Exhibit 10.1

 

 

 

 

EXCHANGE AGREEMENT

by and between

FNB UNITED CORP.

and

THE UNITED STATES DEPARTMENT OF THE TREASURY

 

Dated as of August 12, 2011

 

 

 

 

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TABLE OF CONTENTS

 

          Page   ARTICLE I THE CLOSING; CONDITIONS TO THE CLOSING   

Section 1.1

   The Closing.      2   

Section 1.2

   Interpretation.      4    ARTICLE II EXCHANGE   

Section 2.1

   Preferred Exchange.      5   

Section 2.2

   Warrant Exchange.      5   

Section 2.3

   Exchange Documentation.      5   

Section 2.4

   Status of Preferred Shares after Closing.      5    ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY   

Section 3.1

   Existence and Power.      5   

Section 3.2

   Authorization and Enforceability.      6   

Section 3.3

   Exchange Shares.      6   

Section 3.4

   Amended Warrant and Warrant Shares.      6   

Section 3.5

   Non-Contravention.      7   

Section 3.6

   Anti-Takeover Provisions and Rights Plan.      8   

Section 3.7

   No Company Material Adverse Effect.      8   

Section 3.8

   Offering of Securities.      8   

Section 3.9

   Brokers and Finders.      8    ARTICLE IV COVENANTS   

Section 4.1

   Commercially Reasonable Efforts.      8   

Section 4.2

   Expenses.      8   

Section 4.3

   Exchange Listing.      8   

Section 4.4

   Access, Information and Confidentiality.      9   

Section 4.5

   Executive Compensation.      9   

Section 4.6

   Certain Notifications Until Closing.      10   

Section 4.7

   Sufficiency of Authorized Common Stock.      11   

Section 4.8

   Monthly Lending Reports.      11   

Section 4.9

   Status Reports.      11    ARTICLE V ADDITIONAL AGREEMENTS   

Section 5.1

   Unregistered Exchange Shares.      12   

Section 5.2

   Legend.      12   

Section 5.3

   Certain Transactions.      12   

Section 5.4

   Transfer of Exchange Shares and Warrant Shares.      13   

Section 5.5

   Registration Rights.      13   

Section 5.6

   Voting Matters.      14   

Section 5.7

   Restriction on Dividends and Repurchases.      14   

Section 5.8

   Repurchase of Investor Securities.      15   

Section 5.9

   Bank Holding Company Status.      15   

Section 5.10

   Compliance with Employ American Workers Act.      15   

Section 5.11

   Observer to the Board of Directors      16   

 

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ARTICLE VI MISCELLANEOUS   

Section 6.1

   Termination.      16   

Section 6.2

   Survival of Representations and Warranties.      16   

Section 6.3

   Amendment.      16   

Section 6.4

   Waiver of Conditions.      17   

Section 6.5

   Governing Law; Submission to Jurisdiction, etc.      17   

Section 6.6

   Notices.      17   

Section 6.7

   Definitions.      18   

Section 6.8

   Assignment.      19   

Section 6.9

   Severability.      20   

Section 6.10

   No Third-Party Beneficiaries.      20   

Section 6.11

   Entire Agreement, etc.      20   

Section 6.12

   Counterparts and Facsimile.      20   

Section 6.13

   Specific Performance.      20   

LIST OF ANNEXES

ANNEX A: FORM OF AMENDED WARRANT

ANNEX B: FORM OF OPINION

ANNEX C: FORM OF WAIVER

LIST OF SCHEDULES

SCHEDULE A: CAPITALIZATION

SCHEDULE B: COMPANY MATERIAL ADVERSE EFFECT

SCHEDULE 5.7(a)(D): WARRANT OFFERING

 

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Defined Terms    Additional Equity Investors    Recitals Affiliate   
Section 6.7(b) Agreement    Preamble Amended Warrant    Recitals Anchorage   
Recitals Articles Amendment    Section 1.1(d)(i) Articles Amendment Proposal   
Section 1.1(d)(i) Benefit Plans    Section 1.1(d)(xv) Business Combination   
Section 6.7(c) Capitalization Date    Section 3.1(b) Carlyle    Recitals Closing
   Section 1.1(a) Closing Date    Section 1.1(a) Code    Section 3.5(c) Common
Stock    Recitals CommunityONE    Recitals Company    Preamble Company Material
Adverse Effect    Section 6.7(d) Company Subsidiaries    Section 4.4(a)
Compensation Regulations    Section 1.1(d)(xv) Designated Matters   
Section 6.7(e) EAWA    Section 6.7(f) EESA    Section 1.1(d)(xv) Equity Investor
   Recitals Exchange    Recitals Exchange Act    Section 5.3(b) Exchange Shares
   Recitals GAAP    Section 5.7(a)(ii) Governmental Entities    Section 1.1(c)
Granite    Recitals Information    Section 4.4(c) Investor    Preamble Junior
Stock    Section 6.7(g) Merger    Recitals Merger Agreement    Recitals NASDAQ
   Section 1.1(d)(xiii) Oak Hill    Recitals Observer    Section 5.11 Old
Warrant    Recitals Other Transactions    Section 4.9 Parity Stock   
Section 6.7(h) Preferred Exchange    Recitals Preferred Shares    Recitals
Preferred Stock    Section 6.7(i) Previously Disclosed    Section 6.7(j) Private
Placement    Recitals Purchase Price    Recitals Relevant Period   
Section 1.1(d)(xv) Requisite Shareholder Vote    Section 1.1(d)(i) Reverse Stock
Split    Recitals

 

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Defined Terms    SEC    Section 3.5(b) Securities Act    Recitals Section 4.5
Employee    Section 4.5(b) Securities Purchase Agreement    Recitals Senior
Executive Officers    Section 1.1(d)(xv) Share Dilution Amount   
Section 5.7(a)(ii) Share Issuance Proposal    Section 1.1(d)(i) Shareholder
Proposals    Section 1.1(d)(i) Status Report    Section 4.9 Stock Split Proposal
   Section 1.1(d)(i) subsidiary    Section 6.7(a) SunTrust    Recitals SunTrust
Settlement    Recitals Targeted Completion Date    Section 4.9 Tax Benefits
Preservation Plan    Section 3.6 Transfer    Section 5.4 Warrant Exchange   
Recitals Warrant Shares    Section 3.2(a) Warrant Offering    Recitals

 

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EXCHANGE AGREEMENT, dated as of August 12, 2011 (this “Agreement”) by and
between FNB United Corp., a North Carolina corporation (the “Company”), and the
United States Department of the Treasury (the “Investor”). All capitalized terms
used herein and not otherwise defined shall have the respective meanings
ascribed to them in the Securities Purchase Agreement.

BACKGROUND

WHEREAS, the Investor is, as of the date hereof, the beneficial owner of 51,500
shares of the Company’s preferred stock designated as “Fixed Rate Cumulative
Perpetual Preferred Stock, Series A”, having a liquidation amount of $1,000 per
share (the “Preferred Shares”);

WHEREAS, the Company issued the Preferred Shares pursuant to that certain
Securities Purchase Agreement – Standard Terms incorporated into a Letter
Agreement, dated as of February 13, 2009, between the Company and the Investor
(the “Securities Purchase Agreement”);

WHEREAS, the Company and Bank of Granite Corporation (“Granite”) entered into an
agreement and plan of merger, dated April 26, 2011, as amended by Amendment
No. 1 dated June 16, 2011 (the “Merger Agreement”), pursuant to which a wholly
owned subsidiary of the Company would, subject to the terms and conditions of
the Merger Agreement, merge with and into Granite, with Granite surviving as a
subsidiary of FNB (the “Merger”).

WHEREAS, in connection with the Merger Agreement, the Company entered into
separate investment agreements, dated April 26, 2011, as amended by Amendment
No. 1 dated June 16, 2011 and Amendment No. 2 dated August 4, 2011 (the
“Investment Agreements”) with an affiliate of The Carlyle Group (“Carlyle”) and
affiliates of Oak Hill Capital Partners (together, “Oak Hill Capital” and
collectively with Carlyle, the “Lead Investors”), pursuant to which each of Oak
Hill Capital and Carlyle agreed, subject to certain conditions, to purchase
493,750,000 shares of the Company’s common stock, no par value (together with
the associated preferred share purchase rights under the Tax Benefits
Preservation Plan (as defined herein)) (the “Common Stock”) at a price of $0.16
per share (the “Purchase Price”).

WHEREAS, the Company has entered into subscription agreements (the “Subscription
Agreements”) with accredited investors, including certain directors and officers
of the Company, pursuant to which those investors will agree, subject to certain
conditions, to purchase shares of Common Stock at the Purchase Price, yielding
aggregate gross proceeds that, together with the investments by the Lead
Investors, will equal no less than $310,000,000, with each such investor to own
less than 5% of the outstanding shares of Common Stock as of the Closing Date
after giving effect to the investments by the Equity Investors and the Preferred
Exchange (collectively, but excluding the Investor and the Lead Investors, the
“Additional Equity Investors” and, together with the Lead Investors, the “Equity
Investors”), in a private placement (the “Private Placement”) exempt from
registration under the Securities Act of 1933, as amended (the “Securities
Act”);

WHEREAS, following the Closing, the Company intends to commence a warrant
offering, providing holders of record of the Common Stock as of 5:00 p.m.,
Eastern time, on the date that is one business day prior to the Closing Date
with the right to invest in Common Stock at the Purchase Price (the “Warrant
Offering”), with such warrants being transferable and providing for the purchase
of a maximum of 3,000,000 shares of Common Stock by the holders of such rights;

WHEREAS, CommunityONE Bank, National Association, a subsidiary of the Company
(“CommunityONE”), has entered into an agreement with SunTrust Bank (“SunTrust”)
dated August 1, 2011, pursuant to which CommunityONE will purchase (i) all of
the outstanding non-voting, non-convertible, non-redeemable cumulative preferred
stock, par value $1.00 per share, of CommunityONE held by SunTrust, for cash
consideration equal to (A) 25% of the aggregate liquidation preference thereof,
plus (B) 100% of the accrued and unpaid dividends thereon, and (ii) the Floating
Rate Subordinated Note Due 2015 of CommunityONE held by SunTrust, for cash
consideration equal to (A) 35% of the aggregate principal amount thereof, plus
(B) 100% of the accrued and unpaid interest thereon ((i) and (ii) together, the
“SunTrust Settlement”);

 

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WHEREAS, on April 26, 2011, CommunityONE agreed to enter into a deferred
prosecution agreement with the U.S. Attorney for the Western District of North
Carolina (the “U.S. Attorney”) and the U.S. Department of Justice (the “DOJ”) to
settle potential claims arising from a Grand Jury Subpoena received by
CommunityONE from the U.S. Attorney dated August 11, 2010 (the “DPA”);

WHEREAS, the Company and the Investor desire, in connection with the foregoing
recapitalization of the Company, (i) to exchange (the “Preferred Exchange”) all
of the Preferred Shares beneficially owned and held by the Investor for shares
of Common Stock representing twenty-five percent (25%) of the aggregate
liquidation preference of the Preferred Shares at the Purchase Price, (ii) to
exchange (the “Dividend Exchange”) all accrued and unpaid dividends under the
Preferred Shares outstanding immediately prior to the Closing Date for
additional shares of Common Stock at the Purchase Price (such shares of Common
Stock described in clauses (i) and (ii), the “Exchange Shares”), and (iii) to
amend the terms of that certain warrant, dated February 13, 2009, to purchase
2,207,143 shares of Common Stock granted by the Company for the benefit of the
Investor (the “Old Warrant”) pursuant to an amended and restated warrant to
purchase 2,207,143 shares of Common Stock, in substantially the form attached
hereto as Annex A (the “Amended Warrant”), on the terms and subject to the
conditions set forth herein (the “Warrant Exchange” and together with the
Preferred Exchange and the Dividend Exchange, the “Exchange”).

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

ARTICLE I

THE CLOSING; CONDITIONS TO THE CLOSING

Section 1.1    The Closing.

(a)    The closing of the Exchange (the “Closing”) will take place at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the
Americas, New York, New York, 10019, or remotely via the electronic or other
exchange of documents and signature pages, as the parties may agree. The Closing
shall take place on the day of the closing of the transactions contemplated by
the Investment Agreements; provided that the conditions set forth in
Section 1.1(c) and (d) shall have been satisfied or waived, or at such other
place, time and date as shall be agreed between the Company and the Investor.
The time and date on which the Closing occurs is referred to in this Agreement
as the “Closing Date”.

(b)    Subject to the fulfillment or waiver of the conditions to the Closing in
this Section 1.1, at the Closing (i) the Company will deliver the Amended
Warrant and the Exchange Shares to the Investor, as evidenced by one or more
certificates dated the Closing Date and registered in the name of the Investor
or its designee(s) (or if shares of Common Stock are uncertificated, cause the
transfer agent for the Common Stock to register the Exchange Shares in the name
of the Investor and deliver reasonably satisfactory evidence of such
registration to the Investor) and (ii) the Investor will deliver the certificate
representing the Preferred Shares and the original Old Warrant to the Company.

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

 

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

(i)    the Company shall have called a meeting of its shareholders to vote on
(A) an amendment to the Company’s Articles of Incorporation (the “Articles
Amendment”) reflecting an increase in the amount of authorized shares of Common
Stock sufficient to issue all shares of Common Stock to be issued to the Equity
Investors and to the Investor as contemplated by this Agreement (the “Articles
Amendment Proposal”), (B) the issuance of shares of Common Stock to the Equity
Investors and the Investor as contemplated by this Agreement and as required by
Rule 5635 of the NASDAQ Listing Rules (the “Share Issuance Proposal”), and
(C) an amendment to the Company’s Articles of Incorporation reflecting the
approval of a 100 for 1 reverse stock split of the Common Stock (the “Reverse
Stock Split”), if such approval is required by the NASDAQ Listing Rules or as
the Company otherwise deems necessary (the “Stock Split Proposal,” and together
with the Articles Amendment Proposal and the Stock Split Proposal, the
“Shareholder Proposals”), and each of the Shareholder Proposals shall have been
approved by a majority of the votes cast on such proposal at such meeting (the
“Requisite Shareholder Vote”);

(ii)    all conditions precedent to the Merger (other than those conditions that
by their nature are to be satisfied at the closing of the Merger) shall have
been satisfied on the terms set forth therein;

(iii)    the Company shall have filed with the State of North Carolina the
Articles Amendment and such filing shall have been accepted;

(iv)    all conditions precedent to the transactions contemplated by the
Investment Agreements (other than those conditions that by their nature are to
be satisfied at the closing of the transactions contemplated by the Investment
Agreements) shall have been satisfied on the terms set forth therein so that
simultaneously with the Closing, the Company shall issue Common Stock to the
Lead Investors in accordance with the Investment Agreements and shall issue
Common Stock to the Additional Equity Investors in the Private Placement for
aggregate gross proceeds to the Company of not less than $310,000,000;

(v)    the SunTrust Settlement shall have been effected;

(vi)    the DPA shall have become effective;

(vii)    all approvals required to be obtained under the written agreement
entered into by the Company with the Federal Reserve Bank of Richmond shall have
been obtained;

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

(ix)    the Investor shall have received a certificate signed on behalf of the
Company by a senior executive officer certifying to the effect that the
conditions set forth in Section 1.1(d)(viii) have been satisfied;

(x)    the Investor shall have received a certificate signed on behalf of the
Company by a senior executive officer thereof certifying that all conditions
precedent to the Closing have been satisfied or waived;

 

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

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

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

(xiv)    the Exchange Shares and Warrant Shares (as defined below) shall have
been authorized for listing on the NASDAQ Stock Market (“NASDAQ”), subject to
official notice of issuance; and

(xv)    (A) the Company shall have effected such changes to its compensation,
bonus, incentive and other benefit plans, arrangements and agreements (including
golden parachute, severance and employment agreements) (collectively, “Benefit
Plans”) with respect to its Senior Executive Officers and any other employee of
the Company or its Affiliates subject to Section 111 of the Emergency Economic
Stabilization Act of 2008, as amended by the American Recovery and Reinvestment
Act of 2009, or otherwise from time to time (“EESA”), as implemented by any
guidance, rule or regulation thereunder, as the same shall be in effect from
time to time (collectively, the “Compensation Regulations”) (and to the extent
necessary for such changes to be legally enforceable, each of its Senior
Executive Officers and other employees shall have duly consented in writing to
such changes), as may be necessary, during the period in which any obligation of
the Company arising from financial assistance under the Troubled Asset Relief
Program remains outstanding (such period, as it may be further described in the
Compensation Regulations, the “Relevant Period”), in order to comply with
Section 111 of EESA or the Compensation Regulations and (B) the Investor shall
have received a certificate signed on behalf of the Company by a Senior
Executive Officer certifying to the effect that the condition set forth in
Section 1.1(d)(xv)(A) has been satisfied; “Senior Executive Officers” means the
Company’s “senior executive officers” as defined in Section 111 of the EESA and
the Compensation Regulations.

Section 1.2    Interpretation. When a reference is made in this Agreement to
“Recitals,” “Articles,” “Sections,” “Annexes” or “Schedules” such reference
shall be to a Recital, Article or Section of, or Annex or Schedule to, this
Agreement, unless otherwise indicated. The terms defined in the singular have a
comparable meaning when used in the plural, and vice versa. References to
“herein”, “hereof”, “hereunder” and the like refer to this Agreement as a whole
and not to any particular section or provision, unless the context requires
otherwise. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed followed by the words “without limitation.” No rule of
construction against the draftsperson shall be applied in connection with the
interpretation or enforcement of this Agreement, as this Agreement is the
product of negotiation between sophisticated parties advised by counsel. All
references to “$” or “dollars” mean the lawful currency of the United States of
America. Except as expressly stated in this Agreement, all references to any
statute, rule or regulation are to the statute, rule or regulation as amended,
modified, supplemented or replaced from time to time (and, in the case of
statutes, include any rules and regulations promulgated under the statute) and
to any section of any statute, rule or regulation include any successor to the
section. References to a “business day” shall mean any day except Saturday,
Sunday and any day on which banking institutions in the State of New York
generally are authorized or required by law or other governmental actions to
close.

 

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ARTICLE II

EXCHANGE

Section 2.1    Preferred Exchange; Dividend Exchange.

On the terms and subject to the conditions set forth in this Agreement, upon the
Closing (i) the Company agrees to issue to the Investor, in exchange for its
51,500 Preferred Shares, 80,468,750 Exchange Shares (representing 25% of the
aggregate liquidation preference of the Preferred Shares divided by the Purchase
Price) and (ii) the Investor shall deliver to the Company the Preferred Shares
in exchange for such number of Exchange Shares.

Simultaneously with the Preferred Exchange, the Company shall deliver to the
Investor pursuant to the Dividend Exchange the number of Exchange Shares
(rounded to the nearest whole number) determined by dividing the total amount of
accrued and unpaid dividends in respect of the Preferred Shares as of the
Closing Date that would otherwise be payable to the Investor (rounded to the
nearest whole cent) by the Purchase Price. Following consummation of the
Dividend Exchange, no further cash dividends shall be payable in respect of the
Preferred Shares outstanding immediately prior to the Closing Date.

Section 2.2    Warrant Exchange. On the terms and subject to the conditions set
forth in this Agreement, upon the Closing the Company and the Investor mutually
agree to amend and restate the Old Warrant to reflect the terms and conditions
of the Amended Warrant.

Section 2.3    Exchange Documentation. Settlement of the Exchange will take
place on the Closing Date, at which time the Investor will cause delivery of the
Preferred Shares and the Old Warrant to the Company or its designated agent and
the Company will cause delivery of the Exchange Shares and the Amended Warrant
to the Investor or its designated agent.

Section 2.4    Status of Preferred Shares after Closing. The Preferred Shares
exchanged for the Exchange Shares pursuant to this Article II are being
reacquired by the Company and shall have the status of authorized but unissued
shares of Preferred Stock of the Company undesignated as to series and may be
designated or redesignated and issued or reissued, as the case may be, as part
of any series of preferred stock of the Company; provided that such shares shall
not be reissued as Preferred Shares.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as Previously Disclosed, the Company represents and warrants to the
Investor as of the date hereof and as of the Closing Date that:

Section 3.1    Existence and Power.

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

 

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United States and is authorized thereunder to transact the business of banking.
The Charter and bylaws of the Company, copies of which have been provided to the
Investor prior to the date hereof, are true, complete and correct copies of such
documents as in full force and effect as of the date hereof.

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

Section 3.2    Authorization and Enforceability.

(a)    The Company has the corporate power and authority to execute and deliver
this Agreement and the Amended Warrant and, subject to receipt of the Requisite
Shareholder Vote, to carry out its obligations hereunder and thereunder (which
includes the issuance of the Exchange Shares, the Amended Warrant and the shares
of Common Stock issuable upon exercise of the Amended Warrant (the “Warrant
Shares”)).

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

Section 3.3    Exchange Shares. The Exchange Shares have been duly and validly
authorized by all necessary action except for the approval of the Articles
Amendment Proposal by the Requisite Shareholder Vote, and, when issued and
delivered pursuant to this Agreement following receipt of such Shareholder
Requisite Vote, such Exchange Shares will be duly and validly issued and fully
paid and nonassessable, will not be issued in violation of any preemptive
rights, and will not subject the holder thereof to personal liability.

Section 3.4    Amended Warrant and Warrant Shares. The Amended Warrant has been
duly and validly authorized and, when executed and delivered as contemplated
hereby, will constitute a valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms, except as the same
may be limited by applicable Bankruptcy Exceptions. The Warrant Shares have been
duly authorized and reserved for issuance by the Company and when so issued and
delivered in accordance with the terms of the Amended Warrant will be validly
issued, fully paid and non-assessable, without the necessity of any approval of
its stockholders.

 

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Section 3.5    Non-Contravention.

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

(b)    Other than the filing of the amendment to its Articles of Incorporation
as contemplated by Section 1.1(d)(iii) with the State of North Carolina, any
current report on Form 8-K required to be filed with the Securities and Exchange
Commission (“SEC”), such filings and approvals as are required to be made or
obtained, and such approvals as are required to be obtained under the written
agreement entered into by the Company with the Federal Reserve Bank of Richmond,
under any state “blue sky” laws and such consents and approvals that have been
made or obtained, no notice to, filing with or review by, or authorization,
consent or approval of, any Governmental Entity is required to be made or
obtained by the Company in connection with the consummation by the Company of
the Exchange except for any such notices, filings, reviews, authorizations,
consents and approvals the failure of which to make or obtain would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.

(c)    Except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, (A) the execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby (including for this purpose the consummation of
the Exchange and the Other Transactions) and compliance by the Company with the
provisions hereof will not (1) result in any payment (including any severance
payment, payment of unemployment compensation, “excess parachute payment”
(within the meaning of the Internal Revenue Code of 1986, as amended (the
“Code”)), “golden parachute payment” (as defined in the EESA, as implemented by
the Compensation Regulations) or forgiveness of indebtedness or otherwise)
becoming due to any current or former employee, officer or director of the
Company or any Company Subsidiary from the Company or any Company Subsidiary
under any benefit plan or otherwise, (2) increase any benefits otherwise payable
under any benefit plan, (3) result in any acceleration of the time of payment or
vesting of any such benefits, (4) require the funding or increase in the funding
of any such benefits or (5) result in any limitation on the right of the Company
or any Company Subsidiary to amend, merge, terminate or receive a reversion of
assets from any benefit plan or related trust and (B) neither the Company nor
any Company Subsidiary has taken, or permitted to be taken, any action that
required, and no circumstances exist that will require the funding, or increase
in the funding, of any benefits or resulted, or will result, in any limitation
on the right of the Company or any Company Subsidiary to amend, merge, terminate
or receive a reversion of assets from any benefit plan or related trust.

 

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Section 3.6    Anti-Takeover Provisions and Rights Plan. The Board of Directors
has taken all necessary action to ensure that the transactions contemplated by
this Agreement and the Amended Warrant and the consummation of the transactions
contemplated hereby and thereby, including the exercise of the Amended Warrant
in accordance with its terms, will be exempt from any anti-takeover or similar
provisions of the Company’s Charter and bylaws, and any other provisions of any
applicable “moratorium”, “control share”, “fair price”, “interested stockholder”
or other anti-takeover laws and regulations of any jurisdiction. The Company has
taken all actions necessary to render the Tax Benefits Preservation Plan, dated
April 15, 2011, as amended by an amendment dated April 26, 2011, between the
Company and Registrar and Transfer Company as Rights Agent (the “Tax Benefits
Preservation Plan”) and any other shareholders’ rights plan of the Company
inapplicable to this Agreement, the Exchange Shares and the Amended Warrant and
the consummation of the transactions contemplated hereby and thereby, including
the exercise of the Amended Warrant by the Investor in accordance with its
terms.

Section 3.7    No Company Material Adverse Effect. Since December 31, 2010, no
fact, circumstance, event, change, occurrence, condition or development has
occurred that, individually or in the aggregate, has had or would reasonably be
likely to have a Company Material Adverse Effect, except as disclosed on
Schedule B.

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

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

ARTICLE IV

COVENANTS

Section 4.1    Commercially Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties will use its commercially
reasonable efforts in good faith to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or desirable, or
advisable under applicable laws, so as to permit consummation of the Exchange,
including the consummation of the investments contemplated by the Investment
Agreements and Subscription Agreements, the Merger Agreement, the SunTrust
Settlement and the DPA as promptly as practicable and otherwise to enable
consummation of the transactions contemplated hereby and shall use commercially
reasonable efforts to cooperate with the other party to that end.

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

Section 4.3    Exchange Listing. If requested by the Investor, the Company
shall, at the Company’s expense, cause the Amended Warrant, to the extent the
Amended Warrant complies with applicable listing requirements, to be listed on
the NASDAQ or other national stock exchange, subject to official notice of
issuance, and shall maintain such listing for so long as any Common Stock is
listed on such exchange. On or

 

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prior to the Closing, the Company shall, at its expense, cause the Exchange
Shares and the Warrant Shares to be listed on the NASDAQ, subject to official
notice of issuance, and shall maintain such listing for so long as any Common
Stock is listed on such exchange.

Section 4.4    Access, Information and Confidentiality.

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

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

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

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

Section 4.5    Executive Compensation.

(a)    Benefit Plans. During the Relevant Period, the Company shall take all
necessary action to ensure that the Benefit Plans of the Company and its
Affiliates comply in all respects with, and shall take all other actions
necessary to comply with, Section 111 of the EESA, as implemented by the
Compensation

 

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Regulations, and neither the Company nor any Affiliate shall adopt any new
Benefit Plan (i) that does not comply therewith or (ii) that does not expressly
state and require that such Benefit Plan and any compensation thereunder shall
be subject to any relevant Compensation Regulations adopted, issued or released
on or after the date any such Benefit Plan is adopted. To the extent that EESA
and/or the Compensation Regulations are amended or otherwise change during the
Relevant Period in a manner that requires changes to then-existing Benefit
Plans, or that requires other actions, the Company and its Affiliates shall
effect such changes to its or their Benefit Plans, and take such other actions,
as promptly as practicable after it has actual knowledge of such amendments or
changes in order to be in compliance with this Section 4.5(a) (and shall be
deemed to be in compliance for a reasonable period to effect such changes). In
addition, the Company and its Affiliates shall take all necessary action, other
than to the extent prohibited by applicable law or regulation applicable outside
of the United States, to ensure that the consummation of the transactions
contemplated by this Agreement will not accelerate the vesting, payment or
distribution of any equity-based awards, deferred cash awards or any
nonqualified deferred compensation payable by the Company or any of its
Affiliates.

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

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

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

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

Section 4.6    Certain Notifications Until Closing.

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

 

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aggregate, has had or would reasonably be likely to have a Company Material
Adverse Effect; provided, however, that delivery of any notice pursuant to this
Section 4.6 shall not limit or affect any rights of or remedies available to the
Investor; provided, further, that a failure to comply with this Section 4.6
shall not constitute a breach of this Agreement or the failure of any condition
set forth in Section 1.1 to be satisfied unless the underlying Company Material
Adverse Effect or material breach would independently result in the failure of a
condition set forth in Section 1.1 to be satisfied.

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

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

Section 4.9    Status Reports. The Company has informed the Investor that the
Company intends to pursue certain other transactions described below (the “Other
Transactions”) each with a target date for consummation as indicated (a
“Targeted Completion Date”):

(a)    The closings of the investments contemplated by the Investment Agreements
and Subscription Agreements in the Private Placement in which Equity Investors
will provide a minimum aggregate amount of $310,000,000 in gross cash proceeds
to the Company in exchange for Common Stock concurrently with the Closing;

(b)    The closing of the Merger immediately following the Closing;

(c)    The approval of the Shareholder Proposals prior to the Closing;

(d)    The filing of the Articles Amendment prior to the Closing;

(e)    The effectuation of the Reverse Stock Split on or before the three
(3) month anniversary of the Closing;

(f)    The closing of the SunTrust Settlement at or prior to the Closing;

(g)    The effectiveness of the DPA prior to the Closing;

(h)    The status of all approvals required to be obtained under the written
agreement entered into by the Company with the Federal Reserve Bank of Richmond
prior to the Closing;

(i)    The receipt of the approvals of the Federal Reserve Bank of Richmond
prior to the Closing; and

(j)    The closing of the Warrant Offering on or before the first anniversary of
the Closing Date.

The Company will use its commercially reasonable efforts to consummate each of
the Other Transactions by its applicable Targeted Completion Date. Until all of
the Other Transactions have been consummated (or the Company and the Investor
agree that one or more of the Other Transactions is no longer susceptible to
consummation on terms and conditions that are in the Company’s best interest),
the Company shall provide the Investor with a reasonably detailed written report
regarding the status of each of the Other Transactions at least

 

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once every two weeks and more frequently if reasonably requested by the
Investor; provided, however, that if any one or more of the Other Transactions
is not consummated by the time of its Targeted Completion Date, the Company
shall, with respect to any such non-consummated Other Transaction, (x) within
five business days after the Targeted Completion Date for such Other Transaction
provide to the Investor a reasonably detailed written description of the status
of such Other Transaction including the Company’s best estimate of the steps and
timeline to complete such Other Transaction (the “Status Report”) and
(y) thereafter, no less frequently than monthly and more frequently if
reasonably requested by the Investor until such Other Transactions have been
consummated, provide to the Investor an updated version of the Status Report.

Section 4.10    Amendment of Agreements relating to Other Transactions. The
Company will not, without the prior written consent of the Investor, (i) agree
to any amendment, waiver or modification of the Investment Agreements, the
Subscription Agreements, and any other documents governing the terms of the
Other Transactions (other than corrections of obvious errors, if any, or other
ministerial amendments) or (ii) enter into any new agreements relating to the
Other Transactions, in each case to the extent such amendment, waiver,
modification or new agreement is adverse to the Investor’s interests under this
Agreement.

ARTICLE V

ADDITIONAL AGREEMENTS

Section 5.1    Unregistered Exchange Shares.    The Investor acknowledges that
the Exchange Shares and the Warrant Shares have not been registered under the
Securities Act or under any state securities laws. The Investor (a) is acquiring
the Exchange Shares pursuant to an exemption from registration under the
Securities Act solely for investment with no present intention to distribute
them to any person in violation of the Securities Act or any applicable U.S.
state securities laws, (b) will not sell or otherwise dispose of any of the
Exchange Shares or the Warrant Shares, except in compliance with the
registration requirements or exemption provisions of the Securities Act and any
applicable U.S. state securities laws, and (c) has such knowledge and experience
in financial and business matters and in investments of this type that it is
capable of evaluating the merits and risks of the Exchange and of making an
informed investment decision.

Section 5.2    Legend.

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

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

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

Section 5.3    Certain Transactions.

(a)    The Company will not merge or consolidate with, or sell, transfer or
lease all or substantially all of its property or assets to, any other party
unless the successor, transferee or lessee party (or its ultimate

 

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parent entity), as the case may be (if not the Company), expressly assumes the
due and punctual performance and observance of each and every covenant,
agreement and condition of this Agreement and the Amended Warrant to be
performed and observed by the Company.

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

Section 5.4    Transfer of Exchange Shares and Warrant Shares. Subject to
compliance with applicable securities laws, the Investor shall be permitted to
transfer, sell, assign or otherwise dispose of (“Transfer”) all or a portion of
the Exchange Shares, Amended Warrant or Warrant Shares at any time, and the
Company shall take all steps as may be reasonably requested by the Investor to
facilitate the Transfer of the Exchange Shares, the Amended Warrant and the
Warrant Shares.

Section 5.5    Registration Rights.

(a)    The Exchange Shares, Amended Warrant and Warrant Shares shall be
Registrable Securities under the Securities Purchase Agreement and, upon their
issuance, the provisions of Section 4.5 of the Securities Purchase Agreement
shall be applicable to them, including with the benefit, to the extent
available, of the tacking of any holding period from the date of issuance of the
Preferred Shares and Old Warrant. The Investor acknowledges that, on the date
hereof, the Company is not eligible to file a registration statement on Form S-3
covering the Exchange Shares, the Amended Warrant and Warrant Shares, and the
Company shall not be obligated to file a Shelf Registration Statement (as
defined in Section 4.5 of the Securities Purchase Agreement) unless and until
requested to do so in writing by the Investor.

(b)    In connection with any underwritten offering of the Exchange Shares, the
Amended Warrant and/or the Warrant Shares by the Investor, the Company shall
cause each of its directors, officers and all holders of its shares who
beneficially own in excess of four (4) percent of the then outstanding shares of
the Company, to execute and deliver customary lock up agreements, in such form
and for such time period as may be requested by the managing underwriter.

(c)    Notwithstanding anything to the contrary set forth in the Securities
Purchase Agreement, all Selling Expenses (as defined in Section 4.5 of the
Securities Purchase Agreement) relating to any offering of the Exchange Shares,
Amended Warrant and Warrant Shares shall be borne by the Company.

(d)    Section 4.5(a)(vi) of the Securities Purchase Agreement is hereby amended
and restated as follows:

If either (x) the Company grants “piggyback” registration rights to one or more
third parties to include their securities in an underwritten offering under the
Shelf Registration Statement pursuant to Section 4.5(a)(ii) or (y) a Piggyback
Registration under Section 4.5(a)(iv) relates to an underwritten offering, and
in either case, following consultation with the Investor, the managing
underwriters advise the Company and the Investor that in their reasonable
opinion the number of securities requested to be included in such offering
exceeds the number which can be sold without adversely affecting the
marketability of such offering (including any adverse effect on the per share
offering price), the Company will include in such offering only such number of
securities that in the

 

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reasonable opinion of such managing underwriters can be sold without adversely
affecting the marketability of the offering (including an adverse effect on the
per share offering price), which securities will be so included in the following
order of priority: (A) first, in either case, the Registrable Securities of the
Investor, (B) second, in the case of a Piggyback Registration under
Section 4.5(a)(iv), the securities the Company proposes to sell, (C) third, the
Registrable Securities of all other Holders who have requested inclusion of
Registrable Securities pursuant to Section 4.5(a)(ii) or Section 4.5(a)(iv), as
applicable, pro rata on the basis of the aggregate number of such securities or
shares owned by each such person and (D) fourth, any other securities of the
Company that have been requested to be so included, subject to the terms of this
Agreement.

Section 5.6    Voting Matters.

(a)    The Investor will vote, or cause to be voted, or exercise its right to
consent (or cause its right to consent to be exercised) with respect to, all
Exchange Shares and Warrant Shares beneficially owned by it and its controlled
Affiliates (and which are entitled to vote on such matter) with respect to each
matter on which holders of Common Stock are entitled to vote or consent, other
than a Designated Matter, in the same proportion (for, against or abstain) as
all other shares of the Company’s Common Stock (other than those shares held by
holders of greater than 20% of the Company’s Common Stock) are voted or consents
are given with respect to each such matter. The Investor agrees to attend all
meetings of the Company’s shareholders in person or by proxy for purposes of
obtaining a quorum. In order to effectuate the foregoing agreements, to the
maximum extent permitted by applicable law, the Investor hereby grants a proxy
appointing each of the Chairman of the Board and Secretary of the Company
attorney-in-fact and proxy for it and its controlled Affiliates with full power
of substitution, for and in the name of it and its controlled Affiliates, to
vote, express consent or dissent, or otherwise to utilize such voting power in
the manner and solely on the terms provided by this Section 5.6 with respect to
the Exchange Shares and the Warrant Shares and the Investor hereby revokes any
and all previous proxies granted with respect to the Exchange Shares and the
Warrant Shares for purposes of the matters contemplated in this Section 5.6;
provided that such proxy may only be exercised if the Investor fails to comply
with the terms of this Section 5.6. The proxy granted hereby is irrevocable
prior to the termination of this Agreement, is coupled with an interest and is
granted in consideration of the Company entering into this Agreement and issuing
the Exchange Shares and Amended Warrant to the Investor.

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

Section 5.7    Restriction on Dividends and Repurchases.

(a)    Until the earlier of (i) February 13, 2012, or (ii) such time as the
Investor ceases to own any debt or equity securities of the Company or an
Affiliate of the Company acquired pursuant to this Agreement or the Amended
Warrant, neither the Company nor any Company Subsidiary shall, without the
consent of the Investor:

(i)    declare or pay any dividend or make any distribution on the Common Stock
(other than (A) regular quarterly cash dividends of not more than the amount of
the last quarterly cash dividend per share declared or, if lower, publicly
announced an intention to declare, on the Common Stock prior to February 13,
2009 as adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction, (B) dividends payable solely in shares
of Common Stock, (C) dividends or distributions of rights or Junior Stock in
connection with a stockholders’ rights plan (including the Tax Benefit
Preservation Plan) and (D) dividends or distributions of rights in the Warrant
Offering, in accordance with the terms set forth on Schedule 5.7(a)(D)); or

(ii)    redeem, purchase or acquire any shares of Common Stock or other capital
stock or other equity securities of any kind of the Company, or any trust
preferred securities issued by the Company or any Affiliate of the Company,
other than (A) redemptions, purchases or other acquisitions of shares

 

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

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

Section 5.8    Repurchase of Investor Securities. From and after the date of
this Agreement, the agreements set forth in Section 4.9 of the Securities
Purchase Agreement shall be applicable (including to the Amended Warrant)
following the Transfer by the Investor of all of the Exchange Shares held by the
Investor to one or more third parties not affiliated with the Investor. For the
avoidance of doubt, the Exchange Shares may not be repurchased by the Company
pursuant to this Section 5.8 or Section 4.9 of the Securities Purchase
Agreement.

Section 5.9    Bank Holding Company Status. The Company shall maintain its
status as a Bank Holding Company for as long as the Investor owns any debt or
equity securities of the Company or an Affiliate of the Company acquired
pursuant to this Agreement.

Section 5.10    Compliance with Employ American Workers Act. Until the Company
is no longer deemed a recipient of funding under Title I of EESA or Section 13
of the Federal Reserve Act for purposes of the EAWA, as the same may be
determined pursuant to any regulations or other legally binding guidance
promulgated under EAWA, the Company shall comply, and the Company shall take all
necessary action to ensure that its subsidiaries comply, in all respects with
the provisions of the EAWA and any regulations or other legally binding guidance
promulgated under the EAWA.

 

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Section 5.11    Observer to the Board of Directors. So long as the Investor and
its Affiliates beneficially own at least 5% of the issued and outstanding Common
Stock (treating all securities beneficially owned by the Investor and its
Affiliates that are convertible into or exchangeable or exercisable for Common
Stock as converted, exchanged or exercised), the Investor shall be entitled to
designate one individual to serve as an observer (the “Observer”) to the Board
of Directors of the Company, which designation may be changed from time to time
in the sole discretion of the Investor. The Observer shall be entitled to
(i) attend all meetings of the Board of Directors of the Company and the board
of directors of each subsidiary of the Company, including any committee meetings
of such boards of directors, (ii) receive notices of such meetings concurrently
with the members of the Board of Directors of the Company or such boards of
directors or committees thereof and (iii) receive all information provided to
members of the Board of Directors of the Company or such boards of directors or
committees thereof at such meetings.

The Observer shall have no voting rights and his or her presence shall not be
required for determining a quorum at any meeting he or she is entitled to attend
pursuant to this Section 5.11.

ARTICLE VI

MISCELLANEOUS

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

(a)    by either the Investor or the Company if the Closing shall not have
occurred by October 31, 2011; provided, however, that in the event the Closing
has not occurred by such date, the parties will consult in good faith to
determine whether to extend the term of this Agreement, it being understood that
the parties shall be required to consult only until the fifth day after such
date and not be under any obligation to extend the term of this Agreement
thereafter; provided, further, that the right to terminate this Agreement under
this Section 6.1(a) shall not be available to any party whose breach of any
representation or warranty or failure to perform any obligation under this
Agreement shall have caused or resulted in the failure of the Closing to occur
on or prior to such date;

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

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

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

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

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

 

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

Section 6.5    Governing Law; Submission to Jurisdiction, etc. This Agreement
and any claim, controversy or dispute arising under or related to this
Agreement, the relationship of the parties, and/or the interpretation and
enforcement of the rights and duties of the parties shall be enforced, governed,
and construed in all respects (whether in contract or in tort) in accordance
with the federal law of the United States if and to the extent such law is
applicable, and otherwise in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State.
Each of the parties hereto agrees (a) to submit to the exclusive jurisdiction
and venue of the United States District Court for the District of Columbia and
the United States Court of Federal Claims for any and all civil actions, suits
or proceedings arising out of or relating to this Agreement or the Amended
Warrant or the Exchange contemplated hereby and (b) that notice may be served
upon (i) the Company at the address and in the manner set forth for notices to
the Company in Section 6.6 and (ii) the Investor at the address and in the
manner set forth for notices to the Company in Section 6.6, but otherwise in
accordance with federal law. To the extent permitted by applicable law, each of
the parties hereto hereby unconditionally waives trial by jury in any civil
legal action or proceeding relating to this Agreement or the Amended Warrant or
the Exchange contemplated hereby.

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

If to the Company:

FNB United Corp.

150 South Fayetteville Street

Asheboro, North Carolina 27203

Chief Financial Officer

Fax: (336) 328-1633

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

Arnold & Porter LLP

555 Twelfth Street NW

Washington, DC 20004

Attn: Brian McCormally

Beth DeSimone

Fax: (202) 942-5999

and

Schell Bray Aycock Abel & Livingston PLLC

230 North Elm Street, Suite 1500

Greensboro, NC 27401

Attn: Melanie Samson Tuttle

Fax: (336) 370-8830

 

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If to the Investor:

United States Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

Attention: Chief Counsel Office of Financial Stability

Facsimile: (202) 927-9225

Email: OFSChiefCounselNotices@do.treas.gov

With a copy to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019

Attention: T. Robert Zochowski, Jr., Esq.

Telephone: (212) 373-3000

Facsimile: (212) 757-3990

Section 6.7     Definitions.

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

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

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

(d)      The term “Company Material Adverse Effect” means a material adverse
effect on the business, results of operation or financial condition of the
Company and its consolidated subsidiaries taken as a whole; provided, however,
that Company Material Adverse Effect shall not be deemed to include: (i) the
effects of (A) changes after the date hereof in general business, economic or
market conditions (including changes generally in prevailing interest rates,
credit availability and liquidity, currency exchange rates and price levels or
trading volumes in the United States or foreign securities or credit markets),
or any outbreak or escalation of hostilities, declared or undeclared acts of war
or terrorism, in each case generally affecting the industries or geographic
areas in which the Company and its subsidiaries operate, (B) changes or proposed
changes after the date hereof in GAAP or regulatory accounting requirements, or
authoritative interpretations thereof, (C) changes or proposed changes after the
date hereof in securities, banking and other laws of general applicability or
related policies or interpretations of Governmental Entities (in the case of
each of these clauses (A), (B) and (C), other than changes or occurrences to the
extent that such changes or occurrences have or would reasonably be expected to
have a materially disproportionate adverse effect on the Company and its
consolidated subsidiaries taken as a whole relative to comparable U.S. banking
or

 

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financial services organizations), (D) changes in the market price or trading
volume of the Common Stock or any other equity, equity-related or debt
securities of the Company or its consolidated subsidiaries (it being understood
and agreed that the exception set forth in this clause (D) does not apply to the
underlying reason giving rise to or contributing to any such change);
(E) actions or omissions of the Company or any Company Subsidiary expressly
required by the terms of the Exchange; or (ii) the ability of the Company to
consummate the Exchange and the other transactions contemplated by this
Agreement and perform its obligations hereunder on a timely basis.

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

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

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

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

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

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

(k)      To the extent any securities issued pursuant to this Agreement or the
transactions contemplated hereby are registered in the name of a designee of the
Investor pursuant to Section 1.1 or 6.8 or transferred to an Affiliate of the
Investor, all references herein to the Investor holding or owning any debt or
equity securities of the Company, Exchange Shares or Registrable Securities (and
any like variations thereof) shall be deemed to refer to the Investor, together
with such designees and/or Affiliates, holding or owning any debt or equity
securities, Exchange Shares or Registrable Securities (and any like variations
thereof), as applicable.

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

 

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an Affiliate, the Investor shall be relieved of its obligations under this
Agreement but (i) all rights, remedies and obligations of the Investor hereunder
shall continue and be enforceable and exercisable by such Affiliate, and
(ii) the Company’s obligations and liabilities hereunder shall continue to be
outstanding.

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

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

Section 6.11    Entire Agreement, etc. This Agreement (including the Annexes and
Schedules hereto) constitutes the entire agreement, and supersedes all other
prior agreements, understandings, representations and warranties, both written
and oral, between the parties, with respect to the subject matter hereof. For
the avoidance of doubt, the Securities Purchase Agreement shall remain in full
force and effect, but shall be deemed amended hereby, and any provisions in this
Agreement that supplement, duplicate or contradict any provision of the
Securities Purchase Agreement shall be deemed to supersede the corresponding
provision of the Securities Purchase Agreement from and after the effective date
hereof.

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

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

[Remainder of Page Intentionally Left Blank]

 

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

 

  FNB UNITED CORP.   By:   

/s/ R. Larry Campbell

     Name: R. Larry Campbell      Title:   Interim President and CEO   UNITED
STATES DEPARTMENT OF THE TREASURY   By:   

/s/ Mathew Pendo

     Name: Mathew Pendo      Title:   Chief Investment Officer

 

 

 

 

 

[Signature Page to Exchange Agreement]

 

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