Exhibit 10.1

SUBORDINATED NOTE PURCHASE AGREEMENT

This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of
September 18, 2020, and is made by and among Pinnacle Bankshares Corporation, a
Virginia corporation (the “Company”), and the several purchasers of the
Subordinated Notes (as defined herein) identified on the signature pages hereto
(each, a “Purchaser” and, together with the several other purchasers of the
Subordinated Notes, the “Purchasers”).

RECITALS

WHEREAS, the Company has requested that the Purchasers purchase from the Company
up to $8,000,000 in aggregate principal amount of Subordinated Notes, which
aggregate principal amount is intended to qualify as Tier 2 Capital (as defined
herein);

WHEREAS, the Company has engaged Performance Trust Capital Partners, LLC, as its
exclusive placement agent (“Placement Agent”) for the offering of the
Subordinated Notes;

WHEREAS, each of the Purchasers is an institutional “accredited investor” as
such term is defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
(“Regulation D”) promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), or a “qualified institutional buyer” as such term is defined
in Rule 144A promulgated under the Securities Act (“QIB”);

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; and

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 to this Agreement (the “Subordinated Note Amount”) in accordance with the
terms, subject to the conditions and in reliance on, the recitals,
representations, warranties, covenants and agreements set forth herein and in
the Subordinated Notes.

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

AGREEMENT

 

1.

DEFINITIONS.

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

“Affiliate(s)” means, with respect to any Person, such Person’s immediate family
members, partners, members or parent and subsidiary corporations, and any other
Person directly or indirectly controlling, controlled by, or under common
control with said Person and their respective Affiliates.

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

 

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“Bank” means First National Bank, a national banking association organized under
the laws of the United States 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 Commonwealth of Virginia are permitted or
required by any applicable law or executive order to close.

“Bylaws” means the Bylaws of the Company, including all amendments thereto, as
in effect on the Closing Date.

“Charter” means the Articles of Incorporation of the Company, including all
amendments thereto, as in effect on the Closing Date.

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

“Closing Date” means September 18, 2020.

“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 4.3(d).

“Company’s Reports” means (a) audited consolidated financial statements of the
Company for the year ended December 31, 2019; (b) the unaudited consolidated
financial statements of the Company for the period ended June 30, 2020; and
(c) the Company’s reports for the period ended December 31, 2019 and the period
ended June 30, 2020 as filed with the Federal Reserve as required by regulations
of the Federal Reserve.

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

“Disqualification Event” has the meaning set forth in Section 4.3(d).

“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.

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

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

“FDIC” means the Federal Deposit Insurance Corporation.

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

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

“Governmental Agency(ies)” means, 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.

 

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

“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. § 7401 et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. § 1251 et seq.; the Resource Conservation and
Recovery Act of 1976, as amended, 42 U.S.C. § 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.
§ 9601 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. § 2601
et seq.; the Occupational Safety and Health Act, as amended, 29 U.S.C. § 651,
the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §
11001 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. §
801 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 300f et seq.; and all
comparable state and local laws, laws of other jurisdictions or orders and
regulations.

“Indebtedness” means: (a) 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 (b) all obligations secured by any lien on 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.

“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.

“Material Adverse Effect” means, with respect to any Person, any change or
effect that (a) is or would be reasonably likely to be material and adverse to
the financial condition, results of operations or business or assets of such
Person, or (b) 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, either alone or in combination, of (i) changes in banking and
similar laws, rules or regulations of general applicability or interpretations
thereof by Governmental Agencies, (ii) changes in GAAP or regulatory accounting
requirements applicable to financial institutions and their holding companies
generally, (iii) 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, (iv) 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, (v) changes in global or national
political conditions, including the outbreak or escalation of war or acts of
terrorism, (vi) actions required by any Governmental Agency affecting financial
institutions generally and not specifically related to the Company, the Bank or
the Purchasers, (vii) pandemics, epidemics, disease outbreaks, public health
events or other similar events, and (viii) 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 and the Subordinated
Notes.

 

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“Maturity Date” means September 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 Agent” 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 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.

“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 Exhibit A hereto, as amended,
restated, supplemented or modified from time to time, and each Subordinated Note
delivered in substitution or exchange for such Subordinated Note.

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

“Subsidiary” means with respect to any Person, any corporation or entity (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(a).

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 and the Subordinated
Notes shall be deemed to be to such documents as amended, modified or restated
from time to time. With respect to any reference in this Agreement to any
defined term, (i) if such defined term refers

 

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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 in an aggregate principal amount equal to the aggregate of
the Subordinated Note Amounts. The Purchasers, severally and not jointly, each
agree to purchase the Subordinated Notes 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 and the Subordinated Notes. The Subordinated Note
Amounts shall be disbursed in accordance with Section 3.1. The Subordinated
Notes shall bear interest per annum as set forth in the Subordinated Notes. The
unpaid principal balance of the Subordinated Notes plus all accrued but unpaid
interest thereon shall be due and payable on the Maturity Date, or such earlier
date on which such amount shall become due and payable on account of
(a) acceleration by the Purchasers in accordance with the terms of the
Subordinated Notes and this Agreement or (b) the Company’s delivery of a notice
of redemption or repayment in accordance with the terms of the Subordinated
Notes. Any partial redemption of the Subordinated Notes shall be made on a pro
rata pass-through distribution of principal among all of the Subordinated Notes
outstanding at the time thereof.

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

2.3 Maturity Date. On the Maturity Date, all sums due and owing under this
Agreement and 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 and not subject to any guarantee
of any Affiliate of the Company.

2.5 The Closing. The closing of the sale and purchase of the Subordinated Notes
(the “Closing”) shall occur remotely via the electronic or other exchange of
documents and signature pages at 10:00 a.m. (Eastern 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 matters concerning payments and
application of payments shall be as set forth in this Agreement and in the
Subordinated Notes.

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 to support the purchase price consideration to be paid by the
Company in connection with its pending merger with Virginia Bank Bankshares,
Inc. (“Virginia Bank”), if consummated, and to provide optionality for various
growth opportunities and for general corporate purposes.

 

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3.

DISBURSEMENT.

3.1 Disbursement. On the Closing Date, assuming all of the terms and conditions
set forth in Section 3.2 and Section 3.3 have been satisfied by the Company and
the Company has executed and delivered to each of the Purchasers this Agreement
and such Purchaser’s Subordinated Note and any other related documents in form
and substance reasonably satisfactory to the Purchasers, each Purchaser shall
disburse to the Company in immediately available funds the Subordinated Note
Amount set forth on each Purchaser’s respective signature page to this Agreement
in exchange for a Subordinated Note with a principal amount equal to such
Subordinated Note Amount (the “Disbursement”). The Company will deliver to the
respective Purchaser one or more certificates representing the Subordinated
Notes in definitive form (or provide evidence of the same with the original to
be delivered by the Company by overnight delivery on the next calendar day in
accordance with the delivery instructions of the Purchaser), registered in such
names and denominations as such Purchasers may request.

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

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

(b) Authority Documents.

(i) A copy, certified by the Secretary or Assistant Secretary of the Company, of
the Charter of the Company;

(ii) A certificate of existence of the Company issued by the State Corporation
Commission of the Commonwealth of Virginia;

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

(iv) 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 Notes and the execution,
delivery and performance of the Transaction Documents;

(v) 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

(vi) The opinion of Troutman Pepper Hamilton Sanders LLP, counsel to the
Company, dated as of the Closing Date, substantially in the form set forth at
Exhibit B attached hereto addressed to the Purchasers and the Placement Agent.

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

 

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(d) Aggregate Investments. Prior to, or contemporaneously with the Closing, each
Purchaser shall have actually subscribed for the Subordinated Note Amount set
forth on such Purchaser’s signature page to this Agreement.

3.3 Conditions to the Company’s Obligation. With respect to a given Purchaser,
the obligation of the Company to consummate the sale of the Subordinated Notes
and to effect the Closing is subject to delivery by or at the direction of such
Purchaser to the Company of this Agreement, duly authorized and executed by such
Purchaser and the Company’s receipt of the Subordinated Note Amount set forth on
such Purchaser’s signature page.

 

4.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company hereby represents and warrants to each Purchaser as follows:

4.1 Organization and Authority.

(a) The Company is a duly organized corporation, is validly existing and in good
standing under the laws of the Commonwealth of Virginia 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. The Company is duly registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended.

(b) Set forth on Schedule 4.1(b) are the direct or indirect Subsidiaries of the
Company. 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
a national banking association organized under the laws of the United States, in
each case in good standing under the laws of the jurisdiction of its
incorporation or organization, 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 or such Subsidiary. Except
for the shares of the Bank’s capital stock pledged to Community Bankers’ Bank in
connection with the Company’s line of credit, 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; 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.

(c) 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.
§ 1813, nor has any event occurred which could reasonably be expected to
materially and adversely affect the status of the Bank as an FDIC-insured
institution.

4.2 Capital Stock and Related Matters. The Charter of the Company authorizes the
Company to issue 3,000,000 shares of common stock, par value $3.00 per share and
1,000,000 shares of preferred stock, par value $3.00 per share. As of the date
of this Agreement, there are 1,563,922 shares of

 

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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 (i) the Company’s equity incentive plans duly
adopted by the Company’s Board of Directors and (ii) that certain agreement and
plan of reorganization, dated January 21, 2020 and amended on June 9, 2020, and
the related plan of merger pursuant to which Virginia Bank will merge with and
into the Company, with the Company being the surviving company in the merger.

4.3 No Impediment to Transactions.

(a) Transaction is Legal and Authorized. The issuance of the Subordinated Notes,
the borrowing of the aggregate of the Subordinated Note Amount, 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.

(b) Agreement. This Agreement has been duly authorized, executed and delivered
by the Company, and, assuming due authorization, execution and delivery by the
other parties hereto, constitutes the legal, valid and binding obligations of
the Company, enforceable against the Company 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.

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

(d) Exemption from Registration; No Disqualification Event. 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 Regulation D (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) of Regulation D.

(e) No Defaults or Restrictions. Neither the execution and delivery of the
Transaction Documents by the Company nor compliance by the Company 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: (A) the Charter or Bylaws of the
Company; (B) 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

 

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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; (C) 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
(D) any statute, rule or regulation applicable to the Company, except, in the
case of items (B), (C) or (D), 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.

(f) 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.

4.4 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; 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;
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; 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.

4.5 Financial Condition.

(a) Company Financial Statements. The financial statements 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
stockholders’ equity and financial position of the Company and its consolidated
Subsidiaries, as applicable, 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,

 

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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.

(b) Absence of Default. Since the end of the Company’s last fiscal year ended
December 31, 2019, no event has occurred which either of itself or with the
lapse of time or the giving of notice or both, would give any creditor of 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, noncompliance with which could reasonably be expected to
result in a Material Adverse Effect on the Company.

(c) 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.

(d) Ownership of Property. The Company and each of its Subsidiaries has good and
marketable title as to all real property owned by it and good 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, 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.

4.6 No Material Adverse Effect. Since the end of the Company’s last fiscal year
ended 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
and its Subsidiaries, taken as a whole.

 

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4.7 Legal Matters.

(a) Compliance with Law. The Company and each of its Subsidiaries (i) has
complied with and (ii) is not under investigation with respect to, and, to the
Company’s knowledge, 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. 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.

(b) Regulatory Enforcement Actions. The Company, the Bank and the Company’s
other Subsidiaries, if any, 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.

(c) 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 its Subsidiaries, taken as a whole, or affect
issuance or payment of 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 its
Subsidiaries, taken as a whole.

(d) 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.

(e) Brokerage Commissions. Except for commissions paid or payable to the
Placement Agent, 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.

 

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(f) 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.

4.8 Internal Accounting Controls. The Company, the Bank and each other
Subsidiary has established and maintains proper and adequate internal accounting
controls that provide reasonable assurance that (a) all material transactions
are executed with the authorization of the Company’s management, (b) all
material transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, (c) access to the Company’s
material assets is permitted only in accordance with the authorization of the
Company’s management. Such internal accounting controls are 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, to the Company’s knowledge, there has not been and there
currently is not (x) any material deficiency in the design or operation of its
internal accounting controls which is reasonably likely to have a Material
Adverse Effect on such system of internal accounting controls, or (b) any fraud
that involves management or other employees who have a role in the Company’s or
the Bank’s internal accounting controls.

4.9 Tax Matters. The Company, Bank and each Subsidiary of the Company have
(a) 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
(b) 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.

 

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.

 

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5.3 Compliance with Laws.

(a) 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.

(b) 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 (or the effect thereof if such laws and
regulations were enforced) 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.

(c) 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 Subsidiary 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. 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.

(d) Corporate Existence. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect: (i) the corporate
existence of the Company; (ii) the existence (corporate or other) of each
Subsidiary; and (iii) the rights (constituent governing documents and
statutory), licenses and franchises of the Company and each of its Subsidiaries;
provided, however, that the Company will not be required to preserve the
existence (corporate or other) of any of its Subsidiaries or any such right,
license or franchise of the Company or any of its Subsidiaries if the Board of
Directors of the Company determines that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries
taken as a whole and that the loss thereof will not be disadvantageous in any
material respect to the Noteholders (as defined under the Subordinated Notes).

(e) Dividends, Payments, and Guarantees During Event of Default. Upon the
occurrence of an Event of Default (as defined under the Subordinated Notes),
until such Event of Default is cured by the Company or waived by the Noteholders
(as defined under the Subordinated Notes) in accordance with Section 16 (Waiver
and Consent) of the Subordinated Notes and except as required by any federal or
state Governmental Agency, the Company shall not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock; (ii) make any
payment of principal of, or interest or premium, if any, on, or repay,
repurchase or redeem any of the Company’s Indebtedness that ranks equal with or
junior to the Subordinated Notes; or (iii) make any payments under any guarantee
that ranks equal with or junior to the Subordinated Notes, other than (A) any
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, any class of the Company’s common stock;
(B) any declaration of a non-cash dividend in connection with the implementation
of a shareholders’ rights plan, or the issuance of stock under any such plan in
the future, or the redemption or repurchase of any such rights pursuant thereto;
(C) as a result of a reclassification of the Company’s capital stock or the
exchange or conversion of one class or series of

 

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the Company’s capital stock for another class or series of the Company’s capital
stock; (D) the purchase of fractional interests in shares of the Company’s
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged; or (E) purchases of any
class of the Company’s common stock related to the issuance of common stock or
rights under any benefit plans for the Company’s directors, officers or
employees or any of the Company’s dividend reinvestment plans.

(f) 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 Noteholder (as defined in the Subordinated Note), and
thereafter the Company and the Noteholder (as defined in the Subordinated Note)
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,
reasonably cooperate with the Purchasers and otherwise reasonably assist the
Purchasers in satisfying the market standards to which Purchasers customarily
adhere or which may be reasonably required in the marketplace or by applicable
rating agencies in connection with any such Secondary Market Transaction.
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 Purchaser and to any Person reasonably
deemed necessary by such 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.

5.6 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.

 

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 of its jurisdiction of
organization or incorporation.

 

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

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

6.4 Purchase for Investment. Such Purchaser acknowledges that the Subordinated
Notes have not been registered under the Securities Act or under any state
securities laws. It is purchasing the Subordinated Note pursuant to an exemption
from registration under the Securities Act solely 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
(a) 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 (b) 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/or the advice of its own legal, financial
or other advisors with regard to, the legal, financial, tax and other
considerations involved in deciding to invest in the Subordinated Notes.

6.7 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: (a) 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; (b) 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 (c) 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 reviewed the information set forth in the Company’s
Reports, the exhibits hereto and the information contained in the data room
established by the Company in connection with the transactions contemplated by
this Agreement.

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

 

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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 Agent. Neither such inquiries nor any other due
diligence investigations conducted by it or its advisors or representatives, if
any, shall modify, amend or affect its right to rely on 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 Agent, except for the express statements, representations and
warranties of the Company made or contained in this Agreement. Furthermore, it
acknowledges that (a) the Placement Agent has not performed any due diligence
review on behalf of it and (b) 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.

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
promulgated under Section 4(a)(2) of the Securities Act and Section 18 of the
Securities Act, or any state securities laws, and accordingly, may be resold,
pledged or otherwise transferred only if exemptions from the Securities Act and
applicable state securities laws are available to it. It 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 all certificates or other instruments representing
the Subordinated Notes will bear the restrictive legend set forth in the form of
Subordinated Note. 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 Agent. It will purchase the Subordinated Note(s) directly from
the Company and not from the Placement Agent and understands that neither the
Placement Agent nor any other broker or dealer has any obligation to make a
market in the Subordinated Notes.

6.13 Tier 2 Capital. If the Company provides notice as contemplated in
Section 5.3(f) of the occurrence of the event contemplated in such section,
thereafter the Company and the Noteholder (as defined in the Subordinated Note)
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
Agent 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

 

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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
Section 8(b) (Merger or Sale of Assets) of the Subordinated Notes, 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 all the
Noteholders (as defined in the Subordinated Note). In addition, in accordance
with the terms of the Subordinated Notes, any transfer of such Subordinated
Notes by the Noteholders (as defined in the Subordinated Note) must be made in
accordance with the Assignment Form attached thereto and the requirements and
restrictions thereof.

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

7.3 Waiver or Amendment. Except as may apply to any particular waiving or
consenting Noteholder, no waiver or amendment of any term, provision, condition,
covenant or agreement herein or in the Subordinated Notes shall be effective
except with the consent of at least fifty percent (50%) of the aggregate
principal amount (excluding any Subordinated Notes held by the Company or any of
its Affiliates) of the Subordinated Notes at the time outstanding; provided,
however, that without the consent of each holder of an affected Subordinated
Note, no such amendment or waiver may: (a) reduce the principal amount of the
Subordinated Note; (b) reduce the rate of or change the time for payment of
interest on any Subordinated Note; (c) extend the maturity of any Subordinated
Note, (d) change the currency in which payment of the obligations of the Company
under this Agreement and the Subordinated Notes are to be made; (e) lower the
percentage of aggregate principal amount of outstanding Subordinated Notes
required to approve any amendment of this Agreement or the Subordinated Notes,
(f) make any changes to Section 5 (Events of Default; Acceleration); Section 6
(Failure to Make Payments); Section 7 (Affirmative Covenants of the Company);
Section 8 (Negative Covenants of the Company), Section 14 (Priority) or
Section 16 (Waiver and Consent) of the Subordinated Notes that adversely affects
the rights of any holder of a Subordinated Note; or (g) disproportionately
affect the rights of any of the holders of the then outstanding Subordinated
Notes. Notwithstanding the foregoing, the Company may amend or supplement the
Subordinated Notes without the consent of the holders of the Subordinated Notes
to cure any ambiguity, defect or inconsistency or to provide for uncertificated
Subordinated Notes in addition to or in place of certificated Subordinated
Notes, or to make any change that does not adversely affect the rights of any
holder of any of the Subordinated Notes. No failure to exercise or delay in
exercising, by a Purchaser or any holder of the Subordinated Notes, of any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof, or the exercise of any other right or remedy
provided by law. The rights and remedies provided in this Agreement are
cumulative and not exclusive of any right or remedy provided by law or equity.
No notice or demand on 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. Failure on the part of the Purchasers to complain of any acts or
failure to act or to declare an Event of Default, irrespective of how long such
failure continues, shall not constitute a waiver by the Purchasers of their
rights hereunder or impair any rights, powers or remedies on account of any
breach or default by the Company.

 

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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 U.S. 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:

  

Pinnacle Bankshares Corporation

622 Broad Street

Altavista, Virginia 24517-1830

Attention: Aubrey H. Hall, III

Chief Executive Officer

with a copy to:

  

Troutman Pepper Hamilton Sanders LLP

1001 Haxall Point

Richmond, Virginia 23219

Attention: Susan S. Ancarrow, Esq.

if to the Purchaser:

  

To the address indicated on the Purchaser’s

signature page hereto.

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 U.S. mail 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).

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, but shall include a purchaser of any
of the Subordinated Notes pursuant to an assignment complying with the
Assignment Form attached to the Subordinated Note.

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.

 

18

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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, and any non-disclosure agreements between a Purchaser and the
Company or the Placement Agent constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and may not be modified
or amended in any manner other than by supplemental written agreement executed
by the parties hereto. No party, in entering into this Agreement, has relied
upon any representation, warranty, covenant, condition or other term that is not
set forth in this Agreement or in the Subordinated Notes.

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 Agent may rely on the representations and
warranties contained herein to the same extent as if it 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.

7.14 Knowledge; Discretion. All references herein to a Purchaser’s or the
Company’s or the Bank’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 HERETO 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

 

19

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DOCUMENTS, OR ANY OTHER STATEMENTS OR ACTIONS OF THE COMPANY OR THE PURCHASERS.
THE PARTIES HERETO 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 HERETO 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 HERETO AND THEIR COUNSEL AND
IS A MATERIAL INDUCEMENT FOR ENTRY INTO THIS 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

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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 written above.

 

COMPANY: PINNACLE BANKSHARES CORPORATION

By:  

 

Name:   Title:  

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

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

 

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

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

SCHEDULE 4.1(b)

Subsidiaries

 

Subsidiary   

State or Other Jurisdiction

Of Incorporation

First National Bank    National banking association FNB Property Corp.   
Virginia corporation First Properties, Inc.    Virginia corporation

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

EXHIBIT A

FORM OF SUBORDINATED NOTE

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

PINNACLE BANKSHARES CORPORATION

5.25% FIXED-TO-FLOATING RATE SUBORDINATED NOTE DUE 2030

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS SUBORDINATED AND JUNIOR
IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS (AS DEFINED IN SECTION 3 OF THIS
SUBORDINATED NOTE) OF PINNACLE BANKSHARES CORPORATION (THE “COMPANY”), INCLUDING
OBLIGATIONS OF THE COMPANY TO ITS GENERAL CREDITORS AND SECURED CREDITORS, AND
IS UNSECURED. IT IS INELIGIBLE AS COLLATERAL FOR ANY EXTENSION OF CREDIT BY THE
COMPANY OR ANY OF ITS SUBSIDIARIES. IN THE EVENT OF LIQUIDATION ALL HOLDERS OF
SENIOR INDEBTEDNESS OF THE COMPANY SHALL BE ENTITLED TO BE PAID IN FULL WITH
SUCH INTEREST AS MAY BE PROVIDED BY LAW BEFORE ANY PAYMENT SHALL BE MADE ON
ACCOUNT OF PRINCIPAL OF OR INTEREST ON THIS SUBORDINATED NOTE. AFTER PAYMENT IN
FULL OF ALL SUMS OWING TO SUCH HOLDERS OF SENIOR INDEBTEDNESS, THE HOLDER OF
THIS SUBORDINATED NOTE, TOGETHER WITH THE HOLDERS OF ANY OBLIGATIONS OF THE
COMPANY RANKING ON A PARITY WITH THE SUBORDINATED NOTES, SHALL BE ENTITLED TO BE
PAID FROM THE REMAINING ASSETS OF THE COMPANY THE UNPAID PRINCIPAL AMOUNT OF
THIS SUBORDINATED NOTE PLUS ACCRUED AND UNPAID INTEREST THEREON BEFORE ANY
PAYMENT OR OTHER DISTRIBUTION, WHETHER IN CASH, PROPERTY OR OTHERWISE, SHALL BE
MADE (I) WITH RESPECT TO ANY OBLIGATION THAT BY ITS TERMS EXPRESSLY IS JUNIOR IN
THE RIGHT OF PAYMENT TO THE SUBORDINATED NOTES, (II) WITH RESPECT TO ANY
INDEBTEDNESS BETWEEN THE COMPANY AND ANY OF ITS SUBSIDIARIES OR AFFILIATES, OR
(III) ON ACCOUNT OF ANY SHARES OF CAPITAL STOCK OF THE COMPANY.

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS NOT A DEPOSIT AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY OR FUND.

THIS SUBORDINATED NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM
DENOMINATIONS OF $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY
ATTEMPTED TRANSFER OF THIS SUBORDINATED NOTE IN A DENOMINATION OF LESS THAN
$100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH
PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SUBORDINATED
NOTE FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PAYMENTS ON
THIS SUBORDINATED NOTE, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO
INTEREST WHATSOEVER IN THIS SUBORDINATED NOTE.

THIS SUBORDINATED NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL
AND STATE SECURITIES LAWS. THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE
STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS
SUBORDINATED NOTE NOR

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

ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

CERTAIN ERISA CONSIDERATIONS:

THE HOLDER OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, BY ITS ACCEPTANCE
HEREOF OR THEREOF AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE
BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT
TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
(“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
“CODE”) (EACH, A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN
ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON
INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS SUBORDINATED NOTE
OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION
CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE
EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SUBORDINATED NOTE, OR ANY INTEREST
HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE
WITH RESPECT TO SUCH PURCHASE AND HOLDING. ANY PURCHASER OR HOLDER OF THIS
SUBORDINATED NOTE OR ANY INTEREST HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY
ITS PURCHASE AND HOLDING THEREOF THAT EITHER: (I) IT IS NOT AN EMPLOYEE BENEFIT
PLAN OR OTHER PLAN TO WHICH TITLE I OF ERISA OR SECTION 4975 OF THE CODE IS
APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH EMPLOYEE
BENEFIT PLAN OR OTHER PLAN, OR ANY OTHER PERSON OR ENTITY USING THE “PLAN
ASSETS” OF ANY SUCH PLAN OR OTHER PLAN TO FINANCE SUCH PURCHASE OR (II) SUCH
PURCHASE OR HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION
406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH FULL EXEMPTIVE RELIEF IS NOT
AVAILABLE UNDER APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

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

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

No.: 2030-[●]    AI CUSIP No.: 72345E AB8 Issue Date: September 18, 2020    QIB
CUSIP No.: 72345E AA0

PINNACLE BANKSHARES CORPORATION

5.25% FIXED-TO-FLOATING RATE SUBORDINATED NOTE DUE 2030

1. Subordinated Notes. This Subordinated Note is one of an issue of notes of
Pinnacle Bankshares Corporation, a Virginia corporation (the “Company”),
designated as the “5.25% Fixed-to-Floating Rate Subordinated Notes due 2030”
(the “Subordinated Notes”) issued pursuant to that Subordinated Note Purchase
Agreement, dated as of September 18, 2020, the date upon which this Subordinated
Note was originally issued (the “Issue Date”), between the Company and the
several purchasers of the Subordinated Notes identified in the signature pages
thereto (the “Purchase Agreement”).

2. Payment. The Company, for value received, promises to pay to [●], or its
registered assigns, the principal sum of [●] Dollars (U.S.) ($[●]), plus accrued
but unpaid interest on September 30, 2030 (“Stated Maturity”) and to pay
interest thereon (i) from and including the Issue Date of the Subordinated Notes
to but excluding September 30, 2025 or the earlier redemption date contemplated
by Section 4 of this Subordinated Note (the “Fixed Rate Period”), at the rate of
5.25% per annum, computed on the basis of a 360-day year consisting of twelve
30-day months and payable quarterly in arrears on March 30, June 30,
September 30 and December 30 (each payment date, a “Fixed Rate Interest Payment
Date”) of each year, beginning December 30, 2020, and (ii) from and including
September 30, 2025 to but excluding the Stated Maturity or the earlier
redemption date contemplated by Section 4 of this Subordinated Note, at the rate
per annum, reset quarterly, equal to the Floating Interest Rate (as defined
below) determined on the Floating Interest Determination Date (as defined below)
of the applicable interest period plus 513 basis points, computed on the basis
of a 360-day year and the actual number of days elapsed and payable quarterly in
arrears on March 30, June 30, September 30 and December 30 (each quarterly
period, a “Floating Rate Period”) of each year (each payment date, a “Floating
Rate Interest Payment Date”). In the event that the Benchmark (as defined below)
for such Floating Rate Period is less than zero, the Benchmark for such Floating
Rate Period shall be deemed to be zero. Dollar amounts resulting from this
calculation shall be rounded to the nearest cent, with one-half cent being
rounded up. The term “Floating Interest Determination Date” means the date upon
which the Floating Interest Rate is determined by the Calculation Agent (as
defined below) pursuant to the Three-Month Term SOFR Conventions (as defined
below). Any payment of principal of or interest on this Subordinated Note that
would otherwise become due and payable on a day which is not a Business Day (as
defined below) shall become due and payable on the next succeeding Business Day,
with the same force and effect as if made on the date for payment of such
principal or interest, and no interest will accrue in respect of such payment
for the period after such day; provided, that in the event that any scheduled
Floating Rate Interest Payment Date falls on a day that is not a Business Day
and the next succeeding Business Day falls in the next succeeding calendar
month, such Floating Rate Interest Payment Date will be accelerated to the
immediately preceding Business Day, and, in each such case, the amounts payable
on such Business Day will include interest accrued to, but excluding, such
Business Day.

 

1

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(a) The Company shall take such actions as are necessary to ensure that from the
commencement of the Floating Rate Period for so long as any of the Subordinated
Notes remain outstanding there will at all times be a Calculation Agent
appointed to calculate Three-Month Term SOFR in respect of each Floating Rate
Period. The calculation of Three-Month Term SOFR for each applicable Floating
Rate Period by the Calculation Agent will (in the absence of manifest error) be
final and binding. The Calculation Agent’s determination of any interest rate
and its calculation of interest payments for any period will be maintained on
file at the Calculation Agent’s principal offices, will be made available to any
Noteholder (as defined below) upon request. The Calculation Agent may be removed
by the Company at any time. If the Calculation Agent is unable or unwilling to
act as Calculation Agent or is removed by the Company, the Company will promptly
appoint a replacement Calculation Agent. The Calculation Agent may not resign
its duties without a successor having been duly appointed; provided, that if a
successor Calculation Agent has not been appointed by the Company and such
successor accepted such position within thirty (30) days after the giving of
notice of resignation by the Calculation Agent, then the resigning Calculation
Agent may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Calculation Agent with respect
to such series. For the avoidance of doubt, if at any time there is no
Calculation Agent appointed by the Company, then the Company shall be the
Calculation Agent.

(b) An “Interest Payment Date” is either a Fixed Rate Interest Payment Date or a
Floating Rate Interest Payment Date, as applicable.

(c) The “Floating Interest Rate” means:

(i) initially Three-Month Term SOFR (as defined below).

(ii) Notwithstanding the foregoing clause (i) of this Section 2(c):

(A) If the Calculation Agent determines prior to the relevant Floating Interest
Determination Date that a Benchmark Transition Event and its related Benchmark
Replacement Date (each of such terms as defined below) have occurred with
respect to Three-Month Term SOFR, then the Company shall promptly provide notice
of such determination to the Noteholders and Section 2(d) will thereafter apply
to all determinations, calculations and quotations made or obtained for the
purposes of calculating the Floating Interest Rate payable on the Subordinated
Notes during a relevant Floating Rate Period.

(B) However, 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, but for any reason the Benchmark Replacement has not been
determined as of the relevant Floating Interest Determination Date, the Floating
Interest Rate for the applicable Floating Rate Period will be equal to the
Floating Interest Rate on the last Floating Interest Determination Date for the
Subordinated Notes, as determined by the Calculation Agent.

(d) Effect of Benchmark Transition Event.

(i) If the Calculation Agent determines that a Benchmark Transition Event and
its related Benchmark Replacement Date have occurred prior to the Reference Time
(as defined below) in respect of any determination of the Benchmark (as defined
below) on any date, the

 

2

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Benchmark Replacement will replace the then-current Benchmark for all purposes
relating to the Subordinated Notes during the relevant Floating Rate Period in
respect of such determination on such date and all determinations on all
subsequent dates.

(ii) In connection with the implementation of a Benchmark Replacement, the
Calculation Agent will have the right to make Benchmark Replacement Conforming
Changes from time to time and such changes shall become effective without
consent from the Noteholders or any other party.

(iii) The Calculation Agent is expressly authorized to make certain
determinations, decisions and elections under the Subordinated Notes, including
with respect to the use of Three-Month Term SOFR as the Benchmark under this
Section 2(d). Any determination, decision or election that may be made by the
Calculation Agent under the terms of the Subordinated Notes, including any
determination with respect to a tenor, rate or adjustment or of the occurrence
or non-occurrence of an event, circumstance or date, and any decision to take or
refrain from taking any action or any selection:

(A) will be conclusive and binding absent manifest error;

(B) if made by the Company as the Calculation Agent, will be made in the
Company’s sole discretion;

(C) if made by the Calculation Agent other than the Company, will be made after
consultation with the Company, and the Calculation Agent will not make any such
determination, decision or election to which the Company reasonably objects; and

(D) notwithstanding anything to the contrary in this Subordinated Note or the
Purchase Agreement, shall become effective without consent from the relevant
Noteholders or any other party.

(iv) If the Calculation Agent fails to make any determination, decision or
election that it is required to make under the terms of the Subordinated Notes,
then the Company will make such determination, decision or election on the same
basis as described above.

(v) For the avoidance of doubt, after a Benchmark Transition Event and its
related Benchmark Replacement Date have occurred, interest payable on this
Subordinated Note for the Floating Rate Period will be an annual rate equal to
the sum of the applicable Benchmark Replacement and the spread specified on the
face hereof.

(vi) If the then-current Benchmark is Three-Month Term SOFR, the Calculation
Agent will have the right to establish the Three-Month Term SOFR Conventions,
and if any of the foregoing provisions concerning the calculation of the
interest rate and the payment of interest during the Floating Rate Period are
inconsistent with any of the Three-Month Term SOFR Conventions determined by the
Calculation Agent, then the relevant Three-Month Term SOFR Conventions will
apply.

 

3

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(vii) As used in this Subordinated Note:

(A) “Benchmark” means, initially, Three-Month Term SOFR; provided that if the
Calculation Agent determines on or prior to the Reference Time that a Benchmark
Transition Event and its related Benchmark Replacement Date have occurred with
respect to Three-Month Term SOFR or the then-current Benchmark, then “Benchmark”
means the applicable Benchmark Replacement. In the event that the Benchmark for
a Floating Rate Period is less than zero, the Benchmark for such Floating Rate
Period shall be deemed to be zero.

(B) “Benchmark Replacement” means the Interpolated Benchmark with respect to the
then-current Benchmark, plus the Benchmark Replacement Adjustment for such
Benchmark; provided that if (a) the Calculation Agent cannot determine the
Interpolated Benchmark as of the Benchmark Replacement Date or (b) the
then-current Benchmark is Three-Month Term SOFR and a Benchmark Transition Event
and its related Benchmark Replacement Date have occurred with respect to
Three-Month Term SOFR (in which event no Interpolated Benchmark with respect to
Three-Month Term SOFR shall be determined), then “Benchmark Replacement” means
the first alternative set forth in the order below that can be determined by the
Calculation Agent as of the Benchmark Replacement Date:

(1) Compounded SOFR;

(2) the sum of: (i) the alternate rate of interest that has been selected or
recommended by the Relevant Governmental Body as the replacement for the
then-current Benchmark for the applicable Corresponding Tenor and (ii) the
Benchmark Replacement Adjustment;

(3) the sum of: (i) the ISDA Fallback Rate and (ii) the Benchmark Replacement
Adjustment;

(4) the sum of: (i) the alternate rate of interest that has been selected by the
Calculation Agent as the replacement for the then-current Benchmark for the
applicable Corresponding Tenor giving due consideration to any industry-accepted
rate of interest as a replacement for the then-current Benchmark for U.S. dollar
denominated floating rate notes at such time and (ii) the Benchmark Replacement
Adjustment.

If the Benchmark Replacement, as determined pursuant to clause (1), (2), (3) or
(4) above would be less than zero (0), the Benchmark Replacement will be deemed
to be zero (0).

(C) “Benchmark Replacement Adjustment” means the first alternative set forth in
the order below that can be determined by the Calculation Agent as of the
Benchmark Replacement Date:

(1) the spread adjustment, or method for calculating or determining such spread
adjustment, (which may be a positive or negative value or zero) that has been
selected or recommended by the Relevant Governmental Body for the applicable
Unadjusted Benchmark Replacement;

(2) if the applicable Unadjusted Benchmark Replacement is equivalent to the ISDA
Fallback Rate, then the ISDA Fallback Adjustment;

 

4

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(3) the spread adjustment (which may be a positive or negative value or zero)
that has been selected by the Calculation Agent giving due consideration to any
industry-accepted spread adjustment, or method for calculating or determining
such spread adjustment, for the replacement of the then-current Benchmark with
the applicable Unadjusted Benchmark Replacement for U.S. dollar denominated
floating rate notes at such time.

(D) “Benchmark Replacement Conforming Changes” means, with respect to any
Benchmark Replacement, any technical, administrative or operational changes
(including changes to the definition of “Floating Rate Period,” timing and
frequency of determining rates with respect to each Floating Rate Period and
making payments of interest, rounding of amounts or tenors, and other
administrative matters) that the Calculation Agent decides may be appropriate to
reflect the adoption of such Benchmark Replacement in a manner substantially
consistent with market practice (or, if the Calculation Agent decides that
adoption of any portion of such market practice is not administratively feasible
or if the Calculation Agent determines that no market practice for use of the
Benchmark Replacement exists, in such other manner as the Calculation Agent
determines is reasonably necessary).

(E) “Benchmark Replacement Date” means the earliest to occur of the following
events with respect to the then-current Benchmark:

(1) in the case of clause (1) of the definition of “Benchmark Transition Event,”
the relevant Reference Time in respect of any determination; or

(2) in the case of clause (2) or clause (3) of the definition of “Benchmark
Transition Event,” the later of (i) the date of the public statement or
publication of information referenced therein and (ii) the date on which the
administrator of the Benchmark permanently or indefinitely ceases to provide the
Benchmark; or

(3) in the case of clause (4) of the definition of “Benchmark Transition Event,”
the date of the public statement or publication of information referenced
therein.

For the avoidance of doubt, for purposes of the definitions of Benchmark
Replacement Date and Benchmark Transition Event, references to the Benchmark
also include any reference rate underlying the Benchmark (for example, if the
Benchmark becomes Compounded SOFR, references to the Benchmark would include
SOFR).

For the avoidance of doubt, if the event giving rise to the Benchmark
Replacement Date occurs on the same day as, but earlier than, the Reference Time
in respect of any determination, the Benchmark Replacement Date will be deemed
to have occurred prior to the Reference Time for such determination.

(F) “Benchmark Transition Event” means the occurrence of one or more of the
following events with respect to the then-current Benchmark:

(1) if the Benchmark is Three-Month Term SOFR, (i) the Relevant Governmental
Body has not selected or recommended a forward-looking term rate for a tenor of
three months based on SOFR, (ii) 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 (iii) the Company
determines that the use of a forward-looking rate for a tenor of three months
based on SOFR is not administratively feasible;

 

5

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(2) a public statement or publication of information by or on behalf of the
administrator of the Benchmark announcing that such administrator has ceased or
will cease to provide the Benchmark, permanently or indefinitely, provided that,
at the time of such statement or publication, there is no successor
administrator that will continue to provide the Benchmark;

(3) a public statement or publication of information by the regulatory
supervisor for the administrator of the Benchmark, the central bank for the
currency of the Benchmark, an insolvency official with jurisdiction over the
administrator for the Benchmark, a resolution authority with jurisdiction over
the administrator for the Benchmark or a court or an entity with similar
insolvency or resolution authority over the administrator for the Benchmark,
which states that the administrator of the Benchmark has ceased or will cease to
provide the Benchmark permanently or indefinitely, provided that, at the time of
such statement or publication, there is no successor administrator that will
continue to provide the Benchmark; or

(4) a public statement or publication of information by the regulatory
supervisor for the administrator of the Benchmark announcing that the Benchmark
is no longer representative.

(G) “Business Day” means any day that is not a Saturday or Sunday and that is
not a day on which banks in the Commonwealth of Virginia are generally
authorized or required by law or executive order to be closed.

(H) “Calculation Agent” means the agent (which may be the Company or an
Affiliate of the Company) as may be appointed by the Company to act as
Calculation Agent for the Subordinated Notes prior to the commencement of, or
during, the Floating Rate Period to act in accordance with Section 2.

(I) “Compounded SOFR” means the compounded average of SOFRs for the applicable
Corresponding Tenor, with the rate, or methodology for this rate, and
conventions for this rate being established by the Calculation Agent in
accordance with:

(1) the rate, or methodology for this rate and conventions for this rate
selected or recommended by the Relevant Governmental Body for determining
compounded SOFR; provided that:

(2) if, and to the extent that, the Calculation Agent determines that Compounded
SOFR cannot be determined in accordance with clause (1) above, then the rate, or
methodology for this rate, and conventions for this rate that have been selected
by the Calculation Agent giving due consideration to any industry-accepted
market practice for U.S. dollar denominated floating rate notes at such time.

For the avoidance of doubt, the calculation of Compounded SOFR will exclude the
Benchmark Replacement Adjustment and the spread specified on the face hereof.

 

6

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(J) “Corresponding Tenor” with respect to a Benchmark Replacement means a tenor
(including overnight) having approximately the same length (disregarding
Business Day adjustment) as the applicable tenor for the then-current Benchmark.

(K) “FRBNY” means the Federal Reserve Bank of New York.

(L) “FRBNY’s Website” means the website of the FRBNY at
http://www.newyorkfed.org, or any successor source.

(M) “Interpolated Benchmark” with respect to the Benchmark means the rate
determined for the Corresponding Tenor by interpolating on a linear basis
between: (1) the Benchmark for the longest period (for which the Benchmark is
available) that is shorter than the Corresponding Tenor and (2) the Benchmark
for the shortest period (for which the Benchmark is available) that is longer
than the Corresponding Tenor.

(N) “ISDA” means the International Swaps and Derivatives Association, Inc. or
any successor thereto.

(O) “ISDA Definitions” means the 2006 ISDA Definitions published by the ISDA or
any successor thereto, as amended or supplemented from time to time, or any
successor definitional booklet for interest rate derivatives published from time
to time.

(P) “ISDA Fallback Adjustment” means the spread adjustment (which may be a
positive or negative value or zero) that would apply for derivatives
transactions referencing the ISDA Definitions to be determined upon the
occurrence of an index cessation event with respect to the Benchmark for the
applicable tenor.

(Q) “ISDA Fallback Rate” means the rate that would apply for derivatives
transactions referencing the ISDA Definitions to be effective upon the
occurrence of an index cessation date with respect to the Benchmark for the
applicable tenor excluding the applicable ISDA Fallback Adjustment.

(R) “Reference Time” with respect to any determination of the Benchmark means
(a) if the Benchmark is Three-Month Term SOFR, the time determined by the
Calculation Agent after giving effect to the Three-Month Term SOFR Conventions,
and (b) if the Benchmark is not Three-Month Term SOFR, the time determined by
the Calculation Agent after giving effect to the Benchmark Replacement
Conforming Changes.

(S) “Relevant Governmental Body” means the Board of Governors of the Federal
Reserve System (the “Federal Reserve”) and/or the FRBNY, or a committee
officially endorsed or convened by the Federal Reserve and/or the FRBNY or any
successor thereto.

(T) “SOFR” means the daily Secured Overnight Financing Rate provided by the
FRBNY, as the administrator of the benchmark, (or a successor administrator) on
the FRBNY’s Website (or such successor’s website).

 

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(U) “Term SOFR” means the forward-looking term rate for the applicable
Corresponding Tenor based on SOFR that has been selected or recommended by the
Relevant Governmental Body.

(V) “Term SOFR Administrator” means any entity designated by the Relevant
Governmental Body as the administrator of Term SOFR (or successor
administrator).

(W) “Three-Month Term SOFR” means the rate for Term SOFR for a tenor of three
months that is published by the Term SOFR Administrator at the Reference Time
for any Floating Rate Period, as determined by the Calculation Agent after
giving effect to the Three-Month Term SOFR Conventions. All percentages used in
or resulting from any calculation of Three-Month Term SOFR shall be rounded, if
necessary, to the nearest one-hundred-thousandth of a percentage point, with
0.000005% rounded up to 0.00001%.

(X) “Three-Month Term SOFR Conventions” means any determination, decision or
election with respect to any technical, administrative or operational matter
(including with respect to the manner and timing of the publication of
Three-Month Term SOFR, or changes to the definition of “Floating Rate Period,”
timing and frequency of determining Three-Month Term SOFR with respect to each
Floating Rate Period and making payments of interest, rounding of amounts or
tenors, and other administrative matters) that the Calculation Agent decides may
be appropriate to reflect the use of Three-Month Term SOFR as the Benchmark in a
manner substantially consistent with market practice (or, if the Calculation
Agent decides that adoption of any portion of such market practice is not
administratively feasible or if the Calculation Agent determines that no market
practice for the use of Three-Month Term SOFR exists, in such other manner as
the Calculation Agent determines is reasonably necessary).

(Y) “Unadjusted Benchmark Replacement” means the Benchmark Replacement excluding
the Benchmark Replacement Adjustment.

3. Subordination.

(a) The indebtedness of the Company evidenced by this Subordinated Note,
including the principal and interest on this Subordinated Note, shall be
subordinate and junior in right of payment to the prior payment in full of all
existing claims of creditors of the Company whether now outstanding or
subsequently created, assumed, guaranteed or incurred (collectively, “Senior
Indebtedness”), which shall consist of principal of (and premium, if any) and
interest, if any, on: (i) all indebtedness and obligations of, or guaranteed or
assumed by, the Company for money borrowed, whether or not evidenced by bonds,
debentures, securities, notes or other similar instruments, and including, but
not limited to, all obligations to the Company’s general creditors and secured
creditors; (ii) any deferred obligations of the Company for the payment of the
purchase price of property or assets acquired other than in the ordinary course
of business; (iii) all obligations, contingent or otherwise, of the Company in
respect of any letters of credit, bankers’ acceptances, security purchase
facilities and similar direct credit substitutes; (iv) any capital lease
obligations of the Company; (v) all obligations of the Company in respect of
interest rate swap, cap or other agreements, interest rate future or option
contracts, currency swap agreements, currency future or option contracts,
commodity contracts and other similar arrangements or derivative products;
(vi) any obligation of the Company to its general creditors, as defined for

 

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purposes of the capital adequacy regulations of the Federal Reserve applicable
to the Company, as the same may be amended or modified from time to time;
(vii) all obligations that are similar to those in clauses (i) through (vi) of
other Persons (as such term is defined in the Purchase Agreement) for the
payment of which the Company is responsible or liable as obligor, guarantor or
otherwise arising from an off-balance sheet guarantee; (viii) all obligations of
the types referred to in clauses (i) through (vi) of other Persons secured by a
lien on any property or asset of the Company; and (ix) in the case of clauses
(i) through (viii) above, all amendments, renewals, extensions, modifications
and refundings of such indebtedness and obligations; except “Senior
Indebtedness” does not include (A) the Subordinated Notes, (B) any obligation
that by its terms expressly is junior to, or ranks equally in right of payment
with, the Subordinated Notes, or (C) any indebtedness between the Company and
any of its subsidiaries or Affiliates. This Subordinated Note is not secured by
any assets of the Company or any subsidiary or Affiliate of the Company. The
term “Affiliate(s)” means, with respect to any Person, such Person’s immediate
family members, partners, members or parent and subsidiary corporations, and any
other Person directly or indirectly controlling, controlled by, or under common
control with said Person and their respective Affiliates. The term “control”
(including the terms “controlling,” “controlled by,” and “under common control
with”) means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise.

(b) In the event of any liquidation of the Company, holders of Senior
Indebtedness of the Company shall be entitled to be paid in full with such
interest as may be provided by law before any payment shall be made on account
of principal of or interest on this Subordinated Note. Additionally, in the
event of any insolvency, dissolution, assignment for the benefit of creditors or
any liquidation or winding up of or relating to the Company, whether voluntary
or involuntary, holders of Senior Indebtedness shall be entitled to be paid in
full before any payment shall be made on account of the principal of or interest
on the Subordinated Notes, including this Subordinated Note. In the event of any
such proceeding, after payment in full of all sums owing with respect to the
Senior Indebtedness, the registered holders of the Subordinated Notes from time
to time (each, a “Noteholder” and, collectively, the “Noteholders”), together
with the holders of any obligations of the Company ranking on parity with the
Subordinated Notes, shall be entitled to be paid from the remaining assets of
the Company the unpaid principal thereof, and the unpaid interest thereon before
any payment or other distribution, whether in cash, property or otherwise, shall
be made (i) with respect to any obligation that by its terms expressly is junior
to in the right of payment to the Subordinated Notes, (ii) with respect to any
indebtedness between the Company and any of its subsidiaries or Affiliates or
(iii) on account of any capital stock.

(c) If there shall have occurred and be continuing (i) a default in any payment
with respect to any Senior Indebtedness or (ii) an event of default with respect
to any Senior Indebtedness as a result of which the maturity thereof is
accelerated, unless and until such payment default or event of default shall
have been cured or waived or shall have ceased to exist, no payments shall be
made by the Company with respect to the Subordinated Notes, notwithstanding the
provisions of Section 17 hereof. The provisions of this subsection shall not
apply to any payment with respect to which Section 3(b) above would be
applicable.

(d) Nothing herein shall act to prohibit, limit or impede the Company from
issuing additional debt of the Company having the same rank as the Subordinated
Notes or which may be

 

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junior or senior in rank to the Subordinated Notes. Each Noteholder, by its
acceptance hereof, agrees to and shall be bound by the provisions of this
Section 3. Each Noteholder, by its acceptance hereof, further acknowledges and
agrees that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration for each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Subordinated Notes, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness, and such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold or in continuing to hold such
Senior Indebtedness.

4. Redemption.

(a) Redemption Prior to Fifth Anniversary. This Subordinated Note shall not be
redeemable by the Company in whole or in part prior to the fifth (5th)
anniversary of the Issue Date, except in the event of: (i) a Tier 2 Capital
Event (as defined below), (ii) a Tax Event (as defined below) or (iii) an
Investment Company Event (as defined below). Upon the occurrence of a Tier 2
Capital Event, a Tax Event or an Investment Company Event, subject to
Section 4(f) below, the Company may redeem this Subordinated Note in whole or in
part, at any time, upon giving not less than ten (10) calendar days’ notice to
the Noteholder of this Subordinated Note at an amount equal to one hundred
percent (100%) of the outstanding principal amount being redeemed plus accrued
but unpaid interest, to but excluding the redemption date. “Tier 2 Capital
Event” means the Company’s good faith determination that, as a result of (1) any
amendment to, or change in, the laws, rules or regulations of the United States
(including, for the avoidance of doubt, any agency or instrumentality of the
United States, including the Federal Reserve and other federal bank regulatory
agencies) or any political subdivision of or in the United States that is
enacted or becomes effective after the issue date of this Subordinated Note,
(2) any proposed change in those laws, rules or regulations that is announced or
becomes effective after the Issue Date, or (3) any official administrative
decision or judicial decision or administrative action or other official
pronouncement interpreting or applying those laws, rules, regulations, policies
or guidelines with respect thereto that is announced after the issue date of
this Subordinated Note, there is more than an insubstantial risk that the
Company will not be entitled to treat the Subordinated Notes then outstanding as
Tier 2 capital (or its equivalent) for purposes of capital adequacy guidelines
of the Federal Reserve Board, as then in effect and applicable to the Company
(“Tier 2 Capital”), for so long as any Subordinated Notes are outstanding. “Tax
Event” means the receipt by the Company of an opinion of independent tax counsel
experienced in such matters to the effect that as a result of (1) an amendment
to or change (including any announced prospective amendment or change) in any
law or treaty, or any regulation thereunder, of the United States or any of its
political subdivisions or taxing authorities; (2) a judicial decision,
administrative action, official administrative pronouncement, ruling, regulatory
procedure, regulation, notice or announcement, including any notice or
announcement of intent to adopt or promulgate any ruling, regulatory procedure
or regulation (any of the foregoing, an “Administrative or Judicial Action”); or
(3) an amendment to or change in any official position with respect to, or any
interpretation of, an Administrative or Judicial Action or a law or regulation
of the United States that differs from the previously generally accepted
position or interpretation, in each case, which change or amendment or challenge
becomes effective or which pronouncement, decision or challenge is announced on
or after the issue date of this Subordinated Note, there is more than an
insubstantial risk that interest payable by the Company on the Subordinated
Notes is not, or within 90 days of

 

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such opinion, will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes. “Investment Company Event” means
receipt by the Company of an opinion of independent counsel experienced in such
matters to the effect that there is more than an insubstantial risk that the
Company is 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.

(b) Redemption on or after Fifth Anniversary. On or after the fifth (5th)
anniversary of the Issue Date, subject to Section 4(f) below, this Subordinated
Note shall be redeemable at the option of and by the Company, in whole or in
part from time to time upon any Interest Payment Date, at an amount equal to one
hundred percent (100%) of the outstanding principal amount being redeemed plus
accrued but unpaid interest, to but excluding the redemption date. In addition,
the Company may redeem all or a portion of the Subordinated Notes, at any time
upon the occurrence of a Tier 2 Capital Event, Tax Event or an Investment
Company Event. In the case of any redemption of this Subordinated Note pursuant
to this Section 4(b), the Company will give the Noteholder notice of redemption,
which notice shall indicate the aggregate principal amount of Subordinated Notes
to be redeemed, not less than thirty (30) nor more than forty-five (45) calendar
days prior to the proposed redemption date.

(c) Partial Redemption. If less than the then outstanding principal amount of
this Subordinated Note is redeemed, (i) a new Subordinated Note shall be issued
representing the unredeemed portion without charge to the holder thereof and
(ii) such redemption shall be effected on a pro rata basis as to the
Noteholders. For purposes of clarity, upon a partial redemption, a like
percentage of the principal amount of every Subordinated Note held by every
Noteholder shall be redeemed. Such redemptions shall be made on a pro rata
pass-through distribution of principal among all of the Subordinated Notes
outstanding at the time thereof.

(d) No Redemption at Option of Noteholder. This Subordinated Note is not subject
to redemption at the option of the Noteholder.

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

(f) Regulatory Approvals. Any such redemption pursuant to this Section 4 shall
be subject to receipt of any and all required federal and state regulatory
approvals or non-objections, including, but not limited to, the consent of the
Federal Reserve.

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

 

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5. Events of Default; Acceleration. Each of the following events shall
constitute an “Event of Default”:

(a) the entry of a decree or order for relief in respect of the Company by a
court having jurisdiction in the premises in an involuntary case or proceeding
under any applicable bankruptcy, insolvency, or reorganization law, now or
hereafter in effect of the United States or any political subdivision thereof,
and such decree or order will have continued unstayed and in effect for a period
of sixty (60) consecutive calendar days;

(b) the commencement by the Company of a voluntary case under any applicable
bankruptcy, insolvency or reorganization law, now or hereafter in effect of the
United States or any political subdivision thereof, or the consent by the
Company to the entry of a decree or order for relief in an involuntary case or
proceeding under any such law;

(c) the Company (i) becomes insolvent or is unable to pay its debts as they
mature, (ii) makes an assignment for the benefit of creditors, (iii) admits in
writing its inability to pay its debts as they mature, or (iv) ceases to be a
bank holding company or financial holding company under the Bank Holding Company
Act of 1956, as amended;

(d) the failure of the Company to pay any installment of interest on any of the
Subordinated Notes as and when the same will become due and payable, and the
continuation of such failure for a period of fifteen (15) consecutive calendar
days;

(e) the failure of the Company to pay all or any part of the principal of any of
the Subordinated Notes as and when the same will become due and payable;

(f) the liquidation of the Company (for the avoidance of doubt, “liquidation”
does not include any merger, consolidation, sale of equity or assets or
reorganization (exclusive of a reorganization in bankruptcy) of the Company or
any of its subsidiaries);

(g) the failure of the Company to perform any other covenant or agreement on the
part of the Company contained in the Subordinated Notes, and the continuation of
such failure for a period of thirty (30) consecutive calendar days after the
date on which notice specifying such failure, stating that such notice is a
“Notice of Default” hereunder and demanding that the Company remedy the same,
will have been given, in the manner set forth in Section 21, to the Company by a
Noteholder; or

(h) the default by the Company under any bond, debenture, note or other evidence
of indebtedness for money borrowed by the Company having an aggregate principal
amount outstanding of at least $10,000,000 whether such indebtedness now exists
or is created or incurred in the future, which default (i) constitutes a failure
to pay any portion of the principal of such indebtedness when due and payable
after the expiration of any applicable grace period or (ii) results in such
indebtedness becoming due or being declared due and payable prior to the date on
which it otherwise would have become due and payable without, in the case of
clause (i), such indebtedness having been discharged or, in the case of clause
(ii), without such indebtedness having been discharged or such acceleration
having been rescinded or annulled.

 

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Unless the principal amount of this Subordinated Note already shall have become
due and payable, if an Event of Default described in Section 5(a) or
Section 5(b) shall have occurred and be continuing, the Noteholder, by notice in
writing to the Company, may declare the principal amount of this Subordinated
Note to be due and payable immediately and, upon any such declaration, the same
shall become and shall be immediately due and payable. The Company waives
demand, presentment for payment, notice of nonpayment, notice of protest and all
other notices. Notwithstanding the foregoing, because the Company will treat the
Subordinated Notes as Tier 2 Capital, upon the occurrence of an Event of Default
other than an Event of Default described in Section 5(a) or Section 5(b), the
Noteholders may not accelerate the Stated Maturity of the Subordinated Notes and
make the principal of, and any accrued and unpaid interest on, the Subordinated
Notes, immediately due and payable. The Company, within forty-five (45) calendar
days after the receipt of written notice from any Noteholder of the occurrence
of an Event of Default with respect to this Subordinated Note, shall mail to all
Noteholders, at their addresses shown on the Security Register (as defined in
Section 13 below), such written notice of Event of Default, unless such Event of
Default shall have been cured or waived before the giving of such notice as
certified by the Company in writing.

6. Failure to Make Payments. In the event of an Event of Default under
Section 5(c), Section 5(d) or Section 5(e) the Company will, upon demand of the
Noteholder of this Subordinated Note, pay to the Noteholder of this Subordinated
Note the amount then due and payable on this Subordinated Note for principal and
interest (without acceleration of this Subordinated Note in any manner), with
interest on the overdue principal and interest at the per annum rate borne by
this Subordinated Note, to the extent permitted by applicable law. If the
Company fails to pay such amount upon such demand, the Noteholder of this
Subordinated Note may, among other things, institute a judicial proceeding for
the collection of the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same against the Company and
collect the amounts adjudged or decreed to be payable in the manner provided by
law out of the property of the Company.

Upon the occurrence of a failure by the Company to make any required payment of
principal or interest on this Subordinated Note, or an Event of Default until
such Event of Default is cured by the Company or waived by the Noteholders in
accordance with Section 16, the Company shall not, except as required by any
federal or state governmental agency: (a) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company’s capital stock; (b) make any payment of
principal or interest or premium, if any, on or repay, repurchase or redeem any
indebtedness of the Company that ranks equal with or junior to the Subordinated
Notes; or (c) make any payments under any guarantee that ranks equal with or
junior to the Subordinated Notes, other than (i) any dividends or distributions
in shares of, or options, warrants or rights to subscribe for or purchase shares
of, any class of the Company’s common stock; (ii) any declaration of a non-cash
dividend in connection with the implementation of a shareholders’ rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto; (iii) as a result of a
reclassification of the Company’s capital stock or the exchange or conversion of
one class or series of the Company’s capital stock for another class or series
of the Company’s capital stock; (iv) the

 

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purchase of fractional interests in shares of the Company’s capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged; or (v) purchases of any class of the
Company’s common stock related to the issuance of common stock or rights under
any benefit plans for the Company’s directors, officers or employees or any of
the Company’s dividend reinvestment plans (the foregoing clauses (i) through (v)
are collectively referred to as the “Permitted Dividends”).

7. Affirmative Covenants of the Company.

(a) Notice of Certain Events. To the extent permitted by applicable statute,
rule or regulation, the Company shall provide written notice to the Noteholder
of the occurrence of any of the following events as soon as practicable, but in
no event later than fifteen (15) Business Days following the Company becoming
aware of the occurrence of such event:

(i) the Company or the Bank (as defined below) becomes less than
“well-capitalized” as defined in the then-applicable regulatory capital
standards;

(ii) the Company, or any of the Company’s subsidiaries, or any officer of the
Company or any of its subsidiaries, becomes subject to any formal, written
regulatory enforcement action (as defined by the applicable regulatory agency);

(iii) the dollar amount of any nonperforming assets of the Company on a
consolidated basis as of the end of a given fiscal quarter as a percentage of
the Company’s total loan portfolio increases by five percent (5.0%) or more from
the end of the preceding fiscal quarter;

(iv) the appointment, resignation, removal or termination of the chief executive
officer, president, chief operating officer, chief financial officer, chief
credit officer, chief lending officer or any director of the Company; or

(v) there is a change in ownership of twenty-five percent (25%) or more of the
outstanding securities of the Company entitled to vote for the election of
directors.

(b) Payment of Principal and Interest. The Company covenants and agrees for the
benefit of the Noteholder of this Subordinated Note that it will duly and
punctually pay the principal of, and interest on, this Subordinated Note, in
accordance with the terms hereof.

(c) Maintenance of Office. The Company will maintain an office or agency in the
Commonwealth of Virginia where Subordinated Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Subordinated Notes may be served. The Company
may also from time to time designate one or more other offices or agencies where
the Subordinated Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided that no
such designation or rescission will in any manner relieve the Company of its
obligation to maintain an office or agency in the Commonwealth of Virginia. The
Company will give prompt written notice to the Noteholders of any such
designation or rescission and of any change in the location of any such other
office or agency.

 

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(d) Corporate Existence. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect: (i) the corporate
existence of the Company; (ii) the existence (corporate or other) of each
subsidiary; and (iii) the rights (charter and statutory), licenses and
franchises of the Company and each of its subsidiaries; provided, however, that
the Company will not be required to preserve the existence (corporate or other)
of any of its subsidiaries or any such right, license or franchise of the
Company or any of its subsidiaries if the Board of Directors of the Company
determines that the preservation thereof is no longer desirable in the conduct
of the business of the Company and its subsidiaries taken as a whole and that
the loss thereof will not be disadvantageous in any material respect to the
Noteholders.

(e) Maintenance of Properties. The Company will, and will cause each of its
subsidiaries to, cause all its properties used or useful in the conduct of its
business to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section 7 will prevent the
Company or any subsidiary from discontinuing the operation and maintenance of
any of their respective properties if such discontinuance is, in the judgment of
the Board of Directors of the Company or of any subsidiary, as the case may be,
desirable in the conduct of its business.

(f) Compliance Certificate. The Company will deliver to the Noteholders, within
one hundred and twenty (120) calendar days after the end of each fiscal year, an
Officer’s Certificate covering the preceding calendar year, stating whether or
not, to the best of his or her knowledge, the Company is in default in the
performance and observance of any of the terms, provisions and conditions of
this Subordinated Note (without regard to notice requirements or periods of
grace) and if the Company will be in default, specifying all such defaults and
the nature and status thereof of which he or she may have knowledge.

(g) Tier 2 Capital. Whether or not the Company is subject to consolidated
capital requirements under applicable regulations of the Federal Reserve, if all
or any portion of the Subordinated Notes ceases to qualify as Tier 2 Capital,
other than due to the limitation imposed on the capital treatment of
subordinated debt during the five (5) years immediately preceding the Stated
Maturity of the Subordinated Notes, the Company will promptly notify the
Noteholder of this Subordinated Note and thereafter, subject to the Company’s
right to redeem the Subordinated Notes under such circumstances pursuant to the
terms of the Subordinated Notes, if requested by the Company, the Company and
the Noteholder of this Subordinated Note 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 Section 7(g) shall limit the Company’s right to redeem the
Subordinated Notes upon the occurrence of a Tier 2 Capital Event pursuant to
Section 4(a) or Section 4(b).

(h) Compliance with Laws. The Company shall comply with the requirements of all
laws, regulations, orders and decrees applicable to it or its properties, except
for such noncompliance that would not reasonably be expected to have a Material
Adverse Effect (as such term is defined in the Purchase Agreement) on the
Company and its subsidiaries taken as a whole.

 

15

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(i) Taxes and Assessments. The Company shall punctually pay and discharge all
material taxes, assessments, and other governmental charges or levies imposed
upon it or upon its income or upon any of its properties; provided that no such
taxes, assessments or other governmental charges need be paid if they are being
contested in good faith by the Company.

(j) Financial Statements; Access to Records.

(i) Not later than forty-five (45) calendar days following the end of each
fiscal quarter for which the Company has not submitted a Consolidated Financial
Statements for Holding Companies Reporting Form FR Y-9C to the Federal Reserve,
upon request, the Company shall provide the Noteholder with a copy of the
Company’s unaudited parent company only balance sheet and statement of income
(loss) for and as of the end of such immediately preceding fiscal quarter,
prepared in accordance with past practice. Quarterly financial statements, if
required herein, shall be unaudited and need not comply with generally accepted
accounting principles in effect from time to time in the United States of
America (“GAAP”).

(ii) Not later than one hundred twenty (120) days from the end of each fiscal
year for which the Company has not filed its Form 10-K with the U.S. Securities
and Exchange Commission, upon request, the Company shall provide the Noteholder
with copies of the Company’s audited financial statements consisting of the
consolidated balance sheet of the Company as of the fiscal year end and the
related statements of income (loss) and retained earnings, stockholders’ equity
and cash flows for the fiscal year then ended. Such financial statements shall
be prepared in accordance with GAAP applied on a consistent basis throughout the
period involved.

8. Negative Covenants of the Company.

(a) Limitation on Dividends. The Company shall not declare or pay any dividend
or make any distribution on capital stock or other equity securities of any kind
of the Company if the Bank is not “well capitalized” for regulatory capital
purposes immediately prior to the declaration of such dividend or distribution,
except for Permitted Dividends.

(b) Merger or Sale of Assets. The Company shall not merge into another entity,
effect a Change in Bank Control (as defined below), or convey, transfer or lease
substantially all of its properties and assets to any person, unless:

(i) the continuing entity into which the Company is merged or the person which
acquires by conveyance or transfer or which leases substantially all of the
properties and assets of the Company shall be a corporation, association or
other legal entity organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and expressly assumes the
due and punctual payment of the principal of and any premium and interest on the
Subordinated Notes according to their terms, and the due and punctual
performance of all covenants and conditions hereof on the part of the Company to
be performed or observed; and

(ii) immediately after giving effect to such transaction, no Event of Default,
and no event which, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing.

 

16

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“Change in Bank Control” means the sale, transfer, lease or conveyance by the
Company, or an issuance of stock by the Company’s wholly-owned subsidiary, First
National Bank, a national banking association organized under the laws of the
United States (the “Bank”), in either case resulting in ownership by the Company
of less than fifty percent (50%) of the Bank.

9. Denominations. The Subordinated Notes are issuable only in registered form
without interest coupons in minimum denominations of $100,000 and integral
multiples of $1,000 in excess thereof.

10. Charges and Transfer Taxes. No service charge will be made for any
registration of transfer or exchange of this Subordinated Note, or any
redemption or repayment of this Subordinated Note, or any conversion or exchange
of this Subordinated Note for other types of securities or property, but the
Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges that may be imposed in connection with the transfer
or exchange of this Subordinated Note from the Noteholder requesting such
transfer or exchange.

11. Payment Procedures. Payment of the principal and interest payable on the
Stated Maturity will be made by check, by wire transfer or by Automated Clearing
House (ACH) transfer in immediately available funds to a bank account in the
United States designated by the Noteholder of this Subordinated Note if such
Noteholder shall have previously provided wire instructions to the Company, upon
presentation and surrender of this Subordinated Note at the Payment Office (as
defined herein) or at such other place or places as the Company shall designate
by notice to the Noteholders as the Payment Office, provided that this
Subordinated Note is presented to the Company in time for the Company to make
such payments in such funds in accordance with its normal procedures. Payments
of interest (other than interest payable on the Stated Maturity) shall be made
by wire transfer in immediately available funds or check mailed to the
registered Noteholder of this Subordinated Note, as such Person’s address
appears on the Security Register. Interest payable on any Interest Payment Date
shall be payable to the Noteholder in whose name this Subordinated Note is
registered at the close of business on the fifteenth (15th) calendar day prior
to the applicable Interest Payment Date, without regard to whether such date is
a Business Day, except that interest not paid on the Interest Payment Date, if
any, will be paid to the Noteholder in whose name this Subordinated Note is
registered at the close of business on a special record date fixed by the
Company (a “Special Record Date”), notice of which shall be given to the
Noteholder of this Subordinated Note not less than ten (10) calendar days prior
to such Special Record Date. To the extent permitted by applicable law, interest
shall accrue, at the rate at which interest accrues on the principal of this
Subordinated Note, on any amount of principal or interest on this Subordinated
Note not paid when due. All payments on this Subordinated Note shall be applied
first against interest due hereunder; and then against principal due hereunder.
The Noteholder of this Subordinated Note acknowledges and agrees that the
payment of all or any portion of the outstanding principal amount of this
Subordinated Note and all interest hereon shall be pari passu in right of
payment and in all other respects to the other Subordinated Notes. In the event
that the Noteholder of this Subordinated Note receives payments in excess of its
pro rata share of the Company’s payments to the Noteholders of all of the
Subordinated Notes, then the Noteholder of this Subordinated Note shall hold in
trust all such excess payments for the benefit of the Noteholders of the other
Subordinated Notes and shall pay such amounts held in trust to such other
Noteholders upon demand by such Noteholders.

 

17

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12. Form of Payment. Payments of principal of and interest on this Subordinated
Note shall be made in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts.

13. Registration of Transfer, Security Register. Except as otherwise provided
herein, this Subordinated Note is transferable in whole or in part, and may be
exchanged for a like aggregate principal amount of Subordinated Notes of other
authorized denominations, by the Noteholder of this Subordinated Note in person,
or by its attorney duly authorized in writing, at the Payment Office. The
Company shall maintain a register providing for the registration of the
Subordinated Notes and any exchange or transfer thereof (the “Security
Register”). Upon surrender or presentation of this Subordinated Note for
exchange or registration of transfer, the Company shall execute and deliver in
exchange therefor a Subordinated Note or Subordinated Notes of like aggregate
principal amount, each in a minimum denomination of $100,000 or any amount in
excess thereof which is an integral multiple of $1,000 (and, in the absence of
an opinion of counsel satisfactory to the Company to the contrary, bearing the
restrictive legend(s) set forth hereinabove) and that is or are registered in
such name or names requested by the Noteholder. Any Subordinated Note presented
or surrendered for registration of transfer or for exchange shall be duly
endorsed and accompanied by a written instrument of transfer in such form as is
attached hereto and incorporated herein, duly executed by the Noteholder of this
Subordinated Note or its attorney duly authorized in writing, with such tax
identification number or other information for each Person in whose name a
Subordinated Note is to be issued, and accompanied by evidence of compliance
with any restrictive legend(s) appearing on such Subordinated Note or
Subordinated Notes as the Company may reasonably request to comply with
applicable law. No exchange or registration of transfer of this Subordinated
Note shall be made on or after (i) the fifteenth (15th) day immediately
preceding the Stated Maturity or (ii) the due delivery of notice of redemption.

14. Priority. The Subordinated Notes rank pari passu among themselves and pari
passu, in the event of any insolvency proceeding, dissolution, assignment for
the benefit of creditors, reorganization, restructuring of debt, marshaling of
assets and liabilities or similar proceeding or any liquidation or winding up of
the Company, with all other present or future unsecured subordinated debt
obligations of the Company, except any unsecured subordinated debt that,
pursuant to its express terms, is senior or subordinate in right of payment to
the Subordinated Notes.

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

16. Waiver and Consent.

(a) Any consent or waiver given by the Noteholder of this Subordinated Note
shall be conclusive and binding upon such Noteholder and upon all future
Noteholders of this Subordinated Note and of any Subordinated Note issued upon
the registration of transfer hereof or in exchange therefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this

 

18

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Subordinated Note. This Subordinated Note may also be amended or waived pursuant
to, and in accordance with, the provisions of Section 7.3 of the Purchase
Agreement. No delay or omission of the Noteholder of this Subordinated Note to
exercise any right or remedy accruing upon any Event of Default shall impair
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Any insured depository institution which shall be a
Noteholder of this Subordinated Note or which otherwise shall have any
beneficial ownership interest in this Subordinated Note shall, by its acceptance
of such Subordinated Note (or beneficial interest therein), be deemed to have
waived any right of offset with respect to the repayment of the indebtedness
evidenced thereby.

(b) No waiver or amendment of any term, provision, condition, covenant or
agreement in the Subordinated Notes shall be effective except with the consent
of the Noteholders holding not less than more than fifty percent (50%) in
aggregate principal amount (excluding any Subordinated Notes held by the Company
or any of its Affiliates) of the Subordinated Notes at the time outstanding;
provided, however, that without the consent of each Noteholder of an affected
Subordinated Note, no such amendment or waiver may: (i) reduce the principal
amount of any Subordinated Note; (ii) reduce the rate of or change the time for
payment of interest on any Subordinated Note; (iii) extend the maturity of any
Subordinated Note; (iv) change the currency in which payment of the obligations
of the Company under the Subordinated Notes are to be made; (v) lower the
percentage of aggregate principal amount of outstanding Subordinated Notes
required to approve any amendment of the Subordinated Notes; (vi) make any
changes to Section 5 (Events of Default; Acceleration); Section 6 (Failure to
Make Payments); Section 7 (Affirmative Covenants of the Company); Section 8
(Negative Covenants of the Company), Section 14 (Priority) or Section 16 (Waiver
and Consent) of the Subordinated Notes that adversely affects the rights of any
Noteholder; or (vii) disproportionately affect any of the Noteholders of the
then outstanding Subordinated Notes. Notwithstanding the foregoing, the Company
may amend or supplement the Subordinated Notes without the consent of the
Noteholders to cure any ambiguity, defect or inconsistency or to provide for
uncertificated Subordinated Notes in addition to or in place of certificated
Subordinated Notes, or to make any change that does not adversely affect the
rights of any Noteholder of any of the Subordinated Notes. No failure to
exercise or delay in exercising, by any Noteholder 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, except as restricted hereby. The rights and remedies
provided in this Subordinated Note 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 Noteholders to any other or further action in any circumstances without
notice or demand. No consent or waiver, expressed or implied, by the Noteholders
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. Failure on the part of the Noteholders to
complain of any acts or failure to act or to declare an Event of Default,
irrespective of how long such failure continues, shall not constitute a waiver
by the Noteholders of their rights hereunder or impair any rights, powers or
remedies on account of any breach or default by the Company.

 

19

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

18. Successors and Assigns. This Subordinated Note shall be binding upon the
Company, its successors and assigns, and inure to the benefit of the Noteholder
and its respective successors and permitted assigns. The Noteholder may assign
all, or any part of, or any interest in, the Noteholder’s rights and benefits
hereunder only to the extent and in the manner permitted by the terms of this
Note. To the extent of any such assignment, such assignee shall have the same
rights and benefits against the Company and shall agree to be bound by and to
comply with the terms and conditions of the Purchase Agreement as it would have
had if it were the Noteholder hereunder.

19. No Sinking Fund; Convertibility. This Subordinated Note is not entitled to
the benefit of any sinking fund. This Subordinated Note is not convertible into
or exchangeable for any of the equity securities, other securities or assets of
the Company or any subsidiary of the Company.

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

21. Notices. All notices to the Company under this Subordinated Note shall be in
writing and shall be delivered personally, or mailed, postage prepaid, by U.S.
registered or certified mail, return receipt requested, or sent by a responsible
overnight commercial courier promising next business day delivery, to the
Company at Pinnacle Bankshares Corporation, 622 Broad Street, Altavista,
Virginia 24517-1830, Attention: Aubrey H. Hall, III, Chief Executive Officer, or
to such other address as the Company may provide to the Noteholders (the
“Payment Office”). All notices to the Noteholders shall be in writing and shall
be mailed, postage prepaid, by U.S. registered or certified mail, return receipt
requested, or sent by email to each Noteholder at such Noteholder’s address as
set forth in the Security Register. 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 U.S. mail as
aforesaid or, if sent by overnight courier, the Business Day following the date
of delivery to such courier (provided that next business day delivery was
requested).

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

 

20

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23. Governing Law; Interpretation. THIS SUBORDINATED NOTE WILL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND WILL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. THIS SUBORDINATED NOTE IS INTENDED
TO MEET THE CRITERIA FOR QUALIFICATION OF THE OUTSTANDING PRINCIPAL AS TIER 2
CAPITAL UNDER THE REGULATORY GUIDELINES OF THE FEDERAL RESERVE, AND THE TERMS
HEREOF SHALL BE INTERPRETED IN A MANNER TO SATISFY SUCH INTENT.

[Signature Page Follows]

 

21

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IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note to be duly
executed and attested.

 

PINNACLE BANKSHARES CORPORATION

By:  

 

Name:   [●] Title:   [●]

 

ATTEST:

 

Name: [●] Title: [●]

 

[Signature Page to Subordinated Note]

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ASSIGNMENT FORM

To assign this Subordinated Note, fill in the form below: (I) or (we) assign and
transfer this Subordinated Note to:

 

 

(Print or type assignee’s name, address and zip code)

 

(Print or type assignee’s social security or tax identification no.)

and irrevocably appoint                            as agent to transfer this
Subordinated Note on the books of the Company. The agent may substitute another
to act for it.

 

Date:

         Your signature:              (Sign exactly as your name appears on the
face of this Subordinated Note)

       Tax identification no:    

Signature guarantee:

   

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

The undersigned certifies that it [is / is not] an Affiliate of the Company and
that, to its knowledge, the proposed transferee [is / is not] an Affiliate of
the Company.

In connection with any transfer or exchange of this Subordinated Note occurring
prior to the date that is one year after the later of the date of original
issuance of this Subordinated Note and the last date, if any, on which this
Subordinated Note was owned by the Company or any Affiliate of the Company, the
undersigned confirms that this Subordinated Note is being:

CHECK ONE BOX BELOW:

 

☐

   (1)   

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

☐

   (2)   

transferred to the Company;

☐

   (3)   

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

☐

   (4)   

transferred under an effective registration statement under the Securities Act;

☐

   (5)   

transferred in accordance with and in compliance with Regulation S under the
Securities Act;

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   (6)   

transferred to an institutional “accredited investor” (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act);

   (7)   

transferred to an “accredited investor” (as defined in Rule 501(a)(4) under the
Securities Act), not referred to in item (6) that has been provided with the
information designated under Section 4(d) of the Securities Act; or

   (8)   

transferred in accordance with another available exemption from the registration
requirements of the Securities Act.

Unless one of the boxes is checked, the Company will refuse to register this
Subordinated Note in the name of any Person other than the registered holder
thereof; provided, however, that if box (5), (6), (7) or (8) is checked, the
Company may require, prior to registering any such transfer of this Subordinated
Note, in its sole discretion, such legal opinions, certifications and other
information as the Company may reasonably request to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act, such as the exemption
provided by Rule 144 under the Securities Act.

 

Assignee’s signature:    

 

Signature guarantee:

   

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

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

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

 

Date:

         Assignee’s signature:    

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EXHIBIT B

OPINION OF COUNSEL

1. Based solely on the certificate of existence and other certificates provided
by the Company, the Company (i) has been incorporated and is validly existing
under the laws of the Commonwealth of Virginia, (ii) 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 (iii) is duly qualified or
licensed to do business and is in good standing as a foreign corporation
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 on the Company
and any of its Subsidiaries.

2. 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.

3. 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.

4. The Subordinated Notes have been duly and validly authorized by the Company
and, when issued by the Company and delivered to and paid for by the applicable
Purchasers in accordance with the terms of the Agreement 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.

5. 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 will be issued in a
transaction exempt from the registration requirements of the Securities Act.

* The opinion letter of counsel will be subject to customary limitations,
qualifications and carveouts.