Exhibit 10.1

STOCK PURCHASE AGREEMENT

BY AND AMONG

PALMETTO BANCSHARES, INC.,

CAPGEN CAPITAL GROUP V LP

AND EACH OF THE OTHER

INVESTORS NAMED HEREIN

DATED AS OF

MAY 25, 2010

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TABLE OF CONTENTS

 

        Page

ARTICLE I.          PURCHASE AND SALE OF THE PURCHASED SHARES

   1

Section 1.01

    

Issuance, Sale and Delivery of the Purchased Shares

   1

Section 1.02

    

Closing

   1

Section 1.03

    

Payment of Purchase Price

   2

Section 1.04

    

Anti-Dilution

   2

Section 1.05

    

Transaction Fees and Expenses

   2

ARTICLE II.          REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   2

Section 2.01

    

Organization and Standing

   2

Section 2.02

    

Corporate Power

   3

Section 2.03

    

Corporate Authority

   3

Section 2.04

    

Regulatory Approvals; Shareholder Approvals; No Violations

   4

Section 2.05

    

Company Capital Stock; Purchased Shares

   5

Section 2.06

    

Company Reports; Financial Statements, Etc

   5

Section 2.07

    

Compliance with Applicable Laws; Regulatory Filings; Permits

   7

Section 2.08

    

No Undisclosed Liabilities

   9

Section 2.09

    

Absence of Certain Changes

   9

Section 2.10

    

Tax Matters

   9

Section 2.11

    

Transactions with Affiliates

   12

Section 2.12

    

Loans

   13

Section 2.13

    

Other Activities of the Company and the Bank

   13

Section 2.14

    

Material Agreements; No Defaults

   13

Section 2.15

    

Company Benefit Plans

   14

Section 2.16

    

Environmental Matters

   16

Section 2.17

    

Labor Matters

   17

Section 2.18

    

Insurance

   17

Section 2.19

    

No Integration

   17

Section 2.20

    

No Change in Control

   17

Section 2.21

    

Properties

   17

Section 2.22

    

Computer and Technology Security

   18

Section 2.23

    

Data Privacy

   18

Section 2.24

    

No Restrictive Covenants

   19

 

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TABLE OF CONTENTS

(continued)

 

        Page

Section 2.25

    

Litigation

   19

Section 2.26

    

No Brokers

   19

Section 2.27

    

Voting of Shares by Directors and Executive Officers

   19

Section 2.28

    

Risk Management Instruments

   19

Section 2.29

    

Adequate Capitalization

   20

Section 2.30

    

Investment Company

   20

Section 2.31

    

Price of Common Stock

   20

Section 2.32

    

Shell Company Status

   20

Section 2.33

    

Reservation of Purchased Shares

   20

Section 2.34

    

Substantially Similar Agreement

   20

Section 2.35

    

Disclosure

   20

Section 2.36

    

Indebtedness

   21

Section 2.37

    

Private Trading System

   21

Section 2.38

    

Securities Law Compliance

   21

Section 2.39

    

Fairness Opinion

   21

ARTICLE III.          REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

   21

Section 3.01

    

Organization

   21

Section 3.02

    

Bank Holding Company Status

   21

Section 3.03

    

Authorization

   22

Section 3.04

    

Purchase for Investment; Accredited Investor; etc

   22

Section 3.05

    

Regulatory Approvals

   25

Section 3.06

    

Sufficient Funds

   25

Section 3.07

    

Brokers and Finders

   25

Section 3.08

    

Residency

   25

ARTICLE IV.          CONDITIONS TO THE OBLIGATIONS OF THE INVESTORS

   25

Section 4.01

    

Representations and Warranties to be True and Correct

   25

Section 4.02

    

Performance

   26

Section 4.03

    

No Material Adverse Change

   26

Section 4.04

    

Corporate Approvals; Shareholder Approvals

   26

Section 4.05

    

Regulatory Approvals, Etc

   26

 

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TABLE OF CONTENTS

(continued)

 

        Page

Section 4.06

    

Registration Rights Agreement

   27

Section 4.07

    

Sales of Shares

   27

Section 4.08

    

Legal Opinion

   27

Section 4.09

    

Third-Party Consents

   27

ARTICLE V.          CONDITIONS TO THE OBLIGATIONS OF THE COMPANY

   27

Section 5.01

    

Representations and Warranties to be True and Correct; Covenants

   27

Section 5.02

    

Performance

   28

Section 5.03

    

Regulatory Approvals

   28

Section 5.04

    

Shareholder Approvals

   28

ARTICLE VI.          COVENANTS

   28

Section 6.01

    

Reasonable Best Efforts

   28

Section 6.02

    

Filings and Other Actions

   28

Section 6.03

    

Corporate Approvals; Takeover Laws

   30

Section 6.04

    

Shareholder Approvals

   30

Section 6.05

    

Proxy Statement; Other Filings

   31

Section 6.06

    

Registration Rights

   32

Section 6.07

    

Board Matters

   32

Section 6.08

    

Restricted Shares

   33

Section 6.09

    

Information, Access and Confidentiality

   36

Section 6.10

    

Conduct of Business Prior to Closing

   36

Section 6.11

    

Company Forbearances

   37

Section 6.12

    

Investor Call

   40

Section 6.13

    

No Acceleration Under Equity Compensation Plans, Etc.

   40

Section 6.14

    

No Agreements with other Investors

   40

Section 6.15

    

Press Releases; Public Disclosure

   40

Section 6.16

    

Securities Law Compliance

   41

Section 6.17

    

No Listing

   41

Section 6.18

    

Regulatory Compliance

   41

Section 6.19

    

Third Party Consents

   42

 

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TABLE OF CONTENTS

(continued)

 

        Page

Section 6.20

    

CapGen Ownership Limitation

   42

Section 6.21

    

Discounted Loan Payoffs

   42

ARTICLE VII.          Other agreements

   42

Section 7.01

    

Bank Holding Company Status

   42

Section 7.02

    

Preemptive Rights

   42

Section 7.03

    

Compensation Matters

   44

Section 7.04

    

Reasonable Best Efforts

   44

Section 7.05

    

No-Shop; Certain Other Transactions

   44

Section 7.06

    

Indemnification

   45

ARTICLE VIII.          TERMINATION

   47

Section 8.01

    

Methods of Termination

   47

Section 8.02

    

Effect of Termination

   48

ARTICLE IX.          MISCELLANEOUS

   48

Section 9.01

    

Certain Definitions

   48

Section 9.02

    

Specific Performance

   50

Section 9.03

    

Expenses

   50

Section 9.04

    

Survival

   51

Section 9.05

    

Notices

   51

Section 9.06

    

No Assignment; No Delegation

   52

Section 9.07

    

No Third Party Beneficiaries

   52

Section 9.08

    

Governing Law

   52

Section 9.09

    

Amendments and Waivers

   52

Section 9.10

    

Severability

   52

Section 9.11

    

Captions

   52

Section 9.12

    

No Waiver; Cumulative Remedies

   52

Section 9.13

    

Further Assurances

   53

Section 9.14

    

No Construction Against Drafter

   53

Section 9.15

    

Entire Agreement

   53

Section 9.16

    

Counterparts

   53

Section 9.17

    

Independent Nature of Investors’ Obligations and Rights

   53

 

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TABLE OF CONTENTS

(continued)

 

        Page

Section 9.18

    

Alternative Transaction Payment

   54

 

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SCHEDULES

Disclosure Schedule

 

SCHEDULE I

  

Subsidiaries

SCHEDULE II

  

Form of Registration Rights Agreement

SCHEDULE III

  

Regulatory Compliance

 

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INDEX TO DEFINED TERMS

 

Accredited Investor

   48

Acquisition Transaction

   45

affiliate

   48

Agreement

   1

Alternative Transaction

   54

Alternative Transaction Agreement

   54

Alternative Transaction Compensation

   54

Alternative Transaction Payment

   55

Amended and Restated Articles of Incorporation

   31

Applicable Law

   48

As-adjusted Purchased Shares

   54

Bank

   1, 3

beneficial ownership

   49

Benefit Plan

   14

BHCA

   2

Board

   49

BOLI

   8

Business Day

   49

CapGen

   1

Closing

   2

Closing Date

   2

Code

   8

Commitments

   28

Common Stock

   1

Company

   1

Company Board Recommendation

   3

Company Reports

   6

Convertible Notes

   5

Covered Securities

   42

D&O Insurance

   17

De Minimis Claim

   46

Designated Securities

   43

ERISA

   14

ERISA Affiliate

   14

Exchange Act

   49

Executive Officer Investment

   43

FBCA

   3

FDI Act

   33, 39

FDIC

   3

Federal Reserve

   4

Federal Reserve Resolutions

   7

Florida Division

   7

Follow-on Offering

   43

GAAP

   49

Governmental Authority

   4

Group

   9

Indemnified Person

   46

Insider Shareholder Votes

   19

Investment

   1

Investor Call

   1

Investor Party

   45

Investor Percentage Interest

   42

Investors

   1

Leases

   18

Legend Removal Date

   35

Liens

   1

Material Adverse Effect

   49

Money Laundering Laws

   8

OFAC

   8

Offer Period

   43

Offering Materials

   23

Original Date

   30

Other Filings

   31

Permits

   8

person

   50

Placement Agent

   19

Press Release

   41

Private Placement

   1

Private Placement Documents

   23

Proposals

   30

Proxy Statement

   31

Purchase Price

   2

Purchased Shares

   1

Qualified Offering

   42

Qualified Offering Notice

   43

Regulatory Authority

   7

Regulatory Matters

   19

Regulatory Reports

   7

Representatives

   44

Requisite Shareholder Vote

   4

Resale Registration Statement

   35

Returns

   10

Rule 144A offering

   44

SEC

   50

Securities Act

   50

Shareholder Approvals

   30

Shareholders’ Meeting

   30

South Carolina Board

   7

Subsidiary

   50

 

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Takeover Laws

   4

Taxes

   9

Termination Date

   47

Threshold Amount

   46

Transaction

   1

 

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STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement, dated as of May 25, 2010 (this “Agreement”), is
by and among PALMETTO BANCSHARES, INC., a South Carolina corporation (the
“Company”), and CAPGEN CAPITAL GROUP V LP, a Delaware limited partnership
(“CapGen”), and each of the respective other investors set forth on the
signature pages to this Agreement (collectively, with CapGen, the “Investors”).

The Company seeks to issue and sell to CapGen, and CapGen seeks to purchase (the
“Investment”), 21,153,846 shares of common stock, par value $5.00 per share, of
the Company (the “Common Stock”), at a purchase price of $2.60 per share on the
terms and subject to the conditions set forth in this Agreement. The Company is
also selling pursuant to this Agreement Common Stock in the aggregate amount of
$45.0 million to other Accredited Investors, in each case, at a purchase price
per share of $2.60 (collectively, with the Investment, the “Private Placement”).
The shares of Common Stock to be sold in the Private Placement are collectively
referred to herein as the “Purchased Shares.” The number of Purchased Shares to
be purchased by each Investor hereunder is set forth on such Investor’s
signature page. Each of CapGen and the other Investors are acting separately.

The Company will use substantially all the proceeds from the Private Placement
to increase the capital of the Company’s wholly-owned subsidiary, The Palmetto
Bank (the “Bank”).

In consideration of the premises, and other good and valuable consideration, the
receipt of which is acknowledged, the parties, intending to be legally bound,
agree as follows:

ARTICLE I.

PURCHASE AND SALE OF THE PURCHASED SHARES

Section 1.01        Issuance, Sale and Delivery of the Purchased Shares. Subject
to the terms and conditions set forth in this Agreement, at the Closing, the
Company shall issue, sell and deliver to each Investor, and each Investor shall,
severally and not jointly, purchase from the Company, the Purchased Shares set
forth on such Investor’s signature page, free and clear of all liens, pledges,
security interests, charges and other encumbrances, including any restrictions
on voting such Purchased Shares (“Liens”), other than those placed thereon by or
on behalf of an Investor with respect solely to such Investor’s Purchased Shares
and restrictions on transfer arising under U.S. federal and state securities
laws (such issuance, sale and purchase of the Purchased Shares, along with the
other commitments by each party to the other set forth in this Agreement, and
the transactions contemplated hereby, the “Transaction”).

Section 1.02        Closing. The parties shall consummate the Transaction at a
mutually agreeable location upon satisfaction (or waiver, other than a waiver of
any condition set forth in Section 4.06) of all conditions to Closing (as
defined below); provided, that such consummation may not occur prior to the end
of the 15-day period commencing on the date of issuance of a notice by CapGen to
its investors to call funds required to purchase the Purchased Shares that
CapGen is acquiring (the “Investor Call”); and provided, further, that CapGen
shall issue such notice no later than five days after receipt of the last
regulatory approval, including the expiration without adverse action by the
United States Department of Justice during any statutory waiting

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period and the satisfaction or permissible waiver of all other conditions to
closing set forth in this Agreement. The closing (the “Closing”) of the purchase
of the Purchased Shares by the Investor shall occur no sooner than the time set
forth in the preceding sentence or at such other date and time as may be
mutually agreed upon by the Investors and the Company (the “Closing Date”). At
the Closing, subject to the terms and conditions hereof, the Company shall issue
and deliver to each Investor the Purchased Shares set forth on such Investor’s
signature page in accordance with Section 1.01 in certificate form or in
uncertificated book-entry form pursuant to instructions of such Investor
provided to the Company at least three Business Days in advance of the Closing
Date.

Section 1.03        Payment of Purchase Price. As payment in full for the
Purchased Shares, on the Closing Date, each Investor shall deliver to the
Company an aggregate amount equal to $2.60 per Purchased Share to be acquired by
each Investor hereunder (such aggregate amount, the “Purchase Price”). Payment
of the Purchase Price shall be made on the Closing Date in immediately available
funds by wire transfer versus delivery of certificates representing the
Purchased Shares. At least three Business Days in advance of the Closing Date,
the Company shall designate and give notice to Investors of the bank account to
which the Purchase Price shall be wired.

Section 1.04        Anti-Dilution. If, between the date of this Agreement and
the Closing Date, the outstanding shares of Common Stock are changed or
exchanged for a different number of kind of shares or securities as a result of
any reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other substantially similar transaction, the
parties shall make an appropriate and proportionate adjustment to the number of
Purchased Shares or the Purchase Price.

Section 1.05        Transaction Fees and Expenses. The Company has agreed as of
the date hereof, whether or not the Private Placement is consummated, to
(i) reimburse CapGen for legal fees and expenses in the amount of $250,000 and
(ii) reimburse CapGen for all legal fees and expenses incurred with respect to
negotiating this Agreement, the Registration Rights Agreement and the other
terms of the Private Placement (including the Transaction) with Investors other
than CapGen.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to each Investor, as follows and understands
that each Investor is relying on these representations and warranties:

Section 2.01        Organization and Standing.

    (a)        The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of South Carolina and is registered
as a bank holding company under the Bank Holding Company Act of 1956, as amended
(the “BHCA”). The Company is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the ownership or
operation of its assets or properties or conduct of its business

 

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requires such qualification, except where the failure to be so qualified or in
good standing is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect.

    (b)        Schedule I sets forth all Subsidiaries of the Company. The
Company owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. The Company’s principal Subsidiary and
sole banking Subsidiary is the Bank, which is a South Carolina state-chartered
commercial bank (the “Bank”). Each Subsidiary is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
or incorporation. Each Subsidiary is wholly-owned by the Company (directly or
indirectly) and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation of its
assets or properties or conduct of its business requires such qualification,
except where the failure to be so qualified or in good standing is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect. The Bank’s deposits are insured up to applicable limits by the Federal
Deposit Insurance Corporation (“FDIC”), and all FDIC insurance premiums and
assessments required to be paid have been paid when due.

Section 2.02        Corporate Power. The Company and each Subsidiary has all
requisite power and authority (corporate and other) to carry on its business as
it is now being conducted and to own, lease or operate all its properties and
assets and to conduct its business as contemplated hereby. The Company has all
requisite corporate power and authority and has taken all corporate action
necessary, subject to the receipt of the Shareholder Approvals described in this
Agreement, in order to execute, deliver and perform its obligations under this
Agreement and to consummate the Private Placement (including the Transaction).

Section 2.03        Corporate Authority.

    (a)        This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery of this
Agreement by each Investor, this Agreement is a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors’ rights or to general equity principles.

    (b)        The Board, including the independent members of the Board, (at a
meeting or meetings duly called and held) has unanimously (i) determined that
this Agreement and the Private Placement (including the Transaction) are in the
best interests of, the Company and its shareholders, (ii) resolved to recommend
the approval of the amendment and restatement of the Company’s Articles of
Incorporation by the shareholders of the Company (as described in Section 5.04
of this Agreement) (the “Company Board Recommendation”), and (iii) irrevocably
taken all necessary steps to render the provisions of Sections 35-2-201 through
35-2-226 of the South Carolina Code (the “SCC”) regarding business combinations
with “interested shareholders” and Sections 35-2-101 through 35-2-111 of the SCC
regarding “control share acquisitions,” as well as similar provisions set forth
in the Company’s articles of incorporation or other organizational documents,
inapplicable to the execution and delivery of this Agreement

 

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and the consummation of the Private Placement (including the Transaction).
Giving effect to the Board actions described in this Section 2.03(b), no
“moratorium,” “control share acquisition,” “business combination,” “fair price”
or other form of anti-takeover laws or regulations of the State of South
Carolina (such laws or regulations, “Takeover Laws”) are applicable to the
execution, delivery or performance of this Agreement or the consummation of the
Private Placement (including the Transaction). The Company has no shareholder
rights plan, poison pill or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company for
any purpose, regardless of form.

    (c)        No shareholder approval of the Private Placement is required
under the SCC or the rules or regulations of any stock exchange or other market
that any of the Company’s securities are listed, quoted or traded on.

Section 2.04        Regulatory Approvals; Shareholder Approvals; No Violations.

    (a)        No consents, approvals, permits, orders, authorizations of,
exemptions, reviews or waivers by, or notices, reports, filings, declarations or
registrations with, any federal, state or local court, governmental,
legislative, judicial, administrative authority, Regulatory Authority (as
defined in Section 2.07(b) of this Agreement), taxing authority, agency,
commission, body or other governmental entity or self-regulatory organization
(each, a “Governmental Authority”) or with any third party are required to be
made or obtained by the Company, the Bank or any Subsidiary of either of them in
connection with the execution, delivery and performance by the Company of this
Agreement or the consummation of the sale of the Purchased Shares or any other
aspect of the Transaction except for (i) the necessary approvals of CapGen to
purchase the Purchased Shares and become a bank holding company controlling the
Company as required by the Transaction and notices to the Board of Governors of
Federal Reserve System or its delegee (the “Federal Reserve”) of the proposed
purchases by the other Investors; (ii) those already obtained or made; and
(iii) any securities or “blue sky” filings of any state.

    (b)        The only vote of the holders of outstanding securities of the
Company required by the Company’s articles of incorporation or bylaws,
Applicable Law, or otherwise, to consummate the sale of the Purchased Shares and
approve the adoption of the Amended and Restated Articles of Incorporation (as
defined below) is the affirmative vote of the holders of not less than 66 2/3%
vote of all outstanding shares of Common Stock, voting together as a single
class, in favor of the adoption of the Amended and Restated Articles of
Incorporation (the “Requisite Shareholder Vote”). Otherwise, any Proposals, if
any, required in connection with the Private Placement (including the
Transaction) require a vote of the holders of a majority of the outstanding
shares of Common Stock, voting together as a single class.

    (c)        The execution, delivery and performance of this Agreement by the
Company does not, and (assuming the Requisite Shareholder Vote is obtained) the
consummation by the Company of the Private Placement (including the Transaction)
will not, (i) constitute or result in a breach or violation of, or a default
under, the acceleration of any obligations or penalties or the creation of any
Lien or exception to title of any kind on the assets of the Company or any
Subsidiaries (with or without notice, lapse of time, or both) pursuant to,
agreements binding upon the Company or any Subsidiary or to which the Company or
any

 

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Subsidiary or any of their respective properties is subject or bound or any law,
regulation, judgment or governmental or non-governmental permit or license to
which the Company or any Subsidiary or any of their respective properties is
subject; except, in the case of this clause (i), for any breach, violation,
default, acceleration, debt repayment trigger or creation that, individually or
in the aggregate, is not reasonably likely to have a Material Adverse Effect; or
(ii) constitute or result in a breach or violation of, or a default under, the
articles of incorporation or the bylaws of the Company or the organizational
documents of any Subsidiary, in each case, effective as of the Closing Date.

Section 2.05        Company Capital Stock; Purchased Shares. (a) As of the date
hereof, the authorized capital stock of the Company consists solely of
25,000,000 shares of Common Stock, of which 6,495,130 shares are issued and
outstanding (excluding shares of unvested time-based stock options, representing
132,810 shares of Common Stock) and 2,500,000 shares of preferred stock, par
value $0.01 per share, of which no shares have been designated or are issued or
outstanding. As of the date hereof, 204,960 shares of Common Stock are reserved
for issuance under the Company’s 2008 Restricted Stock Plan and 132,810 shares
of Common Stock have been reserved for issuance upon exercise of stock options
with a weighted-average exercise price of $22.54, which have been granted and
remained outstanding as of December 31, 2009, and 146,154 shares of Common Stock
are issuable upon the conversion of outstanding unsecured convertible promissory
notes with an aggregate principal balance of $380,000 (the “Convertible Notes”).
The outstanding shares of Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable, and are not subject to preemptive rights
(and were not issued in violation of any preemptive rights). No options, rights
or warrants have been granted with respect to shares of Common Stock since
December 31, 2009, except for the Convertible Notes.

    (b)        The Purchased Shares have been duly authorized by all necessary
corporate action on the part of the Company subject to the receipt of the
Requisite Shareholder Vote, and, when issued and delivered as provided in this
Agreement, will be duly and validly issued, fully paid and nonassessable, and
the issuance thereof will not be subject to any preemptive rights, except in
favor of the Investors as provided herein. Except with respect to the options
and restricted stock described in Section 2.05(a), the Convertible Notes and the
issuance of Common Stock pursuant to this Agreement, neither the Company nor any
Subsidiary has and is 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 for, any
shares of capital stock of the Company or any securities representing the right
to purchase or otherwise receive any shares of capital stock of the Company
(including any rights plan or agreement). There are no outstanding securities or
instruments of the Company or which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company is or may become bound to redeem a security of
the Company. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Purchased
Shares.

Section 2.06        Company Reports; Financial Statements, Etc.

    (a)        The Company and each Subsidiary has filed or furnished, as
applicable, on a timely basis, all forms, filings, registrations, submissions,
statements, certifications, reports and

 

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documents required to be filed or furnished by it with the SEC under the
Exchange Act or the Securities Act since December 31, 2008. Such forms,
statements, reports and documents filed or furnished since December 31, 2009,
including any amendments thereto, are called the “Company Reports.” Each of the
Company Reports to the SEC, at the time of its filing or being furnished,
complied as to form in all material respects with the applicable requirements of
the Securities Act and the Exchange Act applicable to the Company Reports. As of
their respective dates (or, if amended, as of the date of such amendment), the
Company Reports did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading.

    (b)        The Company’s consolidated financial statements (including, in
each case, any notes thereto) contained in the Company Reports: (i) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated (except as may be indicated in the notes thereto or, in the
case of interim consolidated financial statements, where information and
footnotes contained in such financial statements are not required under the
rules of the SEC to be in compliance with GAAP); and (ii) complied as to form,
as of their respective filing dates, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto. Such consolidated financial statements fairly present, in
all material respects, in accordance with GAAP, the consolidated financial
position, consolidated results of operations, consolidated changes in
shareholder equity and consolidated cash flows of the Company and its
consolidated Subsidiaries as of the respective dates thereof and for the
respective periods covered thereby (subject, in the case of unaudited
statements, to normal year-end adjustments that were not and that are not
expected to be, individually or in the aggregate, material to the Company and
its consolidated Subsidiaries taken as a whole). All annual financial statements
of the Company included in the Company Reports have been audited by an
independent registered public accounting firm.

    (c)        The Company maintains disclosure controls and procedures required
by Rule 13a-15 or 15d-15 under the Exchange Act. Such disclosure controls and
procedures are designed to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act or
otherwise is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Such disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. The Company maintains internal control over financial reporting (as
defined in Rule 13a-15 or 15d-15, as applicable, under the Exchange Act). Such
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP and
includes those policies and procedures that (i) pertain to the maintenance of
records, that in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (iii) provide
reasonable

 

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assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company’s assets that could have a material effect on
its financial statements.

    (d)        The Company has disclosed, based on the most recent evaluation of
its chief executive officer and its chief financial officer prior to the date
hereof, to the Company’s auditors and the audit committee of the Board, (i) any
significant deficiencies and material weaknesses in the design or operation of
its internal control over financial reporting that are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report
financial information and has identified for the Company’s auditors and audit
committee of the Board any material weaknesses in internal control over
financial reporting; and (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company’s
internal control over financial reporting. Since December 31, 2008, no material
complaints, allegation, assertion or claim, whether written or oral from any
source regarding accounting, internal accounting controls or auditing matters,
and no concerns from the Company employees regarding questionable accounting or
auditing matters, have been received by the Company. No attorney representing
the Company or any Subsidiary, whether or not employed by the Company or any
Subsidiary, has reported evidence of a 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 Company’s chief legal officer, audit
committee (or other committee designated for the purpose) of the Board or the
Board pursuant to the rules adopted pursuant to Section 307 of the
Sarbanes-Oxley Act of 2002.

    (e)        There is no transaction, arrangement, or other relationship
between the Company (or any Subsidiary) and an unconsolidated or other
off-balance sheet entity that is required to be disclosed by the Company in its
Exchange Act filings and is not so disclosed.

Section 2.07        Compliance with Applicable Laws; Regulatory Filings;
Permits.

    (a)        Neither the Company nor its Subsidiaries is in violation of, and
has not violated or been charged with a violation of, any Applicable Law, except
for (i) the matters disclosed in Section 2.07(a) of the Disclosure Schedule; or
(ii) such violations as would not have a Material Adverse Effect.

    (b)        Except for Currency and Foreign Transaction Reports that were
filed untimely in 2009 and early 2010 as described in Section 2.07(e) of the
Disclosure Schedule and which have since been filed, the Company and the
Subsidiaries have timely filed all reports and statements, together with any
amendments required to be made with respect thereto (the “Regulatory Reports”),
that they were required to file since December 31, 2008 with the Federal
Reserve, the FDIC, the South Carolina Board of Financial Institutions (the
“South Carolina Board”) (each a “Regulatory Authority”) or any other
Governmental Authority having jurisdiction over its business or any of its
assets or properties, and have timely paid all fees and assessments due and
payable in connection therewith. As of their respective dates, such reports and
statements complied in all material respects with all the laws, rules and
regulations of the applicable Regulatory Authority with which they were filed.
As of their respective dates (or, if amended, as of the date of such amendment),
the Regulatory Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or

 

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necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading.

    (c)        The Company and the Subsidiaries hold all material registrations,
licenses, permits and franchises (“Permits”) as are required to conduct their
respective businesses as now conducted (including, without limitation, any
insurance or securities activities), and all such licenses, permits and
franchises are valid and in full force and effect. No suspension or cancellation
of any such Permits has been initiated or threatened, and all filings,
applications and registrations with respect thereto are current.

    (d)        The Company and the Subsidiaries are in compliance with
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and
Applicable Laws and rules and policies of applicable Regulatory Authorities with
respect to any bank-owned life insurance (“BOLI”) or similar insurance,
regardless of where the insurance is held.

    (e)        Except for Currency and Foreign Transaction Reports that were
filed untimely in 2009 and early 2010 and as further described on
Section 2.07(e) of the Disclosure Schedule but which have since been filed, the
operations of the Company and Subsidiaries are and have been conducted at all
times in compliance with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, the Bank Secrecy Act, the USA Patriot Act, the money laundering
statutes of all applicable jurisdictions, the rules and regulations thereunder
and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any governmental agency (collectively, the “Money
Laundering Laws”) and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any Subsidiary with respect to the Money Laundering Laws is pending or, to
the knowledge of the Company, threatened, except, in each case, as would not
reasonably be expected to have a Material Adverse Effect.

    (f)        Neither the Company nor Subsidiary nor, to the knowledge of the
Company, any director, officer, agent, employee or affiliate of the Company or
any Subsidiary is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and
the Company will not directly or indirectly use the proceeds of the offering, or
lend, contribute or otherwise make available such proceeds to any subsidiary,
joint venture partner or other person or entity, for the purpose of financing
the activities of any person currently subject to any U.S. sanctions
administered by OFAC.

    (g)        Neither the Company nor any of its Subsidiaries, nor any
directors, officers, nor to the Company’s knowledge, employees, agents or other
Persons acting at the direction of or on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the
Company: (a) directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
foreign or domestic political activity; (b) made any direct or indirect unlawful
payments to any foreign or domestic governmental officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds;
(c) violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended, or (d) made any other unlawful bribe, rebate, payoff, influence
payment,

 

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kickback or other material unlawful payment to any foreign or domestic
government official or employee.

    (h)        The Company has no knowledge of any facts and circumstances, and
has no reason to believe that any facts or circumstances exist, that would cause
any of its Subsidiary banking institutions: (i) to be assigned a CRA rating by
federal or state banking regulators lower than “satisfactory”; or (ii) to be
deemed to be operating in violation, in any material respect, of the Money
Laundering Laws.

Section 2.08        No Undisclosed Liabilities. Neither the Company nor the
Subsidiaries have any liabilities of any nature, whether accrued, absolute,
matured or unmatured, contingent or otherwise, and whether existing or
reasonably possible to be incurred, except liabilities that (a) have been
disclosed in financial statements of related footnotes contained in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2009 or its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 or have
arisen since March 31, 2010 in the ordinary course of business, (b) are properly
reflected in the Company’s most recent consolidated financial statements
contained in the Company Reports and the Regulatory Reports to the extent
required to be so reflected or reserved against in accordance with GAAP or
requirements of the Governmental Authorities or (c) are disclosed in this
Agreement (including the related Disclosure Schedules).

Section 2.09        Absence of Certain Changes. Except as described in
Section 2.09 of the Disclosure Schedule, since December 31, 2009, (a) the
Company and Subsidiaries have conducted their respective businesses in all
material respects in the ordinary course, consistent with prior practice; and
(b) no event or events have occurred that have had or would be reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect, unless
such changes are contemplated herein.

Section 2.10        Tax Matters.

    (a)        For purposes of this Section 2.10, the following definitions
shall apply:

        (i)        The term “Group” means, individually and collectively,
(A) the Company; (B) the Bank; (C) the affiliated group as defined in
Section 1504(a) of the Code of which the Bank is or has been a member at any
time; and (D) any individual, trust, corporation, partnership, limited liability
company or any other entity as to which the Company or the Bank is liable for
Taxes incurred by such individual or entity either as a transferee, or pursuant
to Treasury Regulations Section 1.1502-6, or pursuant to any other provision of
federal, territorial, state, local or foreign law or regulations, including
without limitation as part of a combined or unitary group.

        (ii)       The term “Taxes” means all taxes, however denominated,
including, without limitation, any interest, penalties or other additions that
may become payable in respect thereof, imposed by any Governmental Authority,
which taxes shall include, without limiting the generality of the foregoing, all
income or profits taxes (including, without limitation, federal income taxes and
state income taxes), alternative or add-on minimum taxes, estimated taxes,
payroll and employee withholding taxes, back-up withholding and other
withholding

 

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taxes, unemployment insurance, social security taxes, sales and use taxes, value
added taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers’ compensation
and Pension Benefit Guaranty Corporation premiums, self dealing or prohibited
transactions taxes, customs, duties, capital stock taxes, and other obligations
of the same or of a similar nature to any of the foregoing, which the Group is
required to pay, withhold or collect, whether disputed or not.

(iii)        The term “Returns” means all reports, estimates, declarations of
estimated tax, claims for refund, information statements and returns required to
be prepared or filed in connection with, any Taxes, employee agreement or Plan,
including any schedule or attachment thereto, and including any amendment
thereof.

(b)        All Returns required to be filed by or on behalf of any members of
the Group prior to the Closing Date have been, or will be, duly filed on a
timely basis, subject to any applicable extensions. Such Returns are true,
correct and complete in all material respects; provided that the Federal Income
Tax Returns on Form 1120 for the tax years ended December 31, 2009 and 2007 will
be amended to reflect a reduction of the Company’s 2009 net operating loss by
approximately $1.9 million which is anticipated to result in a payment of tax
and interest of approximately $0.7 million for which the Bank is responsible and
will make payment pursuant to a tax sharing agreement between the Company and
the Bank. All material Taxes owed by any members of the Group (whether or not
shown on any Return) have been paid in full on a timely basis or have been
adequately provided for in the financial statements of the Company in accordance
with GAAP, and no other material Taxes are owing or payable by the Group with
respect to items or periods covered by such Returns or with respect to any
taxable period ending on or before the date of this representation and warranty
for which a Return was due prior to such date. No claim has ever been made by
any Governmental Authority for any jurisdiction in which any member of the Group
does not file Returns that it is or may be subject to taxation by that
jurisdiction that has not since been resolved. No material security interests,
liens, encumbrances, attachments or similar interests exist on or with respect
to any of the assets of the Group that arose in connection with any failure or
alleged failure to pay any Taxes, except for statutory liens for current Taxes
not yet due. Each member of the Group has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
and all officers, directors, employees and agents (including, without
limitation, any independent contractor, foreign person or other third person) in
compliance with all tax withholding provisions of applicable federal, state,
local and foreign law (including, without limitation, income, social security,
employment tax withholding, and withholding under Sections 1441 through 1446 of
the Code). The Bank has timely complied with all requirements under Applicable
Laws relating to information, reporting and withholding and other similar
matters for customer and other accounts (including back-up withholding and
furnishing of Forms 1099 and all similar reports).

(c)        The amount of the Group’s liability for unpaid Taxes for all periods
ending on or before the last day of the month before the Closing Date (including
accruals for any exposure item) shall not, in the aggregate, exceed the amount
of the liability accruals for Taxes, as such accruals are reflected on the
Group’s most recent consolidated balance sheet contained in the Company Reports.
All such accruals are, or will be, recorded in accordance with GAAP.

 

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(d)        The Company has made and caused the Bank or any other member of the
Group to make available to the Investor true, correct and complete copies of all
federal and state income tax Returns for all periods that are open for federal
and state tax purposes and all other Returns, including, without limitation,
income tax audit reports, statements of income or gross receipts tax, franchise
tax, sales tax and transfer tax, deficiencies, and closing or other agreements
relating to income or gross receipts tax, franchise tax, sales tax and transfer
tax received by the Group or on behalf of the Group, as well as draft Returns
for the Group for all Taxes for all periods ending on or before the Closing
Date.

(e)        (i) No deficiencies that are material individually or in the
aggregate have been asserted with respect to Taxes of the Group that remain
unpaid; (ii) the Group is not a party to any action or proceeding for assessment
or collection of Taxes, and no such action or proceeding has been asserted or
threatened against the Group or any of its assets; and (iii) no waiver or
extension of any statute of limitations is in effect with respect to any Taxes
or Returns of the Group. Except for the Federal Income Tax Returns on Form 1120
for the tax years 2007 and 2006 which were audited by the Internal Revenue
Service, the Returns of the Group for all tax years for which the statute of
limitations has not expired have never been audited by a Governmental Authority,
nor is any such audit in process, pending or, to the knowledge of the Company,
threatened. Neither the Company nor any director or officer (or employee
responsible for Tax matters) of any other member of the Group is aware of any
facts or circumstances that, if known by any Governmental Authority would be
reasonably likely to cause the Governmental Authority to assess any additional
Taxes for any period for which Returns have been filed.

(f)        No member of the Group has (i) been or shall be required to include
any adjustment in taxable income for any Tax period (or portion thereof) ending
after the Closing in accordance with Section 481 of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring prior to the Closing except as specified in Section 2.10(g) below;
(ii) filed any disclosure under Section 6662 of the Code or comparable
provisions of state, local or foreign Law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return;
(iii) engaged in a “reportable transaction,” as defined in Treasury Regulation
Section 1.6011-4(b); (iv) ever been a member of a consolidated, combined,
unitary or aggregate group of which the Company or the Bank was not the ultimate
parent company; (v) been the “distributing corporation” or the “controlled
corporation” (in each case, within the meaning of Section 355(a)(1) of the Code)
with respect to a transaction described in Section 355 of the Code (A) within
the two-year period ending as of the date of this Agreement, or (B) in a
distribution that would otherwise constitute part of a “plan” or “series of
related transactions” (within the meaning of Section 355(e) of the Code);
(vi) incurred any actual or potential liability under Treasury Regulations
Section 1.1502-6 (or any comparable or similar provision of federal, state,
local or foreign Law), as a transferee or successor, as a result of any
contractual obligation, or otherwise for any Taxes of any Person other than the
Company or the Bank; or (vii) ever been a “United States real property holding
corporation” within the meaning of Section 897 of the Code.

(g)        No member of the Group shall be required to include any item of
income in, or exclude any item of deduction from, taxable income for any period
(or any portion thereof) ending after the Closing Date as a result of any:
(i) installment sale or other open transaction disposition made on or prior to
the Closing Date; (ii) prepaid amount received on or prior to the

 

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Closing Date; (iii) a closing agreement described in Section 7121 of the Code or
any corresponding provision of state of foreign Tax Law executed on or prior to
the Closing Date; or (iv) any change in method of accounting for a taxable
period or portion thereof ending on or before the Closing Date, except for the
changes in method filed with respect to loan origination fees filed for the tax
year ending December 31, 2007.

(h)        There has been no “ownership change,” as defined in Section 382 of
the Code, with respect to any member of the Group; provided, that the Closing is
expected to result in such an “ownership change.”

Section 2.11        Transactions with Affiliates. Except as disclosed in the
Company Reports, since December 31, 2008:

(a)        no current officer, director or employee of the Company or the
Subsidiaries, any of their respective immediate family members, as defined in
SEC Regulation S-K or any “insider” or “related interests” as defined in Federal
Reserve Regulation O, any other corporation or organization of which any of the
foregoing persons is an officer, director or beneficial owner of 10% or more of
any class of its equity securities, or any trust or other estate in which any of
the foregoing persons has a substantial beneficial interest or as to which such
person serves as a trustee or in a similar capacity, nor any current or former
affiliate of the Company or the Subsidiaries, has any material interest in any
property, real or personal, tangible or intangible, used in or pertaining to the
business of the Bank or in any transaction or series of similar transactions to
which the Bank is a party;

(b)        no such person, if any, is indebted to the Company or the
Subsidiaries, except for normal business expense advances and except for loans
and extension of credit (i) made in the ordinary course of the Bank’s business,
(ii) on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable loans with unrelated persons,
(iii) that did not involve more than the normal risk of collectability or
present other unfavorable features, and (iv) which are not disclosed as
nonaccrual, past due, troubled debt restructuring or potential problem loans in
the Company’s filings with any Governmental Authority.

(c)        neither the Company nor the Subsidiaries are indebted to any such
person except for amounts due under normal salary or reimbursement or ordinary
business expenses;

(d)        no such person is a party to a material agreement as described in
Section 2.14 with the Company or the Subsidiaries other than agreements related
to employment or service as a director;

(e)        no such person has any other relationship or has engaged or engages
in any other transaction or series of similar transactions that would be
required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by
the SEC; and

(f)        all of the transactions referred to in this Section 2.11 are
transactions entered into in the ordinary course of business on an arm’s-length
business pursuant to normal business terms and conditions.

 

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Section 2.12        Loans. (a) With respect to each outstanding loan, lease or
other extension of credit or commitments to extend credit by the Bank (a)(i) the
Bank has duly performed in all material respects generally with respect to the
loan portfolio its obligations thereunder to the extent that such obligations to
perform have accrued; (ii) the Bank maintains systems and procedures designed to
insure that all documents and agreements necessary for the Bank to enforce such
loans, leases or other extension of credit and needed for the practical
realization in all material respects of the contractual obligations of such
loans, leases or other extensions of credit are in existence and in the Bank’s
possession; (iii) no claims, counterclaims, set-off rights or other rights have
been asserted against the Bank, nor, to the knowledge of the Company, do the
grounds for any such claim, counterclaim, set-off rights or other rights exist,
with respect to any such loans, leases or other extensions of credit which could
impair the collectability thereof, except as disclosed in Section 2.12 of the
Disclosure Schedule; and (iv) the Bank maintains systems and procedures intended
to insure that each such loan, lease and extension of credit has been, in all
material respects, originated and serviced in accordance with the Bank’s
then-applicable underwriting guidelines and policies, the terms of the relevant
credit documents and agreements and Applicable Law, including Federal Reserve
Regulations H, O and W, and applicable limits on loans to one borrower under
Applicable Law.

(b)        There are no loans, leases, other extensions of credit or commitments
that are material in amount individually or in the aggregate that to the
Company’s knowledge should have been, in accordance with applicable regulatory
policies and the Company’s policies, classified by the Bank or its regulatory
examiners, auditors or other credit examination personnel as “watch,” “other
assets (or loans) especially mentioned,” “substandard,” “doubtful,”
“classified,” “criticized,” “loss” or any comparable classification, which have
not been so classified.

(c)        Except as disclosed in the Company’s Quarterly Report for the quarter
ended March 31, 2010, as of March 31, 2010 there are no loans due to the Bank as
to which any payment of principal, interest or any other amount is 90 days or
more past due.

(d)        The allowances for possible loan and lease losses shown on the
financial statements included in any Company Report were, on the respective
filing dates, adequate in all respects under the requirements of GAAP and
applicable regulatory accounting practices, in each case consistently applied,
to provide for probable loan and lease losses as of such filing date, and were
in accordance with the safety and soundness standards administered by, and the
practices, procedures, requests and requirements of, the applicable Regulatory
Authority.

Section 2.13        Other Activities of the Company and the Bank. Except as
described in Section 2.13 of the Disclosure Schedule, neither the Company nor
the Bank, nor any officer, director or employee of the Company or the Bank
acting in an agency capacity on behalf of the Company or Bank, is authorized to
engage in or conduct, and does not engage in or conduct, any securities sales,
underwriting, brokerage, management or dealing activities, whether as principal
or agent, either directly or under contractual or other arrangements with third
parties. The Bank is authorized to and exercises trust and fiduciary powers.

Section 2.14        Material Agreements; No Defaults. There are no material
breaches, violations, defaults (or events that have occurred that with notice,
lapse of time or the happening

 

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or occurrence of any other event would constitute a default) or allegations or
assertions of any of the foregoing by the Company or the Subsidiaries, as the
case may be, or, to the knowledge of the Company, any other party, with respect
to any contract or agreement to which the Company or any of its Subsidiaries is
a party that is a “material contract” within the meaning of Item 601(b)(10) of
Regulation S-K and that is to be performed in whole or in part after the date of
this Agreement and each such contract or agreement has been filed as an exhibit
to the Company’s SEC filings pursuant to Item 601 of Regulation S-K.

Section 2.15        Company Benefit Plans. (a) For purposes of this Agreement,
“Benefit Plan” means all employee welfare benefit plans within the meaning of
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), all employee pension benefit plans within the meaning of Section 3(2)
of ERISA, including, but not limited to, plans that provide retirement income or
result in a deferral of income by employees for periods extending to termination
of employment or beyond, and plans that provide medical, surgical, or hospital
care benefits or benefits in the event of sickness, accident, disability, death
or unemployment, and all other employee benefit agreements or arrangements,
including, but not limited to, all bonus, incentive, deferred compensation,
vacation, stock purchase, stock option, stock award, severance, employment,
change of control, golden-parachute, consulting, dependent care, cafeteria,
employee assistance, scholarship, or fringe benefit or similar plans, programs,
agreements or policies, in each case sponsored or maintained by the Company or
each person that, together with the Company, would be treated as a single
employer under Section 414 of the Code (such person, an “ERISA Affiliate”) or to
which the Company or an ERISA Affiliate contributes on behalf of its employees,
in all cases whether written, unwritten or otherwise, funded or unfunded, and
whether or not ERISA is applicable to such plan, program, agreement or policy.

(b)        With respect to each Benefit Plan, the Company and each ERISA
Affiliate, as well as each Benefit Plan, have complied, and are now in
compliance in all material respects with all provisions of ERISA, the Code and
all laws and regulations applicable to such Benefit Plan, including the Pension
Protection Act of 2006, except as described in Section 2.15(b) of the Disclosure
Schedule. Each Benefit Plan has been administered in all material respects in
accordance with its terms and all laws and regulations applicable to such
Benefit Plan, including ERISA and the Code. Each Benefit Plan intended to be
qualified under Section 401(a) of the Code has obtained a favorable
determination or opinion letter as to its qualified status under the Code, or
application for such letter will be timely filed, or if the Benefit Plan
intended to be qualified under Section 401(a) of the Code is maintained pursuant
to a prototype or “volume submitter” plan document, the sponsor of the prototype
or volume submitter document has obtained from the National Office of the
Internal Revenue Service an opinion or notification letter stating that the form
of the prototype or volume submitter document is acceptable for the
establishment of a qualified retirement plan under Section 401(a) of the Code.

(c)        Except for liabilities appropriately reserved for in accordance with
GAAP or identified in the financial statements contained in the Company Reports,
(i) no claim is pending, or to the knowledge of the Company threatened, against
the Company or any ERISA Affiliate related to the employment and compensation of
employees or any Benefit Plan, including any claim related to the purchase of
employer securities or to expenses paid under any defined contribution pension
plan; and (ii) no event has occurred, and there exists no condition or

 

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set of circumstances, which could reasonably be expected to subject the Company
or any Subsidiary to any liability under the terms of, or with respect to, any
Benefit Plan or under ERISA, the Code or any other Applicable Law.

(d)        Neither the Company nor any ERISA Affiliate has ever maintained,
established, sponsored, participated in, or contributed to, any (i) Benefit Plan
that is or was subject to Title IV of ERISA or Section 412 of the Code (except
The Palmetto Bank Pension Plan and Trust Agreement, which is sponsored by the
Bank and which has been frozen effective January 1, 2008), (ii) “multiemployer
plan” (as defined in Section 4001(a)(3) of ERISA), (iii) “multiple employer
plan” within the meaning of Section 4001(a)(3) of ERISA or subject to
Section 413(c) of the Code, or (iv) “welfare benefit fund” within the meaning of
Section 419 of the Code. The Company and the Bank do participate in the South
Carolina Banker’s Employee Benefits Trust as to certain health benefits.

(e)        None of the execution and delivery of this Agreement, nor the
consummation of the Private Placement (including the Transaction) will
(i) result in any 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 Subsidiary from the Company
or any ERISA Affiliate under any Benefit Plan or otherwise; (ii) 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 ERISA Affiliate
to amend, merge, terminate or receive a reversion of assets from any Benefit
Plan or related trust. The Company and, to the extent necessary for
enforceability of such Company action, each counterparty or beneficiary, will
not deem or designate the Private Placement (including the Transaction) as a
change in control (for any purpose, regardless of form) or similar event, will
waive and terminate any and all rights and remedies under such Benefit Plans or
otherwise that may result from the Transaction, if it were deemed such a change
in control or similar event.

(f)        The Company has provided true and complete copies of acknowledgments
executed by each of (i) Samuel L. Erwin, Lee S. Dixon and George Andy Douglas,
Jr. and (ii) each other holder of restricted stock issued by the Company, in
each case to the effect that (A) the Transaction does not constitute a change in
control of the Company for any purpose, regardless of form (including a
reorganization in which the Company does not survive) or the Bank under any
agreement to which he or she is a party or Benefit Plan to which he or she is a
participant and (B), to the extent the Transaction is deemed to be a change in
control, such person has effectively waived any such claims and entitlements
arising as a result of such change in control.

(g)        The Compensation Committee of the Company’s board of directors has
unanimously adopted a resolution confirming that, for purposes of any
outstanding options to purchase Common Stock issued by the Company and any
Benefit Plan, the Private Placement (including the Transaction) shall not
constitute a change in control for any purpose, regardless of form and will not
result in the acceleration of any vesting or any payment.

 

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(h)        Neither the Company nor any ERISA Affiliate has taken, or permitted
to be taken, any action that required, and no circumstances exist that will
require the funding, or increase in the funding, of any benefits or resulted, or
will result, in any limitation on the right of the Company or any ERISA
Affiliate to amend, merge, terminate or receive a reversion of assets from any
Benefit Plan or related trust.

(i)        Other than Benefit Plans with respect to options to purchase Common
Stock and restricted stock issued by the Company, no Benefit Plans nor any
securities issued by the Company and held by or purchased on behalf of any
Benefit Plan require registration under the Securities Act.

Section 2.16        Environmental Matters. (a) For purposes of this
Section 2.16, (i) “Environmental Law” means any applicable federal, state, local
or foreign statute, law, regulation, order, decree, permit, or authorization
relating to: (A) the protection of human health or the environment and natural
resources; (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, indoor air, employee
exposure, wetlands, pollution, contamination or any injury or threat of injury
to persons or property relating to any Hazardous Substance; and (ii) “Hazardous
Substance” means any substance that is: (A) listed, classified or regulated as
such pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act, 40 U.S.C. §9601 et seq.; (B) any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive material or radon; and (C) any other substance in
concentrations that are subject to reporting, investigation, removal or
remediation pursuant to any regulation of any Government Authority for the
protection of human health or the environment and natural resources.

(b)        Except as, individually or in the aggregate, has not had or would not
be reasonably expected to have a Material Adverse Effect, and except as
disclosed on Schedule 2.16(b) of the Disclosure Schedule, the Company and the
Subsidiaries are in compliance with all applicable Environmental Laws and, to
the knowledge of the Company, (i) no real property currently owned or operated
by the Company or any of its subsidiaries has been and remains contaminated with
any Hazardous Substance; (ii) no real property formerly owned or operated by the
Company or any of its subsidiaries has been and remains contaminated with any
Hazardous Substance; (iii) neither the Company nor any of its subsidiaries has
been deemed by any Government Authority to be the owner or operator under any
Environmental Law of any property which is or has been contaminated with any
Hazardous Substance; and (iv) no Hazardous Substance has been transported from
any of the properties owned or operated by the Company or one of the
Subsidiaries or is continuing to be transported, other than as permitted under
applicable Environmental Law. Since January 1, 2006, neither the Company nor any
of the Subsidiaries has received any written notice from any Governmental
Authority or any third party indicating that the Company or any of the
Subsidiaries is in violation of any Environmental Law, other than with respect
to any matter that has been resolved, and such violation, if any, would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. The Company and the Subsidiaries are not subject to any court
order, administrative order or decree or any indemnity or other agreement
arising under or related to any Environmental Law, except as disclosed in
Section 2.16(b) of the Disclosure Schedule.

 

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Section 2.17        Labor Matters. No employees of the Company or any of the
Subsidiaries are 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 of the
Subsidiaries has made a pending demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the knowledge of the Company,
threatened to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. There are no organizing activities,
strikes, work stoppages, slowdowns, lockouts, material arbitrations or material
grievances, or other material labor disputes pending or threatened against or
involving the Company or any of the Subsidiaries. The Company is in material
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours.

Section 2.18        Insurance. The Company and each of the Subsidiaries are
presently insured, and since December 31, 2008 have been insured, for reasonable
amounts with financially sound and reputable insurance companies against such
risks as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. As of the date hereof, all such
insurance policies are in full force and effect and no written notice of
cancellation has been received. There is no existing material default by any
insured thereunder. The Company maintains directors’ and officers’ liability
insurance (“D&O Insurance”) in the amounts specified in Section 2.18 of the
Disclosure Schedule and has provided the Investors with a copy of its policy of
D&O Insurance as part of Section 2.18 of its Disclosure Schedule.

Section 2.19        No Integration. Neither the Company nor the Subsidiaries,
nor any of their respective affiliates , nor any person acting on their behalf,
has issued any securities of the Company that would be integrated with the sale
of the Purchased Shares for purposes of the Securities Act, nor will the Company
or the Subsidiaries or affiliates take any action or steps (and neither have
they taken any action or steps) that would require registration of any of the
Purchased Shares under the Securities Act or cause the offering of the Purchased
Shares to be integrated with other offerings. Assuming the accuracy of the
representations and warranties of the Investors, the offer and sale of the
Purchased Shares by the Company to the Investor pursuant to this Agreement will
be exempt from the registration requirements of the Securities Act.

Section 2.20        No Change in Control. The issuance of the Purchased Shares
to the Investors as contemplated by this Agreement will not trigger any payment,
termination or rights under any “change in control” provision in any agreements
to which the Company, the Bank or any of the Subsidiaries is a party or is
bound.

Section 2.21        Properties.

(a)        Except in any such case as is not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect, with respect to the real,
personal and mixed property owned by the Company or the Subsidiaries, the
Company or one of the Subsidiaries has valid title to such real property, free
and clear of any liens, and there are no outstanding options to purchase real
property.

 

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(b)        The Company has made available to the Investors copies of all
material leases, subleases and other agreements under which the Company or any
of the Subsidiaries uses or occupies or has the right to use or occupy, now or
in the future, any real, personal or mixed property (the “Leases”) (including
all modifications, amendments, supplements, waivers and side letters thereto).
Except as has not had and would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect, (i) each Lease is valid, binding
and in full force and effect; and (ii) to the knowledge of the Company, no
termination event or condition or uncured default of a material nature on the
part of the Company or, if applicable, any of the Subsidiaries exists under any
Lease. The Company and each of the Subsidiaries has a good and valid leasehold
interest in each parcel of real property leased by it free and clear of all
Liens, except for Liens which do not interfere with the use or materially affect
the value of the property subject to the Lease. Neither the Company nor any of
the Subsidiaries has received written notice of any pending, and to the
knowledge of the Company there is no threatened, condemnation or similar
proceeding with respect to any property leased pursuant to any of the real
property leases.

(c)        The Company and the Subsidiaries have good and valid title to their
material owned assets and properties, or in the case of assets and properties
they lease, license, or have other rights in, good and valid rights by lease,
license or other agreement to use, all material assets and properties (in each
case, tangible and intangible) necessary to permit the Company and the
Subsidiaries to conduct their respective businesses as currently conducted,
except, in all cases, as would not be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect.

Section 2.22        Computer and Technology Security. The Company and the
Subsidiaries have in place reasonable safeguards of the information technology
systems utilized in the operation of the business of the Company and the
Subsidiaries consistent with the guidance of its Regulatory Authorities,
including the implementation of procedures intended to ensure that such
information technology systems are free from any disabling codes or
instructions, timer, copy protection device, clock, counter or other limiting
design or routing and any “back door,” “time bomb,” “Trojan horse,” “worm,”
“drop dead device,” “virus,” or other software routines or hardware components
that in each case limit unauthorized access or the unauthorized disablement or
unauthorized erasure of data or other software by a third party, and to the
Company’s knowledge there have been no successful unauthorized intrusions or
breaches of the security of the information technology systems.

Section 2.23        Data Privacy. The Company and the Subsidiaries’ respective
businesses have complied with and, as presently conducted, are in compliance
with, all Applicable Laws applicable to data privacy, data security, or personal
information, as well as industry standards applicable to the Company and the
Subsidiaries. The Company and the Subsidiaries have complied with, and are
presently in compliance with, its and their respective policies applicable to
data privacy, data security, or personal information. Neither the Company nor
any of the Subsidiaries has experienced any incident in which personal
information or other sensitive data was or may have been stolen or improperly
accessed, and neither the Company nor any of the Subsidiaries is aware of any
facts suggesting the likelihood of the foregoing, including without limitation,
any breach of security or receipt of any notices or complaints from any person
regarding personal information or other data.

 

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Section 2.24        No Restrictive Covenants. Except as disclosed in
Section 2.24 of the Disclosure Schedule, there are no contracts or agreements to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties, assets, directors or officers
are subject or bound which limits or purports to limit the freedom of the
Company or any Subsidiary or any of their respective directors or officers
affiliates to compete in any material line of business or any geographic area to
which the Company or any Subsidiary is a party or subject.

Section 2.25        Litigation. Other than matters in the ordinary course of its
banking business and which have not had and which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect, (a) no civil,
criminal or administrative litigation, claim, action, suit, hearing,
arbitration, investigation, inquiry or other proceeding before any Governmental
Authority or arbitrator is pending or, to the actual knowledge of any of the
executive officers of the Company, threatened against the Company or any
Subsidiary; (b) except for the matters set forth on Section 2.25(b) of the
Disclosure Schedule (collectively, the “Regulatory Matters”), none of the
Company nor any Subsidiaries are a party to, and none of the Company nor the
Subsidiaries, nor any of their respective assets or businesses, are subject to
or the subject of, any written agreement, stipulation, conditional approval,
memorandum of understanding, notice of determination, judgment, supervisory
agreement, order, written directive, consent decree or other agreement with any
Governmental Authority; and (c) except as set forth on Section 2.25(b) of the
Disclosure Schedule, there are no facts or circumstances that could result in
any claims against, or obligations or liabilities of, the Company or any
Subsidiary, except with respect to (a), (b) and (c) for those that are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect.

Section 2.26        No Brokers. Except for the fees payable to Howe Barnes
Hoefer & Arnett, Inc. (the “Placement Agent”) as disclosed in Section 2.26 of
the Disclosure Schedule, neither the Company nor any Subsidiary nor any of their
respective officers, directors, employees, agents or representatives has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders or similar fees in connection with the Private Placement
(including the Transaction).

Section 2.27        Voting of Shares by Directors and Executive Officers. The
Company’s directors and executive officers have agreed to vote all shares of
Company Common Stock which they beneficially own in favor of approving the
amendment and restatement of the Company’s Articles of Incorporation (the
“Insider Shareholder Votes”) and all other matters, if any, with respect to the
Private Placement (including the Transaction) which may require approval by the
Company’s shareholders. The Company agrees that it shall use its reasonable best
efforts to enforce such agreements consistent with Applicable Law.

Section 2.28        Risk Management Instruments. Except as has not had or would
not reasonably be expected to have a Material Adverse Effect, all material
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, were entered into (1) only in the ordinary
course of business, (2) in accordance with prudent practices and in all material
respects with all applicable laws, rules, regulations and regulatory policies
and (3) with counterparties believed to be financially responsible at the time;
and each of them constitutes the

 

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valid and legally binding obligation of the Company or one of its Subsidiaries,
enforceable in accordance with its terms. Neither the Company nor any of its
Subsidiaries, nor, to the knowledge of the Company, any other party thereto, is
in breach of any of its material obligations under any such agreement or
arrangement.

Section 2.29        Adequate Capitalization. As of March 31, 2010, the Bank met
or exceeded the standards necessary to be considered “adequately capitalized”
under FDIC Regulation § 325.103.

Section 2.30         Investment Company. Neither the Company nor any of its
Subsidiaries is required to be registered as, and is not an affiliate of, and
immediately following the Closing will not be required to register as, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

Section 2.31        Price of Common Stock. The Company has not taken, and will
not take, directly or indirectly, any action designed to cause or result in, or
that has constituted or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Purchased Shares.

Section 2.32        Shell Company Status. The Company is not, and has never
been, an issuer identified in Rule 144(i)(1).

Section 2.33        Reservation of Purchased Shares. Following Shareholder
Approvals of the Amended and Restated Articles of Incorporation and the filing
of the Amended and Restated Articles of Incorporation with the South Carolina
Secretary of State, the Company will reserve, and will continue to reserve, free
of any preemptive or similar rights of shareholders of the Company, a number of
unissued shares of Common Stock, sufficient to issue and deliver the Purchased
Shares at Closing.

Section 2.34        Substantially Similar Agreement. The Company has no other
agreements with any other Investor to purchase shares of Common Stock on terms
that are not substantially similar to the terms of this Agreement. The Company
has no other agreements with CapGen to purchase shares of Common Stock on terms
that are different than as set forth in this Agreement.

Section 2.35        Disclosure. The Company confirms that neither it nor any of
its officers or directors nor any other person acting on its or their behalf has
provided, and it has not authorized any agent or representative to provide, any
Investor identified on Section 2.35 of the Disclosure Schedule or its respective
agents or counsel with any information that it believes constitutes or could
reasonably be expected to constitute material, non-public information except
insofar as the existence, provisions and terms of the proposed transactions
hereunder, including the Private Placement, may constitute such information, all
of which will be disclosed by the Company as contemplated by Section 6.15. The
Company understands and confirms that such Investor will rely on the foregoing
representations in effecting transactions in securities of the Company. No event
or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, properties, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or

 

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announcement by the Company but which has not been so publicly announced or
disclosed, except for the announcement of the Private Placement pursuant to
Section 6.15.

Section 2.36        Indebtedness. Other than as incurred under the Company’s
existing commercial paper program and its Convertible Notes, which will be
converted into Common Stock in connection with the Private Placement, the
Company has no indebtedness outstanding other than indebtedness incurred in the
ordinary course of business and the Company can satisfy its obligations under
all of its outstanding indebtedness as it becomes due.

Section 2.37        Private Trading System. The Palmetto Bancshares, Inc.
Private Trading System does not require registration as a broker-dealer by the
Company or any subsidiary or affiliate, is not required to be registered as an
alternative market trading system and is operated in accordance with all
Applicable Laws.

Section 2.38        Securities Law Compliance. The Company has taken and will
take all steps necessary to comply with all applicable federal and state
securities laws in connection with the Private Placement and to qualify for an
exemption under Regulation D of the Securities Act.

Section 2.39        Fairness Opinion. The Company and its Board have received an
opinion as to the fairness of the Transaction from a financial point of view and
the Company has delivered a copy of such opinion to the Investors.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

Each Investor, for itself and for no other Investor, represents and warrants to
the Company, severally and not jointly as follows and understands and agrees
that the Company is relying on these representations and warranties:

Section 3.01        Organization. The Investor is duly organized and validly
existing under the laws of the jurisdiction of its organization.

Section 3.02        Bank Holding Company Status.

(a)        Prior to Closing, CapGen will have obtained all necessary approvals
to own the Purchased Shares and to thereby be a bank holding company controlling
the Company and the Bank under the BHCA.

(b)        No Investor has or is acting in concert with any other Person. Except
for CapGen, assuming the accuracy of the representations and warranties of the
Company, and except as provided in Section 6.7(g), no Investor, either acting
alone or together with any other Person, will, directly or indirectly, own,
control or have the power to vote, after giving effect to its purchase of
Purchased Shares, in excess of 9.9% of the outstanding shares of the Company’s
voting stock of any class or series. Without limiting the foregoing, except for
CapGen, each Investor represents and warrants that it does not and will not as a
result of its purchase or holding of the Purchased Shares or any other
securities of the Company have “control” of the Company or the Bank, and has no
present intention of acquiring “control” of the Company or the Bank for purposes
of the BHCA or the Change in Bank Control Act.

 

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Section 3.03        Authorization.

(a)        The execution, delivery and performance of this Agreement by the
Investor and the consummation of the transactions contemplated hereby have been
duly authorized. This Agreement has been duly and validly executed and delivered
by the Investor and assuming due authorization, execution and delivery by the
Company, is a valid and binding obligation of the Investor enforceable against
the Investor in accordance with its terms (except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors’ rights or by general equity principles).

(b)        Neither the execution, delivery and performance by the Investor of
this Agreement, nor the consummation of the Transaction, nor compliance by the
Investor with any of the provisions hereof, will (A) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration of, or result in the creation
of any lien upon any of the properties or assets of the Investor under any of
the terms, conditions or provisions of (i) its certificate of limited
partnership or partnership agreement or other organizational or governing
documents or (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Investor is a
party or by which it may be bound, or to which the Investor or any of the
properties or assets of the Investor may be subject, or (B) subject to
compliance with the statutes and regulations referred to in the next paragraph,
and assuming the accuracy of the representations and warranties of the Company
and the performance of the covenants and agreements of the Company contained
herein, violate any Applicable Law except in the case of clauses (A)(ii) and
(B), for such violations, conflicts and breaches as would not reasonably be
expected to materially and adversely affect the Investor’s ability to perform
its respective obligations under this Agreement or consummate the Transaction.

(c)        Assuming the accuracy of the other representations and warranties of
the Company and the performance of the covenants and agreements of the Company
contained herein, except as disclosed on Section 3.03(c) of the Investors’
Disclosure Schedule, no notice to, registration, declaration or filing with,
exemption or review by, or authorization, order, consent or approval of, any
Governmental Authority, nor expiration or termination of any statutory waiting
period, is necessary for the Investor to purchase the Purchased Shares to be
acquired at the Closing pursuant to this Agreement.

Section 3.04        Purchase for Investment; Accredited Investor; etc.

(a)        The Investor acknowledges that the issuance of the Purchased Shares
has not been registered under the Securities Act or under any state securities
laws. The Investor (i) is acquiring the Purchased Shares pursuant to an
exemption from registration under the Securities Act solely for investment with
no present intention to distribute any of the Purchased Shares to any person,
(ii) will not sell or otherwise dispose of any of the Purchased Shares, except
in compliance with the registration requirements or exemption provisions of the
Securities Act and any other applicable securities laws, (iii) is an “accredited
investor” as defined in SEC Rule 501

 

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and/or a “qualified institutional buyer” under SEC Rule 144A, and (iv) has such
knowledge and experience in financial and business matters and in investments of
this type, including knowledge of the Company, that it is capable of evaluating
the merits and risks of the Company and of its investment in the Purchased
Shares and of making an informed investment decision. The Investor is not a
registered broker-dealer under Section 15 of the Exchange Act or an unregistered
broker-dealer engaged in the business of being a broker-dealer.

(b)        The Investor has, either alone or through its representatives:

    (i)        consulted with its own legal, regulatory, tax, business,
investment, financial and accounting advisers in connection herewith to the
extent it has deemed necessary;

    (ii)        had a reasonable opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, the officers and
representatives of the Company and the Bank concerning the Company’s and the
Bank’s financial condition and results of operations, the business plan for the
Company and the Bank, all employment agreements and benefit plans and other
contractual arrangements among the Company, the Bank and their respective
management teams, the terms and conditions of the Private Placement, the
Transaction and any additional relevant information that the Company possesses,
and any such questions have been answered to its satisfaction;

    (iii)        had the opportunity to review and evaluate the following, among
other things, in connection with its investment decision with respect to the
Purchased Shares: (A) all publicly available records and filings concerning the
Company and the Bank, as well as all other documents, records, filings, reports,
agreements and other materials provided by the Company regarding its and the
Bank’s business, operations and financial condition sufficient to enable it to
evaluate its investment; (B) certain investor presentation materials (as
supplemented from time to time) (collectively, the “Offering Materials”) that
summarizes this offering of Purchased Shares and the Transaction; and (C) this
Agreement, the Registration Rights Agreement and all other exhibits, schedules
and appendices attached hereto and thereto (collectively, the “Private Placement
Documents”); and

    (iv)        made its own investment decisions based upon its own judgment,
due diligence and advice from such advisers as it has deemed necessary and not
upon any view expressed by any other Person, including any other Investor or the
Placement Agent. Neither such inquiries nor any other due diligence
investigations conducted by the Investor or its advisors or representatives, if
any, shall modify, amend or affect the Investor’s right to rely on the Company’s
representations and warranties contained herein. Each Investor understands that
(i) its investment in the Purchased Shares involves a high degree of risk and it
is able to afford a complete loss of such investment, (ii) no representation is
being made as to the business or prospects of the Company or the Bank after
completion of the Transaction or the future value of the Purchased Shares, and
(iii) no representation is being made as to any projections or estimates
delivered to or made available to the Investors (or any of its affiliates or
representatives) of the Company’s or the Bank’s future assets, liabilities,
stockholders’ equity, regulatory capital ratios, net interest income, net income
or any component of any of the foregoing or any ratios derived therefrom. Each
Investor, either alone or together with its representatives, if any, has the

 

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knowledge, sophistication and experience in financial and business matters as to
fully understand and be capable of evaluating the merits and risks of an
investment in the Purchased Shares.

(c)        The Investor acknowledges that the information in the Offering
Materials is as of the date thereof and may not contain all of the terms and
conditions of the offering and sale of the Purchased Shares and the Transaction,
and understands and acknowledges that it is the Investor’s responsibility to
conduct its own independent investigation and evaluation of the Company and the
Subsidiaries, the Bank and the Transaction, including (i) the business prospects
and future operations of the Company after completion of the Transaction, if
applicable, and (ii) the management team that will operate and manage the
Company following the completion of the Transaction. The Investor is not relying
upon, and has not relied upon, any advice, statement, representation or warranty
made by any person, including, without limitation, the Placement Agent and, in
the case of Investors other than CapGen, CapGen, except for the express
statements, representations and warranties of the Company made or contained in
this Agreement and the other Private Placement Documents. Furthermore, the
Investor acknowledges that: (A) the Investor has made, and has relied upon, its
own independent examination in purchasing the Purchased Shares, including of the
Company and the Subsidiaries, the Bank, the Transaction and the management team
of the Company that will continue to operate and manage the Company after the
completion of the Transaction; (B) nothing in this Agreement or any other
materials presented by or on behalf of the Company to the Investor in connection
with the purchase of the Purchased Shares constitutes legal, tax or investment
advice and the Investor has consulted such legal, tax and investment advisors as
it, in its sole discretion, has deemed necessary or appropriate in connection
with its purchase of the Purchased Shares; (C) the Investor received or had
access to all of the information the Investor deemed necessary in order to make
its investment decision in the Purchased Shares; and (D) the Placement Agent is
a third party beneficiary to this Section 3.04(c).

(d)        The Investor has read and understands the risk factors outlining
certain, but not all, risks related to the Company, the Bank, and an investment
in the Company set forth in the Company’s Form 10-K for the year ended
December 31, 2009.

(e)        The Investor understands that the Purchased Shares are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of U.S. federal and state securities laws and regulations and that
the Company is relying upon, among other things, the truth and accuracy of, and
the Investor’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Purchased Shares.

(f)        The Investor is not purchasing the Purchased Shares as a result of
any advertisement, article, notice or other communication regarding the
Purchased Shares published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general advertisement.

(g)        The Investor understands that (i) its investment in the Purchased
Shares involves a high degree of risk, (ii) no representation is being made as
to the business or prospects of the Company or the Bank after completion of the
Transaction or the future value of the

 

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Purchased Shares, and (iii) no representation is being made as to any
projections or estimates delivered to or made available to the Investor (or any
of its affiliates or representatives) of the Company’s or the Bank’s future
assets, liabilities, stockholders’ equity, regulatory capital ratios, net
interest income, net income or any component of any of the foregoing or any
ratios derived therefrom. The Investor, either alone or together with its
representatives, if any, has the knowledge, sophistication and experience in
financial and business matters as to fully understand and be capable of
evaluating the merits and risks of an investment in the Purchased Shares and has
the ability to bear the economic risks of an investment in the Purchased Shares
and, at the present time, is able to afford a complete loss of such investment.

(h)        The Investor understands and agrees that the Purchased Shares are not
deposits and are not insured by the FDIC or any other Governmental Authority.

Section 3.05        Regulatory Approvals. The Investor has not been advised by
any applicable Regulatory Authority, and has no reasonable basis to believe,
that any regulatory approvals required to consummate the Transaction will not be
obtained.

Section 3.06        Sufficient Funds. The Investor at the Closing will have all
funds necessary to pay and deliver the Purchase Price.

Section 3.07        Brokers and Finders. Neither the Investor nor its
affiliates, any of their respective officers, directors, employees or agents has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder’s fees, and no broker or
finder has acted directly or indirectly for the Investor, in connection with
this Agreement or the transactions contemplated hereby, in each case, whose fees
the Company would be required to pay.

Section 3.08        Residency. The Investor has, if an entity, its principal
place of business or, if an individual, its primary residence, in the
jurisdiction indicated below the Investor’s name on the signature pages hereto,
except as indicated on such signature page.

ARTICLE IV.

CONDITIONS TO THE OBLIGATIONS

OF THE INVESTORS

The obligations of each Investor to purchase and pay for the Purchased Shares
and to perform its obligations under this Agreement are subject to the
satisfaction or waiver (other than a waiver of any condition set forth in
Section 4.06) by the Investor, on or before the Closing Date, of the following
conditions:

Section 4.01        Representations and Warranties to be True and Correct. The
representations and warranties contained in Article 2 are true and correct in
all material respects as of the date of this Agreement and are true and correct
at and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except to the extent such representations and warranties are limited expressly
to an earlier date, in which case the accuracy of such representations and
warranties shall be determined on and as of such date), and the chief executive
officer of the Company shall have certified such compliance to the Investor in
writing on behalf of the Company prior to Closing.

 

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Section 4.02        Performance. The Company has performed and complied in all
material respects with each of its obligations contained herein required to be
performed or complied with by it prior to or at the Closing Date, and a duly
authorized officer of the Company has certified such compliance to the Investor
in writing on behalf of the Company.

Section 4.03        No Material Adverse Change. Since March 31, 2010, there has
not been any Material Adverse Effect.

Section 4.04        Corporate Approvals; Shareholder Approvals. All corporate
approvals to be taken by the Company in connection with the Private Placement
(including the Transaction) shall have been obtained and remain in full force
and effect. The Company’s shareholders shall have approved the Company’s Amended
and Restated Articles of Incorporation in the form approved by CapGen pursuant
to Section 6.04(d), and such Amended and Restated Articles of Incorporation
shall have been filed with the South Carolina Secretary of State and be in full
force and effect. The Company’s shareholders shall have approved any other
matters, if any, with respect to the Private Placement (including the
Transaction) which require approval by the Company’s shareholders pursuant to
the Company’s articles of incorporation, bylaws, Applicable Law or otherwise.

Section 4.05        Regulatory Approvals, Etc.

(a)        CapGen has received all regulatory approvals necessary to complete
the Transaction, including approval of the Investor Regulatory Application.

(b)        All other consents, approvals, authorizations, clearances,
exemptions, waivers or similar acts from the applicable Regulatory Authorities
have been received by the Investors.

(c)        The Company shall have provided to the Investors a copy of a letter
(which letter may be addressed to the Company) from the Company’s independent
public accounting firm to the effect that the Investors’ investment in the
Company would not be deemed or construed to be an ownership of more than 49.9%
for GAAP or regulatory accounting or capital purposes of the applicable
Regulatory Authorities, and will not require (i) consolidation of any Investor
or its controlling persons with the Company and the Bank, (ii) the marking to
market of the Company’s assets or liabilities to a fair market basis as of or as
a result of the Private Placement (including the Transaction).

(d)        On a pro-forma basis after giving effect to the Transaction,
immediately following the Closing, the Company will have total risk-based
capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or
greater, and a leverage ratio of 5.0% or greater, as described in Part 325 in
the FDIC’s Rules and Regulations, and Tier 1 Capital at least equal to eight
percent (8%) of total assets (as contemplated by the Regulatory Matters).

(e)        All notice and waiting periods required by law to pass have passed
without adverse action.

 

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(f)        No orders or actions of any Governmental Authority enjoining,
restraining, prohibiting or invalidating the Transaction have been issued and
remain in effect or are unstayed.

(g)        Except as described in Section 2.07(a) or 2.25(b) of the Disclosure
Schedule, no Regulatory Authority has (i) asserted a violation or noncompliance
in any material respect of any Regulatory Matter or any other formal or informal
enforcement action taken by any Regulatory Authority; (ii) revoked or restricted
any material permits held by the Company or any of the Subsidiaries; or
(iii) issued, or required the Company or any of the Subsidiaries to consent to
the issuance or adoption of, a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or any board resolution or
similar undertaking, except for the Regulatory Matters, that, in the reasonable
estimation of the Investor, materially restricts or materially affects the
conduct of the business of the Company or such Subsidiary.

Section 4.06        Registration Rights Agreement. The Registration Rights
Agreement has been executed and delivered simultaneously with this Agreement, in
substantially the form attached as Schedule II, and will be effective and in
full force and effect upon, and subject to, the Closing.

Section 4.07        Sales of Shares. At the Closing, the Company shall
concurrently sell to all Investors, including CapGen, Common Stock in the
Private Placement in the aggregate amount of not less than $100 million, in each
case, at a purchase price per share of $2.60, in accordance with the terms of
this Agreement.

Section 4.08        Legal Opinion. The Investors shall have received an opinion
of counsel, dated as of the Closing Date and addressed to the Investors, in such
form and substance as are customary for transactions of this type.

Section 4.09        Third-Party Consents. The Company shall have obtained any
and all third-party consents necessary to consummate the Private Placement
(including the Transaction), including all regulatory and necessary contractual
consents, if any. Such necessary consents are disclosed on Schedule 4.09 of the
Disclosure Schedule.

ARTICLE V.

CONDITIONS TO THE OBLIGATIONS

OF THE COMPANY

The obligations of the Company to issue and sell the Purchased Shares to the
Investors and to perform its obligations under this Agreement are subject to the
satisfaction or waiver by the Company, on or before the Closing Date, of the
following conditions:

Section 5.01        Representations and Warranties to be True and Correct;
Covenants. The representations and warranties contained in Article 3 are true
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date. Each
Investor shall have performed or complied in all material respects with all
covenants of each Investor in this Agreement.

 

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Section 5.02        Performance. Each Investor has performed and complied in all
material respects with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date.

Section 5.03        Regulatory Approvals. Each Investor, including CapGen, has
received all regulatory approvals necessary to complete the Transaction,
including (A) approval of the Investor Regulatory Application; (B) all notice
and waiting periods required by law to pass have passed without adverse action;
and (C) no orders or actions of any Governmental Authority enjoining,
restraining, prohibiting or invalidating the Transaction have been issued and
remain in effect or are unstayed.

Section 5.04        Shareholder Approvals. The Company’s shareholders shall have
approved the Company’s Amended and Restated Articles of Incorporation in the
form approved by CapGen pursuant to Section 6.04(d) of this Agreement, and such
Amended and Restated Articles of Incorporation shall have been filed with the
South Carolina Secretary of State and be in full force and effect. The Company’s
shareholders shall have approved any other matters, if any, with respect to the
Private Placement (including the Transaction) which require approval by the
Company’s shareholders pursuant to the Company’s articles of incorporation,
bylaws, Applicable Law or otherwise.

ARTICLE VI.

COVENANTS

Section 6.01        Reasonable Best Efforts. Each party and its officers and
directors shall use their reasonable best efforts to take, or cause to be taken,
all actions necessary or desirable to consummate and make effective the
Transaction as promptly as practicable. If requested by an Investor, to the
extent consistent with Applicable Laws, the Company shall provide the Investors
and its counsel with copies of all applications, filings, notices to, and
correspondence with all Governmental Authorities in connection with the
Transaction, all of which, to the extent it has not been made publicly
available, shall be held confidential by the Investors.

Section 6.02        Filings and Other Actions.

(a)        Each Investor other than CapGen, with respect to itself only, on the
one hand, and the Company, on the other hand, will cooperate and consult with
the other and use reasonable best efforts to provide all necessary and customary
information and data, to prepare and file all necessary and customary
documentation, to provide evidence of non-control of the Company and the Bank,
including, as requested by any Governmental Authority, executing and delivering
to the applicable Governmental Authorities passivity and disassociation
commitments and commitments not to act in concert with respect to the Company or
the Bank (the “Commitments”) in the forms customary for transactions similar to
the Private Placement (including the Transaction) contemplated hereby, and to
effect all necessary and customary applications, notices, petitions, filings and
other documents, and to obtain all necessary and customary permits, consents,
orders, approvals and authorizations of, or any exemption by, all third parties
and Governmental Authorities, and the expiration or termination of any
applicable waiting period, in each case, (i) necessary or advisable to
consummate the transactions contemplated by this Agreement, and to perform the
covenants contemplated by this Agreement,

 

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including the Agreements attached as Exhibits hereto and (ii) with respect to
each Investor, to the extent typically provided by such Investor to such third
parties or Governmental Authorities, as applicable, under such Investor’s
policies consistently applied and subject to such confidentiality requests as
such Investor may reasonably seek. Notwithstanding the immediately preceding
sentence, the Investor shall not be required to provide information on its
investors solely in their capacities as limited partners or other similar
passive equity investors, and shall be entitled to request confidential
treatment from any Governmental Authority and not disclose to the Company any
information that is confidential and proprietary to the Investor. Each party
shall execute and deliver both before and after the Closing such further
certificates, agreements, documents and other instruments and take such other
actions as the other parties may reasonably request to consummate or implement
such transactions or to evidence such events or matters, subject, in each case,
to clauses (i) and (ii) of the first sentence of this Section 6.02(a). To the
extent legally permissible, each Investor and the Company will have the right to
review in advance, and to the extent practicable each will consult with the
other, in each case subject to applicable laws relating to the exchange of
information and confidential information related to the Investors, all the
information relating to each other, and any of their respective affiliates,
which appears in any filing made with, or written materials submitted to, any
third party or any Governmental Authority in connection with the transactions to
which it will be party contemplated by this Agreement; provided, however, that
(i) no Investor shall have the right to review any such information relating to
another Investor and (ii) an Investor shall not be required to disclose to the
Company any information that is confidential and proprietary to such Investor.
In exercising the forgoing right, each of the parties agrees to act in a
commercially reasonable manner and as promptly as practicable. Each party hereto
agrees to keep the other party apprised of the status of matters referred to in
this Section 6.02(a). Each Investor shall promptly furnish the Company, and the
Company shall promptly furnish each Investor, to the extent permitted by
applicable law, with copies of written communications received by it or its
Subsidiaries from, or delivered by any of the foregoing to, any Governmental
Authority in respect of the transactions contemplated by this Agreement.

(b)        Each Investor, on the one hand, agrees to furnish the Company, and
the Company, on the other hand, agrees, upon request, to furnish to each
Investor, all information concerning itself, its affiliates, directors,
officers, general partners and managing members and such other matters as may be
reasonably necessary or advisable in connection with the proxy statement in
connection with any such shareholders’ meeting at which the Shareholder
Approvals is sought.

(c)        To the extent the Company receives any confidential information under
this Section 6.02, the Company shall not, and shall cause its employees,
representatives and agents not to, use, duplicate or disclose, in whole or in
part, or permit the use, duplication or disclosure of, any of such information
in any manner whatsoever. The Company shall be responsible for any breach of
this Section 6.02 by any of its employees, representatives and agents. All
information furnished or disclosed pursuant to this Section 6.02 shall remain
the sole property of the disclosing Investor.

(d)        The Company shall provide the Investors with notice of the filing on
EDGAR of (i) the Quarterly Report on Form 10-Q for the quarter ended June 30,
2010 and each subsequent quarterly period ended prior to the Closing Date and
(ii) all Current Reports on Form

 

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8-K. The Company shall also provide the Investors with all reports,
correspondence or other information filed with or submitted to any Regulatory
Authority (to the extent permitted by law) prior to the Closing Date.

Section 6.03        Corporate Approvals; Takeover Laws. The Company shall obtain
all corporate approvals necessary for this Agreement and the Private Placement
(including the Transaction). The Company shall take all reasonable steps to
exclude the applicability of, or to assist in any challenge to the validity or
applicability to the Private Placement (including the Transaction) of, any
Takeover Laws.

Section 6.04        Shareholder Approvals.

(a)        The Company’s board of directors shall recommend that the Company’s
shareholders approve the amendment and restatement of the Company’s Articles of
Incorporation as provided herein and all other matters, if any, with respect to
the Transaction which may require approval by the Company’s shareholders (the
“Proposals”), and shall not withdraw or change any such recommendations.

(b)        As promptly as practicable following the date of this Agreement, the
Company shall call a special meeting of its shareholders (the “Shareholders’
Meeting”) for the purpose of obtaining the Requisite Shareholder Vote in
connection with this Agreement and the Proposals and shall use its reasonable
best efforts to cause such Shareholders’ Meeting to occur as promptly as
reasonably practicable and in any event no later than fifty (50) days after the
date Investors have executed this Agreement to purchase $100 million of
Purchased Shares. The Proxy Statement shall include the Company Board
Recommendation, and the Board (and all applicable committees thereof) shall use
its reasonable best efforts to obtain from the Company’s shareholders the
Requisite Shareholder Vote in favor of the approval of the Proposals (the
“Shareholder Approvals”).

(c)        If on the date for which the Shareholders’ Meeting is scheduled (the
“Original Date”), the Company has not received proxies representing a sufficient
number of votes to approve the Proposals, whether or not a quorum is present,
CapGen shall have the right to require the Company, and the Company shall have
the right, to postpone or adjourn the Shareholders’ Meeting to a date that shall
not be more than 20 days after the Original Date. If the Company continues not
to receive proxies representing a sufficient number of votes to approve the
Proposals, whether or not a quorum is present, the Investor shall have the right
to require the Company to, and the Company may, make one or more successive
postponements or adjournments of the Shareholders’ Meeting as long as the date
of the Shareholders’ Meeting is not postponed or adjourned more than an
aggregate of 20 days from the Original Date in reliance on this Section 6.04(c).
In the event that the Shareholders’ Meeting is adjourned or postponed as a
result of Applicable Law, including the need to disseminate to Company
shareholders any amendments or supplements to the Proxy Statement, any days
resulting from such adjournment or postponement shall not be included for
purposes of the calculations of the number of days pursuant to this subsection.

(d)        The Company shall provide a draft of the Amended and Restated
Articles of Incorporation in a form reasonably satisfactory to CapGen to CapGen
for approval at least

 

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five business days prior to the initial filing of the Proxy Statement with the
SEC. The Company will not file the Proxy Statement without CapGen’s prior
written approval of the draft of the Amended and Restated Articles of
Incorporation, which consent shall not be unreasonably withheld (the Amended and
Restated Articles of Incorporation, as approved by CapGen, the “Amended and
Restated Articles of Incorporation”).

Section 6.05        Proxy Statement; Other Filings. As promptly as reasonably
practicable after the date of this Agreement, (a) the Company shall prepare and
file with the SEC, subject to the prior review and approval of CapGen (which
approval shall not be unreasonably delayed, conditioned or withheld), a letter
to shareholders, notice of meeting, proxy statement and form of proxy that will
be provided to shareholders of the Company in connection with seeking the
Shareholder Approvals of the Proposals (including any amendments or supplements)
at the Shareholders’ Meeting and any schedules required to be filed with the SEC
in connection therewith (collectively, the “Proxy Statement”); and (b) the
Company shall, or shall cause its affiliates to, prepare and file with the SEC
any other document to be filed with the SEC in connection with other filings
(the “Other Filings”) as required by the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder. None of the information
supplied or to be supplied by the Company or the respective Investors expressly
for inclusion or incorporation by reference in the Proxy Statement will, at the
time it is filed with the SEC, on the date it is first mailed to the Company’s
shareholders, or at the time of the Shareholders’ Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. None of the
information supplied or to be supplied by the Company or the Investors expressly
for inclusion or incorporation by reference in each of the Other Filings will,
as of the date it is filed, 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 and the Other Filings will
comply as to form in all material respects with the requirements of the
Securities Act and the Exchange Act. Each of the Company and each Investor shall
obtain and furnish the information concerning itself and its affiliates required
to be included in the Proxy Statement and, to the extent applicable, the Other
Filings. The Company shall use its reasonable best efforts to (i) respond as
promptly as reasonably practicable to any comments received from the SEC with
respect to the Proxy Statement and the Other Filings and (ii) seek to have the
Proxy Statement to be declared definitive by the SEC, respectively, at the
earliest reasonably practicable date. The Company shall promptly notify the
Investors upon the receipt of any comments from the SEC or its staff or any
request from the SEC or its staff for amendments or supplements to the Proxy
Statement or the Other Filings (but not the substance of such comments or
requests, except to the extent such comments or requests relate to information
regarding the Investors) and shall provide CapGen, and upon request to any other
Investor, confidentially copies of all correspondence between it, on the one
hand, and the SEC and its staff, on the other hand, relating to the Proxy
Statement or the Other Filings. If, at any time prior to the Shareholders’
Meeting, any information relating to the Company or such Investor, or any of
their respective affiliates, directors or officers should be discovered by the
Company or any Investor, which should be set forth in an amendment or supplement
to the Proxy Statement or the Other Filings so that the Proxy Statement or the
Other Filings shall 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

 

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are made, not misleading, the party that discovers such information shall
promptly notify the other party, and an appropriate amendment or supplement
describing such information shall be filed by the Company with the SEC and, to
the extent required by Applicable Law, disseminated to the shareholders of the
Company. Notwithstanding anything to the contrary stated above, prior to filing
or mailing the Proxy Statement or filing the Other Filings (or, in each case,
any amendment or supplement thereto) or responding to any comments of the SEC or
its staff with respect thereto, the Company shall provide CapGen, and to the
extent it involves disclosure regarding any other Investor, such other Investor
shall be provided upon request insofar as it relates to such Investor, a
reasonable opportunity to review and comment on such document or response
insofar as it relates to such Investor and shall include in such document or
response comments reasonably proposed by CapGen or other Investors, as
applicable.

Section 6.06        Registration Rights. The Company and the Investor shall
execute and deliver upon the execution and delivery of this Agreement, the
Registration Rights Agreement in substantially the form attached as Schedule II,
and the Registration Rights Agreement shall become effective as of, and subject
to, the Closing.

Section 6.07        Board Matters.

(a)        Prior to the Closing Date, the Company shall expand the Board by one
director, and cause the Nominating and Corporate Governance Committee of the
Board to nominate, and the Board shall have appointed, subject to the Closing, a
designee of CapGen as a director of the Company to fill, effective as of the
Closing, the vacancy created by such expansion of the Board. For so long as
CapGen or any of its affiliates owns more than 9.9% of the Company’s outstanding
Common Stock, and subject to satisfaction of all legal and governance
requirements applicable to all Board members regarding service as a director of
the Company, the Company shall cause the nomination of one person designated by
CapGen for election to the Board at each annual meeting at which the term of the
director designated by CapGen expires, or upon the death, resignation, removal
or disqualification of such director, if earlier. CapGen shall provide written
notice of such designee to the Company, together with any information pertaining
to the nominated persons reasonably requested by the Company. Upon receipt of
such notice and information, the Company shall do, or cause to be done, all
things, and take, or cause to be taken, all actions necessary, including filing
and actively seeking approvals of, all applications for prior approval of all
Governmental Authorities under Applicable Law necessary or expedient to having
such designee be elected and qualified to serve as a member of the Company’s
Board as soon thereafter as reasonably practicable. The Company shall also elect
CapGen’s designee to the Bank’s board of directors and to the board of directors
of any other subsidiary requested by CapGen. After the Closing but prior to the
election and qualification of CapGen’s designees, CapGen shall have the right to
designate two nonvoting observers to the boards of directors of each of the
Company and each of its subsidiaries.

(b)        CapGen’s designee as a Company director shall provide the Company
with a directors’ and officers’ questionnaire and provide such other background
information as ordinarily requested by the Company from time to time of its
other directors and officers.

(c)        The Company shall waive any equity ownership requirements in
connection with CapGen’s designee and serving as director of the Company and the
Bank based

 

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upon the Investor’s holdings of shares of Company Common Stock; provided,
however, that, in accordance with Section 34-3-40 of the SCC, the Company agrees
to issue to CapGen’s designee as a director of the Company and the Bank and
CapGen agrees that it, on behalf of its designee, shall purchase for $2.60 per
share and hold (subject to any regulatory approval) shares of Common Stock of
the Company having an aggregate value of at least $500, which shares may be
transferred to CapGen and/or any future Person designated by CapGen to serve as
a director of the Company and the Bank. CapGen agrees that its designee will be
an “Accredited Investor” within the meaning of the Securities Act.

(d)        The Company shall waive, or exempt CapGen’s designee from, any South
Carolina residence requirements in its bylaws or other applicable policies.

(e)        If required under Section 32 of the Federal Deposit Insurance Act
(the “FDI Act”) or any other law, rule, regulation, order or requirement of any
Governmental Authority, the Company shall promptly seek and use its reasonable
best efforts to promptly obtain, all approvals necessary to having CapGen’s
designee to the board of directors approved by all applicable Governmental
Authorities.

(f)        Notwithstanding anything to the contrary in this Section 6.07, if, at
any time, CapGen owns 9.9% or less of the outstanding shares of Company Common
Stock, then CapGen’s right to nominate a member to the Company’s board of
directors, the Bank’s board of directors, and the board of directors of any
other subsidiary requested by CapGen granted by this Section 6.07 will terminate
and such right will be lost permanently, irrespective of whether CapGen’s
ownership of Company Common Stock increases again after the loss of such right.

(g)        No Investor having less than 10% of the outstanding shares of the
Company’s Common Stock shall be entitled to nominate or designate a director of
the Company, the Bank or any of the Subsidiaries. If an Investor other than
CapGen seeks to make an investment pursuant to this Agreement in excess of 10%
of the Company’s outstanding Common Stock, the Company shall promptly notify
CapGen as to the name of the Investor and the proposed nominee as a director (or
if no proposed nominee has yet been decided upon by such Investor), and CapGen
shall have the right to designate an additional director and all references
herein to CapGen’s designee as a director shall mean and refer to the actual
number of CapGen designees as director.

Section 6.08        Restricted Shares.

(a)        Each Investor acknowledges and agrees that there are substantial
restrictions on the transferability of the Purchased Shares. Each Investor
further understands and agrees that the issuance of the Purchased Shares has not
been registered under the Securities Act and the Purchased Shares are
“restricted securities” within the meaning of Rule 144 under the Securities Act
and may not be sold, transferred, or otherwise disposed of without registration
under the Securities Act or pursuant to an exemption therefrom.

(b)        Notwithstanding any other provision of this Article VI, each Investor
covenants that the Purchased Shares may be disposed of only pursuant to an
effective registration statement under, and in compliance with the requirements
of, the Securities Act, or pursuant to

 

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an available exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, and in compliance with any
applicable state, federal or foreign securities laws. In connection with any
transfer of the Purchased Shares other than (i) pursuant to an effective
registration statement, (ii) to the Company or (iii) pursuant to Rule 144,
provided that the transferor provides the Company with reasonable assurances (in
the form of seller and broker representation letters) that such securities may
be sold pursuant to such rule, the Company may require the transferor thereof to
provide to the Company and the Transfer Agent, at the transferor’s expense, an
opinion of counsel selected by the transferor and reasonably acceptable to the
Company and the Transfer Agent, the form and substance of which opinion shall be
reasonably satisfactory to the Company and the Transfer Agent, to the effect
that such transfer does not require registration of such transferred Purchased
Shares under the Securities Act or state securities laws. As a condition of
transfer (other than pursuant to clauses (i), (ii) or (iii) of the preceding
sentence), any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of the transferring Investor under
this Agreement and the Registration Rights Agreement with respect to such
transferred Purchased Shares.

(c)        Each Investor covenants that it will not knowingly make any sale,
transfer, or other disposition of any Purchased Shares, or engage in hedging
transactions with respect to such Purchased Shares, in violation of the
Securities Act (including Regulation S) or the Exchange Act.

(d)        Each Investor acknowledges and agrees that: (a) each certificate
evidencing the Purchased Shares will bear a legend to the effect set forth
below; and (b) except to the extent such restrictions are waived by the Company,
neither shall transfer any Purchased Shares represented by any such certificate
without complying with the restrictions on transfer described in the legend
endorsed on such certificate, as follows and which shall be delivered also as
instructions to the Company’s transfer agent:

THE ISSUANCE OF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY.

THE ISSUANCE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE SECURITIES LAWS
OF ANY STATE, AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR IN
COMPLIANCE WITH RULE 144 THEREUNDER AND IN COMPLIANCE WITH STATE SECURITIES
LAWS, UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND OTHER
RESTRICTIONS SET FORTH IN A STOCK PURCHASE AGREEMENT, DATED AS OF MAY 25, 2010,
COPIES OF

 

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WHICH ARE ON FILE WITH THE SECRETARY OF THE CORPORATION AT THE CORPORATION’S
PRINCIPAL EXECUTIVE OFFICES.

(e)        The restrictive legend set forth in Section 6.08(d) above shall be
removed and the Company shall issue a certificate without such restrictive
legend or any other restrictive legend to the holder of the applicable Shares
upon which it is stamped or issue to such holder by electronic delivery at the
applicable balance account at DTC, if (i) such Purchased Shares are registered
for resale under the Securities Act, (ii) such Purchased Shares are sold or
transferred pursuant to Rule 144 (if the transferor is not an affiliate of the
Company), or (iii) such Purchased Shares are eligible for sale under Rule 144,
without the requirement for the Company to be in compliance with the current
public information required under Rule 144(c)(1) (or Rule 144(i)(2), if
applicable) as to such securities and without volume or manner-of-sale
restrictions. Following the earlier of (i) the effective date of the
registration statement registering such Purchased Shares for resale (the “Resale
Registration Statement”) or (ii) Rule 144 becoming available for the resale of
Purchased Shares, without the requirement for the Company to be in compliance
with the current public information required under 144(c)(1) (or Rule 144(i)(2),
if applicable) as to the Purchased Shares and without volume or manner-of-sale
restrictions, the Company shall, upon delivery of appropriate documentation by
the Investor, instruct the Transfer Agent at the Company’s expense, to remove
the legend from the Purchased Shares. If a legend is no longer required pursuant
to the foregoing, the Company will no later than three Trading Days following
the delivery by an Investor to the Company or the Transfer Agent (with notice to
the Company) of a legended certificate or instrument representing such Purchased
Shares (endorsed or with stock powers attached, signatures guaranteed, and
otherwise in form necessary to affect the reissuance and/or transfer) and a
representation letter to the extent required by Section 6.08(b) (such third
Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to
such Investor a certificate or instrument (as the case may be) representing such
Purchased Shares that is free from all restrictive legends. The Company may not
make any notation on its records or give instructions to the Transfer Agent that
enlarge the restrictions on transfer set forth in this Section 6.08(e).
Certificates for Purchased Shares free from all restrictive legends may be
transmitted by the Transfer Agent to the Investors by crediting the account of
the Investor’s prime broker with DTC as directed by such Investor.

Each Investor hereunder acknowledges its primary responsibilities under the
Securities Act and state securities laws and accordingly will not sell or
otherwise transfer the Purchased Shares or any interest therein without
complying with the requirements of the Securities Act and the rules and
regulations promulgated thereunder and the applicable securities laws of any
state. Except as otherwise provided below, while the Resale Registration
Statement remains effective, each Investor hereunder may sell the Purchased
Shares in accordance with the plan of distribution contained in the Resale
Registration Statement and if it does so it will comply therewith and with the
related prospectus delivery requirements unless an exemption therefrom is
available or unless the Purchased Shares are sold pursuant to Rule 144. Each
Investor, severally and not jointly with the other Investors, agrees that if it
is notified by the Company in writing at any time that the Resale Registration
Statement registering the resale of the Purchased Shares is not effective or
that the prospectus included in such Resale Registration Statement no longer
complies with the requirements of Section 10 of the Securities Act, the Investor
will refrain from selling such Purchased Shares until such time as the Investor
is notified by the Company that such Resale Registration Statement is effective
or such prospectus is compliant with Section 10

 

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of the Exchange Act, unless such Investor is able to, and does, sell such
Purchased Shares pursuant to an available exemption from the registration
requirements of Section 5 of the Securities Act.

Section 6.09         Information, Access and Confidentiality.

(a)        From the date of this Agreement until the date when the Investor
Percentage Interest is less than 5%, the Company shall, and will cause each of
the Subsidiaries to, give the Investor and its representatives (including,
without limitation, officers and employees of the Investor, and counsel,
accountants, investment bankers, potential lenders and other professionals
retained by the Investor) upon request of an Investor, reasonable full access
during normal business hours to all of their properties, books and records
(including, without limitation, tax returns and appropriate work papers of
independent auditors under normal professional courtesy, but excluding
information that is subject to a legal privilege and those books and records
that under Applicable Laws, or under confidentiality agreements, are required to
be kept confidential) and to knowledgeable personnel of the Company and to such
other information as the Investor may reasonably request.

(b)        The Investor shall, and shall cause its representatives to, hold all
material non-public information received as a result of its access to the
properties, books and records of the Company or the Subsidiaries in confidence,
except to the extent that information (i) is or becomes available to the public
(other than through a breach of this Agreement), (ii) becomes available to the
Investor or its representatives from a third party that, insofar as the Investor
is aware, is not under an obligation to the Company or to a Subsidiary to keep
the information confidential, (iii) was known to the Investor or its
representatives before it was made available to the Investor or its
representative by the Company or a Subsidiary, or (iv) otherwise is
independently developed by the Investor or its representatives. The Investor
shall, at the Company’s request made at any time after the termination of this
Agreement without the Closing having occurred, deliver to the Company all
documents and other material non-public information obtained by the Investor or
its representatives from the Company or its Subsidiaries, or certify that such
material has been destroyed by the Investor. The Investor acknowledges that it
is aware of, and will comply with, applicable restrictions on the use of
material non-public information with respect to the Company and its Subsidiaries
imposed by the United States. federal securities laws. Any examination or
investigation made by the Investor, its representatives or any other persons as
contemplated by this Section 6.09 shall not affect any of the representations
and warranties hereunder.

Section 6.10        Conduct of Business Prior to Closing. Except as otherwise
expressly contemplated or permitted by this Agreement, as set forth in
Section 6.10 of the Disclosure Schedule, or with the prior written consent of
CapGen (which consent shall not be unreasonably withheld or delayed) (which is a
separate right granted to CapGen for itself and no other Investor), during the
period from the date of this Agreement to the Closing Date, the Company shall,
and shall cause each Subsidiary to, (a) conduct its business only in the usual,
regular and ordinary course consistent with past practice; and (b) take no
action that would reasonably be expected to adversely affect or delay the
receipt of any Regulatory Authority or the Shareholder Approvals required to
consummate the Transaction.

 

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Section 6.11        Company Forbearances. Except as expressly contemplated or
permitted by this Agreement or as set forth in Section 6.11 of the Disclosure
Schedule, during the period from the date of this Agreement to the Closing, the
Company shall not, and shall not permit any Subsidiary to, without the prior
written consent of CapGen (which is a separate right granted to CapGen for
itself and no other Investor):

(a)        declare or pay any dividends or distributions on its capital stock
except for dividends declared and payable on Company Common Stock at the same
times and amounts as have been paid in 2009, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock or other equity
interest or any securities or obligations convertible into or exchangeable for
any shares of its capital stock or other equity interest or stock appreciation
rights or grant any person any right to acquire any shares of its capital stock
or other equity interest, other than (i) dividends paid by any wholly-owned
Subsidiaries, and (ii) directors’ fees paid in Company Common Stock in
accordance with prior practices as set forth in Section 6.11(a) of the
Disclosure Schedule;

(b)        issue or commit to issue any additional shares of capital stock or
other equity interest, or any securities convertible into or exercisable for, or
any rights, warrants or options to acquire, any additional shares of capital
stock or other equity interest (except (i) options, restricted stock or other
equity grants approved by the Board or the Compensation Committee of the Board
under the Company’s equity incentive plans in accordance with past practice,
(ii) pursuant to the exercise of outstanding options, (iii) pursuant to the
conversion of the Convertible Notes (which shall occur upon the Closing), or
(iv) shares of Common Stock issued to the Investors in connection with the
Closing as provided herein or to executive officers of the Company in connection
with the Executive Officer Investment (as defined below);

(c)        amend the articles of incorporation, bylaws or other governing
instruments of the Company or any Subsidiary, except that the Company shall
propose and use its reasonable best efforts to obtain Shareholder Approvals of
the Amended and Restated Articles of Incorporation and amend and restate the
Company’s bylaws or other governing instruments under the request or with the
consent of CapGen;

(d)        incur any additional debt obligation or other obligation for borrowed
money except in the ordinary course of the business of the Subsidiaries
consistent with past practices (which shall include, for the Subsidiaries that
are depository institutions, creation of deposit liabilities, purchases of
federal funds, sales of certificates of deposit, advances from Federal Home Loan
Bank of Atlanta or the Federal Reserve Bank and entry into repurchase agreements
fully secured by U.S. government or agency securities) or in connection with
providing a new money market sweep account to customers in compliance with
securities and banking Applicable Laws, or impose, or suffer the imposition, on
any share of stock held by the Company or any Subsidiary of any lien or permit
any such lien to exist;

(e)        adjust, split, combine or reclassify any capital stock of the Company
or any Subsidiary or issue or authorize the issuance of any other securities
with respect to or in substitution for shares of its capital stock or sell,
lease, mortgage or otherwise encumber any shares of capital stock of any
Subsidiary or any asset of the Company or any Subsidiary other

 

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than in the ordinary course of business as permitted by Section 6.11(d) for
reasonable and adequate consideration;

(f)        acquire any direct or indirect equity interest in any person, other
than in connection with (a) foreclosures in the ordinary course of business and
(b) holdings of securities solely in its fiduciary capacity;

(g)        grant any increase in compensation or benefits to the directors,
executive officers or to employees generally of the Company or any Subsidiary,
except in accordance with past practices previously disclosed; pay any bonus
except in accordance with past practices and pursuant to the provisions of an
applicable program or plan adopted prior to March 31, 2010; or, enter into or
amend, except to waive or eliminate any provision that would deem the
acquisition of the Purchased Shares by the Investors or that any other aspect of
the Transactions are a change in control under, any severance or change in
control agreements with directors, officers or employees of the Company or any
Subsidiary;

(h)        enter into or amend any employment agreement between the Company or
any Subsidiary and any person (unless such amendment is required by Applicable
Law) that the Company does not have the unconditional right to terminate without
liability (other than liability for services already rendered), at any time on
or after the Closing;

(i)        adopt any new employee benefit plan or employee benefits of the
Company or any Subsidiary or make any material change in or to any existing
employee benefit plans or employee benefits of the Company or any Subsidiary,
other than any such change that is required by Applicable Law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan;

(j)        make any material change in any accounting methods, policies or
systems, except as may be appropriate to conform to changes in GAAP or as
required or requested by any Regulatory Authority or except to improve internal
controls;

(k)        (a) commence any litigation other than in connection with collections
of debt consistent with past practice or in the ordinary course of business to
enforce contractual rights, (b) settle any litigation involving any liability of
the Company or any Subsidiary for money damages which, individually or in the
aggregate, exceed or impose material restrictions on the operations of the
Company and its Subsidiaries taken as a whole or where the Company or any
Subsidiary is required to pay any material amount of money, or (c) modify, amend
or terminate any material contract described in Section 2.14 or waive, release,
compromise or assign any material rights or claims;

(l)        [Reserved]

(m)        fail to file timely any material report required to be filed by it
with any Regulatory Authority, including the SEC;

(n)        make any loan or advance to any 5% or greater shareholder, director
or officer of the Company or any of the Subsidiaries, or any immediate family
member (as defined in SEC Regulation S-K) of the foregoing, or any “related
interest” or “insider” (each as defined

 

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in Federal Reserve Regulation O) of any of the foregoing, except for renewals of
any loan or advance outstanding as of the date of this Agreement on terms and
conditions substantially similar to the original loan or advance;

(o)        cancel without payment in full, or modify in any material respect any
agreement relating to, any loan or other obligation receivable from any 5% or
greater shareholder, director or officer of the Company or any Subsidiary or any
immediate family member (as defined in SEC Regulation S-K) of the foregoing, or
any “related interest” or “insider” (each as defined in Federal Reserve
Regulation O) of any of the foregoing;

(p)        enter into any agreement for services or otherwise with any 5% or
greater shareholders, directors, officers or employees of the Company or any
Subsidiary or immediate family member (as defined in SEC Regulation S-K) of the
foregoing, or any “related interest” or “insider” (each as defined in Federal
Reserve Regulation O) of any of the foregoing;

(q)        modify, amend or terminate any material contract described in
Section 2.14 or waive, release, compromise or assign any material rights or
claims, except in the ordinary course of business consistent with past practice
and for fair consideration;

(r)        close any banking office where a notice of such closure is required
under Section 42 of the FDI Act and applicable regulations thereunder;

(s)        except as required by Applicable Law or as required, recommended or
requested by an applicable Regulatory Authority, change its or any of the
Subsidiaries’ lending, investment, liability management and other material
banking policies in any material respect;

(t)        take any action that would cause the Transactions to be subject to
requirements imposed by any Takeover Law, or fail to take all necessary steps
within its control to exempt (or ensure the continued exemption of) the
Transactions from, or if necessary challenge the validity or applicability of,
any applicable Takeover Law, as now or hereafter in effect;

(u)        make or renew any loan or extension of credit to any person
(including, in the case of an individual, to any immediate family member (as
defined in SEC Regulation S-K)) or to any “related interest” or “insider” (each
as defined in Federal Reserve Regulation O) or otherwise, except in accordance
with the Bank’s policies and Applicable Law;

(v)        increase or decrease the rates of interest paid on deposits or
increase the amount of brokered or internet deposits, except consistent with the
Bank’s past practices;

(w)        purchase or otherwise acquire any investment securities for its own
account, except in accordance with the Bank’s policies, including its
asset/liability policy, and in accordance with Applicable Law;

(x)        except for as described in Section 6.21 and OREO reflected on the
books of the Company or the Bank as of the date hereof, the sale of which will
not result in a loss, individually or in the aggregate of $1,000,000 or more,
sell, transfer, convey or otherwise dispose of any real property or other assets
or interests therein having a book value individually

 

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or in the aggregate in excess of or in exchange for consideration in excess of
$5,000,000, without prior Board approval and in accordance with the Company’s
policies and Applicable Law;

(y)        make or commit to make any capital expenditures in excess of
$1,000,000, individually or in a series of related transactions, without prior
Board approval; or

(z)        agree to, or make any commitment to, take any of the actions
prohibited by this Section 6.11.

Section 6.12        Investor Call. CapGen will issue the Investor Call to its
investors five days after receipt of the last approval of the Regulatory
Authorities and the satisfaction (or waiver) of all other conditions under this
Agreement needed for Closing of the Transaction, or at such other later date and
time as may agreed upon by CapGen and the Company.

Section 6.13        No Acceleration Under Equity Compensation Plans, Etc. Except
as otherwise expressly contemplated or permitted by this Agreement, during the
period from the date of this Agreement to the Closing, the Company shall not,
and shall not permit any Subsidiary to, without the prior written consent of
CapGen (which is a separate right granted to CapGen for itself and no other
Investor), accelerate or not take all action necessary to avoid the vesting,
payment or exercise of any securities or benefits under any agreement,
understanding, arrangement or plan as a result of the Private Placement
(including the Transaction).

Section 6.14        No Agreements with other Investors. Except as otherwise
expressly contemplated or permitted by this Agreement, during the period from
the date of this Agreement to the Closing, the Company shall not in any form or
manner, and shall not permit any Subsidiary or affiliate to, without the prior
written consent of CapGen (which is a separate right granted to CapGen for
itself and no other Investor), issue any securities to any investors other than
the Investors party hereto or make or name or grant any rights or privileges to
be the “lead investor” to any person other than CapGen hereunder.

Section 6.15        Press Releases; Public Disclosure.

(a)        The Company and CapGen shall consult with each other before issuing
any press release with respect to the Transaction or this Agreement and shall
not issue any such press release or make any such public statements without the
prior consent of the other, which consent shall not be unreasonably withheld or
delayed; provided, however, that the Company may, without the prior consent of
CapGen (but after such consultation, to the extent practicable in the
circumstances), issue such press release or make such public statements or
filings as may be required by Applicable Law.

(b)        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, and neither the Company nor any Investor will
make any such news release or public disclosure without first notifying the
other, and, in each case, also receiving the other’s consent (which shall not be
unreasonably withheld or delayed), provided that nothing in this Section 6.13
shall require the Company to provide drafts of Forms 10-K or 10-Q to any
Investor whose name is not included in

 

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such document or prevent the Company from making timely disclosures under the
Securities Act and the Exchange Act. CapGen authorizes the Company to publicly
disclose its name but otherwise no such public disclosure of an Investor or its
investment advisor will be made by the Company, except to the extent required by
Applicable Law or authorized in writing by such Investor, and to all applicable
Governmental Authorities without CapGen’s prior written approval. The Company
and each Investor agree that within one Business Day following the Closing, the
Company shall publicly disclose the closing of the transactions contemplated by
this Agreement including the Private Placement. From and after such disclosure,
except to the extent an Investor has requested and received material non-public
information from the Company after the date hereof, no Investor (other than
CapGen) shall be in possession of any material, non-public information received
from the Company in connection with the Private Placement (including the
Transaction). On or before 9:00 A.M. New York City time, on the second business
day immediately following the Closing Date, the Company will file a Current
Report on Form 8-K with the SEC describing the terms of this Agreement.

(c)        By 9:00 A.M., New York City time, on the Business Day immediately
following execution of this Agreement, the Company shall issue one or more press
releases (collectively, the “Press Release”) disclosing all material terms of
the Private Placement (including the Transaction). On or before 9:00 A.M., New
York City time, on the fourth Business Day immediately following the execution
of this Agreement, the Company will file a Current Report on Form 8-K with the
SEC describing the terms of the Private Placement Documents (and including as
exhibits to such Current Report on Form 8-K the material Private Placement
Documents, including, without limitation, this Agreement and the Registration
Rights Agreement. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor or any affiliate or investment adviser of the
Investor, or include the name of the Investor or any affiliate or investment
adviser of the Investor in any press release or in any filing with the SEC
(other than a Resale Registration Statement), without the prior written consent
of such Investor, except (i) as required by the federal securities laws and
(ii) to the extent such disclosure is required by law, at the request of
applicable Governmental Authorities. From and after the issuance of the Press
Release and the issuance of the Company’s earnings release for the latest fiscal
quarter ended prior to the Closing, the Investors (other than CapGen and any
other Investor that has requested and received material non-public information
from the Company) shall not be in possession of any material, non-public
information received from the Company, any Subsidiary or any of their respective
officers, directors or employees.

Section 6.16        Securities Law Compliance. The Company will take all steps
necessary to comply with all applicable federal and state securities laws in
connection with the Private Placement and to qualify for an exemption under
Regulation D of the Securities Act.

Section 6.17        No Listing. The Company will not list or seek to list any of
its securities on any securities exchange or other market that would result in
the Private Placement or the Transaction or any aspect thereof requiring
shareholder approval for any reason.

Section 6.18        Regulatory Compliance. The Company and the Bank will comply
in all material respects with any formal or informal enforcement actions taken
by the South Carolina Board or the Federal Reserve and the FDIC. The Company and
the Bank will take all actions specified on Schedule III to this Agreement.

 

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Section 6.19        Third Party Consents. The Company and its Subsidiaries will
not enter into any agreements or other arrangements requiring the consent of a
third party as a result of the Closing.

Section 6.20        CapGen Ownership Limitation. Neither the Company nor CapGen
will take any action following the Closing that would result in CapGen owning in
excess of 49.9% of the Common Stock of the Company.

Section 6.21        Discounted Loan Payoffs. Prior to Closing and except for the
loans set forth on Section 2.09 of the Disclosure Schedule, the Company and the
Bank will not settle or agree to settle any outstanding loan or loans (including
as a result of a sale of loans) at a loss of greater than $5.0 million,
individually or in the aggregate, from the recorded net book value and will not
settle or agree to settle any loan or loans (including as a result of a sale of
loans) at a loss greater than 10% to the recorded net book value, individually
or in the aggregate.

ARTICLE VII.

OTHER AGREEMENTS

Section 7.01        Bank Holding Company Status. Following the Closing and as
long as the Investor holds shares of the Company, no Investor other than CapGen
shall exercise “control” for purposes of the BHCA or the Change in Bank Control
Act, of the Company or the Bank.

Section 7.02        Preemptive Rights.

(a)        If the Company offers to sell Covered Securities (as defined below)
in a public or private offering of Covered Securities solely for cash any time
during a period of 24 months commencing on the Closing Date (a “Qualified
Offering”), each Investor shall be afforded the opportunity to acquire from the
Company, for the same price and on the same terms as such Covered Securities are
offered, in the aggregate up to the amount of Covered Securities required to
enable it to maintain its Investor Percentage Interest. “Investor Percentage
Interest” means, as of any date of determination, the percentage equal to
(A) the aggregate number of shares of Common Stock beneficially owned by the
Investor as of the date of determination divided by (B) the total number of
outstanding shares of Common Stock as of such date. “Covered Securities” means
Common Stock and any rights, options or warrants to purchase or securities
convertible into or exercisable or exchangeable for Common Stock, other than
securities that are (A) issued by the Company pursuant to any employment
contract, employee incentive or benefit plan, stock purchase plan, stock
ownership plan, stock option or equity compensation plan or other similar plan
where stock is being issued or offered to a trust, other entity to or for the
benefit of any employees, consultants, officers or directors of the Company,
(B) issued by the Company in connection with a business combination or other
merger, acquisition or disposition transaction, partnership, joint venture,
strategic alliance or investment by the Company or similar non-capital raising
transaction, (C) issued as a dividend or in connection with a dividend
reinvestment or stockholder purchase plan, (D) shares of Common Stock issued to
holders of Common Stock immediately prior to the Closing Date (who may purchase
shares of Common Stock in a public offering of up to $10.0 million directed only
to shareholders of the Company at a purchase price not less than $2.60 per share
(the “Follow-on

 

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Offering”); provided that the Follow-on Offering shall be consummated within 90
days following the Closing Date, the duration of the Follow-on Offering shall
not exceed 30 days and each Investor shall have the right to purchase its pro
rata share (based on the number of Purchased Shares purchased by such Investor)
of any shares of Common Stock not subscribed for in the Follow-on Offering, or
(E) up to 384,615 shares of Common Stock issued to officers of the Company in
connection with and upon the Closing at a purchase price of $2.60 per share (the
“Executive Officer Investment”).

(b)        Prior to making any Qualified Offering of Covered Securities, the
Company shall give each Investor written notice at the address shown on each
Investor’s signature page hereto of its intention to make such an offering,
describing, to the extent then known, the anticipated amount of securities, and
other material terms then known to the Company upon which the Company proposes
to offer the same (such notice, a “Qualified Offering Notice”). Each Investor
shall then have 10 days after receipt of the Qualified Offering Notice (the
“Offer Period”) to notify the Company in writing that it intends to exercise
such preemptive right and as to the amount of Covered Securities the Investor
desires to purchase, up to the maximum amount calculated pursuant to
Section 7.02(a) (the “Designated Securities”). Such notice constitutes a
non-binding indication of interest of the Investor to purchase the amount of
Designated Securities specified by the Investor (or a proportionately lesser
amount if the amount of Covered Securities to be offered in such Qualified
Offering is subsequently reduced) at the price (or range of prices) established
in the Qualified Offering and other terms set forth in the Company’s notice to
it. The failure to respond during the Offer Period constitutes a waiver of its
preemptive right in respect of such offering. Any recipient of such Qualified
Offering Notice acknowledges its obligations under the federal securities laws.
The sale of the Covered Securities in the Qualified Offering, including any
Designated Securities, shall be closed not later than 45 days after the end of
the Offer Period, except in the case of a registered offering, which shall close
following pricing in accordance with market convention and further, except as to
any Investor that requires prior approval of the Federal Reserve and/or other
Governmental Authorities, in which case the closing of any the sale of Covered
Securities to such Investor shall occur as soon as practicable following the
receipt of all necessary Governmental Authority approvals and the expiration of
statutory waiting periods; provided, that any such Investor shall promptly and
diligently pursue such approvals and such Covered Securities shall not be issued
if such Governmental Authority approvals have not been received within 120 days
following the initial closing of such offering. The Covered Securities to be
sold to other investors in such Qualified Offering shall be sold at a price not
less than, and upon terms no more favorable to such other investors than, those
specified in the Qualified Offering Notice. If the Company does not consummate
the sale of Covered Securities to other investors within such 45-day period (or,
in the case of a registered offering, 30 days following the end of the Offer
Period) (excluding Investors that require prior approval of the Federal Reserve
and/or other Governmental Authorities), the right provided hereunder shall be
revived and such securities shall not be offered unless first reoffered to the
Investors in accordance herewith. Notwithstanding anything to the contrary set
forth herein and unless otherwise agreed by the Investors, by not later than the
end of such period, the Company shall either confirm in writing to the Investors
that the Qualified Offering has been abandoned or shall publicly disclose its
intention to issue the Covered Securities in the Qualified Offering, in either
case in such a manner that the Investors will not be in possession of any
material, non-public information thereafter.

 

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(c)        If the Investor exercises its preemptive right provided in this
Section 7.02 with respect to a Qualified Offering that is an underwritten public
offering or an offering made to qualified institutional buyers (as such term is
defined in SEC Rule 144A under the Securities Act) for resale pursuant to Rule
144A under the Securities Act (a “Rule 144A offering”), a private placement or
other offering, whether not registered under the Securities Act, the Company
shall offer and sell the Investor, if any such offering is consummated, the
Designated Securities (as adjusted, upward to reflect the actual size of such
offering when priced) at the same price as the Covered Securities are offered to
third persons (not including the underwriters or the initial purchasers in a
Rule 144A offering that is being reoffered by the initial purchasers) in such
offering and shall provide written notice of such price upon the determination
of such price.

(d)        Anything to the contrary in this Section 7.02 notwithstanding, the
preemptive right to purchase Covered Securities granted by this Section 7.02
shall terminate as of and not be available any time after the date on which the
Investor sells greater than 50% of the Purchased Shares purchased by such
Investor; provided that in the case of CapGen [and any Investor listed on
Schedule 3.02(b)], such preemptive right shall terminate in accordance with this
Section 7.02(d) when and if CapGen [or such Investor, as applicable], owns less
than 4.9% of the outstanding Common Stock of the Company.

(e)        In addition to the pricing provision of Section 7.02(c), the Company
will offer and sell the Designated Securities to the Investor upon terms and
conditions not less favorable than the most favorable terms and conditions
offered to other persons or entities in a Qualified Offering.

Section 7.03        Compensation Matters. Prior to the Closing, the Board (or,
if appropriate, any committee thereof) shall adopt appropriate resolutions and
take all other actions necessary and appropriate (including securing any
necessary waivers or consents) to provide that the issuance of the Purchased
Shares to the Investors as contemplated by this Agreement will not trigger any
payment, termination or rights under any “change of control” provision in any
agreements to which the Company, the Bank or any of the Subsidiaries is a party,
including any employment, “change in control,” severance or other compensatory
agreements and any Benefit Plan, which results in payments to the counterparty,
the acceleration or vesting of benefits or payments (including debt repayments).

Section 7.04        Reasonable Best Efforts. After the Closing Date, each party
and its officers and directors shall use their respective reasonable best
efforts to take, or cause to be taken, all further actions necessary or
desirable to carry out the purposes of this Agreement and their respective
covenants, agreements and obligations hereunder.

Section 7.05        No-Shop; Certain Other Transactions. (a) From the date
hereof until the earlier of the Closing Date, or the termination of this
Agreement in accordance with its terms, the Company shall not, and the Company
shall not permit any of its affiliates, directors, officers or employees to, and
the Company shall use reasonable best efforts to cause its other representatives
or agents (together with directors, officers, and employees, the
“Representatives”) not to, directly or indirectly, (i) discuss, encourage,
negotiate, undertake, initiate, authorize, recommend, propose or enter into,
whether as the proposed surviving, merged,

 

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acquiring or acquired corporation or otherwise, any transaction involving a
merger, consolidation, business combination, recapitalization, purchase or
disposition of any material amount of the assets of the Company or any material
amount of the Common Stock or other ownership interests of the Company (other
than in connection with the Private Placement) (an “Acquisition Transaction”),
(ii) facilitate, encourage, solicit or initiate discussions, negotiations or
submissions of proposals or offers in respect of an Acquisition Transaction,
(iii) furnish or cause to be furnished, to any person, any information
concerning the business, operations, properties or assets of the Company in
connection with an Acquisition Transaction, or (iv) otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing.

(b)        The Company shall notify CapGen orally and in writing promptly (but
in no event later than one Business Day) after receipt by the Company or any of
the Representatives thereof of any proposal or offer from any person other than
CapGen to effect an Acquisition Transaction or any request for non-public
information relating to the Company or for access to the properties, books or
records of the Company by any Person other than CapGen in connection with an
Acquisition Transaction.

(c)        Notwithstanding anything in this Agreement or the Registration Rights
Agreement to the contrary, prior to the Closing the Company shall not directly
or indirectly effect or cause to be effected any transaction with a third party
that would reasonably be expected to result in a change in control for any
purpose, regardless of form unless such third party shall have provided prior
assurance in writing to CapGen (in a form that is reasonably satisfactory to
CapGen) that the terms of this Agreement and the Registration Rights Agreement
shall be fully performed (i) by the Company or (ii) by such third party if it is
the successor of the Company or if the Company is its direct or indirect
subsidiary. For the avoidance of doubt, it is understood and agreed that, in the
event that such a change in control occurs (other than as a result of the
Private Placement) on or prior to the Closing, CapGen and each Investor shall
maintain the right under this Agreement to acquire, pursuant to the terms and
conditions of this Agreement, the Purchased Shares to be purchased by CapGen and
such Investor (or such other securities or property (including cash) into which
the Company’s Common Stock may have become exchangeable as a result of such
change in control), as if the Closing had occurred immediately prior to such
change in control.

Section 7.06        Indemnification.

(a)        Indemnification of the Investor. In addition to the indemnity
provided in the Registration Rights Agreement, the Company will indemnify and
hold each Investor and its directors, officers, shareholders, members, partners,
employees and agents (and any other persons with a functionally equivalent role
of a person holding such titles notwithstanding a lack of such title or any
other title), each person who controls the Investor (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other persons with a functionally equivalent role of a person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling person (each, an “Investor Party”), from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in permitted settlements, court costs and
reasonable attorneys’ fees of one counsel

 

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and costs of investigation that any such Investor Party may suffer or incur as a
result of (i) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or (ii) any action instituted
against an Investor Party in any capacity, by any shareholder of the Company who
is not Investor Party or an affiliate of that Investor Party, with respect to
this Agreement or any of the transactions contemplated hereby, except to the
extent that a court has determined in a final nonappealable order that any such
losses, claims and expenses have resulted directly from an Investor Party’s
gross negligence or willful misconduct. The Company will not be liable to any
Investor Party under this Agreement to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Investor Party’s breach
of any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Private Placement Documents.

(b)        Conduct of Indemnification Proceedings. Promptly after receipt by any
person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to this Section 7.06(a), such Indemnified Person shall promptly
notify the Company in writing and the Company shall assume the defense thereof,
including the employment of one counsel reasonably satisfactory to such
Indemnified Person, and shall assume the payment of all fees and expenses;
provided, however, the failure of any Indemnified Person so to notify the
Company shall not relieve the Company of its obligations hereunder except to the
extent that the Company is actually and materially and adversely prejudiced by
such failure to notify. In any such proceeding, any Indemnified Person shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless: (i) the
Company and the Indemnified Person shall have mutually agreed to the retention
of such counsel; (ii) the Company shall have failed promptly to assume the
defense of such proceeding and to employ counsel reasonably satisfactory to such
Indemnified Person in such proceeding; or (iii) in the reasonable judgment of
counsel to such Indemnified Person, representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, which consent shall not be
unreasonably withheld, delayed or conditioned. Without the prior written consent
of the Indemnified Person, which consent shall not be unreasonably withheld,
delayed or conditioned, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such proceeding.

(c)        The Company shall not be required to indemnify an Investor Party
pursuant to Section 7.07(a), (1) with respect to any claim for indemnification
if the amount of losses and expenses with respect to such claim (including a
series of related claims) are less than $125,000 (losses and expenses less than
such amount being referred to as a “De Minimis Claim”) and (2) unless and until
the aggregate amount of all losses, claims and expenses incurred with respect to
all claims (other than De Minimis Claims) pursuant to Section 7.07(a) exceed
$750,000 (the “Threshold Amount”), in which event the Company shall be
responsible for all losses, claims and expenses including those below the
Threshold Amount.

 

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(d)        Any claim for indemnification pursuant to this Section 7.07 for
breach of any representation or warranty can only be brought on or prior to the
second anniversary of the Closing; provided, that if notice of a claim for
indemnification pursuant to this Section 7.07 for breach of any representation
or warranty is brought prior to the end of such period, then the obligation to
indemnify in respect of such breach shall survive as to such claim, until such
claim has been finally resolved.

(e)        No party to this Agreement (or any of its affiliates) shall, in any
event, be liable or otherwise responsible to any other party (or any of its
affiliates) for any punitive damages of such other party (or any of its
affiliates) arising out of or relating to this Agreement or the performance or
breach hereof.

ARTICLE VIII.

TERMINATION

Section 8.01        Methods of Termination. This Agreement may be terminated at
any time prior to the Closing by:

(a)        the mutual written consent in writing of an Investor and the Company,
but only as to the terminating Investor;

(b)        any Investor but only with respect to the terminating Investor or the
Company if the Closing shall not have occurred by December 31, 2010 (the
“Termination Date”), provided, however, that the right to terminate this
Agreement under this Section 8.01(b) shall not be available to any party whose
breach of any representation or warranty or failure to perform any obligation
under this Agreement shall have caused or resulted in the failure of the
Closing;

(c)        any Investor, but only as to the terminating Investor, if the
Shareholder Approvals are not received;

(d)        the Company with respect to an Investor if there has been a breach of
any representation, warranty, covenant or agreement made by such Investor in
this Agreement, or any such representation and warranty shall have become untrue
after the date of this Agreement, such that Section 5.01 would not be satisfied
and such breach or condition is not curable or, if curable, is not cured within
the earlier of (i) 30 days after written notice thereof is given by the Company
to the Investor and (ii) the Termination Date; provided that the Company is not
then in breach of any representation, warranty, covenant, agreement or other
obligation contained in this Agreement and, provided, further, that such
termination by the Company shall only be as to the breaching Investor and that
notice of such termination shall be provided to all Investors;

(e)        an Investor if there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, or any
such representation and warranty shall have become untrue after the date of this
Agreement, such that Section 4.01 would not be satisfied and such breach or
condition is not curable or, if curable, is not cured within the earlier of
(i) 30 days after written notice thereof is given by the Investor to the Company
and (ii) the Termination Date; provided, that the terminating Investor is not
then in material breach of any representation, warranty, covenant, agreement or
other obligation

 

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contained in this Agreement, and provided, further, that such termination by an
Investor shall only be as to such Investor;

(f)        the Company or an Investor in writing at any time after any
applicable Regulatory Authority has denied finally or requested the withdrawal
of any application for approval of the Transaction or has stated in writing that
it will not approve the Transaction, subject in each case to the provision
relating to replacing an investor in Section 8.01(g) if an Investor other than
CapGen is denied (or advised in writing that any application will not be
approved) any application for approval of the Transaction.

(g)        CapGen, if other Investors which have committed $45.0 million or more
to acquire Purchased Shares are no longer parties to this Agreement and
replacement Investors do not enter into this Agreement within 45 days after the
termination by such initial other Investor, in which case the other Investors
may terminate this Agreement upon or following CapGen’s termination under this
Section 8.01(h).

A termination by an Investor or by the Company with respect to one or more
Investors, shall not effect a termination of this Agreement or the rights and
obligations of the remaining parties to this Agreement, including each remaining
Investor’s ability to terminate this Agreement.

Section 8.02        Effect of Termination.

(a)        In the event of termination pursuant to Section 8.01 hereof, and
except as otherwise stated therein, written notice thereof shall be given to the
other parties, and this Agreement shall terminate immediately and to the extent
provided in Section 8.01 upon receipt of such notice (or as otherwise set forth
in Section 8.01(d) and Section 8.01(e)), unless an extension is consented to in
writing by the party having the right to terminate. If this Agreement is
terminated as provided herein, this Agreement shall become void as and to the
extent provided in Section 8.01, except that Section 7.06, this Section 8.02 and
Article 9 shall survive any such termination; provided, however, that nothing
herein shall relieve any breaching party from liability for an uncured willful
breach of a representation, warranty, covenant, obligation or agreement giving
rise to such termination.

ARTICLE IX.

MISCELLANEOUS

Section 9.01        Certain Definitions. (a) The following definitions shall be
applicable to the terms set forth below as used in this Agreement:

“Accredited Investor” has the meaning set forth in Rule 501 promulgated under
the Securities Act.

“affiliate” means, with respect to any person, any other person which directly,
or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with, such person.

“Applicable Law” means any domestic or foreign, federal, state or local,
statute, law, ordinance, rule, administrative interpretation, regulation, order,
writ, injunction, directive,

 

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judgment, decree, formal or informal enforcement action, or other requirement
of, or board of directors’ resolutions adopted at the request of, any
Governmental Authority applicable to the Company or the Subsidiaries, or their
respective properties, assets, officers, directors, employees or agents (in
connection with such officers’, directors’, employees’ or agents’ activities on
behalf of such entity).

“beneficial ownership” and correlative terms have the meaning ascribed in
Section 13(d)(3) of the Exchange Act and Rule 13d-3 thereunder)

“Board” means the Board of Directors of the Company.

“Business Day” means any day that it is not a Saturday, Sunday or other day in
which banks in the State of South Carolina or New York are authorized or
required by law to be closed.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.

“GAAP” means U.S. generally accepted accounting principles.

“Material Adverse Effect” means any effect, circumstance, occurrence or change
that, individually or in the aggregate, (i) is material and adverse to the
business, assets, liabilities, results of operations, financial condition, cash
flows or prospects of the Company and the Subsidiaries (as defined below), taken
as a whole or (ii) would materially impair the ability of the Company to perform
its obligations under this Agreement or consummate the
Closing; provided, however, that Material Adverse Effect shall not be deemed to
include (a) any effects, circumstances, occurrences or changes, after the date
hereof, generally affecting the commercial banking industry, the economy, or the
financial, real estate, securities or credit markets in the United States or
elsewhere in the world, including effects on such industry, economy or markets
resulting from any regulatory or political conditions or developments, or any
outbreak or escalation of hostilities, declared or undeclared acts of war or
terrorism, (b) changes or proposed changes, after the date hereof, in GAAP,
(c) changes or proposed changes, after the date hereof, in laws governing
financial institutions and laws of general applicability or related policies or
interpretations of any Governmental Authority (in the case of each of clauses
(a), (b) and (c), other than effects, circumstances, occurrences or changes to
the extent that such effects, circumstances, occurrences or changes have a
materially disproportionate adverse affect on the Company and the Subsidiaries
relative to other companies in the commercial banking industry), (d) changes in
the market price or trading volume of Common Stock (it being understood and
agreed that the exception set forth in this clause (d) does not apply to the
underlying reason or cause giving rise to or contributing to any such change),
(e) entry into the matters described in Schedule III, unless either varies in
any material respect from the drafts described in Schedule III and previously
provided to Investors; provided that any material noncompliance with the matters
described on Schedule III shall constitute a Material Adverse Effect, (f) the
write-off by the Company of goodwill in any amount not to exceed $3.7 million,
or (g) the establishment of or change to a valuation allowance with respect to
deferred tax assets.

 

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“person” means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d) of the Exchange Act) and shall include any
successor (by merger or otherwise) of such entity.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Subsidiary” means any person of which (a) the Company or any of its
Subsidiaries is a general partner, (b) the voting power to elect a majority of
the board of directors or others performing similar functions is held by the
Company and or any one or more of its Subsidiaries, or (c) more than 50% of the
equity interests is, directly or indirectly, owned or controlled by the Company
or any one or more of its Subsidiaries.

(a)        In this Agreement, (i) the words “include,” “includes,” and
“including” and derivatives thereof are deemed to include and mean “without
limitation,” whether by enumeration or otherwise; (ii) any reference to an
agreement means that agreement as amended or supplemented, subject to any
restrictions on amendment contained in that agreement; (iii) unless specified
otherwise, any reference to a statute or regulation means that statute or
regulation as amended or supplemented from time to time and any corresponding
provisions of successor statutes or regulations; (iv) if any date specified in
this Agreement as a date for taking action falls on a day that is not a Business
Day, then that action may be taken on the next Business Day; and (v) the words
“party” and “parties” refer only to a named party to this Agreement. The
singular shall include the plural, and any reference to gender shall include all
genders.

Section 9.02        Specific Performance. Each party acknowledges that the other
party would be damaged irreparably in the event any provision of this Agreement
is not performed in accordance with its specific terms or otherwise is breached,
so that a party shall be entitled to injunctive relief to prevent breaches of
this Agreement and to enforce specifically this Agreement and its terms and
provisions in addition to any other remedy to which such party may be entitled
hereunder, or at law or in equity. In particular, the parties acknowledge that
the business of the Company and the Subsidiaries is unique and recognize and
affirm that in the event the Company breaches this Agreement, money damages
alone may be inadequate and the Investor would have no adequate remedy at law,
so that the Investor shall have the right, in addition to all other rights and
remedies existing in its favor, to enforce its rights and the Company’s
obligations under this Agreement not only by an action for damages (except as
specifically provided by Section 9.18) but also by action for specific
performance, injunctive and other equitable relief.

Section 9.03        Expenses. Each party shall pay its own fees and expenses
(including, without limitation, the fees and expenses of its agents,
representatives, attorneys, and accountants) incurred in connection with the
negotiation, drafting, execution, delivery, and performance of this Agreement
and the Transaction, except as provided in Section 9.18.

 

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Section 9.04        Survival. The representations and warranties of the Company
contained herein shall survive the Closing and the delivery of and payment for
the Purchased Shares.

Section 9.05        Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person or
mailed by certified or registered mail, return receipt requested, or sent by a
recognized overnight courier service, addressed as follows:

If to the Company, at:

Palmetto Bancshares, Inc.

306 East North Street

Greenville, South Carolina 29601

Attention: Samuel L. Erwin, Chief Executive Officer

with a copy to:

Nelson Mullins Riley & Scarborough, LLP

104 South Main Street

Suite 900

Greenville, SC 29601-2122

Attention: Neil E. Grayson

If to the Investor, at:

CapGen Capital Group V LP

c/o CapGen Financial

280 Park Avenue

40th Floor West, Suite 401

New York, New York 10017

Attention: John P. Sullivan

with a copy to:

Jones Day

1420 Peachtree Street, N.E.

Suite 800

Atlanta, Georgia 30309-3053

Attention: Ralph F. MacDonald, III

If to any other Investor:

As provided on such Investor’s signature page hereto

or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.

 

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Section 9.06        No Assignment; No Delegation. (a) No party may assign any of
its rights under this Agreement, except with the prior written consent of the
other party, provided the Investor may assign its rights to the Purchased Shares
to an affiliate or any person that shares a common discretionary investment
adviser with the Investor without consent. All assignments of rights are
prohibited under this subsection, whether they are voluntary or involuntary, by
merger (regardless of whether the party is the surviving or disappearing
entity), consolidation, dissolution, operation of law, or any other manner. For
purposes of this Section 9.06, a “change of control” is deemed an assignment of
rights.

(b)        No party may delegate any performance under this Agreement.

(c)        Any purported assignment of rights or delegation of performance in
violation of this Section 9.06 is void.

Section 9.07        No Third Party Beneficiaries. Except as set forth in
Section 7.07, this Agreement is not intended to and shall not confer any rights
or remedies upon any person other than the parties hereto, whether as third
party beneficiaries or otherwise, other than Indemnified Persons.

Section 9.08        Governing Law. The laws of the State of New York (without
giving effect to its conflicts of law principles) govern all matters arising out
of or relating to this Agreement, including, without limitation, its validity,
interpretation, construction, performance, and enforcement.

Section 9.09        Amendments and Waivers. The parties may amend this Agreement
only by a written agreement of the parties that identifies itself as an
amendment to this Agreement. Section 4.06 cannot be waived. No waiver shall be
effective unless it is in writing and signed by an authorized representative of
the waiving party. No consideration shall be offered or paid to any Investor to
amend or consent to a waiver or modification of any provision of the Private
Placement Documents, or to exercise any consent right hereunder, unless the same
consideration also is offered to all of the Investors pro rata to their
agreed-upon investment in Purchased Shares provided herein; provided, however,
that CapGen may be reimbursed for any expense (including legal fees and charges)
it incurs in connection with any such amendment, waiver or consent.

Section 9.10        Severability. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable, the remaining provisions of
this Agreement shall remain in full force, as long as both the economic and
legal substance of the transactions that this Agreement contemplates are not
affected in any manner materially adverse to any party.

Section 9.11        Captions. The descriptive headings of the Articles, Sections
and subsections and the table of contents of this Agreement are for convenience
of reference only, do not constitute a part of this Agreement, and do not affect
this Agreement’s construction or interpretation.

Section 9.12        No Waiver; Cumulative Remedies. No failure or delay on the
part of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy

 

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preclude any other or further exercise thereof or the exercise of any other
right, power or remedy hereunder. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.

Section 9.13        Further Assurances. From and after the date of this
Agreement, upon the request of the Investor, on the one hand, or the Company and
the Bank, on the other, the Investor or the Company and the Bank, as applicable,
shall execute and deliver such other instruments, documents and other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.

Section 9.14        No Construction Against Drafter. Each party has participated
in negotiating and drafting this Agreement, so if an ambiguity or a question of
intent or interpretation arises, this Agreement is to be construed as if the
parties had drafted it jointly, as opposed to being construed against a party
because it was responsible for drafting one or more provisions of this
Agreement.

Section 9.15        Entire Agreement. This Agreement, including the schedules
hereto and the Registration Rights Agreement, constitutes the final agreement
between the parties. It is the complete and exclusive expression of the parties’
agreement on the matters contained in this Agreement. All prior and
contemporaneous negotiations and agreements between the parties on the matters
contained in this Agreement are expressly merged into and superseded by this
Agreement. The provisions of this Agreement may not be explained, supplemented
or qualified through evidence of trade usage or a prior course of dealings. In
entering into this Agreement, neither party has relied upon any statement,
representation, warranty or agreement of the other party except for those
expressly contained in this Agreement. There are no conditions precedent to the
effectiveness of this Agreement, other than those expressly stated in this
Agreement.

Section 9.16        Counterparts. The parties may execute this Agreement in
multiple counterparts, each of which constitutes an original, and all of which,
collectively, constitute only one and the same agreement. The signatures of all
of the parties need not appear on the same counterpart, and delivery of an
executed counterpart signature page by facsimile shall have the same force and
effect as a manually executed original. This Agreement is effective upon
delivery of one executed counterpart from each party to the other parties.

Section 9.17        Independent Nature of Investors’ Obligations and Rights. The
obligations of each Investor under the Private Placement Documents are several
and not joint with the obligations of any other Investor, and no Investor shall
be responsible in any way for the performance of the obligations of any other
Investor under any Private Placement Document. Nothing contained herein or in
any other Private Placement Document, and no action taken by any Investor
pursuant hereto or thereto, shall be deemed to constitute the Investors as, and
the Company acknowledges that the Investors do not so constitute, a partnership,
an association, a joint venture or any other kind of group or entity, or create
a presumption that the Investors are in any way acting in concert or as a group
or entity with respect to such obligations or the transactions contemplated by
the Private Placement Documents or any matters, and the Company acknowledges
that the Investors are not acting in concert or as a group, and the Company
shall not assert any such claim, with respect to such obligations or the
transactions contemplated by the Private Placement Documents. The decision of
each Investor to purchase Securities pursuant

 

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to the Private Placement Documents has been made by such Investor independently
of any other Investor. Each Investor acknowledges that no other Investor has
acted as agent or fiduciary for or representative of such Investor in connection
with such Investor making its investment hereunder and that no other Investor
will be acting as agent or fiduciary for or representative of such Investor in
connection with monitoring such Investor’s investment in the Securities or
enforcing its rights under the Private Placement Documents. The Company and each
Investor confirms that each Investor has independently participated with the
Company in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. Each Investor shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Private Placement
Documents, and it shall not be necessary for any other Investor to be joined as
an additional party in any proceeding for such purpose. The use of a single
agreement to effectuate the purchase and sale of the Securities contemplated
hereby is solely for convenience. It is expressly understood and agreed that
each provision contained in this Agreement and in each other Private Placement
Document is between the Company and a Investor, solely, and not between the
Company and the Investors collectively and not between and among the Investors.

Section 9.18        Alternative Transaction Payment. (a) In the event that at
any time from the date hereof to 365 days following the date of termination of
this Agreement (1) by the Company or (2) by CapGen as a result of a breach of
Section 6.14 by the Company, upon or following any of the Company or any
affiliate of the Company entering into an agreement, letter of intent, term
sheet, arrangement or understanding, whether or not binding (individually and
collectively the “Alternative Transaction Agreement”), with any person or entity
other than CapGen (including an Investor other than CapGen where CapGen is not
the lead investor) (the “Alternative Transaction”) to consummate a transaction,
which is in lieu of the Transaction in whole or in part, or an Alternative
Transaction is proposed to be consummated outside of this Agreement and specific
performance pursuant to Section 9.02 is unavailable for any reason, then
(i) CapGen and the other Investors that are then part of this Agreement shall be
owed an Alternative Transaction Payment (as defined below) of which CapGen shall
receive 70% of the Alternative Transaction Payment and other Investors (other
than any Investor that is or will be a party to the Alternative Transaction)
shall receive 30% or (ii) the Company and the parties to the Alternative
Transaction will deliver to CapGen the Purchased Shares, as adjusted, upon
CapGen receiving the necessary Regulatory Approvals, to insure that CapGen’s
ownership of the Company following the Alternative Transaction would be the same
as if the Transaction had been consummated (the “As-adjusted Purchased Shares”)
(if the Company is the surviving entity following the Alternative Transaction)
or such other securities as CapGen would receive if CapGen held the As-adjusted
Purchased Shares immediately prior to the Alternative Transaction, upon CapGen
receiving the necessary Regulatory Approvals, in each case at a price equal to
the lesser of (A) the price per share to be paid by counterparties to the
Alternative Transaction or the shareholders of such counterparties and (B) $2.60
per share, in each case as may be equitably adjusted for any transaction where
securities other than Company Common Stock is issued (the compensation to be
received pursuant to this clause (ii) being referred to as “Alternative
Transaction Compensation”). If, however, Alternative Transaction Compensation
cannot be paid or delivered for any reason as a result of pending Regulatory
Approvals applicable to CapGen and which approvals are expected by CapGen to be
received no more than 80 days from the date the Alternative Transaction
Agreement was entered into, then CapGen may elect to defer receipt of the
Alternative Transaction Compensation for up to 80 days or demand, at any time,
in lieu of

 

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the Alternative Transaction Compensation, the Alternative Transaction Payment.
The Alternative Transaction Payment shall be paid in cash in an amount equal to
the positive difference, if any, between (a) the total amount of consideration
(including non-cash consideration) to be received by the Company in the
Alternative Transaction and (b) the total amount of consideration payable under
this Agreement (the “Alternative Transaction Payment”); provided that the
Alternative Transaction Payment shall not be payable if the price per share of
Common Stock in the Alternative Transaction is less than the price per share of
Common Stock to be sold pursuant to this Agreement; provided further that, if a
security convertible into or exercisable for Common Stock is to be sold in the
Alternative Transaction, the value per share in the Alternative Transaction
shall be determined on an as-converted basis. Any Alternative Transaction
Payment will be payable jointly and severally by the Company, the Bank and the
Company’s counterparties to such Alternative Transaction. Except as CapGen may
elect under this Subsection 9.18(b), any Alternative Transaction Compensation or
Alternative Transaction Payment shall be payable immediately upon the entry into
the Alternative Transaction Agreement.

(b)        The Alternative Transaction Payment or the Alternative Transaction
Compensation will not be payable upon termination of this Agreement only if
(i) the Company’s Board has unanimously approved this Agreement and the
Transaction contemplated herein and recommended that the Company’s shareholders
vote to approve the Transaction and has not modified or rescinded such approval
or modified or withdrawn such recommendation to the Company’s shareholders,
(ii) the Company’s directors and officers have voted all their shares of Company
Common Stock as provided in Section 2.27 pursuant to the Insider Shareholder
Vote and (iii) CapGen has not received all necessary Regulatory Authority
approvals needed for its investment in the Purchased Shares by not later than
December 31, 2010 or CapGen has breached its obligations under Section 3.06
hereof.

(c)        The Company and the Bank acknowledge and agree, jointly and
severally, that this Section 9.18 is an integral part of the Transaction and is
in recognition of the time, expense and efforts expended and to be expended by
CapGen as the lead Investor, and that, without this Section 9.18, CapGen would
not enter into this Agreement. Accordingly, if the Alternative Transaction
Payment or the Alternative Transaction Compensation is not promptly paid or
issued and, in order to obtain such consideration, CapGen commences a lawsuit or
action that results in a judgment for any of such Alternative Transaction
Payment or Alternative Transaction Compensation, the Company’s counterparties to
such Alternative Transaction shall pay in cash to CapGen its costs and expenses
(including reasonable attorneys’ fees and expenses) in connection with enforcing
CapGen’s rights under this Section 9.18 and Section 1.05, including with respect
to such lawsuit or other action, and the Company and the Bank agree jointly and
severally to further guarantee such payment. Payment of the Alternative
Transaction Payment or the Alternative Transaction Compensation described in
this Section 9.18 shall be the exclusive remedy for termination of this
Agreement as specified in Section 9.18 and shall be in lieu of other damages
incurred in the event of any termination of this Agreement, but shall not
prevent CapGen from obtaining specific performance as provided in Section 9.02
in all other cases.

[SIGNATURE PAGE FOLLOWS]

 

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The parties have caused this Agreement to be executed as of the date first above
written by their respective duly authorized officials.

 

PALMETTO BANCSHARES, INC.

By:

 

 

 

Name: Samuel L. Erwin

 

Title: Chief Executive Officer

Joined in by the Bank as to Section 9.18 only in consideration of the capital to
be provided to the Bank from proceeds of the Private Placement and other good
and valuable consideration, the receipt of which is acknowledged.

 

THE PALMETTO BANK

By:

 

 

 

Name:

 

Title:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]

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Subscription Amount

 

$                                                     

 

CAPGEN CAPITAL GROUP V LP

Number of Purchased Shares:                    

 

CAPGEN CAPITAL GROUP V LLC,

 

THE GENERAL PARTNER OF CAPGEN

CAPITAL GROUP V LP

 

By:

 

 

   

Name: John P. Sullivan

   

Title: Managing Director

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]

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Subscription Amount

$                                                     

 

NUMBER OF PURCHASED SHARES:            

 

INVESTOR

 

Name Of Investor

 

By:

 

 

   

Name:

   

Title:

 

Address for Notices:

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]