Exhibit 10.1

 

Execution Version

 

SUBORDINATED NOTE PURCHASE AGREEMENT

 

This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of
July 28, 2020, and is made by and among MidWestOne Financial Group, Inc., an
Iowa corporation (the “Company”), and the several purchasers of the Subordinated
Notes (as defined herein) identified on the signature pages hereto (each a
“Purchaser” and collectively, the “Purchasers”).

 

RECITALS

 

WHEREAS, the Company is offering up to $65,000,000 in aggregate principal amount
of Subordinated Notes, which aggregate amount is intended to qualify as Tier 2
Capital (as defined herein).

 

WHEREAS, the Company has engaged Piper Sandler & Co., D.A. Davidson & Co. and
Janney Montgomery Scott LLC as its exclusive placement agents (“Placement
Agents”) for the offering of the Subordinated Notes.

 

WHEREAS, each of the Purchasers is an institutional “accredited investor” as
such term is defined in Rule 501 of Regulation D (“Regulation D”) promulgated
under the Securities Act of 1933, as amended (the “Securities Act”) or a QIB (as
defined herein).

 

WHEREAS, the offer and sale of the Subordinated Notes by the Company is being
made in reliance upon the exemptions from registration available under
Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D.

 

WHEREAS, each Purchaser is willing to purchase from the Company a Subordinated
Note in the principal amount set forth on such Purchaser’s respective signature
page hereto (each, a “Subordinated Note Amount”) in accordance with the terms,
subject to the conditions and in reliance on, the recitals, representations,
warranties, covenants and agreements set forth herein and in the Subordinated
Notes and in the Indenture (as defined herein).

 

WHEREAS, at Closing, the Company and the Purchasers shall execute and deliver a
Registration Rights Agreement, substantially in the form attached hereto as
Exhibit A (the “Registration Rights Agreement”), pursuant to which, among other
things, the Company will agree to provide certain registration rights with
respect to the Subordinated Notes under the Securities Act and the rules and
regulations promulgated thereunder and applicable state securities laws.

 

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

 

AGREEMENT

 

1.            DEFINITIONS.

 

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

 

“Affiliate(s)” means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
“control,” when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms “controlling” and “controlled” have meanings correlative to the
foregoing.

 

 

 

 

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

 

“Applicable Procedures” means, with respect to any transfer or exchange of or
for beneficial interests in any Subordinated Note represented by a global
certificate, the rules and procedures of DTC (as defined herein) that apply to
such transfer or exchange.

 

“Articles” means the articles of incorporation of the Company, as in effect on
the Closing Date.

 

“Bank” means MidWestOne Bank, an Iowa state-chartered commercial bank and wholly
owned subsidiary of the Company.

 

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

 

“Bylaws” means the bylaws of the Company, as in effect on the Closing Date.

 

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

 

“Closing Date” means the date hereof.

 

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

 

“Company Covered Person” has the meaning set forth in Section 4.2.4.

 

“Company’s Reports” means (i) the audited financial statements of the Company
for the year ended December 31, 2019, included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2019, as filed with the SEC; (ii) the
unaudited financial statements of the Company for the quarter ended March 31,
2020, included in the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2020, as filed with the SEC; and (iii) the Company’s reports for
the year ended December 31, 2019, and the quarter ended March 31, 2020, as filed
with the FRB as required by regulations of the FRB.

 

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

 

“Disqualification Event” has the meaning set forth in Section 4.2.4.

 

“DTC” has the meaning set forth in Section 5.8.

 

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

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“FDIC” means the Federal Deposit Insurance Corporation.

 

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

 

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

 

“Global Note” has the meaning set forth in Section 3.1.

 

“Governmental Agency(ies)” means, individually or collectively, any federal,
state, county or local governmental department, commission, board, regulatory
authority or agency (including, without limitation, each applicable Regulatory
Agency) with jurisdiction over the Company or a Subsidiary of the Company.

 

“Governmental Licenses” has the meaning set forth in Section 4.3.

 

“Hazardous Materials” means flammable explosives, asbestos, urea formaldehyde
insulation, polychlorinated biphenyls, radioactive materials, hazardous wastes,
toxic or contaminated substances or similar materials, including, without
limitation, any substances which are “hazardous substances,” “hazardous wastes,”
“hazardous materials” or “toxic substances” under the Hazardous Materials Laws
and/or other applicable environmental laws, ordinances or regulations.

 

“Hazardous Materials Laws” mean any laws, regulations, permits, licenses or
requirements pertaining to the protection, preservation, conservation or
regulation of the environment which relates to real property, including: the
Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et
seq.; the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (including the Superfund Amendments and Reauthorization Act
of 1986), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act,
as amended, 29 U.S.C. Section 651, the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and
Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking
Water Act, 42 U.S.C. Section 300f et seq.; and all comparable state and local
laws, laws of other jurisdictions or orders and regulations.

 

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

 

“Indenture” means the indenture, dated as of the date hereof, by and between
Company and U.S. Bank National Association, as trustee, under which the
Subordinated Notes are to be issued, substantially in the form attached hereto
as Exhibit B, as the same may be amended or supplemented from time to time in
accordance with the terms thereof.

 

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

 

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“Material Adverse Effect” means, with respect to any Person, any change or
effect that (i) is or would be reasonably likely to be material and adverse to
the financial condition, results of operations or business of such Person, or
(ii) would materially impair the ability of such Person to perform its
respective obligations under any of the Transaction Documents, or otherwise
materially impede the consummation of the transactions contemplated hereby;
provided, however, that “Material Adverse Effect” shall not be deemed to include
the impact of (1) changes in banking and similar laws, rules or regulations of
general applicability or interpretations thereof by Governmental Agencies,
(2) changes in GAAP or regulatory accounting requirements applicable to
financial institutions and their holding companies generally, (3) changes after
the date of this Agreement in general economic or capital market conditions
affecting financial institutions or their market prices generally and not
specifically related to the Company, the Bank or the Purchasers, (4) direct
effects of compliance with this Agreement on the operating performance of the
Company, the Bank or the Purchasers, including expenses incurred by the Company,
the Bank or the Purchasers in consummating the transactions contemplated by this
Agreement, and (5) the effects of any action or omission taken by the Company
with the prior written consent of the Purchasers, and vice versa, or as
otherwise contemplated by this Agreement, the Indenture and the Subordinated
Notes.

 

“Maturity Date” means July 30, 2030.

 

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

 

“Placement Agents” has the meaning set forth in the Recitals.

 

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

 

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

 

“QIB” has the meaning set forth in Section 5.8.

 

“Registration Rights Agreement” has the meaning set forth in the Recitals.

 

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

 

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

 

“SEC” means the Securities and Exchange Commission.

 

“Secondary Market Transaction” has the meaning set forth in Section 5.5.

 

“Securities Act” has the meaning set forth in the Recitals.

 

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

 

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

 

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

 

“Tier 2 Capital” has the meaning given to the term “Tier 2 capital” in 12 C.F.R.
Part 217, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.

 

“Transaction Documents” has the meaning set forth in Section 3.2.1.1.

 

“Trustee” means the trustee or successor in accordance with the applicable
provisions of the Indenture.

 

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

 

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

 

2.            SUBORDINATED DEBT.

 

2.1          Certain Terms. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchasers, severally
and not jointly, Subordinated Notes, which will be issued pursuant to the
Indenture, in an aggregate principal amount equal to the aggregate of the
Subordinated Note Amounts. Each Purchaser, severally and not jointly, agrees to
purchase the Subordinated Notes with an aggregate principal amount equal to the
Subordinated Note Amount set forth on its signature page hereto, which will be
issued pursuant to the Indenture, from the Company on the Closing Date in
accordance with the terms of, and subject to the conditions and provisions set
forth in, this Agreement, the Indenture and the Subordinated Notes. The
Subordinated Note Amounts shall be disbursed in accordance with Section 3.1.

 

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

 

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

 

2.4          Unsecured Obligations. The obligations of the Company to the
Purchasers under the Subordinated Notes shall be unsecured.

 

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2.5          The Closing. The closing of the sale and purchase of the
Subordinated Notes (the “Closing”) shall occur at the offices of the Company at
10:00 a.m. (Central Time) on the Closing Date, or at such other place or time or
on such other date as the parties hereto may agree.

 

2.6          Payments. The Company agrees that the matters concerning payments
and application of payments shall be as set forth in the Indenture.

 

2.7          No Right of Offset. Each Purchaser hereby expressly waives any
right of offset it may have against the Company or any of its Subsidiaries.

 

2.8          Use of Proceeds. The Company shall use the net proceeds from the
sale of Subordinated Notes for general corporate purposes and to support its
organic growth plans, including maintaining its regulatory capital ratios.

 

3.            DISBURSEMENT.

 

3.1          Disbursement. On the Closing Date, assuming all of the terms and
conditions set forth in Section 3.2 have been satisfied by the Company, each
Purchaser shall disburse in immediately available funds the Subordinated Note
Amount set forth on each Purchaser’s respective signature page hereto to the
Company in exchange for an electronic securities entitlement through the
facilities of DTC in accordance with the Applicable Procedures in the Indenture
with a principal amount equal to such Subordinated Note Amount (the
“Disbursement”). The Company will deliver to the Trustee a global certificate
representing the Subordinated Notes (the “Global Note”) registered in the name
of Cede & Co., as nominee for DTC.

 

3.2          Conditions Precedent to Disbursement.

 

3.2.1       Conditions to the Purchasers’ Obligation. The obligation of each
Purchaser to consummate the purchase of the Subordinated Notes to be purchased
by it at Closing and to effect the Disbursement is subject to delivery by or at
the direction of the Company to such Purchaser (or, with respect to the
Indenture, the Trustee) each of the following (or written waiver by such
Purchaser prior to the Closing of such delivery):

 

3.2.1.1            Transaction Documents. This Agreement, the Indenture, the
Global Note and the Registration Rights Agreement (collectively, the
“Transaction Documents”), each duly authorized and executed by the Company.

 

3.2.1.2            Authority Documents.

 

(a)            A copy, certified by the Secretary or Assistant Secretary of the
Company, of the Articles of the Company;

 

(b)            A certificate of existence of the Company issued by the Secretary
of State of the State of Iowa;

 

(c)            A copy, certified by the Secretary or Assistant Secretary of the
Company, of the Bylaws of the Company;

 

(d)            A copy, certified by the Secretary or Assistant Secretary of the
Company, of the resolutions of the board of directors of the Company, and any
committee thereof, authorizing the issuance of the Subordinated Note and the
execution, delivery and performance of the Transaction Documents;

 

(e)            An incumbency certificate of the Secretary or Assistant Secretary
of the Company certifying the names of the officer or officers of the Company
authorized to sign the Transaction Documents and the other documents provided
for in this Agreement; and

 

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(f)             The opinion of Barack Ferrazzano Kirschbaum & Nagelberg LLP,
counsel to the Company, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit C attached hereto addressed to the Purchasers and
Placement Agents.

 

3.2.1.3            Other Documents. Such other certificates, affidavits,
schedules, resolutions, notes and/or other documents that are provided for
hereunder or additional information regarding Company, Bank and any other
Subsidiary of Company that a Purchaser may reasonably request.

 

3.2.1.4            Aggregate Investments. Prior to, or contemporaneously with
the Closing, each Purchaser shall have actually delivered the Subordinated Note
Amount set forth on such Purchaser’s signature page.

 

3.2.2       Conditions to the Company’s Obligation.

 

3.2.2.1            The obligation of the Company to consummate the sale of the
Subordinated Notes and to effect the Closing is subject to: (i) with respect to
a given Purchaser, delivery by or at the direction of such Purchaser to the
Company of this Agreement and the Registration Rights Agreement, each duly
authorized and executed by such Purchaser; (ii) with respect to a given
Purchaser, the Company’s receipt of the Subordinated Note Amount set forth on
such Purchaser’s signature page; and (iii) the Company’s receipt of the
Indenture, duly authorized and executed by the Trustee.

 

4.            REPRESENTATIONS AND WARRANTIES OF COMPANY.

 

The Company hereby represents and warrants to each Purchaser that, except as
disclosed in the Company’s Reports:

 

4.1          Organization and Authority.

 

4.1.1       Organization Matters of the Company and Its Subsidiaries.

 

4.1.1.1            The Company is a duly organized corporation, is validly
existing and in good standing under the laws of the State of Iowa and has all
requisite corporate power and authority to conduct its business and activities
as presently conducted, to own its properties, and to perform its obligations
under the Transaction Documents. The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect on the Company. The Company is duly registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended.

 

4.1.1.2            Each Subsidiary of the Company other than the Bank either has
been duly organized and is validly existing as a corporation or limited
liability company, or, in the case of the Bank, has been duly chartered and is
validly existing as an Iowa state-chartered bank, in each case in good standing
under the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its business
and is duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing would
not reasonably be expected to result in a Material Adverse Effect on the
Company. All of the issued and outstanding shares of capital stock or other
equity interests in each Subsidiary of the Company have been duly authorized and
validly issued, are fully paid and non-assessable and are owned by the Company,
directly or through Subsidiaries of the Company, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim, except as restricted in
a negative pledge covenant under that certain Credit Agreement, dated as of
April 30, 2015, between Company and U.S. Bank National Association, as amended;
none of the outstanding shares of capital stock of, or other Equity Interests
in, any Subsidiary of the Company were issued in violation of the preemptive or
similar rights of any security holder of such Subsidiary of the Company or any
other entity.

 

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4.1.1.3            The deposit accounts of the Bank are insured by the FDIC up
to applicable limits. The Bank has not received any notice or other information
indicating that the Bank is not an “insured depository institution” as defined
in 12 U.S.C. Section 1813, nor has any event occurred which could reasonably be
expected to adversely affect the status of the Bank as an FDIC-insured
institution.

 

4.1.2       Capital Stock and Related Matters. The Articles of the Company
authorize the Company to issue 30,000,000 shares of common stock and 500,000
shares of preferred stock. As of the date of this Agreement, there are
16,099,324 shares of the Company’s common stock issued and outstanding and no
shares of the Company’s preferred stock issued and outstanding. All of the
outstanding capital stock of the Company has been duly authorized and validly
issued and is fully paid and non-assessable. There are, as of the date hereof,
no outstanding options, rights, warrants or other agreements or instruments
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or
obligating the Company to grant, extend or enter into any such agreement or
commitment to any Person other than the Company except pursuant to the Company’s
equity incentive plans duly adopted by the Company’s Board of Directors.

 

4.2          No Impediment to Transactions.

 

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

 

4.2.2       Agreement, Indenture and Registration Rights Agreement. This
Agreement, the Indenture and the Registration Rights Agreement have been duly
authorized, executed and delivered by the Company, and, assuming due
authorization, execution and delivery by the other parties thereto, including
the Trustee for purposes of the Indenture, constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors’ rights generally or by general
equitable principles.

 

4.2.3       Subordinated Notes. The Subordinated Notes have been duly authorized
by the Company and when the Global Note representing such Subordinated Notes is
executed by the Company and completed and authenticated by the Trustee in
accordance with, and in the forms contemplated by the Indenture and issued,
delivered to and paid for by the Purchasers in accordance with the terms of the
Agreement, will have been duly executed, authenticated, issued and delivered
under the Indenture, and will constitute legal, valid and binding obligations of
the Company, entitled to the benefits of the Indenture, and enforceable in
accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors’ rights generally or by general equitable
principles.

 

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4.2.4       Exemption from Registration. Neither the Company, nor any of its
Subsidiaries or Affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the
Subordinated Notes. Assuming the accuracy of the representations and warranties
of each Purchaser set forth in this Agreement, the Subordinated Notes will be
issued in a transaction exempt from the registration requirements of the
Securities Act. No “bad actor” disqualifying event described in
Rule 506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification Event”) is
applicable to the Company or, to the Company’s knowledge, any Person described
in Rule 506(d)(1) (each, a “Company Covered Person”). The Company has exercised
reasonable care to determine whether any Company Covered Person is subject to a
Disqualification Event. The Company has complied, to the extent applicable, with
its disclosure obligations under Rule 506(e).

 

4.2.5       No Defaults or Restrictions. Neither the execution and delivery of
the Transaction Documents nor compliance with their respective terms and
conditions will (whether with or without the giving of notice or lapse of time
or both) (i) violate, conflict with or result in a breach of, or constitute a
default under: (1) the Articles or Bylaws of the Company; (2) any of the terms,
obligations, covenants, conditions or provisions of any corporate restriction or
of any contract, agreement, indenture, mortgage, deed of trust, pledge, bank
loan or credit agreement, or any other agreement or instrument to which the
Company or Bank, as applicable, is now a party or by which it or any of its
properties may be bound or affected; (3) any judgment, order, writ, injunction,
decree or demand of any court, arbitrator, grand jury, or Governmental Agency
applicable to the Company or the Bank; or (4) any statute, rule or regulation
applicable to the Company, except (x) in the case of item (2) for such
violations and conflicts consented to or approved by the counterparty to the
Company or the Bank under any contract, agreement or instrument and set forth in
Schedule 4.2.5 hereto and (y) in the case of items (2), (3) or (4), for such
violations and conflicts that would not reasonably be expected to have,
singularly or in the aggregate, a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole, or (ii) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any property or
asset of the Company. Neither the Company nor the Bank is in default in the
performance, observance or fulfillment of any of the terms, obligations,
covenants, conditions or provisions contained in any indenture or other
agreement creating, evidencing or securing Indebtedness of any kind or pursuant
to which any such Indebtedness is issued, or any other agreement or instrument
to which the Company or the Bank, as applicable, is a party or by which the
Company or the Bank, as applicable, or any of its properties may be bound or
affected, except, in each case, only such defaults that would not reasonably be
expected to have, singularly or in the aggregate, a Material Adverse Effect on
the Company.

 

4.2.6       Governmental Consent. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained by the Company that have
not been obtained, and no registrations or declarations are required to be filed
by the Company that have not been filed in connection with, or, in contemplation
of, the execution and delivery of, and performance under, the Transaction
Documents, except for applicable requirements, if any, of the Securities Act,
the Exchange Act or state securities laws or “blue sky” laws of the various
states and any applicable federal or state banking laws and regulations.

 

4.3          Possession of Licenses and Permits. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, “Governmental Licenses”) issued by the appropriate
Governmental Agencies necessary to conduct the business now operated by them
except where the failure to possess such Governmental Licenses would not,
singularly or in the aggregate, have a Material Adverse Effect on the Company or
such applicable Subsidiary, taken as a whole; the Company and each Subsidiary of
the Company is in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
or such applicable Subsidiary, taken as a whole; all of the Governmental
Licenses are valid and in full force and effect, except where the invalidity of
such Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not have a Material Adverse Effect on the Company or
such applicable Subsidiary, taken as a whole; and neither the Company nor any
Subsidiary of the Company has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses.

 

9

 

 

4.4          Financial Condition.

 

4.4.1       Company Financial Statements. The financial statements of the
Company included in the Company’s Reports (including the related notes, where
applicable), which have been made available to the Purchasers (i) have been
prepared from, and are in accordance with, the books and records of the Company;
(ii) fairly present in all material respects the results of operations, cash
flows, changes in shareholders’ equity and financial position of the Company and
its consolidated Subsidiaries, for the respective fiscal periods or as of the
respective dates therein set forth (subject in the case of unaudited statements
to recurring year-end audit adjustments normal in nature and amount), as
applicable; (iii) complied as to form, as of their respective dates of filing in
all material respects with applicable accounting and banking requirements as
applicable, with respect thereto; and (iv) have been prepared in accordance with
GAAP consistently applied during the periods involved, except, in each case,
(x) as indicated in such statements or in the notes thereto, (y) for any
statement therein or omission therefrom that was corrected, amended, or
supplemented or otherwise disclosed or updated in a subsequent Company’s Report,
and (z) to the extent that any unaudited interim financial statements do not
contain the footnotes required by GAAP, and were or are subject to normal and
recurring year-end adjustments, which were not or are not expected to be
material in amount, either individually or in the aggregate. The books and
records of the Company have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements. The Company does not have any material liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due), except for those liabilities that are reflected or reserved
against on the consolidated balance sheet of the Company contained in the
Company’s Reports for the Company’s most recently completed quarterly or annual
fiscal period, as applicable, and for liabilities incurred in the ordinary
course of business consistent with past practice or in connection with this
Agreement and the transactions contemplated hereby.

 

4.4.2       Absence of Default. Since December 31, 2019, no event has occurred
which either by itself or with the lapse of time or the giving of notice or
both, would give any creditor of the Company the right to accelerate the
maturity of any material Indebtedness of the Company. The Company is not in
default under any other Lease, agreement or instrument, or any law, rule,
regulation, order, writ, injunction, decree, determination or award,
non-compliance with which could reasonably be expected to result in a Material
Adverse Effect on the Company.

 

4.4.3       Solvency. After giving effect to the consummation of the
transactions contemplated by this Agreement, the Company has capital sufficient
to carry on its business and transactions and is solvent and able to pay its
debts as they mature. No transfer of property is being made and no Indebtedness
is being incurred in connection with the transactions contemplated by this
Agreement with the intent to hinder, delay or defraud either present or future
creditors of the Company or any Subsidiary of the Company.

 

10

 

 

4.4.4       Ownership of Property. The Company and each of its Subsidiaries has
title as to all real property owned by it and title to all assets and properties
owned by the Company and such Subsidiary in the conduct of its businesses,
whether such assets and properties are real or personal, tangible or intangible,
including assets and property reflected in the most recent balance sheet
contained in the Company’s Reports or acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of in the ordinary
course of business, since the date of such balance sheet), subject to no
encumbrances, liens, mortgages, security interests or pledges, except (i) those
items which secure liabilities for public or statutory obligations or any
discount with, borrowing from or other obligations to the Federal Home Loan
Bank, the Federal Reserve Bank, inter-bank credit facilities, reverse repurchase
agreements or any transaction by the Bank acting in a fiduciary capacity,
(ii) statutory liens for amounts not yet delinquent or which are being contested
in good faith and (iii) such as do not, individually or in the aggregate,
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries. The Company and each of its Subsidiaries, as lessee, has
the right under valid and existing Leases of real and personal properties that
are material to the Company or such Subsidiary, as applicable, in the conduct of
its business to occupy or use all such properties as presently occupied and used
by it. Such existing Leases and commitments to Lease constitute or will
constitute operating Leases for both tax and financial accounting purposes
except as otherwise disclosed in the Company’s Reports and the Lease expense and
minimum rental commitments with respect to such Leases and Lease commitments are
as disclosed in all material respects in the Company’s Reports.

 

4.5          No Material Adverse Change. Since December 31, 2019, there has been
no development or event which has had or could reasonably be expected to have a
Material Adverse Effect on the Company or any of its Subsidiaries.

 

4.6          Legal Matters.

 

4.6.1       Compliance with Law. The Company and each of its Subsidiaries
(i) has complied with and (ii) to the Company’s knowledge, is not under
investigation with respect to and has not been threatened to be charged with or
given any notice of any material violation of any applicable statutes, rules,
regulations, orders and restrictions of any domestic or foreign government, or
any instrumentality or agency thereof, having jurisdiction over the conduct of
its business or the ownership of its properties, except where any such failure
to comply or violation would not reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole. The Company
and each of its Subsidiaries is in compliance with, and at all times prior to
the date hereof has been in compliance with, (x) all statutes, rules,
regulations, orders and restrictions of any domestic or foreign government, or
any Governmental Agency, applicable to it, and (y) its own privacy policies and
written commitments to customers, consumers and employees, concerning data
protection, the privacy and security of personal data, and the nonpublic
personal information of its customers, consumers and employees, in each case
except where any such failure to comply, would not result, individually or in
the aggregate, in a Material Adverse Effect on the Company or the applicable
Subsidiary. At no time during the two years prior to the date hereof has the
Company or any of its Subsidiaries received any written notice asserting any
violations of any of the foregoing.

 

4.6.2       Regulatory Enforcement Actions. The Company, the Bank and the
Company’s other Subsidiaries are in compliance in all material respects with all
laws administered by and regulations of any Governmental Agency applicable to it
or to them, the failure to comply with which would have a Material Adverse
Effect on the Company or the applicable Subsidiary. None of the Company, the
Bank, the Company’s or the Bank’s Subsidiaries nor any of their officers or
directors is now operating under any restrictions, agreements, memoranda,
commitment letter, supervisory letter or similar regulatory correspondence, or
other commitments (other than restrictions of general application) imposed by
any Governmental Agency, nor are, to the Company’s knowledge, (i) any such
restrictions threatened, (ii) any agreements, memoranda or commitments being
sought by any Governmental Agency , or (iii) any legal or regulatory violations
previously identified by, or penalties or other remedial action previously
imposed by, any Governmental Agency remains unresolved.

 

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4.6.3       Pending Litigation. There are no actions, suits, proceedings or
written agreements pending, or, to the Company’s knowledge, threatened or
proposed, against the Company or any of its Subsidiaries at law or in equity or
before or by any federal, state, municipal, or other governmental department,
commission, board, or other administrative agency, domestic or foreign, that,
either separately or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company and any of its Subsidiaries, taken as a
whole, or affect issuance of or payment on the Subordinated Notes; and neither
the Company nor any of its Subsidiaries is a party to or named as subject to the
provisions of any order, writ, injunction, or decree of, or any written
agreement with, any court, commission, board or agency, domestic or foreign,
that either separately or in the aggregate, will have a Material Adverse Effect
on the Company and any of its Subsidiaries, taken as a whole.

 

4.6.4       Environmental. No Property is or, to the Company’s knowledge, has
been a site for the use, generation, manufacture, storage, treatment, release,
threatened release, discharge, disposal, transportation or presence of any
Hazardous Materials, and neither the Company nor any of its Subsidiaries has
engaged in such activities. There are no claims or actions pending or, to the
Company’s knowledge, threatened against the Company or any of its Subsidiaries
by any Governmental Agency or by any other Person relating to any Hazardous
Materials or pursuant to any Hazardous Materials Law.

 

4.6.5       Brokerage Commissions. Except for commissions paid or payable to the
Placement Agents, neither the Company nor any Affiliate of the Company is
obligated to pay any brokerage commission or finder’s fee to any Person in
connection with the transactions contemplated by this Agreement.

 

4.6.6       Investment Company Act. Neither the Company nor any of its
Subsidiaries is an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
as amended.

 

4.7          No Misstatement. No information, exhibit, report, schedule or
document, when viewed together as a whole, furnished by the Company to the
Purchasers in connection with the negotiation, execution or performance of this
Agreement contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances when made or furnished to Purchasers and as of the
date of this Agreement, except for any statement therein or omission therefore
which was corrected, amended or supplemented or otherwise disclosed or updated
in a subsequent exhibit, report, schedule or document prior to the date of this
Agreement.

 

4.8          Internal Accounting Controls. The Company, the Bank and each other
Subsidiary of the Company has established and maintains a system of internal
control over financial reporting that pertains to the maintenance of records
that accurately and fairly reflect the transactions and dispositions of the
Company’s assets (on a consolidated basis), provides reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that the Company’s and the Bank’s
receipts and expenditures and receipts and expenditures of each of the Company’s
other Subsidiaries are being made only in accordance with authorizations of the
Company management and Board of Directors, and provides reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of assets of the Company on a consolidated basis that could have a
Material Adverse Effect. Such internal control over financial reporting is
effective to provide reasonable assurance regarding the reliability of the
Company’s financial reporting and the preparation of the Company’s financial
statements for external purposes in accordance with GAAP. Since the conclusion
of the Company’s last completed fiscal year there has not been and there
currently is not (i) any significant deficiency or material weakness in the
design or operation of its internal control over financial reporting which is
reasonably likely to adversely affect its ability to record, process, summarize
and report financial information, or (ii) any fraud, whether or not material,
that involves management or other employees who have a role in the Company’s or
the Bank’s internal control over financial reporting. The Company (A) has
implemented and maintains disclosure controls and procedures reasonably designed
and maintained to ensure that material information relating to the Company is
made known to the Chief Executive Officer and the Chief Financial Officer of the
Company by others within the Company and (B) has disclosed, based on its most
recent evaluation prior to the date hereof, to the Company’s outside auditors
and the audit committee of the Company’s Board of Directors any significant
deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely
affect the Company’s internal controls over financial reporting. Such disclosure
controls and procedures are effective for the purposes for which they were
established.

 

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4.9          Tax Matters. The Company, Bank and each Subsidiary of the Company
have (i) filed all material foreign, U.S. federal, state and local tax returns,
information returns and similar reports that are required to be filed, and all
such tax returns are true, correct and complete in all material respects, and
(ii) paid all material taxes required to be paid by it and any other material
assessment, fine or penalty levied against it, other than taxes (x) currently
payable without penalty or interest, or (y) being contested in good faith by
appropriate proceedings.

 

4.10        Exempt Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in this Agreement, no registration
under the Securities Act is required for the offer and sale of the Subordinated
Notes by the Company to the Purchasers.

 

4.11        Representations and Warranties Generally. The representations and
warranties of the Company set forth in this Agreement or in any other document
delivered to the Purchasers by or on behalf of the Company pursuant to or in
connection with this Agreement are true and correct as of the date hereof and as
otherwise specifically provided herein or therein. Any certificate signed by a
duly authorized representative of the Company and delivered to a Purchaser or to
counsel for a Purchaser shall be deemed to be a representation and warranty by
the Company to such Purchaser as to the matters set forth therein.

 

5.            GENERAL COVENANTS, CONDITIONS AND AGREEMENTS.

 

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

 

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

 

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

 

5.3          Compliance with Laws; Additional Agreements.

 

5.3.1       Generally. The Company shall comply and cause the Bank and each of
its other Subsidiaries to comply in all material respects with all applicable
statutes, rules, regulations, orders and restrictions in respect of the conduct
of its business and the ownership of its properties, except, in each case, where
such noncompliance would not reasonably be expected to have a Material Adverse
Effect on the Company.

 

13

 

 

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

 

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

 

5.3.4       Corporate Existence. The Company shall do or cause to be done all
things reasonably necessary to maintain, preserve and renew its corporate
existence and that of the Bank and its and their rights and franchises, and
comply in all material respects with all related laws applicable to the Company,
the Bank or the other Subsidiaries.

 

5.3.5       Tier 2 Capital. If all or any portion of the Subordinated Notes
ceases to be deemed to be Tier 2 Capital, other than due to the limitation
imposed on the capital treatment of subordinated debt during the five (5) years
immediately preceding the Maturity Date of the Subordinated Notes, the Company
will immediately notify the Holder (as defined in the Indenture), and thereafter
the Company and the Holder (as defined in the Indenture) will work together in
good faith to execute and deliver all agreements as reasonably necessary in
order to restructure the applicable portions of the obligations evidenced by the
Subordinated Notes to qualify as Tier 2 Capital; provided, however, that nothing
contained in this Agreement shall limit the Company’s right to redeem the
Subordinated Notes upon the occurrence of a Tier 2 Capital Event as described in
the Subordinated Notes.

 

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

 

5.5          Secondary Market Transactions. Each Purchaser shall have the right
at any time and from time to time to securitize its Subordinated Notes or any
portion thereof in a single asset securitization or a pooled loan securitization
of rated single or multi-class securities secured by or evidencing ownership
interests in the Subordinated Notes (each such securitization is referred to
herein as a “Secondary Market Transaction”). In connection with any such
Secondary Market Transaction, the Company shall, at the Company’s expense,
cooperate with any such Purchaser and otherwise reasonably assist any such
Purchaser in satisfying the market standards to which any such Purchaser
customarily adheres or which may be reasonably required in the marketplace or by
applicable rating agencies in connection with any such Secondary Market
Transaction. Subject to any written confidentiality obligation, all information
regarding the Company may be furnished, without liability except in the case of
gross negligence or willful misconduct, to any the Purchaser and to any Person
reasonably deemed necessary by Purchaser in connection with participation in
such Secondary Market Transaction. All documents, financial statements,
appraisals and other data relevant to the Company or the Subordinated Notes may
be retained by any such Person, subject to the terms of any applicable
confidentiality agreements.

 

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5.6          Bloomberg. The Company shall use commercially reasonable efforts to
cause the Subordinated Notes to be quoted on Bloomberg.

 

5.7          Rule 144A Information. While any Subordinated Notes remain
“restricted securities” within the meaning of the Securities Act, the Company
will make available, upon request, to any seller of such Subordinated Notes the
information specified in Rule 144A(d)(4) under the Securities Act, unless the
Company is then subject to Section 13 or 15(d) of the Exchange Act.

 

5.8          DTC Registration. The Company shall use commercially reasonable
efforts to cause the Subordinated Notes held by “qualified institutional
buyers,” as defined in Rule 144A under the Securities Act (a “QIB”), to be
registered in the name of Cede & Co. as nominee of The Depository Trust Company
(“DTC”) or a nominee of DTC.

 

5.9          NRSRO Rating. The Company will use commercially reasonable efforts
to maintain a rating by a nationally recognized statistical rating organization
while any Subordinated Notes remain outstanding.

 

5.10        Resale Registration Statement. Subject to the terms and conditions
of this Agreement, the Company will provide to the Purchasers the resale
registration rights described in the Registration Rights Agreement.

 

6.            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS.

 

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

 

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

 

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

 

6.3          No Conflicts. Neither the execution, delivery or performance of
this Agreement and the Registration Rights Agreement nor the consummation of any
of the transactions contemplated by the Transaction Documents will conflict
with, violate, constitute a breach of or a default (whether with or without the
giving of notice or lapse of time or both) under (i) its organizational
documents, (ii) any agreement to which it is party, (iii) any law applicable to
it or (iv) any order, writ, judgment, injunction, decree, determination or award
binding upon or affecting it.

 

15

 

 

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

 

6.5          Institutional Accredited Investor. It is and will be on the Closing
Date (i) an institutional “accredited investor” as such term is defined in
Rule 501(a) of Regulation D and as contemplated by subsections (1), (2), (3) and
(7) of Rule 501(a) of Regulation D, and has no less than $5,000,000 in total
assets, or (ii) a QIB.

 

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

 

6.7          Ability to Bear Economic Risk of Investment. It recognizes that an
investment in the Subordinated Notes involves substantial risk. It has the
ability to bear the economic risk of the prospective investment in the
Subordinated Notes, including the ability to hold the Subordinated Notes
indefinitely, and further including the ability to bear a complete loss of all
of its investment in the Company.

 

6.8          Information. It acknowledges that (i) it is not being provided with
the disclosures that would be required if the offer and sale of the Subordinated
Notes were registered under the Securities Act, nor is it being provided with
any offering circular or prospectus prepared in connection with the offer and
sale of the Subordinated Notes; (ii) it has conducted its own examination of the
Company and the terms of the Subordinated Notes to the extent it deems necessary
to make its decision to invest in the Subordinated Notes; and (iii) it has
availed itself of publicly available financial and other information concerning
the Company to the extent it deems necessary to make its decision to purchase
the Subordinated Notes. It has received and reviewed the information contained
in Exhibit D attached hereto regarding the risk factors relating to the offering
of the Subordinated Notes and, to the extent applicable, has reviewed the
information made available in a data room established by the Company in
connection with the offering of the Subordinated Notes.

 

6.9          Access to Information. It acknowledges that it and its advisors
have been furnished with all materials relating to the business, finances and
operations of the Company that have been requested by it or its advisors and
have been given the opportunity to ask questions of, and to receive answers
from, persons acting on behalf of the Company concerning terms and conditions of
the transactions contemplated by this Agreement in order to make an informed and
voluntary decision to enter into this Agreement.

 

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

 

16

 

 

6.11        Private Placement; No Registration; Restricted Legends. It
understands and acknowledges that the Subordinated Notes are being sold by the
Company without registration under the Securities Act in reliance on the
exemption from federal and state registration set forth in, respectively,
Rule 506(b) of Regulation D and Sections 4(a)(2) and 18 of the Securities Act,
or any state securities laws, and accordingly, may be resold, pledged or
otherwise transferred only if exemptions from the Securities Act and applicable
state securities laws are available to it. It is not subscribing for the
Subordinated Notes as a result of or subsequent to any general solicitation or
general advertising, in each case within the meaning of Rule 502(c) of
Regulation D, including any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting. It further
acknowledges and agrees that the Global Note will bear the restrictive legend
set forth in the form of Subordinated Note, which is attached as an exhibit to
the Indenture. It further acknowledges its primary responsibilities under the
Securities Act and, accordingly, will not sell or otherwise transfer the
Subordinated Notes or any interest therein without complying with the
requirements of the Securities Act and the rules and regulations promulgated
thereunder and the requirements set forth in this Agreement.

 

6.12        Placement Agents. It will purchase the Subordinated Note(s) directly
from the Company and not from the Placement Agents and understands that none of
the Placement Agents nor any other broker or dealer has any obligation to make a
market in the Subordinated Notes.

 

6.13        Tier 2 Capital. If the Company provides notice as contemplated in
Section 5.3.5 of the occurrence of the event contemplated in such section,
thereafter the Company and the Purchasers will work together in good faith to
execute and deliver all agreements as reasonably necessary in order to
restructure the applicable portions of the obligations evidenced by the
Subordinated Notes to qualify as Tier 2 Capital; provided, however, that nothing
contained in this Agreement shall limit the Company’s right to redeem the
Subordinated Notes upon the occurrence of a Tier 2 Capital Event as described in
the Subordinated Notes.

 

6.14        Accuracy of Representations. It understands that each of the
Placement Agents and the Company are relying upon the truth and accuracy of the
foregoing representations, acknowledgements and agreements in connection with
the transactions contemplated by this Agreement.

 

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

 

7.            MISCELLANEOUS.

 

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

 

17

 

 

7.2          Time of the Essence. Time is of the essence for this Agreement.

 

7.3          Waiver or Amendment. No waiver or amendment of any term, provision,
condition, covenant or agreement herein or in the Subordinated Notes shall be
effective unless in writing and signed by all of the parties hereto. Waiver or
amendment of any term of the Indenture and/or the Subordinated Note shall be
governed by the terms of the Indenture. No failure to exercise or delay in
exercising, by a Purchaser or any holder of the Subordinated Notes, of any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof, or the exercise of any other right or remedy
provided by law. The rights and remedies provided in this Agreement are
cumulative and not exclusive of any right or remedy provided by law or equity.
No notice or demand on the Company in any case shall, in itself, entitle the
Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Purchasers to any
other or further action in any circumstances without notice or demand. No
consent or waiver, expressed or implied, by the Purchasers to or of any breach
or default by the Company in the performance of its obligations hereunder shall
be deemed or construed to be a consent or waiver to or of any other breach or
default in the performance of the same or any other obligations of the Company
hereunder.

 

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

 

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

 

if to the Company:

MidWestOne Financial Group, Inc.

102 South Clinton St.

Iowa City, Iowa 52240

Attention: Barry Ray

    with a copy to:

Barack Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street, Suite 3900

Chicago, Illinois 60606

Attention: Robert M. Fleetwood

    if to the Purchasers: To the address indicated on such Purchaser’s signature
page.

 

or to such other address or addresses as the party to be given notice may have
furnished in writing to the party seeking or desiring to give notice, as a place
for the giving of notice; provided that no change in address shall be effective
until five (5) Business Days after being given to the other party in the manner
provided for above. Any notice given in accordance with the foregoing shall be
deemed given when delivered personally or, if mailed, three (3) Business Days
after it shall have been deposited in the United States mails as aforesaid or,
if sent by overnight courier, the Business Day following the date of delivery to
such courier (provided next business day delivery was requested).

 

18

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

19

 

 

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

 

7.15        Waiver of Right To Jury Trial. TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING
IN ANY WAY IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS, OR ANY OTHER
STATEMENTS OR ACTIONS OF THE COMPANY OR THE PURCHASERS. THE PARTIES ACKNOWLEDGE
THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF THEIR OWN FREE
WILL. THE PARTIES FURTHER ACKNOWLEDGE THAT (I) THEY HAVE READ AND UNDERSTAND THE
MEANING AND RAMIFICATIONS OF THIS WAIVER, (II) THIS WAIVER HAS BEEN REVIEWED BY
THE PARTIES AND THEIR COUNSEL AND IS A MATERIAL INDUCEMENT FOR ENTRY INTO THIS
AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT, AND (III) THIS WAIVER SHALL BE
EFFECTIVE AS TO EACH OF SUCH TRANSACTION DOCUMENTS AS IF FULLY INCORPORATED
THEREIN.

 

7.16        Expenses. Except as otherwise provided in this Agreement, each of
the parties will bear and pay all other costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated pursuant to this
Agreement.

 

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

 

[Signature Pages Follow]

 

20

 

 

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

 

  COMPANY:       MidWestOne Financial Group, Inc.         By:       Charles N.
Funk     Chief Executive Officer

 

[Company Signature Page to Subordinated Note Purchase Agreement]

 

 

 

 

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

 

  PURCHASER:       [INSERT PURCHASER’S NAME]         By:       Name:  [●]    
Title:  [●]         Address of Purchaser:         [●]           Principal Amount
of Purchased Subordinated Note:         $[●]  

 

[Purchaser Signature Page to Subordinated Note Purchase Agreement]

 

 

 

 

Schedule 4.2.5

 

No Defaults or Restrictions

 

A consent relating to the transactions contemplated by this Agreement from U.S.
Bank National Association has been obtained with respect to that certain Credit
Agreement, dated April 30, 2015, as amended (the “Agreement”), by and between
U.S. Bank National Association and MidWestOne Financial Group, Inc.

 

 

 

 

EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT

 

 

 

 

EXHIBIT B

 

FORM OF INDENTURE

 

 

 

 

EXHIBIT C

 

OPINION OF COUNSEL

 

1.            In reliance solely on a certificate of status of the Company and
the Bank, each of the Company and the Bank has been organized or formed, as the
case may be, is validly existing and is in good standing under the laws of its
jurisdiction of organization. Each of the Company and the Bank (i) has all
requisite power and authority to carry on its business and to own, lease and
operate its properties and assets as described in the Company’s Reports, and
(ii) is duly qualified or licensed to do business and is in good standing as a
foreign corporation or bank, as the case may be, authorized to do business in
each jurisdiction in which the nature of such businesses or the ownership or
leasing of such properties requires such qualification, except where the failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect.

 

2.            The Company is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended.

 

3.            The deposit accounts of the Bank are insured by the Federal
Deposit Insurance Corporation under the provisions of the Federal Deposit
Insurance Act.

 

4.            The Company has all necessary corporate power and authority to
execute, deliver and perform its obligations under the Transaction Documents to
which it is a party and to consummate the transactions contemplated by the
Transaction Documents.

 

5.            The Agreement has been duly and validly authorized, executed and
delivered by the Company. The Agreement constitutes a legal valid and binding
obligation of Company, enforceable against Company in accordance with its terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, receivership, moratorium, fraudulent conveyance,
fraudulent transfer or other similar laws now or hereafter in effect relating to
creditors’ rights generally and (ii) general principles of equity (whether
applied by a court of law or equity) and the discretion of the court before
which any proceeding therefor may be brought.

 

6.            The execution and delivery by the Company of, and the performance
by the Company of its agreements and obligations under, the Transaction
Documents do not (i) to such counsel’s knowledge, violate any applicable
provisions of the Iowa Business Corporation Act, (ii) to such counsel’s
knowledge, violate any court order or judgment of any agency or court of the
State of Iowa having jurisdiction over the Company and known to such counsel or
(iii) violate the Articles or Bylaws, each as currently in effect.

 

7.            The Subordinated Notes have been duly and validly authorized by
the Company and, when authenticated and delivered by the Trustee and when issued
by the Company and delivered to and paid for by the applicable Purchasers in
accordance with the terms of the Agreement, the Indenture, and the Subordinated
Notes, will have been duly executed, issued and delivered and will constitute
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except that the enforcement thereof may
be subject to (i) bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent conveyance, fraudulent transfer or other similar laws now
or hereafter in effect relating to creditors’ rights generally and (ii) general
principles of equity (whether applied by a court of law or equity) and the
discretion of the court before which any proceeding therefor may be brought.

 

8.            Assuming the accuracy of the representations and warranties of
each of the Purchasers set forth in the Agreement, the Subordinated Notes to be
issued and sold by the Company to Purchasers pursuant to the Agreement and the
Indenture will be issued in a transaction exempt from the registration
requirements of the Securities Act.

 

 

 

 

EXHIBIT D

 

RISK FACTORS

 

Risk Factors Related to the Proposed Subordinated Notes (the “Notes”)

 

An investment in the securities of MidWestOne Financial Group, Inc. is subject
to certain risks related to the type of security and risks inherent in the
Company’s business. Before making an investment decision, you should carefully
consider the risks and uncertainties described below together with the risk
factors and other information included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2019, its Quarterly Report on
Form 10-Q for the quarter ended March 31, 2020, and in other documents that the
Company files with the Securities and Exchange Commission (the “SEC”).
Additional risks and uncertainties that management is not aware of or that
management currently deems immaterial may also impair the Company’s business
operations. If any of these risks actually occurs, the Company’s financial
condition and results of operations could be materially and adversely affected.
If this were to happen, the value of the Company’s securities could decline
significantly, and you could lose all or part of your investment. The terms
“Company,” “we,” “our” and “us” used herein refer to MidWestOne Financial
Group, Inc. and its subsidiaries.

 

The Notes will be unsecured and subordinated to any existing and future senior
indebtedness.

 

The Notes will be subordinated obligations of the Company. Accordingly, they
will be junior in right of payment to any existing and all future senior
indebtedness, and in certain events of insolvency, to other financial
obligations. Our senior indebtedness includes all indebtedness, except
indebtedness that is expressly subordinated to or ranked pari passu with the
Notes, subject to certain exceptions. The Notes will rank equally with all other
unsecured subordinated indebtedness of the Company issued in the future under
the indenture between the Company, as issuer, and U.S. Bank National
Association, as trustee (the “Indenture”). In addition, the Notes will be
structurally subordinated to all existing and future indebtedness, liabilities
and other obligations, including deposits, of our subsidiaries, including
MidWestOne Bank (the “Bank”).

 

In addition, the Notes will not be secured by any of our assets. As a result,
the Notes will be effectively subordinated to all of our secured indebtedness to
the extent of the value of the assets securing such indebtedness. The Indenture
governing the Notes does not limit the amount of senior indebtedness and other
financial obligations or secured obligations that we or our subsidiaries may
incur.

 

As a result of the subordination provisions described above, holders of the
Notes may not be fully repaid in the event of our bankruptcy, liquidation or
reorganization.

 

The Notes will not be insured or guaranteed by the Federal Deposit Insurance
Corporation (“FDIC”), any other governmental agency or any of our subsidiaries.
The Notes will be structurally subordinated to the indebtedness and other
liabilities of our subsidiaries, which means that creditors of our subsidiaries
generally will be paid from those subsidiaries’ assets before holders of the
Notes would have any claims to those assets.

 

The Notes are not savings accounts, deposits or other obligations of the Bank or
any of our non-bank subsidiaries and are not insured or guaranteed by the FDIC
or any other governmental agency or public or private insurer. The Notes are
obligations of the Company only and are neither obligations of, nor guaranteed
by, any of our subsidiaries. The Notes are ineligible and may not be used as
collateral for loans made by the Company or the Bank. The Notes will be
structurally subordinated to all existing and future indebtedness and other
liabilities of our subsidiaries, which means that creditors of our subsidiaries
(including, in the case of the Bank, its depositors) generally will be paid from
those subsidiaries’ assets before holders of the Notes would have any claims to
those assets. Even if we become a creditor of any of our subsidiaries, our
rights as a creditor would be subordinate to any security interest in the assets
of that subsidiary and any debt of that subsidiary senior to that held by us,
and our rights could otherwise be subordinated to the rights of other creditors
and depositors of that subsidiary. Furthermore, none of our subsidiaries is
under any obligation to make payments to us, and any payments to us would depend
on the earnings or financial condition of our subsidiaries and various business
considerations. Statutory, contractual or other restrictions also limit our
subsidiaries’ ability to pay dividends or make distributions, loans or advances
to us. For these reasons, we may not have access to any assets or cash flows of
our subsidiaries to make interest and principal payments on the Notes.

 

27

 

 

The Notes include limited covenants and do not restrict our ability to incur
additional debt.

 

The Notes do not contain any financial covenants that would require us to
achieve or maintain any minimum financial results relating to our financial
condition, liquidity or results of operations or meet or exceed certain
financial ratios as a general matter or to incur additional indebtedness or
obligations or to maintain any reserves. Moreover, the Notes do not contain any
covenants prohibiting or limiting us or our subsidiaries from granting liens on
assets to secure indebtedness or other obligations, repurchasing our stock or
other securities, including any of the Notes, or paying dividends or make other
distributions to our shareholders. The Notes do not contain any provision that
would provide protection to the holders of the Notes against a material decline
in our credit quality.

 

In addition, the Notes do not limit the amount of additional indebtedness of the
Company, the Bank or any of our other subsidiaries may incur or the amount of
other obligations that the Company or the Bank may incur ranking senior or equal
to the indebtedness evidenced by the Notes. The issuance or guarantee of any
such securities or the incurrence of any such other liabilities may reduce the
amount, if any, recoverable by holders of the Notes in the event of our
insolvency, bankruptcy, liquidation, dissolution, winding up or similar
proceeding, and may limit our ability to meet our obligations under the Notes.

 

Payments on the Notes will depend on receipt of dividends and distributions from
our subsidiaries.

 

We are a bank holding company, and we conduct substantially all of our
operations through subsidiaries, including the Bank. We depend on dividends,
distributions and other payments from our subsidiaries to meet our obligations,
including to fund payments on the Notes. Our primary source of funds to make
payments of principal and interest on the Notes and to satisfy any other
financial obligations are dividends from the Bank. Our ability to receive
dividends from the Bank is contingent on a number of factors, including the
Bank’s ability to meet applicable regulatory capital requirements, the Bank’s
profitability and earnings, and the general strength of its balance sheet.

 

Various federal and state laws and regulations limit the amount of dividends
that the Bank may pay to the Company. Under Iowa law, the board of directors of
an Iowa state-chartered bank may declare and pay a dividend on its outstanding
shares only out of undivided profits. Furthermore, the Federal Reserve and the
FDIC have issued policy statements stating that insured banks and financial and
bank holding companies generally should pay dividends only out of current
operating earnings. Also, the Company’s right to participate in a distribution
of assets upon a subsidiary’s liquidation or reorganization is subject to the
prior claims of the subsidiary’s creditors. In the event the Bank is unable to
pay dividends to us, we may not be able to service any debt we may incur, which
could have a material adverse effect on our business, financial condition,
results of operations and growth prospects.

 

The Bank also may not pay dividends if payment would cause it to become
undercapitalized or if it is already undercapitalized and must maintain a common
equity Tier 1 capital conservation buffer of greater than 2.5% to avoid becoming
subject to restrictions on capital distributions, including dividends. Further,
contractual or other restrictions may also limit our subsidiaries’ abilities to
pay dividends or make distributions, loans or advances to us. See the
information under “Supervision and Regulation — Supervision and Regulation of
the Bank — Dividend Payments” in Item 1, “Business,” in our annual report on
Form 10-K for the year ended December 31, 2019.

 

28

 

 

In addition, state and federal banking regulators have broad authority to
restrict the payment of dividends, including in circumstances where a bank under
such regulator’s jurisdiction engages in (or is about to engage in) unsafe or
unsound practices. Such regulators have the authority to require that the bank
cease and desist from unsafe and unsound practices and to prevent a bank from
paying a dividend if its financial condition is such that the regulator views
the payment of a dividend to constitute an unsafe or unsound practice.

 

For these reasons, we may not have access to any assets or cash flow of our
subsidiaries to make principal or interest payments on the Notes.

 

We may not be able to generate sufficient cash to service all of our debt,
including the Notes.

 

Our ability to make scheduled payments of principal and interest, or to satisfy
our obligations in respect of our debt or to refinance our debt, will depend on
our future performance of our operating subsidiaries. Prevailing economic
conditions (including interest rates), regulatory constraints, including,
without limitation, limiting distributions to us from the Bank and required
capital levels with respect to the Bank and financial, business and other
factors, many of which are beyond our control, will also affect our ability to
meet these needs. Our subsidiaries may not be able to generate sufficient cash
flows from operations, or we may be unable to obtain future borrowings in an
amount sufficient to enable us to pay our debt, or to fund our other liquidity
needs. We may need to refinance all or a portion of our debt on or before
maturity. We may not be able to refinance any of our debt when needed
(including, without limitation, upon commencement of the floating rate period)
on commercially reasonable terms or at all.

 

Regulatory guidelines may restrict our ability to pay the principal of, and
accrued and unpaid interest on, the Notes, regardless of whether we are the
subject of an insolvency proceeding.

 

As a bank holding company, our ability to pay the principal of, and interest on,
the Notes is subject to the rules and guidelines of the Federal Reserve
regarding capital adequacy. We intend to treat the Notes as “Tier 2 capital”
under these rules and guidelines. The Federal Reserve guidelines generally
require us to review the effects of the cash payment of Tier 2 capital
instruments, such as the Notes, on our overall financial condition. The
guidelines also require that we review our net income for the current and past
four quarters, and the amounts we have paid on Tier 2 capital instruments for
those periods, as well as our projected rate of earnings retention. Moreover,
pursuant to federal law and Federal Reserve regulations, as a bank holding
company, we are required to act as a source of financial and managerial strength
to the Bank and commit resources to its support, including, without limitation,
the guarantee of its capital plans if it is undercapitalized. Such support may
be required at times when we may not otherwise be inclined or able to provide
it. As a result of the foregoing, we may be unable to pay accrued interest on
the Notes on one or more of the scheduled interest payment dates, or at any
other time, or the principal of the Notes at the maturity of the Notes.

 

If we were to be the subject of a bankruptcy proceeding under Chapter 11 of the
U.S. Bankruptcy Code, then the bankruptcy trustee would be deemed to have
assumed, and would be required to cure, immediately any deficit under any
commitment we have to any of the federal banking agencies to maintain the
capital of the Bank, and any other insured depository institution for which we
have such a responsibility, and any claim for breach of such obligation would
generally have priority over most other unsecured claims.

 

29

 

 

The Notes are subject to limited rights of acceleration.

 

Payment of principal of the Notes may be accelerated only in the case of certain
bankruptcy-related events with respect to us. As a result, you have no right to
accelerate the payment of principal of the Notes if we fail to pay principal of
or interest on the Notes or if we fail in the performance of any of our other
obligations under the Notes. Our regulators can, in the event we or the Bank
become subject to an enforcement action, prohibit the Bank from paying dividends
to us, and prevent our payment of interest or principal on the Notes and any
dividends on our capital stock, but such limits will not permit acceleration of
the Notes.

 

An active trading market for the Notes may not develop.

 

The Notes constitute a new issue of securities for which there is no existing
trading market. We do not intend to apply for listing of the Notes on any
securities exchange or for quotation of the Notes in any automated dealer
quotation system. We cannot provide you with any assurance regarding whether a
trading market for the Notes will develop, the ability of holders of the Notes
to sell their Notes or the prices at which holders may be able to sell their
Notes. You should also be aware that there may be a limited number of buyers
when you decide to sell your Notes. This may affect the price you receive for
your Notes or your ability to sell your Notes at all. Investors in the Notes may
not be able to sell the Notes at all or may not be able to sell the Notes at
prices that will provide them with a yield comparable to similar investments
that have a developed secondary market, and may consequently suffer from
increased pricing volatility and market risk. In addition, the liquidity of the
trading market in the Notes and the market price quoted for the Notes may be
adversely affected by changes in the overall market for this type of security
and by changes in our financial performance or prospects or in the prospects for
companies in our industry generally.

 

If a trading market for the Notes develops, changes in the debt markets, among
others, could adversely affect your ability to liquidate your investment in the
Notes and the market price of the Notes.

 

Many factors could affect the trading market for, and the trading value of, the
Notes. These factors include: the method of calculating the principal, premium,
if any, interest or other amounts payable, if any, on the Notes; the time
remaining to the maturity of the Notes; the ranking of the Notes; the redemption
features of the Notes; the outstanding amount of subordinated notes with terms
identical to the Notes offered hereby; the prevailing interest rates being paid
by other companies similar to us; changes in U.S. interest rates; whether the
ratings on the Notes or us provided by any rating agency have changed; our
financial condition, financial performance and future prospects; the level,
direction and volatility of market interest rates generally; general economic
conditions of the capital markets in the United States; and geopolitical
conditions and other financial, political, regulatory, and judicial events that
affect the capital markets generally. The condition of the financial markets and
prevailing interest rates have fluctuated significantly in the past and are
likely to fluctuate in the future. Such fluctuations could adversely affect the
trading market (if any) for, and the market price of, the Notes.

 

Beginning in 2025, or at any time in the case of certain events, the Notes may
be redeemed at our option, which limits the ability of holders of the Notes to
accrue interest over the full stated term of the Notes.

 

We may, at our option, redeem the Notes (i) in whole or in part, beginning on an
interest payment date in the second half of 2025 and on any interest payment
date thereafter and (ii) in whole but not in part, at any time upon the
occurrence of:

 

30

 

 

·a “Tier 2 Capital Event,” which is defined in the Indenture to mean our good
faith determination that there is more than an insubstantial risk that we will
not be entitled to treat the Notes as Tier 2 capital;

 

·a “Tax Event,” which is defined in the Indenture to mean the receipt by us of
an opinion of independent tax counsel experienced in such matters to the effect
that there is more than an insubstantial risk that interest paid by us on the
Notes is not, or within 90 days of the date of such legal opinion, will not be,
deductible by us, in whole or in part, for U.S. federal income tax purposes; or

 

·an “Investment Company Event,” which is defined in the Indenture to mean
receipt by us of an opinion from counsel experienced in such matters to the
effect that there is more than an insubstantial risk that we are, or within 90
days of the date of such legal opinion will be, considered an “investment
company” that is required to be registered under the Investment Company Act of
1940, as amended,

 

in each case at a redemption price equal to 100% of the principal amount of the
Notes to be redeemed plus accrued and unpaid interest to, but not including, the
date of redemption. Any redemption of the Notes will be subject to prior
approval of the Federal Reserve, to the extent such approval is then required.
There can be no assurance that the Federal Reserve will approve any redemption
of the Notes that we may propose. In addition, the redemption of the Notes may
be subject to prior approval of the holders of our senior indebtedness, and
there is no assurance that such holders of our senior indebtedness will approve
any redemption of the Notes. Furthermore, you should not expect us to redeem any
Notes when they first become redeemable or on any particular date thereafter. If
we redeem the Notes for any reason, you will not have the opportunity to
continue to accrue and be paid interest to the stated maturity date and you may
not be able to reinvest the redemption proceeds you receive in a similar
security or in securities bearing similar interest rates or yields.

 

The amount of interest payable on the Notes will vary during and after 2025.

 

During the fixed rate period, the Notes will bear interest at a fixed interest
rate. Thereafter, the Notes will bear interest at a floating rate per annum
equal to a floating interest rate (which is expected to be Three-Month Term
SOFR) plus a spread, subject to certain provisions of the Notes. The per annum
interest rate that is determined at the reference time for each interest period
will apply to the entire quarterly interest period following such determination
date even if the floating interest rate increases during that period.

 

Floating rate notes bear additional significant risks not associated with fixed
rate debt securities. These risks include fluctuation of the interest rates and
the possibility that you will receive an amount of interest that is lower than
expected. We have no control over a number of matters, including, without
limitation, economic, financial, and political events, that are important in
determining the existence, magnitude, and longevity of market volatility and
other risks and their impact on the value of, or payments made on, the Notes. In
recent years, interest rates have been volatile, and that volatility may be
expected in the future.

 

The level of Benchmark rate (which is expected to be the Three-Month Term SOFR)
may affect our decision to redeem the Notes.

 

The Company is more likely to redeem the Notes on or after July 2025 if the
interest rate on them is higher than that which would be payable on one or more
other forms of borrowing. If the Company redeems the Notes prior to their
maturity date, holders may not be able to invest in other securities that yield
as much interest as the Notes.

 

31

 

 

Holders of the Notes will have no rights against the publishers of the Benchmark
rate (which is expected to be the Three-Month Term SOFR).

 

Holders of the Notes will have no rights against the publishers of the
Benchmark, even though the amount they receive on each interest payment date
after July 2025 will depend upon the level of the Benchmark rate (which is
expected to be the Three-Month Term SOFR). The publishers of the Benchmark rate
are not in any way involved in the offering of the Notes and have no obligations
relating to the Notes or the holders of the Notes.

 

Our published credit ratings may not reflect all risks of an investment in the
Notes.

 

The published credit ratings of us or our indebtedness are an assessment by
rating agencies of our ability to pay our debts when due. These ratings are not
recommendations to purchase, hold or sell the Notes, inasmuch as the ratings do
not comment as to market price or suitability for a particular investor, are
limited in scope, and do not address all material risks relating to an
investment in the Notes, but rather reflect only the view of each rating agency
at the time the rating is issued. The published credit ratings assigned to the
Notes may not reflect the potential impact of all risks related to structure and
other factors on any trading market for, or trading value of, the Notes.

 

Accordingly, you should consult your own financial and legal advisors as to the
risks entailed by an investment in the Notes and the suitability of investing in
the Notes in light of your particular circumstances.

 

A downgrade in our credit ratings or the ratings of our subsidiaries could have
a material adverse impact on us.

 

Rating agencies continuously evaluate us and our subsidiaries, and their ratings
of our long-term and short-term debt are based on a number of factors, including
financial strength, as well as factors not entirely within our control, such as
conditions affecting the financial services industry generally. In light of
these reviews and the continued focus on the financial services industry
generally, we and our subsidiaries may not be able to maintain our current
credit ratings. Ratings downgrades by a rating agency could have a significant
and immediate impact on our funding and liquidity through cash obligations,
reduced funding capacity and collateral triggers. A reduction in our or our
subsidiaries’ credit ratings could also increase our borrowing costs and limit
access to the capital markets.

 

Downgrades in the credit or financial strength ratings assigned to the
counterparties with whom we transact could create the perception that our
financial condition will be adversely impacted as a result of potential future
defaults by such counterparties. Additionally, we could be adversely affected by
a general, negative perception of financial institutions caused by the downgrade
of other financial institutions. Accordingly, ratings downgrades for other
financial institutions could affect the market price of our stock and could
limit our access to or increase our cost of capital.

 

The Notes have not been registered under the Securities Act of 1933, as amended
(the “Securities Act”).

 

The Notes have not been registered with the SEC under the Securities Act. The
Notes are being offered and sold in reliance upon an exemption from registration
provided in Rule 506 of Regulation D promulgated under and Section 4(a)(2) of
the Securities Act. Accordingly, the Notes may not be offered or sold absent
registration with the SEC or a valid exemption under the Securities Act, and are
subject to certain transfer restrictions set forth in the Notes.

 

32

 

 

Investors should not rely on indicative or historical data concerning SOFR.

 

The interest rate during the floating rate period will be determined using
Three-Month Term SOFR (unless a Benchmark Transition Event and its related
Benchmark Replacement Date occur with respect to Three-Month Term SOFR, in which
case the rate of interest will be based on the next-available Benchmark
Replacement, which is Compounded SOFR). In the following discussion of SOFR,
when we refer to the Notes, we mean the Notes at any time during the floating
rate period when the interest rate on the Notes is or will be determined based
on SOFR, including Three-Month Term SOFR.

 

SOFR is published by the Federal Reserve Bank of New York (“FRBNY”) and is
intended to be a broad measure of the cost of borrowing cash overnight
collateralized by U.S. Treasury securities. FRBNY reports that SOFR includes all
trades in the Broad General Collateral Rate, plus bilateral U.S. Treasury
repurchase agreement (“repo”) transactions cleared through the
delivery-versus-payment service offered by the Fixed Income Clearing Corporation
(the “FICC”), a subsidiary of DTC. SOFR is filtered by FRBNY to remove a portion
of the foregoing transactions considered to be “specials.” According to FRBNY,
“specials” are repos for specific-issue collateral which take place at
cash-lending rates below those for general collateral repos because cash
providers are willing to accept a lesser return on their cash in order to obtain
a particular security.

 

FRBNY reports that SOFR is calculated as a volume-weighted median of
transaction-level tri-party repo data collected from The Bank of New York
Mellon, which currently acts as the clearing bank for the tri-party repo market,
as well as General Collateral Finance Repo transaction data and data on
bilateral U.S. Treasury repo transactions cleared through the FICC’s
delivery-versus-payment service. FRBNY states that it obtains information from
DTCC Solutions LLC, an affiliate of DTC.

 

FRBNY currently publishes SOFR daily on its website at
https://apps.newyorkfed.org/markets/autorates/sofr. FRBNY states on its
publication page for SOFR that use of SOFR is subject to important disclaimers,
limitations and indemnification obligations, including that FRBNY may alter the
methods of calculation, publication schedule, rate revision practices or
availability of SOFR at any time without notice. The foregoing Internet website
is an inactive textual reference only, meaning that the information contained on
the website is not part of this document or incorporated by reference herein or
therein.

 

FRBNY started publishing SOFR in April of 2018. FRBNY has also started
publishing historical indicative SOFRs dating back to 2014, although such
historical indicative data inherently involves assumptions, estimates and
approximations. Investors should not rely on such historical indicative data or
on any historical changes or trends in SOFR as an indicator of the future
performance of SOFR. Since the initial publication of SOFR, daily changes in the
rate have, on occasion, been more volatile than daily changes in comparable
benchmark or market rates, and SOFR over time may bear little or no relation to
the historical actual or historical indicative data. In addition, the return on
and value of the Notes may fluctuate more than floating rate securities that are
linked to less volatile rates.

 

Changes in SOFR could adversely affect holders of the Notes.

 

Because SOFR is published by FRBNY based on data received from other sources, we
have no control over its determination, calculation or publication. There is no
assurance that SOFR will not be discontinued or fundamentally altered in a
manner that is materially adverse to the interests of investors in the Notes. If
the manner in which SOFR is calculated is changed, that change may result in a
reduction in the amount of interest that accrues on the Notes during the
floating rate period, which may adversely affect the trading prices of the
Notes. Further, if the Benchmark rate on the Notes during the floating rate
period on any determination date declines to zero or becomes negative, the
Benchmark rate will be deemed to equal zero. In addition, once the Benchmark
rate for the Notes for each interest period during the floating rate period is
determined by the calculation agent on the determination date, interest on the
Notes shall accrue at such Benchmark rate for the applicable interest period and
will not be subject to change during such interest period. There is no assurance
that changes in SOFR could not have a material adverse effect on the yield on,
value of and market for the Notes.

 

33

 

 

SOFR may be more volatile than other benchmark or market rates.

 

Since the initial publication of SOFR, daily changes in the rate have, on
occasion, been more volatile than daily changes in comparable benchmark or
market rates, and SOFR over time may bear little or no relation to the
historical actual or historical indicative data. In addition, the return on and
value of the SOFR-linked Notes may fluctuate more than floating rate securities
that are linked to less volatile rates

 

SOFR differs fundamentally from, and may not be a comparable substitute for,
U.S. dollar LIBOR.

 

In June 2017, the Alternative Reference Rates Committee (“ARRC”) convened by the
Federal Reserve and FRBNY announced SOFR as its recommended alternative to the
London interbank offered rate (“LIBOR”) for U.S. dollar obligations. However,
because SOFR is a broad U.S. Treasury repo financing rate that represents
overnight secured funding transactions, it differs fundamentally from LIBOR. For
example, SOFR is a secured overnight rate, while LIBOR is an unsecured rate that
represents interbank funding over different maturities. In addition, because
SOFR is a transaction-based rate, it is backward-looking, whereas LIBOR is
forward-looking. Because of these and other differences, there is no assurance
that SOFR will perform in the same way as LIBOR would have performed at any
time, and there is no guarantee that it is a comparable substitute for LIBOR.

 

Any failure of SOFR to gain market acceptance could adversely affect holders of
the Notes.

 

SOFR may fail to gain market acceptance. SOFR was developed for use in certain
U.S. dollar derivatives and other financial contracts as an alternative to LIBOR
in part because it is considered to be a good representation of general funding
conditions in the overnight U.S. Treasury repo market. However, as a rate based
on transactions secured by U.S. Treasury securities, it does not measure
bank-specific credit risk and, as a result, is less likely to correlate with the
unsecured short-term funding costs of banks. This may mean that market
participants would not consider SOFR to be a comparable substitute or successor
for all of the purposes for which LIBOR historically has been used (including,
without limitation, as a representation of the unsecured short-term funding
costs of banks), which may, in turn, lessen its market acceptance. Any failure
of SOFR to gain market acceptance could adversely affect the yield on, value of
and market for the Notes.

 

Any market for the SOFR-linked Notes may be illiquid or unpredictable.

 

Since SOFR is a relatively new market index, SOFR-linked debt securities likely
will have no established trading market when issued, and an established trading
market for the SOFR-linked Notes may never develop or may not be very liquid.
Market terms for securities that are linked to SOFR, such as the spread over the
base rate reflected in the interest rate provisions, may evolve over time, and
as a result, trading prices of the SOFR-linked Notes may be lower than those of
later-issued securities that are linked to SOFR. Similarly, if SOFR does not
prove to be widely used in securities that are similar or comparable to the
SOFR-linked Notes, the trading price of the SOFR-linked Notes may be lower than
those of securities that are linked to rates that are more widely used.
Investors may not be able to sell the SOFR-linked Notes at all or may not be
able to sell the SOFR-linked Notes at prices that will provide them with a yield
comparable to similar investments that have a developed secondary market, and
may consequently suffer from increased pricing volatility and market risk. The
manner of adoption or application of reference rates based on SOFR in the bond
and equity markets may differ materially compared with the application and
adoption of SOFR in other markets, such as the derivatives and loan markets.
Investors should carefully consider how any potential inconsistencies between
the adoption of reference rates based on SOFR across these markets may impact
any hedging or other financial arrangements that they may put in place in
connection with any acquisition, holding or disposal of the SOFR-linked Notes.

 

34

 

 

The interest rate for the Notes during the applicable floating rate period may
be determined based on a rate other than Three-Month Term SOFR.

 

Under the terms of the Notes, the interest rate on the Notes for each interest
period during the applicable floating rate period will be based on Three-Month
Term SOFR, a forward-looking term rate for a tenor of three months that will be
based on SOFR. Three-Month Term SOFR does not currently exist and is currently
being developed under the sponsorship of the ARRC. There is no assurance that
the development of Three-Month Term SOFR, or any other forward-looking term rate
based on SOFR, will be completed. Uncertainty surrounding the development of
forward-looking term rates based on SOFR could have a material adverse effect on
the return on, value of and market for the Notes. If, at the commencement of the
applicable floating rate period for the Notes, the Federal Reserve and/or FRBNY,
or a committee officially endorsed or convened by the Federal Reserve and/or
FRBNY or any successor thereto (the “Relevant Governmental Body”) has not
selected or recommended a forward-looking term rate for a tenor of three months
based on SOFR, the development of a forward-looking term rate for a tenor of
three months based on SOFR that has been recommended or selected by the Relevant
Governmental Body is not complete or we determine that the use of a
forward-looking rate for a tenor of three months based on SOFR is not
administratively feasible, then the next-available Benchmark Replacement under
the benchmark transition provisions will be used to determine the interest rate
on the Notes during the applicable floating rate period (unless a Benchmark
Transition Event and its related Benchmark Replacement Date occur with respect
to that next-available Benchmark Replacement).

 

Under the terms of the Notes, we are expressly authorized to make
determinations, decisions or elections with respect to technical, administrative
or operational matters that we decide are appropriate to reflect the use of
Three-Month Term SOFR as the interest rate basis for the Notes, which are
defined in the terms of the Notes as “Three-Month Term SOFR Conventions.” For
example, assuming that a form of Three-Month Term SOFR is developed, it is not
currently known how or by whom rates for Three-Month Term SOFR will be
published. Accordingly, we will need to determine and to instruct the
calculation agent concerning the manner and timing for its determination of the
applicable Three-Month Term SOFR during the applicable floating rate period. Our
determination and implementation of any Three-Month Term SOFR Conventions could
result in adverse consequences to the amount of interest that accrues on the
Notes during the applicable floating rate period, which could adversely affect
the return on, value of and market for the Notes.

 

Any Benchmark Replacement may not be the economic equivalent of Three-Month Term
SOFR.

 

Under the benchmark transition provisions of the Notes, if the calculation agent
determines that a Benchmark Transition Event and its related Benchmark
Replacement Date have occurred with respect to Three-Month Term SOFR, then the
floating interest rate on the Notes for each interest period during the floating
rate period will be determined using the next-available Benchmark Replacement
(which may include a related Benchmark Replacement Adjustment). However, the
Benchmark Replacement may not be the economic equivalent of Three-Month Term
SOFR. For example, Compounded SOFR, the first-available Benchmark Replacement,
is the compounded average of the daily SOFR calculated in arrears, while
Three-Month Term SOFR is intended to be a forward-looking rate with a tenor of
three months. In addition, very limited market precedent exists for securities
that use Compounded SOFR as the rate basis, and the method for calculating
Compounded SOFR in those precedents varies. Further, the ISDA Fallback Rate,
which is another Benchmark Replacement, has not yet been established and may
change over time.

 

35

 

 

The implementation of Benchmark Replacement Conforming Changes could adversely
affect holders of the Notes.

 

Under the benchmark transition provisions of the Notes, if Three-Month Term SOFR
has been discontinued or if a particular Benchmark Replacement or Benchmark
Replacement Adjustment cannot be determined, then the next-available Benchmark
Replacement or Benchmark Replacement Adjustment will apply. These replacement
rates and adjustments may be selected or formulated by: (i) the Relevant
Governmental Body (such as the ARRC); (ii) the International Swaps and
Derivatives Association, Inc.; or (iii) in certain circumstances, us. In
addition, the benchmark transition provisions expressly authorize us to make
certain changes, which are defined in the terms of the Notes as “Benchmark
Replacement Conforming Changes,” with respect to, among other things, the
determination of interest periods, and the timing and frequency of determining
rates and making payments of interest. The application of a Benchmark
Replacement and Benchmark Replacement Adjustment, and any implementation of
Benchmark Replacement Conforming Changes, could result in adverse consequences
to the amount of interest that accrues on the Notes during any interest period
during the floating rate period, which could adversely affect the yield on,
value of and market for the Notes. Further, there is no assurance that the
characteristics of any Benchmark Replacement will be similar to the then-current
Benchmark rate that it is replacing, or that any Benchmark Replacement will
produce the economic equivalent of the then-current Benchmark rate that it is
replacing.

 

Also, since SOFR is a relatively new market index, SOFR-linked debt securities
likely will have no established trading market when issued, and an established
trading market may never develop or may not be very liquid. Market terms for
debt securities indexed to SOFR, such as the spread over the index reflected in
interest rate provisions, may evolve over time, and trading prices of the Notes
may be lower than those of later-issued SOFR-linked debt securities as a result.
Similarly, if SOFR does not prove to be widely used in securities similar to the
Notes, the trading price of the Notes may be lower than those of debt securities
linked to such rates that are more widely used. Debt securities indexed to SOFR
(as the Notes will be) may not be able to be sold at all or may not be able to
be sold at prices that will provide a yield comparable to similar investments
that have a developed secondary market, and may consequently suffer from
increased pricing volatility and market risk.

 

We or an affiliate of ours will or could have authority to make determinations
and elections that could affect the return on, value of and market for the
Notes.

 

Under the terms of the Notes, we may make certain determinations, decisions and
elections with respect to the Benchmark rate on the Notes during the floating
rate period, including, without limitation, any determination, decision or
election required to be made by the calculation agent that the calculation agent
fails to make. We will make any such determination, decision or election in our
sole discretion, and any such determination, decision or election that we make
could affect the amount of interest that accrues on the Notes during any
interest period in the floating rate period. If the calculation agent fails,
when required, to make a determination that a Benchmark Transition Event and its
related Benchmark Replacement Date have occurred, or fails, when required, to
determine the Benchmark Replacement and Benchmark Replacement Adjustment, then
we will make those determinations in our sole discretion. Furthermore, we or an
affiliate of ours may assume the duties of calculation agent. We will act as the
initial calculation agent and we cannot assure you that we will appoint an
independent third-party calculation agent at any time. Any exercise of
discretion by us under the terms of the Notes, including, without limitation,
any discretion exercised by us or by an affiliate acting as calculation agent,
could present a conflict of interest. In making the required determinations,
decisions and elections, we or an affiliate of ours acting as calculation agent
may have economic interests that are adverse to the interest of the holders of
the Notes, and those determinations, decisions or elections could have a
material adverse effect on the yield on, value of and market for the Notes. All
determinations, decisions or elections by us, or by us or an affiliate acting as
calculation agent, under the terms of the Notes will be conclusive and binding
absent manifest error.

 

36

 

 

The Notes may be issued with original issue discount for U.S. federal income tax
purposes.

 

The Notes may be issued with original issue discount for U.S. federal income tax
purposes. In such case, holders subject to U.S. federal income taxation, whether
on the cash or accrual method of tax accounting, generally would be required to
include any amounts representing original issue discount in gross income (as
ordinary income) as the original issue discount accrues on a constant yield to
maturity basis, in advance of the receipt of cash payments to which such income
is attributable.

 

37