EXHIBIT 10.2
 
EXECUTION VERSION

INVESTMENT AGREEMENT
 
dated as of April 26, 2011
 
by and between
 
FNB UNITED CORP.,
 
OAK HILL CAPITAL PARTNERS III, L.P.
 
and
 
OAK HILL CAPITAL MANAGEMENT PARTNERS III, L.P.

 
 
 

 
 

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TABLE OF CONTENTS
 

           Page      
ARTICLE 1 PURCHASE; CLOSING
3
1.1
Issuance, Sale and Purchase.
3
1.2
Closing; Deliverables for the Closing; Conditions of the Closing
3
     
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
9
2.1
Certain Terms; Scope.
9
2.2
Representations and Warranties of the Company.
10
2.3
Representations and Warranties of the Investor.
30
     
ARTICLE 3 COVENANTS
32
3.1
Conduct of Business Prior to Closing.
32
3.2
Access; Confidentiality.
35
3.3
Filings; Other Actions.
35
3.4
No Solicitation of a Competing Proposal.
37
3.5
Governance Matters.
39
3.6
Avoidance of Control.
41
3.7
Notice of Certain Events.
42
3.8
Reasonable Best Efforts.
42
3.9
Preemptive Rights.
43
3.10
Most Favored Nation.
45
3.11
Transfer Taxes.
45
3.12
Legend.
45
3.13
Registration Rights
46
3.14
Warrant Offering.
58
3.15
Certain Other Transactions
58
3.16
Transfer Restrictions.
59
3.17
Exchange Listing.
60
3.18
Continued Listing Authorization
60
3.19
Rights Plan
60
3.20
Cooperation on Tax Matters
61
3.21
Other Private Placements
61
3.22
Amendment to the Articles of Incorporation
61
3.23
Preservation of Tax Benefits
61
3.24
D&O Insurance
61
3.25
Granite Merger
62
     
ARTICLE 4 TERMINATION
62
4.1
Termination.
62
4.2
Effects of Termination.
63
4.3
Termination Fee; Expense Reimbursement upon Termination
63
     
ARTICLE 5 INDEMNITY
64
5.1
Indemnification by the Company.
64

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5.2
Indemnification by the Investor
65
5.3
Notification of Claims
66
5.4
Indemnification Payment.
67
5.5
Exclusive Remedies.
67
     
ARTICLE 6 MISCELLANEOUS
68
6.1
Survival.
68
6.2
Expenses.
68
6.3
Other Definitions.
68
6.4
Amendment and Waivers.
73
6.5
Counterparts and Facsimile.
74
6.6
Governing Law.
74
6.7
Jurisdiction.
74
6.8
WAIVER OF JURY TRIAL.
74
6.9
Notices.
74
6.10
Entire Agreement.
76
6.11
Successors and Assigns.
76
6.12
Captions.
76
6.13
Severability.
76
6.14
Third Party Beneficiaries.
76
6.15
Public Announcements.
76
6.16
Specific Performance.
77
6.17
Independent Nature of the Investor’s Obligations and Rights
77
6.18
No Recourse; Limitation on Liability.
77

 
LIST OF SCHEDULES AND EXHIBITS
 
Disclosure Schedules
Schedule I – Knowledge
Exhibit A – Form of Merger Agreement
Exhibit B – Form of Passivity or Anti-Association Commitments

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INDEX OF DEFINED TERMS
Defined Term
Section
   
Action
2.2(f)
Additional Agreements
Recitals
Additional Investors
Recitals
Affiliate
6.3(a)
Agency
6.3(b)
Agreement
Preamble
Articles Amendment Proposal
Recitals
Articles of Amendment
Recitals
Bank
Recitals
Bank Boards
3.5(a)
Bank of Granite
Recitals
Bank Preferred Stock
Recitals
Bank Subordinated Debt
Recitals
Bank Subordinated Debt Settlement and Preferred Stock Repurchase Agreement
Recitals
Benefit Plans
2.2(v)(i)
BHC Act
1.2(c)(ii)(E)
Board of Directors
6.3(c)
Burdensome Condition
1.2(c)(ii)(F)
Business Combination
6.3(f)(B)
Business Day
6.3(d)
Capital Stock
6.3(e)
Capitalization Date
2.2(c)
Capitalization Update
2.2(c)
CBCA
1.2(c)(ii)(E)
Change
3.3(e)
Change in Company Recommendation
3.3(e)
Change in Control
6.3(f)
Closing
1.2(a)
Closing Date
1.2(a)
Code
6.3(g)
Common Shares
Recitals
Common Stock
Recitals
Company
Preamble
Company Employees
2.2(v)(i)
Company Financial Statements
2.2(g)
Company Indemnified Parties
5.2(a)
Company Insurance Policies
2.2(s)
Company Option
2.2(c)
Company Preferred Stock
2.2(c)
Company Recommendation
3.3(e)
Company Reports
2.2(h)
Company Restricted Stock
2.2(c)
Company Shareholders’ Meeting
3.3(e)

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Company Specified Representations
6.3(h)
Company Subsidiaries
2.2(b)
Company Subsidiary
2.2(b)
Confidentiality Agreement
3.2(b)
Continuing Directors
6.3(i)
control, controlling, controlled by and under common control with
6.3(a)
Controlled Group Liability
6.3(j)
De Minimis Amount
5.1(b)
Deductible
5.1(b)
Demand Notice
3.13(a)(ii)(A)
Demand Registration Statement
3.13(a)(ii)(A)
Disclosure Schedule
6.3(k)
Effective Date
3.13(k)(i)
Effectiveness Deadline
3.13(k)(ii)
employee benefit plan
2.2(v)(i)
Environmental Laws
6.3(l)
ERISA
2.2(v)(i)
Event of Default
6.3(m)
Exchange Agreement
Recitals
Expense Reimbursement
6.2
FDI Act
1.2(c)(D)
FDIC
2.2(b)
Federal Reserve
1.2(c)(ii)(E)
Filing Deadline
3.13(a)(i)
finally determined
5.4
Fixed Rate Cumulative Perpetual Preferred Stock
Recitals
Form S-4
2.2(hh)
GAAP
6.3(m)
Governmental Consent
6.3(o)
Governmental Entity
6.3(p)
Granite
Recitals
Granite Merger
Recitals
Granite Merger Proposal
Recitals
Granite Shareholders’ Meeting
Recitals
Hazardous Substance
6.3(q)
Holder
3.13(k)(iii)
Holders’ Counsel
3.13(k)(iv)
HSR Act
1.2(c)(C)
Indemnified Party
5.3(a)
Indemnifying Party
5.3(a)
Indemnitee
3.13(g)(i)
Insider
2.2(dd)
Insurer
6.3(r)
Intellectual Property Rights
2.2(u)
Investment
Recitals
Investor
Preamble

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Investor 2
Recitals
Investor 2 Investment
Recitals
Investor 2 Investment Agreement
Recitals
Investor Designated Director
6.3(s)
Investor Indemnified Parties
5.1
Investor Indemnitors
3.5(g)
Investor Specified Representations
6.2
Investors
Recitals
IT Assets
2.2(u)
Joint Proxy Statement
2.2(hh)
Knowledge
6.3(u)
Law
2.2(p)
Liens
2.2(d)(ii)
Loan Investor
6.3(v)
Lockup Termination Date
6.3(w)
Losses
6.3(x)
Material Adverse Effect
2.1(a)
Material Contract
2.2(r)
Merger Agreement
Recitals
Merger Sub
Recitals
NCCOB
1.2(c)(ii)(E)
New Security
3.9(a)
Nominating Committee
3.5(b)
Non-Performing Assets
6.3(y)
Non-Qualifying Transaction
6.3(f)(B)
NCGS
1.2(c)(ii)(E)
Observer
3.5(e)
OCC
2.2(p)
OFAC
2.2(m)
Other Private Placements
Recitals
Parent Corporation
6.3(f)(B)
PBGC
2.2(v)(vi)
Pending Underwritten Offering
3.13(l)
Person
6.3(y)
Piggyback Registration
3.13(a)(iv)
Previously Disclosed
2.1(b)
Pro Forma Basis
Recitals
Proxy Statement
6.3(aa)
Purchase Price
1.1
Qualifying Ownership Interest
3.5(b)
Register, registered and registration
3.13(k)(vi)
Registrable Securities
3.13(k)(vi)
Registration Expenses
3.13(k)(vii)
Regulatory Agreement
2.2(q)
Regulatory Orders or Regulator Orders
2.2(p)
Representatives
3.2(a)

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Requisite Governmental Consents
2.2(e)
Requisite Shareholder Votes
2.2(d)(iii)
Rights Plan
2.2(jj)
Rule 144
6.3(bb)
Rule 158, Rule 159A, Rule 405 and Rule 415
3.13(k)(viii)
SEC
2.1(b)
SEC Guidance
3.13(k)(ix)
Securities Act
2.2(h)
Selling Expenses
3.13(k)(viii)
Share Issuance Proposal
Recitals
Shareholder Proposals
Recitals
Shelf Registration Statement
3.13(a)(iii)
Special Registration
3.13(i)
Stock Plans
2.2(c)
Stock Split Proposal
Recitals
Subsidiary
6.3(cc)
Surviving Corporation
6.3(f)(B)
Suspension Period
3.13(d)
TARP Exchange
Recitals
TARP Preferred Stock
Recitals
TARP Warrant
Recitals
Tax or Taxes
6.3(dd)
Tax Benefit
6.3(ee)
Tax Return
6.3(dd)
Third Party Claim
5.3(a)
Transaction Documents
6.3(gg)
Transfer
3.16(a)
Treasury
Recitals
Voting Debt
2.2(c)
Voting Securities
6.3(hh)
Warrant
3.14
Warrant Offering
3.14

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INVESTMENT AGREEMENT, dated as of April 26, 2011 (this “Agreement”), by and
between FNB United Corp., a North Carolina corporation (the “Company”), Oak Hill
Capital Partners III, L.P., and Oak Hill Capital Management Partners III, L.P.
(together, the “Investor”).
 
RECITALS
 
A.           The Investment.  The Company intends to issue and sell to the
Investor, and the Investor intends to purchase from the Company, on the terms
and conditions described herein, 484,375,000 shares of common stock of the
Company, no par value (the “Common Stock” or “Common Shares”), at a price of
$0.16 per share for aggregate cash consideration of $77.5 million (the
“Investment”).  The number of Common Shares purchased by the Investor pursuant
to this Agreement shall not exceed 23.02% of the Common Shares outstanding as of
the Closing Date after giving effect to the issuance of Common Shares in the
Other Private Placements (as defined below), the TARP Exchange and the Granite
Merger but excluding any issuance of Common Shares pursuant to outstanding
Company Options and the TARP Warrant (“Pro Forma Basis”) (rounded down to the
nearest whole share).
 
B.           Other Private Placements.  The Company intends to issue (i) to
Carlyle Financial Services Harbor, L.P (“Investor 2”), on the terms and subject
to the conditions set forth in the Investment Agreement between Investor 2 and
the Company, dated as of the date hereof (the “Investor 2 Investment
Agreement”), 484,375,000 shares of Common Stock, at a price of $0.16 per share
for aggregate cash consideration of $77.5 million (the “Investor 2 Investment”),
and (ii) in one or more private placement transactions with other investors (the
“Additional Investors,” and together with the Investor and Investor 2, the
“Investors”) pursuant to agreements with the Additional Investors (the
“Additional Agreements”), Common Shares at the same per share price and for an
aggregate purchase price of, together with the Investment and the Investor 2
Investment, $310 million, with the closing of such transactions to occur
simultaneously with the Closing (together with the Investor 2 Investment, the
“Other Private Placements”).  The number of shares of Common Stock purchased by
Investor 2 pursuant to the Investor 2 Investment Agreement will not exceed
23.02% of the Common Shares outstanding as of the Closing date on a Pro Forma
Basis (rounded down to the nearest whole shares).  The number of shares of
Common Stock purchased by any Additional Investor pursuant to any Additional
Agreements will not exceed 4.9% of the Common Shares outstanding as of the
Closing date on a Pro Forma Basis (rounded down to the nearest whole share).
 
C.           Merger.  In connection with the transactions contemplated hereby,
the Company and a newly created wholly-owned subsidiary of the Company (“Merger
Sub”) are simultaneously entering into a merger agreement (the “Merger
Agreement”) in the form of Exhibit A hereto with Bank of Granite Corporation
(“Granite”), pursuant to which Merger Sub will merge with and into Granite (the
“Granite Merger”).  In connection with the Granite Merger, stockholders and
optionholders of Granite will receive 52,159,413 shares of Common Stock (or
options to purchase shares of Common Stock).  Upon the effective time of the
Granite Merger, which is to occur immediately following the Closing, the
separate corporate existence of Merger Sub shall cease and Granite will be the
surviving corporation of the Granite Merger and a wholly-owned subsidiary of the
Company.
 
 
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D.           TARP Exchange.  The United States Department of Treasury
(“Treasury”) holds (i) 51,500 shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, par value $10.00 per share and liquidation amount
$1,000 per share (the “TARP Preferred Stock”), and (ii) a warrant, dated
February 13, 2009, to purchase 2,207,143 shares of the Common Stock at an
exercise price of $3.50 per share (the “TARP Warrant”).  Subject to the approval
of the Treasury, pursuant to an Exchange Agreement to be executed by the
Treasury and the Company (the “Exchange Agreement”), the Company intends to (i)
exchange the TARP Preferred Stock for Common Shares having an aggregate value
(valuing the Common Shares at $0.16 per share) of the sum of (1) 25% of the
aggregate liquidation preference of the TARP Preferred Stock and (2) 100% of the
amount of accrued and unpaid dividends on the TARP Preferred Stock as of the
Closing Date, and (ii) amend the TARP Warrant to, among other things, reduce the
exercise price thereof to $0.16 per share (collectively, the “TARP Exchange”),
each to occur simultaneously with the Closing.
 
E.           Conversion of Bank Subordinated Debt and Repurchase of Bank
Preferred Stock.  CommunityONE Bank, National Association, a national banking
association (the “Bank”), has $2.5 million of subordinated debt outstanding and
held by SunTrust Bank (the “Bank Subordinated Debt”).  SunTrust Bank also holds
shares of nonvoting, nonconvertible, nonredeemable cumulative preferred stock of
the Bank (the “Bank Preferred Stock”) having an aggregate liquidation preference
of $12.5 million.  In connection with the transactions contemplated hereby, the
Bank intends to settle the Bank Subordinated Debt for cash in an amount equal to
25% of the principal thereof, plus 100% of the unpaid and accrued interest
thereon as of the Closing Date, and to repurchase the Bank Preferred Stock for
cash in an amount equal to 25% of the aggregate liquidation preference thereof,
plus 100% of the unpaid and accrued dividends thereon as of the Closing Date
(the “Bank Subordinated Debt Settlement and Preferred Stock Repurchase
Agreement”).
 
F.           Shareholder Proposals.  In connection with the transactions
contemplated hereby, the Company will call a meeting of its shareholders, to be
held as promptly as practicable after the date of this Agreement to vote on (i)
amendments to Company’s articles of incorporation necessary to consummate the
transactions contemplated by this Agreement (the “Articles of Amendment”),
including, without limitation, an amendment to authorize additional shares of
Common Stock and to eliminate the par value of the Common Stock (the “Articles
Amendment Proposal”), (ii) the issuance of Common Shares to the Investors and
the Treasury as contemplated by this Agreement and as required by Rule 5635 of
the NASDAQ Listing Rules (the “Share Issuance Proposal”) and (iii) the approval
of a reverse stock split of the Common Shares, if such approval is required by
the NASDAQ Listing Rules or as the Company otherwise deems necessary (the “Stock
Split Proposal”, together with the Articles Amendment Proposal, the Share
Issuance Proposal and the Granite Merger Proposal, the “Shareholder Proposals”).
 
G.           The Warrant Offering.  Following the Closing, but no earlier than
January 1, 2012, the Company will distribute non-transferable warrants to the
holders of record of the Common Stock as of the close of business on the
Business Day immediately preceding the Closing Date giving such shareholders the
right to purchase one share of Common Stock for each four shares of Common Stock
either held as of the close of business on the Business Day immediately
preceding the Closing Date at the same price per share paid by the
Investor.  The
 
 
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warrants will be exercisable for a period of 30 days after the later of the date
of distribution of such warrants or the effective date of a registration
statement related to the warrant offering.
 
H.           Investment Proceeds.  The Company will deliver the majority of the
proceeds from the Investment and the Other Private Placements to the Bank and to
the Bank of Granite, a bank subsidiary of Granite chartered by the State of
North Carolina (the “Bank of Granite”).
 
NOW, THEREFORE, in consideration of the foregoing mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor hereby
agree as follows:
 
ARTICLE 1

 
PURCHASE; CLOSING
 
1.1 Issuance, Sale and Purchase.  On the terms and subject to the satisfaction
or waiver of the conditions set forth herein, the Company agrees to issue and
sell to the Investor, and the Investor agrees to purchase from the Company, free
and clear of any Liens, 484,375,000 shares of Common Stock equal to 23.02% of
the Common Shares outstanding at the Closing Date on a Pro Forma Basis (rounded
down to the nearest whole share) at a price of $0.16 per share, for an aggregate
cash consideration of $77.5 million (the aggregate purchase price payable
pursuant to this Section 1.1, the “Purchase Price”).
 
1.2 Closing; Deliverables for the Closing; Conditions of the Closing
 
(a) Closing.  Unless this Agreement has been terminated pursuant to Article 4,
and subject to the satisfaction (or, to the extent permitted, the waiver) of the
conditions set forth in Section 1.2(c), the closing of the transactions
contemplated by this Agreement (the “Closing”) shall take place at the offices
of Arnold & Porter llp, located at 555 Twelfth St., N.W., Washington, D.C.,
20004, or remotely via the electronic or other exchange of documents and
signature pages, as soon as practicable, but in any event no later than on the
second Business Day after the satisfaction or waiver of the conditions set forth
in Section 1.2(c) (other than those conditions that, by their terms, cannot be
satisfied until the Closing, but subject to the satisfaction or waiver of those
conditions) (provided, that the Company shall provide the Investor with notice
of the date of the Closing Date and provided further that the Closing Date shall
be postponed as necessary to ensure that the Closing Date occurs no earlier than
ten (10) Business Days after the foregoing notice has been provided by the
Company to the Investor), or at such other place or such other date as agreed to
in writing by the parties hereto.  The date of the Closing is referred to as the
“Closing Date.”
 
(b) Closing Deliverables.  Subject to the satisfaction or waiver on the Closing
Date of the conditions to the Closing in Section 1.2(c) at the Closing, the
parties shall make the following deliveries:
 
(i) the Company shall deliver to the Investor (A) the Expense Reimbursement in
accordance with Section 6.2, by wire transfer of immediately available funds to
the account provided to the Company by the Investor at least one (1) Business
Day prior to the Closing Date and (B) one or more certificates evidencing the
Common Shares to be purchased
 
 
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pursuant to Section 1.1 registered in the name of the Investor (or if shares of
the Company’s capital stock are uncertificated, cause the transfer agent for the
Common Shares to register such shares in the name of the Investor and deliver
evidence of such registration to the Investor);
 
(ii) the Investor shall deliver the Purchase Price, by wire transfer of
immediately available funds to the account provided to the Investor by the
Company at least one (1) Business Day prior to the Closing Date; and
 
(iii) the Company shall deliver to the Investor such other documents relating to
the purchase and sale of the Common Shares contemplated by this Agreement as the
Investor shall have reasonably requested.
 
(c) Closing Conditions.  (i) The obligations of the Investor, on the one hand,
and the Company, on the other hand, to consummate the Closing are each subject
to the satisfaction or written waiver by the Company and the Investor of the
following conditions prior to the Closing:
 
(A) No provision of any Law and no judgment, injunction, order or decree shall
prohibit the Closing, shall prohibit or restrict the Investor or any of its
Affiliates from owning or voting any Common Shares to be purchased pursuant to
this Agreement or shall prohibit the consummation of the Granite Merger;
 
(B) All Governmental Consents required to have been obtained at or prior to the
Closing Date in connection with the execution, delivery or performance of the
Transaction Documents and Merger Agreement and the consummation of the
transactions contemplated hereby and thereby shall have been obtained and shall
be in full force and effect;
 
(C) The waiting period (and any extension thereof) applicable to the
consummation of the transactions contemplated by the Transaction Documents under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the “HSR Act”), shall have expired
or been earlier terminated; and
 
(D) The Shareholder Proposals shall have been approved by the Requisite
Shareholder Votes and the Articles of Amendment shall have been filed with the
Secretary of State of the State of North Carolina.
 
(ii) The obligation of the Investor to consummate the Closing is also subject to
the satisfaction or written waiver by the Investor of the following conditions
prior to the Closing:
 
(A) The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all respects on and as of the date of
this Agreement and on and as of the Closing Date as though made on and as of the
Closing Date, except where the failure to be true and correct (without regard to
any materiality or Material Adverse Effect qualifications contained therein),
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect (and except that (1) representations and warranties made
as of a specified date shall be true and correct as of such date and (2) the
 
 
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representations and warranties of the Company set forth in Sections 2.2(a),
2.2(b) (but only with respect to the last sentence thereof), 2.2(c), 2.2(d)(i),
2.2(d)(ii)(A)(1), 2.2(e), 2.2(o)(iv), 2.2(x)(ix), 2.2(z), 2.2(ff) and 2.2(jj)
shall be true and correct in all respects);
 
(B) The Company shall have performed and complied with, in all material
respects, all agreements, covenants and conditions required by the Transaction
Documents to be performed by it on or prior to the Closing Date (except that
with respect to agreements, covenants and conditions that are qualified by
materiality, the Company shall have performed and complied with such agreements,
covenants and conditions, as so qualified, in all respects);
 
(C) The Company shall have performed in all material respects all material
obligations required to be performed by it under the Merger Agreement on or
prior to the Closing Date and shall have complied with all its covenants set
forth therein required to be complied with on or prior to the Closing Date;
 
(D) The Investor shall have received a certificate, dated as of the Closing
Date, signed on behalf of the Company by a senior executive officer certifying
to the effect that the conditions set forth in Section 1.2(c)(ii)(A),
Section 1.2(c)(ii)(B) and Section 1.2(c)(ii)(C) have been satisfied on and as of
the Closing Date;
 
(E) (i) The Investor shall have received either (1) a written non-objection,
from the Federal Reserve, to the notice it filed in connection with its purchase
of Common Stock pursuant to the Change in Bank Control Act of 1978, as amended
(the “CBCA”) or (2) written confirmation, satisfactory in its reasonable good
faith judgment, from the Board of Governors of the Federal Reserve System (the
“Federal Reserve”), in either case, to the effect that the purchase of the
Common Shares and the consummation of the Closing and the transactions
contemplated by the Transaction Documents will not result in the Investor or any
of its Affiliates (x) being deemed in control of the Company for purposes of the
Bank Holding Company Act of 1956, as amended (the “BHC Act”) or (y) otherwise
being regulated as a bank holding company within the meaning of the BHC Act; and
(ii) (1) the Investor shall have received written confirmation, satisfactory in
its reasonable good faith judgment, from the North Carolina Commissioner of
Banks (the “NCCOB”) to the effect that the purchase of the Common Shares and the
consummation of the Closing and the transactions contemplated by the Transaction
Documents will not result in the Investor or any of its Affiliates (other than
the Company and the Company Subsidiaries) being required to file an acquisition
of control application or become a bank holding company for purposes of Chapter
53 of the North Carolina General Statutes (the “NCGS”) or (2) an acquisition of
control application shall have been approved by the NCCOB and the Investor shall
be reasonably satisfied that neither it nor any of its Affiliates (other than
the Company and the Company Subsidiaries) will be subject to examination or
regulation by the NCCOB, other than the filing of Forms 61, 61a and 61b, or be
required to provide any financial statements other than summary balance sheets
provided to the NCCOB;
 
(F) Since the date of this Agreement, there shall not be any action taken, or
any Law enacted, entered, enforced or deemed applicable to the Company or the
Company Subsidiaries, the Investor or the transactions contemplated by the
Transaction
 
 
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Documents, by any Governmental Entity, whether in connection with the
Governmental Consents specified in Section 1.2(c)(i)(B) or otherwise, which
imposes any restriction or condition on the Company or the Company Subsidiaries
or the Investor (other than such restrictions as are described in the passivity
or anti-association commitments described on Exhibit B and any applicable
restrictions associated with Treasury’s regulations of holders of TARP
securities) which the Investor determines, in its reasonable good faith
judgment, is materially and unreasonably burdensome or would reduce the economic
benefits of the transactions contemplated hereby to the Investor to such a
degree that the Investor would not have entered into this Agreement had such
condition or restriction been known to it at the date hereof (any such condition
or restriction, a “Burdensome Condition”) and, for the avoidance of doubt, any
requirements to disclose the identities of direct or indirect limited partners,
shareholders or members of the Investor or its Affiliates or its investment
advisors, other than Affiliates of the Investor, shall be deemed a Burdensome
Condition unless otherwise determined by the Investor in its sole discretion;
 
(G) As of the Closing Date (after giving effect to the closing of the
transactions contemplated by the Transaction Documents), the Company and the
Company Subsidiaries shall have, on a consolidated basis, (1) at least
$435,000,000 in (i) cash and due from banks, (ii) deposits in other banks, (iii)
overnight funds sold and due from the Federal Reserve Bank and (iv) securities
available for sale that have not been pledged and for which a liquid market and
price quotations are immediately available through a major securities dealer,
(2) at least 2,050,000,000 in non-brokered deposits (including money market,
demand, checking, savings and transactional accounts and certificates of
deposits), and (3) Non-Performing Assets on its balance sheet of not more than
$425,000,000;
 
(H) All of the conditions to closing under the Merger Agreement shall have been
satisfied or waived (other than those conditions that, by their terms, cannot be
satisfied until the closing) (with the consent of the Investor to the extent
such waiver was granted by the Company) in accordance with the terms of the
Merger Agreement such that the Closing of the transactions contemplated by the
Merger Agreement shall occur immediately following the transactions contemplated
by this Agreement;
 
(I) Effective as of the Closing Date, the Board of Directors shall have eleven
members, including the Investor Designated Director, a director designated by
Investor 2, two directors of the Company as of the date hereof, Jerry R. Licari,
Austin Adams, Louis A. “Jerry” Schmitt, J. Chandler Martin, Brian E. Simpson,
Robert L. Reid and, assuming the consummation of the Granite Merger, one
director of Granite as of the date hereof;
 
(J) the Company or the Bank, whichever is the primary employer, shall have
entered into employment agreements with the three employees identified in
Section 1.5(c)(ii)(K) of the Disclosure Schedule in a form reasonably acceptable
to the Investor;
 
(K) Since the date of this Agreement, a Material Adverse Effect shall not have
occurred and no change or other event shall have occurred that would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect;
 
 
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(L) The Common Shares to be purchased pursuant to this Agreement shall have been
authorized for listing on NASDAQ, subject to official notice of issuance;
 
(M) The Company shall have received (or shall receive concurrently with the
Closing) gross proceeds from the Other Private Placements in an aggregate
amount, together with the Purchase Price, of not less than $310,000,000;
 
(N) (1) The Company shall have exchanged the TARP Preferred Stock for Common
Shares having an aggregate value (valuing the Common Shares at $0.16 per share)
of the sum of (x) 25% of the aggregate liquidation preference of the TARP
Preferred Stock and (y) 100% of the amount of accrued and unpaid dividends on
the TARP Preferred Stock as of the Closing Date (or otherwise on terms and
conditions satisfactory to the Investor in its reasonable judgment), which
exchange and conversion shall have occurred on the Closing Date; (2) the TARP
Warrant shall have been amended to reflect the reduced conversion price of $0.16
per share pursuant to the terms of the Exchange Agreement; and (3) Treasury
shall have consented to the transactions referred to in Section 1.2(c)(ii)(O);
 
(O) The Bank shall have (i) settled the Bank Subordinated Debt for cash in an
amount equal to 25% of the principal thereof, plus 100% of the unpaid and
accrued interest thereon as of the Closing Date, and (ii) repurchased all shares
of Bank Preferred Stock for cash in an amount equal to 25% of the aggregate
liquidation preference thereof, plus 100% of the unpaid and accrued dividends
thereon as of the Closing Date;
 
(P) There shall be no Event of Default with respect to the Company’s trust
preferred securities and related Company junior subordinated debentures and the
Company shall not have taken any action, including actions taken in connection
with this Agreement or the transactions contemplated by the Transaction
Documents, that with the passing of time or the giving of notice would result in
an Event of Default; 
 
(Q) The Investor shall have been advised by Dixon Hughes PLLC, in a form
reasonably satisfactory to the Investor, that the transactions contemplated by
the Transaction Documents and the Other Private Placements will not result in
the application of “push-down” accounting, and such advice shall not have been
withdrawn or subjected to challenge by the SEC or any other Governmental Entity
of competent jurisdiction;
 
(R) The Company shall have resolved the matter described in Section
1.2(c)(ii)(R) of the Disclosure Schedule in the manner set forth in Section
1.2(c)(ii)(R) of the Disclosure Schedule;
 
(S) As of the Closing Date (after giving effect to the closing of the
transactions contemplated by the Transaction Documents and the Other Private
Placements and the contribution of a sufficient portion of the proceeds to the
Bank and the Bank of Granite), (i) the Bank shall meet the capital ratios
required to be met by the Bank in the Regulatory Orders and (ii) the Bank of
Granite shall meet the capital ratios required to be met by the Bank of Granite
in any applicable regulatory orders;
 
 
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(T) (1) Since the date of this Agreement, there shall have been no material
change to Section 382 or 383 of the Code or the regulations thereunder, or any
administrative pronouncement or a federal court decision directly interpreting a
relevant Section of Section 382 or 383 of the Code or the regulations
thereunder, the application of which will cause the net operating loss
carryforwards, unrealized built-in losses, tax credits, or capital loss
carryforwards of the Company and any of its Affiliates (if relevant) (other than
Granite and its Subsidiaries) that exist on or after the Closing Date to be
subject to limitation under Section 382 or 383 of the Code; (2) the Investor
shall have received a written opinion from KPMG LLP, reasonably satisfactory to
the Investor, and on which the Investor is expressly permitted to rely (subject
to the Investor’s execution of a reliance letter with KPMG LLP pursuant to which
the Investor shall agree to KPMG’s standard terms and conditions, forms of which
have previously provided to the Investor), to the effect that, based on the most
current information available prior to the Closing Date as provided by the
Company to KPMG LLP, the transactions contemplated by this Agreement should not
cause an “ownership change” within the meaning of Section 382 of the Code for
purposes of the net operating loss carryforwards of the Company; and (3) an
“ownership change” within the meaning of Section 382 of the Code, in the
Investor’s reasonable judgment, shall not have occurred and will not occur with
respect to the Company as a result of the Investment, the Other Private
Placements and the Merger; and
 
(U) The Company shall have caused the Investor to receive such opinions as
Investor shall reasonably request from Arnold & Porter LLP and Schell Bray
Aycock Abel & Livingston PLLC, as appropriate , counsel to the Company.
 
(iii) The obligation of the Company to consummate the Closing is also subject to
the satisfaction or written waiver by the Company of the following conditions
prior to the Closing:
 
(A) The representations and warranties of the Investor set forth in this
Agreement shall be true and correct in all respects on and as of the date of
this Agreement and on and as of the Closing Date as though made on and as of the
Closing Date except where the failure to be true and correct (without regard to
any materiality qualifications contained therein) would not materially adversely
affect the ability of the Investor to perform its obligations hereunder (and
except that representations and warranties made as of a specified date shall be
true and correct as of such date);
 
(B) The Investor shall have performed and complied with, in all material
respects, all agreements, covenants and conditions required by the Transaction
Documents to be performed by it on or prior to the Closing Date (except that
with respect to agreements, covenants and conditions that are qualified by
materiality, the Investor shall have performed and complied with such
agreements, covenants and conditions, as so qualified, in all respects); and
 
(C) The Company shall have received a certificate, dated as of the Closing Date,
signed on behalf of the Investor by a senior executive officer certifying to the
effect that the conditions set forth in Section 1.2(c)(iii)(A) and
Section 1.2(c)(iii)(B) have been satisfied on and as of the Closing Date.
 
 
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ARTICLE 2
 
REPRESENTATIONS AND WARRANTIES
 
2.1 Certain Terms; Scope.
 
(a) As used in this Agreement, the term “Material Adverse Effect” means any
circumstance, event, change, development or effect that, individually or in the
aggregate, would reasonably be expected to (i) result in a material adverse
effect on the assets, liabilities, business, condition (financial or otherwise)
or results of operations of the Company and the Company Subsidiaries, taken as a
whole, or (ii) materially impair or delay the ability of the Company or any of
the Company Subsidiaries to perform its or their obligations under the
Transaction Documents to consummate the Closing or any of the transactions
contemplated hereby or thereby; provided, however, that in determining whether a
Material Adverse Effect has occurred under clause (i), there shall be excluded
any effect to the extent resulting from (A) actions or omissions of the Company
or any Company Subsidiary expressly required or contemplated by the terms of the
Transaction Documents, (B) changes after the date hereof in general economic
conditions in the United States, including financial market volatility or
downturn, (C) changes after the date hereof affecting generally the industries
or markets in which the Company and the Company Subsidiaries operate, (D) acts
of war, sabotage or terrorism, military actions or the escalation thereof, or
outbreak of hostilities, (E) any changes after the date hereof in applicable
Laws or accounting rules or principles, including changes in GAAP, (F) the
announcement or pendency of the transactions contemplated by the Transaction
Documents, (G) changes in the market price or trading volume of the Common Stock
or the Company’s other outstanding securities (but not the underlying causes of
such changes) or (H) any failure by the Company or any of the Company
Subsidiaries to meet any internal projections or forecasts with regard to the
assets, liabilities, business, condition (financial or otherwise) or results of
operations of the Company and the Company Subsidiaries, taken as a whole (but
not the underlying causes of such failure); provided further, however, that any
circumstance, event, change, development or effect referred to in clauses (B),
(C), (D) and (E) shall be taken into account in determining whether a Material
Adverse Effect has occurred or would reasonably be expected to occur to the
extent that such circumstance, event, change, development or effect has a
disproportionate effect on the Company and the Company Subsidiaries compared to
other participants in the industries or markets in which the Company and the
Company Subsidiaries operate.
 
(b) As used in this Agreement, the term “Previously Disclosed” (i) with regard
to any party, means information set forth on its Disclosure Schedule
corresponding or responsive to the provision of this Agreement to which such
information relates; provided, however, that if such information is disclosed in
such a way as to make its relevance or applicability to another provision of
this Agreement reasonably apparent on its face, such information shall be deemed
to be responsive to such other provision of this Agreement, and (ii) with regard
to the Company, includes information publicly disclosed by the Company in
(A) the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2010, as filed by it with the Securities and Exchange Commission (the
“SEC”), (B) the Company’s Definitive Proxy Statement on Schedule 14A, as filed
by it with the SEC on April 19, 2010, or (C) any Current Report on Form 8-K
filed or furnished by it with the SEC since January 1, 2011,
 
 
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in each case available prior to the date of this Agreement (excluding any risk
factor disclosures contained in such documents under the heading “Risk Factors”
and any disclosure of risks included in any “forward-looking statements”
disclaimer or other statements that are similarly non-specific and are
predictive or forward-looking in nature).  Notwithstanding anything in this
Agreement to the contrary, the mere inclusion of an item in a Disclosure
Schedule shall not be deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such item has had or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
 
(c) For the avoidance of doubt, the representations and warranties of the
Company set forth in this Agreement (i) as of the date of this Agreement are
those of the Company and the Company Subsidiaries, and as of the date of this
Agreement none of Granite, Bank of Granite or any of Granite’s other
Subsidiaries shall be deemed an Affiliate of the Company or Subsidiary of the
Company and (ii) as of the Closing Date for purposes of this Article 2 are those
of the Company and the Company Subsidiaries, including Granite, Bank of Granite
and any of Granite’s other Subsidiaries; provided, that (i) prior to the
Closing, the Company shall be entitled to amend the Disclosure Schedules to
include information included in Granite’s disclosure schedules to the Merger
Agreement, and such amendment shall be deemed to amend the Disclosure Schedules
for all purposes of this Agreement as of the Closing Date, and (ii) the term
“Previously Disclosed” shall include information publicly disclosed by Granite
in (A) its Annual Report on Form 10-K for the fiscal year ended December 31,
2010, as filed by it with the SEC, (B) its most recent Definitive Proxy
Statement on Schedule 14A, as filed by it with the SEC, or (C) any Current
Report on Form 8-K filed or furnished by it to the SEC since January 1, 2011, in
each case filed prior to the date of this Agreement (excluding any risk factor
disclosures contained in such documents under the heading “Risk Factors” and any
disclosure of risks included in any “forward-looking statements” disclaimer or
other statements that are similarly non-specific and are predictive or
forward-looking in nature).
 
2.2 Representations and Warranties of the Company.  Except as Previously
Disclosed, the Company hereby represents and warrants to the Investor, as of the
date of this Agreement and as of the Closing Date (except for the
representations and warranties that are as of a specific date, which shall be
made as of that date), that:
 
(a) Organization and Authority.  Each of the Company and the Company
Subsidiaries is a corporation or other entity duly organized and validly
existing under the laws of the jurisdiction of its incorporation or
organization, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified except where any failure to be so
qualified would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, and has the corporate or other
organizational power and authority to own its properties and assets and to carry
on its business as it is now being conducted.  The Company has furnished to the
Investor correct and complete copies of the articles of incorporation and bylaws
(or similar governing documents) as amended through the date of this Agreement
for the Company and the Bank.  The Company is duly registered as a bank holding
company under the BHC Act.
 
(b) Company Subsidiaries.  The Company has Previously Disclosed a true, complete
and correct list of all of its subsidiaries as of the date of this Agreement
(each, a
 
 
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“Company Subsidiary” and, collectively, the “Company Subsidiaries”).  Except for
the Company Subsidiaries, the Company does not own beneficially, directly or
indirectly, more than five percent (5%) of any class of equity securities or
similar interests of any corporation, bank, business trust, association or
similar organization, and is not, directly or indirectly, a partner in any
partnership or party to any joint venture.  The Company owns, directly or
indirectly, all of its interests in each Company Subsidiary free and clear of
any and all Liens.  The deposit accounts of the Bank are insured by the Federal
Deposit Insurance Corporation (“FDIC”) to the fullest extent permitted by the
FDI Act and the rules and regulations of the FDIC thereunder, and all premiums
and assessments required to be paid in connection therewith have been paid when
due (after giving effect to any applicable extensions).  As of the date of this
Agreement, the Company beneficially owns all of the outstanding capital
securities and has sole control of the Bank, and as of the Closing Date, the
Company will, directly or indirectly, beneficially own all of the outstanding
capital securities and have sole control of both of the Bank and the Bank of
Granite.
 
(c) Capitalization.  As of the date hereof, the authorized Capital Stock of the
Company consists of (i) 150,000,000 shares of Common Stock, par value $2.50 per
share, and (ii) 200,000 shares of preferred stock, par value $10.00 per share
(the “Company Preferred Stock”), 51,500 of which has been designated as “Fixed
Rate Cumulative Perpetual Preferred Stock, Series A.”  As of the close of
business on April 7, 2011 (the “Capitalization Date”), there were 11,424,390
shares of Common Stock outstanding and 51,500 shares of TARP Preferred Stock and
no other Company Preferred Stock outstanding.  In addition, the Treasury holds a
warrant, dated February 13, 2009, to purchase 2,207,143 shares of Common Stock
at an exercise price of $3.50 per share.  As of the Closing Date, the authorized
Capital Stock of the Company shall be as set forth on Schedule 2.2(c)(i) (the
“Capitalization Update”).  As of the Closing Date, after giving effect to the
consummation of the transactions contemplated by the Merger Agreement, the
authorized and issued Capital Stock of the Company, and the percentage ownership
of the Investors, in each case shall be as set forth on Schedule
2.2(c)(ii).  Since the Capitalization Date, except in connection with the
Transaction Documents and the transactions contemplated hereby and thereby,
including the Investment, the Other Private Placements, the TARP Exchange, the
Granite Merger, the repurchase of the Bank Preferred Stock and the Warrant
Offering, all as set forth on the Capitalization Update, the Company has not (i)
issued or authorized the issuance of any shares of Common Stock or Company
Preferred Stock, or any securities convertible into or exchangeable or
exercisable for shares of Common Stock or Company Preferred Stock, (ii) reserved
for issuance any shares of Common Stock or Company Preferred Stock or
(iii) repurchased or redeemed, or authorized the repurchase or redemption of,
any shares of Common Stock or Company Preferred Stock.  As of the close of
business on the Capitalization Date, other than in respect of the TARP Warrant
and awards outstanding under or pursuant to the Benefit Plans in respect of
which an aggregate of 1,235,276 shares of Common Stock have been reserved for
issuance, no shares of Common Stock or Company Preferred Stock were reserved for
issuance.  All of the issued and outstanding shares of Common Stock and Company
Preferred Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.  None of the outstanding shares of
Capital Stock or other securities of the Company or any of the Company
Subsidiaries was issued, sold or offered by the Company or any Company
Subsidiary in violation of the Securities Act or the securities or blue sky laws
of any state or jurisdiction, or any applicable securities laws in the relevant
jurisdictions outside of the United States.  No bonds, debentures, notes or
other indebtedness
 
 
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having the right to vote on any matters on which the shareholders of the Company
may vote (“Voting Debt”) are issued and outstanding.  Section 2.2(c) of the
Disclosure Schedule sets forth the following information with respect to each
outstanding option to purchase shares of Common Stock (a “Company Option”) or
restricted stock award covering shares of Common Stock (or other right (or unit)
covering shares of Common Stock) (“Company Restricted Stock”) under the FNB
United Corp. 1993 Stock Compensation Plan and the FNB United Corp. 2003 Stock
Compensation Plan (the “Stock Plans”):  (A) the name of each holder of Company
Options or Company Restricted Stock; (B) the number of shares of Common Stock
subject to such Company Option or the number of shares of Company Restricted
Stock held by such holder, and as applicable for each Company Option or Company
Restricted Stock, the date of grant, exercise or reference price, number of
shares vested or not otherwise subject to repurchase rights, reacquisition
rights or other applicable restrictions as of the date of this Agreement,
vesting schedule or schedule providing for the lapse of repurchase rights,
reacquisition rights or other applicable restrictions, the type of Company
Option and the Stock Plan or other plan under which such Company Options or
shares of Company Restricted Stock were granted or purchased; and (C) whether,
in the case of a Company Option, such Company Option is intended to be an
Incentive Stock Option (within the meaning of the Code).  The Company has made
available to the Investor copies of each form of stock option agreement or stock
award agreement evidencing outstanding Company Options or Company Restricted
Stock, as applicable, and has also delivered any other stock option agreements
or stock award agreements to the extent there are variations from the applicable
form of agreement (it being understood that differences disclosed pursuant to
clauses (A) through (C) of the immediately preceding sentence do not constitute
variations for this purpose), specifically identifying the holder(s) to whom
such variant forms apply.  As of the date of this Agreement, except for (x) the
outstanding Company Options described in this Section 2.2(c) and listed on
Section 2.2(c) of the Disclosure Schedule and (y) as set forth elsewhere in this
Section 2.2(c), the Company does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of, or securities or rights
convertible into or exchangeable or exercisable for, any shares of Common Stock
or Company Preferred Stock or any other equity securities of the Company or
Voting Debt or any securities representing the right to purchase or otherwise
receive any shares of Capital Stock of the Company (including any rights plan or
agreement).  Each Company Option under the Stock Plans (i) was granted in
compliance with all applicable Laws and all of the terms and conditions of the
Stock Plans pursuant to which it was issued, (ii) has an exercise or reference
price equal to or greater than the fair market value of a share of Common Stock
at the close of business on the date of such grant, (iii) has a grant date
identical to or following the date on which the Company’s Board of Directors or
compensation committee actually awarded such Company Option, (iv) otherwise is
exempt from or complies with Section 409A of the Code so that the recipient of
such Company Option is not subject to the additional taxes and interest pursuant
to Section 409A of the Code and (v) except for disqualifying dispositions,
qualifies for the tax and accounting treatment afforded to such Company Option
in the Company’s Tax Returns and the Company’s financial statements,
respectively.
 
(d) Authorization; No Conflicts; Shareholder Approval.
 
(i) The Company has the corporate power and authority to execute and deliver
this Agreement and the other Transaction Documents and to perform its
obligations
 
 
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hereunder and thereunder.  Except for authorization by shareholder approval of
the Shareholder Proposals as contemplated by this Agreement, the execution,
delivery and performance of the Transaction Documents by the Company 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 no
further approval or authorization is required on the part of the Company or its
shareholders.  The Board of Directors, by the unanimous vote of the directors
present at the meeting at which such matters were considered, has approved the
agreements and the transactions contemplated by the Transaction Documents,
including the Investment, the Other Private Placements, the TARP Exchange, the
Warrant Offering and the Granite Merger, and such approval is sufficient under
Article IX, Paragraph (b) of the Company’s articles of incorporation to cause
Article IX, Paragraph (a) of the Company’s articles of incorporation to be
inapplicable to the Granite Merger.  No other corporate proceedings are
necessary for the execution and delivery by the Company of the Transaction
Documents, the performance by it of its obligations hereunder or thereunder or
the consummation by it of the transactions contemplated hereby or thereby.  This
Agreement has been and the other Transaction Documents will have been at the
Closing duly and validly executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Investor and the other parties
thereto, are, or in the case of documents executed after the date of this
Agreement, will be, upon execution, the valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors’ rights or by general
equity principles (whether applied in equity or at law).
 
(ii) Neither the execution and delivery by the Company of this Agreement and the
Transaction Documents nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by the Company with any of the provisions
hereof or thereof, will (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 result in the loss of any benefit or creation of any right on the part of
any third party under, or accelerate the performance required by, or result in a
right of termination or acceleration of, or result in the creation of any liens,
charges, adverse rights or claims, pledges, covenants, title defects, security
interests and other encumbrances of any kind (“Liens”) upon any of the
properties or assets of the Company or any Company Subsidiary, under any of the
terms, conditions or provisions of (1) the articles of incorporation or bylaws
(or similar governing documents) of the Company and each Company Subsidiary or
(2) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Company or any of the
Company Subsidiaries is a party or by which it may be bound, or to which the
Company or any of the Company Subsidiaries, or any of the properties or assets
of the Company or any of the Company Subsidiaries may be subject, or (B) subject
to receipt of the Requisite Governmental Consents and the Requisite Shareholder
Votes, violate any Law applicable to the Company or any of the Company
Subsidiaries or any of their respective properties or assets except in the case
of clauses (A)(2) and (B) for such violations, conflicts and breaches as would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
 
 
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(iii) The only votes of the shareholders of the Company required to approve each
of the Share Issuance Proposal and the Articles Amendment Proposal is the
approval by a majority of the votes cast on each proposal, provided that a
quorum representing a majority of the outstanding votes entitled to vote thereon
is satisfied in each case, pursuant to Section 5635 of the NASDAQ Listing Rules
and the bylaws of the Company.  The shareholder vote described in the preceding
sentence is referred to as the “Requisite Shareholder Votes.”
 
(e) Governmental Consents.  Other than (i) the expiration or termination of the
applicable waiting period under the HSR Act, (ii) the non-control determination
under the BHC Act, (iii) the written confirmation or approval from the NCCOB
under the NCGS, (iv) the non-objection letter under the CBCA, (v) approvals of
the Federal Reserve and the OCC in connection with the Granite Merger and as
required under the Regulatory Orders, (vi) the approval or consent of Treasury
with respect to the TARP Exchange and (vii) the securities or blue sky laws of
the various states (collectively, the “Requisite Governmental Consents”), no
Governmental Consents are necessary for the execution and delivery of the
Transaction Documents or for the consummation by the Company of the transactions
contemplated hereby and thereby.
 
(f) Litigation and Other Proceedings.  There is no pending or, to the Knowledge
of the Company, threatened claim, action, suit, arbitration, complaint, charge
or investigation or proceeding (each an “Action”) against the Company or any
Company Subsidiary or any of its assets, rights or properties which, if
adversely determined, would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, nor is the Company or any Company
Subsidiary a party or named as subject to the provisions of any order, writ,
injunction, settlement, judgment or decree of any court, arbitrator or
government agency, or instrumentality, except as has not had and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.  There is no Action by the Company or any Company Subsidiary
pending or which the Company or any Company Subsidiary intends to initiate
(other than collection claims in the ordinary course of business).  No director
or officer of the Company is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty as of the date hereof.  There has not been,
and to the Knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company or any current or former director
or officer of the Company in his or her capacity as such.
 
(g) Financial Statements.  Each of the consolidated balance sheets of the
Company and the Company Subsidiaries and the related consolidated statements of
income (loss), statements of shareholders’ equity and comprehensive income
(loss) and cash flows, together with the notes thereto, for the last five (5)
years included in any Company Report filed with the SEC (the “Company Financial
Statements”), (i) have been prepared from, and are in accordance with, the books
and records of the Company and the Company Subsidiaries, (ii) complied, as of
their respective date of such filing, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, (iii) have been prepared in accordance with GAAP applied
on a consistent basis and (iv) present fairly in all material respects the
consolidated financial position of the Company and the Company Subsidiaries at
the dates and the consolidated results of operations, changes in shareholders’
equity and cash flows of the Company and the Company Subsidiaries for the
 
 
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periods stated therein (subject to the absence of notes and normal and recurring
year-end audit adjustments not material to the financial condition of the
Company and the Company Subsidiaries in the case of the unaudited interim
financial statements).
 
(h) Reports.  Since December 31, 2007, the Company and each Company Subsidiary
have filed all material reports, registrations, documents, filings, statements
and submissions, together with any required amendments thereto, that it was
required to file with any Governmental Entity (the foregoing, collectively, the
“Company Reports”) and have paid all material fees and assessments due and
payable in connection therewith.  As of their respective filing dates, the
Company Reports complied in all material respects with all statutes and
applicable rules and regulations of the applicable Governmental Entities, as the
case may be.  As of the date of this Agreement, there are no outstanding
comments from the SEC or any other Governmental Entity with respect to any
Company Report that were enumerated within such report or otherwise were the
subject of written correspondence with respect thereto.  Each of the Company
Reports, including the documents incorporated by reference therein, contained
all the information required to be included in it when it was filed and, with
respect to each Company Report filed with or furnished to the SEC, as of the
date of such Company Report, or if amended prior to the date of this Agreement,
as of the date of such amendment, did not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made in it, in light of the circumstances under which they were made,
not misleading and complied as to form in all material respects with the
applicable requirements of the Securities Act of 1933, as amended (the
“Securities Act”) and the Exchange Act.  No executive officer of the Company has
failed in any respect to make the certifications required of him or her under
Section 302 or 906 of the Sarbanes-Oxley Act of 2002.  Copies of all material
Company Reports not otherwise publicly filed have, to the extent allowed by
applicable Law, been made available to the Investor by the Company.
 
(i) Internal Accounting and Disclosure Controls Off Balance Sheet Arrangements.
 
(i) The records, systems, controls, data and information of the Company and the
Company Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of the Company or the Company Subsidiaries or accountants (including all means
of access thereto and therefrom), except for any non-exclusive ownership and
non-direct control that would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the system of internal
accounting controls described below in this Section 2.2(i).  The Company (i) has
implemented and maintains disclosure controls and procedures (as defined in Rule
13a-15(e) promulgated under the Exchange Act) to ensure that material
information relating to the Company, including its consolidated Subsidiaries, is
made known to the chief executive officer or executive chairman and the chief
financial officer of the Company by others within those entities, and (ii) has
disclosed, based on its most recent evaluation prior to the date of this
Agreement, to the Company’s outside auditors and the audit committee of the
Board of Directors (A) any significant deficiencies and material weaknesses in
the design or operation of internal controls over financial reporting (as
defined in Rule 13a-15(f) promulgated under the Exchange Act) that are
reasonably likely to adversely affect the Company’s ability to record, process,
summarize
 
 
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and report financial information, and (B) any fraud, whether or not material,
that involves management or other employees who have a significant role in the
Company’s internal controls over financial reporting.  As of the date of this
Agreement, the Company has no Knowledge of any reason that its outside auditors
and its chief executive officer or executive chairman and chief financial
officer shall not be able to give the certifications and attestations required
pursuant to the rules and regulations adopted pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, without qualification (except to extent expressly
permitted by the rules and regulations promulgated thereunder), when next
due.  Since December 31, 2007, (1) neither the Company nor any Company
Subsidiary nor, to the Knowledge of the Company, any director, officer,
employee, auditor, accountant or representative of the Company or any Company
Subsidiary has received or otherwise had or obtained knowledge of any material
complaint, allegation, assertion or claim, whether written or oral, regarding
the accounting or auditing practices, procedures, methodologies or methods of
the Company or any Company Subsidiary or their respective internal accounting
controls, including any material complaint, allegation, assertion or claim that
the Company or any Company Subsidiary has engaged in questionable accounting or
auditing practices, and (2) no attorney representing the Company or any Company
Subsidiary, whether or not employed by the Company or any Company Subsidiary,
has reported evidence of a material violation of securities laws, breach of
fiduciary duty or similar violation by the Company or any of its officers,
directors, employees or agents to the Board of Directors or any committee
thereof or to any director or officer of the Company.
 
(ii) There is no transaction, arrangement, or other relationship between the
Company and any of the Company Subsidiaries and an unconsolidated or other
Affiliated entity that is not reflected on the Company Financial Statements.
 
(j) Risk Management Instruments.  All material derivative instruments, including
swaps, caps, floors and option agreements entered into for the Company’s or any
of the Company Subsidiaries’ own account were entered into (i) only in the
ordinary course of business consistent with past practice, (ii) in accordance
with prudent practices and in all material respects with all applicable Laws and
(iii) with counterparties believed to be financially responsible at the time;
and each of them constitutes the valid and legally binding obligation of the
Company or any Company Subsidiary, as applicable, enforceable in accordance with
its terms.  Neither the Company nor, to the Knowledge of the Company, any other
party thereto is in breach of any of its material obligations under any such
agreement or arrangement.
 
(k) No Undisclosed Liabilities.  There are no liabilities of the Company or any
of the Company Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, except for (i) liabilities
adequately reflected or reserved against in accordance with GAAP in the
Company’s audited balance sheet as of December 31, 2010 and (ii) liabilities
that have arisen in the ordinary and usual course of business and consistent
with past practice since December 31, 2010 and which have not had or could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
 
(l) Mortgage Banking Business.  The Company and each of the Company Subsidiaries
have complied with, and all documentation in connection with the origination,
processing, underwriting and credit approval of any mortgage loan originated,
 
 
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purchased or serviced by the Company or any Company Subsidiary has satisfied, in
all material respects (i) all Laws with respect to the origination, insuring,
purchase, sale, pooling, servicing, subservicing, or filing of claims in
connection with mortgage loans, including all Laws relating to real estate
settlement procedures, consumer credit protection, truth in lending laws, usury
limitations, fair housing, transfers of servicing, collection practices, equal
credit opportunity and adjustable rate mortgages, (ii) the responsibilities and
obligations relating to mortgage loans set forth in any agreement between the
Company and any Agency, Loan Investor or Insurer, (iii) the applicable rules,
regulations, guidelines, handbooks and other requirements of any Agency, Loan
Investor or Insurer and (iv) the terms and provisions of any mortgage or other
collateral documents and other loan documents with respect to each mortgage
loan.  No Agency, Loan Investor or Insurer has (x) claimed in writing that the
Company or any of the Company Subsidiaries has violated or has not complied with
the applicable underwriting standards with respect to mortgage loans sold by the
Company or any of the Company Subsidiaries to a Loan Investor or Agency, or with
respect to any sale of mortgage servicing rights to a Loan Investor, (y) imposed
in writing material restrictions on the activities (including commitment
authority) of the Company or any of the Company Subsidiaries or (z) indicated in
writing to the Company or any of the Company Subsidiaries that it has terminated
or intends to terminate its relationship with the Company or any of the Company
Subsidiaries for poor performance, poor loan quality or concern with respect to
the Company’s or any of the Company Subsidiaries’ compliance with Laws.
 
(m) Bank Secrecy Act; Anti-Money Laundering; OFAC; and Customer
Information.  The Company is not aware of, has not been advised of, and, to the
Knowledge of the Company, has no reason to believe that any facts or
circumstances exist that would cause it or any Company Subsidiary to be deemed
to be (i) not operating in compliance, in all material respects, with the Bank
Secrecy Act of 1970, as amended, the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (also known as the USA PATRIOT Act), any order or regulation issued by the
Treasury’s Office of Foreign Assets Control (“OFAC”), or any other applicable
anti-money laundering or anti-terrorist-financing statute, rule or regulation or
(ii) not operating in compliance in all material respects with the applicable
privacy and customer information requirements contained in any federal or state
privacy Laws and regulations, including without limitation, Title V of the
Gramm-Leach-Bliley Act of 1999 and the regulations promulgated thereunder.  The
Company is not aware of any facts or circumstances that would cause it to
believe that any nonpublic customer information has been disclosed to or
accessed by an unauthorized third party in a manner that would cause it to
undertake any material remedial action.  The Company and each of the Company
Subsidiaries have adopted and implemented an anti-money laundering program that
contains adequate and appropriate customer identification verification
procedures that comply with the USA PATRIOT Act and such anti-money laundering
program meets the requirements in all material respects of Section 352 of the
USA PATRIOT Act and the regulations thereunder, and they have complied in all
respects with any requirements to file reports and other necessary documents as
required by the USA PATRIOT Act and the regulations thereunder.  The Company
will not knowingly directly or indirectly use the proceeds of the sale of the
Common Shares pursuant to transactions contemplated by the Transaction
Documents, or lend, contribute or otherwise make available such proceeds to any
Company Subsidiary, joint venture partner or other Person, towards any sales or
operations in any country
 
 
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sanctioned by OFAC or for the purpose of financing the activities of any Person
currently subject to any U.S. sanctions administered by OFAC.
 
(n) Certain Payments.  Neither the Company nor any of the Company Subsidiaries,
nor any directors, officers, nor to the Knowledge of the Company, employees or
any of their Affiliates or any other Person who to the Knowledge of the Company
is associated with or acting on behalf of the Company or any of the Company
Subsidiaries has directly or indirectly (i) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment in violation of
any Law to any Person, private or public, regardless of form, whether in money,
property, or services (A) to obtain favorable treatment in securing business for
the Company or any of the Company Subsidiaries, (B) to pay for favorable
treatment for business secured by the Company or any of the Company
Subsidiaries, or (C) to obtain special concessions or for special concessions
already obtained, for or in respect of the Company or any of the Company
Subsidiaries or (ii) established or maintained any fund or asset with respect to
the Company or any of the Company Subsidiaries that was required by Law or GAAP
to have been recorded and was not recorded in the books and records of the
Company or any of the Company Subsidiaries.
 
(o) Absence of Certain Changes.  Since December 31, 2010 and except as
Previously Disclosed, (i) the Company and the Company Subsidiaries have
conducted their respective businesses in all material respects in the ordinary
and usual course of business consistent with past practices, (ii) none of the
Company or any Company Subsidiary has issued any securities (other than Common
Stock and Company Options and other equity-based awards issued prior to the date
of this Agreement pursuant to Benefit Plans and reflected in Section 2.2(c)) or
incurred any liability or obligation, direct or contingent, for borrowed money,
except borrowings in the ordinary course of business, (iii) the Company has not
made or declared any distribution in cash or in kind to its shareholders or
issued or repurchased any shares of its Capital Stock, (iv) no fact, event,
change, condition, development, circumstance or effect has occurred that has had
or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect and (v) no material default (or event which, with notice
or lapse of time, or both, would constitute a material default) exists on the
part of the Company or any Company Subsidiary or, to the Knowledge of the
Company, on the part of any other party, in the due performance and observance
of any term, covenant or condition of any agreement to which the Company or any
Company Subsidiary is a party and which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
 
(p) Compliance with Laws.  The Company and each Company Subsidiary have all
material permits, licenses, franchises, authorizations, orders and approvals of,
and have made all filings, applications and registrations with, Governmental
Entities that are required in order to permit them to own or lease their
properties and assets and to carry on their business as presently conducted and
that are material to the business of the Company and each Company
Subsidiary.  The Company and each Company Subsidiary have complied in all
material respects and (i) are not in default or violation in any respect of,
(ii) are not under investigation with respect to, and (iii) have not been
threatened to be charged with or given notice of any material violation of, any
applicable material domestic (federal, state or local) or foreign law, statute,
ordinance, license, rule, regulation, policy or guideline, order, demand, writ,
injunction, decree or judgment of any Governmental Entity (each, a “Law”), other
than such
 
 
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noncompliance, defaults, violations or investigations that would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.  Except for statutory or regulatory restrictions of general application,
restrictions applicable to recipients of funds under the Troubled Asset Relief
Program, the written agreement of the Company with the Federal Reserve Bank of
Richmond entered into on October 21, 2010, the Consent Order issued to the Bank
by the Office of the Comptroller of the Currency (the “OCC”) on July 22, 2010,
and the Prompt Corrective Action Notice issued to the Bank by the OCC on
November 1, 2010 (each, individually a “Regulatory Order” and, together, the
“Regulatory Orders”), no Governmental Entity has placed any material restriction
on the business or properties of the Company or any of the Company
Subsidiaries.  As of the date hereof, the Bank has a Community Reinvestment Act
rating of “satisfactory” or better.
 
(q) Agreements with Regulatory Agencies.  Except for the Regulatory Orders, (i)
the Company and the Company Subsidiaries (A) are not subject to any
cease-and-desist or other similar order or enforcement action issued by, (B) are
not a party to any written agreement, consent agreement or memorandum of
understanding with, (C) are not a party to any commitment letter or similar
undertaking to, and (D) are not subject to any capital directive by any
Governmental Authority, and (ii) since December 31, 2007, each of the Company
and the Company Subsidiaries has not adopted any board resolutions at the
request of, any Governmental Entity that currently restricts in any material
respect the conduct of its business or that in any material manner relates to
its capital adequacy, its liquidity and funding policies and practices, its
ability to pay dividends, its credit, risk management or compliance policies,
its internal controls, its management or its operations or business (each item
in this sentence, a “Regulatory Agreement”), nor has the Company nor any of the
Company Subsidiaries been advised since December 31, 2007 by any Governmental
Entity that it is considering issuing, initiating, ordering, or requesting any
such Regulatory Agreement.  Except as Previously Disclosed, the Company and the
Company Subsidiaries are in compliance in all material respects with each
Regulatory Agreement to which they are party or subject, and the Company and the
Company Subsidiaries have not received any notice from any Governmental Entity
indicating that either the Company or any of the Company Subsidiaries is not in
compliance in all material respects with any such Regulatory Agreement.
 
(r) Contracts.  The Company has Previously Disclosed or provided (by hard copy,
electronic data room or otherwise) to the Investor or its representatives true,
correct and complete copies of each of the following to which the Company or any
Company Subsidiary is a party (each, a “Material Contract”):
 
(i) any contract or agreement relating to indebtedness for borrowed money,
letters of credit, capital lease obligations, obligations secured by a Lien or
interest rate or currency hedging agreements (including guarantees in respect of
any of the foregoing, but in any event excluding trade payables, securities
transactions and brokerage agreements arising in the ordinary course of
business, intercompany indebtedness and immaterial leases for telephones, copy
machines, facsimile machines and other office equipment) in excess of $250,000,
except for those issued in the ordinary course of business;
 
(ii) any contract or agreement that constitutes a collective bargaining or other
arrangement with any labor union;
 
 
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(iii) any contract or agreement that is a “material contract” within the meaning
of Item 601(b)(10) of Regulation S-K;
 
(iv) any lease or agreement under which the Company or any of the Company
Subsidiaries is lessee of, or holds or operates, any property owned by any other
Person with annual rent payments in excess of $250,000;
 
(v) any lease or agreement under which the Company or any of the Company
Subsidiaries is lessor of, or permits any Person to hold or operate, any
property owned or controlled by the Company or any of the Company Subsidiaries;
 
(vi) any contract or agreement limiting, in any material respect, the ability of
the Company or any of the Company Subsidiaries to engage in any line of business
or to compete, whether by restricting territories, customers or otherwise, or in
any other material respect, with any Person;
 
(vii) any settlement, conciliation or similar agreement, the performance of
which will involve payment after the Closing Date of consideration in excess of
$250,000;
 
(viii) any contract or agreement that relates to Intellectual Property Rights
(other than a license granted to the Company for commercially available software
licensed on standard terms with a total replacement cost of less than $250,000);
 
(ix) any contract or agreement that concerns the sale or acquisition of any
material portion of the Company’s business;
 
(x) any alliance, cooperation, joint venture, shareholders, partnership or
similar agreement involving a sharing of profits or losses relating to the
Company or any Company Subsidiary;
 
(xi) any contract or agreement involving annual payments in excess of $250,000
that cannot be cancelled by the Company or a Company Subsidiary without penalty
or without more than 90 days’ notice;
 
(xii) any material hedge, collar, option, forward purchasing, swap, derivative
or similar agreement, understanding or undertaking;
 
(xiii) any contract or agreement with respect to the employment or service of
any current or former directors, officers, employees or consultants of the
Company or any of the Company Subsidiaries other than, with respect to
non-executive employees and consultants, in the ordinary course of business;
 
(xiv) any contract or agreement containing any (x) non-competition or exclusive
dealing obligations or other obligation which purports to limit or restrict in
any respect the ability of the Company or any Company Subsidiary to solicit
customers or the manner in which, or the localities in which, all or any portion
of the business of the Company or the Company Subsidiaries is or can be
conducted, or (y) right of first refusal or right of first offer or similar
right or that limits or purports to limit the ability of the Company or any of
the Company
 
 
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Subsidiaries to own, operate, sell, transfer, pledge or otherwise dispose of any
material assets or business; and
 
(xv) any material contract or agreement that would require any consent or
approval of a counterparty as a result of the consummation of the transactions
contemplated by this Agreement.
 
Each Material Contract (A) is legal, valid and binding on the Company and the
Company Subsidiaries which are a party to such contract, (B) is in full force
and effect and enforceable in accordance with its terms and (C) will continue to
be legal, valid, binding, enforceable, and in full force and effect in all
material respects following the consummation of the transactions contemplated by
the Transaction Documents, except in the cases of (B) and (C) as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors’ rights in
general.  Neither the Company nor any of the Company Subsidiaries, nor to the
Knowledge of the Company, any other party thereto is in material violation or
default under any Material Contract.  No benefits under any Material Contract
will be increased, and no vesting of any benefits under any Material Contract
will be accelerated, by the occurrence of any of the transactions contemplated
by the Transaction Documents, nor will the value of any of the benefits under
any Material Contract be calculated on the basis of any of the transactions
contemplated by the Transaction Documents.  The Company and the Company
Subsidiaries, and to the Knowledge of the Company, each of the other parties
thereto, have performed in all material respects all material obligations
required to be performed by them under each Material Contract, and to the
Knowledge of the Company, no event has occurred that with notice or lapse of
time would constitute a material breach or default or permit termination,
modification, or acceleration, under the Material Contracts.
 
(s) Insurance.  The Company and each of the Company Subsidiaries are presently
insured, and have been insured for at least the past five years, for reasonable
amounts with financially sound and reputable insurance companies against such
risks as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured.  All of the policies, bonds and other
arrangements providing for the foregoing (the “Company Insurance Policies”) are
in full force and effect, the premiums due and payable thereon have been or will
be timely paid through the Closing Date, and there is no material breach or
default (and no condition exists or event has occurred that, with the giving of
notice or lapse of time or both, would constitute such a material breach or
default) by the Company or any of the Company Subsidiaries under any of the
Company Insurance Policies or, to the Knowledge of the Company, by any other
party to the Company Insurance Policies.  Neither the Company nor any of the
Company Subsidiaries has received any written notice of cancellation or
non-renewal of any Company Insurance Policy nor, to the Knowledge of the
Company, is the termination of any such policies threatened in writing by the
insurer, and there is no material claim for coverage by the Company, or any of
the Company Subsidiaries, pending under any of such Company Insurance Policies
as to which coverage has been denied or disputed by the underwriters of such
Company Insurance Policies or in respect of which such underwriters have
reserved their rights.
 
(t) Title.  The Company and the Company Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and valid title
to all
 
 
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material personal property owned by them, in each case free and clear of all
Liens, except for Liens which do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company or any Company Subsidiary.  Any real property and
facilities held under lease by the Company or the Company Subsidiaries are
valid, subsisting and enforceable leases with such exceptions that are not
material and do not interfere with the use made and proposed to be made of such
property and facilities by the Company or the Company Subsidiaries.
 
(u) Intellectual Property Rights.  The Company and the Company Subsidiaries own
or possess adequate rights or licenses to use all trademarks, service marks and
all applications and registrations therefor, trade names, patents, patent
rights, copyrights, original works of authorship, inventions, trade secrets and
other intellectual property rights (“Intellectual Property Rights”) used in or
necessary to conduct their businesses as conducted on the date of this
Agreement, except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.  To the Knowledge of the Company,
no product or service of the Company or the Company Subsidiaries infringes the
Intellectual Property Rights of others.  Except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect,
the Company and the Company Subsidiaries have not received notice of any claim
being made or brought, or, to the Knowledge of the Company, being threatened,
against the Company or any of the Company Subsidiaries regarding (i) their
Intellectual Property Rights, or (ii) that the products or services of the
Company or the Company Subsidiaries infringe the Intellectual Property Rights of
others.  To the Knowledge of the Company, there are no facts or circumstances
that would reasonably be expected to give rise to any of the foregoing
claims.  The computers, computer software, firmware, middleware, servers,
workstations, routers, hubs, switches, data communications lines, and all other
information technology equipment, and all associated documentation used in the
business of the Company and the Company Subsidiaries (the “IT Assets”) operate
and perform in all material respects in accordance with their documentation and
functional specifications and otherwise as required in connection with the
business.  To the Knowledge of the Company, no person has gained unauthorized
access to the IT Assets.  The Company and the Company Subsidiaries have
implemented reasonable backup and disaster recovery technology consistent with
industry practices.  The Company and the Company Subsidiaries take reasonable
measures, directly or indirectly, to ensure the confidentiality, privacy and
security of customer, employee and other confidential information.  The Company
and the Company Subsidiaries have complied in all material respects with all
internet domain name registrations and other requirements of internet domain
registrars concerning internet domain names that are used in and material to the
business.
 
(v) Employee Benefits.
 
(i) Section 2.2(v) of the Disclosure Schedule sets forth a correct and complete
list of each “employee benefit plan” (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
including, without limitation, multiemployer plans within the meaning of
Section 3(37) of ERISA), and all stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, bonus, incentive, deferred
compensation and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA (including any
funding mechanism therefor now in effect or required in the future as a result
of the transactions
 
 
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contemplated by the Transaction Documents or otherwise), whether formal or
informal, oral or written, under which (A) any current or former employee,
officer, director or consultant of the Company or any of the Company
Subsidiaries (the “Company Employees”) has any present or future right to
benefits and which are contributed to, sponsored by or maintained by the Company
or any of the Company Subsidiaries or (B) the Company or any Company Subsidiary
has had or has any present or future liability.  All such plans, agreements,
programs, policies and arrangements shall be collectively referred to as the
“Benefit Plans.”
 
(ii) With respect to each Benefit Plan, the Company has provided to the Investor
a current, correct and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable: (A) any related
trust agreement or other funding instrument; (B) the most recent determination
letter, if applicable; (C) any summary plan description and other written
communications, other than individual pension benefit statements provided in
accordance with Section 105 of ERISA, (or a description of any oral
communications) by the Company and the Company Subsidiaries to the Company
Employees or other beneficiaries concerning the extent of the benefits provided
under a Benefit Plan; (D) a summary of any proposed material amendments or
material changes anticipated to be made to the Benefit Plans at any time within
the twelve months immediately following the date hereof; and (E) for the three
most recent years (x) the Form 5500 and attached schedules, (y) audited
financial statements and (z) actuarial valuation reports.
 
(iii) (A) Each Benefit Plan has been established and administered in all
material respects in accordance with its terms, and in compliance with the
applicable provisions of ERISA, the Code and other Laws; (B) each Benefit Plan
which is intended to be qualified within the meaning of Section 401(a) of the
Code has received a favorable determination letter as to its qualification, and
nothing has occurred, whether by action or failure to act, that could reasonably
be expected to cause the loss of such qualification; (C) no “reportable event”
(as such term is defined in Section 4043 of ERISA) that could reasonably be
expected to result in liability has occurred with respect to any Benefit Plan,
no non-exempt “prohibited transaction” (as such term is defined in Section 406
of ERISA and Section 4975 of the Code) has been engaged in by the Company or any
Company Subsidiary with respect to any Benefit Plan that has or is expected to
result in any material liability, no failure by any Benefit Plan to satisfy the
minimum funding standards  (within the meaning of Section 412 of the Code or
Section 302 of ERISA) applicable to such Benefit Plan, whether or not waived,
has occurred, and no liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Company or any Company Subsidiary with
respect to any ongoing, frozen or terminated “single-employer plan,” within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any
of them, or the single-employer plan of any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the
Code; (D) there does not now exist, nor do any circumstances exist that would
reasonably be expected to result in, any Controlled Group Liability that would
be a liability of the Company or any Company Subsidiary; (E) for each Benefit
Plan with respect to which a Form 5500 has been filed, no material change has
occurred with respect to the matters covered by the most recent Form 5500 since
the end of the period covered by such Form 5500; (F) except as expressly
contemplated by this Agreement, there is no present intention that any Benefit
Plan be materially amended, suspended or terminated, or otherwise modified to
change benefits (or the levels thereof) in a manner that results in an increased
cost to the Company or any Company Subsidiary (other than an immaterial increase
in
 
 
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administrative costs) under any Benefit Plan at any time within the twelve
months immediately following the date hereof; and (G) the Company and the
Company Subsidiaries have not incurred any current or projected liability under
any Benefit Plan (or any other plan or arrangement to which the Company or a
Company Subsidiary is a party) in respect of post-employment or post-retirement
health, medical or life insurance benefits for current, former or retired
employees of the Company or the Company Subsidiaries, except as required to
avoid an excise tax under Section 4980B of the Code or otherwise except as may
be required pursuant to any other Laws.
 
(iv) With respect to each of the Benefit Plans that is not a multiemployer plan
within the meaning of Section 4001(a)(iii) of ERISA but is subject to Title IV
of ERISA, as of the Closing Date, the assets of each such Benefit Plan are at
least equal in value to the present value of the accrued benefits (vested and
unvested) of the participants in such Benefit Plan on a termination and
projected benefit obligation basis, based on the actuarial methods and
assumptions indicated in the most recent applicable actuarial valuation reports.
 
(v) No Benefit Plan is a “multiemployer plan” within the meaning of
Section 4001(a)(iii) of ERISA or a plan that has two or more contributing
sponsors, at least two of whom are not under common control, within the meaning
of Section 4063 of ERISA.  Neither the Company nor any member of any
organization which is a member of a controlled group of organizations within the
meaning of Section 414(b), (c), (m) or (o) of the Code has at any time sponsored
or contributed to, or has or had any liability or obligation in respect of, any
multiemployer plan.
 
(vi) With respect to any Benefit Plan, (A) no material actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or,
to the Knowledge of the Company, threatened, (B) no facts or circumstances exist
that could reasonably be expected to give rise to any such actions, suits or
claims, (C) no written or oral communication has been received from the Pension
Benefit Guaranty Corporation (the “PBGC”) in respect of any Benefit Plan subject
to Title IV of ERISA concerning the funded status of any such plan or any
transfer of assets and liabilities from any such plan in connection with the
transactions contemplated herein and (D) no administrative investigation, audit
or other administrative proceeding by the Department of Labor, the PBGC, the
Internal Revenue Service or other governmental agencies are pending, in progress
(including, without limitation, any routine requests for information from the
PBGC) or, to the Knowledge of the Company, threatened.  With respect to each
Benefit Plan that is subject to Title IV or Section 302 of ERISA or Section 412,
430 or 4971 of the Code:  (i) no Benefit Plan has failed to satisfy minimum
funding standards (within the meaning of Section 412 or 430 of the Code or
Section 302 of ERISA), whether or not waived; and (ii) there has been no
determination that any Benefit Plan is, or is expected to be, in “at risk”
status (within the meaning of Section 430 of the Code or Section 303 of ERISA).
 
(vii) Neither the execution and delivery of the Transaction Documents, nor the
consummation of the transactions contemplated hereby and thereby, taking into
account any other related event, including the Other Private Placements, could
(A) result in any payment (including severance, unemployment compensation or
“excess parachute payment” (within the meaning of Section 280G of the Code),
forgiveness of indebtedness or otherwise) becoming due to any current or former
employee, officer or director of the Company or any Company
 
 
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Subsidiaries from the Company or any of the Company Subsidiaries under any
Benefit Plan or otherwise, (B) increase any compensation or benefits otherwise
payable under any Benefit Plan, (C) result in any acceleration of the time of
payment or vesting of any such benefits, (D) require the funding or increase in
the funding of any such benefits (through a grantor trust or otherwise), (E)
result in any limitation on the right of the Company or any of the Company
Subsidiaries to (1) amend, merge or terminate any Benefit Plan or related trust
or (2) receive a reversion of assets from any Benefit Plan or related trust, or
(F) result in payments under any of the Benefit Plans or otherwise which would
not be deductible under Section 280G of the Code.  Neither the Company nor any
of the Company Subsidiaries has taken, or permitted to be taken, any action that
required, and no circumstances exist that will require, the funding, or the
increase in the funding, of any benefits under any Benefit Plan or resulted, or
will result, in any limitation on the right of the Company or any of the Company
Subsidiaries to amend, merge, terminate or receive a reversion of assets from
any Benefit Plan or related trust.
 
(viii) Each Benefit Plan that is in any part a “nonqualified deferred
compensation plan” subject to Section 409A of the Code (A) materially complies
and, at all times after December 31, 2008 has materially complied, both in form
and operation, with the requirements of Section 409A of the Code and the final
regulations thereunder and (B) between January 1, 2005 and December 31, 2008 was
operated in good faith compliance with Section 409A of the Code, as determined
under applicable guidance of the Treasury and the Internal Revenue Service.  No
compensation payable by the Company or any of the Company Subsidiaries has been
reportable as nonqualified deferred compensation in the gross income of any
individual or entity as a result of the operation of Section 409A of the Code.
 
(ix) The Company and the Company Subsidiaries have complied in full with the
TARP Standards for Compensation and Corporate Governance and all other
applicable Laws promulgated with respect thereto or otherwise relating to the
United States Department of the Treasury’s Troubled Asset Relief Program (TARP)
Capital Purchase Program (including without limitation obtaining any waivers of
rights to compensation and benefits from such senior executive officers and
other employees as may be necessary to comply with the TARP Capital Purchase
Program).
 
(w) Environmental Laws.  The Company and the Company Subsidiaries (i) are in
compliance with any and all Environmental Laws, (ii) have received all permits,
licenses or other approvals required of it under applicable Environmental Laws
to conduct their business, (iii) are in compliance with all terms and conditions
of any such permit, license or approval, (iv) have not owned or operated any
property that has been contaminated with any Hazardous Substance that would
reasonably be expected to result in liability pursuant to any Environmental Law,
(v) to the Knowledge of the Company, are not liable for Hazardous Substance
disposal or contamination on any third party property, (vi) have not received
any notice, demand, letter, claim or request for information indicating that it
may be in violation of or subject to liability under any Environmental Law and
(vii) are not subject to any circumstances or conditions that could reasonably
be expected to result in any claims, liability, investigations, costs or
restrictions on the ownership, use or transfer of any property in connection
with any Environmental Law, except where, in each of the foregoing clauses, the
failure to so comply would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
 
 
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(x) Taxes.
 
(i) All income and other material Tax Returns required to be filed by, or on
behalf of, the Company or the Company Subsidiaries have been timely filed or
will be timely filed or a proper extension of the required time for filing has
been or will be obtained, in accordance with all Laws, and all such Tax Returns
are, or shall be at the time of filing, complete and correct in all material
respects.  The Company and the Company Subsidiaries have timely paid all
material Taxes due and payable (whether or not shown on such Tax Returns), or,
where payment is not yet due, have made adequate provisions in accordance with
GAAP.  There are no Liens with respect to Taxes upon any of the assets or
properties of either the Company or the Company Subsidiaries other than with
respect to Taxes not yet due and payable.
 
(ii) No deficiencies for any material Taxes have been proposed or assessed in
writing against or with respect to any Taxes due by or Tax Returns of the
Company or the Company Subsidiaries, and there is no outstanding audit,
assessment, dispute or claim concerning any material Tax liability of the
Company or the Company Subsidiaries.  No written claim has ever been made by any
Governmental Entity in a jurisdiction where neither the Company nor any of the
Company Subsidiaries files Tax Returns that the Company or any of its
Subsidiaries is or may be subject to taxation by that jurisdiction.
 
(iii) Neither the Company nor the Company Subsidiaries (A) are or have ever been
a member of an affiliated group (other than a group the common parent of which
is the Company) filing a joint, combined, unitary or consolidated Tax Return or
(B) have any liability for Taxes of any Person (other than the Company or any of
its Subsidiaries) arising from the application of Treasury Regulation
Section 1.1502-6 or any analogous provision of state, local or foreign Law, or
as a transferee or successor, by contract, or otherwise.
 
(iv) None of the Company or the Company Subsidiaries are party to, are bound by
or has any obligation under any Tax sharing or Tax indemnity agreement or
similar contract or arrangement.
 
(v) None of the Company or the Company Subsidiaries have been either a
“distributing corporation” or a “controlled corporation” in a distribution
occurring during the last five years in which the parties to such distribution
treated the distribution as one to which Section 355 of the Code is applicable.
 
(vi) All material Taxes (determined both individually and in the aggregate)
required to be withheld, collected or deposited by or with respect to the
Company or the Company Subsidiaries have been timely withheld, collected or
deposited, as the case may be, and, to the extent required, have been paid to
the relevant taxing authority, other than Taxes being contested in good faith
and for which adequate reserves have been made in the Company’s Financial
Statements.  The Company and the Company’s Subsidiaries have complied with all
applicable information reporting requirements in all material respects.
 
(vii) No closing agreement pursuant to Section 7121 of the Code (or any similar
provision of state, local or foreign Law) has been entered into by or with
respect to the Company or the Company’s Subsidiaries.  Neither the Company nor
any of the Company
 
 
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Subsidiaries has granted any waiver of any federal, state, local or foreign
statute of limitations that is still in effect with respect to, or any extension
of a period for the assessment of, any Tax.  The Disclosure Schedule sets forth
the tax year through which the statute of limitations has run in respect of
material Tax Liabilities of the Company and the Company Subsidiaries for U.S.
federal, state, local and foreign Taxes.
 
(viii) Neither the Company nor any of the Company Subsidiaries has engaged in
any transaction that could give rise to (A) a registration obligation with
respect to any Person under Section 6111 of the Code or the regulations
thereunder, (B) a list maintenance obligation with respect to any Person under
Section 6112 of the Code or the regulations thereunder, or (C) disclosure
obligation as a “listed transaction” under Section 6011 of the Code and the
regulations thereunder.
 
(ix) Except as may result from the transactions contemplated by this Agreement
and the Additional Agreements, including without limitation the transactions
described in the Recitals hereto, (A) none of the net operating loss
carryforwards, unrealized built-in losses, tax credits, or capital loss
carryforwards for U.S. federal income tax purposes of the Company or any Company
Subsidiary is, as applicable, currently subject to limitation under Section 382
or 383 of the Code or Treasury Regulations Section 1.1502-15 or -21 or
otherwise, (B) all of the Common Stock is owned by a single “direct public
group” (within the meaning of Treasury Regulation Section 1.382-2T(j)(2)(ii) and
(C) there are no “5-percent shareholders” (within the meaning of
Section 382(k)(7) of the Code and the Treasury Regulations promulgated
thereunder) of Common Stock, nor have there been any such shareholders within
the past three years.  The Company has no reason to believe that the opinion
from KPMG LLP delivered pursuant to Section 1.2(c)(ii)(T) is incorrect.
 
(y) Labor.
 
(i) Employees of the Company and the Company Subsidiaries are not represented by
any labor union nor are any collective bargaining agreements otherwise in effect
with respect to such employees.  No labor organization or group of employees of
the Company or any Company Subsidiary has made a pending demand for recognition
or certification, and there are no representation or certification proceedings
or petitions seeking a representation proceeding presently pending or, to the
Knowledge of the Company, threatened to be brought or filed with the National
Labor Relations Board or any other labor relations tribunal or authority, nor
have there been in the last three years.  There are no strikes, work stoppages,
slowdowns, labor picketing lockouts, material arbitrations or material
grievances, or other material labor disputes pending or, to the Knowledge of the
Company, threatened against or involving the Company or any Company Subsidiary,
nor have there been any for the last three years.
 
(ii) Except as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, the Company and the Company Subsidiaries
are in compliance with all (i) federal and state Laws and requirements
respecting employment and employment practices, terms and conditions of
employment, collective bargaining, disability, immigration, health and safety,
wages, hours and benefits, non-discrimination in employment, workers’
compensation and the collection and payment of withholding and/or payroll taxes
and similar taxes and (ii) obligations of the Company and the Company
Subsidiaries, as applicable,
 
 
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under any employment agreement, severance agreement or any similar employment
related agreement or understanding.
 
(iii) Except as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, there is no charge or complaint pending
or, to the Knowledge of the Company, threatened before any Governmental Entity
alleging unlawful discrimination in employment practices, unfair labor practices
or other unlawful employment practices by the Company or any Company Subsidiary.
 
(z) Brokers and Finders.  Except for Sandler O’Neill & Partners, L.P. and Howe
Barnes Hoefer & Arnett, Inc., and the fees payable thereto (which fees are to be
paid by the Company), neither the Company nor any of its officers, directors,
employees or agents has employed any broker or finder or incurred any liability
for any financial advisory fees, brokerage fees, commissions or finder’s fees,
and no broker or finder has acted directly or indirectly for the Company in
connection with the Transaction Documents or the transactions contemplated
hereby or thereby.  Copies of the Company’s agreements with each of Sandler
O’Neill & Partners, L.P. and Howe Barnes Hoefer & Arnett, Inc. have been made
available to the Investor.
 
(aa) Loan Portfolio.  The characteristics of the loan portfolio of the Company
have not materially and adversely changed from the characteristics of the loan
portfolio as of December 31, 2010.
 
(bb) 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 any of the Common Shares to be issued pursuant to the
Transaction Documents under the Securities Act and the rules and regulations of
the SEC promulgated thereunder) which would subject the offering, issuance or
sale of any of such securities to the registration requirements of the
Securities Act.  Neither the Company nor any Person acting on its behalf has
engaged or will engage in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with any offer or sale of the Common Shares pursuant to the
transactions contemplated by the Transaction Documents.  Assuming the accuracy
of the Investor’s representations and warranties set forth in this Agreement, no
registration under the Securities Act is required for the offer and sale of the
Common Shares by the Company to the Investor.
 
(cc) Investment Company Status.  The Company is not, and upon consummation of
the transactions contemplated by the Transaction Documents will not be, an
“investment company,” a company controlled by an “investment company” or an
“affiliated Person” of, or “promoter” or “principal underwriter” of, an
“investment company,” as such terms are defined in the Investment Company Act of
1940, as amended.
 
(dd) Affiliate Transactions.  No officer, director, five percent (5%)
shareholder or other Affiliate of the Company (or any Company Subsidiary), or
any individual who, to the Knowledge of the Company, is related by marriage or
adoption to or shares the same home as any such Person, or any entity which, to
the Knowledge of the Company, is controlled by any such Person (collectively, an
“Insider”), is a party to any contract or transaction with the
 
 
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Company (or any Company Subsidiary) which pertains to the business of the
Company (or any Company Subsidiary) or has any interest in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the business
of the Company (or any Company Subsidiary).  The foregoing representation and
warranty does not cover deposits at the Company (or any Company Subsidiary) or
loans of $250,000 or less made in the ordinary course of business in compliance
with Regulation O and other applicable Law.
 
(ee) Anti-Takeover Provisions Not Applicable.  The Board of Directors has taken
all necessary action to ensure that the transactions contemplated by the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby will be exempt from any anti-takeover or similar provisions
of the Company’s articles of incorporation and bylaws, and any other provisions
of any applicable “moratorium,” “control share,” “fair price,” “interested
shareholder” or other anti-takeover Laws and regulations of any jurisdiction.
 
(ff) Issuance of the Securities.  The issuance of the Common Shares in
connection with the transactions contemplated by the Transaction Documents has
been duly authorized (other than the Requisite Shareholder Votes) and such
Common Shares, when issued and paid for in accordance with the terms of the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable and free and clear of all Liens, other than restrictions on
transfer provided for or contemplated in the Transaction Documents or imposed by
applicable securities Laws, and shall not be subject to preemptive or similar
rights.
 
(gg) Knowledge of Conditions.  As of the date of this Agreement, each of the
Company and the Company Subsidiaries knows of no reason why any Requisite
Governmental Consents will not be obtained, provided, however, that neither the
Company nor any of the Company Subsidiaries makes any representation or warranty
with respect to the management, capital or ownership structure of the Investor
or any of its Affiliates.
 
(hh) Information Supplied.  None of the information provided by the Company or
the Company Subsidiaries for inclusion or incorporation by reference in the
registration statement on Form S-4 to be filed with the SEC by the Company in
connection with the issuance of Common Stock in the Granite Merger (including
any amendments or supplements, the “Form S-4”) will, at the time when the Form
S-4 is filed with the SEC, at any time it is amended or supplemented and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.  None of the
information provided by the Company or the Company Subsidiaries for inclusion or
incorporation by reference in the Proxy Statement and the proxy statement
relating to the Granite shareholders’ meeting to approve the Granite Merger, if
any (the “Granite Shareholders’ Meeting”) (such proxy statements together, in
each case as amended or supplemented from time to time, the “Joint Proxy
Statement”) will, at the date it is first mailed to the Company’s shareholders
or at the time of the Company Shareholders’ Meeting and the Granite
Shareholders’ Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.  The Joint Proxy Statement (other than the portion
thereof relating solely to the Granite Shareholders’ Meeting) will comply as to
 
 
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form in all material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations thereunder.
 
(ii) Disclosure Requirements.  The Company shall be solely responsible for
preparing and disseminating adequate disclosure documents for Investor 2 and the
Additional Investors in connection with any Other Private Placements.  Such
disclosure documents shall not, at the time they are so disseminated, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they are made, not misleading.
 
(jj) Rights Plan.  The Board of Directors has approved and adopted the Tax
Benefits Preservation Plan (including the Amendment to Tax Benefits Preservation
Plan) set forth in Section 2.2(jj) of the Disclosure Schedule (as amended, the
“Rights Plan”) and has instructed the officers of the Company to take such steps
as are necessary or advisable to implement and put into effect the Rights Plan
as soon as practicable after the date of this Agreement.
 
2.3 Representations and Warranties of the Investor.   Except as Previously
Disclosed, the Investor hereby represents and warrants to the Company, as of the
date hereof and as of the Closing Date (except for the representations and
warranties that are as of a specific date which shall be made as of that date)
that:
 
(a) Organization and Authority.  The Investor is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and where failure to be so qualified
would be reasonably expected to materially and adversely impair or delay its
ability to perform its obligations under the Transaction Documents or to
consummate the transactions contemplated hereby and thereby.
 
(b) Authorization; No Conflicts.
 
(i) The Investor has the necessary power and authority to execute and deliver
the Transaction Documents to which it is a party and to perform its obligations
hereunder and thereunder.  The execution, delivery and performance of the
Transaction Documents to which the Investor is a party and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
its board of directors, general partner or managing members, investment
committee, investment adviser or other authorized person, as the case may be,
and no further approval or authorization by any of its shareholders, partners or
other equity owners, as the case may be, is required.  This Agreement has been
and the other Transaction Documents to which the Investor is a party will have
been at the Closing duly and validly executed and delivered by the Investor and,
assuming due authorization, execution and delivery by the Company and the other
parties thereto, are, or in the case of documents executed after the date
hereof, will be, upon execution, the valid and binding obligations of the
Investor enforceable against the Investor in accordance with their terms (except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer
 
 
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and similar laws of general applicability relating to or affecting creditors’
rights or by general equity principles).
 
(ii) Neither the execution, delivery and performance by the Investor of the
Transaction Documents nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by the Investor with any of the provisions
hereof or thereof, will (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 Liens upon any
of the properties or assets of the Investor under any of the terms, conditions
or provisions of (1) its articles of incorporation or bylaws, its certificate of
limited partnership or partnership agreement or its similar governing documents
or (2) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Investor is a party or
by which the Investor may be bound, or to which the Investor or any of the
properties or assets of the Investor may be subject, or (B) subject to
compliance with the statutes and regulations referred to in the next paragraph
(and assuming the correctness of the representations and warranties of the
Company and the other parties to the Transaction Documents), violate any Law
applicable to the Investor or any of its properties or assets except in the case
of clauses (A)(2) and (B) for such violations, conflicts and breaches as would
not reasonably be expected to materially adversely affect the Investor’s ability
to perform its obligations under the Transaction Documents or consummate the
transactions contemplated hereby or thereby on a timely basis.
 
(c) Governmental Consents.  Assuming the correctness of the representations and
warranties of the Company and the other parties to the Transaction Documents, no
Governmental Consents are necessary to be obtained by the Investor for the
consummation of the transactions contemplated by the Transaction Documents to
which the Investor is a party, other than a statement by the Federal Reserve
that it has no objection to the investment by the Investor as such investment is
described by the Investor in the notice filed by it under the CBCA, (ii) the
non-objection or confirmation of the Federal Reserve referred to in Section
1.2(c)(ii)(E), and (iii) approval, if applicable, from the NCCOB.
 
(d) Purchase for Investment.  The Investor acknowledges that the Common Shares
have not been registered under the Securities Act or under any state securities
laws.  The Investor (i) is acquiring the Common Shares pursuant to an exemption
from registration under the Securities Act and other applicable securities laws
solely for investment with no present intention to distribute any of the Common
Shares to any Person, (ii) will not sell or otherwise dispose of any of the
Common Shares, except in compliance with the registration requirements or
exemption provisions of the Securities Act and any other applicable securities
laws, (iii) 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 its investment in the Common Shares and of making an informed
investment decision and (iv) is an “accredited investor” (as that term is
defined by Rule 501 of the Securities Act).
 
(e) Brokers and Finders.  Neither the Investor, nor its respective Affiliates
nor any of their respective officers or directors has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder’s
 
 
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fees, and no broker or finder has acted directly or indirectly for the Investor
in connection with this Agreement or the transactions contemplated hereby.
 
(f) Investment Decision.  The Investor has made an independent investment
decision with respect to the transactions contemplated under the Transaction
Documents and, except as Previously Disclosed and except for the Transaction
Documents, there are no agreements or understandings between the Investor or any
of its Affiliates, on the one hand, and (i) any of the Investors (including
Investor 2) or any of their respective Affiliates, (ii) the Company or (iii) the
Company Subsidiaries, on the other hand.
 
(g) Financial Capability.  At the Closing, the Investor shall have available
funds necessary to consummate the Closing on the terms and conditions
contemplated by this Agreement.
 
(h) No Commonly Controlled Insured Depository Institution.  The Investor does
not own any interest in any institution that would be a “commonly controlled
insured depository institution” (as that term is defined for purposes of 12
U.S.C. § 1815(e), as may be amended or supplemented from time to time, and any
successor thereto) with respect any Company Subsidiary upon the consummation of
the Investment.
 
(i) Knowledge of Conditions.  As of the date of this Agreement, the Investor
knows of no reason why any Requisite Governmental Consents will not be obtained.
 
ARTICLE 3
 
COVENANTS
 
3.1 Conduct of Business Prior to Closing.
 
(a) Subject to Section 3.1(c), except as otherwise expressly required by the
Transaction Documents or applicable Law, by the performance of any Material
Contract that was Previously Disclosed, or with the prior written consent of the
Investor (which shall not be unreasonably withheld or delayed), between the date
of this Agreement and the Closing, the Company shall, and the Company shall
cause each Company Subsidiary to:
 
(i) conduct its business only in the ordinary course of business;
 
(ii) use commercially reasonable efforts to (A) preserve the present business
operations, organization (including officers and employees) and goodwill of the
Company and any Company Subsidiary and (B) preserve present relationships with
customers, suppliers, consultants and others having business dealings with the
Company; and
 
(iii) use commercially reasonable efforts to maintain (A) all of the material
assets and properties of, or used by, the Company or any Company Subsidiary in
its current condition, with the exception of ordinary wear and tear, and (B)
insurance upon all of the properties and assets of the Company and the Company
Subsidiaries in such amounts and of such kinds comparable to that in effect on
the date of this Agreement.
 
 
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(b) Subject to Section 3.1(c), except as set forth in Section 3.1(b) of the
Disclosure Schedule, with the prior written consent of the Investor or otherwise
contemplated by the Transaction Documents, between the date of this Agreement
and the Closing, the Company shall not, and shall cause the Company Subsidiaries
to not:
 
(i) amend its articles of incorporation or bylaws or similar organizational
documents, other than pursuant to the Articles Amendment Proposal;
 
(ii) (1) declare, set aside or pay any distributions or dividends on, or make
any other distributions (whether in cash, securities or other property and, with
respect to ordinary cash dividends, in excess of such amounts paid in the prior
quarter) in respect of, any of its Capital Stock (other than pursuant to Section
3.19); (2) split, combine or reclassify any of its Capital Stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for Capital Stock or any of its other securities; or (3) purchase,
redeem or otherwise acquire any Capital Stock or any of its other securities or
any rights, warrants or options to acquire any such Capital Stock or other
securities;
 
(iii) issue, deliver, sell, grant, pledge or otherwise dispose of or encumber
any Capital Stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire, any
such Capital Stock, voting securities or convertible or exchangeable securities,
other than any issuance of Common Stock on exercise of any compensatory stock
options outstanding on the date of this Agreement;
 
(iv) commence a voluntary procedure for reorganization, arrangement, adjustment,
relief or composition of indebtedness or bankruptcy, receivership or a similar
proceeding, or consent to the entry of an order for relief in an involuntary
procedure for reorganization, arrangement, adjustment, relief or composition of
indebtedness or bankruptcy, receivership or a similar proceeding or consent to
the appointment of a receiver, liquidator, custodian or trustee, in each case,
with respect to the Company or any of the Company Subsidiaries, or any other
liquidation or dissolution of the Company or any of the Company Subsidiaries;
 
(v) terminate, enter into, amend, modify (including by way of interpretation),
renew (other than automatic renewal) or grant any waiver or consent under any
employment, offer, consulting, severance, change in control or similar contract,
agreement or arrangement with any director, officer, employee or consultant
(other than, with respect to non-executive officers or consultants, in the
ordinary course of business; provided that, any contract, agreement or
arrangement that provides for payments or benefits to any director, officer,
employee or consultant upon a change in control of the Company or Bank shall not
be deemed to be in the ordinary course of business) or make, grant or promise
any bonus or any wage, salary or compensation increase to any director, officer,
employee, sales representative or consultant (except in the case of consultants,
non-executive officers and non-directors in the ordinary course of business) or
make, grant or promise any increase in any employee benefit plan or arrangement,
or amend or terminate any existing employee benefit plan or arrangement or adopt
any new employee benefit plan or arrangement;
 
 
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(vi) terminate, enter into, establish, adopt, amend, modify (including by way of
interpretation), make new grants or awards under, renew or grant any waiver or
consent under any pension, retirement, stock option, stock purchase, savings,
profit sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract (other than with respect
to group insurance and welfare employee benefits, in the ordinary course of
business), plan or arrangement, or any trust agreement (or similar arrangement)
related thereto, in respect of any director, officer, employee or consultant
(except in the case of non-officers and non-directors, in the ordinary course of
business), amend the terms of any outstanding equity-based award, take any
action to accelerate the vesting, exercisability or payment (or fund or secure
the payment) of any equity awards or other compensation or benefits payable
thereunder or add any new participants to any non-qualified retirement plans
(or, with respect to any of the preceding, communicate any intention to take
such action);
 
(vii) make any other change in employment terms for any of its directors,
officers, employees and consultants other than changes of employment terms of
non-executive officer employees and consultants in the ordinary course of
business; provided that, any employment term that provides payments or benefits
to any director, officer, employee or consultant upon a change in control of the
Company or Bank shall not be deemed to be in the ordinary course of business);
 
(viii) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for the
obligations of, any other person, except in the ordinary course of business;
 
(ix) implement or adopt any change in its accounting principles, practices or
methodologies, other than as may be required by GAAP or applicable accounting
requirements of a Governmental Entity;
 
(x) settle any action, suit, claim or proceeding against it, except for an
action, suit, claim or proceeding that is settled in the ordinary course of
business in an amount or for consideration not in excess of $500,000
individually or $1,000,000 in the aggregate and that would not impose any
material restriction on the business of the Company or the Company Subsidiaries
or, after the Closing, the Investor or any of its Affiliates;
 
(xi) change any accounting method with respect to Taxes, make, change or revoke
any Tax election, prepare any Tax Returns inconsistent in any material respect
with past practice, file any amended material Tax Return, consent to any
extension or waiver of any statute of limitations with respect to any material
Tax claim or assessment relating to the Company or the Company Subsidiaries,
enter into any material closing agreement, surrender any right to claim a refund
of material Taxes or incur any material tax outside of the ordinary course of
business;
 
(xii) sell, lease, mortgage, pledge, grant a lien or security interest, or
otherwise encumber or dispose of any of its properties or assets, except sales
of loans in the ordinary course of business consistent with past practice and in
an aggregate amount not in excess of $150,000,000; or
 
 
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(xiii) enter into any contract with respect to, or otherwise agree or commit to
do, any of the foregoing.
 
(c) Nothing in Section 3.1(a) or (b) shall prohibit the Company or any Company
Subsidiary from taking or refraining from taking, any action at the request or
instruction of any Governmental Entity or as required by applicable Law.
 
3.2 Access; Confidentiality.
 
(a) From the date of this Agreement until the date following the Closing Date on
which the Common Shares purchased pursuant to the Transaction Documents and held
by the Investor represent less than five percent (5%) of the outstanding Common
Shares (as adjusted from time to time for any reorganization, recapitalization,
stock dividend, stock split, reverse stock split, or other like changes in the
Company’s capitalization), the Company, subject to Section 3.2(b), shall allow
and shall cause the Company Subsidiaries to allow, upon reasonable advance
notice, the Investor and its Representatives such access during normal business
hours to its books, records (including Tax returns and appropriate work papers
of independent auditors subject to such access agreements as may be required by
such auditors), properties and personnel and to such other information as the
Investor may reasonably request (but, in any event, no more frequently than once
per quarter); provided, however, that in no event shall the Investor and its
Representatives have access to any information that (x) based on advice of the
Company’s counsel, would create any potential material liability under
applicable Laws or would destroy any legal privilege or (y) in the reasonable
judgment of the Company, would (A) result in the disclosure of any trade secrets
of third parties or (B) violate any obligation of the Company with respect to
confidentiality; provided, further, that the Company and the Company
Subsidiaries shall use commercially reasonable efforts to make appropriate
substitute disclosure arrangements under circumstances where the restrictions in
clauses (x) and (y) of this Section 3.3(a) apply.  These rights are intended to
satisfy the requirements of management rights for purposes of qualifying the
Investor’s investment in the Company as a “venture capital investment” for
purposes of the Department of Labor’s “plan assets” regulations.
 
(b) The Investor acknowledges that the information being provided to it in
connection with the transactions contemplated hereby is subject to the terms of
the Confidentiality Agreement entered into between Oak Hill Capital Partners
III, L.P. and the Company dated January 7, 2011 (the “Confidentiality
Agreement”), the terms of which are incorporated herein by reference, except
that the terms of the confidentiality provisions and the restrictions on
disclosure and use contained therein shall be extended to all periods during
which information is provided to the Investor and its Representatives pursuant
to Section 3.2(a).
 
3.3 Filings; Other Actions.
 
(a) The Investor, on the one hand, and the Company, on the other hand, will
cooperate and consult with the other and use commercially reasonable efforts to
prepare and file all necessary documentation, to effect all necessary
applications, notices, petitions, filings and other documents, and to obtain all
necessary permits, consents, orders, approvals and authorizations of, or any
exemption by, all third parties and Governmental Entities, necessary or
advisable to consummate the transactions contemplated by the Transaction
 
 
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Documents, and to perform the covenants contemplated by the Transaction
Documents, in each case required of it.  Each of the parties hereto shall
execute and deliver both before and after the Closing such further certificates,
agreements and other documents and take such other actions as the other party
may reasonably request to consummate or implement such transactions or to
evidence such events or matters.  The Investor and the Company will each use
their commercially reasonable efforts to promptly obtain or submit, and the
Company and the Investor will cooperate as may reasonably be requested by the
Investor or the Company, as the case may be, to help the Investor and the
Company promptly obtain or submit, as the case may be, as promptly as
practicable, the approvals and authorizations of, any additional filings and
registrations with, and any additional notifications to, all notices to and, to
the extent required by Law, consents, approvals or exemptions from bank
regulatory authorities, for the transactions contemplated by the Transaction
Documents (in each case to the extent it has not done so prior to the date of
this Agreement), subject to Section 3.3(b).
 
(b) Notwithstanding Section 3.3(a), in no event shall the Investor be required
to (1) accept any Burdensome Condition with respect to any regulatory filing or
approval, including, without limitation, any condition which could jeopardize or
potentially have the effect of jeopardizing any other investment opportunities
(now or hereafter existing) of the Investor or any of its Affiliates, (2) become
a bank holding company or (3) be required to agree to provide capital to the
Company or any Company Subsidiary other than the Purchase Price to be paid for
the Common Shares to be purchased by it pursuant to the terms of the Transaction
Documents.
 
(c) The Investor shall use, and shall cause its Affiliates to use, commercially
reasonable efforts to obtain regulatory non-objection to the change in control
notice (filed under the CBCA) as promptly as possible, including without
limitation responding fully to all requests for additional information from the
Federal Reserve.  If so requested by the Federal Reserve in connection with such
notice, the Investor shall, and shall cause its Affiliates to, enter into one or
more passivity and non-association commitments and provide such other
non-control and related commitments as the Federal Reserve may require (in each
case, in form and substance reasonably satisfactory to the Federal Reserve).
 
(d) The Investor and the Company will have the right to review in advance, and
to the extent practicable each will consult with the other, in each case subject
to Laws relating to the exchange of information and confidential information
related to the Investor, all the information (other than confidential
information) relating to such other parties, and any of their respective
Affiliates, which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions to which it will be party contemplated by this Agreement.  In
exercising the foregoing right, each of the parties hereto agrees to act
reasonably and as promptly as practicable.  Each of the parties hereto agrees to
keep the other party reasonably apprised of the status of matters referred to in
this Section 3.3.  The Investor and the Company shall promptly furnish the other
with copies of written communications received by it or its Affiliates from, or
delivered by any of the foregoing to, any Governmental Entity in respect of the
transactions contemplated by the Transaction Documents; provided, that the party
delivering any such document may redact any confidential information contained
therein.
 
 
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(e) The Company shall call a meeting of its shareholders to vote on the
Shareholder Proposals (the “Company Shareholders’ Meeting”) as promptly as
practicable after the date hereof.  The Board of Directors shall unanimously
recommend to the Company’s shareholders that such shareholders approve the
Shareholder Proposals (the “Company Recommendation”) and shall not (x) withdraw,
modify or qualify in any manner adverse to the Investor such recommendation or
(y) approve, adopt or otherwise take any action inconsistent with such
recommendation (any action described in clauses (x) or (y) being referred to
herein as a “Change in Company Recommendation”); provided that the Board of
Directors may make a Change in Company Recommendation pursuant to Section
3.4(c).  The Investor shall vote or cause to be voted all shares of Common
Stock, if any, beneficially owned by it or any of its Affiliates and eligible to
vote on the Shareholder Proposals in favor of such Shareholder Proposals.  In
connection with the Company Shareholders’ Meeting, the Company shall promptly
prepare (and the Investor shall reasonably cooperate with the Company to
prepare) and file with the SEC a preliminary Proxy Statement, shall use its
reasonable best efforts to solicit proxies for such shareholder approvals and
shall use its reasonable best efforts to respond to any comments of the SEC or
its staff and to cause a definitive Proxy Statement related to such shareholders
meeting to be mailed to the Company’s shareholders as promptly as practicable
after clearance thereof by the SEC.  The Company shall notify the Investor
promptly of the receipt of any comments from the SEC or its staff with respect
to the Proxy Statement and of any request by the SEC or its staff for amendments
or supplements to such Proxy Statement or for additional information and shall
supply the Investor with copies of all correspondence between the Company or any
of its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to such Proxy Statement.  If at any time prior to such
shareholders meeting there shall occur any event that is required to be set
forth in an amendment or supplement to the Proxy Statement the Company shall as
promptly as practicable prepare and mail or otherwise disseminate to its
shareholders such an amendment or supplement.  The Investor and the Company
agree promptly to correct any information provided by it or on its behalf for
use in the Proxy Statement if and to the extent that such information shall have
become false or misleading in any material respect and the Company shall as
promptly as practicable prepare and mail or otherwise disseminate to its
shareholders an amendment or supplement to correct such information to the
extent required by applicable Laws.  The Company shall consult with the Investor
prior to mailing any Proxy Statement, or any amendment or supplement thereto,
and provide the Investor with reasonable opportunity to comment thereon.  The
recommendation of the Board of Directors described in this Section 3.3(e) shall
be included in the Proxy Statement.
 
3.4 No Solicitation of a Competing Proposal.
 
(a) From the date hereof until the earlier of the Closing Date or the
termination of this Agreement in accordance with its terms, the Company shall
not, and the Company shall not permit any of its Affiliates, directors, officers
or employees to, and the Company shall use reasonable efforts to cause its other
representatives or agents (together with directors, officers, and employees, the
“Representatives”) not to, directly or indirectly, (i) discuss, encourage,
negotiate, undertake, initiate, authorize, recommend, propose or enter into,
whether as the proposed surviving, merged, acquiring or acquired corporation or
otherwise, any transaction involving a merger, consolidation, business
combination, recapitalization, purchase or disposition of any material amount of
the assets of the Company or any material amount of the Capital Stock or other
ownership interests of the Company (other than in connection with the
 
 
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Investment, the Other Private Placement, the Merger Agreement or any other
transaction contemplated hereby) (an “Acquisition Proposal”), (ii) facilitate,
encourage, solicit or initiate discussions, negotiations or submissions of
proposals or offers in respect of an Acquisition Proposal, (iii) furnish or
cause to be furnished, to any Person, any information concerning the business,
operations, properties or assets of the Company in connection with an
Acquisition Proposal, or (iv) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing.
 
(b) Notwithstanding the limitations set forth in Section 3.4(a), if, after the
date of this Agreement, the Company receives an unsolicited Acquisition Proposal
which did not result from or arise in connection with a breach of Section
3.4(a), and which (1) constitutes a Superior Proposal (as defined below) or (2)
the Board of Directors determines in good faith, after consultation with the
Company’s outside legal and financial advisors, could reasonably be expected to
result, after the taking of any of the actions referred to in either of
clause (A) or (B) below, in a Superior Proposal, the Company may take the
following actions: (A) furnish nonpublic information with respect to the Company
to the third party making such Acquisition Proposal, if, and only if, prior to
so furnishing such information, the Company and such third party enter into a
confidentiality agreement that is no less restrictive of and no more favorable
to such third party than the confidentiality provisions in Section 3.3 herein,
(B) engage in discussions or negotiations with the third party with respect to
the Acquisition Proposal and (C) enter into any agreement with respect to a
Superior Proposal but only in compliance with Section 3.15; provided, however,
that as promptly as reasonably practicable following the Company taking such
actions as described in clauses (A), (B) or (C) above, the Company shall provide
written notice to the Investor of such Superior Proposal or the determination of
the Board of Directors as provided for in clause (2) above, as applicable, and
the Company shall promptly provide to the Investor an executed copy of such
confidentiality agreement and provide or make available to the Investor any
non-public information concerning the Company that is provided to the person
making such Acquisition Proposal or its representatives which was not previously
provided or made available to the Investor.
 
(c) Notwithstanding anything herein to the contrary, until the date on which the
closing condition in Section 1.2(c)(i)(D) is satisfied, the Board of Directors
may effect a Change in Company Recommendation if the Board of Directors
concludes in good faith, after consultation with outside counsel, that the
failure to take such action would constitute a breach of its fiduciary duties
under applicable Law and if such Change in Company Recommendation is in respect
of an Acquisition Proposal, such Acquisition Proposal is a Superior Proposal,
taking into account any changes to the Agreement proposed by the Investor, and
the Company is in compliance with Section 3.4(b).  Notwithstanding the
foregoing, prior to the date of the Company Stockholders Meeting, the Company
and its board of directors shall be permitted to effect a Change in Company
Recommendation if and only to the extent that it has notified the Investor in
writing at least five (5) Business Days in advance of its intention to effect a
Change in Company Recommendation.
 
For purposes of this Agreement, the term “Superior Proposal” means a bona fide
written Acquisition Proposal not solicited or initiated in violation of Section
3.4(a), that (1) relates to (A) the issuance by the Company of securities
representing a majority of its outstanding voting securities (including upon the
conversion, exercise or exchange of securities
 
 
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convertible into or exercisable or exchangeable for such voting securities) or
(B) the acquisition by any person of any of (i) a majority of the outstanding
Capital Stock, by tender or exchange offer, merger or otherwise, or (ii) all or
substantially all of the consolidated total assets of the Company, (2) is
otherwise on terms that the Board of Directors determines in good faith, after
consultation with the Company’s financial and legal advisors and taking into
account all the terms and conditions of such proposal and this Agreement, are
more favorable to the Company, its shareholders and any other constituency of
the Company to which the Board of Directors then determines it owes fiduciary
duties under applicable law than the transactions contemplated by this Agreement
and (3) is, in the reasonable judgment of the Board of Directors, reasonably
capable of being completed on its stated terms, taking into account all
financial, regulatory, legal and other aspects of such inquiry, proposal or
offer.
 
(d) Notice.  The Company shall notify the Investor orally and in writing
promptly (but in no event later than one (1) Business Day) after receipt by the
Company or any of the Representatives thereof of any Acquisition Proposal or any
request for non-public information relating to the Company or for access to the
properties, books or records of the Company by any Person in connection with an
Acquisition Proposal indicating, in connection with such notice, the name of
such Person and the material terms and conditions of any proposals or offers
(including, if applicable, copies of any written requests, proposals or offers,
including proposed agreements) and thereafter shall keep the Investor informed,
on a current basis, of the status and terms of any such proposals or offers
(including any amendments thereto) and the status of any such discussions or
negotiations, including any change in the Company’s intentions as previously
notified.
 
3.5 Governance Matters.
 
(a) The Company shall cause the Investor Designated Director to be elected or
appointed on the Closing Date to the Board of Directors as well as the board of
directors of the Bank and the board of directors of the Bank of Granite
(collectively, the “Bank Boards”), subject to satisfaction of all legal and
governance requirements regarding service as a member of the Board of Directors
and the Bank Boards.  The Company shall recommend to its shareholders the
election of the Investor Designated Director to the Board of Directors at the
Company’s annual meeting, subject to satisfaction of all legal and governance
requirements regarding service as a director of the Company.  If the Investor no
longer has the Qualifying Ownership Interest, it shall have no further rights
under Sections 3.5(a), 3.5(b), 3.5(c) and 3.5(d) and, in each case, at the
written request of the Board of Directors, the Investor shall use all reasonable
best efforts to cause the Investor Designated Director to resign from the Board
of Directors and the Bank Boards as promptly as possible thereafter.  The Board
of Directors and the Bank Boards shall cause the Investor Designated Director to
be appointed to certain committees of the Board of Directors and the Bank
Boards, as applicable, identified by the Investor, so long as the Investor
Designated Director qualifies to serve on such committees subject to
satisfaction of all legal, bank regulatory, securities listing and governance
requirements regarding service as a committee member.
 
(b) From and after the Closing Date and for so long as the Investor owns, in the
aggregate together with its Affiliates, five percent (5%) or more of the
outstanding shares of Common Stock (as adjusted from time to time for any
reorganization, recapitalization,
 
 
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stock dividend, stock split, reverse stock split, or other like changes in the
Company’s capitalization) (the “Qualifying Ownership Interest”), the Investor
Designated Director shall, subject to applicable Law (including the applicable
rules of NASDAQ and applicable governance requirements), be the nominee of the
Company and the Nominating Committee of the Board of Directors (the “Nominating
Committee”) to serve on the Board of Directors and on the Bank Boards.  The
Company shall use its reasonable best efforts to have the Investor Designated
Director elected as director of the Company by the shareholders of the Company
and the Company shall solicit proxies for the Investor Designated Director to
the same extent as it does for any of its other nominees to the Board of
Directors.
 
(c) From and after the Closing Date and for so long as the Investor owns, in the
aggregate together with its Affiliates, the Qualifying Ownership Interest, the
Investor Designated Director shall, subject to applicable Law (including the
applicable rules of NASDAQ and applicable governance requirements), be appointed
to two committees of each of the Board of Directors and the Bank Boards
identified by the Investor.  The Investor Designated Director shall not serve as
the chairperson of any committee.  Independent directors shall constitute at
least fifty percent (50%) of the membership of any committee.
 
(d) Subject to Section 3.5(a), upon the death, disability, resignation,
retirement, disqualification or removal from office of an Investor Designated
Director, the Investor shall have the right to designate the replacement for the
Investor Designated Director, which replacement shall satisfy all legal and
governance requirements regarding service as a member of the Board of Directors
and the Bank Boards, as applicable.  The Board of Directors shall use its
reasonable best efforts to take all action required to fill the vacancy
resulting therefrom with such person (including such person, subject to
applicable Law, being the Company’s and the Nominating Committee’s nominee to
serve on the Board of Directors, calling a special meeting of the stockholders
to vote on such person, using all reasonable best efforts to have such person
elected as director of the Company by the shareholders of the Company and the
Company soliciting proxies for such person to the same extent as it does for any
of its other nominees to the Board of Directors).
 
(e) From and after the Closing Date and for so long as the Investor with its
Affiliates owns, in the aggregate with its Affiliates, five percent (5%) or more
of the aggregate number of outstanding shares of Common Stock (as adjusted from
time to time for any reorganization, recapitalization, stock dividend, stock
split, reverse stock split, or other like changes in the Company’s
capitalization), the Company shall, subject to applicable Law, invite a person
designated by the Investor and reasonably acceptable to the Board of Directors
(the “Observer”) to attend meetings of the Board of Directors and the Bank
Boards (including any meetings of committees thereof which the Investor
Designated Director is a member) in a nonvoting observer capacity.  If the
Investor no longer beneficially owns the minimum number of Common Shares as
specified in the first sentence of this Section 3.5(e), the Investor shall have
no further rights under this Section 3.5(e).  The Observer shall have no right
to vote on any matters presented to the Board of Directors, the Bank Boards or
any committee thereof.  The Investor shall cause the Observer to agree to hold
in confidence and trust and to act in a fiduciary manner with respect to all
information provided to such Observer and the Company, the Board of Directors
and the Bank Boards shall have the right to withhold any information and to
exclude the Observer from any meeting or portion thereof (i) if doing so is, in
the opinion of counsel to
 
 
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the Company, necessary to protect the attorney client privilege between the
Company and counsel or (ii) if the Board of Directors or the Bank Boards
determine in good faith after consultation with counsel, that fiduciary
requirements under applicable Law make attendance by the Observer inappropriate.
 
(f) The Investor Designated Director shall be entitled to the same compensation,
including fees, and the same indemnification and insurance coverage in
connection with his or her role as a director as the other members of the Board
of Directors or the Bank Boards, as applicable, and the Investor Designated
Director shall be entitled to reimbursement for documented, reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or the Bank Boards, or any committee thereof, to the same extent as the other
members of the Board of Directors or the Bank Boards, as applicable.  The
Company shall notify the Investor Designated Director of all regular meetings
and special meetings of the Board of Directors or the Bank Boards and of all
regular and special meetings of any committee of the Board of Directors or the
Bank Boards of which the Investor Designated Director is a member in accordance
with the applicable bylaws.  The Company and the Bank shall provide the Investor
Designated Director with copies of all notices, minutes, consents and other
material that they provide to all other members of their respective boards of
directors concurrently as such materials are provided to the other members.
 
(g) Each of the Company and the Bank acknowledges that the Investor Designated
Director may have certain rights to indemnification, advancement of expenses
and/or insurance provided by the Investor and/or certain of its Affiliates
(collectively, the “Investor Indemnitors”).  Each of the Company and the Bank
hereby agrees (1) that it is the indemnitor of first resort (i.e., its
obligations to the Investor Designated Director are primary and any obligation
of the Investor Indemnitors to advance expenses or to provide indemnification
for the same expenses or liabilities incurred by the Investor Designated
Director are secondary), and (2) that it shall be required to advance the full
amount of expenses incurred by the Investor Designated Director and shall be
liable for the full amount of all expenses and liabilities incurred by the
Investor Designated Director, in each case to the extent legally permitted and
as required by the terms of this Agreement and the articles of incorporation and
bylaws of the Company and the Bank (and any other agreement regarding
indemnification between the Company and/or the Bank, on the one hand, and the
Investor Designated Director, on the other hand), without regard to any rights
the Investor Designated Director may have against any Investor Indemnitor.  The
Company further agrees that no advancement or payment by any Investor Indemnitor
on behalf of the Investor Designated Director with respect to any claim for
which the Investor Designated Director has sought indemnification from the
Company shall affect the foregoing and the Investor Indemnitors shall have a
right of contribution and/or be subrogated to the extent of such advancement or
payment to all of the rights of recovery of the Investor Designated Director
against the Company.  The Company agrees that the Investor Indemnitors are
express third party beneficiaries of the terms of this Section 3.5(g).
 
3.6 Avoidance of Control.
 
(a) Notwithstanding anything to the contrary in the Transaction Documents, the
Company shall not, and shall cause the Company Subsidiaries not to, take any
action (including any redemption, repurchase, or recapitalization of Common
Stock, or securities
 
 
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or rights, options or warrants to purchase Common Stock, or securities of any
type whatsoever that are, or may become, convertible into or exchangeable into
or exercisable for Common Stock in each case, where the Investor is not given
the right to participate in such redemption, repurchase or recapitalization to
the extent of the Investor’s pro rata proportion), that would cause the
Investor’s or any other Person’s ownership of Voting Securities (together with
the ownership by the Investor’s or other Person’s Affiliates (as such term is
used under the BHC Act) of Voting Securities) to increase above 24.9%, without
the prior written consent of the Investor, or to increase to an amount that
would constitute “control” under the BHC Act, or otherwise cause the Investor to
“control” the Company under and for purposes of the BHC Act.  Notwithstanding
anything to the contrary in this Agreement or any Transaction Document, neither
the Investor nor any other Person (together with the Investor or its Affiliates
(as such term is used under the BHC Act)) shall have the ability to exercise any
voting rights of any securities in excess of 24.9% of the total outstanding
Voting Securities.
 
(b) The Investor shall not, and shall cause its Affiliates not to, take, permit
or allow any action that would cause any Company Subsidiary to become a
“commonly controlled insured depository institution” (as that term is defined
for purposes of 12 U.S.C.  §1815(e), as may be amended or supplemented from time
to time, and any successor thereto) with respect to any institution that is not
a direct or indirect Company Subsidiary.
 
(c) In the event that either party hereto breaches its obligations under this
Section 3.6 or believes that it is reasonably likely to breach such obligations,
it shall notify the other party as promptly as practicable and shall cooperate
in good faith with such other party to modify any ownership or other
arrangements or take any other action, in each case, as is necessary to cure or
avoid such breach.
 
3.7 Notice of Certain Events.  Each party hereto shall promptly notify the other
party hereto of (a) any event, condition, fact, circumstance, occurrence,
transaction or other item of which such party becomes aware prior to the Closing
that would constitute a violation or breach of the Transaction Documents (or a
breach of any representation or warranty contained herein or therein) or, if the
same were to continue to exist as of the Closing Date, would constitute the
non-satisfaction of any of the conditions set forth in Section 1.2 hereof and
(b) any event, condition, fact, circumstance, occurrence, transaction or other
item of which such party becomes aware which would have been required to have
been disclosed pursuant to the terms of the Transaction Documents had such
event, condition, fact, circumstance, occurrence, transaction or other item
existed as of the date of this Agreement.  Notwithstanding the foregoing,
neither party shall be required to take any action that would jeopardize such
party’s attorney-client privilege.
 
3.8 Reasonable Best Efforts.  Subject to Section 3.3(b), upon the terms and
subject to the conditions herein provided, except as otherwise provided in the
Transaction Documents, each of the parties hereto agrees to use its reasonable
best efforts to take or cause to be taken all action, to do or cause to be done
and to assist and cooperate with the other parties hereto in doing all things
necessary, proper or advisable under Laws to consummate and make effective the
transactions contemplated hereby, including but not limited to:  (a) the
satisfaction of the conditions precedent to the obligations of such party
hereto; (b) the obtaining of applicable Governmental Consents, and consents,
waivers and approvals of any third parties; (c) the defending of any claim,
action, suit, investigation or proceeding, whether judicial or
 
 
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administrative, challenging the Transaction Documents or the performance of the
obligations hereunder or thereunder; and (d) the execution and delivery of such
instruments, and the taking of such other actions as the other party hereto may
reasonably request in order to carry out the intent of the Transaction
Documents.
 
3.9 Preemptive Rights.
 
(a) Sale of New Securities.  After the Closing, for so long as the Investor
owns, in the aggregate together with its Affiliates, Common Shares representing
the Qualifying Ownership Interest (before giving effect to any issuances
triggering provisions of this Section 3.9), at any time that the Company
proposes to make any public or nonpublic offering or sale of any equity
(including Common Stock, preferred stock or restricted stock), or any
securities, options or debt that is convertible or exchangeable into equity or
that includes an equity component (such as an equity “kicker”) (including any
hybrid security) (any such security, a “New Security”), other than the issuance
and sale of securities (i) in connection with the Warrant Offering, (ii) upon
conversion of convertible securities issued in compliance with this Section 3.9,
(iii) to employees, officers, directors or consultants of the Company pursuant
to employee benefit plans or compensatory arrangements approved by the Board of
Directors (including upon the exercise of employee stock options granted
pursuant to any such plans or arrangements), (iv) pursuant to the Rights Plan or
any other rights plan, (v) in connection with the exercise of the TARP Warrant,
or (vi) as consideration in connection with any bona fide, arm’s length, direct
or indirect merger, acquisition or similar transaction or joint venture,
strategic alliance, license agreement or other similar commercial transactions,
including, for the avoidance of doubt, the Granite Merger, the Investor shall
first be afforded the opportunity to acquire from the Company for the same price
and on the same terms (except that, to the extent permitted by Law and the
articles of incorporation and bylaws of the Company, the Investor may elect to
receive such securities in nonvoting form, convertible into Voting Securities in
a widely dispersed offering) as such securities are proposed to be offered to
others, up to the amount of such New Securities to be offered in the aggregate
required to enable it to maintain its proportionate equivalent interest in the
Common Stock immediately prior to any such issuance of New Securities.  The New
Securities that the Investor shall be entitled to purchase in the aggregate
shall be determined by multiplying (x) the total number or principal amount of
such offered New Securities by (y) a fraction, the numerator of which is the
number of Common Shares held by the Investor (assuming full conversion or
exercise of any securities convertible into or exercisable for Common Stock) and
the denominator of which is the number of shares of Common Stock then
outstanding (assuming full conversion or exercise of any securities convertible
into or exercisable for Common Stock and before giving effect to any issuances
triggering the provisions of this Section 3.9).  Notwithstanding anything herein
to the contrary, in no event shall the Investor have the right to purchase
securities hereunder to the extent that such purchase would result in the
Investor exceeding the ownership limitations of the Investor set forth in
Section 3.6.  Notwithstanding anything to the contrary herein, the provisions of
this Section 3.9 shall not be applicable to any New Securities offered or issued
at the written direction of the applicable banking regulator of the Company or
any insured depository institution subsidiary of the Company.
 
(b) Notice.  In the event the Company proposes to offer or sell New Securities
that are subject to the Investor’s rights under Section 3.9(a), it shall give
the Investor
 
 
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written notice of its intention, specifying the price (or range of prices),
anticipated amount of securities, timing and other terms upon which the Company
proposes to offer the same (including, in the case of a registered public
offering and to the extent possible, a copy of the prospectus included in the
registration statement filed with respect to such offering), at least fifteen
(15) Business Days prior to the proposed offer, issuance or sale.  The Investor
shall have ten (10) Business Days from the date of receipt of such a notice to
notify the Company in writing that it intends to exercise its rights provided in
this Section 3.9 and as to the amount of New Securities the Investor desires to
purchase, up to the maximum amount calculated pursuant to Section 3.9(a).  Such
notice shall constitute a nonbinding agreement of the Investor to purchase the
amount of New Securities so specified at the price and other terms set forth in
the Company’s notice to it.  The failure of the Investor to respond within such
ten (10) Business Day period shall be deemed to be a waiver of the Investor’s
rights under this Section 3.9 only with respect to the offering described in the
applicable notice.
 
(c) Purchase Mechanism.  If the Investor exercises its rights provided in this
Section 3.9, the closing of the purchase of the New Securities with respect to
which such right has been exercised shall take place within thirty (30) days
after the giving of notice of such exercise; provided that, if such issuance is
subject to regulatory approval, such thirty (30)-day period shall be extended
until the expiration of ten (10) Business Days after all such approvals have
been received, but in no event later than 90 days from the date of the Company’s
initial notice pursuant to Section 3.9(b).  Each of the Company and the Investor
agrees to use commercially reasonable efforts to secure any regulatory or
shareholder approvals or other consents, and to comply with any Law necessary in
connection with the offer, sale and purchase of such New Securities.
 
(d) Failure of Purchase.  In the event the Investor fails to exercise its rights
provided in this Section 3.9 within the ten (10) Business Day period described
in Section 3.9(b) or, if so exercised, the Investor is unable to consummate such
purchase within the time period specified in Section 3.9(c) because of its
failure to obtain any required regulatory or shareholder consent or approval,
the Company shall thereafter be entitled (during the period of 90 days following
the conclusion of the applicable period) to sell or enter into an agreement
(pursuant to which the sale of the New Securities covered thereby shall be
consummated, if at all, within 90 days from the date of said agreement) to sell
the New Securities not elected to be purchased pursuant to this Section 3.9 or
that the Investor is unable to purchase because of such failure to obtain any
such consent or approval, at a price and upon terms, taken together in the
aggregate, no more favorable to the purchasers of such New Securities than were
specified in the Company’s notice to the Investor.  Notwithstanding the
foregoing, if such sale is subject to the receipt of any regulatory or
shareholder approval or consent or the expiration of any waiting period, the
time period during which such sale may be consummated shall be extended until
the expiration of ten (10) Business Days after all such approvals or consents
have been obtained or waiting periods expired, but in no event shall such time
period exceed 120 days from the date of the applicable agreement with respect to
such sale.  In the event the Company has not sold the New Securities or entered
into an agreement to sell the New Securities within said 90-day period (or sold
and issued New Securities in accordance with the foregoing within 90 days from
the date of said agreement (as such period may be extended in the manner
described above for a period not to exceed 120 days from the date of said
agreement)), the Company shall not thereafter offer,
 
 
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issue or sell such New Securities without first offering such securities to the
Investor in the manner provided above.
 
(e) Non-Cash Consideration.  In the case of the offering of securities for
consideration in whole or in part other than cash, including securities acquired
in exchange therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors; provided, however, that such fair value as
reasonably determined by the Board of Directors shall not exceed the aggregate
market price of the securities being offered as of the date the Board of
Directors authorizes the offering of such securities.
 
(f) Cooperation.  The Company and the Investor shall cooperate in good faith to
facilitate the exercise of the Investor’s rights under this Section 3.9,
including securing any required approvals or consents.
 
3.10 Most Favored Nation.
 
  During the period from the date of this Agreement through the Closing, the
Company shall not, and shall cause the Company Subsidiaries not to, enter into
any additional, or modify any existing, agreements with any existing or future
investors in the Company or any of the Company Subsidiaries (including any
Additional Agreements entered into with the Additional Investors) that have the
effect of establishing rights or otherwise benefiting such investor in a manner
more favorable in any material respect to such investor than the rights and
benefits established in favor of the Investor by the Transaction Documents,
unless, in any such case, the Investor has been provided with such rights and
benefits.  If any agreement with any Additional Investors in the Other Private
Placements contains indemnity provisions comparable to those in Article V of
this Agreement, such other indemnity provisions shall expressly provide that no
claims may be made thereunder by the Additional Investors or related persons
entitled thereto unless (i) the Investor and the Investor 2 has asserted such a
claim under the comparable indemnity provisions set forth in this Article V or
Article V of the Investor 2 Investment Agreement, as applicable, and (ii) such
claims (including the type and amount of recovery sought by such claim) are the
same claims as the Investor claim and the Investor 2 claim with recovery to be
shared ratably.
 
3.11 Transfer Taxes.
 
  On the Closing Date, all stock transfer or other taxes (other than income or
similar taxes) that are required to be paid in connection with the sale and
transfer of the Common Shares to be sold to the Investor hereunder will be, or
will have been, fully paid or provided for by the Company, and all Laws imposing
such taxes will be or will have been complied with.
 
3.12 Legend.
 
(a) The Investor agrees that all certificates or other instruments representing
the Common Shares subject to the Transaction Documents shall bear a legend
substantially to the following effect, until such time as they are not required
under Section 3.13(b):
 
“(i)  THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE
 
 
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SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.
 
(ii)  THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND
OTHER RESTRICTIONS SET FORTH IN AN INVESTMENT AGREEMENT, DATED AS OF APRIL 26,
2011, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE ISSUER.”
 
(b) Upon request of the Investor, upon receipt by the Company of an opinion of
counsel to the Investor reasonably satisfactory to the Company to the effect
that such legend is no longer required under the Securities Act or applicable
state laws, as the case may be, the Company shall promptly cause clause (i) of
the legend to be removed from any certificate for any Common Shares to be so
transferred and clause (ii) of the legend shall be removed upon the expiration
of such transfer and other restrictions set forth in this Agreement.  The
Investor acknowledges that the Common Shares have not been registered under the
Securities Act or under any state securities laws and agrees that it shall not
sell or otherwise dispose of any of the Common Shares, except in compliance with
the registration requirements or exemption provisions of the Securities Act and
any other applicable securities laws.
 
3.13 Registration Rights
 
(a) Registration.
 
(i) Subject to the terms and conditions of the Transaction Documents, the
Company covenants and agrees that as promptly as practicable after (and in any
event no more than fifteen (15) days after) the Lockup Termination Date (the
“Filing Deadline”), the Company shall have prepared and filed with the SEC one
or more Shelf Registration Statements covering the resale of all of the
Registrable Securities (or, if permitted by the rules of the SEC, otherwise
designated an existing Shelf Registration Statement filed with the SEC to cover
such Registrable Securities), and, to the extent the Shelf Registration
Statement has not theretofore been declared effective or is not automatically
effective upon such filing, the Company shall use reasonable best efforts to
cause such Shelf Registration Statement to be declared or become effective as
soon as practicable (and in any event no later than the Effectiveness Deadline)
and to keep such Shelf Registration Statement continuously effective and in
compliance with the Securities Act and usable for resale of such Registrable
Securities for a period from the date of its initial effectiveness until the
time as there are no such Registrable Securities remaining (including by
refiling such Shelf Registration Statement (or a new Shelf Registration
Statement) if the initial Shelf Registration Statement expires).  In the event
that Form S-3 is not available for the registration of the resale of Registrable
Securities under this Section 3.13(a)(i), the Company
 
 
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shall (A) register the resale of the Registrable Securities on another
appropriate form, including, without limitation, Form S-1, and (B) undertake to
register the Registrable Securities on Form S-3 promptly after such form is
available, provided that the Company shall maintain the effectiveness of the
Shelf Registration Statement then in effect until such time as a Shelf
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
 
(ii) Demand Registration.
 
(A) The Investor shall have the right, by written notice (the “Demand Notice”)
given to the Company, to request, at any time and from time to time during such
periods when a Shelf Registration Statement or Shelf Registration Statements
covering all of the Investor’s Registrable Securities is or are not existing and
effective, that the Company register, under and in accordance with the
provisions of the Securities Act, all or any portion of the Registrable
Securities designated by the Investor.  Upon receipt of a Demand Notice from the
Investor pursuant to this Section 3.13(a)(ii), the Company shall promptly (and
in any event within thirty (30) days of the date on which the Company receives
such Demand Notice) file with the SEC, and the Company shall thereafter use its
reasonable best efforts to cause to be declared effective as promptly as
practicable, a registration statement on the appropriate form for the
registration and sale as shall be selected by the Company and as shall be
reasonably acceptable to the Investor registering Registrable Securities in
accordance with the intended method or methods of distribution (which may be by
an underwritten offering), of the total number of Registrable Securities
specified by the Holders in such Demand Notice (a “Demand Registration
Statement”).  If the Investor registering Registrable Securities intends to
distribute any Registrable Securities by means of an underwritten offering, it
shall promptly so advise the Company and the Company shall take all reasonable
steps to facilitate such distribution, including the actions required pursuant
to Section 3.13(c).  The managing underwriters in any such distribution shall be
acceptable to the Investor registering Registrable Securities in such
underwritten offering.  Any Demand Registration Statement may, at the request of
the Holders submitting the Demand Notice, be a “shelf” registration pursuant to
Rule 415, if available.
 
(B) The Company shall use reasonable best efforts to keep each Demand
Registration Statement filed pursuant to this Section 3.13(a)(ii) continuously
effective and usable for the resale of the Registrable Securities covered
thereby for a period of one hundred eighty (180) days from the date on which the
SEC declares such Demand Registration Statement effective, as such period may be
extended pursuant to this Section 3.13(a)(ii)(B).  The time period for which the
Company is required to maintain the effectiveness of any Demand Registration
Statement shall be extended by the aggregate number of days of all suspension
periods pursuant to Section 3.13(d) occurring with respect to such Demand
Registration Statement.
 
(C) The Company shall be entitled to suspend the use of any effective
Registration Statement under this Section 3.13(a)(ii) under the circumstances
set forth in Section 3.13(d).
 
(D) For the avoidance of doubt, the rights provided pursuant to this
Section 3.13(a)(ii) shall not be exercisable until the Effectiveness Deadline.
 
 
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(iii) Any registration pursuant to this Section 3.13(a) shall be effected by
means of a shelf registration under the Securities Act (a “Shelf Registration
Statement”) in accordance with the methods and distribution set forth in the
Shelf Registration Statement and Rule 415.  If the Investor or any other holder
of Registrable Securities to whom the registration rights conferred by the
Transaction Documents have been transferred in compliance with the Transaction
Documents intends to distribute any Registrable Securities by means of an
underwritten offering it shall promptly so advise the Company and the Company
shall take all reasonable steps to facilitate such distribution, including the
actions required pursuant to Section 3.13(c).  The lead underwriters in any such
distribution shall be selected by the holders of a majority of the Registrable
Securities to be distributed.
 
(iv) If the Company proposes to register any of its securities, whether or not
for its own account (including, without limitation, pursuant to the exercise of
any demand registration rights pursuant to Section 3.13(a)(ii)), other than a
registration pursuant to Section 3.13(a)(i) or a Special Registration, and the
registration form to be filed may be used for the registration or qualification
for distribution of Registrable Securities, the Company shall give prompt
written notice to the Investor and all other Holders of its intention to effect
such a registration (but in no event less than ten (10) Business Days prior to
the anticipated filing date) and shall include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within five (5) Business Days after the date of
the Company’s notice (a “Piggyback Registration”).  Any such person that has
made such a written request may withdraw its Registrable Securities from such
Piggyback Registration by giving written notice to the Company and the managing
underwriter, if any, on or before the fifth Business Day prior to the planned
effective date of such Piggyback Registration.  The Company may terminate or
withdraw any registration under this Section 3.13(a)(iv) prior to the
effectiveness of such registration, whether or not the Investor or any other
Holders have elected to include Registrable Securities in such registration.
 
(v) If the registration referred to in Section 3.13(a)(iv) is proposed to be
underwritten, the Company shall so advise the Investor and all other Holders as
a part of the written notice given pursuant to Section 3.13(a)(iv).  In such
event, the right of the Investor and all other Holders to registration pursuant
to this Section 3.13(a) shall be conditioned upon such persons’ participation in
such underwriting and the inclusion of such persons’ Registrable Securities in
the underwriting, and each such person shall (together with the Company and the
other persons distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.  If any
participating person disapproves of the terms of the underwriting, such Person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Investor.
 
(vi) In the event (x) that Investor 2 or any of the Additional Investors
exercises “piggyback” registration rights under the Investor 2 Investment
Agreement or the Additional Agreements in connection with the Investor’s
exercise of its demand registration rights pursuant to Section 3.13(a)(ii), (y)
that the Company grants “piggyback” registration rights to one or more third
parties to include their securities in an underwritten offering under the Shelf
Registration Statement pursuant to Section 3.13(a)(i) or (z) that a Piggyback
Registration under Section 3.13(a)(iv) relates to an underwritten offering, and
in any such case the managing
 
 
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underwriters advise the Company that in their reasonable opinion the number of
securities requested to be included in such offering exceeds the number which
can be sold without adversely affecting the marketability of such offering
(including an adverse effect on the per share offering price), the Company shall
include in such registration or prospectus only such number of securities that
in the reasonable opinion of such underwriters can be sold without adversely
affecting the marketability of the offering (including an adverse effect on the
per share offering price), which securities shall be so included in the
following order of priority:  (1) first, solely in the case of a Piggyback
Registration under Section 3.13(a)(iv) relating to a primary offering on behalf
of the Company, any securities the Company proposes to sell for its own account,
(2) second, Common Stock and other securities of the Company held by the
Treasury, (3) third, Registrable Securities of the Holders and all other holders
who have requested registration of Registrable Securities pursuant to the
Investor 2 Investment Agreement or the Additional Agreements, Section 3.13(a)(i)
or Section 3.13(a)(iv), as applicable, pro rata on the basis of the aggregate
number of such securities or shares owned by each such person and (4) fourth,
any other securities of the Company that have been requested to be so included,
subject to the terms of the Transaction Documents.
 
(b) Expenses of Registration.  All Registration Expenses incurred in connection
with any registration, qualification or compliance hereunder shall be borne by
the Company.  All Selling Expenses incurred in connection with any registrations
hereunder shall be borne by the Holders selling in such registration pro rata on
the basis of the aggregate number of securities or shares being sold.
 
(c) Obligations of the Company.  The Company shall use its reasonable best
efforts for so long as there are Registrable Securities outstanding, to take
such actions as are under its control to not become an ineligible issuer (as
defined in Rule 405 under the Securities Act).  In addition, whenever required
to effect the registration of any Registrable Securities or facilitate the
distribution of Registrable Securities pursuant to an effective Shelf
Registration Statement, the Company shall, as expeditiously as reasonably
practicable:
 
(i) file a final prospectus with the SEC, as required by Rule 424(b) under the
Securities Act;
 
(ii) provide to each Holder a copy of any disclosure regarding the plan of
distribution of the selling Holders, in each case, with respect to such Holder,
at least three (3) Business Days in advance of any filing with the SEC of any
registration statement or any amendment or supplement thereto that includes such
information;
 
(iii) prepare and file with the SEC a prospectus supplement with respect to a
proposed offering of Registrable Securities pursuant to an effective
registration statement and, subject to this Section 3.13(c), keep such
registration statement effective or such prospectus supplement current;
 
(iv) prepare and file with the SEC such amendments and supplements to the
applicable registration statement and the prospectus or prospectus supplement
used in connection with such registration statement as may be necessary to
comply with the provisions
 
 
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of the Securities Act with respect to the disposition of all securities covered
by such registration statement;
 
(v) furnish to the Holders and any underwriters such number of correct and
complete copies of the applicable registration statement and each such amendment
and supplement thereto (including in each case all exhibits) and of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned or to be distributed by them;
 
(vi) use its reasonable best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders or
any managing underwriter(s), to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and to take
any other action which may be reasonably necessary to enable such seller to
consummate the disposition in such jurisdictions of the securities owned by such
Holder; provided, that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
 
(vii) notify each Holder of Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the applicable prospectus, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing (which notice
shall not contain any material non-public information);
 
(viii) give prompt written notice to the Holders (which notice shall not contain
any material, non-public information):
 
(A) when any registration statement filed pursuant to Section 3.13(a) or any
amendment thereto has been filed with the SEC (except for any amendment effected
by the filing of a document with the SEC pursuant to the Exchange Act) and when
such registration statement or any post-effective amendment thereto has become
effective;
 
(B) of any request by the SEC for amendments or supplements to any registration
statement or the prospectus included therein or for additional information;
 
(C) of the issuance by the SEC of any stop order suspending the effectiveness of
any registration statement or the initiation of any proceedings for that
purpose;
 
(D) of the receipt by the Company or its legal counsel of any notification with
respect to the suspension of the qualification of the Common Stock for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose;
 
(E) of the happening of any event that requires the Company to make changes in
any effective registration statement or the prospectus related to the
registration
 
 
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statement in order to make the statements therein not misleading (which notice
shall be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made); and
 
(F) if at any time the representations and warranties of the Company contained
in any underwriting agreement contemplated by Section 3.13(c)(xi) cease to be
true and correct.
 
(ix) use its reasonable best efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of any registration
statement referred to in Section 3.13(c)(vii)(C) at the earliest practicable
time;
 
(x) upon the occurrence of any event contemplated by Section 3.13(c)(vi) or
3.13(c)(vii)(E) and subject to the Company’s rights under Section 3.13(d), the
Company shall promptly prepare a post-effective amendment to such registration
statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to the Holders and any underwriters,
the prospectus shall not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
 
(xi) use reasonable best efforts to procure the cooperation of the Company’s
transfer agent in settling any offering or sale of Registrable Securities;
 
(xii) in the event of an underwritten offering pursuant to Section 3.13(a)(i) or
Section 3.13(a)(iv), enter into an underwriting agreement in customary form,
scope and substance and take all such other actions reasonably requested by the
Holders of a majority of the Registrable Securities being sold in connection
therewith or by the managing underwriter(s), if any, to expedite or facilitate
the underwritten disposition of such Registrable Securities, and in connection
therewith in any underwritten offering (including making members of management
and executives of the Company available to participate in “road shows,” similar
sales events and other marketing activities), (A) make such representations and
warranties to the Holders that are selling shareholders and the managing
underwriter(s), if any, with respect to the business of the Company and the
Company Subsidiaries, and the Shelf Registration Statement, prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in customary form, substance and scope, and, if true,
confirm the same if and when requested, (B) use its reasonable best efforts to
furnish the underwriters with opinions of counsel to the Company, addressed to
the managing underwriter(s), if any, covering the matters customarily covered in
such opinions requested in underwritten offerings, (C) use its reasonable best
efforts to obtain “cold comfort” letters from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accounts of any business acquired by the Company for which financial
statements and financial data are included in the applicable registration
statement) who have certified the financial statements included in such
registration statement, addressed to each of the managing underwriter(s), if
any, such letters to be in customary form and covering matters of the type
customarily covered in “cold comfort” letters, (D) if an underwriting agreement
is entered into, the same shall contain indemnification provisions and
procedures customary in underwritten offerings, and (E) deliver such documents
and certificates as may be reasonably requested by the Holders of a majority of
 
 
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the Registrable Securities being sold in connection therewith, their counsel and
the managing underwriter(s), if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (A) above and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company;
 
(xiii) make available for inspection by a representative of Holders that are
selling shareholders, the managing underwriter(s), if any, and any attorneys or
accountants retained by such Holders or managing underwriter(s), at the offices
where normally kept, during reasonable business hours, financial and other
records, pertinent corporate documents and properties of the Company, and cause
the officers, directors and employees of the Company to supply all information,
in each case, reasonably requested by any such representative, managing
underwriter(s), attorney or accountant in connection with such Shelf
Registration Statement;
 
(xiv) cause all such Registrable Securities to be listed on each securities
exchange on which the same class of securities issued by the Company are then
listed or, if the same class of securities is not then listed on any securities
exchange, use its reasonable best efforts to cause all such Registrable
Securities of such class to be listed on NASDAQ;
 
(xv) if requested by Holders of a majority of the Registrable Securities being
registered and/or sold in connection therewith, or the managing underwriter(s),
if any, promptly include in a prospectus supplement or amendment such
information as the Holders of a majority of the Registrable Securities being
registered and/or sold in connection therewith or managing underwriter(s), if
any, may reasonably request in order to permit the intended method of
distribution of such securities and make all required filings of such prospectus
supplement or such amendment as soon as practicable after the Company has
received such request;
 
(xvi) timely provide to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
 
(xvii) in the event the SEC informs the Company that all of the Registrable
Securities then outstanding cannot, as a result of the application of Rule 415,
be registered for resale as a secondary offering on a single registration
statement, the Company agrees to promptly (A) inform each of the Holders thereof
and use its commercially reasonable efforts to file amendments to the initial
registration statement as required by the SEC and/or (B) withdraw the initial
registration statement and file a new registration statement, in either case
covering the maximum number of Registrable Securities permitted to be registered
by the SEC, on Form S-3, Form S-1 or such other form available to the Company to
register for resale the Registrable Securities as a secondary offering;
provided, that prior to filing such amendment or new registration statement, the
Company shall be obligated to use its reasonable best efforts to advocate with
the SEC for the registration of all of the Registrable Securities in accordance
with the SEC Guidance, including without limitation, Compliance and Disclosure
Interpretation 612.09.  Notwithstanding any other provision of this Agreement,
if any SEC guidance sets forth a limitation of the number of Registrable
Securities or other securities of the Company permitted to be registered on a
particular Registration Statement as a secondary offering (and notwithstanding
that the Company used diligent efforts to advocate with the SEC for the
registration of all or a greater number of Registrable Securities), the number
of Registrable Securities or other shares of Common Stock to be registered on
such registration statement will
 
 
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be reduced in accordance with the applicable provisions of this Section 3.13.
 In the event the Company amends the initial registration statement or files a
new registration statement, as the case may be, under clauses (A) or (B) above,
the Company will use its commercially reasonable efforts to file with the SEC,
as promptly as allowed by the SEC or SEC Guidance provided to the Company or to
registrants of securities in general, one or more registration statements on
Form S-3, Form S-1 or such other form available to the Company to register for
resale those Registrable Securities that were not registered for resale on the
initial registration statement, as amended, or the new registration statement.
 
(d) Suspension of Sales.  Upon receipt of written notice from the Company that a
registration statement, prospectus or prospectus supplement contains or may
contain an untrue statement of a material fact or omits or may omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that circumstances exist that make inadvisable the use
of such registration statement, prospectus or prospectus supplement, each Holder
of Registrable Securities shall forthwith discontinue disposition of Registrable
Securities pursuant to such registration statement until such Holder has
received copies of a supplemented or amended prospectus or prospectus
supplement, or until such Holder is advised in writing by the Company that the
use of the prospectus and, if applicable, prospectus supplement may be resumed,
and, if so directed by the Company, such Holder shall deliver to the Company (at
the Company’s expense) all copies, other than permanent file copies then in such
Holder’s possession, of the prospectus and, if applicable, prospectus supplement
covering such Registrable Securities current at the time of receipt of such
notice (each such suspension, a “Suspension Period”).  No single Suspension
Period shall exceed thirty (30) consecutive days and the aggregate of all
Suspension Periods shall not exceed ninety (90) days during any twelve (12)
month period.
 
(e) Termination of Registration Rights.  A Holder’s registration rights as to
any securities held by such Holder (and its Affiliates, partners, members and
former members) shall not be available unless such securities are Registrable
Securities.
 
(f) Furnishing Information.
 
(i) Neither the Investor nor any Holder shall use any free writing prospectus
(as defined in Rule 405) in connection with the sale of Registrable Securities
without the prior written consent of the Company.
 
(ii) It shall be a condition precedent to the obligations of the Company to take
any action pursuant to Section 3.13(c) as to a selling Holder that such selling
Holder, and the underwriters, if any, shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them and
the intended method of disposition of such securities as shall be required to
effect the registered offering of their Registrable Securities.
 
(g) Indemnification.
 
(i) The Company agrees to indemnify each Holder and, if a Holder is a person
other than an individual, such Holder’s officers, directors, employees, agents,
representatives and Affiliates, and each Person, if any, that controls a Holder
within the meaning
 
 
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of the Securities Act (each, an “Indemnitee”), against any and all Losses, joint
or several, arising out of or based upon any untrue statement or alleged untrue
statement of material fact contained in any registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto or any documents incorporated therein by
reference or contained in any free writing prospectus (as such term is defined
in Rule 405) prepared by the Company or authorized by it in writing for use by
such Holder (or any amendment or supplement thereto), or any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that the Company shall not be liable to such Indemnitee
in any such case to the extent that any such Loss is based solely upon (i) an
untrue statement or omission made in such registration statement, including any
such preliminary prospectus or final prospectus contained therein or any such
amendments or supplements thereto or contained in any free writing prospectus
(as such term is defined in Rule 405) prepared by the Company or authorized by
it in writing for use by such Holder (or any amendment or supplement thereto),
in reliance upon and in conformity with information regarding such Indemnitee or
its plan of distribution or ownership interests which was furnished in writing
to the Company by such Indemnitee expressly for use in connection with such
registration statement, including any such preliminary prospectus or final
prospectus contained therein or any such amendments or supplements thereto, or
(ii) offers or sales effected by or on behalf such Indemnitee “by means of” (as
defined in Rule 159A) a “free writing prospectus” (as defined in Rule 405) that
was not authorized in writing by the Company.  Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of an
Indemnitee and shall survive the transfer of the Registrable Securities by the
Holders.
 
(ii) If any proceeding shall be brought or asserted against any Indemnitee, such
Indemnitee shall promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnitee and the payment of all
reasonable fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnitee to give such notice shall not
relieve the Company of its obligations or liabilities pursuant to this
Agreement, except to the extent that it shall be finally determined by a court
of competent jurisdiction that such failure shall have materially and adversely
prejudiced the Company.  An Indemnitee shall have the right to employ separate
counsel in any such proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee
or Indemnitees unless: (1) the Company has agreed in writing to pay such fees
and expenses; (2) the Company shall have failed promptly to assume the defense
of such proceeding and to employ counsel reasonably satisfactory to such
Indemnitee in any such proceeding; or (3) the named parties to any such
proceeding (including any impleaded parties) include both such Indemnitee and
the Company, and such Indemnitee shall have been advised by counsel that a
conflict of interest exists if the same counsel were to represent such
Indemnitee and the Company; provided, that the Company shall not be liable for
the fees and expenses of more than one separate firm of attorneys at any time
for all Indemnitees.  The Company shall not be liable for any settlement of any
such proceeding effected without its written consent, which consent shall not be
unreasonably withheld or delayed.  The Company shall not, without the prior
written consent of the Indemnitee, effect any settlement of any pending
proceeding in respect of which any Indemnitee is a party, unless such settlement
includes an unconditional release of such Indemnitee from all liability on
claims that are the subject matter of such
 
 
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proceeding.  Subject to the terms of this Agreement, all fees and expenses of
the Indemnitee (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such proceeding in a manner
not inconsistent with this Section 3.13(g)(ii)) shall be paid to the Indemnitee,
as incurred, within thirty (30) days of written notice thereof to the Company;
provided, that the Indemnitee shall promptly reimburse the Company for that
portion of such fees and expenses applicable to such actions for which such
Indemnitee is finally judicially determined to not be entitled to
indemnification hereunder).  The failure to deliver written notice to the
Company within a reasonable time of the commencement of any such action shall
not relieve the Company of any liability to the Indemnitee under this
Section 3.13(g), except to the extent that the Company is materially and
adversely prejudiced in its ability to defend such action.
 
(iii) If the indemnification provided for in Section 3.13(g)(i) is unavailable
to an Indemnitee with respect to any Losses or is insufficient to hold the
Indemnitee harmless as contemplated therein, then the Company, in lieu of
indemnifying such Indemnitee, shall contribute to the amount paid or payable by
such Indemnitee as a result of such Losses in such proportion as is appropriate
to reflect the relative fault of the Indemnitee, on the one hand, and the
Company, on the other hand, in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of the Company, on the one hand, and of the
Indemnitee, on the other hand, shall be determined by reference to, among other
factors, whether the untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company or by the
Indemnitee and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; the Company
and each Holder agree that it would not be just and equitable if contribution
pursuant to this Section 3.13(g)(iii) were determined by pro rata allocation or
by any other method of allocation that does not take account of the equitable
considerations referred to in Section 3.13(g)(i).  No Indemnitee guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from the Company if the
Company was not guilty of such fraudulent misrepresentation.
 
(iv) The indemnity and contribution agreements contained in this Section 3.13(g)
are in addition to any liability that the Company may have to the Indemnitees
and are not in diminution or limitation of the indemnification provisions under
Article 5 of this Agreement.
 
(h) Assignment of Registration Rights.  The rights of the Investor to
registration of Registrable Securities pursuant to Section 3.13(a) may be
assigned by the Investor to a transferee or assignee of Registrable Securities
to which (i) there is transferred to such transferee no less than $10,000,000 in
Registrable Securities and (ii) such transfer is permitted under the terms
hereof; provided, however, that the transferor shall, within ten (10) days after
such transfer, furnish to the Company written notice of the name and address of
such transferee or assignee and the number and type of Registrable Securities
that are being assigned.
 
(i) Holdback.  With respect to any underwritten offering of Registrable
Securities by the Investor or other Holders pursuant to this Section 3.13, the
Company agrees not to effect (other than pursuant to such registration or
pursuant to a Special
 
 
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Registration) any public sale or distribution, or to file any registration
statement (other than such registration or a Special Registration) covering any
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the period not to exceed ten (10) days
prior and ninety (90) days following the effective date of such offering as may
be requested by the managing underwriter.  The Company also agrees to cause each
of its directors and senior executive officers to execute and deliver customary
lockup agreements in such form and for such time period up to ninety (90) days
as may be requested by the managing underwriter.  “Special Registration” means
the registration of (i) equity securities and/or options or other rights in
respect thereof solely registered on Form S-4 or Form S-8 (or successor form) or
(ii) shares of equity securities and/or options or other rights in respect
thereof to be offered to directors, members of management, employees,
consultants, customers, lenders or vendors of the Company or the Company
Subsidiaries or in connection with dividend reinvestment plans.
 
(j) Rule 144; Rule 144A Reporting.  With a view to making available to the
Investor and Holders the benefits of certain rules and regulations of the SEC
which may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its reasonable best efforts to:
 
(i) make and keep adequate current public information with respect to the
Company available, as those terms are understood and defined in Rule 144(c)(1)
or any similar or analogous rule promulgated under the Securities Act, at all
times after the effective date of this Agreement;
 
(ii) so long as the Investor or a Holder owns any Registrable Securities,
furnish to the Investor or such Holder forthwith upon request:  (A) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 under the Securities Act, and of the Exchange Act; (B) a copy of the
most recent annual or quarterly report of the Company; and (C) such other
reports and documents as the Investor or Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing it to sell any
such securities without registration; and
 
(iii) to take such further action as any Holder may reasonably request, all to
the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act.
 
(k) As used in this Section 3.13, the following terms shall have the following
respective meanings:
 
(i) “Effective Date” means the date that the Shelf Registration Statement filed
pursuant to Section 3.13(a)(i) is first declared effective by the SEC.
 
(ii) “Effectiveness Deadline” means, with respect to the initial Shelf
Registration Statement required to be filed pursuant to Section 3.13(a)(i), the
earlier of (i) the 60th calendar day following the Filing Deadline and (ii) the
5th Business Day after the date the Company is notified (orally or in writing,
whichever is earlier) by the SEC that such Shelf Registration Statement will not
be “reviewed” or will not be subject to further review; provided, that if the
Effectiveness Deadline falls on a Saturday, Sunday or other day that the SEC is
closed
 
 
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for business, the Effectiveness Deadline shall be extended to the next Business
Day on which the SEC is open for business.
 
(iii) “Holder” means the Investor and any other holder of Registrable Securities
to whom the registration rights conferred by the Transaction Documents have been
transferred in compliance with Section 3.13(h) hereof.
 
(iv) “Holders’ Counsel” means one counsel for the selling Holders chosen by
Holders holding a majority interest in the Registrable Securities being
registered.
 
(v) “Register,” “registered” and “registration” shall refer to a registration
effected by preparing and (A) filing a registration statement in compliance with
the Securities Act and applicable rules and regulations thereunder, and the
declaration or ordering of effectiveness of such registration statement or (B)
filing a prospectus and/or prospectus supplement in respect of an appropriate
effective registration statement.
 
(vi) “Registrable Securities” means (A) all Common Stock held by the Holders
from time to time and (B) any equity securities issued or issuable directly or
indirectly with respect to the securities referred to in clause (A) by way of
conversion, exercise or exchange thereof or stock dividend or stock split or in
connection with a combination of shares, recapitalization, reclassification,
merger, amalgamation, arrangement, consolidation or other reorganization,
provided that, once issued, such securities shall not be Registrable Securities
when (1) they are sold pursuant to an effective registration statement under the
Securities Act, (2) they may be sold pursuant to Rule 144 without limitation
thereunder on volume or manner of sale and without the requirement for the
Company to be in compliance with the current public information required under
Rule 144(e)(1) (or Rule 144(i)(2), if applicable), (3) they shall have ceased to
be outstanding or (4) they have been sold in a private transaction in which the
transferor’s rights under the Transaction Documents are not assigned to the
transferee of the securities.  No Registrable Securities may be registered under
more than one registration statement at one time.
 
(vii) “Registration Expenses” means all expenses incurred by the Company in
effecting any registration pursuant to this Agreement (whether or not any
registration or prospectus becomes effective or final) or otherwise complying
with its obligations under this Section 3.13, including, without limitation, all
registration, filing and listing fees, printing expenses, fees and disbursements
of counsel for the Company, blue sky fees and expenses, expenses incurred in
connection with any “road show,” the reasonable fees and disbursements of
Holders’ Counsel, and expenses of the Company’s independent accountants in
connection with any regular or special reviews or audits incident to or required
by any such registration, but shall not include Selling Expenses and the
compensation of regular employees of the Company, which shall be paid in any
event by the Company.
 
(viii) “Rule 158,” “Rule 159A,” “Rule 405” and “Rule 415” mean, in each case,
such rule promulgated under the Securities Act (or any successor provision), as
the same shall be amended from time to time.
 
 
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(ix) “SEC Guidance” means (i) any publicly-available written or oral guidance,
comments, requirements or requests of the SEC staff and (ii) the Securities Act.
 
(x) “Selling Expenses” means all discounts, selling commissions and stock
transfer taxes applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any Holder (other than the fees and disbursements
of Holders’ Counsel included in Registration Expenses).
 
(l) At any time, any holder of Registrable Securities (including any Holder) may
elect to forfeit its rights set forth in this Section 3.13 from that date
forward; provided, that a Holder forfeiting such rights shall nonetheless be
entitled to participate under Sections 3.13(a)(iv) through (vi) in any Pending
Underwritten Offering to the same extent that such Holder would have been
entitled to if the holder had not withdrawn; and provided, further, that no such
forfeiture shall terminate a Holder’s rights or obligations under
Section 3.13(g) with respect to any prior registration or Pending Underwritten
Offering.  “Pending Underwritten Offering” means, with respect to any Holder
forfeiting its rights pursuant to this Section 3.13(l), any underwritten
offering of Registrable Securities in which such Holder has advised the Company
of its intent to register its Registrable Securities either pursuant to
Section 3.13(a)(i) or 3.13(a)(iv) prior to the date of such Holder’s forfeiture.
 
3.14 Warrant Offering.  As promptly as practicable following the Closing, but no
sooner than January 1, 2012, and subject to compliance with all applicable Law,
including the Securities Act, the Company shall distribute to each holder of
record of Common Stock as of the close of business on the Business Day
immediately preceding the Closing Date, non-transferable warrants (the
“Warrants”) to purchase from the Company one share of Common Stock for each four
shares of Common Stock held of record as of the close of business on the
Business Day immediately preceding the Closing Date at a per share purchase
price equal to the price per Common Share paid by the Investor under this
Agreement; provided that no such holder shall thereby exceed, together with any
other Person with whom such holder may be aggregated under applicable Law, 4.99%
beneficial ownership of the Company’s equity securities.  No Warrant will be
issued with respect to any holdings or increment of holdings of less than four
shares of Common Stock.  The transactions described in this Section 3.14,
including the purchase and sale of Common Shares upon the exercise of Warrants,
shall be referred to in this Agreement as the “Warrant Offering.”  Each Warrant
shall be exercisable for thirty (30) days after the later of its date of
issuance or the effective date of the registration statement related to the
Warrant Offering.
 
3.15 Certain Other Transactions
 
(a) Prior to the Closing, notwithstanding anything in the Transaction Documents
to the contrary, the Company shall not directly or indirectly effect or cause to
be effected any transaction with a third party that would reasonably be expected
to result in a Change in Control unless such third party shall have provided
prior assurance in writing to the Investor (in a form reasonably satisfactory to
the Investor) that the terms of the Transaction Documents shall be fully
performed (i) by the Company or (ii) by such third party if it is the successor
of the Company or if the Company is its direct or indirect Subsidiary.  For the
avoidance of doubt, it is understood and agreed that, in the event that a Change
in Control occurs on or prior to the Closing, the Investor shall maintain the
right under the Transaction Documents
 
 
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to acquire, pursuant to the terms and conditions of the Transaction Documents,
the Common Stock (or such other securities or property (including cash) into
which the Common Stock may have become exchangeable as a result of such Change
in Control), as if the Closing had occurred immediately prior to such Change in
Control.
 
(b) In the event that, at or prior to the Closing, (i) the number of shares of
Common Stock or securities convertible or exchangeable into or exercisable for
shares of Common Stock issued and outstanding is changed as a result of any
reclassification, stock split (including reverse split), stock dividend or
distribution (including any dividend or distribution of securities convertible
or exchangeable into or exercisable for shares of Common Stock), merger, tender
or exchange offer or other similar transaction or (ii) the Company fixes a
record date that is at or prior to the Closing Date for the payment of any
non-stock dividend or distribution on the Common Stock other than any ordinary
cash dividends, then the number of Common Shares to be issued to the Investor at
the Closing under the Transaction Documents, together with the applicable
implied per share price (and the number of shares and per share price pursuant
to the Warrant Offering), shall be equitably adjusted and/or the shares of
Common Stock to be issued to the Investor at the applicable Closing under the
Transaction Documents shall be equitably substituted with shares of other stock
or securities or property (including cash), in each case, to provide the
Investor with substantially the same economic benefit from the Transaction
Documents as the Investor had prior to the applicable
transaction.  Notwithstanding anything in the Transaction Documents to the
contrary, in no event shall the Purchase Price or any component thereof, or the
aggregate percentage of shares to be purchased by the Investor, be changed by
the foregoing.
 
(c) Notwithstanding anything in the foregoing, the provisions of this
Section 3.15 shall not be implicated by (i) the transactions contemplated by the
Transaction Documents or (ii) any issuances of options, restricted stock units
or other equity-based awards granted to newly-appointed directors, employees or
consultants of the Company at or around the same time as the transactions
contemplated by the Transaction Documents to such Persons, including upon
exercise of any such options.
 
3.16 Transfer Restrictions.
 
(a) Except as otherwise permitted in this Agreement, for the period from the
Closing Date until the Lockup Termination Date, the Investor will not transfer,
sell, assign or otherwise dispose of (“Transfer”) any Common Shares, and after
such period the Investor may Transfer the Common Shares (1) only in a privately
negotiated transaction to any person or group of persons that would not acquire
pursuant to such Transfer beneficial ownership of Capital Stock of the Company
in violation of the passivity or anti-association commitments described on
Exhibit B or (2) into the public market (in a registered public offering,
pursuant to Rule 144 under the Securities Act or otherwise, including through
any broker, dealer or underwriter, acting in a capacity as such, that purchases
Common Shares for distribution) provided that the Investor does not knowingly
(without, however, imposing a duty of inquiry on the Investor) effect any public
market sale or transfer that would result in beneficial ownership of Capital
Stock of the Company in violation of Section 3.6(b).
 
 
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(b) Permitted Transfers.  Notwithstanding Section 3.16(a), the Investor shall be
permitted to Transfer any portion or all of its Common Shares acquired pursuant
to this Agreement at any time under the following circumstances:
 
(i) Transfers to (A) any Affiliate of the Investor (any such transferee shall be
included in the term “Investor”) or (B) any direct or indirect general or
limited partner, member, manager, stockholder, or equity holder of such
Investor, but in each case only if the transferee agrees in writing for the
benefit of the Company to be bound by the terms of this Agreement; and
 
(ii) Transfers pursuant to a merger, tender offer or exchange offer or other
business combination, acquisition of assets or similar transaction that has,
without the participation of the Investor, resulted in a Change in Control.
 
Other than pursuant to a transaction contemplated by Section 3.16(b)(ii) above,
the Investor agrees that it will not Transfer any interest in any transferee
pursuant to this Section 3.16(b) unless (x) prior thereto the Common Shares held
by it are transferred to the Investor or to one or more of the permitted
transferees pursuant to this Section 3.16(b) and/or (y) such transferee remains
a person to which the Investor is permitted to transfer any portion or all of
its Common Shares under Section 3.16(b)(i) following such Transfer.  Any such
Transfer pursuant to clause (i) of this Section 3.16(b) shall be void unless
each transferee shall agree that prior to such time as it ceases to be a Person
to which the Investor is permitted to Transfer any portion or all of its Common
Shares under clause (i) of this Section 3.16(b), it shall Transfer the Common
Shares it holds to the Investor or one or more permitted transferees of the
Investor pursuant to this Section 3.16(b).
 
3.17 Exchange Listing.  The Company shall use its reasonable best efforts to
cause the Common Shares to be issued pursuant to this Agreement to be approved
for listing on NASDAQ, subject to official notice of issuance, as promptly as
possible and in any event prior to the Closing.
 
3.18 Continued Listing Authorization.  The Company shall take all steps
necessary to prevent the Common Shares from being delisted from NASDAQ,
including, without limitation, effecting a reverse stock split of the Common
Stock, if necessary, to comply with NASDAQ Listing Rule 5450(a)(1).
 
3.19 Rights Plan.  As soon as practicable but in any event within 30 days after
the date hereof, the Company shall have (i) implemented and put into effect the
Rights Plan, and the related rights shall have been issued to shareholders of
the Company and (ii) the Company shall have caused the rights agent under the
Rights Plan to have executed and delivered to the Company the amendment to the
Rights Plan in the form set forth on Section 2.2(jj) of the Disclosure
Schedule.  For the avoidance of doubt, each of the Investors shall receive the
preferred share purchase rights issuable under the Rights Plan with respect to
the Common Shares purchased pursuant to this Agreement and the Additional
Agreements on the Closing Date.
 
 
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3.20 Cooperation on Tax Matters.  During the period between the date hereof and
the Closing Date, the Company shall consult with the Investor regarding any
significant transactions or Tax Return positions reasonably expected to
materially increase or affect the Company’s net operating losses or capital
losses for any taxable year or period and shall, in the Company’s reasonable
discretion, take account of Investor’s views on such matters to the extent
reasonably feasible.
 
3.21 Other Private Placements.  Notwithstanding anything to the contrary in the
Transaction Documents, the Company shall not, and shall cause the Company
Subsidiaries not to, take any action (including any redemption, repurchase, or
recapitalization of Common Stock, or securities or rights, options or warrants
to purchase Common Stock, or securities of any type whatsoever that are, or may
become, convertible into or exchangeable into or exercisable for Common Stock in
each case, where the Investor is not given the right to participate in such
redemption, repurchase or recapitalization to the extent of the Investor’s pro
rata proportion), that would cause any Additional Investor’s or any other
Person’s ownership of Voting Securities (together with the ownership by the
Investor’s or other Person’s Affiliates (as such term is used under the BHC Act)
of Voting Securities) to increase above 4.9%.
 
3.22 Amendment to the Articles of Incorporation. Immediately following the
consummation of the Closing, the Company shall cause Granite to file with the
Secretary of State of the State of Delaware a certificate of merger in
accordance with Section 251 of the Delaware General Corporation Law (the “DGCL”)
and executed in accordance with the relevant provisions of the DGCL and to make
all other filings or recordings required under the DGCL to effectuate the
Granite Merger.
 
3.23 Preservation of Tax Benefits. Until the first day of a taxable year of the
Company as to which the Board of Directors determines that no Tax Benefit of the
Company, or any direct or indirect subsidiary thereof, may be carried forward,
the Company shall not take any action with respect to its stock or any “options”
(within the meaning of Section 1.382-4(d) of the Treasury Regulations) to
acquire its stock following the Closing, unless the Company shall have first
received an unqualified opinion (based on reasonable assumptions and factual
representations) of nationally recognized tax counsel or a private letter ruling
from the Internal Revenue Service, in either case to the effect that such action
would not cause an “ownership change” of the Company (within the meaning of
Section 382(g) of the Code and applicable Treasury Regulations), taking into
account the maximum reasonably expected effect of the exercise of any
outstanding “options” (as defined above).
 
3.24 D&O Insurance.  The Company shall purchase on commercially reasonable terms
by the Closing Date or maintain the existing D&O Insurance in force, and
maintain for such periods as the Board of Directors shall in good faith
determine (provided that such period shall not be less than six (6) years
following cessation of service), at its expense, insurance from a nationally
recognized insurance company in an amount to be determined in good faith by the
Board of Directors to be appropriate (provided, that such amount shall not be
lower than $25,000,000 unless otherwise agreed by the Investor), on behalf of
any person who after the Closing is or was a director or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another person, including any direct or indirect Subsidiary
of the Company, against any expense, liability of loss asserted against such
 
 
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person and incurred by such person in any such capacity, or arising out of such
person’s status as such, subject to customary exclusions.
 
3.25 Granite Merger.  From the date of this Agreement until the earlier of the
Closing Date or the date this Agreement is terminated:
 
(a) the Company shall keep the Investor reasonably informed as to the status of
the transactions contemplated by the Merger Agreement, including, without
limitation, promptly informing the Investor of (i) any notices delivered by
either party thereunder, (ii) any proposed amendment to or waiver thereunder,
(iii) any material communications between a party thereunder or any of its
Affiliates, on the one hand, and the other party thereunder or any of its
Affiliates, on the other hand, (iv) any purported satisfaction of a condition to
closing specified in the Merger Agreement and (v) any knowledge of the Company
of any action or proceeding threatened, instituted or pending relating to the
transactions contemplated thereby; and
 
(b) the Company shall not take or permit any of its Affiliates to take any
action that is reasonably likely to prevent or delay the consummation of the
Merger Agreement or the other transactions contemplated by thereby.  In
furtherance and not in limitation of the foregoing, the Company shall (x) not
consent to any request by Granite for approval to take any action, or waive
Granite’s or its Affiliates’ failure to perform any obligation under the Merger
Agreement without the Investors’ prior written consent, not to be unreasonably
withheld, delayed or conditioned, (y) not make or consent to any amendment,
supplement, modification or waiver to the Merger Agreement without the
Investors’ prior written consent, not to be unreasonably withheld, delayed or
conditioned and (z) provide the Investor with any amendments, modifications, or
supplements to the Merger Agreement and all schedules, annexes and exhibits
thereto.
 
ARTICLE 4

 
TERMINATION
 
4.1 Termination. This Agreement may be terminated prior to the Closing:
 
(a) by mutual written agreement of the Company and the Investor;
 
(b) by any party, upon written notice to the other parties, in the event that
the Closing does not occur on or before October 31, 2011; provided, however,
that the right to terminate this Agreement pursuant to this Section 4.1(b) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the failure
of the Closing to occur on or prior to such date;
 
(c) by the Investor, upon written notice to the Company, if (i) there has been a
breach of any representation, warranty, covenant or agreement made by this
Company in this Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, in each case such that a closing
condition in Section 1.2(c) would not be satisfied and (ii) such breach or
condition is not curable or, if curable, is not cured within 15 days after the
Company’s receipt of written notice of such breach from the Investor, provided
that this
 
 
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Section 4.1(c) shall only apply if the Investor is not in material breach of any
of the terms of this Agreement;
 
(d) by the Company, upon written notice to the Investor, if (i) there has been a
breach of any representation, warranty, covenant or agreement made by the
Investor in this Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, such that a closing condition in
Section 1.2(c)(i) or (iii) would not be satisfied and (ii) such breach or
condition is not curable or, if curable, is not cured within 15 days after the
Investor’s receipt of written notice of such breach from the Company; provided
that this Section 4.1(d) shall only apply if the Company is not in material
breach of any of the terms of this Agreement;
 
(e) by any party, upon written notice to the other parties, in the event that
any Governmental Entity shall have issued any order, decree or injunction or
taken any other action restraining, enjoining or prohibiting any of the
transactions contemplated by this Agreement, and such order, decree, injunction
or other action shall have become final and nonappealable;
 
(f) by the Investor, upon written notice to the Company, if the Investor or any
of its Affiliates receives written notice from or is otherwise advised by, the
Federal Reserve that the Federal Reserve will not grant (or intends to rescind
or revoke if previously granted) any of the written confirmations or
determinations referred to in Section 1.2(c)(ii)(E);
 
(g) by the Company, upon written notice to the Investor, if the Company receives
written notice from or is otherwise advised by the Federal Reserve that the
Federal Reserve will not grant (or intends to rescind or revoke if previously
granted) any of the written confirmations or determinations referred to in
Section 1.2(c)(ii)(E);
 
(h) by the Investor, upon written notice to the Company, if (i) a Change in
Company Recommendation has occurred pursuant to Section 3.3(e) or (ii) the
Company has accepted, or entered into any agreement with respect to a Change in
Control of the Company, other than in connection with the transactions
contemplated by the Transaction Documents; or
 
(i) by the Investor, if the Merger Agreement has been terminated.
 
4.2 Effects of Termination.  In the event of any termination of this Agreement
as provided in Section 4.1, this Agreement (other than Section 3.3(b), this
Article 4 and Article 6 of this Agreement, which shall remain in full force and
effect) shall forthwith become wholly void and of no further force and effect;
provided that nothing herein shall relieve any party from liability for fraud or
willful breach of this Agreement.
 
4.3 Termination Fee; Expense Reimbursement upon Termination.
 
(a) In the event this Agreement is terminated by the Investor pursuant to
Section 4.1(h)(i), then the Company shall, within one Business Day after such
termination, pay to the Investor in immediately available funds a termination
fee in the amount of $3,875,000.
 
 
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(b) In the event this Agreement is terminated by the Investor pursuant to
Section 4.1(h)(ii) and the Company consummates a Change in Control within two
years following the Investor’s termination pursuant to Section 4.1(h)(ii), then,
within one (1) Business Day of the consummation of such Change in Control, the
Company shall pay the Investor in immediately available funds a termination fee
in the amount of $3,875,000.
 
(c) If the Merger Agreement is terminated and thereafter the Company receives
the “Expense Reimbursement” as such term is defined in the Merger Agreement,
then the Company shall pay to the Investor a proportionate share of the Expense
Reimbursement equal to the percentage of outstanding shares of Common Stock that
would have been owned by the Investor on a Pro Rata Basis immediately after
giving effect to the consummation of the transactions contemplated under the
Transaction Documents.
 
ARTICLE 5

 
INDEMNITY
 
5.1 Indemnification by the Company.
 
(a) After the Closing, and subject to Sections 5.1(b), 5.3 and 5.4, the Company
shall indemnify, defend and hold harmless to the fullest extent permitted by Law
the Investor and its Affiliates, and their successors and assigns, officers,
directors, partners, members and employees, as applicable, (the “Investor
Indemnified Parties”) against, and reimburse any of the Investor Indemnified
Parties for, all Losses that any of the Investor Indemnified Parties may at any
time suffer or incur, or become subject to, as a result of or in connection with
(1) the inaccuracy or breach of any representation or warranty made by the
Company in this Agreement or any certificate delivered pursuant hereto, (2) any
breach or failure by the Company to perform any of its covenants or agreements
contained in this Agreement and (3) any action, suit, claim, proceeding or
investigation by any shareholder of the Company or any other Person (other than
the Investor or any Investor Indemnified Party) relating to this Agreement or
the other Transaction Documents or the transactions contemplated hereby or
thereby, including the Investment, the Other Private Placements, Merger
Agreement and the TARP Exchange.
 
(b) Notwithstanding anything to the contrary contained herein, the Company shall
not be required to indemnify, defend or hold harmless any of the Investor
Indemnified Parties against, or reimburse any of the Investor Indemnified
Parties for, any Losses pursuant to Section 5.1(a)(1) (other than Losses arising
out of the inaccuracy or breach of any Company Specified Representations) (i)
with respect to any claim (or series of related claims arising from the same
underlying facts, events or circumstances) unless such claim (or series of
related claims arising from the same underlying facts, events or circumstances)
involves Losses in excess of $50,000 (the “De Minimis Amount”) (nor shall any
such claim or series of related claims that do not meet the De Minimis Amount be
applied to or considered for purposes of calculating the aggregate amount of the
Losses by any of the Investor Indemnified Parties for which the Company has
responsibility under clause (ii) of this Section 5.1(b)); and (ii) until the
aggregate amount of the Investor Indemnified Parties’ Losses for which the
Investor Indemnified Parties are finally determined to be otherwise entitled to
indemnification under Section 5.1(a) exceeds $1,000,000 (the “Deductible”),
after which the Company shall be obligated for all of the
 
 
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Investor Indemnified Parties’ Losses for which the Investor Indemnified Parties
are finally determined to be otherwise entitled to indemnification under
Section 5.1(a)(1) that are in excess of the Deductible.  Notwithstanding
anything to the contrary contained herein, the Company shall not be required to
indemnify, defend or hold harmless the Investor Indemnified Parties against, or
reimburse the Investor Indemnified Parties for, any Losses pursuant to
Section 5.1(a)(1) in a cumulative aggregate amount exceeding the aggregate
purchase price paid by the Investor to the Company pursuant to Section 1.1
(other than Losses arising out of the inaccuracy or breach of any Company
Specified Representations).
 
(c) For purposes of Section 5.1(a), in determining whether there has been a
breach of a representation or warranty, the parties hereto shall ignore any
“materiality,” “Knowledge,” “Material Adverse Effect” or similar qualifications.
 
5.2 Indemnification by the Investor.
 
(a) After the Closing, and subject to Sections 5.3 and 5.4, the Investor shall
indemnify, defend and hold harmless to the fullest extent permitted by Law the
Company and its Affiliates and their respective successors and assigns,
officers, directors, partners, members and employees (the “Company Indemnified
Parties”) against, and reimburse any of the Company Indemnified Parties for, all
Losses that the Company Indemnified Parties may at any time suffer or incur, or
become subject to, as a result of or in connection with (1) the inaccuracy or
breach of any representation or warranty made by the Investor in this Agreement
or any certificate delivered pursuant hereto or (2) any breach or failure by
such Investor to perform any of its covenants or agreements contained in this
Agreement.
 
(b) Notwithstanding anything to the contrary contained herein, the Investor
shall not be required to indemnify, defend or hold harmless any of the Company
Indemnified Parties against, or reimburse any of the Company Indemnified Parties
for any Losses pursuant to Section 5.2(a)(1) (other than Losses arising out of
the inaccuracy or breach of any Investor Specified Representations) (i) with
respect to any claim (or series of related claims arising from the same
underlying facts, events or circumstances) unless such claim (or series of
related claims arising from the same underlying facts, events or circumstances)
involves Losses in excess of the De Minimis Amount (nor shall any such claim or
series of related claims that do not meet the De Minimis Amount be applied to or
considered for purposes of calculating the aggregate amount of the Losses by any
of the Company Indemnified Parties for which the Investor has responsibility
under clause (ii) of this Section 5.2(b)); and (ii) until the aggregate amount
of the Company Indemnified Parties’ Losses for which the Company Indemnified
Parties are finally determined to be otherwise entitled to indemnification under
Section 5.2(a) exceeds the Deductible, after which the Investor shall be
obligated for all of the Company Indemnified Parties’ Losses for which the
Company Indemnified Parties are finally determined to be otherwise entitled to
indemnification under Section 5.2(a)(1) that are in excess of such
Deductible.  Notwithstanding anything to the contrary contained herein, the
Investor shall not be required to indemnify, defend or hold harmless the Company
Indemnified Parties against, or reimburse the Company Indemnified Parties for,
any Losses pursuant to Section 5.2(a)(1) in a cumulative aggregate amount
exceeding the aggregate purchase paid by the Investor to the Company pursuant to
Section 1.1 hereof (other than Losses arising out of the inaccuracy or breach of
any of the Investor Specified Representations).
 
 
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(c) For purposes of Section 5.2(a), in determining whether there has been a
breach of a representation or warranty, the parties hereto shall ignore any
“materiality” or similar qualifications.
 
5.3 Notification of Claims.
 
                              (a) Any Person that may be entitled to be
indemnified under this Agreement (the “Indemnified Party”) shall promptly notify
the party or parties liable for such indemnification (the “Indemnifying Party”)
in writing of any claim in respect of which indemnity may be sought hereunder,
including any pending or threatened claim or demand by a third party that the
Indemnified Party has determined has given or could reasonably give rise to a
right of indemnification under this Agreement (including a pending or threatened
claim or demand asserted by a third party against the Indemnified Party) (each,
a “Third Party Claim”), describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or demand;
provided, however, that the failure to provide such notice shall not release the
Indemnifying Party from any of its obligations under this Agreement except to
the extent that the Indemnifying Party is materially prejudiced by such
failure.  The parties agree that notices for claims in respect of a breach of a
representation, warranty, covenant or agreement must be delivered prior to the
expiration of any applicable survival period specified in Section 6.1 for such
representation, warranty, covenant or agreement; provided, that if, prior to
such applicable date, a party hereto shall have notified the other parties
hereto in accordance with the requirements of this Section 5.3(a) of a claim for
indemnification under this Agreement (whether or not formal legal action shall
have been commenced based upon such claim), such claim shall continue to be
subject to indemnification in accordance with this Agreement notwithstanding the
passing of such applicable date.
 
(b) Upon receipt of a notice of a claim for indemnity from an Indemnified Party
pursuant to Section 5.3(a) in respect of a Third Party Claim, the Indemnifying
Party may, by notice to the Indemnified Party delivered within twenty (20)
Business Days of the receipt of notice of such Third Party Claim, assume the
defense and control of any Third Party Claim, with its own counsel reasonably
acceptable to the Indemnified Party and at its own expense.  The Indemnified
Party shall have the right to employ counsel on its own behalf for, and
otherwise participate in the defense of, any such Third Party Claim, but the
fees and expenses of its counsel will be at its own expense unless (1) the
employment of counsel by the Indemnified Party at the Indemnifying Party’s
expense has been authorized in writing by the Indemnifying Party, as applicable,
(2) the Indemnified Party reasonably believes there may be a conflict of
interest between the Indemnified Party and the Indemnifying Party in the conduct
of the defense of such Third Party Claim, (3) the Indemnified Party reasonably
believes there are legal defenses available to it that are different from,
additional to or inconsistent with those available to the Indemnifying Party, or
(4) the Indemnifying Party has not in fact employed counsel to assume the
defense of such Third Party Claim within a reasonable time after receipt of
notice of the commencement of such Third Party Claim, in each of which cases the
fees and expenses of such Indemnified Party’s counsel shall be at the expense of
the Indemnifying Party.  The Indemnified Party may take any actions reasonably
necessary to defend such Third Party Claim prior to the time that it receives a
notice from the Indemnifying Party as contemplated by the immediately preceding
sentence.  The Indemnified Party shall, and shall cause each of their Affiliates
and Representatives to, use reasonable best efforts to cooperate with the
Indemnifying Party in the
 
 
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defense of any Third Party Claim.  The Indemnifying Party shall not, without the
prior written consent of the Indemnified Party (which shall not be unreasonably
withheld), consent to a settlement, compromise or discharge of, or the entry of
any judgment arising from, any Third Party Claim, unless such settlement,
compromise, discharge or entry of any judgment does not involve any statement,
finding or admission of any fault, culpability, failure to act, violation of Law
or admission of any wrongdoing by or on behalf of the Indemnified Party, and the
Indemnifying Party shall (i) pay or cause to be paid all amounts arising out of
such settlement or judgment concurrently with the effectiveness of such
settlement or judgment (unless otherwise provided in such judgment), (ii) not
encumber any of the material assets of any Indemnified Party or agree to any
restriction or condition that would apply to or materially adversely affect any
Indemnified Party or the conduct of any Indemnified Party’s business and (iii)
obtain, as a condition of any settlement, compromise, discharge, entry of
judgment (if applicable), or other resolution, a complete and unconditional
release of each Indemnified Party in form and substance reasonably satisfactory
to such Indemnified Party from any and all liabilities in respect of such Third
Party Claim.  An Indemnified Party shall not settle, compromise or consent to
the entry of any judgment with respect to any claim or demand for which it is
seeking indemnification from the Indemnifying Party or admit to any liability
with respect to such claim or demand without the prior written consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed); provided that such consent shall not be required if the Indemnifying
Party has not fulfilled any material obligations under this Section 5.3(b).
 
(c) In the event any Indemnifying Party receives a notice of a claim for
indemnity from an Indemnified Party pursuant to Section 5.3(a) that does not
involve a Third Party Claim, the Indemnifying Party shall notify the Indemnified
Party within twenty (20) Business Days following its receipt of such notice
whether the Indemnifying Party disputes its liability to the Indemnified Party
under this Agreement.  The Indemnified Party shall reasonably cooperate with and
assist the Indemnifying Party in determining the validity of any such claim for
indemnity by the Indemnified Party.
 
5.4 Indemnification Payment.  In the event a claim or any Action for
indemnification hereunder has been finally determined, the amount of such final
determination shall be paid by the Indemnifying Party to the Indemnified Party
on demand in immediately available funds; provided, however, that any reasonable
and documented out-of-pocket expenses incurred by the Indemnified Party as a
result of such claim or Action shall be reimbursed promptly by the Indemnifying
Party upon receipt of an invoice describing such costs incurred by the
Indemnified Party.  A claim or an Action, and the liability for and amount of
damages therefor, shall be deemed to be “finally determined” for purposes of
this Agreement when the parties hereto have so determined by mutual agreement
or, if disputed, when a final non-appealable governmental order has been entered
into with respect to such claim or Action.
 
5.5 Exclusive Remedies.  Each party hereto acknowledges and agrees that
following the Closing, the indemnification provisions hereunder shall be the
sole and exclusive remedies of the parties hereto for any breach of the
representations, warranties or covenants contained in the this Agreement.  No
investigation of the Company by the Investor, or of the Investor by the Company,
whether prior to or after the date of this Agreement, shall limit any
Indemnified Party’s exercise of any right hereunder or be deemed to be a waiver
of any such right.  The
 
 
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parties agree that any indemnification payment made pursuant to this Agreement
shall be treated as an adjustment to the Purchase Price for Tax purposes, unless
otherwise required by Law.
 
ARTICLE 6

 
MISCELLANEOUS
 
6.1 Survival.  The representations and warranties of the parties hereto
contained in this Agreement shall survive in full force and effect until the
date that is eighteen (18) months after the Closing Date (or until final
resolution of any claim or action arising from the breach of any such
representation and warranty, if notice of such breach was provided prior to the
end of such period), at which time they shall terminate and no claims shall be
made for indemnification under Section 5.1 or Section 5.2, as applicable, for
breaches of representations or warranties thereafter, except the Company
Specified Representations (other than the representations and warranties made in
Section 2.2(x), which shall survive until 60 days after the expiration of the
applicable statute of limitations) and the Investor Specified Representations
shall survive the Closing indefinitely.  The covenants and agreements set forth
in this Agreement shall survive until the earliest of the duration of any
applicable statute of limitations or until performed or no longer operative in
accordance with their respective terms.
 
6.2 Expenses.  Other than as expressly provided elsewhere herein, all parties
hereto shall be responsible for the payment of their own expenses incurred under
the Transaction Documents; provided, that, in the event that the Closing is
consummated, the Company shall reimburse the Investor promptly, without
duplication, for all reasonable, documented out-of-pocket expenses incurred by
it or on its behalf in connection with due diligence, the negotiation and
preparation of this Agreement and the undertaking of the transactions
contemplated hereby (including, without limitation, all fees and expenses of
counsel, financial and other advisors, the filing or pursuit of any Governmental
Consent requested in connection with the transaction contemplated hereby and
accounting fees incurred by or on behalf of the Investor or its Affiliates in
connection with the transactions contemplated hereby, costs associated with loan
due diligence and all other diligence and related expenses), provided that the
Company shall not be obligated to reimburse the Investor for such expenses in
excess of $1,500,000 in the aggregate (the “Expense Reimbursement”).
 
6.3 Other Definitions.  Wherever required by the context of this Agreement, the
singular shall include the plural and vice versa, and the masculine gender shall
include the feminine and neuter genders and vice versa, and references to any
agreement, document or instrument shall be deemed to refer to such agreement,
document or instrument as amended, supplemented or modified from time to
time.  In addition, the following terms shall have the meanings assigned to them
below:
 
(a) the term “Affiliate” means, with respect to any Person, any Person directly
or indirectly controlling, controlled by or under common control with, such
other Person provided that no security holder of the Company shall be deemed to
be an Affiliate of any other security holder or of the Company or any of the
Company Subsidiaries solely by reason of any investment in the Company, for
purposes of this definition, “control” (including, with correlative meanings,
the terms “controlling,” “controlled by” and “under common control with”) when
 
 
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used with respect to any Person, means the possession, directly or indirectly,
of the power to cause the direction of management or policies of such Person,
whether through the ownership of voting securities by contract or otherwise;
 
(b) the term “Agency” means the Federal Housing Administration, the Federal Home
Loan Mortgage Corporation, the Farmers Home Administration (now known as Rural
Housing and Community Development Services), the Federal National Mortgage
Association, the United States Department of Veterans’ Affairs, the Rural
Housing Service of the U.S. Department of Agriculture or any other federal or
state agency with authority to (i) determine any investment, origination,
lending or servicing requirements with regard to mortgage loans originated,
purchased or serviced by the Company or (ii) originate, purchase, or service
mortgage loans, or otherwise promote mortgage lending, including state and local
housing finance authorities;
 
(c) the term “Board of Directors” means the Board of Directors of the Company;
 
(d) the term “Business Day” means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York or in the State of North Carolina generally are authorized or
required by Law or other governmental actions to close;
 
(e) the term “Capital Stock” means capital stock or other type of equity
interest in (as applicable) a Person;
 
(f) the term “Change in Control” means, with respect to the Company, the
occurrence of any one of the following events; provided that the Investment, the
Other Private Placements, the Granite Merger, the Merger Agreement and the other
transactions contemplated hereby shall not be deemed to be a Change in Control:
 
(A) any Person is or becomes a beneficial owner (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), other than the Investors and their
Affiliates, directly or indirectly, of twenty percent (20%) of the aggregate
voting power of the Voting Securities; provided, however, that the event
described in this clause (A) will not be deemed a Change in Control by virtue of
any holdings or acquisitions: (i) by the Company or any of the Company
Subsidiaries, (ii) by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of the Company Subsidiaries; provided that such
holdings or acquisitions by any such plan (other than any plan maintained under
Section 401(k) of the Code) do not exceed twenty percent (20%) of the then
outstanding Voting Securities, (iii) by any underwriter temporarily holding
securities pursuant to an offering of such securities or (iv) pursuant to a
Non-Qualifying Transaction;
 
(B) the consummation of a merger, consolidation, statutory share exchange or
similar transaction that requires adoption by the Company’s shareholders (a
“Business Combination”), unless immediately following such Business Combination:
(x) more than fifty percent (50%) of the total voting power of the corporation
resulting from such Business Combination (the “Surviving Corporation”), or, if
applicable, the ultimate parent
 
 
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corporation that directly or indirectly has beneficial ownership (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), of one hundred
percent (100%) of the voting securities eligible to elect directors of the
Surviving Corporation (the “Parent Corporation”), is represented by Voting
Securities that were outstanding immediately before such Business Combination
(or, if applicable, is represented by shares into which such Voting Securities
were converted pursuant to such Business Combination), and (y) at least a
majority of the members of the board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation) following the
consummation of the Business Combination were Continuing Directors at the time
the Board of Directors approved the execution of the initial agreement providing
for such Business Combination (any Business Combination which satisfies all of
the criteria specified in (x) and (y) above will be deemed a “Non-Qualifying
Transaction”);
 
(C) the shareholders of the Company approve a plan of liquidation or dissolution
of the Company or a sale of all or substantially all of the Company’s assets; or
 
(D) a majority of the members of the Board of Directors are not Continuing
Directors; provided that the changes to the membership of the Board of Directors
pursuant to Section 1.2(c)(ii)(J) herein shall not be considered a Change in
Control;
 
(g) the term “Code” means the Internal Revenue Code of 1986, as amended;
 
(h) the term “Company Specified Representations” means the representations and
warranties made in Section 2.2(a), Section 2.2 (c), Section 2.2(d)(i),
Section 2.2(x), and Section 2.2(z);
 
(i) the term “Continuing Directors” means, as of any date of determination, any
member of the Board of Directors who (i) was a member of the Board of Directors
on the date of this Agreement or (ii) was nominated for election or elected to
the Board of Directors with the approval of a majority of the Continuing
Directors who were members of the Board of Directors at the time of such new
director’s nomination or election;
 
(j) the term “Controlled Group Liability” means any and all liabilities
(i) under Title IV of ERISA, (ii) Section 302 or 4068(a) of ERISA, (iii) under
Sections 412, 430 and 4971 of the Code, and (iv) as a result of a failure to
comply with the continuation coverage requirements of Section 601 et seq.  of
ERISA and Section 4980B of the Code, other than any liabilities under the
Benefit Plans;
 
(k) the term “Disclosure Schedule” shall mean a schedule delivered, on or prior
to the date of this Agreement, by (i) the Investor to the Company and (ii) the
Company to the Investor setting forth, among other things, items the disclosure
of which is necessary or appropriate either in response to an express disclosure
requirement contained in a provision hereof or as an exception to one or more
representations or warranties contained in Section 2.2 with respect to the
Company, or in Section 2.3 with respect to the Investor, or to one or more
covenants contained in Article 3;
 
 
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(l) the term “Environmental Laws” means all federal, state or local laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, Laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes into the environment;
 
(m) the term “Event of Default” has the meaning specified in each of the
indentures governing the Company’s trust preferred securities and related
Company junior subordinated debentures;
 
(n) the term “GAAP” means United States generally accepted accounting principles
and practices as in effect from time to time;
 
(o) the term “Governmental Consent” means any notice to, registration,
declaration or filing with, exemption or review by, or authorization, order,
consent or approval of, any Governmental Entity, or the expiration or
termination of any statutory waiting periods;
 
(p) the term “Governmental Entity” means any court, administrative agency or
commission or other governmental authority or instrumentality, whether federal,
state, local or foreign, and any applicable industry self-regulatory
organization or securities exchange;
 
(q) the term “Hazardous Substance” means any substance that is regulated
pursuant to any Environmental Law including any waste, petroleum products,
asbestos, mold and lead products;
 
(r) the term “Insurer” means a Person who insures or guarantees for the benefit
of the mortgagee all or any portion of the risk of loss upon borrower default on
any of the mortgage loans originated, purchased or serviced by the Bank,
including the Federal Housing Administration, the United States Department of
Veterans’ Affairs, the Rural Housing Service of the U.S. Department of
Agriculture and any private mortgage insurer, and providers of hazard, title or
other insurance with respect to such mortgage loans or the related collateral;
 
(s) the term “Investor Designated Director” means Scott Kauffman or such other
individual and such successor as the Investor shall designate as provided
herein;
 
(t) the term “Investor Specified Representations” means the representations and
warranties made in Section 2.3(b)(i) and Section 2.3(e);
 
 
(u) the term “Knowledge” of the Company and words of similar import means the
knowledge of any directors, executives or other employees of the Company listed
on Schedule I hereto;
 
(v) the term “Loan Investor” means any Person (including an Agency) having a
beneficial interest in any mortgage loan originated, purchased or serviced by
the Bank or a security backed by or representing an interest in any such
mortgage loan;
 
 
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(w) the term “Lockup Termination Date” means the earlier of:
 
(i) the nine-month anniversary of the Closing Date;
 
(ii) the date on which the Investor owns in aggregate with its Affiliates less
than five percent (5%) of the outstanding shares of Common stock (as adjusted
from time to time for any reorganization, recapitalization, stock dividend,
stock split, reverse stock split, or other like changes in the Company’s
capitalization);
 
(iii) the date on which any Person commences a bona fide public tender or
exchange offer which, if consummated, would result in a Change in Control;
 
(iv) the public announcement (including a public filing) by the Company that it
is “for sale” in a transaction that would result in a Change in Control; and
 
(v) the execution by the Company of a definitive agreement which, if
consummated, would result in a Change in Control;
 
(x) the term “Losses” means any and all losses, damages, reasonable costs,
reasonable expenses (including reasonable attorneys; fees and disbursements),
liabilities, settlement payments, awards, judgments, fines, obligations, claims,
and deficiencies of any kind, excluding special, consequential, exemplary and
punitive damages;
 
(y) the term “Non-Performing Assets” means (i) non-accrual loans, (ii) accruing
loans that are ninety (90) days or more delinquent and (iii) other real estate
owned (OREO) assets, taking into account, with respect to the assets of Granite,
the affect of purchase accounting on such assets in connection with the Merger;
 
(z) the term “Person” means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Entity or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity;
 
(aa) the term “Proxy Statement” means a proxy statement of the Company related
to the Shareholder Proposals;
 
(bb) the term “Rule 144” means such rule promulgated under the Securities Act
(or any successor provision), as the same shall be amended from time to time;
 
(cc) the term “Subsidiary” means, with respect to any Person, 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;
 
 
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(dd) the term “Tax” or “Taxes” means all United States federal, state, local or
foreign income, profits, estimated, gross receipts, windfall profits, severance,
property, intangible property, occupation, production, sales, use, license,
excise, emergency excise, franchise, capital gains, capital stock, employment,
withholding, transfer, stamp, payroll, goods and services, value added,
alternative or add-on minimum tax, or any other tax, custom, duty or
governmental fee, or other like assessment or charge of any kind whatsoever,
together with any interest, penalties, fines, related liabilities or additions
to tax that may become payable in respect thereof imposed by any Governmental
Entity, whether or not disputed;
 
(ee) the term “Tax Benefit” means net operating loss carryovers, capital loss
carryovers, general business credit carryovers, alternative minimum tax credit
carryovers and foreign tax credit carryovers, as well as any potential loss or
deduction attributable to an existing “net unrealized built-in loss” within the
meaning of Section 382 of the Code. 
 
(ff) the term “Tax Return” means any return, declaration, report or similar
statement required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim or
refund, amended return and declaration of estimated Tax;
 
(gg) the term “Transaction Documents” means this Agreement, the Merger
Agreement, the Investor 2 Agreement, the Additional Agreements, the Exchange
Agreement, the Bank Subordinated Debt Settlement and Preferred Stock Repurchase
Agreement and the Equity Commitment Letter, as the same may be amended or
modified from time to time;
 
(hh) the term “Voting Securities” means at any time shares of any class of
Capital Stock of the Company that are then entitled to vote generally in the
election of directors;
 
(ii) the word “or” is not exclusive;
 
(jj) the words “including,” “includes,” “included” and “include” are deemed to
be followed by the words “without limitation”;
 
(kk) the terms “herein,” “hereof” and “hereunder” and other words of similar
import refer to this Agreement as a whole and not to any particular section,
paragraph or subdivision; and
 
(ll) all article, section, paragraph or clause references not attributed to a
particular document shall be references to such parts of this Agreement, and all
exhibit and schedule references not attributed to a particular document shall be
references to such exhibits and schedules to this Agreement.
 
6.4 Amendment and Waivers.  The conditions to each party’s obligation to
consummate the Closing are for the sole benefit of such party and may be waived
by such party in whole or in part to the extent permitted by Law.  No amendment
or waiver of any provision of this Agreement will be effective against any party
hereto unless it is in a writing signed by a duly authorized officer of such
party.
 
 
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6.5 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.
 
6.6 Governing Law.  This Agreement will be governed by and construed in
accordance with the Laws of the State of New York applicable to contracts made
and to be performed entirely within such State.
 
6.7 Jurisdiction.  The parties hereby agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought in the United States District Court for the Southern District of New
York sitting in the borough of Manhattan, New York, New York, so long as such
court shall have subject matter jurisdiction over such suit, action or
proceeding or, if it does not have subject matter jurisdiction, in any New York
State court sitting in the borough of Manhattan, New York, New York, and each of
the parties hereby irrevocably consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum.  Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court.  Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 6.9 shall be
deemed effective service of process on such party.  The parties hereby
irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the state and federal courts referred to above for any actions, suits or
proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby.
 
6.8 WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 
6.9 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
telecopy or facsimile, upon confirmation of receipt, (b) on the first Business
Day following the date of dispatch if delivered by a recognized next-day courier
service, or (c) on the third Business Day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid.  All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.
 
(a) If to the Investor:
 
Oak Hill Capital Partners III, L.P.
 
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Oak Hill Capital Management Partners III, L.P.
201 Main Street, Suite 1620
Fort Worth, TX 76102
Attn: Corporate Counsel
Fax: (817) 339-7350

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

Oak Hill Capital Management, LLC
65 East 55th Street, 32nd Floor
New York, NY 10022
Attn: John R. Monsky, Esq.
Fax: (212) 527-8450

and
 
Simpson Thacher and Bartlett LLP
425 Lexington Avenue
New York, New York  10017
Attn:  Elizabeth A. Cooper
Fax:  (212) 455-2052
 
(b) If to the Company:
 
FNB United Corp.
150 South Fayetteville Street
Asheboro, North Carolina  27203
Attn:  Chief Financial Officer
Fax:  (336) 328-1633
 
with a copy (which copy alone shall not constitute notice) to each of:
 
Arnold & Porter llp
555 Twelfth Street NW
Washington, D.C.  20004
Attn:   Brian McCormally
Beth DeSimone
Fax:  (202) 942-5999
 
and
 
Schell Bray Aycock Abel & Livingston PLLC
230 North Elm Street
Greensboro, NC  27401
Attention:  Melanie Samson Tuttle
 
 
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Facsimile No.: (336) 370-8830
 
6.10 Entire Agreement.  This Agreement (including the Exhibits and Schedules
hereto), the other Transaction Documents and the Confidentiality Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, inducements or conditions, both
written and oral, among the parties, with respect to the subject matter hereof
and thereof.
 
6.11 Successors and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Common Shares to be issued pursuant to this
Agreement.  The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor.  The
Investor may assign some or all of its rights hereunder or thereunder without
the consent of the Company to any Affiliate of the Investor, and such assignee
shall be deemed to be an Investor hereunder with respect to such assigned rights
and shall be bound by the terms and conditions of this Agreement that apply to
the Investor.
 
6.12 Captions.  The article, section, paragraph and clause captions herein are
for convenience of reference only, do not constitute part of this Agreement and
will not be deemed to limit or otherwise affect any of the provisions hereof.
 
6.13 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.
 
6.14 Third Party Beneficiaries.  Nothing contained in this Agreement, expressed
or implied, is intended to confer upon any Person (including any Additional
Investors) other than the parties hereto, any benefit right or remedies, except
that the provisions of Sections 3.5, 3.14, 5.1 and 5.2 shall inure to the
benefit of the persons referred to in such Sections.
 
6.15 Public Announcements.  Each of the parties hereto will cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to the Transaction Documents and any of the
transactions contemplated hereby and thereby, including any communications to
the employees and customers of the Company and its Affiliates.  Without limiting
the foregoing, except as otherwise permitted in the next sentence, no party
hereto will make (and each party will use its reasonable best efforts to ensure
that its Affiliates and Representatives do not make) any such news release or
public disclosure without first consulting with the other parties hereto and, in
each case, also receiving each other party’s consent (which shall not be
unreasonably withheld or delayed).  In the event a party hereto is advised by
its outside legal counsel that a particular disclosure is required by Law, such
party shall be permitted to make such disclosure but shall be obligated to use
its reasonable best efforts
 
 
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to consult with the other parties hereto and take their comments into account
with respect to the content of such disclosure before issuing such disclosure.
 
6.16 Specific Performance.  The parties hereto 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 to seek specific performance of the terms
hereof, this being in addition to any other remedies to which they are entitled
at law or equity.
 
6.17 Independent Nature of the Investor’s Obligations and Rights.  The
obligations of the Investor under any Transaction Document is several and not
joint with the obligations of each other or any other Investor, and the Investor
shall be responsible in any way for the performance of the obligations of any
other Investor under any Transaction Document.  The decision of the Investor to
purchase the Common Stock pursuant to the Transaction Documents has been made by
the Investor independently of any other non-affiliated Investor and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company,
which may have been made or given by any other non-affiliated Investor or by any
agent or employee of any other non-affiliated Investor, and neither the Investor
nor any of its agents or employees shall have any liability to any other
Investor (or any other Person) relating to or arising from any such information,
materials, statement or opinions.  Nothing contained in the Transaction
Documents, and no action taken by the Investor pursuant hereto or thereto, shall
be deemed to constitute the Investors as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Investors
are in any way acting in concert or as a group, and the Company will not assert
any such claim with respect to such obligations or the transactions contemplated
by the Transaction Documents.  The Investor confirms that it has independently
participated in the negotiation of the transactions contemplated hereby with the
advice of its own counsel and advisors and no other non-affiliated Investor has
acted as agent for the Investor in connection with making its investment
hereunder and that no non-affiliated Investor will be acting as agent of the
Investor (or its Affiliates) in connection with monitoring its investment in the
Common Stock or enforcing its rights under the Transaction Documents.  The
Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Investor to be joined as
an additional party in any proceeding for such purpose.  It is expressly
understood and agreed that each provision contained in this Agreement is between
the Company and the Investor, solely, and not between the Company and the
Investors collectively, or between and among the Investors. 
 
6.18 No Recourse; Limitation on Liability.
 
(a) This Agreement may only be enforced against the named parties hereto.  All
claims or causes of action that may be based upon, arise out of or relate to
this Agreement, or the negotiation, execution or performance of this Agreement
may be made only against the entities that are expressly identified as parties
hereto or that are subject to the terms hereof, and no past, present or future
director, officer, employee, incorporator, member, manager, partner,
shareholder, Affiliate, agent, attorney or representative of any party hereto
(including any person negotiating or executing this Agreement on behalf of a
party hereto) shall
 
 
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have any liability or obligation with respect to this Agreement or with respect
to any claim or cause of action, whether in tort, contract or otherwise, that
may arise out of or relate to this Agreement, or the negotiation, execution or
performance of this Agreement and the transactions contemplated hereby.
 
(b) The Company agrees that, whether or not this Agreement is terminated, to the
extent it has incurred Losses or damages in connection with this Agreement, (a)
the maximum liability of the Investor shall be limited to the Purchase Price
payable pursuant to Section 1.1 and (b) the Investor shall not be liable for any
special, indirect, exemplary, consequential or punitive damages in connection
with this Agreement.
 
[Signature page follows]
 

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

  FNB UNITED CORP.           By:
/s/ R. Larry Campbell 
    Name:
R. Larry
Campbell                                                                
    Title:
CEO                                                                
            OAK HILL CAPITAL PARTNERS III, L.P.           By:
OHCP GenPar III, L.P., its general partner
    By:
OHCP MGP Partners III, L.P., its general partner
    By:
OHCP MGP III, Ltd., its general partner
            By:
/s/ John R. Monsky 
    Name:
John R. Monsky                                                                
    Title:
VP                                                                
            OAK HILL CAPITAL MANAGEMENT PARTNERS III, L.P.           By:
OHCP GenPar III, L.P., its general partner
    By:
OHCP MGP Partners III, L.P., its general partner
    By:
OHCP MGP III, Ltd., its general partner
            By:
/s/ John R. Monsky 
    Name:
John R. Monsky                                                                
    Title:
VP                                                                
 

 

 
 
Signature Page to Investment Agreement

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Schedule 1
KNOWLEDGE

R. Larry Campbell (President)
Mark A. Severson (Chief Financial Officer, Treasurer and Executive Vice
President)
R. Mark Hensley (Executive Vice President and Chief Banking Officer of the Bank)
David Lavoie (Chief Credit Officer)
Dave Miller (Chief Information Officer)
Debbie Auman (Chief Human Resources Officer)

 
 
Schedule 1-1

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