Exhibit 10.1

 

 

 

EXCHANGE AGREEMENT

by and between

PACIFIC CAPITAL BANCORP

and

THE UNITED STATES DEPARTMENT OF THE TREASURY

Dated as of July 26, 2010

 

 

 

 

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TABLE OF CONTENTS

Page

ARTICLE I

THE CLOSING; THE EXCHANGE OF CAPITAL SECURITIES FOR SERIES B

PREFERRED STOCK

 

Section 1.1

   The Capital Securities    2

Section 1.2

   The Closing    2

Section 1.3

   Interpretation    4 ARTICLE II EXCHANGE

Section 2.1

   Exchange; Dividend Exchange    5

Section 2.2

   Exchange Documentation    5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY

Section 3.1

   Existence and Power    5

Section 3.2

   Authorization and Enforceability    6

Section 3.3

   Capital Securities and Underlying Common Shares    6

Section 3.4

   Amended Warrant and Warrant Shares    6

Section 3.5

   Non-Contravention    7

Section 3.6

   Anti-Takeover Provisions and Rights Plan    8

Section 3.7

   No Company Material Adverse Effect    8

Section 3.8

   Offering of Securities    8

Section 3.9

   Brokers and Finders    8 ARTICLE IV COVENANTS

Section 4.1

   Commercially Reasonable Efforts    9

Section 4.2

   Expenses    9

Section 4.3

   Exchange Listing    9

Section 4.4

   Access, Information and Confidentiality    9

Section 4.5

   Executive Compensation    10

Section 4.6

   Certain Notifications Until Closing    11

 

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Section 4.7

   Sufficiency of Authorized Common Stock    12

Section 4.8

   Monthly Lending Reports    12

Section 4.9

   [Reserved]    12

Section 4.10

   Observer to the Board    12 ARTICLE V ADDITIONAL AGREEMENTS

Section 5.1

   Unregistered Capital Securities    12

Section 5.2

   Legend    13

Section 5.3

   Certain Transactions    14

Section 5.4

   Transfer of Capital Securities; Underlying Common Shares and Warrant Shares
   14

Section 5.5

   Registration Rights    15

Section 5.6

   Voting Matters    15

Section 5.7

   Restriction on Dividends and Repurchases    15

Section 5.8

   Repurchase of Investor Securities    17

Section 5.9

   Board of Directors    17

Section 5.10

   Bank or Thrift Holding Company Status    18

Section 5.11

   Compliance with Employ American Workers Act    18

Section 5.12

   Investment Agreement    18 ARTICLE VI MISCELLANEOUS

Section 6.1

   Termination    18

Section 6.2

   Survival of Representations and Warranties    19

Section 6.3

   Amendment    19

Section 6.4

   Waiver of Conditions    19

Section 6.5

   Governing Law; Submission to Jurisdiction, etc    19

Section 6.6

   Notices    20

Section 6.7

   Definitions    21

Section 6.8

   Assignment    23

Section 6.9

   Severability    23

Section 6.10

   No Third-Party Beneficiaries    23

Section 6.11

   Entire Agreement, etc    23

Section 6.12

   Counterparts and Facsimile    24

Section 6.13

   Specific Performance    24

LIST OF ANNEXES

ANNEX A: FORM OF AMENDED WARRANT

ANNEX B: FORM OF NEW CERTIFICATE OF DETERMINATION

ANNEX C: FORM OF OPINION

ANNEX D: FORM OF WAIVER

 

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LIST OF SCHEDULES

SCHEDULE A: CAPITALIZATION

SCHEDULE B: COMPANY MATERIAL ADVERSE EFFECT

(The Company agrees to furnish supplementally a copy of any omitted schedule or
similar attachment to the Commission upon request.)

 

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Defined Terms

  

Affiliate

   Section 6.7(b)

Agreement

   Preamble

Amended Warrant

   Recitals

Applicable Provision

   Section 5.9(a)

Bank

   Section 1.2(d)(ii)

Benefit Plans

   Section 1.2(d)(x)

Board

   Section 3.6

Business Combination

   Section 6.7(c)

Bylaws

   Section 5.9(a)

Capital Securities

   Recitals

Capitalization Date

   Section 3.1(b)

Charter

   Section 1.2(d)(vi)

Closing

   Section 1.2(a)

Closing Date

   Section 1.2(a)

Common Stock

   Recitals

Company

   Preamble

Company Material Adverse Effect

   Section 6.7(d)

Company Subsidiaries

   Section 4.4(a)

Compensation Regulations

   Section 1.2(d)(x)

Designated Matters

   Section 6.7(e)

Dividend Exchange

   Recitals

EAWA

   Section 6.7(f)

EESA

   Section 1.2(d)(x)

Exchange

   Recitals

Exchange Act

   Section 5.3(b)

Ford

   Section 1.2(d)(ii)

GAAP

   Section 5.7(a)(ii)

Governmental Entities

   Section 1.2(c)

Information

   Section 4.4(c)

Investor

   Preamble

Investment Agreement

   Section 1.2(d)(ii)

Junior Stock

   Section 6.7(g)

New Certificate of Determination

   Section 1.2(d)(vi)

Observer

   Section 4.10(a)

Old Warrant

   Recitals

Other Transaction

   Section 4.9

Parity Stock

   Section 6.7(h)

Permitted Repurchases

   Section 5.7(a)(ii)

Preferred Stock

   Section 6.7(i)

Previously Disclosed

   Section 6.7(j)

Proposed Charter Amendment

   Section 4.1(b)

Relevant Period

   Section 1.2(d)(x)

SEC

   Section 3.5(b)

Section 4.5 Employee

   Section 4.5(b)

Securities Purchase Agreement

   Recitals

 

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Senior Executive Officers

   Section 1.2(d)(x)

Series B Preferred Stock

   Recitals

Series B Shares

   Recitals

Share Dilution Amount

   Section 5.7(a)(ii)

Status Report

   Section 4.9

subsidiary

   Section 6.7(a)

Targeted Completion Date

   Section 4.9

Transfer

   Section 5.4

Underlying Common Shares

   Section 3.2(a)

Warrant Shares

   Section 3.2(a)

 

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EXCHANGE AGREEMENT, dated as of July 26, 2010 (this “Agreement”) by and between
Pacific Capital Bancorp, a California corporation (the “Company”), and the
United States Department of the Treasury (the “Investor”). All capitalized terms
used herein and not otherwise defined shall have the respective meanings
ascribed to them in the Securities Purchase Agreement.

BACKGROUND

WHEREAS, the Investor is, as of the date hereof, the beneficial owner of 180,634
shares of the Company’s preferred stock designated as “Series B Fixed Rate
Cumulative Perpetual Preferred Stock”, having a liquidation amount of $1,000 per
share (the “Series B Preferred Stock”);

WHEREAS, the Company issued the Series B Preferred Stock pursuant to that
certain Securities Purchase Agreement – Standard Terms incorporated into a
Letter Agreement, dated as of November 21, 2008, as amended from time to time,
between the Company and the Investor (the “Securities Purchase Agreement”);

WHEREAS, in the second quarter of 2009, the Company elected to defer regularly
scheduled quarterly dividend payments on the Series B Preferred Stock;

WHEREAS, the Company and the Investor desire (i) to exchange (the “Preferred
Exchange”) all 180,634 shares of the Series B Preferred Stock beneficially owned
and held by the Investor (the “Series B Shares”) for 180,634 newly issued shares
of Series D Fixed Rate Cumulative Mandatorily Convertible Preferred Stock of the
Company (the “Capital Securities”), with a liquidation amount of $1,000 per
share, (ii) to exchange additional fully paid and nonassessable shares of the
Capital Securities for all accrued and unpaid dividends under the Series B
Shares outstanding immediately prior to the Closing Date (such dividends
accruing daily) (the “Dividend Exchange”) and (iii) to amend the terms of that
certain warrant, dated November 21, 2008, to purchase 1,512,003 shares of common
stock, no par value per share (“Common Stock”), granted by the Company for the
benefit of the Investor (the “Old Warrant”) pursuant to an amended and restated
warrant to purchase 1,512,003 shares of Common Stock, in substantially the form
attached hereto as Annex A (the “Amended Warrant”), on the terms and subject to
the conditions set forth herein (the “Warrant Exchange” and together with the
Preferred Exchange and the Dividend Exchange, the “Exchange”);

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:

 

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ARTICLE I

THE CLOSING; THE EXCHANGE OF CAPITAL SECURITIES FOR SERIES B

PREFERRED STOCK

Section 1.1 The Capital Securities. The Capital Securities are being issued to
the Investor in the Exchange pursuant to Article II hereof. The shares of Series
B Preferred Stock exchanged for the Capital Securities pursuant to Article II
hereof are being reacquired by the Company and shall have the status of
authorized but unissued shares of Preferred Stock of the Company undesignated as
to series and may be designated or redesignated and issued or reissued, as the
case may be, as part of any series of preferred stock of the Company; provided
that such shares shall not be reissued as shares of Series B Preferred Stock.

Section 1.2 The Closing.

(a) The closing of the Exchange (the “Closing”) will take place at the offices
of Cadwalader, Wickersham & Taft LLP, One World Financial Center, New York, New
York 10281, at 9:00 a.m., EST on the day on which the Company shall close the
transactions contemplated by the Investment Agreement (as defined below);
provided that all of the conditions set forth in Sections 1.2(c) and (d) shall
have been satisfied or waived, or at such other place, time and date as shall be
agreed between the Company and the Investor. The time and date on which the
Closing occurs is referred to in this Agreement as the “Closing Date”.

(b) Subject to the fulfillment or waiver of the conditions to the Closing in
this Section 1.2, at the Closing (i) the Company will deliver the Amended
Warrant and the Capital Securities to the Investor, as evidenced by one or more
certificates dated the Closing Date and registered in the name of the Investor
or its designee(s) and (ii) the Investor will deliver the certificate
representing the Series B Shares and the original Old Warrant to the Company.

(c) The respective obligations of each of the Investor and the Company to
consummate the Exchange are subject to the fulfillment (or waiver by the Company
and the Investor, as applicable) prior to the Closing of the conditions that
(i) any approvals or authorizations of all United States and other governmental,
regulatory or judicial authorities (collectively, “Governmental Entities”)
required for the consummation of the Exchange shall have been obtained or made
in form and substance reasonably satisfactory to each party and shall be in full
force and effect and all waiting periods required by United States and other
applicable law, if any, shall have expired and (ii) no provision of any
applicable United States or other law and no judgment, injunction, order or
decree of any Governmental Entity shall prohibit consummation of the Exchange as
contemplated by this Agreement.

(d) The obligation of the Investor to consummate the Exchange is also subject to
the fulfillment (or waiver by the Investor) at or prior to the Closing of each
of the following conditions:

(i) the approval of the NASDAQ Stock Market to issue the Capital Securities
without approval of the Company’s shareholders in reliance on Rule 5635(f) of
the NASDAQ Stock Market Listing Rules previously received by the Company in
connection with the transactions contemplated hereby shall remain in full force
and effect as of the Closing;

 

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(ii) the Company shall have closed the transactions contemplated by the
Investment Agreement, dated as of April 29, 2010 (the “Investment Agreement”),
by and among the Company, Pacific Capital Bank, National Association (the
“Bank”) and SB Acquisition Company LLC, a Delaware limited liability company
(“Ford”), pursuant to which, subject to the terms and conditions set forth
therein (as such terms and conditions may be waived or amended, subject to
Section 5.12 hereof), the Company shall have received an equity recapitalization
investment of $500 million and the Company shall have issued to Ford 225,000,000
shares of Common Stock at a purchase price of $0.20 per share and 455,000 shares
of the Company’s Series C Convertible Participating Voting Preferred Stock at a
purchase price of $1,000 per share;

(iii) the Company shall have completed a cash tender offer for $50,000,000 in
aggregate principal amount of its Subordinated Debenture due 2014, and at least
$18,000,000 in aggregate principal amount of its 9.22% Subordinated Bank Notes
due 2011, in each case at a purchase price of $650.00 per $1,000 principal
amount of such securities;

(iv)(A) the representations and warranties of the Company set forth in Article
III of this Agreement shall be true and correct in all respects as though made
on and as of the Closing Date (other than representations and warranties that by
their terms speak as of another date, which representations and warranties shall
be true and correct in all respects as of such other date) and (B) the Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing;

(v) the Investor shall have received a certificate signed on behalf of the
Company by a senior executive officer certifying to the effect that the
conditions set forth in Section 1.2(d)(iv) have been satisfied;

(vi) the Company shall have duly adopted and filed with the State of California
a Certificate of Determination, having the effect of an amendment to its
articles of incorporation (“Charter”), in substantially the form attached hereto
as Annex B (the “New Certificate of Determination”) and such filing shall have
been accepted;

(vii) the Company shall have executed the Amended Warrant and delivered such
executed Amended Warrant to the Investor or its designee(s);

(viii) the Company shall have delivered certificates in proper form or, with the
prior consent of the Investor, evidence in book-entry form, evidencing the
Capital Securities to the Investor or its designee(s);

(ix) the Company shall have delivered to the Investor written opinions from
counsel to the Company, addressed to the Investor and dated as of the Closing
Date, in substantially the form attached hereto as Annex C; and

 

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(x)(A) the Company shall have effected such changes to its compensation, bonus,
incentive and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) (collectively, “Benefit Plans”)
with respect to its Senior Executive Officers and any other employee of the
Company or its Affiliates subject to Section 111 of the Emergency Economic
Stabilization Act of 2008, as amended by the American Recovery and Reinvestment
Act of 2009, or otherwise from time to time (“EESA”), as implemented by any
guidance, rule or regulation thereunder, as the same shall be in effect from
time to time (collectively, the “Compensation Regulations”) (and to the extent
necessary for such changes to be legally enforceable, each of its Senior
Executive Officers and other employees shall have duly consented in writing to
such changes), as may be necessary, during the period in which any obligation of
the Company arising from financial assistance under the Troubled Asset Relief
Program remains outstanding (such period, as it may be further described in the
Compensation Regulations, the “Relevant Period”), in order to comply with
Section 111 of EESA or the Compensation Regulations and (B) the Investor shall
have received a certificate signed on behalf of the Company by a Senior
Executive Officer certifying to the effect that the condition set forth in
Section 1.2(d)(x)(A) has been satisfied; “Senior Executive Officers” means the
Company’s “senior executive officers” as defined in Section 111 of the EESA and
the Compensation Regulations.

Section 1.3 Interpretation. When a reference is made in this Agreement to
“Recitals,” “Articles,” “Sections,” “Annexes” or “Schedules” such reference
shall be to a Recital, Article or Section of, or Annex or Schedule to, this
Agreement, unless otherwise indicated. The terms defined in the singular have a
comparable meaning when used in the plural, and vice versa. References to
“herein”, “hereof”, “hereunder” and the like refer to this Agreement as a whole
and not to any particular section or provision, unless the context requires
otherwise. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed followed by the words “without limitation.” No rule of
construction against the draftsperson shall be applied in connection with the
interpretation or enforcement of this Agreement, as this Agreement is the
product of negotiation between sophisticated parties advised by counsel. All
references to “$” or “dollars” mean the lawful currency of the United States of
America. Except as expressly stated in this Agreement, all references to any
statute, rule or regulation are to the statute, rule or regulation as amended,
modified, supplemented or replaced from time to time (and, in the case of
statutes, include any rules and regulations promulgated under the statute) and
to any section of any statute, rule or regulation include any successor to the
section. References to a “business day” shall mean any day except Saturday,
Sunday and any day on which banking institutions in the State of New York
generally are authorized or required by law or other governmental actions to
close.

 

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ARTICLE II

EXCHANGE

Section 2.1 Exchange; Dividend Exchange.

(a) On the terms and subject to the conditions set forth in this Agreement,
(i) the Company agrees to issue the Capital Securities to the Investor in
exchange for 180,634 shares of the Series B Shares, and the Investor agrees to
deliver to the Company the Series B Shares in exchange for the Capital
Securities, and (ii) the Company and the Investor mutually agree to amend and
restate the Old Warrant to reflect the terms and conditions of the Amended
Warrant.

(b) Simultaneously with the Exchange, the Company shall deliver to the Investor
pursuant to the Dividend Exchange the number of shares of Capital Securities
(rounded to the nearest whole number) determined by dividing the total amount of
the cash payment of accrued and unpaid dividends that would otherwise be payable
to the Investor (rounded to the nearest whole cent) by $1,000, representing the
liquidation amount per share of the Capital Securities. Following consummation
of the Dividend Exchange, no further cash dividends shall be payable in respect
of the Series B Shares outstanding immediately prior to the Closing Date.

Section 2.2 Exchange Documentation. Settlement of the Exchange will take place
on the Closing Date, at which time the Investor will cause delivery of the
Series B Shares and the Old Warrant to the Company or its designated agent and
the Company will cause delivery of the Capital Securities and the Amended
Warrant to the Investor or its designated agent.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as Previously Disclosed, the Company represents and warrants to the
Investor as of the date hereof (provided that the Investor acknowledges that the
Proposed Charter Amendment has not been filed or become effective as of the date
hereof) and as of the Closing Date that:

Section 3.1 Existence and Power.

(a) Organization, Authority and Significant Subsidiaries. The Company is duly
organized, validly existing and in good standing under the laws of the State of
California and has all necessary power and authority to own, operate and lease
its properties and to carry on its business in all material respects as it is
being currently conducted, and except as has not, individually or in the
aggregate, had and would not reasonably be expected to have a Company Material
Adverse Effect, has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any business so
as to require such qualification; each subsidiary of the Company that is a
“significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X
under the Securities Act, including, without limitation, the Bank, has been duly
organized and is validly existing in good standing under the laws of its
jurisdiction of organization. The Charter and bylaws of the Company, copies of
which have been provided to the Investor prior to the date hereof, are true,
complete and correct copies of such documents as in full force and effect as of
the date hereof.

(b) Capitalization. The authorized capital stock of the Company, and the
outstanding capital stock of the Company (including securities convertible into,
or exercisable or

 

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exchangeable for, capital stock of the Company) as of the most recent fiscal
month-end preceding the date hereof (the “Capitalization Date”) is set forth on
Schedule A. The outstanding shares of capital stock of the Company have been
duly authorized and are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). Except as provided in the Old Warrant and
the Investment Agreement, as of the date hereof, the Company does not have
outstanding any securities or other obligations providing the holder the right
to acquire Common Stock that is not reserved for issuance as specified on
Schedule A, and the Company has not made any other commitment to authorize,
issue or sell any Common Stock. Since the Capitalization Date, the Company has
not issued any shares of Common Stock other than (i) shares issued upon the
exercise of stock options or delivered under other equity-based awards or other
convertible securities or warrants which were issued and outstanding on the
Capitalization Date and disclosed on Schedule A and (ii) shares disclosed on
Schedule A.

Section 3.2 Authorization and Enforceability.

(a) The Company has the corporate power and authority to execute and deliver
this Agreement and the Amended Warrant and to carry out its obligations
hereunder and thereunder (which includes the issuance of the Capital Securities,
the shares of Common Stock issuable upon conversion of the Capital Securities
(the “Underlying Common Shares”), the Amended Warrant and the shares of Common
Stock issuable upon exercise of the Amended Warrant (the “Warrant Shares”)).

(b) The execution, delivery and performance by the Company of this Agreement and
the Amended Warrant and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of the Company and its shareholders, and no further approval or
authorization is required on the part of the Company or its stockholders. This
Agreement is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to the Bankruptcy Exceptions.

Section 3.3 Capital Securities and Underlying Common Shares. The Capital
Securities have been duly and validly authorized by all necessary action, and,
when issued and delivered pursuant to this Agreement, such Capital Securities
will be duly and validly issued and fully paid and nonassessable, will not be
issued in violation of any preemptive rights, will represent nonassessable
undivided beneficial interests in the assets of the Company, will not subject
the holder thereof to personal liability and will rank pari passu with all other
series or classes of Preferred Stock, whether or not issued or outstanding.
Subject to the effectiveness of the Proposed Charter Amendment, the shares of
Underlying Common Stock will have been duly authorized and reserved for issuance
upon conversion of the Capital Securities and when so issued in accordance with
the terms of the New Certificate of Determination will be validly issued, fully
paid and nonassessable.

Section 3.4 Amended Warrant and Warrant Shares. The Amended Warrant has been
duly and validly authorized and, when executed and delivered as contemplated
hereby, will constitute a valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms, except as the same
may be limited by applicable

 

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Bankruptcy Exceptions. The Warrant Shares have been duly authorized and reserved
for issuance by the Company and when so issued and delivered in accordance with
the terms of the Amended Warrant will be validly issued, fully paid and
non-assessable, without the necessity of any approval of its shareholders.

Section 3.5 Non-Contravention.

(a) The execution, delivery and performance by the Company of this Agreement,
the Amended Warrant, and the consummation of the transactions contemplated
hereby and thereby, and compliance by the Company with the provisions hereof and
thereof, will not (A) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation of, any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any Company Subsidiary under any of the terms, conditions or
provisions of (i) its organizational documents or (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which the Company or any Company Subsidiary is a party or by which
it or any Company Subsidiary may be bound, or to which the Company or any
Company Subsidiary or any of the properties or assets of the Company or any
Company Subsidiary may be subject, or (B) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any statute,
rule or regulation or any judgment, ruling, order, writ, injunction or decree
applicable to the Company or any Company Subsidiary or any of their respective
properties or assets except, in the case of clauses (A)(ii) and (B), for those
occurrences that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Company Material Adverse Effect.

(b) Other than the filing of the New Certificate of Determination with the State
of California, any current report on Form 8-K required to be filed with the
Securities and Exchange Commission (“SEC”), such filings and approvals as are
required to be made or obtained under any state “blue sky” laws and such
consents and approvals that have been made or obtained, no notice to, filing
with or review by, or authorization, consent or approval of, any Governmental
Entity is required to be made or obtained by the Company in connection with the
consummation by the Company of the Exchange except for any such notices,
filings, reviews, authorizations, consents and approvals the failure of which to
make or obtain would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.

(c) Except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, (A) the execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby (including for this purpose the consummation of
the Exchange) and compliance by the Company with the provisions hereof will not
(1) result in any payment (including any severance payment, payment of
unemployment compensation, “excess parachute payment” (within the meaning of the
Code), “golden parachute payment” (as defined in the EESA, as implemented by the
Compensation Regulations) or forgiveness of indebtedness or otherwise) becoming
due to any current or former employee, officer or director of the Company or any
Company Subsidiary from the Company or any Company Subsidiary under any benefit
plan or otherwise, (2) increase any benefits otherwise payable under any benefit
plan, (3) result in any acceleration of the time of

 

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payment or vesting of any such benefits, (4) require the funding or increase in
the funding of any such benefits or (5) result in any limitation on the right of
the Company or any Company Subsidiary to amend, merge, terminate or receive a
reversion of assets from any benefit plan or related trust and (B) neither the
Company nor any Company Subsidiary has taken, or permitted to be taken, any
action that required, and no circumstances exist that will require the funding,
or increase in the funding, of any benefits or resulted, or will result, in any
limitation on the right of the Company or any Company Subsidiary to amend,
merge, terminate or receive a reversion of assets from any benefit plan or
related trust.

Section 3.6 Anti-Takeover Provisions and Rights Plan. The Board of Directors of
the Company (the “Board”) has taken all necessary action to ensure that the
transactions contemplated by this Agreement and the Amended Warrant and the
consummation of the transactions contemplated hereby and thereby, including the
conversion of the Capital Securities in accordance with the terms of the New
Certificate of Determination and the exercise of the Amended Warrant in
accordance with its terms, will be exempt from any anti-takeover or similar
provisions of the Company’s Charter and bylaws, and any other provisions of any
applicable “moratorium”, “control share”, “fair price”, “interested stockholder”
or other anti-takeover laws and regulations of any jurisdiction. The Company has
taken all actions necessary to render any stockholders’ rights plan of the
Company inapplicable to this Agreement, the Capital Securities and the Amended
Warrant and the consummation of the transactions contemplated hereby and
thereby, including the conversion of the Capital Securities in accordance with
the terms of the New Certificate of Determination and the exercise of the
Amended Warrant by the Investor in accordance with its terms.

Section 3.7 No Company Material Adverse Effect. Since December 31, 2009, no
fact, circumstance, event, change, occurrence, condition or development has
occurred that, individually or in the aggregate, has had or would reasonably be
likely to have a Company Material Adverse Effect, except as disclosed on
Schedule B.

Section 3.8 Offering of Securities. Neither the Company nor any person acting on
its behalf has taken any action (including any offering of any securities of the
Company under circumstances which would require the integration of such offering
with the offering of the Capital Securities under the Securities Act and the
rules and regulations of the SEC promulgated thereunder), which might subject
the offering, issuance or sale of the Capital Securities to the Investor
pursuant to this Agreement to the registration requirements of the Securities
Act.

Section 3.9 Brokers and Finders. No broker, finder or investment banker is
entitled to any financial advisory, brokerage, finder’s or other fee or
commission in connection with this Agreement or the transactions contemplated
hereby based upon arrangements made by or on behalf of the Company or any
Company Subsidiary for which the Investor could have any liability.

 

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ARTICLE IV

COVENANTS

Section 4.1 Commercially Reasonable Efforts.

(a) Subject to the terms and conditions of this Agreement, each of the parties
will use its commercially reasonable efforts in good faith to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or desirable, or advisable under applicable laws, so as to permit
consummation of the Exchange as promptly as practicable and otherwise to enable
consummation of the transactions contemplated hereby and shall use commercially
reasonable efforts to cooperate with the other party to that end.

(b) Promptly following the Closing, the Company shall use its commercially
reasonable efforts to call a special meeting of its shareholders to vote on a
proposal, or shall obtain Ford’s written consent in lieu of a meeting of
shareholders, to approve an increase in the number of authorized shares of
Common Stock to at least such number as shall be sufficient to permit issuance
of all of the Underlying Common Stock upon conversion of the Capital Securities
and issuance of the Warrant Shares upon exercise of the Amended Warrant (the
“Proposed Charter Amendment”). The Company shall comply with all applicable
corporate and securities law requirements with respect to the Proposed Charter
Amendment.

Section 4.2 Expenses. If requested by the Investor, the Company shall pay all
reasonable out of pocket and documented costs and expenses associated with the
Exchange, including, but not limited to, the reasonable fees, disbursements and
other charges of the Investor’s legal counsel and financial advisors.

Section 4.3 Exchange Listing. If requested by the Investor, the Company shall,
at the Company’s expense, cause the Capital Securities and the Amended Warrant,
to the extent the Capital Securities and the Amended Warrant comply with
applicable listing requirements, to be listed on the NASDAQ Stock Market or
other national stock exchange, subject to official notice of issuance, and shall
maintain such listing for so long as any Common Stock is listed on such
exchange. At the Investor’s request, the Company agrees to take such action as
may be necessary to change the minimum denominations of the Capital Securities
to $25 or such other amount as the Investor shall reasonably request. As soon as
reasonably practicable following the Closing, the Company shall, at its expense,
cause the Underlying Common Shares and the Warrant Shares to be listed on the
same national securities exchange on which the Common Stock is listed, subject
to official notice of issuance, and shall maintain such listing for so long as
any Common Stock is listed on such exchange.

Section 4.4 Access, Information and Confidentiality.

(a) From the date hereof until the date when the Investor no longer holds any
debt or equity securities of the Company or an Affiliate of the Company acquired
pursuant to this Agreement or the Amended Warrant, the Company will permit the
Investor and its agents, consultants, contractors and advisors (i) acting
through the Company’s Appropriate Federal Banking Agency, to examine the
corporate books and make copies thereof and to discuss the affairs, finances and
accounts of the Company and the subsidiaries of the Company (the “Company
Subsidiaries”) with the principal officers of the Company, all upon reasonable
notice and at such reasonable times and as often as the Investor may reasonably
request and (ii) to review any information material to the Investor’s investment
in the Company provided by the Company to its Appropriate Federal Banking
Agency.

 

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(b) From the date hereof until the date when the Investor no longer holds any
debt or equity securities of the Company or an Affiliate of the Company acquired
pursuant to this Agreement or the Amended Warrant, the Company shall permit, and
shall cause each of the Company’s Subsidiaries to permit (A) the Investor and
its agents, consultants, contractors, (B) the Special Inspector General of the
Troubled Asset Relief Program, and (C) the Comptroller General of the United
States access to personnel and any books, papers, records or other data, in each
case, to the extent relevant to ascertaining compliance with the financing terms
and conditions; provided that prior to disclosing any information pursuant to
clause (B) or (C), the Special Inspector General of the Troubled Asset Relief
Program and the Comptroller General of the United States shall have agreed, with
respect to documents obtained under this Agreement in furtherance of its
function, to follow applicable law and regulation (and the applicable customary
policies and procedures) regarding the dissemination of confidential materials,
including redacting confidential information from the public version of its
reports and soliciting the input from the Company as to information that should
be afforded confidentiality, as appropriate.

(c) The Investor will use reasonable best efforts to hold, and will use
reasonable best efforts to cause its agents, consultants, contractors, advisors,
and United States executive branch officials and employees, to hold, in
confidence all non-public records, books, contracts, instruments, computer data
and other data and information (collectively, “Information”) concerning the
Company furnished or made available to it by the Company or its representatives
pursuant to this Agreement (except to the extent that such information can be
shown to have been (i) previously known by such party on a non-confidential
basis, (ii) in the public domain through no fault of such party or (iii) later
lawfully acquired from other sources by the party to which it was furnished (and
without violation of any other confidentiality obligation)); provided that
nothing herein shall prevent the Investor from disclosing any Information to the
extent required by applicable laws or regulations or by any subpoena or similar
legal process). The Investor understands that the Information may contain
commercially sensitive confidential information entitled to an exception from a
Freedom of Information Act request.

(d) Nothing in this Section shall be construed to limit the authority that the
Special Inspector General of the Troubled Asset Relief Program, the Comptroller
General of the United States or any other applicable regulatory authority has
under law.

Section 4.5 Executive Compensation.

(a) Benefit Plans. During the Relevant Period, the Company shall take all
necessary action to ensure that the Benefit Plans of the Company and its
Affiliates comply in all respects with, and shall take all other actions
necessary to comply with, Section 111 of the EESA, as implemented by the
Compensation Regulations, taking into account Section 30.14 of the Compensation
Regulations, and neither the Company nor any Affiliate shall adopt any new
Benefit Plan (i) that does not comply therewith or (ii) that does not expressly
state and require that such Benefit Plan and any compensation thereunder shall
be subject to any relevant Compensation Regulations adopted, issued or released
on or after the date any such Benefit Plan is adopted. To the extent that EESA
and/or the Compensation Regulations are amended or otherwise change during the
Relevant Period in a manner that requires changes to then-existing Benefit
Plans, or that requires other actions, the Company and its Affiliates shall
effect such changes to its or their Benefit Plans, and take such other actions,
as promptly as practicable after

 

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it has actual knowledge of such amendments or changes in order to be in
compliance with this Section 4.5(a) (and shall be deemed to be in compliance for
a reasonable period to effect such changes). In addition, the Company and its
Affiliates shall take all necessary action, other than to the extent prohibited
by applicable law or regulation applicable outside of the United States, to
ensure that the consummation of the transactions contemplated by this Agreement
will not accelerate the vesting, payment or distribution of any equity-based
awards, deferred cash awards or any nonqualified deferred compensation payable
by the Company or any of its Affiliates.

(b) Additional Waivers. After the Closing Date, in connection with the hiring or
promotion of a Section 4.5 Employee and/or the promulgation of applicable
Compensation Regulations or otherwise, to the extent any Section 4.5 Employee
shall not have executed a waiver with respect to the application to such
Section 4.5 Employee of the Compensation Regulations, the Company shall use its
best efforts to (i) obtain from such Section 4.5 Employee a waiver in
substantially the form attached hereto as Annex D and (ii) deliver such waiver
to the Investor as promptly as possible, in each case, within sixty days of the
Closing Date or, if later, within sixty days of such Section 4.5 Employee
becoming subject to the requirements of this Section. “Section 4.5 Employee”
means (A) each Senior Executive Officer and (B) any other employee of the
Company or its Affiliates determined at any time to be subject to Section 111 of
EESA and the Compensation Regulations.

(c) Clawback. In the event that any Section 4.5 Employee receives a payment in
contravention of the provisions of this Section 4.5, the Company shall promptly
provide such individual with written notice that the amount of such payment must
be repaid to the Company in full within fifteen business days following receipt
of such notice or such earlier time as may be required by the Compensation
Regulations and shall promptly inform the Investor (i) upon discovering that a
payment in contravention of this Section 4.5 has been made and (ii) following
the repayment to the Company of such amount and shall take such other actions as
may be necessary to comply with the Compensation Regulations.

(d) Limitation on Deductions. During the Relevant Period, the Company agrees
that it shall not claim a deduction for remuneration for federal income tax
purposes in excess of $500,000 for each Senior Executive Officer that would not
be deductible if Section 162(m)(5) of the Code applied to the Company.

(e) Amendment to Prior Agreement. The parties agree that, effective as of the
date hereof, Section 4.10 of the Securities Purchase Agreement shall be amended
in its entirety by replacing such Section 4.10 with the provisions set forth in
this Section 4.5 and any terms included in this Section 4.5 that are not
otherwise defined in the Securities Purchase Agreement shall have the meanings
ascribed to such terms in this Agreement.

Section 4.6 Certain Notifications Until Closing. From the date hereof until the
Closing, the Company shall promptly notify the Investor of (i) any fact, event
or circumstance of which it is aware and which would reasonably be likely to
cause any representation or warranty of the Company contained in this Agreement
to be untrue or inaccurate in any material respect or to cause any covenant or
agreement of the Company contained in this Agreement not to be complied with or
satisfied in any material respect and (ii) except as Previously Disclosed, any
fact, circumstance, event, change, occurrence, condition or development of which
the Company

 

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is aware and which, individually or in the aggregate, has had or would
reasonably be likely to have a Company Material Adverse Effect; provided,
however, that delivery of any notice pursuant to this Section 4.6 shall not
limit or affect any rights of or remedies available to the Investor; provided,
further, that a failure to comply with this Section 4.6 shall not constitute a
breach of this Agreement or the failure of any condition set forth in
Section 1.2 to be satisfied unless the underlying Company Material Adverse
Effect or material breach would independently result in the failure of a
condition set forth in Section 1.2 to be satisfied.

Section 4.7 Sufficiency of Authorized Common Stock. During the period from the
effectiveness of the Proposed Charter Amendment until the date on which all the
Capital Securities have been converted and the Amended Warrant has been fully
exercised, the Company shall at all times have reserved for issuance, free of
preemptive or similar rights, a sufficient number of authorized and unissued
shares of Common Stock to effectuate such conversion and exercise. Nothing in
this Section 4.7 shall preclude the Company from satisfying its obligations in
respect of the conversion of Capital Securities or the exercise of the Amended
Warrant by delivery of shares of Common Stock which are held in the treasury of
the Company.

Section 4.8 Monthly Lending Reports. During the Relevant Period, the Company
will detail in monthly reports submitted to the Investor the information
required by the CPP Monthly Lending Reports, as published on
www.financialstability.gov from time to time.

Section 4.9 [Reserved].

Section 4.10 Observer to the Board.

So long as the Investor and its Affiliates beneficially own any of the Capital
Securities or least 5% of the issued and outstanding Common Stock (treating all
securities beneficially owned by the Investor and its Affiliates that are
convertible into or exchangeable or exercisable for Common Stock as converted,
exchanged or exercised), the Investor shall be entitled to designate one
individual to serve as an observer (the “Observer”) to the Board, which
designation may be changed from time to time in the sole discretion of the
Investor. The Observer shall be entitled to (i) attend all meetings of the Board
and the board of directors of each subsidiary of the Company, including any
committee meetings of such boards of directors, (ii) receive notices of such
meetings concurrently with the members of the Board or such boards of directors
or committees thereof and (iii) receive all information provided to members of
the Board or such boards of directors or committees thereof at such meetings.

The Observer shall have no voting rights and his or her presence shall not be
required for determining a quorum at any meeting he or she is entitled to attend
pursuant to Section 4.10(a).

ARTICLE V

ADDITIONAL AGREEMENTS

Section 5.1 Unregistered Capital Securities. The Investor acknowledges that the
Capital Securities, the Underlying Common Shares and the Warrant Shares have not
been registered under the Securities Act or under any state securities laws. The
Investor (a) is

 

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acquiring the Capital Securities pursuant to an exemption from registration
under the Securities Act solely for investment with no present intention to
distribute them to any person in violation of the Securities Act or any
applicable U.S. state securities laws, (b) will not sell or otherwise dispose of
any of the Capital Securities, the Underlying Common Shares or the Warrant
Shares, except in compliance with the registration requirements or exemption
provisions of the Securities Act and any applicable U.S. state securities laws,
and (c) has such knowledge and experience in financial and business matters and
in investments of this type that it is capable of evaluating the merits and
risks of the Exchange and of making an informed investment decision.

Section 5.2 Legend.

(a) The Investor agrees that all certificates or other instruments representing
the Amended Warrant, the Underlying Common Shares and the Warrant Shares will
bear a legend substantially to the following effect:

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

(b) The Investor agrees that all certificates or other instruments representing
the Capital Securities will bear a legend substantially to the following effect:

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF
EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES
REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
ANY TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER”
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT
OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT
EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER
THE SECURITIES ACT, (B) FOR SO LONG AS

 

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THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL
BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO THE
ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.”

(c) In the event that any Capital Securities, Underlying Common Shares or
Warrant Shares (i) become registered under the Securities Act or (ii) are
eligible to be transferred without restriction in accordance with Rule 144 or
another exemption from registration under the Securities Act (other than Rule
144A), at the request of the Investor, the Company shall issue new certificates
or other instruments representing such Capital Securities, Underlying Common
Shares or Warrant Shares, which shall not contain the applicable legend in
Section 5.2(a) above; provided that the Investor surrenders to the Company the
previously issued certificates or other instruments.

Section 5.3 Certain Transactions.

(a) The Company will not merge or consolidate with, or sell, transfer or lease
all or substantially all of its property or assets to, any other party unless
the successor, transferee or lessee party (or its ultimate parent entity), as
the case may be (if not the Company), expressly assumes the due and punctual
performance and observance of each and every covenant, agreement and condition
of this Agreement and the Amended Warrant to be performed and observed by the
Company.

(b) Without the prior written consent of the Investor, until such time as the
Investor shall cease to own any debt or equity securities of the Company
acquired pursuant to this Agreement or the Amended Warrant (including, for the
avoidance of doubt, the Capital Securities, the Underlying Common Shares and the
Warrant Shares), the Company shall not permit any of its “significant
subsidiaries” (as such term is defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) to (i) engage
in any merger, consolidation, statutory share exchange or similar transaction
following the consummation of which such significant subsidiary is not
wholly-owned by the Company, (ii) dissolve or sell all or substantially all of
its assets or property other than in connection with an internal reorganization
or consolidation involving wholly-owned subsidiaries of the Company or
(iii) issue or sell any shares of its capital stock or any securities
convertible or exercisable for any such shares, other than issuances or sales in
connection with an internal reorganization or consolidation involving
wholly-owned subsidiaries of the Company.

Section 5.4 Transfer of Capital Securities; Underlying Common Shares and Warrant
Shares. Subject to compliance with applicable securities laws, the Investor
shall be permitted to transfer, sell, assign or otherwise dispose of
(“Transfer”) all or a portion of the

 

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Capital Securities, Amended Warrant, Underlying Common Shares or Warrant Shares
at any time, and the Company shall take all steps as may be reasonably requested
by the Investor to facilitate the Transfer of the Capital Securities, the
Underlying Common Shares and the Warrant Shares.

Section 5.5 Registration Rights. The Capital Securities, Amended Warrant,
Underlying Common Shares and Warrant Shares shall be Registrable Securities
under the Securities Purchase Agreement and the Capital Securities shall be
Preferred Shares under the Securities Purchase Agreement and, upon their
issuance, the provisions of Section 4.5 of the Securities Purchase Agreement
shall be applicable to them, including with the benefit, to the extent
available, of the tacking of any holding period from the date of issuance of the
Series B Preferred Stock.

Section 5.6 Voting Matters.

(a) The Investor agrees that it will vote, or cause to be voted, or exercise its
right to consent (or cause its right to consent to be exercised) with respect
to, all Underlying Common Shares and Warrant Shares beneficially owned by it and
its controlled Affiliates (and which are entitled to vote on such matter) with
respect to each matter on which holders of Common Stock are entitled to vote or
consent, other than a Designated Matter, in the same proportion (for, against or
abstain) as all other shares of the Company’s Common Stock are voted or consents
are given with respect to each such matter. The Investor agrees to attend all
meetings of the Company’s shareholders in person or by proxy for purposes of
obtaining a quorum. In order to effectuate the foregoing agreements, to the
maximum extent permitted by applicable law, the Investor hereby grants a proxy
appointing each of the Chief Executive Officer and Chairman of the Company
attorney-in-fact and proxy for it and its controlled Affiliates with full power
of substitution, for and in the name of it and its controlled Affiliates, to
vote, express consent or dissent, or otherwise to utilize such voting power in
the manner and solely on the terms provided by this Section 5.6 with respect to
the Underlying Common Shares and the Warrant Shares and the Investor hereby
revokes any and all previous proxies granted with respect to the Underlying
Common Shares and the Warrant Shares for purposes of the matters contemplated in
this Section 5.6; provided that such proxy may only be exercised if the Investor
fails to comply with the terms of this Section 5.6. The proxy granted hereby is
irrevocable prior to the termination of this Agreement, is coupled with an
interest and is granted in consideration of the Company entering into this
Agreement and issuing the Capital Securities and Amended Warrant to the
Investor.

(b) The Investor shall retain the right to vote in its sole discretion all
Underlying Common Shares and Warrant Shares beneficially owned by it and its
controlled Affiliates (and which are entitled to vote on such matter) on any
Designated Matter.

Section 5.7 Restriction on Dividends and Repurchases.

(a) Until the earlier of (i) November 21, 2011 or (ii) such time as the Investor
ceases to own any debt or equity securities of the Company or an Affiliate of
the Company acquired pursuant to this Agreement or the Amended Warrant, neither
the Company nor any Company Subsidiary shall, without the consent of the
Investor:

 

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(i) declare or pay any dividend or make any distribution on the Common Stock
(other than (A) regular quarterly cash dividends of not more than the amount of
the last quarterly cash dividend per share declared or, if lower, publicly
announced an intention to declare, on the Common Stock prior to October 14,
2008, as adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction, (B) dividends payable solely in shares
of Common Stock and (C) dividends or distributions of rights or Junior Stock in
connection with a stockholders’ rights plan); or

(ii) redeem, purchase or acquire any shares of Common Stock or other capital
stock or other equity securities of any kind of the Company, or any trust
preferred securities issued by the Company or any Affiliate of the Company,
other than (A) redemptions, purchases or other acquisitions of the Capital
Securities (which purchases shall be made on a pro rata basis, as provided in
Section 5.7(b)), (B) redemptions, purchases or other acquisitions of shares of
Common Stock or other Junior Stock, in each case in this clause (B) in
connection with the administration of any employee benefit plan in the ordinary
course of business (including purchases to offset the Share Dilution Amount (as
defined below) pursuant to a publicly announced repurchase plan) and consistent
with past practice; provided that any purchases to offset the Share Dilution
Amount shall in no event exceed the Share Dilution Amount, (C) purchases or
other acquisitions by a broker-dealer subsidiary of the Company solely for the
purpose of market-making, stabilization or customer facilitation transactions in
trust preferred securities of the Company or an Affiliate of the Company, Junior
Stock or Parity Stock in the ordinary course of its business, (D) purchases by a
broker-dealer subsidiary of the Company of trust preferred securities or capital
stock of the Company or an Affiliate of the Company for resale pursuant to an
offering by the Company of such trust preferred securities or capital stock
underwritten by such broker-dealer subsidiary, (E) any redemption or repurchase
of rights pursuant to any stockholders’ rights plan, (F) the acquisition by the
Company or any of the Company Subsidiaries of record ownership in Junior Stock,
Parity Stock or trust preferred securities of the Company or an Affiliate of the
Company for the beneficial ownership of any other persons (other than the
Company or any other Company Subsidiary), including as trustees or custodians,
(G) the Other Transaction, and (H) the exchange or conversion of Junior Stock
for or into other Junior Stock or of Parity Stock or trust preferred securities
of the Company or an Affiliate of the Company for or into other Parity Stock
(with the same or lesser aggregate liquidation amount) or Junior Stock, in each
case set forth in this clause (H), solely to the extent required pursuant to
binding contractual agreements entered into prior to the date hereof or any
subsequent agreement for the accelerated exercise, settlement or exchange
thereof for Common Stock (clauses (C) and (F), collectively, the “Permitted
Repurchases”). “Share Dilution Amount” means the increase in the number of
diluted shares outstanding (determined in accordance with United States
generally accepted accounting principles (“GAAP”), and as measured from the date
of the Company’s most recently filed consolidated financial statements prior to
the Closing Date) resulting from the grant, vesting or exercise of equity-based
compensation to employees and equitably adjusted for any stock split, stock
dividend, reverse stock split, reclassification or similar transaction.

 

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(b) Until such time as the Investor ceases to own any Capital Securities, the
Company shall not repurchase any Capital Securities from any holder thereof,
whether by means of open market purchase, negotiated transaction, or otherwise,
other than Permitted Repurchases, unless it offers to repurchase a ratable
portion of the Capital Securities then held by the Investor on the same terms
and conditions.

(c) The parties agree that, effective as of the date hereof, Section 4.8 of the
Securities Purchase Agreement shall be amended in its entirety by replacing such
Section 4.8 with the provisions set forth in this Section 5.7 and any terms
included in this Section 5.7 that are not otherwise defined in the Securities
Purchase Agreement shall have the meanings ascribed to such terms in this
Agreement.

Section 5.8 Repurchase of Investor Securities. From and after the date of this
Agreement, the agreements set forth in Section 4.9 of the Securities Purchase
Agreement shall be applicable (including to the Amended Warrant) following the
redemption in whole of the Capital Securities held by the Investor or the
Transfer by the Investor of all of the Capital Securities held by the Investor
to one or more third parties not affiliated with the Investor.

Section 5.9 Board of Directors.

(a) The Company hereby confirms and agrees that as of the date hereof and at all
times while any shares of the Capital Securities are outstanding it shall
maintain a range of directors of the Company that will permit the holders of the
Capital Securities to elect two directors in accordance with Section 13(b) of
the New Certificate of Determination. Currently, Section 3.2.1 (the “Applicable
Provision”) of the Company’s bylaws (the “Bylaws”) provides for a range of
directors of no less than nine (9) and no more than seventeen (17). At all times
while any shares of the Capital Securities are outstanding, the Company shall
not fill more than fifteen (15) director positions. In the event the Company
desires to increase the number of directors beyond fifteen (15), then the
Company shall be required to amend the Bylaws to increase the maximum directors
to always allow for at least two open director seats for the holders of the
Capital Securities to elect in accordance with Section 13(b) of the New
Certificate of Determination (and to amend the bylaws to provide that such
provision may not be modified, amended or repealed by the Company’s board of
directors (or any committee thereof) or without the affirmative vote and
approval of (x) the stockholders and (y) the holders of at least a majority of
the shares of Capital Securities outstanding at the time of such vote and
approval).

(b) In addition, by its execution hereof, the Company hereby confirms and agrees
that it will, within 15 days after the date of this Agreement, amend the
Applicable Provision by adding the following sentence at the end thereof:

“Notwithstanding anything in these bylaws to the contrary, for so long as the
Series D Fixed Rate Cumulative Mandatorily Convertible Preferred Stock (the
“Capital Securities”) is outstanding: (i) whenever, at any time or times,
dividends payable on the shares of Capital Securities have not been paid for an
aggregate of six quarterly Dividend Periods (as defined in the Certificate of
Determination for the Capital Securities) or more, whether or not consecutive,
the authorized number of directors shall automatically be increased by two (but
shall in no event

 

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be increased to a number of directors that is greater than the maximum number of
directors set forth in Section 3.2.1 of these bylaws); and (ii) this sentence
may not be modified, amended or repealed by the board of directors (or any
committee thereof) or without the affirmative vote and approval of (x) the
stockholders and (y) the holders of at least a majority of the shares of Capital
Securities outstanding at the time of such vote and approval.”

Section 5.10 Bank or Thrift Holding Company Status.

(a) The Company shall maintain its status as a Bank Holding Company (or, if
permitted to become a Savings and Loan Holding Company in accordance with
Subsection (b) below, such status) for as long as the Investor owns any debt or
equity securities of the Company or an Affiliate of the Company acquired
pursuant to this Agreement.

(b) The Company may become a Savings and Loan Holding Company in accordance with
the requirements of the Home Owners’ Loan Act and applicable regulations,
provided that it has duly fulfilled any commitments to or other requirements or
obligations imposed by the Board of Governors of the Federal Reserve System.

Section 5.11 Compliance with Employ American Workers Act. Until the Company is
no longer deemed a recipient of funding under Title I of EESA or Section 13 of
the Federal Reserve Act for purposes of the EAWA, as the same may be determined
pursuant to any regulations or other legally binding guidance promulgated under
EAWA, the Company shall comply, and the Company shall take all necessary action
to ensure that its subsidiaries comply, in all respects with the provisions of
the EAWA and any regulations or other legally binding guidance promulgated under
the EAWA.

Section 5.12 Investment Agreement. The Company will not agree to (i) any
amendment, waiver or modification of Sections 1.1 or 1.2 of the Investment
Agreement (other than corrections of obvious errors, if any, or other
ministerial amendments, and other than any waiver by Ford of any conditions to
closing set forth in Section 1.2(c)(2) thereof) or (ii) any amendment or
modification of any other provision of the Investment Agreement to the extent
such amendment or modification would adversely affect the Investor, in each
case, without the prior written consent of the Investor.

ARTICLE VI

MISCELLANEOUS

Section 6.1 Termination. This Agreement may be terminated at any time prior to
the Closing:

(a) by either the Investor or the Company if the Closing shall not have occurred
by the 120th calendar day following the date hereof; provided, however, that in
the event the Closing has not occurred by such 120th calendar day, the parties
will consult in good faith to determine whether to extend the term of this
Agreement, it being understood that the parties shall be required to consult
only until the fifth day after such 120th calendar day and not be under any

 

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obligation to extend the term of this Agreement thereafter; provided, further,
that the right to terminate this Agreement under this Section 6.1(a) shall not
be available to any party whose breach of any representation or warranty or
failure to perform any obligation under this Agreement shall have caused or
resulted in the failure of the Closing to occur on or prior to such date;

(b) by either the Investor or the Company in the event that any Governmental
Entity shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; or

(c) by the mutual written consent of the Investor and the Company.

In the event of termination of this Agreement as provided in this Section 6.1,
this Agreement shall forthwith become void and there shall be no liability on
the part of either party hereto except that nothing herein shall relieve either
party from liability for any breach of this Agreement.

Section 6.2 Survival of Representations and Warranties. The representations and
warranties of the Company made herein or in any certificates delivered in
connection with the Closing shall survive the Closing without limitation.

Section 6.3 Amendment. No amendment of any provision of this Agreement will be
effective unless made in writing and signed by an officer or a duly authorized
representative of each of the Company and the Investor; provided that the
Investor may unilaterally amend any provision of this Agreement to the extent
required to comply with any changes after the date hereof in applicable federal
statutes. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative of any rights or remedies provided by law.

Section 6.4 Waiver of Conditions. The conditions to each party’s obligation to
consummate the Exchange are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by applicable law. No
waiver will be effective unless it is in a writing signed by a duly authorized
officer of the waiving party that makes express reference to the provision or
provisions subject to such waiver.

Section 6.5 Governing Law; Submission to Jurisdiction, etc. This Agreement and
any claim, controversy or dispute arising under or related to this Agreement,
the relationship of the parties, and/or the interpretation and enforcement of
the rights and duties of the parties shall be enforced, governed, and construed
in all respects (whether in contract or in tort) in accordance with the federal
law of the United States if and to the extent such law is applicable, and
otherwise in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State. Each of the
parties hereto agrees (a) to submit to the exclusive jurisdiction and venue of
the United States District Court for the District of Columbia and the United
States Court of Federal Claims for any and all civil actions, suits or
proceedings

 

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arising out of or relating to this Agreement or the Amended Warrant or the
Exchange contemplated hereby and (b) that notice may be served upon (i) the
Company at the address and in the manner set forth for notices to the Company in
Section 6.6 and (ii) the Investor at the address and in the manner set forth for
notices to the Company in Section 6.6, but otherwise in accordance with federal
law. To the extent permitted by applicable law, each of the parties hereto
hereby unconditionally waives trial by jury in any civil legal action or
proceeding relating to this Agreement or the Amended Warrant or the Exchange
contemplated hereby.

Section 6.6 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other will be in writing and will be deemed
to have been duly given (a) on the date of delivery if delivered personally, or
by facsimile, upon confirmation of receipt, or (b) on the second business day
following the date of dispatch if delivered by a recognized next day courier
service. All notices hereunder shall be delivered as set forth below or pursuant
to such other instructions as may be designated in writing by the party to
receive such notice.

If to the Company:

Pacific Capital Bancorp

P.O. Box 60839

Santa Barbara, California 93160-0839

Attention: George S. Leis

Facsimile: (805) 882-3856

Email: george.leis@sbbt.com

Telephone: (805) 564-6405

With a copy to:

Manatt, Phelps & Phillips, LLP

Park Tower

695 Town Center Drive, 14th Floor

Costa Mesa, California 92626

Attention: Joshua A. Dean

Facsimile: (714) 371-2550

Telephone: (714) 371-2500

With a copy to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Attention: Edward D. Herlihy

                 Lawrence S. Makow

Facsimile: (212) 403-2000

Telephone: (212) 403-1000

 

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If to the Investor:

United States Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

Attention: Chief Counsel Office of Financial Stability

Facsimile: (202) 927-9225

Email: OFSChiefCounselNotices@do.treas.gov

With a copy to:

Cadwalader, Wickersham & Taft LLP

One World Financial Center

New York, New York 10281

Attention: Patrick T. Quinn

Facsimile: (212) 504-6666

Email: pat.quinn@cwt.com

Telephone: (212) 504-6067

Attention: William P. Mills

Facsimile: (212) 504-6666

Email: william.mills@cwt.com

Telephone: (212) 504-6436

Section 6.7 Definitions.

(a) When a reference is made in this Agreement to a subsidiary of a person, the
term “subsidiary” means any corporation, partnership, joint venture, limited
liability company or other entity (x) of which such person or a subsidiary of
such person is a general partner or (y) of which a majority of the voting
securities or other voting interests, or a majority of the securities or other
interests of which having by their terms ordinary voting power to elect a
majority of the board of directors or persons performing similar functions with
respect to such entity, is directly or indirectly owned by such person and/or
one or more subsidiaries thereof.

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

(c) The term “Business Combination” means a merger, consolidation, statutory
share exchange or similar transaction that requires the approval of the
Company’s shareholders.

(d) The term “Company Material Adverse Effect” means a material adverse effect
on the business, results of operation or financial condition of the Company and
its consolidated subsidiaries taken as a whole; provided, however, that Company
Material Adverse Effect shall

 

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not be deemed to include: (i) the effects of (A) changes after the date hereof
in general business, economic or market conditions (including changes generally
in prevailing interest rates, credit availability and liquidity, currency
exchange rates and price levels or trading volumes in the United States or
foreign securities or credit markets), or any outbreak or escalation of
hostilities, declared or undeclared acts of war or terrorism, in each case
generally affecting the industries in which the Company and its subsidiaries
operate, (B) changes or proposed changes after the date hereof in GAAP or
regulatory accounting requirements, or authoritative interpretations thereof,
(C) changes or proposed changes after date hereof in securities, banking and
other laws of general applicability or related policies or interpretations of
Governmental Entities (in the case of each of these clauses (A), (B) and (C),
other than changes or occurrences to the extent that such changes or occurrences
have or would reasonably be expected to have a materially disproportionate
adverse effect on the Company and its consolidated subsidiaries taken as a whole
relative to comparable U.S. banking or financial services organizations), or
(D) changes in the market price or trading volume of the Common Stock or any
other equity, equity-related or debt securities of the Company or its
consolidated subsidiaries (it being understood and agreed that the exception set
forth in this clause (D) does not apply to the underlying reason giving rise to
or contributing to any such change); or (ii) the ability of the Company to
consummate the Exchange and the other transactions contemplated by this
Agreement and perform its obligations hereunder on a timely basis.

(e) “Designated Matters” means (i) the election and removal of directors,
(ii) the approval of any Business Combination, (iii) the approval of a sale of
all or substantially all of the assets or property of the Company, (iv) the
approval of a dissolution of the Company, (v) the approval of any issuance of
any securities of the Company on which holders of Common Stock are entitled to
vote, (vi) the approval of any amendment to the Charter or bylaws of the Company
on which holders of Common Stock are entitled to vote and (vii) the approval of
any other matters reasonably incidental to the foregoing subclauses (i) through
(vi) as determined by the Investor.

(f) The term “EAWA” means the Employ American Workers Act (Section 1611 of
Division A, Title XVI of the American Recovery and Reinvestment Act of 2009),
Public Law No. 111-5, effective as of February 17, 2009, as may be amended and
in effect from time to time.

(g) The term “Junior Stock” means the Common Stock and any other class or series
of stock of the Company the terms of which expressly provide that it ranks
junior to the Capital Securities as to dividend rights and/or as to rights on
liquidation, dissolution or winding up of the Company.

(h) The term “Parity Stock” means any class or series of stock of the Company
the terms of which do not expressly provide that such class or series will rank
senior or junior to the Capital Securities as to dividend rights and/or as to
rights on liquidation, dissolution or winding up of the Company (in each case
without regard to whether dividends accrue cumulatively or non-cumulatively).

(i) The term “Preferred Stock” means any and all series of preferred stock of
the Company, including the Capital Securities.

 

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(j) The term “Previously Disclosed” means information set forth or incorporated
in the Company’s Annual Report on Form 10-K for the most recently completed
fiscal year of the Company filed with the SEC prior to the date hereof or in its
other reports and forms filed with or furnished to the SEC under Sections 13(a),
14(a) or 15(d) of the Exchange Act on or after the last day of the most recently
completed fiscal year of the Company and prior to the date hereof.

(k) To the extent any securities issued pursuant to this Agreement or the
transactions contemplated hereby are registered in the name of a designee of the
Investor pursuant to Sections 1.2 or 6.8(c) or transferred to an Affiliate of
the Investor, all references herein to the Investor holding or owning any debt
or equity securities of the Company, Capital Securities or Registrable
Securities (and any like variations thereof) shall be deemed to refer to the
Investor, together with such designees and/or Affiliates, holding or owning any
debt or equity securities, Capital Securities or Registrable Securities (and any
like variations thereof), as applicable.

Section 6.8 Assignment. Neither this Agreement nor any right, remedy, obligation
nor liability arising hereunder or by reason hereof shall be assignable by any
party hereto without the prior written consent of each other party, and any
attempt to assign any right, remedy, obligation or liability hereunder without
such consent shall be void, except (a) an assignment, in the case of a Business
Combination where such party is not the surviving entity, or a sale of
substantially all of its assets, to the entity which is the survivor of such
Business Combination or the purchaser in such sale, (b) as provided in
Sections 5.4 and 5.5 and (c) an assignment by the Investor of this Agreement to
an Affiliate of the Investor; provided that if the Investor assigns this
Agreement to an Affiliate, the Investor shall be relieved of its obligations
under this Agreement but (i) all rights, remedies and obligations of the
Investor hereunder shall continue and be enforceable and exercisable by such
Affiliate, and (ii) the Company’s obligations and liabilities hereunder shall
continue to be outstanding.

Section 6.9 Severability. If any provision of this Agreement, or the application
thereof to any person or circumstance, is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, will remain in
full force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination, the parties shall negotiate in good faith in an
effort to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.

Section 6.10 No Third-Party Beneficiaries. Nothing contained in this Agreement,
expressed or implied, is intended to confer upon any person or entity other than
the Company and the Investor any benefit, right or remedies, except that (i) the
provisions of Section 4.4 shall inure to the benefit of the persons referred to
in that Section and (ii) the provisions of Section 5.5 shall inure to the
benefit of the persons holding Capital Securities during any tacked holding
period, as contemplated by that Section.

Section 6.11 Entire Agreement, etc. This Agreement (including the Annexes and
Schedules hereto) constitutes the entire agreement, and supersedes all other
prior agreements, understandings, representations and warranties, both written
and oral, between the parties, with respect to the subject matter hereof. For
the avoidance of doubt, the Securities Purchase Agreement shall remain in full
force and effect, except as expressly amended by this Agreement,

 

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Section 6.12 Counterparts and Facsimile. For the convenience of the parties
hereto, this Agreement may be executed in any number of separate counterparts,
each such counterpart being deemed to be an original instrument, and all such
counterparts will together constitute the same agreement. Executed signature
pages to this Agreement may be delivered by facsimile and such facsimiles will
be deemed as sufficient as if actual signature pages had been delivered.

Section 6.13 Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled (without the necessity of posting a bond) to
specific performance of the terms hereof, this being in addition to any other
remedies to which they are entitled at law or equity.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

PACIFIC CAPITAL BANCORP By:  

/s/ George S. Leis

Name:   George S. Leis Title:   President & CEO

UNITED STATES DEPARTMENT OF THE TREASURY

By:  

/s/ Herbert M. Allison, Jr.

Name:   Herbert M. Allison, Jr. Title:   Assistant Secretary for Financial
Stability

 

[Signature Page to Exchange Agreement]