Exhibit 10.1

EXECUTION COPY

 

 

 

FUNDING AGREEMENT

dated as of March 20, 2011

between

SWS GROUP, INC.,

HILLTOP HOLDINGS INC.,

OAK HILL CAPITAL PARTNERS III, L.P., and

OAK HILL CAPITAL MANAGEMENT PARTNERS III, L.P.

 

 

 

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TABLE OF CONTENTS

 

  ARTICLE I      Funding    1.1  

Funding

     1    1.2  

Funding Date; Funding Conditions

     2    1.3  

Adjustments

     5    1.4  

Tax Reporting

     5      ARTICLE II      Representations and Warranties    2.1  

Representations and Warranties of the Company

     6    2.2  

Representations and Warranties of the Investors

     23      ARTICLE III      Covenants    3.1  

Interim Operations

     24    3.2  

Proxy Statement; Stockholder Approval

     27    3.3  

No Solicitation

     28    3.4  

Regulatory Matters

     31    3.5  

Access

     32      ARTICLE IV      Additional Agreements    4.1  

Reservation for Issuance; Exchange Listing

     33    4.2  

Indemnity

     33    4.3  

No Change in Control

     34    4.4  

Rights Plan

     35      ARTICLE V      Termination    5.1  

Termination

     35    5.2  

Effects of Termination

     36    5.3  

Fees and Expenses

     36      ARTICLE VI      Miscellaneous    6.1  

Survival

     37    6.2  

Amendment

     37    6.3  

Waivers

     38   

 

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6.4  

Counterparts and Facsimile

     38    6.5  

Governing Law

     38    6.6  

WAIVER OF JURY TRIAL

     38    6.7  

Notices

     38    6.8  

Entire Agreement, Etc.

     40    6.9  

Other Definitions

     40    6.10  

Captions

     44    6.11  

Severability

     44    6.12  

No Third Party Beneficiaries

     44    6.13  

Public Announcements

     44    6.14  

Remedies

     44   

 

EXHIBIT A   Credit Agreement    EXHIBIT B   Warrant    EXHIBIT C   Investor
Rights Agreement    EXHIBIT D   Certificate of Designations   

 

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INDEX OF DEFINED TERMS

 

Additional Reimbursement Amount

   5.3(b)(3)

Advisers Act

   2.1(aa)(3)

Affiliate

   6.9(4)

Agreement

   Preamble

Alternative Transaction

   3.3(f)(1)

Alternative Transaction Proposal

   3.3(f)(2)

Bank

   2.1(b)

Beneficial Owner

   6.9(5)

Beneficially Own

   6.9(5)

Beneficially Ownership

   6.9(5)

Benefit Plan

   2.1(r)

Board of Directors

   2.1(d)(1)

Board Recommendation

   3.2

Broker Dealer Subsidiaries

   2.1(aa)(2)

Burdensome Condition

   3.4(a)

Business Day

   6.9(6)

C&D Order

   1.2(b)(2)(vii)

Capital Lease Obligations

   6.9(7)

Capitalization Date

   2.1(c)

Change of Recommendation

   3.3(d)

Code

   1.4

Common Stock

   Recitals

Company

   Preamble

Company 10-Ks

   2.1(f)

Company 10-Q

   2.1(f)

Company Financial Statements

   2.1(f)

Company Preferred Stock

   2.1(c)

Company Reports

   2.1(g)(1)

Company Significant Agreement

   2.1(k)

Company Subsidiaries

   2.1(b)

Company Subsidiary

   2.1(b)

Company’s Knowledge

   6.9(13)

Credit Agreement

   Recitals

Disclosure Schedule

   2.1

ERISA

   2.1(r)

ERISA Affiliate

   2.1(r)(1)

Exchange Act

   2.1(g)(1)

FDIC

   1.2(b)(2)(ix)

Federal Reserve

   1.2(b)(1)(iv)

FINRA

   2.1(aa)(2)

Funding

   1.2

Funding Amount

   1.1(b)(5)

Funding Date

   1.2

Governmental Entity

   1.2(b)(1)(i)

Group Member

   6.9(8)

Guarantee Obligation

   6.9(9)

guaranteeing person

   6.9(9)

Guarantor

   6.9(10)

 

Hilltop

   Preamble

HOLA

   1.2(b)(1)(iv)

Indebtedness

   6.9(11)

Indemnified Party

   4.2(a)

Intellectual Property

   2.1(x)

Investor

   Preamble

Investor Rights Agreement

   6.9(12)

Investors

   Preamble

Knowledge

   6.9(13)

Liens

   2.1(b)

Loan Amount

   1.1(b)(5)

Loans

   2.1(bb)(1)

Losses

   4.2(a)

Material Adverse Effect

   6.9(14)

Oak Hill

   Preamble

OREO

   2.1(h)

OTS

   1.2(b)(1)(iv)

Outside Date

   5.1(b)(1)

Permitted Liens

   6.9(15)

person

   6.9(16)

Preferred Stock Certificate

   1.3

primary obligations

   6.9(9)

primary obligor

   6.9(9)

Proxy Statement

   3.2

Qualified Institutional Buyer

   2.2(e)(1)

Regulatory Agreement

   2.1(z)

Repo Transaction

   6.9(18)

Representatives

   3.3(a)

Requirement of Law

   6.9(17)

Rights Plan

   2.1(dd)

SEC

   2.1(f)

Securities Act

   2.1(g)(1)

Specified Deposits

   1.2(b)(2)(vi)

Specified Representations

   6.1

Stockholder Approval

   2.1(d)(1)

Stockholder Proposal

   3.2

Stockholders’ Meeting

   3.2

Subsidiary

   6.9(20)

Superior Proposal

   3.3(f)(3)

Swap Agreement

   6.9(19)

Tax

   2.1(i)

Taxes

   2.1(i)

Termination Fee

   5.3(b)(1)

to the Knowledge of the Company

   6.9(13)

Transaction Documents

   6.9(21)

Warrant

   Recitals

Warrant Amount

   1.1(b)(4)

Warrant Shares

   1.2(b)(1)(i)

 

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FUNDING AGREEMENT, dated as of March 20, 2011 (this “Agreement”), between SWS
Group, Inc., a Delaware corporation (the “Company”), Hilltop Holdings Inc., a
Maryland corporation (“Hilltop”), Oak Hill Capital Partners III, L.P., a Cayman
Islands exempted limited partnership and Oak Hill Capital Management Partners
III, L.P., a Cayman Islands exempted limited partnership (together, “Oak Hill”)
(each of Hilltop and Oak Hill, an “Investor” and together the “Investors”).

RECITALS:

WHEREAS, on the terms and subject to the conditions hereof, the Investors shall
extend a senior unsecured loan to the Company in aggregate principal amount of
$100,000,000 pursuant to a Credit Agreement substantially in the form set forth
in Exhibit A (the “Credit Agreement”), and the Company shall issue to each of
the Investors a warrant substantially in the form set forth as Exhibit B (the
“Warrants”) to purchase 8,695,652 shares of common stock, $0.10 par value per
share, of the Company (the “Common Stock”) at an exercise price of $5.75 per
share (with such number of shares subject to increase and exercise price subject
to decrease in accordance with Section 1.3 hereof).

NOW, THEREFORE, in consideration of the premises, representations, warranties,
covenants and agreements set forth herein, and for other good and adequate
consideration, the sufficiency of which is hereby acknowledged, and intending to
be legally bound hereby, the parties agree as follows:

ARTICLE I

Funding

1.1 Funding. On the Funding Date,

(a) the Company shall deliver to the Investors:

(1) the Credit Agreement, duly executed by the Company,

(2) the Warrants, duly executed by the Company,

(3) the Investor Rights Agreement substantially in the form set forth in Exhibit
C, duly executed by the Company,

(b) the Investors shall deliver to the Company:

(1) the Credit Agreement, duly executed by each Investor,

(2) the Warrants, duly executed by each Investor,

(3) the Investor Rights Agreement, duly executed by each Investor,

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(4) cash in an amount not to exceed $25,000,000.00, with such amount to be
calculated on or prior to the Funding Date in accordance with the good faith
calculation of the Investors, in consideration for the issuance of the Warrant
(the “Warrant Amount”), and

(5) cash in the amount of the difference between (i) $100,000,000.00 and
(ii) the Warrant Amount in respect of the loan contemplated by the Credit
Agreement (the “Loan Amount” and together with the Warrant Amount, the “Funding
Amount”).

1.2 Funding Date; Funding Conditions. (a) Subject to the satisfaction or waiver
of the conditions set forth in Section 1.2(b), the funding contemplated by this
Agreement (the “Funding”) shall occur on a date (the “Funding Date”) as shall be
agreed upon by the parties hereto, but no later than the third Business Day
after the date of satisfaction or waiver of the last of the conditions specified
in Section 1.2(b) (other than those conditions which by their nature may be
satisfied only on the Funding Date, but subject to the satisfaction or waiver of
such conditions), at the offices of Wachtell, Lipton, Rosen & Katz located at 51
West 52nd Street, New York, New York 10019 or such other date or location as
agreed by the parties.

(b) Funding Conditions. (1) The respective obligations of the Company and the
Investors to consummate the Funding are subject to the fulfillment at or prior
to the Funding Date of the following conditions:

(i) no provision of any applicable law or regulation and no judgment,
injunction, order or decree of any Governmental Entity of competent jurisdiction
shall prohibit the Funding or shall prohibit or restrict the Investors or their
respective Affiliates from owning, voting, or converting or exercising the
Warrant in accordance with its terms or owning any of the Common Stock or
preferred stock of the Company (together, the “Warrant Shares” ) for which the
Warrant is exercisable and no lawsuit shall have been commenced by any nation or
government, any state or other political subdivision thereof, any agency,
authority, instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange
and any self-regulatory organization (including the National Association of
Insurance Commissioners) (each, a “Governmental Entity”) of competent
jurisdiction seeking to effect any of the foregoing; and

(ii) the Stockholder Approval shall have been obtained;

(iii) all governmental consents, approvals, authorizations, applications,
registrations, qualifications, filings and notices that are required to be
obtained in connection with the continuing operation of the Group Members and
the consummation of the transactions contemplated hereby shall have been
obtained and shall be in full force and effect;

 

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(iv) the Investors shall have received written confirmation or nonobjection
satisfactory to the Investors, from both the Office of Thrift Supervision (the
“OTS”) and the Board of Governors of the Federal Reserve System (the “Federal
Reserve”) to the effect that neither the Investors nor any of their respective
Affiliates shall be deemed to “control” the Company or any Company Subsidiary
for purposes of the Home Owners’ Loan Act, as amended and the applicable
regulations and interpretations of the regulatory authorities responsible for
implementing such statute (“HOLA”) by reason of the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents,
including the exercise of the Warrant; and

(v) if the Investors believe in good faith that they are required to file a
notice with the Office of Thrift Supervision, or the Federal Reserve if
applicable, pursuant to the Change in Bank Control Act of 1978, or the
applicable regulations and interpretations of the regulatory authorities
responsible for implementing such statute, the Investors shall have received
written approval or nonobjection satisfactory to the Investors of such notice.

(2) The obligation of each Investor to consummate the Funding is also subject to
the fulfillment or written waiver at or prior to the Funding Date of each of the
following conditions:

(i) the representations and warranties of the Company set forth in Sections
2.1(c), 2.1(j) and 2.1(dd) of this Agreement shall be true and correct in all
respects on and as of the date of this Agreement and on and as of the Funding
Date as though made on and as of such dates (except to the extent any such
representation and warranty is made as of a specified date, in which case such
representation and warranty shall be true and correct as of such date), and the
representations and warranties of the Company set forth in this Agreement (other
than the representations and warranties of the Company set forth in Sections
2.1(c) and 2.1(j) of this Agreement) shall be true and correct in all material
respects on and as of the date of this Agreement and on and as of the Funding
Date as though made on and as of such dates (except to the extent such
representations and warranties are made as of a specified date, in which case
such representations and warranties shall be true and correct as of such date);

(ii) the Company shall have performed in all material respects all obligations
required to be performed by it at or prior to the Funding under this Agreement;

(iii) the Investors shall have received a certificate, dated as of the Funding
Date, signed on behalf of the Company by a senior executive officer certifying
that the conditions set forth in Sections 1.2(b)(2)(i) and (ii) have been
satisfied;

 

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(iv) since the date of this Agreement, there shall not have been any
circumstance, effect, event or change that, individually or in the aggregate,
has or would reasonably be expected to result in a Material Adverse Effect;

(v) the Common Stock for which the Warrants may be exercised shall have been
authorized for listing on the New York Stock Exchange or such other market on
which the Common Stock is then listed or quoted, subject to official notice of
issuance;

(vi) the aggregate balance of Specified Deposits on the Funding Date shall not
be less than $2,250,000,000. “Specified Deposits” means deposits in customer
accounts for the clearing and retail brokerage business that are available to be
swept to the Bank and money market funds;

(vii) the Company shall be in material compliance with all aspects of the Order
to Cease and Desist dated February 4, 2011 and issued by the Office of Thrift
Supervision, acting by and through its Regional Director for the Western Region
(the “C&D Order”);

(viii) there shall not be any action taken, or any law, statute, ordinance, rule
or regulation enacted, entered, enforced or deemed applicable to the Company or
the Company Subsidiaries, either Investor or the transactions contemplated
hereby, by any Governmental Entity, whether in connection with the
determinations or approval of the Federal Reserve or the OTS specified in
Section 1.2(b)(1)(iv) or 1.2(b)(1)(v) or otherwise, which contains or results in
a Burdensome Condition, and, for the avoidance of doubt, any requirements to
disclose the identities of direct or indirect limited partners, stockholders or
members of an Investor or its Affiliates or its investment advisors shall be
deemed a Burdensome Condition unless otherwise determined by such Investor in
its sole discretion;

(ix) following the date of this Agreement, none of the OTS, the Federal Reserve
or the Federal Deposit Insurance Corporation (“FDIC”) shall have notified the
Company, the Bank or either Investor that they will impose on an Investor or any
of its Affiliates, the Company or the Bank any requirements that would
reasonably be expected, in such Investor’s good faith judgment, to materially
impair any economic benefits to such Investor or materially affect the Company’s
or the Bank’s business going forward in any material respect;

(x) the two Board Representatives (as defined in the Investor Rights Agreement)
shall have been appointed to the Board of Directors in accordance with the
Investor Rights Agreement;

(xi) each of the conditions precedent set forth in Section 4.1 of the Credit
Agreement shall have been satisfied;

(xii) the simultaneous Funding by the other Investor;

 

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(xiii) the administrative agent and the lenders party to the Credit Agreement
shall have received all documentation and other information required by
regulatory authorities under applicable “know your customer” rules and the USA
PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001))
reasonably requested by such person at least two Business Days prior to the
Funding Date;

(xiv) the Warrants shall have been or are simultaneously issued in the amounts
and to the Warrant holders described in the Warrant; and

(xv) the Investor Rights Agreement, Credit Agreement and Warrants shall have
been executed and delivered by all parties thereto and shall have become
effective.

(3) The obligation of the Company to consummate the Funding is also subject to
the fulfillment or written waiver prior to the Funding Date of the following
conditions:

(i) the representations and warranties of the Investors set forth in Section 2.2
shall be true and correct in all material respects on and as of the date of this
Agreement and on and as of the Funding Date as though made on and as of such
dates (except to the extent such representations and warranties are made as of a
specified date, in which case such representations and warranties shall be true
and correct as of such date), except for any failure of such representations and
warranties to be true and correct that does not materially impair the Investors’
ability to consummate the transactions contemplated hereby; and

(ii) the Company shall have received a certificate signed on behalf of each
Investor by a senior officer certifying to the effect that the condition set
forth in Section 1.2(b)(3)(i) has been satisfied.

1.3 Adjustments. In the event that, at or prior to the Funding Date, there
occurs any transaction or event that would result in any adjustment or give rise
to any right of adjustment under the Warrant or the certificate of designations
for preferred stock referenced therein, substantially in the form set forth in
Exhibit D (the “Preferred Stock Certificate”), then the Warrant or the Preferred
Stock Certificate will be amended prior to the Funding Date to reflect such
adjustment so that the economic benefit of the Warrant to the Investors is
unaffected by such transaction or event, and the terms “Warrant”, and “Preferred
Stock Certificate” as used herein shall refer to such Warrant or Preferred Stock
Certificate, as applicable, as so amended for all purposes hereunder.
Notwithstanding anything in this Agreement to the contrary, in no event shall
the Warrant Amount be increased by the foregoing.

1.4 Tax Reporting. The Company and the Investors hereby acknowledge and agree
that (i) the fair market value of the Warrant is the Warrant Amount and (ii) the
issue price of the debt contemplated by the Credit Agreement is the Loan Amount.
The Company and the Investors shall prepare their respective Tax returns in a
manner consistent with this Section 1.4

 

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and shall not take any position inconsistent therewith unless required to do so
pursuant to a “determination” within the meaning of Section 1313(a) of the
Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE II

Representations and Warranties

2.1 Representations and Warranties of the Company. Except as set forth in the
documents available to the Investors in the Company’s on-line dataroom on
March 18, 2011 (the “Disclosure Schedule”, provided that if the Company delivers
to the Investors a Disclosure Schedule satisfactory to the Investors prior to 9
a.m., New York time, on March 21, 2011, then the Disclosure Schedule as so
delivered and only such Disclosure Schedule shall be the Disclosure Schedule for
all purposes under this Agreement), as of the date hereof and as of the Funding
Date, the Company represents and warrants to the Investors that:

(a) Organization and Authority. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified or where failure to be so qualified would
reasonably be expected to result in a Material Adverse Effect, and has corporate
power and authority to own its properties and assets and to carry on its
business as it is now being conducted. The Company has furnished or made
available to the Investors true, correct and complete copies of the Company’s
Certificate of Incorporation and bylaws as amended through the date of this
Agreement. The Company is a savings and loan holding company duly registered
under HOLA.

(b) Company’s Subsidiaries. The Company has set forth in the Disclosure Schedule
a true, complete and correct list of all of its Subsidiaries as of the date of
this Agreement (individually, a “Company Subsidiary” and, collectively, the
“Company Subsidiaries”), all shares of the outstanding capital stock of each of
which are owned directly or indirectly by the Company. No capital stock or
Indebtedness of any Company Subsidiary is or may be required to be issued by
reason of any option, warrant, scrip, preemptive right, right to subscribe to,
gross-up right, call or commitment of any character whatsoever relating to, or
security or right convertible into, shares of any capital stock of such Company
Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any Company Subsidiary is bound to issue additional shares
of its capital stock or Indebtedness, or any option, warrant or right to
purchase or acquire any additional shares of its capital stock or Indebtedness.
All of the shares of capital stock of each Company Subsidiary are duly
authorized and validly issued, fully paid and nonassessable and are owned by the
Company free and clear of any lien, adverse right or claim, charge, option,
pledge, covenant, title defect, security interest or other encumbrances of any
kind (“Liens”). Each Company Subsidiary is an entity duly organized, validly
existing, duly qualified to do business and in good standing under the laws of
its jurisdiction of incorporation, is duly qualified to do business and is in
good standing in all jurisdictions where its ownership or leasing of property or
the conduct of

 

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its business requires it to be so qualified or where failure to be so qualified
would reasonably be expected to result in a Material Adverse Effect, and has
corporate or other legal entity power and authority to own or lease its
properties and assets and to carry on its business as it is now being conducted.
Except in respect of the Company Subsidiaries, the Company does not own
beneficially, directly or indirectly, more than 5% of any class of equity
securities or similar interests of any corporation, bank, business trust,
association or other entity, and is not, directly or indirectly, a partner in
any partnership or party to any joint venture. The Company’s sole depository
institution subsidiary is Southwest Securities, FSB (the “Bank”), which is duly
organized and validly existing as a federally chartered savings association
regulated by the OTS. The deposit accounts of Southwest Securities, FSB are
insured by the FDIC to the fullest extent permitted by the Federal Deposit
Insurance Act and the rules and regulations of the FDIC thereunder, and all
premiums and assessments required to be paid in connection therewith have been
paid when due.

(c) Capitalization. The authorized capital stock of the Company consists of
60,000,000 shares of Common Stock, par value $0.10 per share, and 100,000 shares
of preferred stock, par value $1.00 per share (the “Company Preferred Stock”).
As of the close of business on March 15, 2011 (the “Capitalization Date”), there
were 33,313,807 shares of Common Stock issued and 32,550,164 shares of Common
Stock outstanding and no shares of Company Preferred Stock outstanding. Since
the Capitalization Date and through the date of this Agreement, the Company has
not (i) issued or authorized the issuance of any shares of Common Stock or
Company Preferred Stock, or any securities convertible into or exchangeable or
exercisable for shares of Common Stock or Company Preferred Stock other than the
Warrant Shares (as defined in the Warrant), (ii) reserved for issuance any
shares of Common Stock or Company Preferred Stock or (iii) repurchased or
redeemed, or authorized the repurchase or redemption of, any shares of Common
Stock or Company Preferred Stock. Other than in respect of the issuance of the
awards outstanding under or pursuant to the Benefit Plans in respect of which an
aggregate of no more than 1,000,000 shares of Common Stock have been reserved
for issuance, no shares of Common Stock or Company Preferred Stock have been
reserved for issuance. As of the date of this Agreement, the Company has not
granted any awards under or pursuant to the Benefit Plans since February 18,
2011 other than as disclosed in the Disclosure Schedule. All of the issued and
outstanding shares of Common Stock and Company Preferred Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. No bonds, debentures, notes or other Indebtedness having the right to
vote on any matters on which the stockholders of the Company may vote are issued
and outstanding. Except under or pursuant to the Benefit Plans, the Company does
not have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of, or securities or rights convertible into or exchangeable or
exercisable for, any shares of Common Stock or Company Preferred Stock or any
other equity securities or Indebtedness of the Company or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or Indebtedness of the Company (including any rights plan or agreement).
The Company has set forth in the Disclosure Schedule all shares of Company
capital stock that have

 

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been purchased, redeemed or otherwise acquired, directly or indirectly, by the
Company or any Company Subsidiary since June 26, 2010 and all dividends or other
distributions that have been declared, set aside, made or paid to the
stockholders of the Company since that date. The Company is not a party to any
voting agreement with respect to any shares of capital stock of, or other equity
or voting interests in, the Company or any of its Subsidiaries and, to the
Knowledge of the Company, as of the date of this Agreement there are no
irrevocable proxies and no voting agreements with respect to any shares of
capital stock of, or other equity or voting interests in, the Company or any of
its Subsidiaries.

(d) Authorization.

(1) The Company and each Company Subsidiary that is party to a Transaction
Document has the corporate power and authority to enter into each Transaction
Document to which it is a party and to carry out its obligations thereunder. The
execution, delivery and performance of each Transaction Document by the Company
and each Company Subsidiary that is party to a Transaction Document, and the
consummation of the transactions contemplated thereby, including the issuance of
the Common Stock and the Series A Preferred Stock (as defined in the Warrant) in
accordance with the Warrants and the obtaining of extensions of credit under the
Credit Agreement, have been duly authorized by the Board of Directors of the
Company (the “Board of Directors”) or Company Subsidiary, as applicable. Each
Transaction Document has been duly and validly executed and delivered by the
Company and each Company Subsidiary that is party thereto and, assuming due
authorization, execution and delivery of each Transaction Document by the
Investors, is a valid and binding obligation of the Company or Company
Subsidiary enforceable against the Company or Company Subsidiary in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganizations, fraudulent transfer or similar laws
relating to or affecting creditors generally or by general equitable principles
(whether applied in equity or at law). No other corporate proceedings are
necessary for the execution and delivery by the Company or any Company
Subsidiary of the Transaction Documents to which each is a party, the
performance by the Company and Company Subsidiaries of their respective
obligations under the Transaction Documents or the consummation by the Company
and the Company Subsidiaries of the transactions contemplated by the Transaction
Documents, subject to receipt of Stockholder Approval. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Entity, FINRA or any other person is required in connection with
the due execution, delivery, performance, validity or enforceability of any of
the Transaction Document or the consummation of the transactions contemplated by
the Transaction Documents, including, without limitation, the extensions of
credit under the Credit Agreement, except (i) consents, authorizations, filings
and notices described in the Disclosure Schedule, which consents,
authorizations, filings and notices have been obtained or made and are in full
force and effect, and (ii) such other consents, authorizations, filings and
notices the failure to receive or make would not

 

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reasonably be expected to have a Material Adverse Effect on the Company or
impair or delay its ability to enter into or complete the transactions
contemplated by the Transaction Documents. The only vote of the stockholders of
the Company required to approve the transactions contemplated by the Transaction
Documents under applicable law, regulation or rule of any regulatory or
self-regulatory authority or stock exchange or the organizational documents of
the Company is the affirmative vote of a majority of the votes cast in favor of
the issuance of the Warrant and the Warrant Shares for purposes of
Section 312.03 of the NYSE Listed Company Manual (such approval, the
“Stockholder Approval”).

(2) Neither the execution, delivery and performance by the Company or any
Company Subsidiary of any Transaction Document, nor the consummation of the
transactions contemplated by any Transaction Document, nor compliance by the
Company and Company Subsidiaries with any of the provisions of any Transaction
Document, will (i) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation of, any Lien, upon any
of the properties or assets of the Company or any Company Subsidiary under any
of the material terms, conditions or provisions of (A) the certificate of
incorporation or bylaws of the Company and Company Subsidiaries (or similar
governing documents) or (B) any material note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
the Company or any Company Subsidiary is a party or by which it may be bound, or
to which the Company or any Company Subsidiary or any of the properties or
assets of the Company or any Company Subsidiary may be subject, or (ii) violate
any ordinance, permit, concession, grant, franchise, law, statute, rule or
regulation or any judgment, ruling, order, writ, injunction or decree applicable
to the Company or any Company Subsidiary or any of their respective properties
or assets other than, in the case of this subclause (ii), for such violation or
violations that would not reasonably be expected to have a Material Adverse
Effect.

(3) Other than the securities or blue sky laws of the various states, no
material notice to, registration, declaration or filing with any Governmental
Entity, no competition or merger control laws of other jurisdictions, exemption
or review by, or authorization, order, consent or approval of, any Governmental
Entity, or expiration or termination of any statutory waiting period, is
necessary for the consummation of the transactions contemplated by the
Transaction Documents.

(e) Knowledge as to Conditions. As of the date of this Agreement, the Company
Knows of no reason why any regulatory approvals and, to the extent necessary,
any other approvals, authorizations, filings, registrations, and notices
required or otherwise a condition to the consummation of the transactions
contemplated by the Transaction Documents cannot, or should not, be obtained.

 

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(f) Financial Statements. The audited consolidated balance sheets of the Company
and its Subsidiaries as of June 25, 2010, June 26, 2009 and June 27, 2008 and
the related consolidated statements of income, stockholders’ equity and cash
flows for each of the years ended June 25, 2010, June 26, 2009 and June 27,
2008, together with the notes thereto, reported on by Grant Thornton LLP and
included in the Company’s Annual Reports on Form 10-K for the fiscal years ended
June 25, 2010, June 26, 2009 and June 27, 2008 (the “Company 10-Ks”), as filed
with the U.S. Securities and Exchange Commission (the “SEC”), and the unaudited
consolidated balance sheets of the Company and its Subsidiaries as of
December 31, 2010 and related consolidated statements of income and cash flows
for the three and six months then ended, included in the Company’s Quarterly
Report on Form 10-Q for the period ended December 31, 2010 (the “Company 10-Q”
and collectively with the Company 10­Ks, the “Company Financial Statements”),
(1) have been prepared from, and are in accordance with, the books and records
of the Company and its Subsidiaries, (2) complied as to form, as of their
respective date of filing with the SEC, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, (3) have been prepared in accordance with GAAP applied on
a consistent basis and (4) present fairly in all material respects the
consolidated financial position of the Company and its Subsidiaries at the dates
set forth therein and the consolidated results of operations, changes in
stockholders’ equity and cash flows of the Company and its Subsidiaries for the
periods stated therein. Neither the Company nor its Subsidiaries has any
material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any long term leases or unusual forward or long term commitments,
interest rate or foreign currency swap or exchange transaction or other
obligation including in respect of derivatives, that are not reflected in the
Company Financial Statements. During the period from June 25, 2010 to and
including the date hereof, there has been no disposition other than in the
ordinary course of business by the Company or any Company Subsidiary of any
material part of its business or property.

(g) Reports.

(1) Since June 27, 2008, the Company and each Company Subsidiary have filed all
material reports, registrations, documents, filings, statements and submissions,
together with any required amendments thereto, that was required to file with
any Governmental Entity (collectively, the “Company Reports”) and have paid all
material fees and assessments due and payable in connection therewith. As of
their respective filing dates, the Company Reports complied in all material
respects with all statutes and applicable rules and regulations of the
applicable Governmental Entities, as the case may be. As of the date of this
Agreement, there are no outstanding comments from the SEC or any other
Governmental Entity with respect to any Company Report. Each Company Report
contains all of the information required to be included in it and, when it was
filed and as of the date of each such Company Report filed with or furnished to
the SEC, such Company Report did not, as of its date or if amended prior to the
date of this Agreement, as of the date of such amendment, contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made in it, in light of the circumstances under which
they

 

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were made, not misleading and complied as to form in all material respects with
the applicable requirements of the Securities Act of 1933, as amended, or any
successor statute (the “Securities Act”), and the Securities Exchange Act of
1934, as amended, or any successor statute (the “Exchange Act”). No executive
officer of the Company has failed in any respect to make the certifications
required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act of
2002.

(2) The records, systems, controls, data and information of the Company and its
Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of, or appropriate license by, the Company or the Company Subsidiaries or
accountants (including all means of access thereto and therefrom). The Company
(A) has implemented and maintains disclosure controls and procedures (as defined
in Rule 13a-15(e) of the Exchange Act) to ensure that material information
relating to the Company, including its consolidated Company Subsidiaries, is
made Known to the chief executive officer and the chief financial officer of the
Company by others within those entities, and (B) has disclosed, based on its
most recent evaluation prior to the date of this Agreement, to the Company’s
outside auditors and the audit committee of the Board of Directors (x) any
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) that are reasonably likely to adversely affect the Company’s
ability to record, process, summarize and report financial information, and
(y) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company’s internal controls over
financial reporting. As of the date of this Agreement, the Company has no
Knowledge of any reason that its outside auditors and its chief executive
officer and chief financial officer will not be able to give the certifications
and attestations required pursuant to the rules and regulations adopted pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when
next due. Since June 27, 2008, (i) neither the Company nor any Company
Subsidiary nor, to the Knowledge of the Company, any director, officer,
employee, auditor, accountant or representative of the Company or any Company
Subsidiary, has received or otherwise had or obtained knowledge of any material
complaint, allegation, assertion or claim, whether written or oral, regarding
the accounting or auditing practices, procedures, methodologies or methods of
the Company or any Company Subsidiary or their respective internal accounting
controls, including any material complaint, allegation, assertion or claim that
the Company or any Company Subsidiary has engaged in questionable accounting or
auditing practices, and (ii) no attorney representing the Company or any Company
Subsidiary, whether or not employed by the Company or any Company Subsidiary,
has reported evidence of a material violation of securities laws, breach of
fiduciary duty or similar violation by the Company or any of its officers,
directors, employees or agents to the Board of Directors or any committee
thereof or to any director or officer of the Company.

 

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(h) Properties and Leases. To the extent reflected in the Company Financial
Statements, except for any Permitted Liens and except in each case as would not
reasonably be expected to result in a Material Adverse Effect, the Company and
each Company Subsidiary have good and marketable title in fee simple free and
clear of any material Liens to all the real and personal property reflected in
the Company’s consolidated balance sheet as of June 25, 2010 included in the
Company 10-K for the period then ended, and all real and personal property
acquired since such date, except such real and personal property as has been
disposed of in the ordinary course of business. Except as would not reasonably
be expected to result in a Material Adverse Effect, (i) all leases of real
property and all other leases material to the Company or any Company Subsidiary
pursuant to which the Company or such Company Subsidiary, as lessee, leases real
or personal property are valid and effective in accordance with their respective
terms, and (ii) there is not, under any such lease, any existing default by the
Company or such Company Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a default. The Disclosure Schedule sets
forth a listing of the Other Real Estate Owned (“OREO” ) acquired by foreclosure
or by deed-in-lieu thereof, including the book value thereof. Other than OREO,
and except for ordinary wear and tear, all of the buildings, structures, and
appurtenances owned, leased, or occupied by the Company or any of its
Subsidiaries are in good operating condition and in a state of good maintenance
and repair and comply with applicable zoning and other municipal laws and
regulations, and there are no latent defects therein.

(i) Taxes. Each of the Company and its Subsidiaries has filed all material
federal, state, county, local and foreign income and other material Tax returns,
including information returns, required to be filed by it and all such filed Tax
returns are, true, complete and correct in all material respects, and paid all
material Taxes owed by it (whether or not shown on such returns) and no material
Taxes owed by it or assessments received by it are delinquent. The federal
income Tax returns of the Company and its Subsidiaries for the tax year ended
December 31, 2006, and for all tax years prior thereto, are for the purposes of
routine audit by the Internal Revenue Service closed because of the statute of
limitations, and no claims for additional Taxes for such fiscal years are
pending. Neither the Company nor any Company Subsidiary has waived any statute
of limitations with respect to Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency, in each case that is still in effect,
or has pending a request for any such extension or waiver. Neither the Company
nor any Company Subsidiary is a party to any pending action or proceeding, nor
to the Company’s knowledge is any such action or proceeding threatened by any
Governmental Entity, for the assessment or collection of a material amount of
Taxes, interest, penalties, assessments or deficiencies, and no material issue
has been raised by any federal, state, local or foreign taxing authority in
connection with an audit or examination of the Tax returns, business or
properties of the Company or any Company Subsidiary which has not been settled,
resolved and fully satisfied, or adequately reserved for. Each of the Company
and its Subsidiaries has withheld and paid all material Taxes (determined both
individually and in the aggregate) that it is required to withhold from amounts
owing to employees, creditors or other third parties. Neither the Company nor
any Company Subsidiary is a party to, is bound by or has any obligation under
any material Tax sharing or material Tax indemnity agreement or similar contract
or arrangement other than any contract or

 

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agreement between or among the Company and any Company Subsidiary. Neither the
Company nor any Company Subsidiary has entered into any “listed transaction”
within the meaning of Treasury Regulations Section 1.6011-4(b)(2), or any other
transaction requiring disclosure under analogous provisions of state, local or
foreign law. Neither the Company nor any Company Subsidiary has liability for
the Taxes of any person other than the Company or any Company Subsidiary under
Treasury Regulations Section 1.1502-6 (or any similar provision of state, local
or foreign law). For the purpose of this Agreement, the term “Tax” (including,
with correlative meaning, the term “Taxes”) shall mean any and all domestic or
foreign, federal, state, local or other taxes of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Entity, including taxes on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, unemployment, social
security, workers’ compensation or net worth, and taxes in the nature of excise,
withholding, ad valorem or value added.

(j) Absence of Certain Changes. Since June 25, 2010, except for publicly
disclosed ordinary dividends on the Common Stock, the Company has not made or
declared any distribution in cash or in kind to its stockholders or issued or
repurchased any shares of its capital stock or other equity interests. Since
June 25, 2010 to and including the date hereof, no event or events have occurred
that have had or are reasonably likely to result in a Material Adverse Effect
and the Company and its Subsidiaries have been operated in the ordinary course
of business consistent with past practice.

(k) Commitments and Contracts. The Company has provided to the Investors or
their representatives true, correct and complete copies of each of the following
to which the Company or any Company Subsidiary is a party or to which they or
their assets or properties may be subject (whether written or oral, express or
implied) (each, a “Company Significant Agreement”):

(1) any employment contract or understanding (including any understandings or
obligations with respect to severance or termination pay, liabilities or fringe
benefits) with any present or former officer, director, employee or consultant
(other than those that are terminable at will by the Company or such Company
Subsidiary);

(2) any plan, contract or understanding providing for any bonus, pension,
option, deferred compensation, retirement payment, profit sharing or similar
arrangement with respect to any present or former officer, director, employee or
consultant;

(3) any labor contract or agreement with any labor union;

(4) any contract containing covenants that limit in any respect the ability of
the Company or any Company Subsidiary to compete in any line of business or with
any person or which involve any restriction of the geographical

 

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area in which, or method by which or with whom, the Company or any Company
Subsidiary may carry on its business (other than as may be required by law or
applicable regulatory authorities);

(5) any joint venture, partnership, strategic alliance or other similar contract
(including any franchising agreement, but in any event excluding introducing
broker agreements); and any contract relating to the acquisition or disposition
of any material business or material assets (whether by merger, sale of stock or
assets or otherwise), which acquisition or disposition is not yet complete or
where such contract contains continuing obligations or contains continuing
indemnity obligations of the Company or any of the Company Subsidiaries;

(6) any real property lease and any other lease with annual rental payments
aggregating $500,000 or more;

(7) any contract providing for hedging or derivative instruments, including
swaps, caps, floors and option agreements, with annual payments that would be
reasonably expected to exceed $500,000;

(8) any contract that relates to the incurrence of long-term Indebtedness or the
borrowing of money by the Company or any of its Subsidiaries, or the guarantee
by the Company or any of its Subsidiaries of any such obligation, in each case
that would reasonably be expected to exceed $500,000;

(9) any agreement that relates to the performance of clearing or execution
services; and

(10) any other contract or agreement which is a “material contract” within the
meaning of Item 601(b)(10) of Regulation S-K.

(11) Each of the Company Significant Agreements is valid and binding on the
Company and its Subsidiaries, as applicable, and is in full force and effect.
The Company and each of the Company Subsidiaries, as applicable, are in all
material respects in compliance with and have in all material respects performed
all obligations required to be performed by them to date under each Company
Significant Agreement. Neither the Company nor any of the Company Subsidiaries
Knows of, or has received notice of, any violation or default (or any condition
which with the passage of time or the giving of notice would cause such a
violation of or a default) by any party under any Company Significant Agreement.

(l) Related Party Transactions. There are no transactions or series of related
transactions, agreements, arrangements or understandings, nor are there any
currently proposed transactions, or series of related transactions between the
Company or any Company Subsidiaries, on the one hand, and the Company, any
current or former director or executive officer of the Company or any Company
Subsidiaries or any person who Beneficially Owns 5% or more of the Common Stock
(or any of such person’s immediate family members or Affiliates) (other than
Company Subsidiaries), on the other hand.

 

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(m) Offering of Securities. Neither the Company nor any person acting on its
behalf has taken any action (including any offering of any securities of the
Company under circumstances which would require the integration of such offering
with the offering of any of the Warrants or the Common Stock or the Preferred
Stock issuable upon exercise of the Warrants under the Securities Act and the
rules and regulations of the SEC promulgated thereunder) which would subject the
offering, issuance or sale of any of the Warrants or the Common Stock or
Preferred Stock issuable upon exercise of the Warrants to the registration
requirements of the Securities Act.

(n) Litigation and Other Proceedings. Except as set forth in the Disclosure
Schedule, there is no pending or, to the Knowledge of the Company, threatened,
claim, action, suit, investigation or proceeding before any arbitrator,
Governmental Entity or FINRA against the Company or any Company Subsidiary, nor
is the Company or any Company Subsidiary subject to any order, judgment or
decree, of any such entity, other than any of the foregoing that, individually
or in the aggregate, would not reasonably be expected to result in or give rise
to Losses to the Company or the Company Subsidiaries exceeding $100,000.

(o) No Undisclosed Liabilities. Except for those liabilities that are reflected
or reserved against on the balance sheet of the Company 10-Q for the quarterly
period ended December 31, 2010, and except for liabilities that are not material
to the Company and that were incurred since December 31, 2010 in the ordinary
course of business consistent with past practice of the Company, neither the
Company nor any of its Subsidiaries has any liabilities or obligations of any
nature (absolute, accrued, contingent or otherwise).

(p) Compliance with Laws. The Company and each Company Subsidiary:

(1) is in compliance with all applicable federal, state, local or foreign laws,
regulations, rules, decrees, judgments, injunctions and orders of any
Governmental Entity or stock exchange, except where any failure to so be in
compliance as could not reasonably be expected to have a Material Adverse
Effect, and, to the Knowledge of the Company, is not under investigation with
respect to and has not been threatened to be charged with or given notice of any
material violation of, or investigation with respect to, any of the foregoing,
except as set forth in the Disclosure Schedule; and

(2) has all permits, licenses, franchises, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, Governmental
Entities that are required in order to permit it to own or lease its properties
and assets and to carry on its business as presently conducted and that are
material to the business of the Company or such Company Subsidiary, except where
any failures could not reasonably be expected to have a Material Adverse

 

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Effect; and all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the Knowledge of the Company, no
material suspension or cancellation of any of them is threatened, and all such
filings, applications and registrations are current.

(q) Labor. Employees of the Company and its Subsidiaries are not represented by
any labor union nor are any collective bargaining agreements otherwise in effect
with respect to such employees. No labor organization or group of employees of
the Company or any Company Subsidiary has made a pending demand for recognition
or certification, and there are no representation or certification proceedings
or petitions seeking a representation proceeding presently pending or, to the
Company’s Knowledge, threatened to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority. There are no
organizing activities, strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances, or other material labor disputes pending
or, to the Company’s Knowledge, threatened against or involving the Company or
any Company Subsidiary.

(r) Company Benefit Plans.

“Benefit Plan” means all material employee benefit plans, programs, agreements,
policies, practices, or other arrangements providing benefits to any current or
former employee, officer or director of the Company or any Company Subsidiary or
any beneficiary or dependent thereof that is sponsored or maintained by the
Company or any Company Subsidiary or to which the Company or any Company
Subsidiary contributes or is obligated to contribute or is party, whether or not
written, including any material employee welfare benefit plan within the meaning
of Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), any employee pension benefit plan within the meaning of
Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any
material bonus, incentive, deferred compensation, vacation, stock purchase,
stock option, equity-based severance, employment, change of control, consulting
or fringe benefit plan, program, agreement or policy.

(1) With respect to each Benefit Plan, (A) the Company and its Subsidiaries have
complied, and are now in compliance, in all material respects, with the
applicable provisions of ERISA, the Code and all other laws and regulations
applicable to such Benefit Plan and (B) each Benefit Plan has been administered
in all material respects in accordance with its terms. Except as would not
reasonably be expected to result in a Material Adverse Effect, none of the
Company or its Subsidiaries nor any of their respective ERISA Affiliates has
incurred any withdrawal liability as a result of a complete or partial
withdrawal from a multiemployer plan, as those terms are defined in Part I of
Subtitle E of Title IV of ERISA, that has not been satisfied in full. “ERISA
Affiliate” means any entity, trade or business, whether or not incorporated,
which together with the Company and its Subsidiaries would be deemed a “single
employer” within the meaning of Section 4001 of ERISA or Sections 414(b), (c),
(m) or (o) of the Code.

 

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(2) Neither the execution and delivery of this Agreement, nor the consummation
of the transactions contemplated hereby will (i) result in any material payment
(including severance, unemployment compensation, “excess parachute payment”
(within the meaning of Section 280G of the Code), forgiveness of indebtedness or
otherwise) becoming due to any current or former employee, officer or director
of the Company or any Company Subsidiary from the Company or any Company
Subsidiary under any Benefit Plan or any other agreement with any employee,
including, for the avoidance of doubt, change in control agreements,
(ii) materially increase any benefits otherwise payable under any Benefit Plan,
(iii) result in any acceleration of the time of payment or vesting of any such
benefits, (iv) require the funding or increase in the funding of any such
benefits or (v) result in any limitation on the right of the Company or any
Company Subsidiary to amend, merge, terminate or receive a reversion of assets
from any Benefit Plan or related trust.

(3) Except as would not reasonably be expected to result in a Material Adverse
Effect and except for liabilities fully reserved for or identified in the
Company Financial Statements, there are no pending or threatened claims (other
than claims for benefits in the ordinary course), lawsuits or arbitrations which
have been asserted or instituted against (i) the Benefit Plans, (ii) any
fiduciaries thereof with respect to their duties to the Benefit Plans, or
(iii) the assets of any of the trusts under any of the Benefit Plans.

(s) Status of Securities. Subject to the receipt of the Stockholder Approval,
the Warrants and the Common Stock or the Preferred Stock issuable upon exercise
of the Warrants shall have been duly authorized by all necessary corporate
action and, when issued, will be validly issued, fully paid and nonassessable,
will not subject the holders thereof to personal liability and will not be
subject to preemptive rights of any other stockholder of the Company. The
Warrants, when executed and delivered by the Company pursuant to this Agreement,
will constitute a valid and legally binding agreement of the Company enforceable
in accordance with its terms (except as may be limited by bankruptcy,
insolvency, moratorium, or similar laws affecting creditors’ rights generally).

(t) Risk Management; Derivatives. Except as would not reasonably be expected to
result in a Material Adverse Effect:

(1) The Company and its Subsidiaries have in place risk management policies and
procedures sufficient in scope and operation to protect against risks of the
type and in amounts reasonably expected to be incurred by persons of similar
size and in similar lines of business as the Company and its Subsidiaries.

(2) All derivative instruments, including swaps, caps, floors and option
agreements, whether entered into for the Company’s own account, or for the
account of one or more of the Company Subsidiaries or their customers, were
entered into (i) only for purposes of mitigating identified risk and in the

 

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ordinary course of business, (ii) in accordance with prudent practices and in
all material respects with all applicable laws, rules, regulations and
regulatory policies, and (iii) with counterparties believed by the Company or
Company Subsidiary to be financially responsible at the time; and each of them
constitutes the valid and legally binding obligation of the Company or one of
the Company Subsidiaries, enforceable in accordance with its terms. Neither the
Company nor the Company Subsidiaries, nor any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement. The financial
position of the Company and the Company Subsidiaries on a consolidated basis
under or with respect to each such derivative transaction has been reflected in
the books and records of the Company and the Company Subsidiaries in accordance
with GAAP consistently applied.

(u) Foreign Corrupt Practices and International Trade Sanctions. Neither the
Company nor any Company Subsidiary, nor any of their respective directors,
officers, agents, employees or, to the Company’s Knowledge, any other persons
acting on their behalf (i) has violated the Foreign Corrupt Practices Act, 15
U.S.C. § 78dd-1 et seq., as amended, or any other similar applicable foreign,
federal, or state legal requirement, (ii) has made or provided, or caused to be
made or provided, directly or indirectly, any payment or thing of value to a
foreign official, foreign political party, candidate for office or any other
person Knowing that the person will pay or offer to pay the foreign official,
party or candidate, for the purpose of influencing a decision, inducing an
official to violate their lawful duty, securing any improper advantage, or
inducing a foreign official to use their influence to affect a governmental
decision, (iii) has paid, accepted or received any unlawful contributions,
payments, expenditures or gifts, (iv) has violated or operated in noncompliance
with any export restrictions, money laundering law, anti-terrorism law or
regulation, anti-boycott regulations or embargo regulations, or (v) is currently
subject to any United States sanctions administered by the Office of Foreign
Assets Control of the United States Treasury Department.

(v) Environmental Liability. There is no legal, administrative, or other
proceeding, claim or action of any nature seeking to impose, or that could
result in the imposition of, on the Company or any Company Subsidiary, any
liability relating to the release of hazardous substances as defined under any
local, state or federal environmental statute, regulation or ordinance,
including the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, pending or, to the Company’s Knowledge, threatened
against the Company or any Company Subsidiary the result of which would
reasonably be expected to result in a Material Adverse Effect; to the Company’s
Knowledge, there is no reasonable basis for any such proceeding, claim or
action; and neither the Company nor any Company Subsidiary is subject to any
agreement, order, judgment or decree by or with any Governmental Entity or third
party imposing any such environmental liability.

(w) Anti-Takeover Provisions Not Applicable. Assuming the accuracy of the
representation set forth in Section 2.2(d), the Board of Directors has taken all
necessary action to ensure that the transactions contemplated by the Transaction
Documents or any of the transactions contemplated hereby will be deemed to be

 

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exceptions to the provisions of Section 203 of the Delaware General Corporation
Law and Article 12 of the Certificate of Incorporation, and any other similar
“moratorium,” “control share,” “fair price,” “takeover” or “interested
stockholder” law does not and will not apply to the Transaction Documents or to
any of the transactions contemplated hereby or thereby.

(x) Intellectual Property. (a) The Company and the Company Subsidiaries own, or
are licensed to use, all Intellectual Property necessary for the conduct of the
business as currently conducted, (b) except as has been disclosed in the
Company’s filings with the SEC prior to the date hereof, no claim has been
asserted and is pending by any person challenging or questioning the use of any
Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor does the Company Know of any valid basis for any such claim, and
(c) the use of Intellectual Property by the Company and Company Subsidiaries
does not infringe on the rights of any person in any respect, except in each
case as would not reasonably be expected to have a Material Adverse Effect. For
the purposes of this Agreement, “Intellectual Property” shall mean the
collective reference to all rights, priorities and privileges relating to
intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including copyrights, copyright licenses, patents,
patent licenses, trademarks, trademark licenses, technology, know-how and
processes, and all rights to sue at law or in equity for any infringement or
other impairment thereof, including the right to receive all proceeds and
damages therefrom.

(y) Brokers and Finders. Except for Sandler O’Neill + Partners, L.P., neither
the Company nor any Company Subsidiary nor any of their respective officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder’s fees, and no broker or finder has acted directly or indirectly for the
Company or any Company Subsidiary, in connection with the Transaction Documents
or the transactions contemplated hereby and thereby.

(z) Agreements with Regulatory Agencies. Other than the Memorandum of
Understanding with the Office of Thrift Supervision, dated July 13, 2010, and
the C&D Order, neither the Company nor any Company Subsidiary is subject to any
cease-and-desist or other similar order or enforcement action issued by, or is a
party to any written agreement, consent agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking to, or is
subject to any capital directive by, or since June 27, 2008, has adopted any
board resolutions at the request of, any Governmental Entity that currently
restricts in any material respect the conduct of its business or that in any
material manner relates to its capital adequacy, its liquidity and funding
policies and practices, its ability to pay dividends, its credit, risk
management or compliance policies, its internal controls, its management or its
operations or business (each item in this sentence, a “Regulatory Agreement”),
nor has the Company or any Company Subsidiary been advised since June 27, 2008
and until the date of this Agreement by any Governmental Entity that it is
considering issuing, initiating, ordering, or requesting any such Regulatory
Agreement. The Company and each Company Subsidiary are in compliance in all
material respects with each Regulatory

 

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Agreement to which it is party or subject, and neither the Company nor any
Company Subsidiary has received any notice from any Governmental Entity
indicating that either the Company or any Company Subsidiary is not in
compliance in all material respects with any such Regulatory Agreement.

(aa) Broker Dealer and Other Regulated Subsidiaries.

(1) Each Broker Dealer Subsidiary is a broker and dealer subject to the
provisions of Regulation T of the Board of Governors of the Federal Reserve
System of the United States (or any successor). Each Broker Dealer Subsidiary
maintains procedures and internal controls reasonably designed to ensure that
such Broker Dealer Subsidiary does not extend or maintain credit to or for its
customers other than in accordance with the provisions of Regulation T, and
members of each such Broker Dealer Subsidiary regularly supervise its activities
and the activities of its members, employees and independent contractors to
ensure that such Broker Dealer Subsidiary does not extend or maintain credit to
or for its customers other than in accordance with the provisions of Regulation
T, except for occasional inadvertent failures to comply with Regulation T in
connection with transactions which are not, individually or in the aggregate,
material either in number or amount.

(2) Each Broker Dealer Subsidiary is a member in good standing of the Financial
Industry Regulatory Authority (“FINRA”) or any other self-regulatory body which
succeeds to the functions of FINRA, is duly registered as a broker-dealer with
the SEC and in each state where the conduct of its business requires such
registration, and each employee of the Company or its Subsidiaries that is
required to be licensed or qualified with the SEC or any securities or insurance
commission or other Governmental Entity is so licensed and qualified. Neither
the Company nor any Company Subsidiary is an “investment company”, or a company
“controlled” by an “investment company”, within the meaning of the Investment
Company Act of 1940, as amended. Neither the Company nor any Company Subsidiary
is subject to regulation under any Requirement of Law (other than Regulation X
of the Board of Governors of the Federal Reserve System of the United States (or
any successor)) that limits its ability to incur Indebtedness. The Company’s
only broker dealer subsidiaries are Southwest Securities, Inc. and SWS Financial
Services, Inc. (the “Broker Dealer Subsidiaries”). Other than the Broker Dealer
Subsidiaries, no Subsidiary (i) is or has been a broker-dealer within the
meaning of the Exchange Act or any other applicable law, (ii) is required to be
registered, licensed or qualified as a broker-dealer under the Exchange Act or
any other applicable law or (iii) is subject to any material liability or
disability by reason of any failure to be so registered, licensed or qualified.

(3) The information contained in the currently effective Forms ADV and BD, as
filed with the SEC by each applicable Company Subsidiary, all state and other
federal registration forms, all reports and all material correspondence filed by
each applicable Subsidiary with any Governmental Entity

 

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under the Exchange Act, the Investment Company Act, the Investment Advisers Act
of 1940 (the “Advisers Act”) and under similar state statutes within the three
years prior to the date of this Agreement was (or will be, in the case of any
forms and reports filed after the date hereof) complete and accurate in all
material respects as of the time of filing thereof.

(4) No material disciplinary proceeding or order is pending or, to the Knowledge
of the Company, threatened against the Company, the Company Subsidiaries nor any
of their respective directors, officers, employees, “associated persons” (as
defined in the Exchange Act) or “affiliated persons” (as defined in the
Investment Company Act).

(5) The accounts of each investment advisory client of the Company or any of its
Subsidiaries subject to ERISA have been managed by the Company or its applicable
Subsidiary in material compliance with the applicable requirements of ERISA.

(6) Each of the Company and its Subsidiaries, and each of their respective
insurance agents, solicitors, third party administrators, managers, brokers and
distributors, have marketed, sold and issued insurance, reinsurance, annuity and
other investment products and securities in material compliance with all
applicable laws governing sales processes and practices.

(7) None of the Company, any Company Subsidiary or any director, officer or
employee of the Company or any Company Subsidiary has committed any breach of
trust or fiduciary duty with respect to any such fiduciary account, except as
would not reasonably be expected to result in a Material Adverse Effect.

(bb) Loan Portfolio.

(1) Each loan, loan agreement, note or borrowing arrangement (including leases,
credit enhancements, commitments, guarantees and interest-bearing assets)
(collectively, “Loans”) currently outstanding (i) is evidenced by written notes,
agreements or other evidences of Indebtedness that are true, genuine and what
they purport to be, (ii) to the extent secured, has been secured by valid liens
which have been perfected and (iii) to the Knowledge of the Company and its
Subsidiaries, is a legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms. The notes or other credit or
security documents with respect to each such outstanding loan were in compliance
in all material respects with all applicable laws at the time of origination or
purchase by the Company or its Subsidiaries and are complete and correct in all
material respects.

(2) None of the agreements pursuant to which the Company or any of its
Subsidiaries has sold Loans or pools of Loans or participations in Loans or
pools of Loans contains any obligation to repurchase such Loans or interests
therein solely on account of a payment default by the obligor on any such Loan.

 

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(3) Except as set forth in the Disclosure Schedule, (i) neither the Company nor
any of its Subsidiaries have made any Loans to any directors, executive officers
and principal shareholders (as such terms are defined in Regulation O of the
Federal Reserve Board (12 C.F.R. Part 215)) of the Company or any of its
Subsidiaries, (ii) there are no employee, officer, director or other affiliate
Loans on which the borrower is paying a rate other than that reflected in the
note or other relevant credit or security agreement or on which the borrower is
paying a rate which was not in compliance with Regulation O and (iii) all such
Loans are and were originated in compliance in all material respects with all
applicable laws.

(4) As of the date hereof, to the Knowledge of the Company and its Subsidiaries
(i) the characteristics of each loan portfolio of the Company and its
Subsidiaries have not materially changed from the characteristics of the loan
portfolio of the Company and its Subsidiaries as of January 31, 2011 and
(ii) the characteristics of each Loan of the Company and its Subsidiaries has
not materially changed from the characteristics of each Loan of the Company and
its Subsidiaries as of January 31, 2011.

(5) The Company has, prior to the date of this Agreement, provided to the
Investors or their representatives true, correct and complete lists of: (i) all
Loans held by the Company or any of its Subsidiaries that, during the past
twelve months, have had their respective terms to maturity accelerated or with
respect to which the Company or any of its Subsidiaries has notified the
borrower of its intention to accelerate the Loan or declare a default, (ii) all
Loan commitments or lines of credit that have been terminated or amended by the
Company or any of its Subsidiaries during the past twelve months by reason of a
default or adverse developments in the condition of the borrower or other events
or circumstances affecting the credit of the borrower, (iii) each borrower,
customer or other party which has notified the Company or any of its
Subsidiaries during the past twelve months of, or has asserted against the
Company or any of its Subsidiaries, orally or in writing, any “lender liability”
or similar claim, (iv) all Loans, (A) that are contractually past due 90 days or
more in the payment of principal and/or interest, (B) that are on non-accrual
status, (C) that as of the date of this Agreement are classified as “Other Loans
Specially Mentioned”, “Special Mention”, “Substandard”, “Doubtful”, “Loss”,
“Classified”, “Criticized”, “Watch List” or words of similar import, together
with the principal amount of and accrued and unpaid interest on each such loan
and the identity of the obligor thereunder, (D) where, during the past twelve
months, the interest rate terms have been reduced and/or the maturity dates have
been extended subsequent to the agreement under which the Loan was originally
created due to concerns regarding the borrower’s ability to pay in accordance
with such initial terms, or (E) where a specific reserve allocation exists in
connection therewith and (v) all assets classified by the Company or any of its
Subsidiaries as OREO and all other assets currently held that were acquired
through foreclosure or in lieu of foreclosure.

 

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(cc) Accuracy of Information, etc. No statement or information contained in this
Agreement, any other Transaction Document, or any other document, certificate or
statement furnished by or on behalf of the Company or any Company Subsidiary to
the Investors under any Transaction Document or to the administrative agent
under the Credit Agreement, or any of them, for use in connection with the
transactions contemplated by this Agreement or the other Transaction Documents,
taken as a whole, contained as of the date such statement, information, document
or certificate was so furnished, any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements contained
herein or therein not misleading; provided, that any projections contained in
the materials referenced above are based upon good faith estimates and
assumptions believed by management of the Company to be reasonable at the time
made, it being recognized by the Investors that such financial information as it
relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein by a material amount.

(dd) Rights Plan. The Company has irrevocably and fully exempted each of the
Investors and its Affiliates from any poison pill agreement, stockholders’
rights plan or similar plan, instrument, agreement or provision of its
Certificate of Incorporation or Bylaws (or other organizational documents) or
Requirement of Law that would limit or adversely affect an Investor’s right or
ability to acquire shares of any class of capital stock of the Company (a
“Rights Plan”).

2.2 Representations and Warranties of the Investors. Each Investor hereby
represents and warrants to the Company, on behalf of itself only and not jointly
or severally with the other Investor, that:

(a) Organization and Authority. Such Investor is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and has power and authority to own its
properties and assets and to carry on its business as it is now being conducted,
other than any failure of the foregoing to be accurate that would not prevent
such Investor from consummating the transactions contemplated hereby.

(b) Authorization. Such Investor has the corporate (or other legal entity) power
and authority to enter into the Transaction Documents and to carry out its
obligations thereunder. The execution, delivery and performance of the
Transaction Documents by such Investor and the consummation of the transactions
contemplated by the Transaction Documents have been duly authorized by such
Investor. Subject to such approvals of Governmental Entities as may be required
by statute or regulation, this Agreement is, assuming due authorization,
execution and delivery of this Agreement by the Company, a valid and binding
obligation of such Investor enforceable against such

 

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Investor in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganizations, fraudulent
transfer or similar laws relating to or affecting creditors generally or by
general equitable principles (whether applied in equity or at law). No other
corporate proceedings are necessary for the execution and delivery by such
Investor of this Agreement, the performance by it of its obligations hereunder
or the consummation by it of the transactions contemplated hereby.

(c) Funding Amount. The Investors shall have sufficient cash or available lines
of credit to pay the Funding Amount on the Funding Date.

(d) Ownership of Capital Stock. As of the date of this Agreement, neither
Investor nor any of its respective Subsidiaries or Affiliates, is the beneficial
owner of any shares of Common Stock or Company Preferred Stock.

(e) Qualified Institutional Buyer or Accredited Investor. Investor is one of the
following:

(1) a “qualified institutional buyer” as defined in Rule 144A under the
Securities Act (a “Qualified Institutional Buyer”) that is aware that the sale
of the Warrants to such Investor is being made in reliance on Rule 144A under
the Securities Act, and is acquiring the Warrants for its own account or for the
account of another Qualified Institutional Buyer, as the case may be; or

(2) an “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or
(7) of Regulation D under the Securities Act that is purchasing the Warrants for
its own account, and is not acquiring the Warrants with a present view to any
resale or distribution thereof.

(f) Warrants Not Registered. Investor understands that the offer and sale of the
Warrant and the Warrant Shares have not been registered under the Securities Act
or the securities laws of any state and may not be reoffered, resold, pledged or
otherwise transferred except in accordance with the provisions of this
Agreement, the Warrant and all applicable federal and state securities laws.

ARTICLE III

Covenants

3.1 Interim Operations. From the date of this Agreement until the earlier of the
Funding Date or the termination of this Agreement, unless the prior written
consent of the Investors shall have been obtained, the Company covenants and
agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following:

(a) amend the Company’s Certificate of Incorporation or bylaws or the
certificate of incorporation or bylaws (or corresponding organizational
documents) of any Company Subsidiaries,

 

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(b) incur or guarantee any additional Indebtedness except for (i) intercompany
Indebtedness, (ii) borrowings under the Company’s credit facilities as in effect
on the date of this Agreement and overnight borrowing in the ordinary course of
business consistent with past practice.

(c) repurchase, redeem, or otherwise acquire or exchange, directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of the company or any of its Subsidiaries, or make any other
distribution in respect of the Company’s capital stock, except for repurchases
made in connection with any Benefit Plan or cash dividends on Common Stock not
to exceed $0.01 per share for each fiscal quarter;

(d) except for this Agreement, or pursuant to the exercise of stock options
outstanding as of the date hereof and pursuant to and in accordance with the
Benefit Plans as in existence on the date hereof, issue, sell, pledge, encumber,
authorize the issuance of, enter into any contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Common Stock or any other capital stock of
the Company or any Subsidiaries, or any stock appreciation rights, or any
option, warrant, or other right in respect of the capital stock of the Company
or any of its Subsidiaries;

(e) adjust, split, combine or reclassify any capital stock of the Company or any
of its Subsidiaries or issue or authorize the issuance of any other securities
in respect of or in substitution for shares of Common Stock or any other capital
stock of the Company or any of its Subsidiaries, or sell, lease, mortgage,
permit any Lien (other than, in the case of the following subclause (ii),
Permitted Liens that are not material individually or in the aggregate), or
otherwise dispose of or otherwise encumber (i) any shares of capital stock of
any Company Subsidiaries or (ii) any material asset other than in the ordinary
course of business consistent with past practice;

(f) purchase any securities or make any material investment, either by purchase
of stock or securities, contributions to capital, asset transfers, or purchase
of any assets, in any Person other than a Company Subsidiary, or otherwise
acquire direct or indirect control over any Person, other than in the ordinary
course of business consistent with past practice;

(g) (i) other than as required by the agreements executed in connection with
this Agreement and identified on the Disclosure Schedule, grant any increase in
compensation or benefits to the employees or officers of the Company or any of
its Subsidiaries, except for merit-based salary increases for employees other
than officers in the ordinary course in accordance with past practice; (ii) pay
any (x) severance or termination pay or (y) any bonus, in either case other than
as required by written severance policies or written contracts in effect on the
date of this Agreement or in the ordinary course of business consistent with
past practice; (iii) enter into or amend any severance agreements with employees
or officers of the Company or any of its Subsidiaries; (iv) grant any increase
in fees or other increases in compensation or other benefits to directors of the
Company or any of its Subsidiaries except in the ordinary

 

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course of business consistent with past practice; or (v) waive any stock
repurchase rights, accelerate, amend or change the period of exercisability of
any stock options or other equity rights or restricted stock, or reprice any
stock options or other equity rights granted under a Benefit Plan or authorize
cash payments in exchange for any stock options or other equity rights;

(h) enter into or amend any employment contract between the Company or any of
its Subsidiaries and any Person that the Company or such Subsidiary does not
have the unconditional right to terminate without liability (other than
liability for services already rendered);

(i) adopt any new Benefit Plan or terminate or withdraw from, or make any change
in or to, any Benefit Plans other than any such change that is required by law
or that, in the opinion of counsel, is necessary or advisable to maintain the
tax qualified status of any such plan, or make any distributions from such
Benefit Plans, except as required by law, the terms of such Benefit Plans as in
effect on the date hereof or in the ordinary course of business consistent with
past practice;

(j) make any significant change in any accounting methods or systems of internal
accounting controls, except as required by GAAP;

(k) make, change or revoke any material Tax election, (ii) change any of its
methods of accounting for Tax purposes, (iii) settle or compromise any material
Tax liability or any Tax disputes, claims, audits, examinations, or other
proceedings, (iv) file any material amended Tax return or (v) enter into a
“closing agreement” described in Section 7121 of the Code (or any corresponding
or comparable provision of state, local or foreign Law);

(l) commence any litigation other than in the ordinary course of business
consistent with past practice, or settle any litigation (i) involving any
liability to the Company or any of its Subsidiaries for money damages in excess
of $500,000 or materially restricting or otherwise affecting the business or
operations of the Company or any of its Subsidiaries or (ii) relating to the
transactions contemplated hereby;

(m) except in the ordinary course of business consistent with past practice,
enter into, modify, amend or terminate any Company Significant Agreement or
waive, release, compromise or assign any material rights or claims;

(n) enter into any new line of business or change in any material respect its
lending, investment, risk and asset-liability management, interest rate or fee
pricing with respect to depository accounts, hedging and other material banking
or operating policies except as required by law or by rules or policies imposed
by a Governmental Entity;

(o) make or commit to make any capital expenditure, except (i) capital
expenditures of the Company and its Subsidiaries in the ordinary course of
business on information technology used in the ordinary course of business not
exceeding $5,000,000; and (ii) capital expenditures of the Company and its
Subsidiaries in the ordinary course of business (other than capital expenditures
described in the foregoing clause (i)) not exceeding $3,000,000;

 

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(p) except as required by law or applicable regulatory authorities, make any
material changes in its credit administration policies or loan rating system, or
otherwise make any material changes to its policies and practices with respect
to underwriting, pricing, originating, acquiring, selling, servicing, or buying
or selling rights to service, loans;

(q) purchase or lease any real property in respect of any branch or other
facility, or, without previously notifying and consulting with Investors, make
any application to open, relocate or close, or open, relocate or close any
branch or other facility;

(r) sell, transfer or otherwise dispose of any property or assets that are,
individually or in the aggregate, material, except for the sale of, in each case
in the ordinary course of business, (i) Small Business Administration Loans,
(ii) OREO and (iii) loans through the Mortgage Purchasing Department of the
Bank;

(s) without previously notifying and consulting with Investors, except for Loans
or commitments for Loans that have previously been approved by the Bank prior to
the date of this Agreement, make or acquire any Loan or issue a commitment (or
renew or extend an existing commitment) for any Loan relationship aggregating in
excess of $1,000,000, or amend or modify in any material respect any existing
Loan relationship, that would result in total credit exposure to the applicable
borrower (and its affiliates) in excess of $1,000,000;

(t) fail to comply with Regulatory Agreements or the C&D Order; or

(u) agree to take, make any commitment to take, or adopt any resolutions of the
Company’s Board of Directors in support of, any of the actions prohibited by
this Section 3.1.

3.2 Proxy Statement; Stockholder Approval. The Company shall prepare and file,
as promptly as practicable (but in no event later than 15 calendar days after
the date hereof) with the SEC a preliminary proxy statement in connection with a
meeting of the Company’s stockholders to obtain the Stockholder Approval, and
shall use its reasonable best efforts to have such proxy statement (the “Proxy
Statement”) receive clearance from the SEC as promptly as practicable after
filing. The Company shall use its reasonable best efforts to respond to any
comments of the SEC or its staff and to cause the definitive Proxy Statement to
be mailed to the Company’s stockholders as promptly as practicable after (and no
later than three Business Days after) clearance thereof. The Company shall
notify the Investors promptly of the receipt of any comments from the SEC or its
staff with respect to the Proxy Statement and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and will supply the Investors with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement. If at any
time prior to the Stockholders’ Meeting

 

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there shall occur any event that is required to be set forth in an amendment or
supplement to the Proxy Statement, the Company shall as promptly as practicable
prepare and mail to its stockholders such an amendment or supplement. The
Company shall consult with the Investors prior to filing and mailing the Proxy
Statement, or any amendment or supplement thereto, and provide the Investors
with a reasonable opportunity to comment thereon. Subject to Section 3.3, the
Board Recommendation shall be included in the Proxy Statement. The Proxy
Statement will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder.

The Company shall duly take all lawful action to call, give notice of, convene
and hold a meeting of its stockholders as promptly as reasonably practicable
after the Proxy Statement has received clearance by the SEC, but in no event
later than 60 calendar days after such clearance, to vote on a proposal (the
“Stockholder Proposal”) to approve the issuance of the Warrants and the Warrant
Shares for purposes of Section 312.03 of the NYSE Listed Company Manual (such
meeting, the “Stockholders’ Meeting”). Subject to Section 3.3, the Board of
Directors shall recommend to the Company’s stockholders that such stockholders
approve the Stockholder Proposal (the “Board Recommendation”), and shall not
modify or withdraw such Board Recommendation other than as permitted by
Section 3.3(d). The Company shall use its reasonable best efforts to solicit
proxies in favor of the Stockholder Proposal, subject to Section 3.3.

3.3 No Solicitation. (a) Following the date of this Agreement and prior to the
earlier of the Funding Date or the date on which this Agreement is terminated
pursuant to Article V hereof, the Company and its Subsidiaries will not, and
will not permit their respective officers, directors, employees, advisors,
agents and representatives, including any investment banker, attorney, advisor
or accountant retained by it or any of its Subsidiaries (“Representatives”) to,
directly or indirectly, (i) solicit, initiate, encourage (including by providing
information or assistance) or facilitate any inquiries, proposals or offers with
respect to, or the making or completion of, any proposal that constitutes, or
may reasonably be expected to lead to, an Alternative Transaction Proposal,
(ii) provide or cause to be provided any non-public information or data relating
to the Company or any of its Subsidiaries in connection with, or have any
discussions with, any person relating to or in connection with an actual or
proposed Alternative Transaction Proposal, (iii) engage in any discussions or
negotiations concerning an Alternative Transaction Proposal, or otherwise
encourage or facilitate any effort or attempt to make or implement an
Alternative Transaction Proposal, (iv) approve, recommend, agree to or accept,
or propose publicly to approve, recommend, agree to or accept, any Alternative
Transaction Proposal, or (v) approve, endorse or recommend, agree to or accept,
or propose to approve, endorse, recommend, agree to or accept, or execute or
enter into, any letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement related to
any Alternative Transaction Proposal. The Company shall, and shall cause each of
its Subsidiaries and shall use reasonable best efforts to cause its
Representatives to, (i) immediately cease and cause to be terminated any
activities, discussions or negotiations with any persons conducted heretofore
with respect to any Alternative Transaction Proposal, (ii) request the prompt
return or destruction of all confidential information

 

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previously furnished to any person that has made or indicated an intention to
make an Alternative Transaction Proposal, and (iii) not waive or amend any
“standstill” provision or provisions of similar effect to which it is a part or
of which it is a beneficiary.

(b) Notwithstanding anything to the contrary contained in Section 3.3(a), in the
event that, prior to the receipt of Stockholder Approval, the Company receives
an unsolicited, bona fide written Alternative Transaction Proposal that did not
result from a breach of Section 3.3(a) and that the Company determines, after
consulting with its outside counsel and financial advisor, is reasonably
expected to lead to a Superior Proposal (as defined in Section 3.3(f)(3)), it
may, prior to (but not after) the receipt of Stockholder Approval (and only if
and to the extent that the Board of Directors concludes in good faith, after
consultation with its outside legal counsel, that the failure to do so would
reasonably be expected to be inconsistent with its fiduciary duties under
applicable law):

(1) Furnish nonpublic information to the person or group of persons making such
bona fide written Alternative Transaction Proposal, provided that prior to
furnishing any such nonpublic information, the Company receives from such person
or group of persons an executed confidentiality agreement containing terms at
least as restrictive with respect to such person or group of persons as the
terms contained in the confidentiality agreements entered into with either
Investor (in the event that the applicable term in the confidentiality agreement
with one Investor differs from the applicable term in the confidentiality
agreement with the other Investor, the more restrictive of those terms shall
govern with respect to the preceding clause); and provided, further, that the
Company shall promptly (and in any event within one Business Day) provide or
make available to the Investors any nonpublic information that is provided or
made available to the person making such bona fide written Alternative
Transaction Proposal which was not previously provided or made available to the
Investors; and

(2) Engage in discussions or negotiations with such person or group of persons
with respect to such bona fide written Alternative Transaction Proposal.

(c) As promptly as practicable (and in any event within one Business Day) after
receipt of any Alternative Transaction Proposal or any request for nonpublic
information or any inquiry that would reasonably be expected to lead to any
Alternative Transaction Proposal, the Company shall provide the Investors with a
notice of all terms and conditions of such Alternative Transaction Proposal,
request or inquiry, including in each case the identity of the person making any
such Alternative Transaction Proposal, request or inquiry. In addition, the
Company shall keep the Investors informed on a current basis with respect to any
changes in any Alternative Transaction Proposal, request or inquiry.

(d) Notwithstanding anything in this Agreement to the contrary, at any time
prior to the receipt of Stockholder Approval, the Board of Directors may in
response to a Alternative Transaction Proposal, if it concludes in good faith
(after consultation with its outside legal advisors) that the failure to do so
would reasonably be expected to be inconsistent with its fiduciary duties under
applicable law, withdraw, modify or change the Board Recommendation (a “Change
of Recommendation”); provided, that: (i) the Company shall have complied in all
respects with Section 3.3(a), (b) and (c), (ii) the Company shall have notified
the Investors in

 

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writing of its intent to change the Board Recommendation and, prior to effecting
such Change of Recommendation, the Company shall have given the Investors three
(3) days after delivery of such written notice, an opportunity to propose
revisions to the terms of this Agreement (or make another proposal) and if the
Investors propose to revise the terms of this Agreement, the Company shall have
negotiated in good faith with the Investors with respect to such proposed
revisions or other proposal; and (iii) the Board of Directors shall have
determined in good faith, after considering the results of such negotiations and
giving effect to any proposals, amendments or modifications made or agreed to by
the Investors, if any, that such Alternative Transaction Proposal constitutes or
is reasonably expected to lead to a Superior Proposal. In the event the Board of
Directors makes the determination referred to in clause (iii) of this paragraph
and thereafter determines to withdraw, modify or change the Board of Directors
Recommendation pursuant to this Section 3.3(d), the procedures referred to above
shall apply to any subsequent withdrawal, amendment or change. In the event of
any material revisions to the Alternative Transaction Proposal, the Company
shall deliver a new written notice to the Investors and again comply with the
requirements of this Section 3.3(d) with respect to such new written notice,
except that the period of time referenced in clause (ii) of the foregoing
sentence shall be two (2) days with respect to such notice of material revision.
Notwithstanding any Change of Recommendation, this Agreement shall be submitted
to the stockholders of the Company at the Stockholders’ Meeting for the purpose
of voting on the Stockholder Proposal and nothing contained herein shall relieve
the Company of such obligation. In addition to the foregoing, the Company shall
not submit to the vote of its stockholders any Alternative Transaction Proposal
other than the transactions contemplated hereby.

(e) Nothing in this Agreement shall prohibit the Company from issuing a “stop,
look and listen” communication pursuant to Rule 14d-9(f) promulgated under the
Exchange Act or taking and disclosing to its stockholders any position
contemplated by Rule 14e-2(a) and Rule 14d-9 promulgated under the Exchange Act
or from making any disclosure to the Company’s stockholders if the Board of
Directors (after consultation with its legal advisors) concludes that its
failure to do so would be inconsistent with its fiduciary duties; provided, that
any such disclosure (other than a “stop, look and listen” or similar
communication of the type contemplated by Rule 14d-9(f) under the Exchange Act)
shall be deemed to be a Change of Recommendation unless the Board of Directors
expressly and concurrently reaffirms the Board Recommendation.

(f) As used in this Agreement, the following terms shall have the following
meanings:

(1) “Alternative Transaction” means any transaction or series of related
transactions with one or more third persons involving: (A) any purchase from
such party or acquisition (whether by way of a merger, share exchange,
consolidation, business combination, consolidation or similar transaction) by
any person or “group” of persons (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) of a 10% or greater interest in
the total outstanding voting securities of such party or any Subsidiary of such
party or any tender offer or exchange offer that if consummated would result in
any person or group of persons Beneficially Owning 10% or more of the total
outstanding voting securities of such party or any Subsidiaries of such party or
any merger, consolidation, business combination or similar

 

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transaction involving such party or any of its Subsidiaries, or (B) any sale,
lease, exchange, transfer, license, acquisition or disposition of 10% or more of
the assets of such party and its Subsidiaries, taken as a whole;

(2) “Alternative Transaction Proposal” shall mean any offer, inquiry, proposal
or indication of interest (whether binding or non-binding) to the Company or its
stockholders or any of its Subsidiaries relating to an Alternative Transaction;
and

(3) “Superior Proposal” means an unsolicited, bona fide written Alternative
Transaction Proposal made by a third person (or group of persons acting in
concert within the meaning of Rule 13d-5 under the Exchange Act) with respect to
(A) any purchase by such party or acquisition (whether by way of a merger, share
exchange, consolidation, business combination, consolidation or similar
transaction) by any person or “group” of persons (as defined under Section 13(d)
of the Exchange Act and the rules and regulations thereunder) of at least
$100,000,000 in aggregate value that, if consummated, would result in such
person or group of persons Beneficially Owning 24.9% or less of the total
outstanding voting securities of the Company or (B) any merger, consolidation or
business combination involving the Company or any of its Subsidiaries that,
taken as a whole, the Board of Directors has in good faith determined (taking
into account, among other things, (1) its consultation with its outside legal
counsel and its financial advisors and (2) the terms and conditions of such
Alternative Transaction Proposal and this Agreement (taking into account any
proposed amendments by the Investors)), to be more favorable, from a financial
point of view, to the Company’s stockholders, than the transactions contemplated
by this Agreement (taking into account any proposed amendments by the Investors)
and to be reasonably capable of being consummated on the terms proposed and
within the same period of time, taking into account all other legal, financial,
regulatory and other aspects of such Alternative Transaction Proposal and the
person making the proposal.

3.4 Regulatory Matters. (a) The Company will use reasonable best efforts to
prepare and file all necessary documentation, to effect all necessary
applications, notices, petitions, filings and other documents, and to obtain all
necessary permits, consents, orders, approvals and authorizations of, or any
exemption by, all third parties and Governmental Entities, and expiration or
termination of any applicable waiting periods, necessary or advisable to
consummate the transactions contemplated by this Agreement and the other
Transaction Documents (including with respect to the exercise of the Warrant),
to perform covenants contemplated by this Agreement and the other Transaction
Documents, including any such applications, notices, petitions or filings
required to be made by it with Governmental Entities in connection with the
transactions contemplated by this Agreement and the other Transaction Documents
as promptly as practicable, and, without limiting the foregoing, shall assist in
making a rebuttal of control submission under the HOLA to the OTS or the Federal
Reserve, as applicable, not later than 30 calendar days following the date of
this Agreement; provided, that nothing contained in this Agreement shall require
either Investor or any of their respective Affiliates to take any action that
would (i) result in either Investor or any of their respective Affiliates being
deemed to control the Company for purposes of the HOLA or other applicable law
or regulation, or (ii) materially adversely affect in the Investors’ good faith
judgment the economic or other benefits expected by the Investors of the
transactions contemplated by this

 

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Agreement and the other Transaction Documents to either Investor (the foregoing
(i) and (ii) a “Burdensome Condition”), and, for the avoidance of doubt, any
requirements to disclose the identities of direct or indirect limited partners,
stockholders or members of an Investor or its Affiliates or its investment
advisors shall be deemed a Burdensome Condition unless otherwise determined by
such Investor in its sole discretion; and, provided, further, that nothing in
this Agreement shall obligate an Investor to provide any of its, its Affiliates’
or their control persons’ or direct or indirect equity holders’ nonpublic,
proprietary, personal or otherwise confidential information.

(b) The Investors will have the right to review in advance and consult with the
Company, subject to applicable laws relating to the exchange of information,
with respect to all the information relating to the Investors, and any of their
respective subsidiaries, which appears in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement and the Transaction
Documents. The Company agrees to keep the Investors apprised of the status of
matters relating to completion of the transactions contemplated hereby and by
the Transaction Documents. The Company shall promptly furnish to the Investors
to the extent permitted by applicable laws copies of written communications
received by them or the Company Subsidiaries from, or delivered by any of the
foregoing to, any Governmental Entity in respect of the transactions
contemplated by this Agreement or by any other Transaction Document.

(c) The Company shall not take any action which would reasonably be expected to
pose a risk that either Investor or any of its respective Affiliates will
become, or control, a “savings and loan holding company” within the meaning of
HOLA, or otherwise be deemed to control the Company or have other adverse
consequences to the Investors under applicable law or regulation, including
without limitation undertaking any redemption, recapitalization or repurchase of
Common Stock, of securities or rights, options, or warrants to purchase Common
Stock, or securities of any type whatsoever that are, or may become, convertible
into or exchangeable into or exercisable for Common Stock. In the event that the
Company breaches its obligations under this Section 3.4(c), or enters into a
transaction, contemplates entering into a transaction, or otherwise believes
that it will or is likely to breach its obligations under this Section 3.4(c),
it shall promptly notify the other parties hereto and shall cooperate in good
faith with such parties to make arrangements or take any other action, in each
case, as determined by the Investors.

(d) From the date of this Agreement until the earlier of the date of termination
of this Agreement and the date when the Stockholder Approval is obtained, the
Company shall not, directly or indirectly, amend, modify, or waive, and the
Board of Directors shall not recommend approval of any proposal to the
stockholders having the effect of amending, modifying or waiving any provision
in the Certificate of Incorporation or By-Laws of the Company in any manner
adverse to the Investors.

3.5 Access. From the date of this Agreement until the Funding Date or earlier
termination of this Agreement, the Company and its Subsidiaries will afford to
each Investor and its representatives (including Affiliates, members, partners,
controlling persons, officers and employees of the Investors, and counsel,
accountants and other professionals retained by the Investors) such access
during normal business hours to its books, records, properties, financial

 

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and operating information and personnel and to such other information as each
Investor may reasonably request. Without limiting the foregoing, the Company
shall provide the monthly financial and operating data that it produces in the
ordinary course of its business to the Investors as soon as such information
becomes available. In the event, and to the extent, that, it is reasonably
determined that the rights afforded pursuant to this Section 3.5 are not
sufficient for purposes of the Department of Labor’s “plan assets” regulations,
to the extent such plan assets regulation applies to the investment in the
Company, each Investor and the Company shall cooperate in good faith to agree
upon mutually satisfactory management access and information rights which
satisfy such regulations.

ARTICLE IV

Additional Agreements

4.1 Reservation for Issuance; Exchange Listing. Following receipt of the
Stockholder Approval and prior to the Funding Date, the Company shall have
reserved for issuance that number of shares of Common Stock sufficient for
issuance upon exercise of the Warrants in full by the Investors, and shall have
filed a supplementary listing application with the New York Stock Exchange with
respect to the Warrants and the Warrant Shares.

4.2 Indemnity. (a) The Company shall indemnify and hold harmless each Investor
and its Affiliates, officers, directors, members, stockholders, general or
limited partners, employees and agents, and each person who controls either
Investor within the meaning of the Exchange Act and the rules and regulations
promulgated thereunder (each, an “Indemnified Party”), to the fullest extent
lawful, from and against any and all actions, suits, claims, proceedings, costs,
losses, liabilities, damages, expenses (including reasonable attorneys’ fees and
disbursements), amounts paid in settlement and other costs (collectively,
“Losses”) arising out of or resulting from (1) any inaccuracy in or breach of
the Company’s representations or warranties in the Transaction Documents,
(2) any breach by the Company of its covenants or other agreements in the
Transaction Documents or (3) any Losses arising out of or resulting from any
legal, administrative or other proceedings instituted by any Governmental
Entity, stockholder of the Company or any other Person (other than each Investor
and its Affiliates and the Company and its Subsidiaries) arising out of or
related to the transactions contemplated by the Transaction Documents.

(b) Each Indemnified Party shall give written notice to the Company of any claim
with respect to which it seeks indemnification promptly after the discovery by
such Indemnified Party of any matters giving rise to a claim for
indemnification; provided that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Company of its obligations under
this Section 4.2 unless and to the extent that the Company shall have been
actually and materially prejudiced by the failure of such Indemnified Party to
so notify the Company. In case any such action, suit, claim or proceeding is
brought against an Indemnified Party, such Indemnified Party shall be entitled
to hire, at the cost and expense of the Company, counsel and conduct the defense
thereof. The Company agrees that it will not, without the Indemnified Party’s
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof in any pending or threatened action, suit, claim or
proceeding in respect of which indemnification has been sought hereunder.

 

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(c) For purposes of the indemnity contained in Sections 4.2(a), all
qualifications and limitations set forth in such representations and warranties
as to “materiality,” “Material Adverse Effect”, “Knowledge” and words of similar
import, shall be disregarded in determining whether there shall have been any
inaccuracy or breach of any representations and warranties in this Agreement and
shall likewise be disregarded in determining the amount of Losses incurred or
resulting in connection therewith.

(d) The Company shall not be required to indemnify Investors pursuant to
Section 4.2(a)(1) other than with respect to the Specified Representations:
(i) for any claim unless the amount of such claim exceeds $50,000 (for purposes
of this subsection 4.2(d)(i), claims based upon the same or substantially the
same facts or provisions shall be aggregated and considered as one individual
claim), (ii) until the Investors’ aggregate amount of Losses (excluding any
claim of less than $50,000 with respect to which the Company is not required to
provide indemnification because of the foregoing subclause (i), but including
the full amount of any claim in excess of $50,000) exceeds $1,000,000, whereupon
Investors shall be entitled to indemnification for all Losses from the first
dollar, and (iii) for any Losses in a cumulative aggregate amount exceeding
$10,000,000.

(e) No Indemnified Party shall be entitled to receive indemnification proceeds
hereunder with respect to any Loss that exceed the amount of such Loss, it being
understood that the purpose of this sentence is solely to preclude a duplicate
or windfall recovery by any Indemnified Party. For purposes of this Section 4.2,
“Losses” shall not include speculative, exemplary or punitive damages; provided,
however, that the foregoing shall not limit the right of an Indemnified Party to
indemnification in accordance with this Agreement for any claim, settlement,
award or judgment against such party or any component of the foregoing by any
third party or any amount payable to a third party.

(f) The obligations of the Company under this Section 4.2 shall survive the
Funding Date and any termination of this Agreement. The indemnification rights
contained in this Section 4.2 are not limited or deemed waived by any
investigation or knowledge by the Investors.

(g) Any indemnification payments pursuant to this Section 4.2 shall be treated
as an adjustment to the Funding Amount (which shall be allocated proportionally
between the Warrant Amount and the Loan Amount) for U.S. federal income and
applicable state and local Tax purposes, unless a different treatment is
required by applicable law.

4.3 No Change in Control. The Company shall and shall cause the Company
Subsidiaries to take all actions necessary to ensure that none of the
transactions contemplated hereby shall give rise to a change in control under,
or result in the breach or the violation of, or the acceleration of any right
under, or result in any additional rights, or the triggering of any
anti-dilution adjustment under the Benefit Plans, any employment agreements with
any officer of the Company or any Company Subsidiary or any other contract or
agreement to which the Company or any Company Subsidiary is a party, including
without limitation having any such contracts or agreements waived in writing or
amended prior to Funding.

 

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4.4 Rights Plan. The Company shall not adopt or allow to exist any Rights Plan
from which each Investor and its Affiliates is not fully exempt.

ARTICLE V

Termination

5.1 Termination. This Agreement may be terminated prior to the Funding Date:

(a) by the written agreement of the Company and the Investors;

(b) by either party, upon written notice to the other parties, in the event
that:

(1) the Funding does not occur on or before the date that is six months after
the date of this Agreement (the “Outside Date”); provided, that the Investors
may, if any of the conditions set forth in Sections 1.2(b)(1)(iv), 1.2(b)(1)(v),
1.2(b)(2)(viii) or 1.2(b)(2)(ix) are not satisfied, by written notice to the
Company extend the Outside Date one or more times to a date no later than the
date that is nine months after the date of this Agreement, and all references to
the Outside Date in the Transaction Documents shall refer to the Outside Date as
so extended; and provided, further, that a party whose failure to perform or
observe its covenants and agreements under this Agreement resulted in the
Funding Date not occurring by the Outside Date shall not be entitled to
terminate this Agreement under this Section 5.1(b)(1); or

(2) any Governmental Entity shall have issued any order, decree or injunction or
taken any other action restraining, enjoining or prohibiting any of the
transactions contemplated by this Agreement, and such order, decree, injunction
or other action shall have become final and nonappealable; or

(c) by the Company:

(1) if the Investors breach any representation, warranty or covenant of this
Agreement which breach would cause any of the conditions set forth in
Section 1.2(b)(1) and (3) not to be satisfied and such breach is not cured
within the earlier to occur of the date that is twenty (20) Business Days after
written notice thereof and the Outside Date;

(d) by the Investors, in the event that:

(1) at any time prior to the Funding Date, the Board of Directors (A) effects a
Change of Recommendation or (B) publicly approves, endorses or recommends or
publicly proposes to approve, endorse or recommend any Alternative Transaction
Proposal;

 

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(2) a Stockholders’ Meeting has been held and the Stockholder Approval
contemplated by this Agreement shall not have been obtained;

(3) either Investor or any of their respective Affiliates receives written
notice from or is otherwise advised by the OTS or the Federal Reserve, as may be
applicable at the time of such determination, that the OTS or the Federal
Reserve, respectively, will not grant (or intends to rescind or revoke if
previously granted, including, with respect to the Federal Reserve, written
confirmations previously granted by the OTS) any of the written confirmations or
determinations described in Section 1.2(b)(1)(iv) and (v);

(4) the Company breaches any representation, warranty or covenant of this
Agreement which breach would cause any of the conditions set forth in
Section 1.2(b)(1) and (2) not to be satisfied and such breach is not cured
within the earlier to occur of the date that is twenty (20) Business Days after
written notice thereof and the Outside Date; or

(5) if any of the conditions to Funding set forth in Section 1.2(b)(2) are not
capable of being satisfied on or before the Outside Date.

5.2 Effects of Termination. In the event of any termination of this Agreement as
provided in Section 5.1, this Agreement (other than Section 4.2, this Article V,
and Article VI and all applicable defined terms, which shall remain in full
force and effect) shall forthwith become wholly void and of no further force and
effect; provided that nothing herein shall relieve any party from liability for
willful breach of this Agreement or breach of this Agreement prior to any
termination hereof.

5.3 Fees and Expenses. (a) Simultaneously with the execution of this Agreement,
the Company shall pay the Investors an amount of cash equal to $1,000,000 in
immediately available funds to accounts specified by the Investors in respect of
reimbursement of certain costs and expenses incurred by the Investors in
connection with due diligence of the Company and preparation and negotiation of
the Transaction Documents.

(b) In the event that this Agreement is terminated:

(1) by the Investors pursuant to Section 5.1(d)(1), the Company shall pay the
Investors $3,500,000 in immediately available funds (the “Termination Fee”) no
later than three Business Days after the date of such termination;

(2) (I) (i) by either party pursuant to Section 5.1(b)(1) or (ii) the Investors
pursuant to Section 5.1(d)(2) or Section 5.1(d)(4), (II) prior to the date of
termination (in the case of termination pursuant to Section 5.1(b)(1) or
Section 5.1(d)(4)) or the Stockholders’ Meeting (in the case of termination
pursuant to Section 5.1(d)(2)), an Alternative Transaction Proposal shall have
been made to the Company or made public, and (III) within twelve months of
termination of this Agreement, the Company enters into an agreement with respect
to, or consummates, a transaction with respect to an Alternative

 

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Transaction Proposal, then the Company shall pay the Investors the Termination
Fee (less any Additional Reimbursement Amount already paid to Investors pursuant
to Section 5.3(b)(3)) within three Business Days of the date of entry into such
agreement or consummation of such transaction, whichever is earlier; or

(3) by the Investors pursuant to Section 5.1(d)(2), Section 5.1(d)(4) or
Section 5.1(d)(5), other than based on a failure to satisfy the conditions to
Funding set forth in Section 1.2(b)(2)(viii), Section 1.2(b)(2)(ix) or
Section 1.2(b)(2)(xii) (for which no Additional Reimbursement Amount shall be
due), the Company shall pay the Investors $250,000 in the aggregate in
immediately available funds (the “Additional Reimbursement Amount”) within three
Business Days of such termination.

(c) Other than as set forth in this Section 5.3, each of the parties will bear
and pay all costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated under the Transaction Documents. Upon the
receipt by the Investors of the Termination Fee or the Additional Reimbursement
Amount and other than with respect to fraud or intentional breach or
misrepresentation or termination pursuant to Section 5.1(d)(4), the Investors
shall not be entitled to obtain money damages against the Company in respect of
a breach of this Agreement.

ARTICLE VI

Miscellaneous

6.1 Survival. Each of the representations and warranties set forth in this
Agreement shall survive for a period of fifteen months following the Funding
Date or date upon which this Agreement is terminated, if terminated prior to the
Funding Date (or until final resolution of any claim or action arising from the
breach of any such representation and warranty, if notice of such breach was
provided prior to the end of such period) and thereafter shall expire and have
no further force and effect; provided that the representations and warranties in
Sections 2.1(a), 2.1(b), 2.1(c), 2.1(d), 2.1(y) shall survive indefinitely, the
representations and warranties in Section 2.1(i) shall survive until 60 days
following the expiration of the applicable statutory periods of limitations, and
the representation and warranty contained in Section 2.1(dd) shall survive until
the earlier of (a) one year following the termination of this Agreement and
(b) the first date following the completion of the Funding upon which the
Investors and their Affiliates do not collectively beneficially own a Qualifying
Ownership Interest (as defined in the Investor Rights Agreement). The
representations referenced in the proviso of the immediately preceding sentence
are referred to as the “Specified Representations.” Except as otherwise provided
herein, all covenants and agreements contained herein shall survive for the
duration of any statutes of limitations applicable thereto or until, by their
respective terms, they are no longer operative.

6.2 Amendment. No amendment or waiver of this Agreement will be effective with
respect to any party unless made in writing and signed by a duly authorized
officer of such party.

 

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6.3 Waivers. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The conditions to each party’s
obligation to consummate the Funding are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law. No waiver of any party to this Agreement will be effective
unless it is in a writing signed by a duly authorized officer of the waiving
party that makes express reference to the provision or provisions subject to
such waiver.

6.4 Counterparts and Facsimile. For the convenience of the parties hereto, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
will together constitute the same agreement. Executed signature pages to this
Agreement may be delivered by facsimile or electronically in portable document
format (pdf) and such facsimiles or pdfs will be deemed as sufficient as if
original signature pages had been delivered.

6.5 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law thereof. Each of the parties hereto hereby irrevocably and
unconditionally (i) consents to submit to the sole and exclusive jurisdiction of
the Court of Chancery of the State of Delaware or, if under applicable law
exclusive jurisdiction over the matter is vested in the federal courts, any
court of the United States located in the State of Delaware for any litigation
arising out of or relating to this Agreement, or the negotiation, validity or
performance of this Agreement, (ii) agrees not to commence any litigation
relating thereto except in such courts, (iii) waives any objection to the laying
of venue of any such litigation in such courts and (iv) agrees not to plead or
claim in such courts that such litigation brought therein has been brought in
any inconvenient forum. Each of the parties hereto agrees, (A) to the extent
such party is not otherwise subject to service of process in the State of
Delaware, to appoint and maintain an agent in the State of Delaware as such
party’s agent for acceptance of legal process, and (B) that service of process
may also be made on such party by prepaid certified mail with a proof of mailing
receipt validated by the United States Postal Service constituting evidence of
valid service. Service made pursuant to this Section shall have the same legal
force and effect as if served upon such party personally within the State of
Delaware.

6.6 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

6.7 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the other will be in writing and will be deemed to
have been duly given (a) on the date of delivery if delivered personally or by
telecopy or facsimile, upon confirmation of receipt, (b) on the first Business
Day following the date of dispatch if delivered by a recognized next-day courier
service, or (c) on the third Business Day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.

 

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  (1) If to Hilltop:

Hilltop Holdings Inc.

200 Crescent Court, Suite 1330

Dallas, Texas 75201

Attn:   President Facsimile:   (214) 855-2173

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

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019-6150

Attn:   David E. Shapiro Facsimile:   (212) 403-2000

 

  (2) If to Oak Hill:

Oak Hill Capital Partners

65 East 55th Street, 32nd Floor

New York, NY 10022

Attn:   Douglas Kaden Facsimile:   (212) 527-8450

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

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Attn:  

Lee A. Meyerson

Elizabeth A. Cooper

Facsimile:   (212) 455-2502

 

  (3) If to the Company:

SWS Group, Inc.

1201 Elm Street, Suite 3500

Dallas, Texas 75270

Attn:   General Counsel Facsimile:   (214) 859-6020

with copies to (which copy alone shall not constitute notice):

Andrews Kurth, LLP

1717 Main Street, Suite 3700

Dallas, TX 75201

Attn:   Ronald L. Brown Facsimile:   (214) 659-4819

 

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6.8 Entire Agreement, Etc. This Agreement (including the Exhibits and Disclosure
Schedule) and the Transaction Documents constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties, both written and oral, between the parties, with respect to the
subject matter hereof; (b) the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors, and with respect to the Investors, their permitted
assigns; and (c) without the prior written consent of all parties hereto, this
Agreement will not be assignable by any means whatsoever, whether voluntary,
involuntary, by operation of law or otherwise (any attempted assignment in
contravention hereof being null and void), except that each Investor shall be
permitted to assign its rights or obligations hereunder to any Affiliate entity
(any such transferee shall be included in the term “Investor”)).

6.9 Other Definitions. Wherever required by the context of this Agreement, the
singular shall include the plural and vice versa, and the masculine gender shall
include the feminine and neuter genders and vice versa, and references to any
agreement, document or instrument shall be deemed to refer to such agreement,
document or instrument as amended, supplemented or modified from time to time.
All article, section, paragraph or clause references not attributed to a
particular document shall be references to such parts of this Agreement, and all
exhibit, annex and schedule references not attributed to a particular document
shall be references to such exhibits, annexes and schedules to this Agreement.
When used herein:

(1) the word “or” is not exclusive;

(2) the words “including,” “includes,” “included” and “include” are deemed to be
followed by the words “without limitation”;

(3) the terms “herein,” “hereof” and “hereunder” and other words of similar
import refer to this Agreement as a whole and not to any particular section,
paragraph or subdivision;

(4) the term “Affiliate” means, with respect to any person, any person directly
or indirectly controlling, controlled by or under common control with, such
other person. For purposes of this definition, “control” (including, with
correlative meanings, the terms “controlled by” and “under common control with”)
when used with respect to any person, means the possession, directly or
indirectly, of the power to cause the direction of management and/or policies of
such person, whether through the ownership of voting securities by contract or
otherwise. For purposes of this definition, the (i) Company and any of its
Affiliates are not Affiliates of Hilltop Holdings Inc. or Oak Hill Capital
Partners III, L.P. or any of their respective Affiliates and (ii) Hilltop
Holdings Inc. and any of its Affiliates are not Affiliates of Oak Hill Capital
Partners III, L.P. or any of its Affiliates;

(5) “Beneficially Own,” “Beneficial Owner” and “Beneficial Ownership” are used
herein as defined in Rules 13d-3 and 13d-5 of the Exchange Act;

(6) “Business Day” means any day except Saturday, Sunday and any day which shall
be a legal holiday or a day on which banking institutions in the State of New
York generally are authorized or required by law or other governmental actions
to close;

 

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(7) “Capital Lease Obligations” means as to any person, the obligations of such
person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such person under GAAP and, for the purposes of
this Agreement or the Credit Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.

(8) “Group Member” has the collective reference to the Company and the Company
Subsidiaries.

(9) “Guarantee Obligation” means as to any person (the “guaranteeing person”),
any obligation, including a reimbursement, counterindemnity or similar
obligation, of the guaranteeing person that guarantees or in effect guarantees,
or which is given to induce the creation of a separate obligation by another
person (including any bank under any letter of credit) that guarantees or in
effect guarantees, any indebtedness, leases, dividends or other obligations (the
“primary obligations”) of any other third person (the “primary obligor”) in any
manner, whether directly or indirectly, including any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person’s maximum reasonably anticipated liability in
respect thereof as determined by the Company in good faith.

(10) “Guarantor” has the meaning given to it in the Credit Agreement.

(11) “Indebtedness”: of any person at any date, without duplication, (a) all
indebtedness of such person for borrowed money, (b) all obligations of such
person for the deferred purchase price of property or services (other than trade
payables incurred

 

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in the ordinary course of such person’s business), (c) all obligations of such
person evidenced by notes, bonds, debentures or other similar instruments,
(d) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property),
(e) all Capital Lease Obligations of such person, (f) all obligations of such
person, contingent or otherwise, as an account party or applicant under or in
respect of acceptances, letters of credit, surety bonds or similar arrangements,
(g) the liquidation value of all mandatorily redeemable preferred capital stock
of such person, (h) all Guarantee Obligations of such person in respect of
obligations of the kind referred to in clauses (a) through (g) above, (i) all
obligations of the kind referred to in clauses (a) through (h) above secured by
(or for which the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including accounts and
contract rights) owned by such person, whether or not such person has assumed or
become liable for the payment of such obligation, (j) all obligations of such
person in respect of Swap Agreements and (k) all obligations or liabilities of
such person arising from a Repo Transaction; provided, that the term
“Indebtedness” shall not include (A) payments with respect to deferred employee
compensation, (B) agreements providing for indemnification, for the adjustment
of purchase price or for similar adjustments in connection with acquisitions or
a dispositions permitted by the Credit Agreement or (C) any obligations of such
person in respect of any lease pursuant to which such person is the lessee that
is accounted for as an operating lease in accordance with GAAP. The Indebtedness
of any person shall include the Indebtedness of any other entity (including any
partnership in which such person is a general partner) to the extent such person
is liable therefor as a result of such person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness expressly provide that such person is not liable therefor.

(12) “Investor Rights Agreement” refers to the Investor Rights Agreement, by and
between the Investors and the Company, in the form attached as Exhibit C hereto.

(13) “to the Knowledge of the Company” or “Company’s Knowledge” or “Knowledge”
and words of similar import means (i) with respect to the representation set
forth in Section 2.1(bb)(4)(ii) only, the actual knowledge, after reasonable
inquiry, of John L. Holt, Jr. and (ii) other than with respect to the
representation set forth in Section 2.1(bb)(4)(ii), the actual knowledge, after
reasonable inquiry, of James H. Ross, John L. Holt, Jr., Stacy M. Hodges, Daniel
R. Leland, Richard H. Litton, Paul D. Vinton, Allen R. Tubb and Mike Cogliano;

(14) “Material Adverse Effect” means any circumstance, event, change,
development or effect that, individually or in the aggregate, would (1) be
material and adverse to the business, property, operations, condition (financial
or otherwise) or results of operations of the Company and its Subsidiaries taken
as a whole, other than to the extent resulting from (i) adverse changes after
the date of this Agreement in the United States economy (so long as Company is
not disproportionately affected thereby); (ii) adverse changes after the date of
this Agreement in the industries in which Company

 

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operates (so long as Company is not disproportionately affected thereby);
(iii) the announcement or pendency of the transactions contemplated by this
Agreement ; (iv) the failure to meet analysts’ projections, in and of itself
(provided that the underlying reason for such failure to meet projections shall
not be excluded by this subsection (iv)); (v) changes in laws after the date of
this Agreement (so long as Company is not disproportionately affected thereby);
(vi) changes in GAAP after the date of this Agreement; or (vii) acts of war or
terrorism after the date of this Agreement; or (2) materially impair the ability
of the Company to perform its obligations under this Agreement or materially
threaten or impede or delay the consummation of the transactions contemplated
hereby.

(15) “Permitted Liens” means (i) Liens for taxes and other governmental charges
and assessments which are not yet due and payable, (ii) Liens of landlords and
Liens of carriers, warehousemen, mechanics and materialmen and other like Liens
arising in the ordinary course of business for sums not yet due and payable, and
(iii) other Liens or imperfections on property which are not material in amount
or do not materially detract from the value of or materially impair the existing
use of the property affected by such Lien or imperfection.

(16) “person” or “Person” has the meaning given to it in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act;

(17) “Requirement of Law” means as to any person, the Certificate of
Incorporation and By Laws or other organizational or governing documents of such
person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Entity, in each case applicable to
or binding upon such person or any of its property or to which such person or
any of its property is subject.

(18) “Repo Transaction” means any of the following: repurchase agreements,
reverse repurchase agreements, sell buy backs and buy sell backs agreements,
securities lending and borrowing agreements and any other agreement or
transaction similar to those referred to above in this definition.

(19) “Swap Agreement”: any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement involving, or settled
by reference to, one or more rates, currencies, commodities, equity or debt
instruments or securities, or economic, financial or pricing indices or measures
of economic, financial or pricing risk or value or any similar transaction or
any combination of these transactions; provided that no phantom stock or similar
plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Company or any of
its Subsidiaries shall be a “Swap Agreement”.

(20) the term “Subsidiary” means any entity or person that is controlled by
another entity or person. For purposes of this definition, an entity or person
controls another entity or person if it (i) owns, controls, or holds the power
to vote 25% of any

 

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class of voting securities of such other entity or person, (ii) controls in any
manner the election of a majority of the other entity’s or person’s board of
directors (or equivalent positions), or (3) has the power to exercise, directly
or indirectly, a controlling influence over the management or policies of such
other entity or person.

(21) “Transaction Documents” refers collectively to this Agreement, the Credit
Agreement and the Notes issued thereunder, the Warrants and the Investor Rights
Agreement, together in each case with any amendments, supplements or
modifications thereto and the Loan Documents (as defined in the Credit
Agreement).

6.10 Captions. The article, section, paragraph and clause captions herein are
for convenience of reference only, do not constitute part of this Agreement and
will not be deemed to limit or otherwise affect any of the provisions hereof.

6.11 Severability. If any provision of this Agreement or the application thereof
to any person (including, the officers and directors of the Investors and the
Company) or circumstance is determined by a court of competent jurisdiction to
be invalid, void or unenforceable, the remaining provisions hereof, or the
application of such provision to persons or circumstances other than those as to
which it has been held invalid or unenforceable, will remain in full force and
effect and shall in no way be affected, impaired or invalidated thereby, so long
as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party.

6.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
expressed or implied, is intended to confer upon any person other than the
parties hereto, any benefit right or remedies, except that the provisions of
Section 4.2 shall inure to the benefit of the persons referred to in that
Section.

6.13 Public Announcements. Subject to each party’s disclosure obligations
imposed by law or regulation, each of the parties hereto will cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to this Agreement and any of the
transactions contemplated by this Agreement or the other Transaction Documents,
and no party hereto will make any such news release or public disclosure without
first consulting with the other party hereto and receiving its consent (which
shall not be unreasonably withheld, conditioned or delayed), and each party
shall coordinate with the other with respect to any such news release or public
disclosure.

6.14 Remedies. The Company agrees that irreparable damage would occur in the
event that the Company breaches any of the provisions of this Agreement or fails
to perform this Agreement in accordance with its specific terms. It is
accordingly agreed that the Investors shall be entitled to obtain specific
performance against the Company of the terms hereof, this being in addition to
any other remedies to which they are entitled at law or equity. The Company
further agrees that (a) it has and shall have no legal or equitable recourse
against any of either Investor’s Affiliates, officers, directors, members,
stockholders, general or limited partners, employees and agents, or any person
who controls either Investor within the meaning of the Exchange Act and the
rules and regulations promulgated thereunder in connection with or otherwise
arising out of this Agreement, the Transaction Documents or the transactions

 

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contemplated thereby, (b) it is not entitled to obtain specific performance or
other equitable or injunctive relief against the Investors in connection with
this Agreement, the Transaction Documents or the transactions contemplated
thereby or otherwise, (c) in no event shall any Investor bear any liability for
any action or omission of the other Investor, and (d) under no circumstances
shall any Investor be liable to the Company for monetary damages exceeding
$5,000,000 individually or $10,000,000 in the aggregate for both Investors in
connection with or arising out of any breach (including any willful or
intentional breach) of this Agreement or any Transaction Document or otherwise
in connection with or arising out of the transactions contemplated thereby.

 

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

 

SWS GROUP, INC. By:  

/s/ James H. Ross

  Name:   James H. Ross   Title:   Chief Executive Officer HILLTOP HOLDINGS INC.
By:  

/s/ Corey Prestidge

  Name:   Corey Prestidge   Title:   General Counsel and Secretary OAK HILL
CAPITAL PARTNERS III, L.P. By:   OHCP GenPar III, L.P., its general partner By:
  OHCP MGP Partners III, L.P., its general partner By:   OHCP MGP III, Ltd., its
general partner By:  

/s/ John Monsky

  Name:   John Monsky   Title:   Vice President OAK HILL CAPITAL MANAGEMENT
PARTNERS III, L.P. By:   OHCP GenPar III, L.P., its general partner By:   OHCP
MGP Partners III, L.P., its general partner By:   OHCP MGP III, Ltd., its
general partner By:  

/s/ John Monsky

  Name:   John Monsky   Title:   Vice President

[Signature Page to Funding Agreement]