secrecy Act (the “BSA”), the USA PATRIOT Act of 2001 (the “Patriot
Act”) and other laws and regulations require financial institutions, among other
duties, to institute and maintain an effective anti-money laundering program and
file suspicious activity and currency transaction reports as appropriate. The
federal Financial Crimes Enforcement Network is authorized to impose significant
civil money penalties for violations of those requirements and has recently
engaged in coordinated enforcement efforts with the individual federal banking
regulators, as well as the U.S. Department of Justice, Drug Enforcement
Administration and Internal Revenue Service. We are also subject to increased
scrutiny of compliance with the rules enforced by the Office of Foreign Assets
Control. If our policies, procedures and systems are deemed deficient, we would
be subject to liability, including fines and

 

Ex. C-13

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EXECUTION VERSION

 

regulatory actions, which may include restrictions on our ability to pay
dividends and the necessity to obtain regulatory approvals to proceed with
certain aspects of our business plan, including our acquisition plans. Failure
to maintain and implement adequate programs to combat money laundering and
terrorist financing could also have serious reputational consequences for us.
Any of these results could have an adverse effect on our business, financial
condition and results of operations.

There Are Substantial Regulatory Limitations on Changes of Control of a Bank
Holding Company

With certain limited exceptions, federal regulations prohibit a person, a
company or a group of persons deemed to be “acting in concert” from, directly or
indirectly, acquiring more than 10% (5% if the acquirer is a bank holding
company) of any class of our voting stock or obtaining the ability to control in
any manner the election of a majority of our directors or otherwise direct the
management or policies of FFN without prior notice or application to and the
approval of the Federal Reserve. Companies investing in banks and bank holding
companies receive additional review and may be required to become bank holding
companies, subject to regulatory supervision. Accordingly, prospective investors
must be aware of and comply with these requirements, if applicable, in
connection with any purchase of shares of our common stock. These provisions
effectively inhibit certain mergers or other business combinations, which, in
turn, could adversely affect the market price of our common stock.

Risks Related to the Civic Merger

We Have Incurred and Will Incur Substantial Expenses Related to Our Pending
Acquisition of Civic Bank & Trust

We have incurred and will incur substantial expenses in connection with our
pending acquisition of Civic Bank & Trust (“Civic”) and integrating the
operations of the acquired business of Civic with our operations. There are a
number of factors beyond our control that could affect the total amount or the
timing of our transaction and integration expenses and such expenses may exceed
our initial projections. Many of the expenses that will be incurred, by their
nature, are difficult to accurately estimate at the present time. As a result,
the transaction and integration expenses associated with our pending acquisition
of Civic could exceed the savings that we expect to achieve from the realization
of economies of scale and cost savings related to the integration of the
acquired business of Civic following the completion of the acquisition.

Fluctuations in the Trading Price of FFN Common Stock Preceding the Effective
Time of the Civic Merger Will Change the Number of Shares of FFN Common Stock
That Civic Shareholders Will Receive in the Civic Merger

At the effective time of the merger of Civic with and into the Bank, with the
Bank as the surviving entity and wholly owned subsidiary of FFN (the “Civic
Merger”), all outstanding shares of common stock of Civic will be exchanged for
that number of shares of common stock of FFN with an aggregate value of
$28,625,000, calculated by dividing this aggregate value by the volume weighted
average closing price of FFN’s common stock for the 20 consecutive trading days
ending on and including the 10th trading day preceding the effective date of the
Civic Merger; provided, however, that the market value per share of FFN’s common
stock used to determine the number of shares of FFN common stock to be issued
will be no more than $29.50 per share, and no less than $26.50 per share.
Accordingly, the value of the shares of FFN common stock Civic shareholders will
receive will not change, although the number of shares of common stock received
will vary with the market price for FFN common stock, within the $26.50 to
$29.50 range of market value, such that the number of shares of FFN common stock
issued in the Civic Merger to holders of Civic common stock will be between
970,338 and 1,080,188 shares.

 

Ex. C-14

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EXECUTION VERSION

 

The market price of FFN’s common stock at the time the Civic Merger is completed
may vary from the price of FFN’s common stock on the date the merger agreement
was executed and/or on the date of the Civic special meeting as a result of
various factors that are beyond the control of FFN and Civic, including but not
limited to general market and economic conditions, changes in our respective
businesses, operations and prospects, and regulatory considerations. In addition
to the approval of the Civic Merger Agreement by Civic shareholders, completion
of the Civic Merger is subject to satisfaction of other conditions that may not
occur until after the Civic special meeting. Therefore, at the time of the Civic
special meeting Civic shareholders will not know or be able to calculate the
precise consideration they will receive at the effective time of the Civic
Merger.

Before or after the Civic Merger, the market value of FFN common stock may
decrease and be lower than the FFN Market Price that is used in calculating the
consideration to be received by holders of Civic common stock in the Civic
Merger.

FFN May Not Be Able to Successfully Integrate Civic or to Realize the
Anticipated Benefits of the Civic Merger

The Civic Merger involves the combination of two banks that previously have
operated independently. A successful combination of the operations of the two
entities will depend substantially on FFN’s ability to consolidate operations,
systems and procedures and to eliminate redundancies and costs. FFN also intends
to utilize most if not all of Civic’s employees, a plan that may or may not be
completely feasible as the growth of the banks and FFN continues and the demands
of the marketplace dictate. FFN may not be able to combine the operations of
Civic and FSB without encountering difficulties, such as:

 

  •   the loss of key employees;

 

  •   disruption of operations and business;

 

  •   inability to maintain and increase competitive presence;

 

  •   deposit attrition, customer loss and revenue loss;

 

  •   possible inconsistencies and disruptions during the period needed to
integrate standards, control procedures and policies;

 

  •   unexpected problems with costs, operations, personnel, technology and
credit; and/or

 

  •   problems with the assimilation of new operations, sites or personnel,
which could divert resources from regular banking operations.

Additionally, general market and economic conditions or governmental actions
affecting the financial industry generally may inhibit the successful
integration of Civic and the Bank.

Further, FFN, the Bank and Civic entered into the merger agreement with the
expectation that the Civic Merger will result in various benefits including,
among other things, benefits relating to enhanced revenues, a strengthened
market position for the combined company, cross-selling opportunities,
technology, cost savings and operating efficiencies. Achieving the anticipated
benefits of the merger is subject to a number of uncertainties, including
whether FFN integrates Civic in an efficient and effective manner, and general
competitive factors in the marketplace. Failure to achieve these anticipated
benefits could result in increased costs, decreases in the amount of expected
revenues and diversion of management’s time and energy and could materially
impact FFN’s business, financial condition and operating results. Finally, any
cost savings that are realized may be offset by losses in revenues or other
charges to earnings.

 

Ex. C-15

--------------------------------------------------------------------------------

EXECUTION VERSION

 

Regulatory Approvals May Not Be Received, May Take Longer Than Expected or May
Impose Conditions That Are Not Presently Anticipated or Cannot Be Met

Before the transactions contemplated in the merger agreement may be completed,
including the Civic Merger, prior approval of our applications and notices filed
with the Federal Reserve and TDFI must be obtained. These governmental agencies
may impose conditions on the completion of the merger or require changes to the
terms of the merger agreement. Although FFN does not currently expect that any
such conditions or changes would be imposed, there can be no assurance that they
will not be, and such conditions or changes could have the effect of delaying
completion of the transactions contemplated in the merger agreement or imposing
additional costs on or limiting the Bank’s or Civic’s revenues, any of which
might have a material adverse effect on FFN following the Civic Merger. There
can be no assurance as to whether the regulatory approvals will be received, the
timing of those approvals, or whether any conditions will be imposed. The TDFI
approved the Civic Merger on April 13, 2016.

The Combined Company Will Incur Significant Transaction and Merger-Related Costs
in Connection With the Merger

FFN and Civic expect to incur costs associated with combining the operations of
Civic and the Bank. FFN and Civic have just recently begun collecting
information in order to formulate detailed integration plans to deliver planned
synergies. Additional unanticipated costs may be incurred in the integration of
the businesses of FFN and Civic. Although FFN and Civic expect that the
elimination of duplicative costs, as well as the realization of other
efficiencies related to the integration of the businesses, may offset
incremental transaction and merger-related costs over time, this net benefit may
not be achieved in the near term, or at all.

Whether or not the Civic Merger is consummated, FFN and Civic will incur
substantial expenses, such as legal, accounting and financial advisory fees, in
pursuing the merger. Completion of the Civic Merger is conditioned upon the
receipt of all material governmental authorizations, consents, orders and
approvals, including approval by federal and state banking regulators.

Directors and Officers of Civic have Potential Conflicts of Interest in the
Merger

You should be aware that some directors and officers of Civic have interests in
the Civic Merger that are different from, or in addition to, the interests of
Civic shareholders generally.

For example, certain of the executive officers of Civic have been offered change
in control agreements by the Bank that provide the executive officer with
payments upon a change in control of FFN or the Bank.

Also, FFN has agreed to add Anil Patel, MD, to the boards of FFN and the Bank,
and Dr. Patel will receive compensation for serving on these boards. These
agreements may create potential conflicts of interest by creating vested
interests in those persons in the completion of the Civic Merger. In addition,
FFN agreed in the merger agreement to provide liability insurance to Civic
officers and directors. These and certain other additional interests of Civic’s
directors and officers may cause some of these persons to view the proposed
transaction differently than you view it, although Civic’s board and officers
currently have comparable director and officer insurance coverages.

 

Ex. C-16

--------------------------------------------------------------------------------

EXECUTION VERSION

 

Failure to Complete the Civic Merger Could Cause FFN’s Stock Price to Decline

If the Civic Merger is not completed for any reason, FFN’s stock price may
decline because costs related to the Civic Merger, such as legal, accounting and
financial advisory fees, must be paid even if the Civic Merger is not completed.
In addition, if the Civic Merger is not completed, FFN’s stock price may decline
to the extent that the current market price reflects a market assumption that
the Civic Merger will be completed or due to questions about why (or whose
“fault” it was that) the Civic Merger was not completed.

Risks Relating to an Investment in the Subordinated Notes

Your Ability to Transfer the Subordinated Notes may be Limited by the Absence of
an Active Trading Market, and There is no Assurance that any Active Trading
Market Will Develop for the Subordinated Notes

There is no established public market for the Subordinated Notes, and we cannot
assure you that an active trading market for the Subordinated Notes will
develop. If no active trading market develops, you may not be able to resell
your Subordinated Notes at their fair market value or at all. We do not intend
to apply for listing the Subordinated Notes on any securities exchange. Future
trading prices of the Subordinated Notes will depend on many factors, including,
among other things, prevailing interest rates, our operating results, our
financial condition and the market for similar securities. We cannot assure you
as to the development or liquidity of any trading market for the Subordinated
Notes. The liquidity of any market for the Subordinated Notes will depend on a
number of factors, including:

 

  •   the number of holders of Subordinated Notes;

 

  •   our operating performance and financial condition;

 

  •   the market for similar securities;

 

  •   the interest of securities dealers in making a market in the Subordinated
Notes; and

 

  •   prevailing interest rates.

We cannot assure you that the market, if any, for the Subordinated Notes will be
free from similar disruptions or that any such disruptions may not adversely
affect the prices at which you may sell your Subordinated Notes. Therefore, we
cannot assure you that you will be able to sell your Subordinated Notes at a
particular time or the price that you receive when you sell will be favorable.

Your Right to Receive Payments on the Subordinated Notes is Junior to Those
Lenders Who Have a Security Interest in our Assets

Our obligations under the Subordinated Notes are unsecured and we may be able to
obtain indebtedness from time to time that is secured by all or substantially
all of our assets. If we are declared bankrupt or insolvent, or if we default
under such secured indebtedness, the lenders could declare all of the funds
borrowed thereunder, together with accrued interest, immediately due and
payable. If we were unable to repay such indebtedness, the lenders could
foreclose on the pledged assets to the exclusion of holders of the Subordinated
Notes, even if an event of default exists under Subordinated Notes. In any such
event, because the Subordinated Notes are not secured by any of our assets, it
is possible that there would be no assets remaining from which your claims could
be satisfied or, if any assets remained, they might be insufficient to satisfy
your claims fully.

 

Ex. C-17

--------------------------------------------------------------------------------

EXECUTION VERSION

 

Your Right to Receive Payments on the Subordinated Notes Will Be Equal to All
Other Subordinated Debt and Junior to Any Future Senior Debt

The Subordinated Notes are general unsecured obligations that will rank at least
equally in right of payment with all other unsecured subordinated indebtedness
of FFN, including our $40 million of fixed-to-floating rate subordinated notes
due 2026 that are currently outstanding, and will be junior in right of payment
to any future senior indebtedness of FFN and all indebtedness of the Bank.
Because of the subordination provisions in the Subordinated Notes, in the event
of a bankruptcy, liquidation or dissolution of us or other similar event, assets
will not be available to pay obligations under the Subordinated Notes until we
have made all payments on any senior indebtedness. We cannot assure you that
sufficient assets will remain after all these payments have been made to make
any payments on the Subordinated Notes, including payments of principal or
interest when due.

The Subordinated Notes are Structurally Subordinated to Debt of the Bank

Because we are a bank holding company, our rights and the rights of our
creditors, including the holders of the Subordinated Notes, to participate in
the distribution or allocation of the assets of any subsidiary, including the
Bank, during its liquidation or reorganization, will be subject to the prior
claims of such subsidiary’s creditors, unless we are ourselves a creditor with
recognized claims against the subsidiary. In addition, any capital loans that we
make to the Bank, or any future banking subsidiaries would be subordinate in
right of payment to deposits and to other indebtedness of these banking
subsidiaries. Claims from creditors (other than us) against the subsidiaries may
include long-term and medium-term debt and substantial obligations related to
deposit liabilities, federal funds purchased, securities sold under repurchase
agreements, and other short-term borrowings. The Subordinated Notes will not be
obligations of, or guaranteed by, our subsidiaries, and our subsidiaries will
have no obligation to pay any amounts due on the Subordinated Notes. The note
purchase agreements and Subordinated Notes do not limit our ability or the
ability of our subsidiaries to issue or incur additional debt.

Repayment of our Debt, Including Required Principal and Interest Payments on the
Subordinated Notes, is Dependent on Cash Flow Generated by our Company and our
Subsidiaries, Which May be Subject to Limitations Beyond our Control; In
Addition, our Ability to Pay Principal and Interest on the Subordinated Notes is
Dependent Upon Regulatory Restrictions and the Need to Maintain Sufficient
Consolidated Capital (Including Regulatory Capital), and in the Event of our
Bankruptcy, Your Recovery May be Impaired by Priority Claims of Federal Banking
Agencies

The Bank owns a significant portion of our consolidated assets and conducts a
significant portion of our consolidated operations. Repayment of our
indebtedness, including the Subordinated Notes, depends, to a significant
extent, on the generation of cash flows and the ability of the Bank to make cash
available to us by dividend or otherwise. The Bank may not be able to, or may
not be permitted to, make distributions to enable us to make payments on our
indebtedness, including the Subordinated Notes. The bank is a distinct legal
entity and, under certain circumstances, legal and contractual restrictions may
limit our ability to obtain cash from our subsidiary. In the event that we are
unable to receive distributions from our subsidiaries, we may be unable to make
required principal and interest payments on our indebtedness, including the
Subordinated Notes.

In addition, as a bank holding company, our ability to declare and pay interest
and principal on the Subordinated Notes is subject to the guidelines of the
Federal Reserve regarding capital adequacy. Under Federal Reserve policy, a bank
holding company is required to act as a source of financial and managerial
strength to each of its banking subsidiaries and commit resources to their
support. Such support may be required at times when a holding company may not
otherwise be inclined to provide it. A bank holding

 

Ex. C-18

--------------------------------------------------------------------------------

EXECUTION VERSION

 

company in certain circumstances could be required to guarantee the capital plan
of an undercapitalized banking subsidiary in order for such a plan to be
accepted by the regulators. In the event of a bank holding company’s bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code, the bankruptcy trustee will be
deemed to have assumed and is required to cure immediately any deficit under any
commitment by the debtor holding company to any of the federal banking agencies
to maintain the capital of an insured depository institution, and any claim for
breach of such obligation will generally have priority over most other unsecured
claims, including the Subordinated Notes.

The Subordinated Notes do not Restrict our Ability to Incur Additional Debt,
Repurchase our Securities or to Take Other Actions That Could Have a Negative
Impact on the Holders of the Subordinated Notes

We are not restricted under the terms of the Subordinated Notes from incurring
additional debt, including debt that ranks senior to the Subordinated Notes, or
repurchasing our common stock or other securities. In addition, the Subordinated
Notes do not require us to achieve or maintain any minimum financial results or
ratios relating to our financial position or results of operations. Our ability
to recapitalize, incur additional debt and take a number of other actions that
are not limited by the terms of the Subordinated Notes could have the effect of
diminishing our ability to make payments on the Subordinated Notes when due.

It is Unclear How Increased Regulatory Oversight and Changes in the Method for
Determining LIBOR May Affect the Value of the Floating Rate Subordinated Notes,
or How Such Changes Could Affect our Results of Operations or Financial
Condition

As a result of concerns about the accuracy of the calculation of LIBOR, a number
of British Bankers’ Association (“BBA”) member banks entered into settlements
with certain regulators and law enforcement agencies with respect to the alleged
manipulation of LIBOR, and there are ongoing investigations by regulators and
governmental authorities in various jurisdictions. Following a review of LIBOR
conducted at the request of the U.K. government, recommendations for reforming
the setting and governing of LIBOR were released on September 28, 2012 (the
“Wheatley Review”). The Wheatley Review made a number of recommendations for
changes with respect to LIBOR, including the introduction of statutory
regulation of LIBOR, the transfer of responsibility for LIBOR from the BBA to an
independent administrator, changes to the method of the compilation of lending
rates and new regulatory oversight and enforcement mechanisms for rate-setting
and a reduction in the number of currencies and tenors for which LIBOR is
published. Based on the Wheatley Review and on a subsequent public and
governmental consultation process, the U.K. Financial Services Authority
published final rules for the U.K. Financial Conduct Authority’s regulation and
supervision of LIBOR on March 25, 2013 (the “FCA Rules”). In particular, the FCA
Rules include requirements that: (i) an independent LIBOR administrator monitor
and survey LIBOR submissions to identify breaches of practice standards and/or
potentially manipulative behavior and (ii) firms submitting data to LIBOR
establish and maintain a clear conflicts of interest policy and appropriate
systems and controls. The FCA Rules took effect on April 2, 2013. Effective
early in 2014, ICE Benchmark Administration Ltd. was appointed as the
independent LIBOR administrator.

It is uncertain what additional regulatory changes or what changes, if any, in
the method of determining LIBOR may be required or made by the U.K. government
or other governmental or regulatory authorities. Accordingly, it is not certain
whether or to what extent any such changes could have an adverse impact on the
value of the floating rate Subordinated Notes, or any loans and other financial
obligations or extensions of credit for which we are an obligor. It is also not
certain whether or to what extent any such changes would have an adverse impact
on the value of any LIBOR-linked securities, loans, derivatives and other
financial obligations or extensions of credit held by or due to us or on our
results of operations or financial condition.

 

Ex. C-19

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EXECUTION VERSION

 

Fraudulent Conveyance Laws and Other Limitations on the Enforceability of the
Subordinated Notes may Adversely Affect the Validity and Enforceability of the
Subordinated Notes

Although laws differ from state to state, in general, the issuance of the
Subordinated Notes may be subject to review under federal and state fraudulent
transfer and conveyance statutes. If we become debtors in an insolvency
proceeding or encounter other financial difficulty, under fraudulent transfer or
similar laws, a court may void, subordinate or otherwise decline to enforce the
Subordinated Notes. A court might do so if it found that when we issued the
Subordinated Notes or, in some cases, when payments became due under the
Subordinated Notes, we received less than reasonably equivalent value or fair
consideration and:

 

  •   were insolvent or were rendered insolvent by reason of such transactions;

 

  •   were engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or

 

  •   intended to incur, or believed that we would incur, debts beyond our
ability to repay such debts as they matured.

A court might also void the issuance of Subordinated Notes without regard to the
above factors, if the court found that we issued the Subordinated Notes with
actual intent to hinder, delay or defraud our creditors. A court would likely
find that we did not receive reasonably equivalent value or fair consideration
for the Subordinated Notes if we did not substantially benefit directly or
indirectly from the issuance of the Subordinated Notes. If a court were to void
the issuance of the Subordinated Notes, you may no longer have a claim against
us. In addition, the court might direct you to repay any amounts that you
already received from us. The measures of insolvency for the purposes of these
fraudulent transfer or similar laws will vary depending upon the law applied in
any proceeding to determine whether a fraudulent transfer has occurred. To the
extent a court voids any of the Subordinated Notes as fraudulent transfers or
holds any of the Subordinated Notes unenforceable for any other reason, holders
of Subordinated Notes may cease to have any direct claim against us. If a court
were to take any of these actions, our assets might be applied first to satisfy
our other liabilities, if any, before any portion of the assets could be applied
to the payment of the Subordinated Notes.

Government Regulation May Affect the Priority of the Subordinated Notes in the
Case of a Bankruptcy or Liquidation.

The Dodd-Frank Act created a new resolution regime known as the “orderly
liquidation authority,” which may apply to us as a bank holding company. Under
the orderly liquidation authority, the FDIC may be appointed as receiver for an
entity for purposes of liquidating the entity if the Secretary of the U.S.
Department of the Treasury determines that the entity is in severe financial
distress and that the entity’s failure would have serious adverse effects on the
U.S. financial system.

If the FDIC is appointed as receiver under the orderly liquidation authority,
then the Dodd-Frank Act, rather than applicable insolvency laws, would determine
the powers of the receiver, and the rights and obligations of creditors and
other parties who have dealt with the institution. There are substantial
differences in the rights of creditors under the orderly liquidation authority
compared to those under the U.S. Bankruptcy Code, including the right of the
FDIC to disregard the strict priority of creditor claims in some circumstances,
the use of an administrative claims procedure to determine creditors’ claims (as
opposed to the judicial procedure utilized in bankruptcy proceedings) and the
right of the FDIC to transfer claims to a “bridge” entity. As a consequence of
the rights of the FDIC under the orderly liquidation authority, the holders of
the Subordinated Notes may be fully subordinated to interests held by the U.S.
government in the event that we enter into a receivership, insolvency,
liquidation or similar proceeding. While the FDIC has issued regulations to
implement the orderly liquidation authority, not all aspects of how the FDIC
might exercise this authority are known and additional rulemakings are likely.
Further, it is uncertain how the FDIC might exercise its discretion under the
orderly liquidation authority in a particular case.

 

Ex. C-20