ex10-1.htm


    


    


    


    


    
      
        

      



    


    


    


    MERGER
      AGREEMENT

    


    


    between

    


    


    FIRST
      BANCORP

    


    and

    


    GREAT
      PEE DEE BANCORP, INC.

    


    


    


    


    


    


    


    


    


    Dated
      as
      of July 12, 2007

    


    


    


    
      
        

      



    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    TABLE
      OF CONTENTS

    


    Page

    


     

    ARTICLE
      I

     

    DEFINED
      TERMS

     

     

    ARTICLE
      II

     

    THE
      MERGER; CONVERSION AND  EXCHANGE OF COMPANY
      SHARES

     

    
      
        	
                ARTICLE
                  I  

              
	 
	
                DEFINED
                  TERMS 

              
	 
	
                ARTICLE
                  II  

              
	 
	
                THE
                  MERGER; CONVERSION AND  EXCHANGE OF COMPANY
                  SHARES 

              
	 
	
                2.1

              	
                The
                  Merger.

              	
                1

              
	
                2.2

              	
                Company
                  Shares.

              	
                2

              
	
                2.3

              	
                Merger
                  Consideration.

              	
                2

              
	
                2.4

              	
                Closing
                  Payment

              	
                3

              
	
                2.5

              	
                Exchange
                  Procedures.

              	
                3

              
	
                2.6

              	
                Dissenting
                  Shares

              	
                4

              
	
                2.7

              	
                Company
                  Stock Options.

              	
                4

              
	 
	
                ARTICLE
                  III  

              
	 
	
                THE
                  CLOSING  

              
	 
	
                3.1

              	
                Closing

              	
                5

              
	
                3.2

              	
                Deliveries
                  by the Company

              	
                5

              
	
                3.3

              	
                Deliveries
                  by the Buyer

              	
                5

              
	 
	
                ARTICLE
                  IV  

              
	 
	
                REPRESENTATIONS
                  AND WARRANTIES OF THE COMPANY 

              
	 
	
                4.1

              	
                Organization,
                  Standing and Power.

              	
                6

              
	
                4.2

              	
                Authority;
                  No Conflicts.

              	
                6

              
	
                4.3

              	
                Capital
                  Stock; Subsidiaries.

              	
                7

              
	
                4.4

              	
                SEC
                  Reports; Company Financial Statements.

              	
                7

              
	
                4.5

              	
                Absence
                  of Undisclosed Liabilities

              	
                8

              
	
                4.6

              	
                Absence
                  of Certain Changes or Events

              	
                8

              
	
                4.7

              	
                Tax
                  Matters.

              	
                8

              
	
                4.8

              	
                Assets

              	
                9

              
	
                4.9

              	
                Real
                  Property.

              	
                10

              
	
                4.1

              	
                Securities
                  Portfolio and Investments

              	
                10

              
	
                4.11

              	
                Environmental
                  Matters.

              	
                11

              
	
                4.12

              	
                Compliance
                  with Laws

              	
                11

              
	
                4.13

              	
                Labor
                  Relations

              	
                12

              
	
                4.14

              	
                Employee
                  Benefit Plans.

              	
                12

              
	
                4.15

              	
                Material
                  Contracts.

              	
                13

              
	
                4.16

              	
                Legal
                  Proceedings.

              	
                14

              
	
                4.17

              	
                Proprietary
                  Rights.

              	
                14

              


      

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    


    
      
        	
                4.18

              	
                Reports

              	
                15

              
	
                4.19

              	
                Registration
                  Statement; Proxy Statement

              	
                15

              
	
                4.2

              	
                Accounting,
                  Tax, and Regulatory Matters

              	
                15

              
	
                4.21

              	
                State
                  Takeover Laws

              	
                15

              
	
                4.22

              	
                Charter
                  Provisions

              	
                16

              
	
                4.23

              	
                Records

              	
                16

              
	
                4.24

              	
                Derivatives

              	
                16

              
	
                4.25

              	
                Certain
                  Regulated Businesses

              	
                16

              
	
                4.26

              	
                Commissions

              	
                16

              
	 
	
                ARTICLE
                  V  

              
	 
	
                REPRESENTATIONS
                  AND WARRANTIES OF THE BUYER 

              
	 
	
                5.1

              	
                Organization.

              	
                16

              
	
                5.2

              	
                Authority;
                  No Conflicts.

              	
                17

              
	
                5.3

              	
                Buyer’s
                  Stock; Subsidiaries.

              	
                17

              
	
                5.4

              	
                SEC
                  Filings; Buyer Financial Statements.

              	
                18

              
	
                5.5

              	
                Absence
                  of Undisclosed Liabilities

              	
                18

              
	
                5.6

              	
                Absence
                  of Certain Changes or Events

              	
                18

              
	
                5.7

              	
                Tax
                  Matters.

              	
                19

              
	
                5.8

              	
                Assets

              	
                20

              
	
                5.9

              	
                Real
                  Property

              	
                20

              
	
                5.1

              	
                Securities
                  Portfolio and Investments

              	
                21

              
	
                5.11

              	
                Environmental
                  Matters.

              	
                21

              
	
                5.12

              	
                Compliance
                  with Laws

              	
                22

              
	
                5.13

              	
                Labor
                  Relations

              	
                22

              
	
                5.14

              	
                Employee
                  Benefit Plans.

              	
                22

              
	
                5.15

              	
                Material
                  Contracts.

              	
                24

              
	
                5.16

              	
                Legal
                  Proceedings

              	
                24

              
	
                5.17

              	
                Proprietary
                  Rights

              	
                25

              
	
                5.18

              	
                Reports

              	
                25

              
	
                5.19

              	
                Registration
                  Statement; Proxy Statement

              	
                25

              
	
                5.2

              	
                Accounting,
                  Tax, and Regulatory Matters

              	
                26

              
	
                5.21

              	
                Derivatives

              	
                26

              
	
                5.22

              	
                Certain
                  Regulated Businesses

              	
                26

              
	
                5.23

              	
                Commissions

              	
                26

              
	 
	
                ARTICLE
                  VI  

              
	 
	
                COVENANTS  

              
	 
	
                6.1

              	
                Covenants
                  of the Company.

              	
                27

              
	
                6.2

              	
                Covenants
                  of the Buyer.

              	
                31

              
	
                6.3

              	
                Covenants
                  of All Parties to the Agreement.

              	
                35

              
	 
	
                ARTICLE
                  VII  

              
	 
	
                DISCLOSURE
                  OF ADDITIONAL INFORMATION 

              
	 
	
                7.1

              	
                Access
                  to Information

              	
                37

              


      

    


    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    
      
        	
                7.2

              	
                Access
                  to Premises

              	
                37

              
	
                7.3

              	
                Environmental
                  Survey

              	
                37

              
	
                7.4

              	
                Confidentiality

              	
                38

              
	
                7.5

              	
                Publicity

              	
                38

              
	 
	
                ARTICLE
                  VIII  

              
	 
	
                CONDITIONS
                  TO CLOSING 

              
	 
	
                8.1

              	
                Mutual
                  Conditions

              	
                38

              
	
                8.2

              	
                Conditions
                  to the Obligations of the Company

              	
                39

              
	
                8.3

              	
                Conditions
                  to the Obligations of the Buyer

              	
                41

              
	 	 	 
	
                ARTICLE
                  IX  

              
	 
	
                TERMINATION 

              
	 
	
                9.1

              	
                Termination

              	
                42

              
	
                9.2

              	
                Procedure
                  and Effect of Termination.

              	
                44

              
	
                9.3

              	
                Termination
                  Fee; Expenses.

              	
                44

              
	 	 	 
	
                ARTICLE
                  X  

              
	 
	
                MISCELLANEOUS
                  PROVISIONS 

              
	 
	
                10.1

              	
                Expenses

              	
                45

              
	
                10.2

              	
                Survival
                  of Representations

              	
                45

              
	
                10.3

              	
                Amendment
                  and Modification

              	
                45

              
	
                10.4

              	
                Waiver
                  of Compliance; Consents

              	
                45

              
	
                10.5

              	
                Notices

              	
                45

              
	
                10.6

              	
                Assignment;
                  Third Party Beneficiaries

              	
                46

              
	
                10.7

              	
                Separable
                  Provisions

              	
                46

              
	
                10.8

              	
                Governing
                  Law

              	
                46

              
	
                10.9

              	
                Counterparts

              	
                47

              
	
                10.1

              	
                Interpretation

              	
                47

              
	
                10.11

              	
                Entire
                  Agreement

              	
                47

              


      

    

     

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

    
      
        	
                EXHIBITS

              	 
	 	 
	
                Exhibit
                  A

              	
                Form
                  of Plan of Merger

              
	
                Exhibit
                  B

              	
                Form
                  of Employment Agreement

              
	
                Exhibit
                  C

              	
                Form
                  of Affiliate Agreement

              
	 	 
	
                COMPANY’S
                  DISCLOSURE SCHEDULE

              
	 	 
	
                Section
                  4.2(b)

              	
                No
                  Conflicts

              
	
                Section
                  4.3

              	
                Subsidiaries

              
	
                Section
                  4.4

              	
                SEC
                  Reports, Company Financial Statements

              
	
                Section
                  4.10

              	
                Investments

              
	
                Section
                  4.12

              	
                Compliance
                  with Laws

              
	
                Section
                  4.14

              	
                Employee
                  Benefit Plans

              
	
                Section
                  4.15

              	
                Material
                  Contracts

              
	
                Section
                  6.1

              	
                Ordinary
                  Course

              
	
                Section
                  6.2(c)

              	
                Severance
                  Payments

              
	 	 
	 	 
	 	 
	
                BUYER’S
                  DISCLOSURE SCHEDULE

              
	 	 
	
                Section
                  5.3

              	
                Subsidiaries

              
	
                Section
                  5.5

              	
                Absence
                  of Undisclosed Liabilities

              
	
                Section
                  5.14

              	
                Employee
                  Benefit Plans

              
	
                Section
                  5.15

              	
                Material
                  Contracts

              


      

    

     

     

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    


    MERGER
      AGREEMENT

     

    THIS
      MERGER AGREEMENT, dated as of the 12th
      day of July, 2007,
      is by and between:

     

    First
      Bancorp, a North Carolina corporation registered as a bank holding
      company with the Board of Governors of the Federal Reserve System under the
      Bank
      Holding Company Act of 1956, as amended (the “Buyer”);
      and

     

    Great
      Pee Dee Bancorp, Inc., a Delaware corporation
      registered as a savings and loan holding company with the Office of Thrift
      Supervision under the Home Owners’ Loan Act, as amended (the
“Company”).

     

    Background
      Statement

     

    The
      Buyer
      and the Company desire to effect a merger pursuant to which the Company will
      merge with and into the Buyer, with the Buyer being the surviving corporation
      (the “Merger”).  In consideration of the Merger, the
      shareholders of the Company will receive shares of common stock of the
      Buyer.  It is intended that the Merger qualify as a reorganization
      under Section 368(a) of the Internal Revenue Code.

     

    Statement
      of Agreement

     

    In
      consideration of the premises and the mutual representations, warranties,
      covenants, agreements and conditions contained herein, the parties hereto agree
      as follows:

     

    ARTICLE
      I

     

    DEFINED
      TERMS

     

    Capitalized
      terms used herein shall have the meanings set forth in Appendix
      1.

     

    ARTICLE
      II

     

    THE
      MERGER; CONVERSION AND

    EXCHANGE
      OF COMPANY SHARES

    


     

    2.1           The
      Merger.

     

    (a)           The
      Merger.  On the terms and subject to the conditions of this
      Agreement, the Plan of Merger, and the Laws of North Carolina and Delaware,
      the
      Company shall merge into the Buyer, the separate existence of the Company shall
      cease, and the Buyer shall be the surviving corporation (the “Surviving
      Company”).

     

    (b)           Governing
      Documents.  The articles of incorporation of the Buyer in effect
      at the Effective Time (as defined below) shall be the articles of incorporation
      of the Surviving Company until further amended in accordance with applicable
      law.  The bylaws of the Buyer in effect at the Effective Time shall be
      the bylaws of the Surviving Company until further amended in accordance with
      applicable law.

     

    (c)           Directors
      and Officers.  From and after the Effective Time, (i) subject to
Section 6.2(b)(i), until successors or additional directors are
      duly elected or appointed in accordance with

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    applicable
      law, the directors of the Buyer at the Effective Time shall be the directors
      of
      the Surviving Company, and (ii) the officers of the Buyer at the Effective
      Time
      shall be the officers of the Surviving Company.

     

    (d)           Approval.  The
      parties hereto shall take and cause to be taken all action necessary for the
      corporate approval and authorization of (i) this Agreement and the other
      documents contemplated hereby (including without limitation the Plan of Merger)
      and (ii) the Merger and the other transactions contemplated hereby.

     

    (e)           Effective
      Time.  The Merger shall become effective on the date and at the
      time of filing of the articles of merger in respect of the Merger, in the form
      required by and executed in accordance with the Laws of North Carolina and
      Delaware, or at such other time specified therein.  The date and time
      when the Merger shall become effective is herein referred to as the
“Effective Time.”

     

    (f)           Filing
      of Articles of Merger.  At the Closing, the Buyer and the Company
      shall cause the articles of merger (containing the Plan of Merger) in respect
      of
      the Merger to be executed and filed with the Secretary of State of North
      Carolina and the Secretary of the State of Delaware, as required by the Laws
      of
      North Carolina and Delaware, and shall take any and all other actions and do
      any
      and all other things to cause the Merger to become effective as contemplated
      hereby.

     

    2.2           Company
      Shares.

     

    (a)           Each
      share of the Company’s common stock (the “Company Shares”), par
      value $0.01 per share, issued and outstanding, except for Company Shares held
      by
      the Buyer and its Affiliates immediately prior to the Effective Time (other
      than
      shares held in a fiduciary capacity or as collateral for outstanding loans
      made
      by the Buyer or its subsidiaries), shall, by virtue of the Merger and without
      any action on the part of the holders thereof, be canceled, retired and
      converted at the Effective Time into the right to receive the Merger
      Consideration (as defined below) in accordance with this Article
      II.  Each holder of certificates representing any such
      Company Shares shall thereafter cease to have any rights with respect to such
      shares, except for the right to receive the Merger Consideration.

     

    (b)           Notwithstanding
      anything contained in this
Section 2.2 to the contrary, any
      Company Shares held in the treasury of the Company immediately prior to the
      Effective Time shall be canceled without any conversion thereof, and no payment
      shall be made with respect thereto.

     

    (c)           From
      and after the Effective Time, there shall be no transfers on the stock transfer
      books of the Company or the Surviving Company of the Company Shares that were
      outstanding immediately prior to the Effective Time.  If, after the
      Effective Time, certificates representing Company Shares are presented to the
      Surviving Company, they shall be canceled, and exchanged and converted into
      the
      Merger Consideration as provided for herein.

     

    2.3           Merger
      Consideration.

     

    (a)           Subject
      to Sections 2.4, 2.5 and
9.1(h), at the Effective Time,
      the holders of Company Shares
      outstanding at the Effective Time, other than the Buyer and its Affiliates
      in
      the cases set forth above, shall be entitled to receive, and the Buyer shall
      issue and deliver, a number of shares of the Buyer’s Stock representing 1.15
      shares of the Buyer’s Stock for each Company Share (the “Per Share Stock
      Consideration”).  The foregoing consideration, collectively
      and in the aggregate, shall be referred to herein as the “Merger
      Consideration.”

     


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    (b)           In
      the event the Buyer changes the number of shares of the Buyer’s Stock issued and
      outstanding prior to the Effective Time as a result of a stock split, stock
      dividend or similar recapitalization with respect to such stock (each such
      event, a “Stock Adjustment”) and the record date therefor (in
      the case of a stock dividend) or the effective date thereof (in the case of
      a
      stock split or similar recapitalization for which a record date is not
      established) is prior to such Effective Time, the Exchange Ratio shall be
      appropriately and proportionately adjusted to reflect such change.

     

    (c)           No
      fractional shares of the Buyer’s Stock shall be issued or delivered in
      connection with the Merger.  In lieu of any such fractional share,
      each holder of Company Shares who would otherwise have been entitled to a
      fraction of a share of the Buyer’s Stock shall be entitled to receive cash
      (without interest) in an amount equal to such fraction multiplied by the Market
      Value of one share of the Buyer’s Stock on the trading day immediately prior to
      the Effective Time.

     

    2.4           Closing
      Payment.  No
      later than the Effective Time, the Buyer shall deposit with an exchange and
      transfer agent selected by the Buyer and reasonably acceptable to the Company
      (the “Exchange Agent”), for the benefit of the holders of
      Company Shares, a certificate or certificates representing the aggregate number
      of shares of the Buyer’s Stock to be issued and paid as the Merger Consideration
      in accordance with the provisions of this Agreement.  The Exchange
      Agent shall deliver the Merger Consideration in accordance with the procedures
      set forth in Section 2.5 below.

     

    2.5           Exchange
      Procedures.

     

    (a)           As
      promptly as practicable after the Effective Time, but in no event later than
      10
      Business Days after the Effective Time, the Buyer shall mail, or cause the
      Exchange Agent to mail, to each holder of record of a certificate or
      certificates that immediately prior to the Effective Time represented
      outstanding Company Shares (i) a letter of transmittal (which shall be in
      customary form and shall specify that delivery shall be effected, and risk
      of
      loss and title to such certificates shall pass, only upon proper delivery of
      such certificates to the Exchange Agent) and (ii) instructions for use in
      effecting the surrender of such certificates in exchange for payment of the
      Merger Consideration (such materials, collectively, the “Transmittal
      Letter”).  The Transmittal Letter shall be in such form as
      the Buyer and the Company agree.

     

    (b)           After
      the Effective Time, the Buyer shall cause the Exchange Agent to deliver the
      Merger Consideration in accordance with the provisions of this Agreement to
      each
      holder of Company Shares who has properly delivered a Transmittal Letter and
      surrendered its certificate or certificates representing its shares of Company
      Stock to the Exchange Agent.  The Buyer shall not be obligated to
      deliver any of the Merger Consideration until such holder properly delivers
      a
      completed Transmittal Letter and surrenders the certificate(s) representing
      such
      holder’s Company Shares (or executes such documentation as appropriate in
      connection with lost or otherwise misplaced certificates).  Any other
      provision of this Agreement notwithstanding, neither the Buyer nor the Exchange
      Agent shall be liable to any holder of Company Shares for any amounts paid
      or
      properly delivered in good faith to a public official pursuant to any applicable
      abandoned property Law.

     

    (c)           To
      the extent permitted by applicable Law, after the Effective Time, former
      shareholders of record of the Company shall be entitled to vote at any meeting
      of the Buyer’s shareholders the number of whole shares of the Buyer’s Stock into
      which their respective Company Shares are converted pursuant to the Merger,
      regardless of whether such holders have exchanged their certificates
      representing such Company Shares for certificates representing the Buyer’s Stock
      in accordance with the provisions of this Agreement.  Whenever a
      dividend or other distribution is declared by the Buyer on the Buyer’s Stock,
      the record date for which is at or after the

     


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


     Effective
      Time, the declaration shall include dividends or other distributions on all
      shares of the Buyer’s Stock issuable pursuant to this Agreement, but beginning
      at such Effective Time, no dividend or other distribution payable to the holders
      of record of the Buyer’s Stock as of any time subsequent to such Effective Time
      shall be delivered to the holder of any certificate representing any of the
      Company Shares issued and outstanding at such Effective Time until such holder
      surrenders such certificate for exchange as provided in this Section
      2.5.  However, upon surrender of such certificate(s), both
      the certificate(s) representing the shares of the Buyer’s Stock to which such
      holder is entitled and any such undelivered dividends (without any interest)
      shall be delivered and paid with respect to each share represented by such
      certificates.

     

    2.6           Dissenting
      Shares.  Notwithstanding
      any other provision of this Agreement to the contrary, Company Shares that
      are
      outstanding immediately prior to the Effective Time and that are held by
      shareholders who shall have not voted in favor of the Merger and who properly
      shall have demanded payment for such shares in accordance with Delaware Law
      (collectively, the “Dissenting Shares”) shall not be converted
      into or represent the right to receive the Merger Consideration.  Such
      shareholders instead shall be entitled to receive payment of the fair value
      of
      such shares held by them, plus accrued interest, in accordance with the
      provisions of Delaware Law, except that all Dissenting Shares held by
      shareholders who shall have failed to perfect or otherwise lost their rights
      to
      appraisal of such shares under Delaware Law shall thereupon be deemed to have
      been converted into and to have become exchangeable, as of the Effective Time,
      for the right to receive, without any interest thereon, the Merger Consideration
      upon surrender in the manner provided in Section 2.5 of
      the certificate or certificates that, immediately prior to the Effective Time,
      evidenced such shares.  The Company shall give the Buyer (i) prompt
      notice of any written demands for payment of fair value of any Company Shares,
      attempted withdrawals of any such demands or any other instruments served
      pursuant to Delaware Law and received by the Company relating to shareholders’
rights to demand payment of fair value of Company Shares, and (ii) the
      opportunity to participate in all negotiations and proceedings with respect
      to
      demands under Delaware Law consistent with the obligations of the Company
      thereunder.  The Company shall not, except with the prior written
      consent of the Buyer, (x) make any payment with respect to such demand, (y)
      offer to settle or settle any demand for appraisal or (z) waive any failure
      to
      timely deliver a written demand for appraisal or timely take any other action
      to
      perfect appraisal rights in accordance with Delaware Law.

     

    2.7           Company
      Stock Options.

     

    (a)           At
      the Effective Time, each right to purchase Company Shares pursuant to stock
      options (“Company Options”) granted by the Company under the
      Company Option Plan that are outstanding at the Effective Time of the Merger
      shall be converted into and become rights with respect to the Buyer’s Stock, and
      the Buyer shall assume each Company Option, in accordance with the terms of
      the
      Company Option Plan and the stock option agreement by which such Company Option
      is evidenced, except that from and after such Effective
      Time:  (i) the Buyer and its compensation committee shall be
      substituted for the Company and the compensation committee of its board of
      directors (including if applicable, the entire Board of Directors of the
      Company) administering the Company Option Plan; (ii) the Company Options
      assumed by the Buyer may be exercised solely for shares of the Buyer’s Stock;
      (iii) the number of shares of the Buyer’s Stock subject to such converted
      Company Options shall be equal to the number of Company Shares subject to such
      Company Options immediately prior to the Effective Time multiplied by the
      Exchange Ratio, rounded to the next highest share; and (iv) the per-share
      exercise price under each such converted Company Option shall be adjusted by
      dividing the exercise price of the Company Option immediately prior to the
      Effective Time by the Exchange Ratio, rounded down to the nearest
      cent.

     

    (b)           In
      addition, notwithstanding clauses (ii), (iii) and (iv) of
Section 2.7(a), each assumed Company Option that is an
“incentive stock option” shall be adjusted as required by Section 424 of
      the Internal Revenue Code, and the regulations promulgated thereunder, so as
      not
      to constitute a modification, extension or renewal of the option, within the
      meaning of Section 424(h) of the Internal Revenue Code.

    

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

    

     

    (c)           As
      soon as practicable after the Effective Time, the Buyer shall deliver to the
      participants in the Company Option Plan an appropriate notice setting forth
      such
      participant’s rights pursuant thereto, and the grants pursuant to such Company
      Option Plan shall continue in effect on substantially the same terms and
      conditions (subject to the adjustments required by the above subsection
      (a) after giving effect to the Merger), and the Buyer shall comply with the
      terms of the Company Option Plan to ensure, to the extent required by, and
      subject to the provisions of, the Company Option Plan, that the Company Options
      that qualified as incentive stock options prior to the Effective Time continue
      to qualify as incentive stock options after such Effective Time.  At
      or prior to the Effective Time, and at all times thereafter, the Buyer shall
      have reserved a sufficient number of shares of the Buyer’s Stock for issuance
      upon exercise of the Company Options assumed by it in accordance with this
      Section 2.7.  The Buyer agrees to file as promptly as
      practicable, and in no event later than 45 days, after the Effective Time,
      a
      registration statement on Form S-8 covering the shares of the Buyer’s Stock
      issuable pursuant to the Company Options.

     

    ARTICLE
      III

     

    THE
      CLOSING

     

    3.1           Closing.  The
      Closing of the Merger shall take place at the offices of Robinson,
      Bradshaw & Hinson, P.A. in Charlotte, North Carolina as soon as
      reasonably practical after all conditions to Closing have been met, or on such
      other date or at such other location as the Buyer and the Company may mutually
      agree (such date, the “Closing Date”).  At the
      Closing, the parties will execute, deliver and file all documents necessary
      to
      effect the transactions contemplated herein.

     

    3.2           Deliveries
      by the Company.  At
      or by the Closing, the Company shall have executed and delivered or caused
      to be
      executed and delivered the following documents:

     

    (a)           the
      agreements, opinions, certificates, instruments and other documents contemplated
      in Section 8.3;

     

    (b)           articles
      of merger (containing the Plan of Merger) giving effect to the Merger;
      and

     

    (c)           all
      other documents, certificates and instruments required hereunder to be delivered
      to the Buyer, or as may reasonably be requested by the Buyer at or prior to
      the
      Closing.

     

    3.3           Deliveries
      by the Buyer.  At
      or by the Closing, the Buyer shall have executed and delivered or caused to
      be
      executed and delivered the following documents:

     

    (a)           the
      agreements, opinions, certificates, instruments and other documents contemplated
      in Section 8.2;

     

    (b)           articles
      of merger (containing the Plan of Merger) giving effect to the
      Merger;

     

    (c)           the
      Employment Agreement; and

     

    (d)           all
      other documents, certificates and instruments required hereunder to be delivered
      to the Company, or as may reasonably be requested by the Company at or prior
      to
      the Closing.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      IV

     

    REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY

     

    Except
      as
      set forth on the Company’s Disclosure Schedule, the Company represents and
      warrants to the Buyer that each of the statements contained in this
Article IV are correct and complete as of the date of this
      Agreement and will be correct and complete as of the Closing Date.

     

    4.1           Organization,
      Standing and Power.

     

    (a)           The
      Company is a savings and loan holding company registered with the Office of
      Thrift Supervision.  The Company Bank is a federal savings association
      organized under the laws of the United States of America and is an “insured
      institution” as defined in the Federal Deposit Insurance Act and applicable
      regulations thereunder, and subject to dollar limits under such Act, all
      deposits in the Company Bank are fully insured by the FDIC to the extent
      permitted by Law.

     

    (b)           Each
      of the Company and its subsidiaries is either a federal savings association
      or a
      corporation, duly organized, validly existing and in good standing under the
      Laws of the jurisdiction of its incorporation or organization.  Each
      of the Company and its subsidiaries has the corporate or other applicable power
      and authority to carry on, in all Material respects, its businesses as now
      conducted and to own, lease and operate its Assets.  Each of the
      Company and its subsidiaries is duly qualified or licensed to transact business
      as a foreign corporation in good standing in the States of the United States
      and
      foreign jurisdictions where the character of its Assets or the nature or conduct
      of its business requires it to be so qualified or licensed.

     

    4.2           Authority;
      No Conflicts.

     

    (a)           Subject
      to required regulatory and shareholder approvals, the Company has the corporate
      power and authority necessary to execute, deliver and perform its obligations
      under this Agreement and to consummate the transactions contemplated
      hereby.  The execution, delivery and performance of the Company’s
      obligations under this Agreement and the other documents contemplated hereby,
      and the consummation of the transactions contemplated herein, including the
      Merger, have been duly and validly authorized by all necessary corporate action
      (and by Closing, all such shareholder action) in respect thereof on the part
      of
      the Company.  This Agreement represents a legal, valid and binding
      obligation of the Company, enforceable against the Company in accordance with
      its terms (except in all cases as such enforceability may be limited by
      applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws
      affecting the enforcement of creditors’ rights generally and except that the
      availability of specific
      performance, injunctive relief and other equitable remedies is subject to the
      discretion of the court before which any proceeding may be
      brought).

     

    (b)           Except
      as set forth on Section 4.2(b) of the Company Disclosure
      Schedule, neither the execution and delivery of this Agreement by the Company,
      nor the consummation by the Company of the transactions contemplated hereby,
      nor
      compliance by the Company with any of the provisions hereof, will
      (i) conflict with or result in a breach of any provision of the Company’s
      certificate of incorporation or bylaws or any other similar governing document,
      or (ii) constitute or result in a Default under, or require any Consent
      pursuant to, or result in the creation of any Lien on any Asset of the Company
      or any of its subsidiaries under, any Contract or Permit of the Company or
      any
      of its subsidiaries, except as could not reasonably be expected to have a
      Material Adverse Effect on the Company, or (iii) violate any Law or Order
      applicable to the Company or any of its subsidiaries or any of their
      Assets.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (c)           Other
      than in connection or compliance with the provisions of the Securities Laws
      and
      banking Regulatory Authorities, no notice to, filing with, or Consent of, any
      Governmental Authority is necessary for the consummation by the Company of
      the
      Merger and the other transactions contemplated in this Agreement.

     

    4.3           Capital
      Stock; Subsidiaries.

     

    (a)           The
      authorized capital stock of the Company consists solely of (i) 3,600,000 shares
      of common stock, par value $0.01 per share, of which 1,789,981 shares are issued
      and outstanding as of the date of this Agreement and (ii) 400,000 shares of
      preferred stock, par value $0.01 per share, of which no shares are issued and
      outstanding as of the date of this Agreement.  Except for such shares,
      there are no shares of capital stock or other equity securities of the Company
      outstanding.  The authorized capital stock of the Company Bank
      consists of 20,000,000 shares of common stock, $1.00 par value per share, of
      which 100 shares are issued and outstanding as of the date of this Agreement
      and
      are owned and held by the Company, and except for such shares, there are no
      shares of capital stock or other equity securities of the Company Bank
      outstanding.  Section 4.3 of the Company’s
      Disclosure Schedule lists all of the Company’s direct and indirect subsidiaries
      other than the Company Bank as of the date of this Agreement.  The
      Company or one of its subsidiaries owns all of the issued and outstanding shares
      of capital stock of each such subsidiary.

     

    (b)           All
      of the issued and outstanding shares of capital stock of the Company and its
      subsidiaries are duly and validly issued and outstanding and are fully paid
      and
      nonassessable.  None of the outstanding shares of capital stock of the
      Company or any of its subsidiaries has been issued in violation of any
      preemptive rights of the current or past shareholders of such
      Persons.  Except as set forth on Section 4.3 of
      the Company’s Disclosure Schedule, no equity securities of any subsidiary of the
      Company are or may become required to be issued (other than to the Company
      or
      any of its subsidiaries) by reason of any Rights, and there are no Contracts
      by
      which any subsidiary of the Company is bound to issue (other than to the Company
      or subsidiary of the Company) additional shares of its capital stock or Rights
      or by which the Company or any of its subsidiaries is or may be bound to
      transfer any shares of the capital stock of any subsidiary of the Company (other
      than to the Company or any of its subsidiaries).  There are no equity
      securities reserved for any of the foregoing purposes, and there are no
      Contracts relating to the rights of the Company or any of its subsidiaries
      to
      vote or to dispose of any shares of the capital stock of any subsidiary of
      the
      Company.

     

    4.4           SEC
      Reports; Company Financial Statements.

     

    (a)           The
      Company has filed and made available to the Buyer all forms, reports, and
      documents required to be filed by the Company with the SEC since December 31,
      2003 (collectively, the “Company
      SEC Reports”).  Except as set forth on Section 4.4
of the Company Disclosure Schedule, the Company
      SEC Reports (i) at the
      time filed, complied in all Material respects with the applicable requirements
      of the Securities Laws, as the case may be, and (ii) did not at the time they
      were filed (or if amended or superseded by a filing prior to the date of this
      Agreement, then on the date of such filing) contain any untrue statement of
      a
      Material fact or omit to state a Material fact required to be stated in such
      Company SEC Reports or necessary in order to make the statements in such Company
      SEC Reports, in light of the circumstances under which they were made, not
      misleading.  None of the Company’s subsidiaries is required to file
      any forms, reports, or other documents with the SEC.

     

    (b)           Each
      of the Company Financial Statements (including, in each case, any related notes)
      contained in the Company SEC Reports, including any Company SEC Reports filed
      after the date of this Agreement until the Effective Time, complied or will
      comply as to form in all Material respects with the applicable published rules
      and regulations of the SEC with respect thereto, was prepared or will be


     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

     

    prepared
      in accordance with GAAP applied on a consistent basis throughout the periods
      involved (except as may be indicated in the notes to such financial statements,
      or, in the case of unaudited statements, as permitted by Form 10-QSB of the
      SEC), and fairly presented or will fairly present the consolidated financial
      position of the Company and its subsidiaries as at the respective dates and
      the
      consolidated results of its operations and cash flows for the periods indicated,
      except that the unaudited interim financial statements were or are subject
      to
      normal and recurring year-end adjustments that were not or are not expected
      to
      be Material in amount or effect (except as may be indicated in such financial
      statements or notes thereto).

     

    4.5           Absence
      of Undisclosed Liabilities.  Neither
      the Company nor any of its subsidiaries has any Liabilities that could
      reasonably be expected to have a Material Adverse Effect on the Company, except
      Liabilities that are accrued or reserved against in the consolidated balance
      sheets of the Company as of June 30, 2006 included in the Company Financial
      Statements or reflected in the notes thereto and except for Liabilities incurred
      in the ordinary course of business subsequent to June 30,
      2006.  Neither the Company nor any of its subsidiaries has incurred or
      paid any Liability since June 30, 2006, except for (a) such Liabilities incurred
      or paid in the ordinary course of business consistent with past business
      practice and (b) Liabilities that could not reasonably be expected to have
      a
      Material Adverse Effect on the Company.  No facts or circumstances
      exist that could reasonably be expected to serve as the basis for any other
      Liabilities of the Company or any of its subsidiaries, except as could not
      reasonably be expected to have a Material Adverse Effect on the
      Company.

     

    4.6           Absence
      of Certain Changes or Events.  Since
      June 30, 2006, (i) there have been no events, changes, or occurrences that
      have
      had, or could reasonably be expected to have, a Material Adverse Effect on
      the
      Company, and (ii) each of the Company and its subsidiaries has conducted in
      all
      Material respects its respective businesses in the ordinary and usual course
      (excluding the incurrence of expenses in connection with this Agreement and
      the
      transactions contemplated hereby).

     

    4.7           Tax
      Matters.

     

    (a)           All
      Tax Returns required to be filed by or on behalf of any of the Company and
      its
      subsidiaries have been timely filed, or requests for extensions have been timely
      filed, granted, and have not expired for periods ended on or before June 30,
      2006, and, to the Knowledge of the Company, all Tax Returns filed are complete
      and accurate in all Material respects.  All Tax Returns for periods
      ending on or before the date of the most recent fiscal year end immediately
      preceding the Effective Time will be timely filed
      or
      requests for extensions will be timely filed.  All Taxes shown on
      filed Tax Returns have been paid.  There is no audit examination,
      deficiency, or refund Litigation with respect to any Taxes that could reasonably
      be expected to have a Material Adverse Effect on the Company, except to the
      extent reserved against in the Company Financial Statements dated prior to
      the
      date of this Agreement.  All Taxes and other Liabilities due with
      respect to completed and settled examinations or concluded Litigation have
      been
      paid.

     

    (b)           None
      of the Company or its subsidiaries has executed an extension or waiver of any
      statute of limitations on the assessment or collection of any Tax due (excluding
      such statutes that relate to years currently under examination by the Internal
      Revenue Service or other applicable taxing authorities) that is currently in
      effect.

     

    (c)           Adequate
      provision for any Material Taxes due or to become due for any of the Company
      or
      its subsidiaries for the period or periods through and including the date of
      the
      respective Company Financial Statements has been made and is reflected on such
      Company Financial Statements.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (d)           Each
      of the Company and its subsidiaries is in compliance with, and its records
      contain all information and documents (including properly completed IRS Forms
      W-9) necessary to comply with, all applicable information reporting and Tax
      withholding requirements under federal, state, and local Tax Laws, and such
      records identify with specificity all accounts subject to backup withholding
      under Section 3406 of the Internal Revenue Code, except for any such instances
      of noncompliance and such omissions as could not reasonably be expected to
      have
      a Material Adverse Effect on the Company.

     

    (e)           None
      of the Company and its subsidiaries has made any payments, is obligated to
      make
      any payments, or is a party to any contract, agreement, or other arrangement
      that could obligate it to make any payments that would be disallowed as a
      deduction under Section 280G or 162(m) of the Internal Revenue
      Code.

     

    (f)           There
      are no Material Liens with respect to Taxes upon any of the Assets of the
      Company and its subsidiaries.

     

    (g)           There
      has not been an ownership change, as defined in Internal Revenue Code Section
      382(g), of the Company and its subsidiaries that occurred during any Taxable
      Period in which any of the Company and its subsidiaries has incurred a net
      operating loss that carries over to another Taxable Period ending after June
      30,
      2006.

     

    (h)           After
      the date of this Agreement, no Material election with respect to Taxes will
      be
      made without the prior consent of the Buyer, which consent will not be
      unreasonably withheld.

     

    (i)           Neither
      the Company nor any of its subsidiaries has or has had a permanent establishment
      in any foreign country, as defined in any applicable tax treaty or convention
      between the United States and such foreign country.

     

    4.8           Assets.  Each
      of the Company and its subsidiaries have good and marketable title, free and
      clear of all Liens, to all of their respective Assets, except for Liens to
      secure public deposits in the ordinary course of business consistent with past
      practice.  Except as could not reasonably be expected to have a
      Material Adverse Effect on the Company, all tangible properties used in the
      businesses of the Company and its subsidiaries are in good condition, reasonable
      wear and tear excepted, and are usable in the ordinary course of business
      consistent with each of their past practices.  Except as could not
      reasonably be expected
      to have a Material Adverse Effect on the Company, all Assets held under leases
      or subleases by any of the Company and its subsidiaries are held under valid
      Contracts enforceable in accordance with their respective terms (except as
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, or other Laws affecting the enforcement of
      creditors’ rights generally and except that the availability of specific
      performance, injunctive relief and other equitable remedies is subject to the
      discretion of the court before which any proceedings may be brought), and each
      such Contract is in full force and effect.  Each of the Company and
      its subsidiaries currently maintain insurance in amounts, scope, and coverage
      reasonably necessary for their operations.  None of the Company or its
      subsidiaries has received notice from any insurance carrier that (i) such
      insurance will be canceled or that coverage thereunder will be reduced or
      eliminated, or (ii) premium costs with respect to such policies of insurance
      will be increased in any Material respect.  The Assets of the Company
      and its subsidiaries include all Assets required to operate in all Material
      respects their businesses taken as a whole as presently conducted.

     

    4.9           Real
      Property.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (a)           The
      Company has valid, good and marketable fee simple title to all Real Property
      owned, leased or operated in whole or in part by the Company (the
“Company Real Property”), free and clear of all Liens other
      than Permitted Real Property Encumbrances.

     

    (b)           The
      Company Real Property, and the improvements, buildings and structures thereon
      (the “Company Improvements”), (i) constitute all of the
      Real Property used or operated by the Company and (ii) may continue to be
      used for the operation of its business as currently operated by the Company
      after the Closing.  The current and anticipated use of the Company
      Real Property and the Company Improvements is not a pre-existing, nonconforming
      use, and no notice of the violation of any Law or legal requirement has been
      received by the Company.

     

    (c)           There
      are no pending, or, to the knowledge of the Company, threatened, or contemplated
      condemnation, expropriation or other proceedings (nor is there any basis for
      any
      such action) affecting the Company Real Property, or any part thereof, or of
      any
      assessments made or threatened with respect to the Company Real Property or
      any
      part thereof, or of any sales or other disposition of the Company Real Property,
      or any part thereof, in lieu of condemnation.

     

    (d)           The
      Company does not own or hold, and is not obligated under or a party to, any
      option, right of first refusal or other contractual right to purchase, acquire,
      sell or dispose of the Company Real Property, or any portion thereof or interest
      therein.

     

    (e)           To
      the Knowledge of the Company, no Company Improvement encroaches upon any other
      property, and there are no encroachments by other buildings or improvements
      onto
      the Company Real Property.

     

    4.10           Securities
      Portfolio and Investments.  All
      securities owned by the Company or any of its subsidiaries (whether owned of
      record or beneficially) are held free and clear of all Liens that would impair
      the ability of the owner thereof to dispose freely of any such security and/or
      otherwise to realize the benefits of ownership thereof at any time, except
      for
      those Liens to secure public deposits in the ordinary course of business
      consistent with past practice and Liens that could not reasonably be expected
      to
      have a Material Adverse Effect on the Company.  There are no voting
      trusts or other agreements or undertakings to which the Company or any of its
      subsidiaries is a party with respect to the voting of any such
      securities.  Except for fluctuations in the market values of United
      States Treasury and agency or municipal securities and except as set forth
      on
Section
      4.10 of the Company Disclosure Schedule, since June 30, 2006, there has
      been no significant deterioration or Material adverse change in the quality,
      or
      any Material decrease in the value, of the securities portfolio of the Company
      and its subsidiaries, taken as a whole.

     

    4.11           Environmental
      Matters.

     

    (a)           To
      the Knowledge of the Company, the Participation Facilities and Loan Collateral
      of the Company and it subsidiaries are, and have been, in compliance with all
      Environmental Laws, except those violations that could not reasonably be
      expected to have a Material Adverse Effect on the Company.

     

    (b)           To
      the Knowledge of the Company, there is no Litigation pending or threatened
      before any court, governmental agency, or authority, or other forum in which
      any
      of the Company and its subsidiaries or any of its Participation Facilities
      has
      been or, with respect to threatened Litigation, may reasonably be expected
      to be
      named as a defendant (i) for alleged noncompliance (including by any
      predecessor) with any Environmental Law or (ii) relating to the release into
      the
      environment of any Hazardous Material, whether or not occurring at, on, under,
      or involving a site owned, leased, or operated by the Company or any of its
      subsidiaries or any of its Participation Facilities, except for such Litigation
      

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

     pending
      or threatened that could not reasonably be expected to have a Material Adverse
      Effect on the Company.

     

    (c)           To
      the Knowledge of the Company, there is no Litigation pending or threatened
      before any court, governmental agency or authority or other forum in which
      any
      of its Loan Collateral (or the Company or any of its subsidiaries in respect
      of
      such Loan Collateral) has been or, with respect to threatened Litigation, may
      reasonably be expected to be named as a defendant or potentially responsible
      party (i) for alleged noncompliance (including by any predecessor) with any
      Environmental Law or (ii) relating to the release into the environment of any
      Hazardous Material, whether or not occurring at, on, under, or involving Loan
      Collateral, except for such Litigation pending or threatened that is could
      not
      reasonably be expected to have a Material Adverse Effect on the
      Company.

     

    (d)           To
      the Knowledge of the Company, no facts exist that provide a reasonable basis
      for
      any Litigation of a type described in subsections (b) or (c), except such as
      could not reasonably be expected to have a Material Adverse Effect on the
      Company.

     

    (e)           To
      the Knowledge of the Company, during and prior to the period of (i) any of
      the
      Company’s or its subsidiaries’ ownership or operation of any of their respective
      current properties, (ii) any of the Company’s or its subsidiaries’ participation
      in the management of any Participation Facility, or (iii) any of the Company’s
      or subsidiaries’ holding of a security interest in Loan Collateral, there have
      been no releases of Hazardous Material in, on, under, or affecting (or
      potentially affecting) such properties, except such as could not reasonably
      be
      expected to have a Material Adverse Effect on the Company.

     

    4.12           Compliance
      with Laws.  Each
      of the Company and its subsidiaries has in effect all Permits necessary for
      it
      to own, lease, or operate its Material Assets and to carry on, in all Material
      respects, its business as now conducted, except for those Permits the absence
      of
      which could not reasonably be expected to have a Material Adverse Effect on
      the
      Company, and there has occurred no Default under any such Permit, other than
      Defaults that could not reasonably be expected to have a Material Adverse Effect
      on the Company.  None of the Company or its subsidiaries: (i) is in
      violation of any Laws, Orders, or Permits applicable to its business or
      employees conducting its business, except for violations that could not
      reasonably be expected to have a Material Adverse Effect on the Company; and
      (ii) has received any notification or communication
      from any agency or department of federal, state, or local government or any
      Regulatory Authority or the staff thereof (a) asserting that any of the Company
      and its subsidiaries is not in compliance with any of the Laws or Orders that
      such governmental authority or Regulatory Authority enforces, except where
      such
      noncompliance could not reasonably be expected to have a Material Adverse Effect
      on the Company, (b) threatening to revoke any Permits, except where the
      revocation of which could not reasonably be expected to have a Material Adverse
      Effect on the Company, or (c) requiring the Company or any of its subsidiaries
      (x) to enter into or consent to the issuance of a cease and desist order, formal
      agreement, directive, commitment, or memorandum of understanding, or (y) except
      as set forth on Section 4.12 of the Company Disclosure
      Schedule, to adopt any board or directors resolution or similar undertaking
      that
      restricts Materially the conduct of its business, or in any manner relates
      to
      its capital adequacy, its credit or reserve policies, its management, or the
      payment of dividends.

     

    4.13           Labor
      Relations.  Neither
      the Company nor any of its subsidiaries is the subject of any Litigation
      asserting that it has committed an unfair labor practice (within the meaning
      of
      the National Labor Relations Act or comparable state Law) or seeking to compel
      it to bargain with any labor organization as to wages or conditions of
      employment, nor is any of them a party to or bound by any collective bargaining
      agreement, Contract, or other agreement or understanding with a labor union
      or
      labor organization, nor is there any strike or other labor dispute involving
      any
      of them, pending or 

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

     

    threatened,
      or to the Knowledge of the Company, is there any activity involving any of
      the
      Company’s or its subsidiaries’ employees seeking to certify a collective
      bargaining unit or engaging in any other organization activity.

     

    4.14           Employee
      Benefit Plans.

     

    (a)           The
      Company has made available to the Buyer prior to the execution of this Agreement
      correct and complete copies of all Benefit Plans of the Company.

     

    (b)           Except
      as set forth on Section 4.14(b) of the Company Disclosure
      Schedule, all Benefit Plans of the Company are in compliance with the applicable
      terms of ERISA, the Internal Revenue Code, and any other applicable Laws, except
      as could not reasonably be expected to have a Material Adverse Effect on the
      Company.

     

    (c)           Neither
      the Company nor any of its subsidiaries has an “obligation to contribute” (as
      defined in ERISA Section 4212) to a “multiemployer plan” (as defined in ERISA
      Sections 4001(a)(3) and 3(37)(A)).  Each “employee pension benefit
      plan,” as defined in Section 3(2) of ERISA, ever maintained by the Company or
      its subsidiaries that was intended to qualify under Section 401(a) of the
      Internal Revenue Code and with respect to which the Company or any of its
      subsidiaries has any Liability, is disclosed as such in Section
      4.14(c) of the Company’s Disclosure
      Schedule.

     

    (d)           The
      Company has made available to the Buyer prior to the execution of this Agreement
      correct and complete copies of the following documents: (i) all trust agreements
      or other funding arrangements for such Company Benefit Plans (including
      insurance contracts), and all amendments thereto, (ii) with respect to any
      such
      Company Benefit Plans or amendments, all determination letters, Material
      rulings, Material opinion letters, Material information letters, or Material
      advisory opinions issued by the Internal Revenue Service, the United States
      Department of Labor, or the Pension Benefit Guaranty Corporation after June
      30,
      2002, (iii) annual reports or returns, audited or unaudited financial
      statements, actuarial valuations and reports, and summary annual reports
      prepared for any Company Benefit Plan with respect to the most recent plan
      year,
      and (iv) the most recent summary plan descriptions and any Material
      modifications thereto.

     

    (e)           Each
      Company ERISA Plan that is intended to be qualified under Section 401(a) of
      the
      Internal Revenue Code has received a favorable determination letter from the
      Internal Revenue Service, and, to the Knowledge of the Company, there is no
      circumstance that will or could reasonably be expected to result in revocation
      of any such favorable determination letter.  Each trust created under
      any Company ERISA Plan has been determined to be exempt from Tax under Section
      501(a) of the Internal Revenue Code and the Company is not aware of any
      circumstance that will or could reasonably be expected to result in revocation
      of such exemption.  With respect to each such Company Benefit Plan, to
      the Knowledge of the Company, no event has occurred that will or could
      reasonably be expected to give rise to a loss of any intended Tax consequences
      under the Internal Revenue Code or to any Tax under Section 511 of the Internal
      Revenue Code that could reasonably be expected to have a Material Adverse Effect
      on the Company.  There is no Material Litigation pending or, to the
      Knowledge of the Company, threatened relating to any Company ERISA
      Plan.

     

    (f)           Neither
      the Company nor any of its subsidiaries has engaged in a transaction with
      respect to any Company Benefit Plan that, assuming the Taxable Period of such
      transaction expired as of the date of this Agreement, would subject the Company
      or any of its subsidiaries to a Material tax or penalty imposed by either
      Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts
      that could reasonably be expected to have a Material Adverse Effect on the
      Company.  Neither the Company or any of its subsidiaries nor any
      administrator or fiduciary of any Company Benefit Plan (or any agent of


     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    any
      of
      the foregoing) has engaged in any transaction, or acted or failed to act in
      any
      manner, that could subject the Company or any of its subsidiaries to any direct
      or indirect Liability (by indemnity or otherwise) for breach of any fiduciary,
      co-fiduciary, or other duty under ERISA, where such Liability could reasonably
      be expected to have a Material Adverse Effect on the Company.  No oral
      or written representation or communication with respect to any aspect of the
      Company Benefit Plans has been made to employees of the Company or any of its
      subsidiaries that is not in accordance with the written or otherwise preexisting
      terms and provisions of such plans, except where any Liability with respect
      to
      such representation or disclosure could not reasonably be expected to have
      a
      Material Adverse Effect on the Company.

     

    (g)           Neither
      the Company nor any of its subsidiaries maintains or has ever maintained a
      Company Pension Plan.

     

    (h)           Neither
      the Company nor any of its subsidiaries has any Material obligation for retiree
      health and retiree life benefits under any of the Company Benefit Plans other
      than with respect to benefit coverage mandated by applicable Law.

     

    (i)           Except
      as set forth in Section 4.14(i) of the Company Disclosure
      Schedule, neither the execution and delivery of this Agreement nor the
      consummation of the transactions contemplated hereby will (i) result in any
      Material payment (including without limitation severance, unemployment
      compensation, golden parachute, or otherwise) becoming due to any director
      or
      any employee of the Company or it subsidiaries from the Company or any of its
      subsidiaries under any Company Benefit Plan or otherwise, (ii) Materially
      increase any benefit otherwise payable under any Company Benefit Plan, or (iii)
      result in any acceleration of the time of any Material payment or vesting of
      any
      Material benefit.

     

    4.15           Material
      Contracts.

     

    (a)           Except
      as set forth on Section 4.15 of the
      Company’s Disclosure Schedule, none of the Company or its subsidiaries, nor any
      of their respective Assets, businesses, or operations, is a party to, or is
      bound or affected by, or receives benefits under, (i) any employment, severance,
      termination, consulting, or retirement Contract, (ii) any Contract relating
      to
      the borrowing of money by the Company or its subsidiaries or the guarantee
      by
      the Company or its subsidiaries of any such obligation (other than Contracts
      evidencing deposit liabilities, purchases of federal funds, fully secured
      repurchase agreements, and Federal Reserve or Federal Home Loan Bank advances
      of
      depository institution subsidiaries, trade payables, and Contracts relating
      to
      borrowings or guarantees made in the ordinary course of business), and (iii)
      any
      other Contract or amendment thereto that would be required to be filed as an
      exhibit to a Form 10-QSB filed by the Company with the SEC as of the date of
      this Agreement that has not been filed as an exhibit to the Company’s Form
      10-QSB filed for the fiscal quarter ended March 31, 2007, or in another SEC
      document (together with all Contracts referred to in
Sections 4.8 and 4.14 of
      this Agreement, the “Company Contracts”).

     

    (b)           With
      respect to each Company Contract: (i) the Contract is in full force and effect;
      (ii) none of the Company or its subsidiaries is in Default hereunder, other
      than
      Defaults that could not reasonably be expected to have a Material Adverse Effect
      on the Company; (iii) neither the Company nor any of its subsidiaries has
      repudiated or waived any Material provision of any such Contract; and (iv)
      no
      other party to any such Contract is, to the Knowledge of the Company, in Default
      in any respect, other than Defaults that could not reasonably be expected to
      have a Material Adverse Effect on the Company, or has repudiated or waived
      any
      Material provision thereunder.  Except for Federal Reserve or Federal
      Home Loan Bank advances, all of the indebtedness of the Company and its
      subsidiaries for money borrowed (not including deposit Liabilities) is
      prepayable at any time without penalty or premium.

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    4.16           Legal
      Proceedings.

     

      There
      is no Litigation instituted or pending, or, to the Knowledge of the Company,
      threatened against the Company or any of its subsidiaries, or against any Asset,
      employee benefit plan, interest, or right of any of them, except as could not
      reasonably be expected to have a Material Adverse Effect on the Company, nor
      are
      there any Orders of any Regulatory Authorities, other governmental authorities,
      or arbitrators outstanding against any the Company or its subsidiaries, except
      as could not reasonably be expected to have a Material Adverse Effect on the
      Company.  There is no Litigation to which the Company or any of its
      subsidiaries is a party that names the Company or any of its subsidiaries as
      a
      defendant or cross-defendant and where the maximum exposure is estimated to
      be
      $25,000 or more.

     

    4.17           Proprietary
      Rights.

     

    (a)           Ownership
      and Right to Use.  The Company owns, has been granted a license to
      use or otherwise has the right to use all of the Intellectual Property that
      it
      uses, or holds for use, in its business (the “Company Proprietary
      Rights”).

     

    (b)           Trade
      Secrets.  The Company has taken efforts that are reasonable under
      the circumstances to prevent unauthorized disclosure to any other Person of
      such
      portions of the Company’s trade secrets that would enable such Person to compete
      with the Company within the scope of the Company’s business as now conducted and
      as presently proposed to be conducted.

     

    (c)           No
      Infringement.  The Company has not interfered with, infringed upon
      or misappropriated the Intellectual Property of any other Person and the
      continued operation of the Company’s business by the Buyer, in the manner that
      such business is currently conducted or proposed to be conducted, will not
      interfere with, infringe upon or misappropriate the Intellectual Property of
      any
      other Person.  To the Knowledge of the Company, no Person is
      interfering with, infringing upon or misappropriating any Company Proprietary
      Right.  No claim has been asserted against the Company by any
      Person:  (i) that such Person has any right, title or interest in
      or to any of the Company Proprietary Rights; (ii) that such Person has the
      right to use any of the Company Proprietary Rights; (iii) to the effect
      that any past, present or projected act or omission by the Company infringes
      the
      Intellectual Property of such Person; or (iv) that challenges the Company’s
      right to use any of the Company Proprietary Rights. No
      facts
      or circumstances exist that, with or without the passing of time or the giving
      of notice or both, might reasonably serve as the basis for any such
      claim.

     

    4.18           Reports.  Since
      the date of its organization, each of the Company and its subsidiaries has
      timely filed all reports and statements, together with any amendments required
      to be made with respect thereto, that it was required to file with any
      Regulatory Authorities, except failures to file that could not reasonably be
      expected to have a Material Adverse Effect on the Company.  As of
      their respective dates, each of such reports and documents, including the
      financial statements, exhibits, and schedules thereto, complied with all
      applicable Laws, except noncompliance that could not reasonably be expected
      to
      have a Material Adverse Effect on the Company.

     

    4.19           Registration
      Statement; Proxy Statement.  Subject
      to the accuracy of the representations contained in Section
      5.19, the information supplied by the Company or its subsidiaries for
      inclusion in the registration statement (the “Registration
      Statement”) covering the shares of the Buyer’s Stock to be issued
      pursuant to this Agreement shall not, at the time the Registration Statement
      (including any amendments or supplements thereto) is declared effective by
      the
      SEC, contain any untrue statement of a Material fact or omit to state any
      Material fact required to be stated therein or necessary to make the statements
      therein not misleading.  The information supplied by or on behalf of
      the Company and its subsidiaries for inclusion in the proxy statement/prospectus
      to be sent to the shareholders of the Company to consider, at a special meeting
      (the “Shareholder Meeting”), the Merger (such proxy


     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    statement/prospectus
      as amended or supplemented is referred to herein as the “Proxy
      Statement”) will not, on the date the Proxy Statement is first mailed
      to shareholders, at the time of the Shareholder Meeting and at the Effective
      Time, contain any untrue statement of a Material fact or omit to state any
      Material fact necessary to make the statements therein, in light of the
      circumstances under which they were made, not misleading.  If at any
      time prior to the Effective Time any event relating to the Company or its
      subsidiaries or any of their affiliates, officers or directors should be
      discovered by the Company or its subsidiaries that should be set forth in an
      amendment to the Registration Statement or a supplement to the Proxy Statement,
      the Company will promptly inform the Buyer and, at the Buyer’s request, assist
      in the preparation of an amendment for filing with the SEC.  The Proxy
      Statement shall comply in all Material respects with the requirements of the
      Securities Laws and the rules and regulations
      thereunder.  Notwithstanding the foregoing, the Company makes no
      representation or warranty with respect to any information supplied by the
      Buyer
      and its subsidiaries, including information that is contained or incorporated
      by
      reference in, or furnished in connection with the preparation of, the
      Registration Statement or the Proxy Statement.

     

    4.20           Accounting,
      Tax, and Regulatory Matters.  To
      the Knowledge of the Company, none of the Company or its subsidiaries or any
      Affiliate thereof has taken or agreed to take any action, that could reasonably
      be expected to (i) prevent the Merger from qualifying as a reorganization
      within the meaning of Section 368(a) of the Internal Revenue Code, or
      (ii) Materially impede or delay receipt of any Consents of Regulatory
      Authorities referred to in Section 8.1(b) of this
      Agreement.

     

    4.21           State
      Takeover Laws.  Each
      of the Company and its subsidiaries has taken all necessary action to exempt
      the
      transactions contemplated by this Agreement from any applicable “moratorium,”
“control share,” “fair price,” “business combination,” or other anti-takeover
      laws and regulations of the State of Delaware.

     

    4.22           Charter
      Provisions.  Each
      of the Company and its subsidiaries has taken all action so that the entering
      into of this Agreement and the consummation of the Merger and the other
      transactions contemplated by this Agreement do not and will not result in the
      grant of any rights to any Person under the certificate of incorporation,
      bylaws, or other governing instruments of any of them or restrict or impair
      the
      ability of the Buyer or any of its subsidiaries to vote, or otherwise to
      exercise the rights of a shareholder with respect to, the capital stock of
      the
      Company or any of its subsidiaries that may be directly or indirectly acquired
      or controlled by it.

     

    4.23           Records.  Complete
      and accurate copies of the articles of incorporation or charter and bylaws
      of
      each of the Company and its subsidiaries have been made available to the
      Buyer.  The stock book of each such Person contains, in all Material
      respects, complete and accurate records of the record share ownership of the
      issued and outstanding shares of stock thereof.

     

    4.24           Derivatives.  All
      interest rate swaps, caps, floors, option agreements, futures and forward
      contracts, and other similar risk management arrangements, whether entered
      into
      for the account of the Company or it subsidiaries or their customers were
      entered into (i) in accordance with prudent business practices and all
      applicable Laws, and (ii) with counterparties believed to be financially
      responsible.

     

    4.25           Certain
      Regulated Businesses.  Neither
      the Company nor any of its subsidiaries is an “investment company” as defined in
      the Investment Company Act of 1940, as amended.

     

    4.26           Commissions.  Other
      than Howe Barnes Hoefer & Arnett, Inc., no broker, finder or other Person is
      entitled to any brokerage fees, commissions or finder’s fees in connection with
      the transactions contemplated hereby by reason of any action taken by the
      Company, any of its subsidiaries or any of the Company’s
      shareholders.

     

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      V

     

    REPRESENTATIONS
      AND WARRANTIES OF THE BUYER

     

    Except
      as
      set forth on the Buyer’s Disclosure Schedule, the Buyer represents and warrants
      to the Company that each of the statements contained in this
Article V are correct and complete as of the date of this
      Agreement and will be correct and complete as of the Closing Date.

     

    5.1           Organization.

     

    (a)           The
      Buyer is a bank holding company registered with the Board of Governors of the
      Federal Reserve System under the Bank Holding Company Act of 1956, as amended
      and the North Carolina Commissioner of Banks.  The Buyer Bank is a
      state chartered bank incorporated under North Carolina Law and is an “insured
      institution” as defined in the Federal Deposit Insurance Act and applicable
      regulations thereunder, and subject to dollar limits under such Act, all
      deposits in the Buyer Bank are fully insured by the FDIC to the extent permitted
      by Law.

     

    (b)           Each
      of the Buyer and the Buyer Bank is a corporation duly organized, validly
      existing and in good standing under the Laws of the State of North Carolina,
      and
      has the corporate power and authority to carry on, in all Material respects,
      its
      businesses as now conducted and to own, lease and operate its
      Assets.  Each of the Buyer and the Buyer Bank is duly qualified or
      licensed to transact business as a foreign corporation in good standing in
      the
      States of the United States and foreign jurisdictions where the character of
      its
      Assets or the nature or conduct of its business requires it to be so qualified
      or licensed.

     

    5.2           Authority;
      No Conflicts.

     

    (a)           Subject
      to required regulatory and shareholder approvals, the Buyer has the corporate
      power and authority necessary to execute, deliver and perform its obligations
      under this Agreement and to consummate the transactions contemplated
      hereby.  The execution and delivery of and performance of the Buyer’s
      obligations under this Agreement and the other documents contemplated hereby,
      and the consummation of the transactions contemplated herein, including the
      Merger, have been duly and validly authorized by all necessary corporate action
      (and by Closing, all such shareholder action) in respect thereof on the part
      of
      the Buyer.  This Agreement represents a legal, valid, and binding
      obligation of the Buyer, enforceable against it in accordance with its terms
      (except in all cases as such enforceability may be limited by applicable
      bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting
      the
      enforcement of creditors’ rights generally and except that the availability of
      specific performance, injunctive relief and other equitable remedies is subject
      to the discretion of the court before which any proceeding may be
      brought).

     

    (b)           Neither
      the execution and delivery of this Agreement by the Buyer, nor the consummation
      by the Buyer of the transactions contemplated hereby, nor compliance by the
      Buyer with any of the provisions hereof will (i) conflict with or result in
      a breach of any provision of the Buyer’s articles of incorporation or bylaws or
      any similar governing documents, or (ii) constitute or result in a Default
      under, or require any Consent pursuant to, or result in the creation of any
      Lien
      on any Asset of the Buyer or any of its subsidiaries under, any Contract or
      Permit of the Buyer or any of its subsidiaries, except as could not reasonably
      be expected to have a Material Adverse Effect on the Buyer, or
      (iii) subject to obtaining the requisite Consents referred to in
Section 8.1(b) of this Agreement, violate any Law or Order
      applicable to the Buyer or any of its subsidiaries or any of their respective
      Assets.

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (c)           Other
      than in connection or compliance with the provisions of the Securities Laws
      and
      banking Regulatory Authorities, no notice to, filing with, or Consent of, any
      Governmental Authority is necessary for the consummation by the Buyer of the
      Merger and the other transactions contemplated in this Agreement.

     

    5.3           Buyer’s
      Stock; Subsidiaries.

     

    (a)           The
      authorized capital stock of the Buyer consists of 20,000,000 shares of common
      stock, no par value per share, of which 14,392,803 shares are issued and
      outstanding as of the date of this Agreement, and except for such shares, there
      are no shares of capital stock or other equity securities of the Buyer
      outstanding.  The authorized capital stock of the Buyer Bank consists
      of 2,500,000 shares of common stock, $5.00 par value per share, of which
      1,134,042 shares are issued and outstanding as of the date of this Agreement
      and
      are owned and held by the Buyer, and except for such shares, there are no shares
      of capital stock of the Buyer Bank
      outstanding.  Section 5.3 of the Buyer’s
      Disclosure Schedule lists all of the Buyer’s direct and indirect subsidiaries
      other than the Buyer Bank as of the date of this Agreement.  Except
      as set forth on Section 5.3 of the Buyer’s Disclosure
      Schedule, the Buyer or one of its subsidiaries owns all of the issued and
      outstanding shares of capital stock of each such subsidiary.

     

    (b)           All
      of the issued and outstanding shares of capital stock of the Buyer and its
      subsidiaries are duly and validly issued and outstanding and are fully paid
      and
      nonassessable.  Shares of the Buyer’s Stock to be issued hereunder are
      duly authorized and, upon issuance, will be validly issued and outstanding
      and
      fully paid and nonassessable, free and clear of any Liens, pledges or
      encumbrances.  None of the outstanding shares of capital stock of the
      Buyer or any of its subsidiaries has been issued in violation of any preemptive
      rights of the current or past shareholders of such Persons, and none of the
      shares of the Buyer’s Stock to be issued pursuant to this Agreement will be
      issued in violation of any preemptive rights of the current or past shareholders
      of the Buyer.

     

    5.4           SEC
      Filings; Buyer Financial Statements.

     

    (a)           The
      Buyer has filed and made available to the Company all forms, reports, and
      documents required to be filed by the Buyer with the SEC since December 31,
      2003
      (collectively, the “Buyer SEC Reports”).  The Buyer
      SEC Reports (i) at the time filed, complied in all Material respects with the
      applicable requirements of the Securities Laws, as the case may be, and (ii)
      did
      not at the time they were filed (or if amended or superseded by a filing prior
      to the date of this Agreement, then on the date of such filing) contain any
      untrue statement of a Material fact or omit to state a Material fact required
      to
      be stated in such Buyer SEC Reports or necessary in order to make the statements
      in such Buyer SEC Reports, in light of the circumstances under which they were
      made, not misleading.  None of the Buyer’s subsidiaries is required to
      file any forms, reports, or other documents with the SEC.

     

    (b)           Each
      of the Buyer Financial Statements (including, in each case, any related notes)
      contained in the Buyer SEC Reports, including any Buyer SEC Reports filed after
      the date of this Agreement until the Effective Time, complied or will comply
      as
      to form in all Material respects with the applicable published rules and
      regulations of the SEC with respect thereto, was prepared or will be prepared
      in
      accordance with GAAP applied on a consistent basis throughout the periods
      involved (except as may be indicated in the notes to such financial statements,
      or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC),
      and fairly presented or will fairly present the consolidated financial position
      of the Buyer and its subsidiaries as at the respective dates and the
      consolidated results of its operations and cash flows for the periods indicated,
      except that the unaudited interim financial statements were or are subject
      to
      normal and recurring year-end adjustments that were not or are not expected
      to
      be Material in amount or effect (except as may be indicated in such financial
      statements or notes thereto).

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    5.5           Absence
      of Undisclosed Liabilities.  Except
      as set forth in Section 5.5 of the Buyer’s Disclosure
      Schedule, neither the Buyer nor any of its subsidiaries has any Liabilities
      that
      could reasonably be expected to have a Material Adverse Effect on the Buyer,
      except Liabilities that are accrued or reserved against in the consolidated
      balance sheets of the Buyer as of December 31, 2006 included in the Buyer
      Financial Statements or reflected in the notes thereto and except for
      Liabilities incurred in the ordinary course of business subsequent to December
      31, 2006.  Neither the Buyer nor any of its subsidiaries has incurred
      or paid any Liability since December 31, 2006, except for (a) such Liabilities
      incurred or paid in the ordinary course of business consistent with past
      business practice and (b) Liabilities that could not reasonably be expected
      to
      have a Material Adverse Effect on the Buyer.  No facts or
      circumstances exist that could reasonably be expected to serve as the basis
      for
      any other Liabilities of the Buyer or any of its subsidiaries, except as could
      not reasonably be expected to have a Material Adverse Effect on the
      Buyer.

     

    5.6           Absence
      of Certain Changes or Events.  Since
      December 31, 2006, (i) there have been no events, changes, or occurrences that
      have had, or could reasonably be expected to have, a Material Adverse Effect
      on
      the Buyer, and (ii) each of the Buyer and its subsidiaries has conducted, in
      all
      Material Respects, its respective businesses in the ordinary and usual course
      (excluding the incurrence of expenses in connection with this Agreement and
      the
      transactions contemplated hereby).

     

    5.7           Tax
      Matters.

     

    (a)           All
      Tax Returns required to be filed by or on behalf of any of the Buyer and its
      subsidiaries have been timely filed, or requests for extensions have been timely
      filed, granted, and have not expired for periods ended on or before December
      31,
      2006, and, to the Knowledge of the Buyer, all Tax Returns filed are complete
      and
      accurate in all Material respects.  All Tax Returns for periods ending
      on or before the date of the most recent fiscal year end immediately preceding
      the Effective Time will be timely filed or requests for extensions will be
      timely filed.  All Taxes shown on filed Tax Returns have been
      paid.  There is no audit examination, deficiency, or refund Litigation
      with respect to any Taxes that could reasonably be expected to have a Material
      Adverse Effect on the Buyer, except to the extent reserved against in the Buyer
      Financial Statements dated prior to the date of this Agreement.  All
      Taxes and other Liabilities due with respect to completed and settled
      examinations or concluded Litigation have been paid.

     

    (b)           None
      of the Buyer or its subsidiaries has executed an extension or waiver of any
      statute of limitations on the assessment or collection of any Tax due (excluding
      such statutes that relate to years currently under examination by the Internal
      Revenue Service or other applicable taxing authorities) that is currently in
      effect.

     

    (c)           Adequate
      provision for any Material Taxes due or to become due for any of the Buyer
      or
      its subsidiaries for the period or periods through and including the date of
      the
      respective Buyer Financial Statements has been made and is reflected on such
      Buyer Financial Statements.

     

    (d)           Each
      of the Buyer and its subsidiaries is in compliance with, and its records contain
      all information and documents (including properly completed IRS Forms W-9)
      necessary to comply with, all applicable information reporting and Tax
      withholding requirements under federal, state, and local Tax Laws, and such
      records identify with specificity all accounts subject to backup withholding
      under Section 3406 of the Internal Revenue Code, except for any such instances
      of noncompliance and such omissions as could not reasonably be expected to
      have
      a Material Adverse Effect on the Buyer.

     

    (e)           None
      of the Buyer and its subsidiaries has made any payments, is obligated to make
      any payments, or is a party to any contract, agreement, or other arrangement
      that could obligate it to make any payments that would be disallowed as a
      deduction under Section 280G or 162(m) of the Internal Revenue
      Code.

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

     

    (f)           There
      are no Material Liens with respect to Taxes upon any of the Assets of the Buyer
      and its subsidiaries.

     

    (g)           There
      has not been an ownership change, as defined in Internal Revenue Code Section
      382(g), of the Buyer and its subsidiaries that occurred during any Taxable
      Period in which any of the Buyer and its subsidiaries has incurred a net
      operating loss that carries over to another Taxable Period ending after December
      31, 2006.


    (h)           After
      the date of this Agreement, no Material election with respect to Taxes will
      be
      made without the prior consent of the Company, which consent will not be
      unreasonably withheld.

     

    (i)           Neither
      the Buyer nor any of its subsidiaries has or has had a permanent establishment
      in any foreign country, as defined in any applicable tax treaty or convention
      between the United States and such foreign country.

     

    5.8           Assets.  Each
      of the Buyer and its subsidiaries have good and marketable title, free and
      clear
      of all Liens, to all of their respective Assets.  Except as could not
      reasonably be expected to have a Material Adverse Effect on the Buyer, all
      tangible properties used in the businesses of the Buyer and its subsidiaries
      are
      in good condition, reasonable wear and tear excepted, and are usable in the
      ordinary course of business consistent with each of their past
      practices.  Except as could not reasonably be expected to have a
      Material Adverse Effect on the Buyer, all Assets held under leases or subleases
      by any of the Buyer and its subsidiaries are held under valid Contracts
      enforceable in accordance with their respective terms (except as enforceability
      may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
      or other Laws affecting the enforcement of creditors’ rights generally and
      except that the availability of the specific performance, injunctive relief
      or
      other equitable remedies is subject to the discretion of the court before which
      any proceedings may be brought), and each such Contract is in full force and
      effect.  Each of the Buyer and its subsidiaries currently maintain
      insurance in amounts, scope, and coverage reasonably necessary for their
      operations.  None of the Buyer or its subsidiaries has received notice
      from any insurance carrier that (i) such insurance will be canceled or that
      coverage thereunder will be reduced or eliminated, or (ii) premium costs with
      respect to such policies of insurance will be increased in any Material
      respect.  The Assets of the Buyer and its subsidiaries include all
      Assets required to operate in all Material respects their businesses taken
      as a
      whole as presently conducted.

     

    5.9           Real
      Property.

     

    (a)           The
      Buyer has valid, good and marketable fee simple title to all Real Property
      owned, leased or operated in whole or in part by the Buyer (the “Buyer
      Real Property”), free and clear of all Liens other than Permitted Real
      Property Encumbrances.

     

    (b)           The
      Buyer Real Property, and the improvements, buildings and structures thereon
      (the
“Buyer Improvements”), (i) constitute all of the real
      property used or operated by the Buyer and (ii) may continue to be used for
      the operation of its business as currently operated by the Buyer after the
      Closing.  The current and anticipated use of the Buyer Real Property
      and the Buyer Improvements is not a pre-existing, nonconforming use, and no
      notice of the violation of any Law or legal requirement has been received by
      the
      Buyer.

     

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (c)           There
      are no pending, or to the Knowledge of the Buyer, threatened or contemplated
      condemnation, expropriation or other proceedings (nor is there any basis for
      any
      such action) affecting the Buyer Real Property, or any part thereof, or of
      any
      assessments made or threatened with respect to the Buyer Real Property or any
      part thereof, or of any sales or other disposition of the Buyer Real Property,
      or any part thereof, in lieu of condemnation.

     

    (d)           The
      Buyer does not own or hold, and is not obligated under or a party to, any
      option, right of first refusal or other contractual right to purchase, acquire,
      sell or dispose of the Buyer Real Property, or any portion thereof or interest
      therein.

     

    (e)           To
      the Knowledge of the Buyer, no Buyer Improvement encroaches upon any other
      property, and there are no encroachments by other buildings or improvements
      onto
      the Buyer Real Property.  

     

    5.10           Securities
      Portfolio and Investments.  All
      securities owned by the Buyer or any of its subsidiaries (whether owned of
      record or beneficially) are held free and clear of all Liens that would impair
      the ability of the owner thereof to dispose freely of any such security and/or
      otherwise to realize the benefits of ownership thereof at any time, except
      for
      those Liens to secure public deposits in the ordinary course of business
      consistent with past practice and those Liens that could not reasonably be
      expected to have a Material Adverse Effect on the Buyer.  There are no
      voting trusts or other agreements or undertakings to which the Buyer or any
      of
      its subsidiaries is a party with respect to the voting of any such
      securities.  Except for fluctuations in the market values of United
      States Treasury and agency or municipal securities, since December 31, 2006,
      there has been no significant deterioration or Material adverse change in the
      quality, or any Material decrease in the value, of the securities portfolio
      of
      the Buyer and its subsidiaries, taken as a whole.

     

    5.11           Environmental
      Matters.

     

    (a)           To
      the Knowledge of the Buyer, the Participation Facilities and Loan Collateral
      of
      the Buyer and its subsidiaries are, and have been, in compliance with all
      Environmental Laws, except those violations that could not reasonably be
      expected to have a Material Adverse Effect on the Buyer.

     

    (b)           To
      the Knowledge of the Buyer, there is no Litigation pending or threatened before
      any court, governmental agency, or authority, or other forum in which any of
      the
      Buyer and its subsidiaries or any of its Participation Facilities has been
      or,
      with respect to threatened Litigation, may reasonably be expected to be named
      as
      a defendant (i) for alleged noncompliance (including by any predecessor) with
      any Environmental Law or (ii) relating to the release into the environment
      of
      any Hazardous Material, whether or not occurring at, on, under, or involving
      a
      site owned, leased, or operated by the Buyer or any of its subsidiaries or
      any
      of its Participation Facilities, except for such Litigation pending or
      threatened that could not reasonably be expected to have a Material Adverse
      Effect on the Buyer.

     

    (c)           To
      the Knowledge of the Buyer, there is no Litigation pending or threatened before
      any court, governmental agency, or authority, or other forum in which any of
      its
      Loan Collateral (or the Buyer or any of its subsidiaries in respect of such
      Loan
      Collateral) has been or, with respect to threatened Litigation, may reasonably
      be expected to be named as a defendant or potentially responsible party
      (i) for alleged noncompliance (including by any predecessor) with any
      Environmental Law or (ii) relating to the release into the environment of
      any Hazardous Material, whether or not occurring at, on, under, or involving
      Loan Collateral, except for such Litigation pending or threatened that could
      not
      reasonably be expected to have a Material Adverse Effect on the
      Buyer.

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (d)           To
      the Knowledge of the Buyer, no facts exist that provide a reasonable basis
      for
      any Litigation of a type described in subsections (b) or (c), except such could
      not reasonably be expected to have a Material Adverse Effect on the
      Buyer.

     

    (e)           To
      the Knowledge of the Buyer, during and prior to the period of (i) any of
      the Buyer’s or its subsidiaries’ ownership or operation of any of their
      respective current properties, (ii) any of the Buyer’s
      or its subsidiaries’ participation in the management of any Participation
      Facility, or (iii) any of the Buyer’s or subsidiaries’ holding of a
      security interest in Loan Collateral, there have been no releases of Hazardous
      Material in, on, under, or affecting (or potentially affecting) such properties,
      except such as could not reasonably be expected to have a Material Adverse
      Effect on the Buyer.

     

    5.12           Compliance
      with Laws.  Each
      of the Buyer and its subsidiaries has in effect all Permits necessary for it
      to
      own, lease, or operate its Material Assets and to carry on, in all Material
      respects, its business as now conducted, except for those Permits the absence
      of
      which could not reasonably be expected to have a Material Adverse Effect on
      the
      Buyer, and there has occurred no Default under any such Permit, other than
      Defaults that could not reasonably be expected to have a Material Adverse Effect
      on the Buyer.  None of the Buyer or its subsidiaries: (i) is in
      violation of any Laws, Orders, or Permits applicable to its business or
      employees conducting its business, except for violations that could not
      reasonably be expected to have a Material Adverse Effect on the Buyer; and
      (ii) has received any notification or communication from any agency or
      department of federal, state, or local government or any Regulatory Authority
      or
      the staff thereof (a) asserting that any of the Buyer and its subsidiaries
      is not in compliance with any of the Laws or Orders that such governmental
      authority or Regulatory Authority enforces, except where such noncompliance
      could not reasonably be expected to have a Material Adverse Effect on the Buyer,
      (b) threatening to revoke any Permits, except where the revocation of which
      could not reasonably be expected to have a Material Adverse Effect on the Buyer,
      or (c) requiring the Buyer or any of its subsidiaries (x) to enter into or
      consent to the issuance of a cease and desist order, formal agreement,
      directive, commitment, or memorandum of understanding, or (y) to adopt any
      board or directors resolution or similar undertaking that restricts Materially
      the conduct of its business, or in any manner relates to its capital adequacy,
      its credit or reserve policies, its management, or the payment of
      dividends.  The most recent regulatory rating given to the Buyer as to
      compliance with the Community Reinvestment Act was “satisfactory” or
      better.

     

    5.13           Labor
      Relations.  Neither
      the Buyer nor any of its subsidiaries is the subject of any Litigation asserting
      that it has committed an unfair labor practice (within the meaning of the
      National Labor Relations Act or comparable state Law) or seeking to compel
      it to
      bargain with any labor organization as to wages or conditions of employment,
      nor
      is any of them a party to or bound by any collective bargaining agreement,
      Contract, or other agreement or understanding with a labor union or labor
      organization, nor is there any strike or other labor dispute involving any
      of
      them, pending or threatened, or to the Knowledge of the Buyer, is there any
      activity involving any of the Buyer’s or its subsidiaries’ employees seeking to
      certify a collective bargaining unit or engaging in any other organization
      activity.

     

    5.14           Employee
      Benefit Plans.

     

    (a)           The
      Buyer has made available to the Company prior to the execution of this Agreement
      correct and complete copies in each case of all Buyer Benefit
      Plans.

     

    (b)           All
      Buyer Benefit Plans are in compliance with the applicable terms of ERISA, the
      Internal Revenue Code, and any other applicable Laws, except as could not
      reasonably be expected to have a Material Adverse Effect on the
      Buyer.

     

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (c)           Neither
      the Buyer nor any of its subsidiaries has an “obligation to contribute” (as
      defined in ERISA Section 4212) to a “multiemployer plan” (as defined in ERISA
      Sections 4001(a)(3) and 3(37)(A)).  Each “employee pension benefit
      plan,” as defined in Section 3(2) of ERISA, ever maintained by the Buyer or its
      subsidiaries that was intended to qualify under Section 401(a) of the Internal
      Revenue Code
      and
      with respect to which the Buyer or any of its subsidiaries has any Liability,
      is
      disclosed as such in Section 5.14 of the Buyer’s
      Disclosure Schedule.

     

    (d)           The
      Buyer has made available to the Company prior to the execution of this Agreement
      correct and complete copies of the following documents: (i) all trust agreements
      or other funding arrangements for such Buyer Benefit Plans (including insurance
      contracts), and all amendments thereto, (ii) with respect to any such Buyer
      Benefit Plans or amendments, all determination letters, Material rulings,
      Material opinion letters, Material information letters, or Material advisory
      opinions issued by the Internal Revenue Service, the United States Department
      of
      Labor, or the Pension Benefit Guaranty Corporation after December 31, 2001,
      (iii) annual reports or returns, audited or unaudited financial statements,
      actuarial valuations and reports, and summary annual reports prepared for any
      Buyer Benefit Plan with respect to the most recent plan year, and (iv) the
      most
      recent summary plan descriptions and any Material modifications
      thereto.

     

    (e)           Each
      Buyer ERISA Plan that is intended to be qualified under Section 401(a) of the
      Internal Revenue Code has received a favorable determination letter from the
      Internal Revenue Service, and, to the Knowledge of the Buyer, there is no
      circumstance that will or could reasonably be expected to result in revocation
      of any such favorable determination letter.  Each trust created under
      any Buyer ERISA Plan has been determined to be exempt from Tax under Section
      501(a) of the Internal Revenue Code and to the Knowledge of
      the Buyer, there is no circumstance that will or could
      reasonably be expected to result in revocation of such
      exemption.  With respect to each such Buyer Benefit Plan, to the
      Knowledge of the Buyer, no event has occurred that will or could reasonably
      be
      expected to give rise to a loss of any intended Tax consequences under the
      Internal Revenue Code or to any Tax under Section 511 of the Internal Revenue
      Code that could reasonably be expected to have a Material Adverse Effect on
      the
      Buyer.  There is no Material Litigation pending or, to the Knowledge
      of the Buyer, threatened relating to any Buyer ERISA Plan.

     

    (f)           Neither
      the Buyer nor any of its subsidiaries has engaged in a transaction with respect
      to any Buyer Benefit Plan that, assuming the Taxable Period of such transaction
      expired as of the date of this Agreement, would subject the Buyer or any of
      its
      subsidiaries to a Material tax or penalty imposed by either Section 4975 of
      the
      Internal Revenue Code or Section 502(i) of ERISA in amounts
      that  could reasonably be expected to have a Material Adverse Effect
      on the Buyer.  Neither the Buyer or any of its subsidiaries nor any
      administrator or fiduciary of any Buyer Benefit Plan (or any agent of any of
      the
      foregoing) has engaged in any transaction, or acted or failed to act in any
      manner, that could subject the Buyer or any of its subsidiaries to any direct
      or
      indirect Liability (by indemnity or otherwise) for breach of any fiduciary,
      co-fiduciary, or other duty under ERISA, where such Liability could reasonably
      be expected to have a Material Adverse Effect on the Buyer.  No oral
      or written representation or communication with respect to any aspect of the
      Buyer Benefit Plans has been made to employees of the Buyer or any of its
      subsidiaries that is not in accordance with the written or otherwise preexisting
      terms and provisions of such plans, except where any Liability with respect
      to
      such representation or disclosure could not reasonably be expected to have
      a
      Material Adverse Effect on the Buyer.

     

    (g)           Since
      the date of the most recent actuarial valuation, there has been (i) no Material
      change in the financial position or funded status of any Buyer Pension Plan,
      (ii) no Material change in the actuarial assumptions with respect to any Buyer
      Pension Plan, and (iii) no Material increase in benefits under any Buyer Pension
      Plan as a result of plan amendments or changes in applicable Law, except as
      could not reasonably be expected to have a Material Adverse Effect on the
      Buyer.  Neither any Buyer 


    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    


    Pension
      Plan nor any “single-employer plan,” within the meaning of Section 4001(a)(15)
      of ERISA, currently or formerly maintained by the Buyer or its subsidiaries,
      or
      the single-employer plan of any entity that is considered one employer with
      the
      Buyer under Section 4001 of ERISA or Section 414 of the Internal Revenue Code
      or
      Section 302 of ERISA (whether or not waived) (a “Buyer ERISA
      Affiliate”) has an “accumulated funding deficiency” within the meaning
      of Section 412 of the Internal Revenue Code or Section 302 of
      ERISA.  All contributions with respect to a Buyer Pension Plan or any
      single-employer plan of a Buyer ERISA Affiliate have or will be timely made
      and
      there is no Lien or expected to be a Lien under Internal Revenue Code Section
      412(n) or ERISA Section 302(f) or Tax under Internal Revenue Code Section
      4971.  Neither the Buyer nor any of its subsidiaries has provided, or
      is required to provide, security to a Buyer Pension Plan or to any
      single-employer plan of a Buyer ERISA Affiliate pursuant to Section 401(a)(29)
      of the Internal Revenue Code.  All premiums required to be paid under
      ERISA Section 4006 have been timely paid by the Buyer, except to the extent
      any
      failure that could not reasonably be expected to have a Material Adverse Effect
      on the Buyer.

     

    (h)           No
      Liability under Title IV of ERISA has been or is expected to be incurred by
      the
      Buyer or it subsidiaries with respect to any defined benefit plan currently
      or
      formerly maintained by any of them or by any Buyer ERISA Affiliate that has
      not
      been satisfied in full (other than Liability for Pension Benefit Guaranty
      Corporation premiums which have been paid when due), except to the extent any
      failure could not reasonably be expected to have a Material Adverse Effect
      on
      the Buyer.

     

    (i)           Neither
      the Buyer nor any of its subsidiaries has any Material obligation for retiree
      health and retiree life benefits under any of the Buyer Benefit Plans other
      than
      with respect to benefit coverage mandated by applicable Law.

     

    (j)           Neither
      the execution and delivery of this Agreement nor the consummation of the
      transactions contemplated hereby will, by themselves, (i) result in any Material
      payment (including without limitation severance, unemployment compensation,
      golden parachute, or otherwise) becoming due to any director or any employee
      of
      the Buyer or it subsidiaries from the Buyer or any of its subsidiaries under
      any
      Buyer Benefit Plan or otherwise, (ii) Materially increase any benefit otherwise
      payable under any Buyer Benefit Plan, or (iii) result in any acceleration of
      the
      time of any Material payment or vesting of any Material benefit.

     

    5.15           Material
      Contracts.

     

    (a)           Except
      as set forth on Section 5.15 of the Buyer’s Disclosure
      Schedules, none of the Buyer or its subsidiaries, nor any of their respective
      Assets, businesses, or operations, is a party to, or is bound or affected by,
      or
      receives benefits under, (i) any employment, severance, termination, consulting,
      or retirement Contract, (ii) any Contract relating to the borrowing of money
      by
      the Buyer or its subsidiaries or the guarantee by the Buyer or its subsidiaries
      of any such obligation (other than Contracts evidencing deposit liabilities,
      purchases of federal funds, fully secured repurchase agreements, and Federal
      Reserve or Federal Home Loan Bank advances of depository institution
      subsidiaries, trade payables, and Contracts relating to borrowings or guarantees
      made in the ordinary course of business), and (iii) any other Contract or
      amendment thereto that would be required to be filed as an exhibit to a Form
      10-Q filed by the Buyer with the SEC as of the date of this Agreement that
      has
      not been filed as an exhibit to the Buyer’s Form 10-Q filed for the fiscal
      quarter ended March 31, 2007, or in another SEC document (together with all
      Contracts referred to in
Sections 5.8 and 5.14 of
      this Agreement, the “Buyer Contracts”).

     

    (b)           With
      respect to each Buyer Contract: (i) the Contract is in full force and effect;
      (ii) none of the Buyer or its subsidiaries is in Default hereunder, other than
      Defaults that could not reasonably be expected to have a Material Adverse Effect
      on the Buyer; (iii) neither the Buyer nor any of its subsidiaries



    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    


    has
      repudiated or waived any Material provision of any such Contract; and (iv)
      no
      other party to any such Contract is, to the Knowledge of the Buyer, in Default
      in any respect, other than Defaults that could not reasonably be expected to
      have a Material Adverse Effect on the Buyer, or has repudiated or waived any
      Material provision thereunder.  Except for Federal Reserve or Federal
      Home Loan Bank advances, all of the indebtedness of the Buyer and its
      subsidiaries for money borrowed (not including deposit Liabilities) is
      prepayable at any time without penalty or premium.

     

    5.16           Legal
      Proceedings.
      There
      is no Litigation instituted or pending, or, to the Knowledge of the Buyer,
      threatened against the Buyer or any of its subsidiaries, or against any Asset,
      employee benefit plan, interest, or right of any of them, except as could not
      reasonably be expected to have a Material Adverse Effect on the Buyer, nor
      are
      there any Orders of any Regulatory Authorities, other governmental authorities,
      or arbitrators outstanding against any the Buyer or its subsidiaries, except
      as
      could not reasonably be expected to have a Material Adverse Effect on the
      Buyer.  There is no Litigation as of the date of this Agreement to
      which the Buyer or any of its subsidiaries is a party and that names the Buyer
      or any of its subsidiaries as a defendant or cross-defendant and where the
      maximum exposure is estimated to be $250,000 or more.

     

    5.17           Proprietary
      Rights.  

     

    (a)           Ownership
      and Right to Use.  The Buyer owns, has been granted a license to
      use or otherwise has the right to use all of the Intellectual Property that
      it
      uses, or holds for use, in its business (the “Buyer Proprietary
      Rights”).  

     

    (b)           Trade
      Secrets.  The Buyer has taken efforts that are reasonable under
      the circumstances to prevent unauthorized disclosure to any other Person of
      such
      portions of the Buyer’s trade secrets that would enable such Person to compete
      with the Buyer within the scope of the Buyer’s business as now conducted and as
      presently proposed to be conducted.

     

    (c)           No
      Infringement.  The Buyer has not interfered with, infringed upon
      or misappropriated the Intellectual Property of any other Person and the
      continued operation of the Buyer’s business by the Company, in the manner that
      such business is currently conducted or proposed to be conducted, will not
      interfere with, infringe upon or misappropriate the Intellectual Property of
      any
      other Person.  To the Knowledge of the Buyer, no Person is interfering
      with, infringing upon or misappropriating any Buyer Proprietary
      Right.  No claim has been asserted against the Buyer by any
      Person:  (i) that such Person has any right, title or interest in
      or to any of the Buyer Proprietary Rights; (ii) that such Person has the
      right to use any of the Buyer Proprietary Rights; (iii) to the effect that
      any past, present or projected act or omission by the Buyer infringes the
      Intellectual Property of such Person; or (iv) that challenges the Buyer’s
      right to use any of the Buyer Proprietary Rights.  No facts or
      circumstances exist that, with or without the passing of time or the giving
      of
      notice or both, might reasonably serve as the basis for any such
      claim.

     

    5.18           Reports.  Since
      the date of its organization, each of the Buyer and its subsidiaries has timely
      filed all reports and statements, together with any amendments required to
      be
      made with respect thereto, that it was required to file with any Regulatory
      Authorities, except failures to file that could not reasonably be expected
      to
      have a Material Adverse Effect on the Buyer.  As of their respective
      dates, each of such reports and documents, including the financial statements,
      exhibits, and schedules thereto, complied with all applicable Laws, except
      noncompliance that could not reasonably be expected to have a Material Adverse
      Effect on the Buyer.

     

    5.19           Registration
      Statement; Proxy Statement.  Subject
      to the accuracy of the representations contained in Section
      4.19, the Registration Statement covering the shares of the Buyer’s


     

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    stock
      to
      be issued pursuant to this Agreement shall not, at the time the Registration
      Statement (including any amendments or supplements thereto) is declared
      effective by the SEC, contain any untrue statement of a Material fact or omit
      to
      state any Material fact required to be stated therein or necessary to make
      the
      statements therein not misleading.  Subject to the accuracy of the
      representations contained in Section 4.19, the Proxy Statement
      to be sent to the shareholders of the Company to consider, at the Shareholder
      Meeting, the Merger, will not, on the date the Proxy Statement is first mailed
      to shareholders, at the time of the Shareholder Meeting and at the Effective
      Time, contain any untrue statement of a Material fact or omit to state any
      Material fact necessary to make the statements therein, in light of
      circumstances under which they were made, not misleading.  If at any
      time prior to the Effective Time any event relating to the Buyer or the Buyer
      Bank or any of their affiliates, officers or directors should be discovered
      by
      the Buyer or the Buyer Bank that should be set forth in an amendment to the
      Registration Statement or a supplement to the Proxy Statement, the Buyer or
      the
      Buyer Bank will promptly inform the Company and prepare an amendment for filing
      with the SEC, subject to review and approval of the Company, which approval
      shall not be unreasonably withheld or delayed.  The Proxy Statement
      shall comply in all Material respects with the requirements of the Securities
      Laws and the rules and regulations thereunder.  Notwithstanding the
      foregoing, the Buyer makes no representation or warranty with respect to any
      information supplied by the Company and its subsidiaries that is contained
      or
      incorporated by reference in, or furnished in connection with the preparation
      of, the Registration Statement or the Proxy Statement.

     

    5.20           Accounting,
      Tax, and Regulatory Matters.  To
      the Knowledge of the Buyer, none of the Buyer or it subsidiaries or any
      Affiliate thereof has taken or agreed to take any action, that could reasonably
      be expected to (i) prevent the Merger from qualifying as a reorganization within
      the meaning of Section 368(a) of the Internal Revenue Code, or (ii) Materially
      impede or delay receipt of any Consents of Regulatory Authorities referred
      to in
Section 8.1(b) of this
      Agreement.

     

    5.21           Derivatives.  All
      interest rate swaps, caps, floors, option agreements, futures and forward
      contracts, and other similar risk management arrangements, whether entered
      into
      for the account of the Buyer or it subsidiaries or their customers were entered
      into (i) in accordance with prudent business practices and all applicable Laws,
      and (ii) with counterparties believed to be financially
      responsible.

     

    5.22           Certain
      Regulated Businesses.  Neither
      the Buyer nor any of its subsidiaries is an “investment company” as defined in
      the Investment Company Act of 1940, as amended.

     

    5.23           Commissions.  Other
      than Raymond James & Associates, Inc., no broker, finder or other Person is
      entitled to any brokerage fees, commissions or finder’s fees in connection with
      the transactions contemplated hereby by reason of any action taken by the Buyer,
      any of its subsidiaries or any of the Buyer’s shareholders.

     


    ARTICLE
      VI

     

    COVENANTS

     

    6.1           Covenants
      of the Company.

     

    (a)           Ordinary
      Conduct of Business.  Except as otherwise expressly permitted by
      this Agreement, the Company will, and will cause each of its subsidiaries to,
      from the date of this Agreement to the Closing, conduct its business in the
      ordinary course in substantially the same manner as presently conducted and
      make
      reasonable commercial efforts consistent with past practices to preserve its
      relationships with other Persons.  Additionally, except as otherwise
      contemplated by this Agreement or as set forth on
Section 6.1(a) of the Company’s Disclosure Schedule, the
      Company will not, and it will not permit its subsidiaries to, do any of the
      following without the prior written consent of the Buyer, which consent will
      not
      be unreasonably withheld or delayed:

     

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (i)           amend
      its governing documents;

     

    (ii)           authorize
      for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver
      any stock or stock options (including the grant of reload options in connection
      with the exercise of existing stock options) or other equity equivalents of
      any
      class or any other of its securities, or amend any of the terms of any
      securities outstanding as of the date hereof; provided that nothing in
      this Section 6.1(a)(ii) shall preclude the holders of
      Company stock options that have vested in accordance with their terms and the
      terms of the plan or plans under which such stock options were issued from
      exercising such stock options for the purchase of Company common stock, and
      provided further that any such permitted exercise shall not result
      in the grant of any reload options;

     

    (iii)           (A)
      split, combine or reclassify any shares of its capital stock, (B) declare,
      set
      aside or pay any dividend or other distribution (whether in cash, stock or
      property or any combination thereof) in respect of its capital stock,(except
      for
      regular quarterly cash dividends paid in accordance with past practice at the
      rate of $0.64 per share per annum, including the payment of any quarterly
      portion thereof as is necessary to prevent the Company’s shareholders from
      failing to receive a quarterly dividend from either the Company or the Buyer
      during any particular calendar quarter), or (C) redeem or otherwise acquire
      any of its securities;

     

    (iv)           (A) incur
      or assume any long-term or short-term debt or issue any debt securities other
      than in the ordinary course of business consistent with past practice or
      (B) other than in the ordinary course of business consistent with past
      practice assume, guarantee, endorse or otherwise become liable or responsible
      (whether directly, contingently or otherwise) for the obligations of any other
      Person, (C) make any loans, advances or capital contributions to, or
      investments in, any other Person, other than in the ordinary course and
      consistent with past practice, but in any event not to exceed an amount per
      loan
      of $400,000, pledge or otherwise encumber shares of its capital stock,
      (D) mortgage or pledge any of its assets, tangible or intangible, or create
      or suffer to exist any Lien thereupon, other than Liens permitted by the proviso
      clause in the definition of Liens and Liens created or existing in the ordinary
      course of business consistent with past practice or (E) prepay or accelerate
      amortization of any outstanding Company ESOP indebtedness;


    (v)           except
      as required by Law or as contemplated herein, adopt or amend any Benefit
      Plan;

     

    (vi)           except
      as provided in Section 6.2(c), grant to any director or
      executive officer or employee any stock options or increase in his or her
      compensation or pay or agree to pay to any such person other than in the
      ordinary course of business consistent with past practices any bonus, severance,
      change of control or termination payment, specifically including any such
      payment that becomes payable upon termination of such Person by it after the
      Closing;

     

    (vii)           enter
      into or amend any employment Contract;

     

     

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (viii)           acquire,
      sell, lease or dispose of any assets outside the ordinary course of business,
      or
      any other assets that in the aggregate are Material to it, or acquire any Person
      (or division thereof), any equity interest therein or the assets thereof outside
      the ordinary course of business consistent with past practice;

     

    (ix)           change
      or modify any of the accounting principles or practices used by it
      or  revalue in any Material respect any of its assets, including
      without limitation writing down the value of inventory or writing off notes
      or
      accounts receivable other than in the ordinary course of business or as required
      by GAAP;

     

    (x)           (A)
      enter into, cancel or modify any Contract other than in the ordinary course
      of
      business consistent with past practices, but not in any event involving an
      amount in excess of $10,000;  (B) authorize or make any capital
      expenditure or expenditures that, individually or in the aggregate, are in
      excess of $25,000; or (C) enter into or amend any Contract with respect to
      any
      of the foregoing;

     

    (xi)           pay,
      discharge or satisfy, cancel, waive or modify any claims, liabilities or
      obligations (absolute, accrued, asserted or unasserted, contingent or
      otherwise), other than the payment, discharge or satisfaction in the ordinary
      course of business of liabilities reflected or reserved against in or
      contemplated by the Company Financial Statements, or incurred in the ordinary
      course of business consistent with past practices;

     

    (xii)           settle
      or compromise any pending or threatened suit, action or claim in an amount
      greater than $10,000 per claim or $50,000 in the aggregate;

     

    (xiii)           take,
      or agree in writing or otherwise to take, any action that would make any of
      the
      representations or warranties of the Company contained in this Agreement untrue
      or incorrect or result in any of the conditions set forth in this Agreement
      not
      being satisfied; or

     

    (xiv)           agree,
      whether in writing or otherwise, to do any of the foregoing.

     

    (b)           Consents.  The
      Company will exercise its best efforts to obtain such Consents as may be
      necessary or desirable for the consummation of the transactions contemplated
      hereby, including without limitation from the appropriate Governmental
      Authorities and the parties to those Contracts listed on
Section 4.2 of the Company’s Disclosure Schedule such that
      such Contracts shall survive the Merger and not be breached
      thereby.

     

    (c)           Shareholder
      Approval.  Subject to Section 6.1(d),
the Company will, at the earliest practicable
      date, hold the
      Shareholder Meeting and take all lawful action to solicit the approval and
      adoption of this Agreement (and the related Plan of Merger) and the Merger
      by
      the requisite vote.  In connection with such shareholder meeting,
      subject to Section 6.1(d), the Company’s board of directors
      will recommend to the Company’s shareholders such approvals.  Such
      recommendation shall be contained in the Proxy Statement.

     

    (d)           Acquisition
      Proposals.

     

    (i)           The
      Company shall not, and shall not permit any of its subsidiaries or any of the
      respective Affiliates, representatives, advisers or agents of the Company and
      its subsidiaries to, directly or indirectly, (x) take any action to
      solicit, initiate or encourage any Acquisition Proposal, or (y) participate
      in any discussions or negotiations 

     

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    with
      or
      encourage any effort or attempt by any other Person or take any other action
      to
      facilitate an Acquisition Proposal.  From and after the date hereof,
      the Company shall, and shall cause its subsidiaries and the Affiliates,
      representatives, advisers and agents of the Company and its subsidiaries to,
      cease doing any of the foregoing.

     

    (ii)           Notwithstanding
      the foregoing, in the event of the receipt by the Company or any of its
      subsidiaries of an Acquisition Proposal and (x) the Company’s board of directors
      concludes in good faith that there is a reasonably likelihood that such
      Acquisition Proposal constitutes or is reasonably likely to result in a Superior
      Proposal, and (y) neither the Company nor any of its subsidiaries or any of
      the
      respective Affiliates, representatives, advisers or agents of the Company and
      its subsidiaries solicited, initiated or encouraged such Acquisition Proposal,
      the Company may furnish to any party information and access in response to
      a
      request for information or access made incident to such Acquisition Proposal
      and
      may participate in discussions and negotiate with such party concerning its
      Acquisition Proposal to the extent that the Company’s board of directors shall
      have determined, based upon the advice of outside counsel experienced in such
      matters, that failing to take such action would violate the directors’ fiduciary
      duties under applicable Law; provided, however, that prior to
      providing any nonpublic information permitted to be provided by this subsection
      (ii), the Company and its subsidiaries shall have entered into a confidentiality
      agreement with such third party on terms no less favorable to them than
      contained in the Confidentiality Agreements.

     

    (iii)           Unless
      this Agreement has been terminated in accordance with the provisions hereof,
      the
      board of directors of the Company shall notify the Buyer immediately of any
      and
      all communications regarding or in anticipation of an Acquisition Proposal
      and
      of any Acquisition Proposals that are made, and shall in such notice indicate
      in
      reasonable detail, to the extent reasonably possible, the identity of the
      offeror and the terms and conditions of such Acquisition Proposal and shall
      keep
      the Buyer promptly advised of all developments relating thereto or that could
      culminate in the board of directors withdrawing, modifying or amending its
      recommendation of the Merger and the other transactions contemplated by this
      Agreement. Unless this Agreement has been terminated, neither the Company nor
      any of its subsidiaries shall waive or modify any provisions contained in any
      confidentiality agreement entered into relating to a possible acquisition
      (whether by merger, stock purchase, asset purchase or otherwise) or
      recapitalization of the Company or any of its subsidiaries.

     

    (e)           Employee
      Benefit Plans.

     

    (i)           The
      Company shall, prior to the Effective Time, in accordance with applicable law
      and the terms of the relevant plan documents, (A) take all actions as may be
      necessary to satisfy or pay in full all obligations of the Company or its
      subsidiaries under the following plans (to the extent due and payable prior
      to
      the Effective Time) and to terminate such plans: the 1998 Recognition and
      Retention Plan, the 2003 Long-Term Incentive Stock Benefit Plan, and the First
      Federal Savings and Loan Association of Cheraw Non-Qualified Supplemental Plan;
      (B) comply with the applicable provisions of Code Section 409A and the
      regulations promulgated thereunder and IRS Notice 2005-1, including amending
      such plans if required, such that no interest or additional tax is payable
      under
      Section 409A(a)(1)(B) of the Code; (C) with respect to the First Federal Savings
      and Loan Association of Cheraw Non-Qualified Supplemental Plan, obtain from
      each
      participant receiving payment thereunder an acknowledgment acknowledging the
      payment of the amounts due and releasing the Buyer, Buyer Bank, the Company
      and


     

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    Company
      Bank from any further obligations thereunder; and (D) provide to the Buyer
      written evidence, in form reasonably acceptable to the Buyer, that the Company
      has complied with the provisions of this paragraph.

     

    (ii)           With
      respect to the First Federal Savings and Loan Association of Cheraw Restated
      Non-Qualified Deferred Compensation Plan, the Company and Company Bank shall,
      prior to the Effective Time, comply with the applicable provisions of Code
      Section 409A and the regulations promulgated thereunder and IRS Notice 2005-1,
      including amending such Plan if required, such that no interest or additional
      tax is payable under Section 409A(a)(1)(B) of the Code.  As of the
      Effective Time, the Buyer shall assume and honor Company and Company Bank’s
      obligations under such Plan.

     

    (iii)           With
      respect to the Great Pee Dee Bancorp, Inc. and First Federal Savings and Loan
      Association of Cheraw Deferred Compensation Plan for Directors (the
“2002 Plan”) and the Great Pee Dee Bancorp and Sentry Bank
& Trust 2005 Deferred Compensation Plan for Directors (the
“2005
      Plan”), Company and Company Bank shall, prior to the Effective Time, in
      accordance with applicable law and the terms of the Plan documents and such
      that
      no interest or additional tax is payable under Section 409A(a)(1)(B) of the
      Code, (A) comply with the applicable provisions of Code Section 409A and the
      regulations promulgated thereunder and IRS Notice 2005-1, including amending
      such Plans if required; and (B) terminate the 2002 Plan and provide for payments
      of Plan benefits due to participants.  As of the Effective Time, the
      Buyer shall assume and honor the Company and Company Bank’s obligations under
      such Plans.  The Plans shall provide for the following benefit
      distributions, which shall not trigger interest or additional tax payable under
      Section 409A(a)(1)(B) of the Code: with respect to the 2005 Plan, Herbert W.
      Watts and H. Malloy Evans, Jr. shall receive distributions under the elections
      described later in this paragraph, and all participants in the 2002 Plan shall
      receive distributions in three equal annual installments commencing at the
      later
      of January 1, 2008 or the Effective Time.  With respect to the 2005
      Plan, prior to the Effective Time and in any event prior to December 31, 2007
      (the end of the transition period under Section 409A of the Code), Mr. Watts
      shall execute and deliver to the Company and to the Buyer an election form
      indicating that he shall receive a single lump sum payment of his account
      balance, and Mr. Evans shall execute and deliver to the Company and to the
      Buyer
      an election form indicating that he shall receive his account balance in equal
      monthly or annual installments over a three (3) year
      period.  Distributions under the 2005 Plan shall commence at the later
      of January 1, 2008, or the Effective
      Time.  Following the distribution of all assets held thereunder, the
      2005 Plan shall be terminated.

     

    (iv)           Concurrently
      with the execution and delivery of this Agreement, the Company and Company
      Bank
      shall prepare an acknowledgement in the form attached as Section
      6.1(e) of the Company Disclosure Schedule (an “Acknowledgement
      Agreement”), which shall, in a manner consistent with the Plans (as
      amended, if applicable) that are the subject of paragraphs (ii) and (iii) above,
      set forth the manner in which each participant’s rights under such Plans will be
      assumed and honored by the Buyer.

     

    (v)           The
      Company and Company Bank may, prior to the Effective Time, amend such rabbi
      trusts that hold assets in the (A) First Federal Savings and Loan Association
      of
      Cheraw Restated Non-Qualified Deferred Compensation Plan, (B) the 2002 Plan,
      (C)
      the 2005 Plan, and (D) the First Federal Savings and Loan Association of


     

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    Cheraw
      Non-Qualified Supplemental Plan, in order to consolidate assets from such plans
      within a single rabbi trust or more than one rabbi trust as it deems necessary
      or appropriate to provide for an orderly distribution of benefits to
      participants in such Plans.  Following the distribution of all plan
      assets held thereunder, the rabbi trusts shall be terminated.

     

    (vi)           After
      the date of this Agreement, the 2005 Plan shall be frozen, and neither the
      Company nor the Company Bank shall make or permit to be made any additional
      contributions or deferrals under any plan that is a “nonqualified deferred
      compensation plan” under Treas. Reg. § 1.409A-1(a).

     

    6.2           Covenants
      of the Buyer.

     

    (a)           Reservation
      of Shares of the Buyer’s Stock.  The Buyer shall reserve for
      issuance a sufficient number of shares of the Buyer’s Stock to cover the
      issuances of such stock required hereby.

     

    (b)           Directors.

     

    (i)           Effective
      at the Effective Time, the Buyer shall cause James C. Crawford to be elected
      or
      appointed as a member of the board of directors of the Buyer and the Buyer
      Bank;
      provided that Mr. Crawford meets the independence requirements of the Nasdaq
      Global Select Market.  If Mr. Crawford does not meet the independence
      requirements of the Nasdaq Global Select Market, the Buyer shall cause to
      elected or appointed as a member of the board of directors of the Buyer and
      Buyer Bank another member of the board of directors of the Company and the
      Company Bank who meets the independence requirements of the Nasdaq Global Select
      Market.  The Buyer shall include such designated individual as a
      candidate for election as director and recommend and solicit proxies for his
      or
      her election at such next annual meeting.  After such meeting, such
      designated person shall be subject to the same nomination and election
      procedures as the other directors on the boards of the Buyer and the Buyer
      Bank.

     

    (ii)           The
      Company’s directors at the Effective Time who do not join the Buyer’s board of
      directors will have the option to participate on a local advisory board of
      the
      Buyer (which advisory board the Buyer agrees to establish and maintain for
      at
      least three years).  Each former Company director who joins such
      advisory board shall be paid a fee of $1,000 per month for his or her good
      faith
      service in promoting the Buyer and the Buyer
      Bank as a member of such advisory board for the three year period beginning
      on
      the Effective Date and ending on the third anniversary of the Effective
      Date.  After the third anniversary of the Effective Date, participants
      on the local advisory board shall be paid Buyer’s normal advisory board fee for
      service as a member of such advisory board.

     

    (c)           Employees.

     

    (i)           Except
      as covered by the Employment Agreement and any existing employment agreements
      of
      Company set forth on Section 4.15(a) of the Company Disclosure
      Schedule, any and all of the Company’s employees will be employed on an
“at-will” basis, and nothing in this Agreement shall be deemed to constitute an
      employment agreement with any such person to obligate the Buyer or any Affiliate
      thereof to employ any such person for any specific period of time or in any
      specific position or to restrict the Buyer’s or any of its Affiliates’ right to
      terminate the employment of any such person at any time and for any reason
      satisfactory to it.

     

     

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    (ii)           Company
      employees who continue employment with the Buyer or any of its subsidiaries
      will
      be eligible for benefits consistent with those of existing employees of the
      Buyer or such subsidiary, with credit for past service with the Company or
      the
      Company Bank for purposes of participation, eligibility and vesting (but not
      for
      the calculation of any benefit accrual under any defined benefit plan);
provided, however, in the event of any termination or
      consolidation of any Company or Company Bank health plan with any Buyer or
      Buyer
      Bank health plan, the Buyer or Buyer Bank shall make available to employees
      of
      the Company or Company Bank who continue employment with the Buyer or Buyer
      Bank
      (“Continuing Employees”) and their dependents employer-provided
      health coverage on the same basis as it provides such coverage to employees
      of
      the Buyer and Buyer Bank.  Unless a Continuing Employee affirmatively
      terminates coverage under a Company or Company Bank health plan prior to the
      time that such Continuing Employee becomes eligible to participate in the Buyer
      or Buyer Bank health plan, no coverage of any of the Continuing Employees or
      their dependents shall terminate under any of the Company or Company Bank health
      plans prior to the time such Continuing Employees and their dependents become
      eligible to participate in the health plans, programs and benefits common to
      all
      employees of Buyer and Buyer Bank and their dependents.  In the event
      of any termination of any Company or Company Bank health plan, or consolidation
      of any Company or Company Bank health plan with any Buyer Bank health plan,
      any
      coverage limitation under the Buyer Bank health plan due to any pre-existing
      condition shall be waived by the Buyer Bank health plan to the degree that
      such
      condition was covered by the Company or Company Bank health plan and such
      condition would otherwise have been covered by the Buyer Bank health plan in
      the
      absence of such coverage limitation.  All Continuing Employees who
      cease participating in a Company Bank health plan and become participants in
      a
      comparable Buyer Bank health plan (i) shall receive credit for any co-payment
      and deductibles paid under Company Bank’s health plan for purposes of satisfying
      any applicable deductible or out-of-pocket requirements under the Buyer Bank
      health plan, upon substantiation, in a form satisfactory to Buyer Bank that
      such
      co-payment and/or deductible has been satisfied, and (ii) will not be subject
      to
      any exclusion or penalty for preexisting conditions that were covered under
      the
      Company or Company Bank’s health plans as of the Closing Date or any waiting
      period relating to coverage under the Buyer or Buyer Bank’s health
      plans.  There shall be no waiting periods applicable to any Company or
      Company Bank employees to participate in such benefits (including applicable
      insurance benefits).

     

    (iii)           The
      Buyer or one of its subsidiaries shall honor any and all vacation accrued by
      the
      employees of the Company and the Company Bank and any sick leave up to 30
      days.

     

    (iv)           The
      Buyer shall provide severance  to any employees of the Company that
      are terminated in connection with the Merger, at the rate of two (2) weeks
      of
      base salary per year of service with the Company, with a minimum of three (3)
      months of severance.  In addition, the Buyer shall offer outplacement
      services for Company employees terminated in connection with the
      Merger.

     

    (v)           Except
      as otherwise provided herein, the Buyer will honor the existing employment
      agreements and other Company Contracts set forth on
Section 4.15(a) of the Company Disclosure
      Schedule.

     

    (vi)           Immediately
      prior to the Effective Time, the Company shall transfer to Mr. Long the title
      to
      the Company vehicle that Mr. Long currently drives.

     

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    (vii)           The
      Company and Company Bank may amend or restate the employment agreement by and
      between Company Bank and John Long and the severance agreements by and between
      Company Bank and each of Johnny Digby and Terry Laughter by no later than the
      earlier of the Closing Date or December 31, 2007, in order to cause a “change in
      control” to be a triggering event for distributions (without the necessity of
      separation from service) and to require the amounts due to John Long and Terry
      Laughter to be paid in a lump sum, and the amounts due to Johnny Digby to be
      paid in three (3) annual installments, in a manner that is consistent with
      Section 409A of the Code.  Company Bank shall pay such amounts, which
      are set forth in Section 6.2(c) of the Company Disclosure
      Schedule (such amounts shall not be increased in the event the Effective Time
      occurs in 2008 rather than 2007), commencing on the later of January 1, 2008
      or
      the Effective Time; provided that in no event will the Company Bank be obligated
      to pay any amounts that would be disallowed as a deduction under Section 280G
      of
      the Internal Revenue Code.  Prior to the Effective Time, Company Bank
      shall obtain an agreement (a “Settlement Agreement”) in the
      form attached to Section 6.2(c) of the Company Disclosure
      Schedule, from each of John Long, Johnny Digby and Terry Laughter, to accept
      in
      full settlement of his or her rights under the employment or severance agreement
      the amounts and benefits set forth in the Settlement Agreements. Section
      6.2(c) of the Company Disclosure Schedule sets forth the maximum safe
      harbor amounts payable to each of John Long, Johnny Digby and Terry Laughter
      within the meaning of Section 280G of the Code.

     

    (viii)           In
      exchange for their willingness to remain in the employ of the Company Bank
      following the Effective Time and provided they do not voluntarily terminate
      their employment prior to the earlier to occur of (A) ninety (90) days following
      the Effective Time or (b) the date of the data processing conversion with
      respect to the merger of Company Bank into Buyer Bank, John Long shall receive
      a
      retention bonus cash payment of $70,000 and Johnny Digby and Terry Laughter
      shall each receive a retention bonus cash payment of $25,000, all upon the
      earlier to occur of ninety (90) days following the Effective Time or the date
      of
      the data processing conversion.


    (d)           Directors
      and Officers Insurance and Indemnification.

     

    (i)           The
      Buyer shall maintain, or shall cause the Buyer Bank to maintain, in effect
      for
      six (6) years from the Closing Date, if available, the current directors’ and
      officers’ liability insurance policies maintained by the Company;
provided, however, that Buyer may substitute therefor policies of
      at least the same coverage containing terms and conditions that are not taken
      as
      a whole Materially less favorable to the insured with respect to matters
      occurring prior to the Effective Time.

     

    (ii)           From
      and after the Effective Time, the Buyer shall, or shall cause the Buyer Bank
      to,
      indemnify (including the advancement of expenses), defend and hold harmless
      each
      person who is now, or who has been at any time before the date hereof or who
      becomes before the Effective Time, an officer or director of the Company or
      Company Bank (the “Indemnified Parties”) against all losses,
      claims, damages, costs, expenses (including reasonable attorneys’ fees),
      liabilities or judgments or amounts that are paid in settlement (which
      settlement shall require the prior written consent of Buyer, which consent
      shall
      not be unreasonably withheld) of or in connection with any claim, action, suit,
      proceeding or investigation, whether civil, criminal, or administrative (each
      a
“Claim”), in which an Indemnified Person is, or is threatened
      to be made, a party or witness arising in whole or in part out of the fact
      that
      such person is or was a director, 

     

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    officer
      or employee of the Company Bank or any of its subsidiaries if such Claim
      pertains to any matter or fact arising, existing or occurring before the
      Effective Time (including without limitation the Merger and the other
      transactions contemplated hereby), regardless of whether such Claim is asserted
      or claimed before, at or after the Effective Time (the “Indemnified
      Liabilities”), to the fullest extent required or permitted by the
      Company’s Certificate of Incorporation (or as to the Company Bank, its charter)
      and permitted by applicable Law in effect as of the date hereof or as amended
      applicable to a time before the Effective Time.  Any Indemnified
      Person wishing to claim indemnification under this Section
      6.2(d)(ii), upon learning of any Claim, shall notify the Buyer (but the
      failure so to so notify shall not relieve the Buyer or the Buyer Bank from
      any
      liability that it may have under this Section 6.2(d)(ii),
      except to the extent such failure Materially prejudices the Buyer or its
      Affiliates).  In the event of any such Claim, whether arising before,
      on or after the Effective Time, (i) the Buyer shall have the right to
      assume the defense thereof (in which event the Indemnified Parties will
      cooperate in the defense of any such matter) and upon such assumption, the
      Buyer
      shall not be liable to any Indemnified Person for any legal expenses of other
      counsel or any other expenses subsequently incurred by any Indemnified Person
      in
      connection with the defense therefor, except that if the Buyer elects not to
      assume such defense, or counsel for the Indemnified Parties reasonably advises
      the Indemnified Parties that there are or may be (whether or not any have yet
      actually arisen) issues that raise conflicts of interest between the Buyer
      and
      the Indemnified Parties, the Indemnified Parties may retain counsel reasonably
      satisfactory to them, and the Buyer shall pay the reasonable fees and expenses
      of such counsel for the Indemnified Parties, (ii) the Buyer shall be
      obligated pursuant to this paragraph to pay for only one firm of counsel for
      all
      Indemnified Parties (unless counsel for one or more Indemnified Parties advises
      his or her client that a conflict exists between his or her client and one
      or
      more other Indemnified Parties, in which event the fees and expenses of such
      counsel shall also be paid by the Buyer) whose reasonable fees and expenses
      shall be paid promptly as statements are received, (iii) the Buyer shall
      not be liable for any settlement effected without its prior written consent
      (which consent shall not be unreasonably withheld), and (iv) the Buyer
      shall have no obligation hereunder to any Indemnified Person when and if a
      court
      of competent jurisdiction shall ultimately determine,
      and such determination shall have become final and nonappealable, that
      indemnification of such Indemnified Person in the manner contemplated hereby
      is
      prohibited by applicable Law (it being acknowledged by the parties hereto that
      in the event of any good faith dispute about the lawfulness of such
      indemnification, the Buyer or the Buyer Bank may place the amounts at issue
      in
      escrow pending the final and nonappealable determination of such
      dispute).  The obligations of the Buyer and the Buyer Bank pursuant to
      this Section 6.1(d)(i)(d) are intended to be enforceable
      against the Buyer and the Buyer Bank directly by the Indemnified
      Parties.  The indemnification provided herein shall be in addition to
      any indemnification rights that any Indemnified Parties may have by Law,
      pursuant to the certificate of incorporation or bylaws of the Company or any
      of
      its subsidiaries or pursuant to the terms of any employee benefit plan or trust
      for which any Indemnified Party serves as a fiduciary.

     

    6.3           Covenants
      of All Parties to the Agreement.

     

    (a)           Reorganization
      for Tax Purposes.  Each of the parties hereto undertakes and
      agrees to use its reasonable efforts to cause the Merger to qualify as a
“reorganization” within the meaning of Section 368(a) of the Code and
      agrees that it will not intentionally take any action that would cause the
      Merger to fail to so qualify.

     

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (b)           Notification.  Each
      of the parties hereto agrees to notify promptly the other parties hereto of
      any
      event, fact, or other circumstance arising after the date hereof that would
      have
      caused any representation or warranty herein, including any information on
      any
      schedule hereto, to be untrue or misleading had such event, fact, or
      circumstance arisen prior to the execution of this Agreement.  The
      parties hereto will exercise their reasonable best efforts to ensure that no
      such events, facts, or other circumstances occur, come to pass, or become
      true.

     

    (c)           Consummation
      of Agreement.  The parties hereto each agree to use their
      reasonable efforts to perform or fulfill all conditions and obligations to
      be
      performed or fulfilled by them under this Agreement so that the transactions
      contemplated hereby shall be consummated.  Except for events that are
      the subject of specific provisions of this Agreement, if any event should occur,
      either within or outside the control of the parties hereto, that would
      Materially delay or prevent fulfillment of the conditions upon the obligations
      of any party hereto to consummate the transactions contemplated by this
      Agreement, each party will notify the others of any such event and the parties
      will use their reasonable, diligent and good faith efforts to cure or minimize
      the same as expeditiously as possible.  Each party hereto shall use
      its reasonable efforts to obtain all Consents necessary or desirable for the
      consummation of the transactions contemplated by this Agreement and to assist
      in
      the procuring or providing of all documents that must be procured or provided
      pursuant to the provisions hereof.  Notwithstanding anything to the
      contrary contained in this Agreement, none of the parties hereto will take
      any
      action that would (i) adversely affect or Materially delay receipt of the
      Consents contemplated in Section 8.1(b), (ii) adversely
      affect or Materially delay its ability to perform its covenants and agreements
      made pursuant to this Agreement or (iii) adversely affect the ability of any
      party to obtain a required approval from any Regulatory Authority.

     

    (d)           Corporate
      Action.  Subject to the terms and conditions hereof, each of the
      parties hereto shall, and each of them shall cause their subsidiaries to, take
      all corporate action (including the Company’s recommendation of the Merger by
      its board of directors to its shareholders) and use each of their best efforts
      to cause all corporate and shareholder action to be taken as is necessary to
      consummate and give effect to the Merger.

     

    (e)           Maintenance
      of Corporate Existence.  Each of the parties hereto shall, and
      each of them shall cause their Affiliates to, maintain in full force and effect
      each their respective corporate or legal existences.

     

    (f)           Registration
      Statement and Proxy Statement.  As soon as reasonably practicable
      after the execution of the Agreement and after the furnishing by the Company
      and
      the Company Bank of all information required to be contained therein, the Buyer
      shall file with the SEC the Registration Statement on Form S-4 (or on such
      other
      form as shall be appropriate), which shall contain the Proxy
      Statement.  As soon as reasonably practicable after all consents
      contemplated by Section 8.1(b) have been obtained, the
      Buyer and the Company shall prepare, and the Company shall deliver by mail
      to
      the holders of record of the Company Shares, the Proxy Statement.  The
      Buyer and the Company shall each use their reasonable best efforts to cause
      the
      Proxy Statement to comply in all Material respects with the requirements of
      the
      Securities Laws and the rules and regulations thereunder.  The Buyer
      and the Company shall each use all reasonable efforts to cause the Registration
      Statement to become effective as soon thereafter as
      practicable.  Subject to Section 6.1(d), the Proxy
      Statement shall include the recommendation of the Boards of Directors of the
      Company in favor of the Merger.

     

    (g)           Applications
      and Reports. The Buyer shall prepare and file as soon
      as reasonably practical after the date of this Agreement, and the Company shall
      cooperate in the preparation and, where appropriate, filing of, all
      applications, reports and statements with all Regulatory Authorities having
      jurisdiction over the transactions contemplated by this Agreement seeking the
      requisite Consents necessary to consummate the transactions contemplated by
      this
      Agreement.

     

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    (h)           Closing.  Subject
      to the terms and conditions hereof, the parties hereto shall use their
      reasonable best efforts to consummate the Closing within 30 days after all
      conditions to the Closing have been satisfied.

     

    (i)           Affiliate
      Agreements.  Not less than 30 days prior to the Effective Time,
      the Buyer shall deliver to the Company a letter identifying all Persons who,
      in
      the judgment of the Buyer, may be deemed an  “affiliate” of the
      Company for purposes of Rule 145 under the Securities Act and applicable SEC
      rules and regulations, and such list shall be updated as necessary to reflect
      changes from the date of delivery thereof.  The Company shall use
      reasonable best efforts to cause each person identified on such list to deliver
      to the Buyer not less than 10 days prior to the Effective Time, a written
      agreement substantially in the form attached hereto as Exhibit
      C.

     

    (j)           Section
      16(b) Exemption.  Assuming that the Company delivers to the Buyer
      the Company Section 16 Information (as defined below) in a timely fashion
      prior to the Effective Time, the Board of Directors of the Buyer, or a committee
      of non-employee directors thereof (as such term is defined for purposes of
      Rule 16b-3(d) under the Exchange Act), shall reasonably promptly thereafter
      and in any event prior to the Effective Time adopt a resolution providing in
      substance that the receipt by the Company Insiders (as defined below) of the
      Buyer Common Stock in exchange for shares of the Company Common Stock, pursuant
      to the transactions contemplated hereby and to the extent such securities are
      listed in the Company Section 16 Information, are intended to be exempt
      from liability pursuant to Section 16(b) under the Exchange Act to the
      fullest extent permitted by applicable Law.  The “Company
      Section 16 Information” shall mean information accurate in all material
      respects regarding the Company Insiders and the number of shares of the Company
      Common Stock held by each such Company Insider and expected to be exchanged
      for
      the Buyer Common Stock in the Merger.  The “Company Insiders” shall
      mean those officers and directors of the Company who are subject to the
      reporting requirements of Section 16(a) of the Exchange Act and who are
      expected to be subject to Section 16(a) of the Exchange Act with respect to
      the
      Buyer Common Stock subsequent to the Effective Time.

     

    (k)           Company
      ESOP.  The Company ESOP shall be terminated as of, or immediately
      prior to, the Effective Time (all shares held by the Company ESOP shall be
      converted into the right to receive the Merger Consideration), all outstanding
      Company ESOP indebtedness shall be repaid from the Merger Consideration in
      the
      unallocated stock fund, and the balance shall be allocated as earnings of the
      Company ESOP and distributed to Company ESOP participants (subject to the
      receipt of a favorable determination letter from the IRS), as provided for
      in
      the Company ESOP and unless otherwise required by applicable Law.  In
      accordance herewith, the Company and Company Bank shall amend the Company ESOP
      to cause all account balances to be distributed in the form of lump sum
      distributions following the receipt of a favorable determination letter from
      the
      IRS on the termination of the Company ESOP.  Prior to the Effective
      Time, the Company and Company Bank, and following the Effective Time, Buyer
      and
      Buyer Bank shall use their respective best efforts in good faith to obtain
      such
      favorable determination letter (including, but not limited to, making such
      changes to the Company ESOP and the proposed allocations as may be requested
      by
      the IRS as a condition to its issuance of a favorable determination
      letter).  The Company and Company Bank, and following the Effective
      Time, Buyer and Buyer Bank, will adopt such amendments to the Company ESOP
      as
      may be reasonably required by this Section 6.3(k) in order to
      facilitate termination of the Company ESOP or by the IRS as a condition to
      granting such favorable determination letter on termination.  Until
      receipt of a favorable determination letter on termination from the IRS, neither
      the Company nor Company Bank, or following the Effective Time, the Buyer or
      Buyer Bank shall make any distribution from the Company ESOP relating to the
      termination of the Company ESOP except as may be required by applicable
      Law.  In the case of a conflict between the terms of this
Section 6.3(k) and the terms of the Company ESOP, the terms of
      the Company ESOP shall control; however, in the event of any such conflict,
      the
      Company and Company Bank before the Merger, 

     

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    and
      Buyer
      and Buyer Bank after the Merger, shall use their best efforts to cause the
      Company ESOP to be amended to conform to the requirements of this
Section 6.3(k).

     

    ARTICLE
      VII

     

    DISCLOSURE
      OF ADDITIONAL INFORMATION

     

    7.1           Access
      to Information.  Prior
      to the Closing Date, the parties hereto shall, and shall cause each of their
      subsidiaries to:

     

    (a)           give
      the other and its authorized representatives reasonable access, during normal
      business hours and upon reasonable notice, to its books, records, offices and
      other facilities and properties; and

     

    (b)           furnish
      the other with such financial and operating data and other information with
      respect to its business, condition (financial or otherwise) and properties,
      as
      it may reasonably request.

     

    7.2           Access
      to Premises.  Prior
      to Closing, the Company shall, and shall cause its subsidiaries to, give the
      Buyer and its authorized representatives reasonable access to all of the
      Company’s and its subsidiaries’ Real Property for the purpose of inspecting such
      property.

     

    7.3           Environmental
      Survey.  At
      its option, the Buyer may cause to be conducted Phase I environmental
      assessments of the Real Property of the Company and its subsidiaries, whether
      owned or leased, or any portion thereof, together with such other studies,
      testing and intrusive sampling and analyses as the Company shall deem
necessary
      or desirable (collectively, the “Environmental
      Survey”).  The Buyer shall complete all such Phase I
      environmental assessments within 45 days following the date of this Agreement
      and thereafter conduct and complete any such additional studies, testing,
      sampling and analyses within 45 days following completion of all Phase I
      environmental assessments.  Subject to the breach of any
      representation or warranty contained herein, the costs of the Environmental
      Survey shall be paid by the Buyer.

     

    7.4           Confidentiality.  The
      parties hereto acknowledge that each of the Buyer and the Company have
      previously executed a separate agreement (the “Confidentiality
      Agreement”) dated May 23, 2007 in contemplation of negotiations
      regarding the Merger and agree that such agreement shall continue in full force
      and effect in accordance with its terms.

     

    7.5           Publicity.  Without
      the prior consent of the other parties, no party hereto shall issue any news
      release or other public announcement or disclosure, or any general public
      announcement to its employees, suppliers or customers, regarding this Agreement
      or the transactions contemplated hereby, except as may be required by Law,
      but
      in which case the disclosing party shall provide the other parties hereto with
      reasonable advance notice of the timing and substance of any such
      disclosure.

     

    ARTICLE
      VIII

     

    CONDITIONS
      TO CLOSING

     

    8.1           Mutual
      Conditions.  The
      respective obligations of each party hereto to perform this Agreement and
      consummate the Merger and the other transactions contemplated hereby are subject
      to the satisfaction of the following conditions, unless waived by all parties
      hereto pursuant to Section 10.4 of this
      Agreement:

     

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    (a)           Adverse
      Proceedings.  Neither the Company nor the Buyer nor any
      shareholder thereof shall be subject to any order, decree or injunction of
      a
      court of competent jurisdiction that enjoins or prohibits the consummation
      of
      this Agreement or the Merger, and no Governmental Authority shall have
      instituted a suit or proceeding that is then pending and seeks to enjoin or
      prohibit the transactions contemplated hereby.  Any party who is
      subject to any such order, decree or injunction or the subject of any such
      suit
      or proceeding shall take any reasonable steps within that party’s control to
      cause any such order, decree or injunction to be modified so as to permit the
      Closing and to cause any such suit or proceeding to be dismissed.

     

    (b)           Consents.

     

    (i)           Regulatory
      Approval.  All Consents of, filings and registrations with, and
      notifications to, all Regulatory Authorities required for consummation of the
      Merger shall have been obtained or made and shall be in full force and effect
      and all waiting periods required by Law shall have expired.  No such
      Consent obtained from any Regulatory Authority shall be conditioned or
      restricted in a manner (including requirements relating to the raising of
      additional capital or the disposition of Assets) not reasonably anticipated
      as
      of the date of this Agreement that in the reasonable judgment of the Board
      of
      Directors of the Buyer or the Company would so Materially adversely impact
      the
      economic or business assumptions of the transactions contemplated by this
      Agreement that had such condition or requirement been known, such party would
      not, in its reasonable judgment, have entered into this Agreement.

     

    (ii)           Consents
      and Approvals.  Each party hereto shall have obtained any and all
      Consents required for consummation of the Merger or for the preventing of any
      Default under any Contract, including those Consents listed on
Section 4.2 of the Company’s Disclosure Schedule, except
      to the extent that the failure to obtain such any such Consents would not,
      individually or in the aggregate result in a Material Adverse Effect on such
      Person.

     

    (c)           Effectiveness
      of Registration Statement. The Registration Statement filed with the SEC
      covering the shares of the Buyer’s Stock to be issued pursuant hereto shall have
      been declared effective by the SEC, and no stop order suspending such
      effectiveness shall have been initiated or, to the Knowledge of the Buyer
      Parties, threatened by the SEC.

     

    (d)           Approval.  The
      Company’s shareholders shall have approved this Agreement and the Merger in
      accordance with applicable corporate law.

     

    (e)           Tax
      Opinion.  On the basis of facts, representations and assumptions
      that shall be consistent with the state of facts existing at the Closing Date,
      the Buyer and the Company shall have received an opinion of an acceptable tax
      advisor, reasonably acceptable in form and substance to each of them dated
      as of
      the Closing Date, substantially to the effect that, for federal income tax
      purposes:  (i) the Merger, when consummated in accordance with
      the terms hereof, will constitute a reorganization within the meaning of Section
      368(a) of the Code, (ii) no gain or loss will be recognized by the Buyer or
      the Company by reason of the Merger, (iii) the exchange or cancellation of
      Company Shares in the Merger will not give rise to recognition of gain or loss
      for federal income tax purposes to the shareholders of the Company to the extent
      such shareholders receive Buyer’s Stock in exchange for their Company Shares,
      (iv) the basis of the Buyer’s Stock to be received by a shareholder
      of  the Company will be the same as the basis of the stock of the
      Company surrendered in connection with the Merger, and (v) the holding
      period of the shares of the Buyer’s Stock to be received by a shareholder of the
      Company will include the period during which the shareholder held the Company
      Shares surrendered in connection with the

     

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

     Merger,
      provided that the Company Shares surrendered in connection with the
      Merger are held as a capital asset at the Effective Time of such
      Merger.  Each of the Buyer and the Company shall provide a letter to
      the tax advisor setting forth the facts, assumptions and representations on
      which such tax advisor may rely in rendering its opinion.

     

    (f)           Blue
      Sky Approvals.  The Buyer shall have received all state securities
      or “Blue Sky” Permits or other authorizations or confirmations as to the
      availability of exemptions from “Blue Sky” registration requirements as may be
      necessary, and no stop orders or proceedings shall be pending, or to the
      Knowledge of the Buyer or the Company, threatened by a state “Blue Sky”
administrator with respect to the issuance of the Buyer’s Stock in the
      Merger.

     

    (g)           Nasdaq
      Listing.  As of the Effective Time, the Buyer shall have satisfied
      all requirements in order for the shares of the Buyer’s Stock to be issued to
      shareholders of the Company in connection with the Merger to be listed on the
      Nasdaq Global Select Market as of the Effective Time.

     

    8.2           Conditions
      to the Obligations of the Company.  The
      obligation of the Company to effect the transactions contemplated hereby shall
      be further subject to the fulfillment of the following conditions, unless waived
      by such parties pursuant to
Section 10.4 of this
      Agreement:

     

    (a)           All
      representations and warranties of the Buyer contained in this Agreement shall
      be
      true and correct in all Material respects as of the Closing Date as though
      made
      as of such date (except for representations and warranties that are made as
      of a
      specific date and except for representations and warranties expressly qualified
      by “Materiality” or that constitute a breach only if they have a “Material
      Adverse Effect” or similar materiality qualifier, which must be accurate in all
      respects as of the Closing Date).  The Buyer shall have performed and
      complied with all covenants and agreements contained in this Agreement required
      to be performed and complied with by it at or prior to the Closing.

     

    (b)           All
      documents required to have been executed and delivered to the Company at or
      prior to the Closing shall have been so executed and delivered, whether or
      not
      such documents have been or will be executed and delivered by the other parties
      contemplated thereby.

     

    (c)           The
      Company shall have received from Howe Barnes Hoefer & Arnett, Inc., a
      letter, dated not more than five Business Days prior to the Proxy Statement,
      that the Merger Consideration is fair, from a financial point of view, to the
      holders of the Company’s Shares.

     

    (d)           As
      of the Closing Date, the Company shall have received the following documents
      with respect to the Buyer:

     

    (i)           a
      certificate of its corporate existence issued by the jurisdiction of its
      incorporation as of a recent date and a certificate of existence or authority
      as
      a foreign corporation issued as of a recent date by each of the jurisdictions
      in
      which it is qualified to do business as a foreign corporation;

     

    (ii)           a
      true and complete copy of its certificate of incorporation and all amendments
      thereto, certified by the jurisdiction of its incorporation as of a recent
      date;

     

    (iii)           a
      true and complete copy of its bylaws, certified by its Secretary or an Assistant
      Secretary;

     

    (iv)           a
      certificate from its Secretary or an Assistant Secretary certifying that its
      articles of incorporation have not been amended since the date of the
      certificate described in subsection (i) above and that nothing has occurred
      since such date that would adversely affect its existence;

     

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    (v)           a
      true and complete copy of the resolutions of its board of directors and
      shareholders authorizing the execution, delivery and performance of this
      Agreement, and all instruments and documents to be delivered in connection
      herewith, and the transactions contemplated hereby, certified by its Secretary
      or an Assistant Secretary;

     

    (vi)           a
      certificate from its Secretary or an Assistant Secretary certifying the
      incumbency and signatures of its officers who will execute documents at the
      Closing or who have executed this Agreement; and

     

    (vii)           evidence
      of Buyer’s compliance with Section 6.2(b) and the
      penultimate sentence of Section 2.7(c).

     

    (e)           The
      Exchange Agent shall have delivered to the Company a certificate, dated as
      of
      the Closing Date, to the effect that the Exchange Agent has received from the
      Buyer appropriate instructions and authorization for the Exchange Agent to
      issue
      a sufficient number of shares of Buyer Stock in exchange for all of the Company
      Shares.

     

    8.3           Conditions
      to the Obligations of the Buyer.  The
      obligations of the Buyer to effect the transactions contemplated hereby shall
      be
      further subject to the fulfillment of the following conditions, unless waived
      by
      the Buyer pursuant to Section 10.4 of this
      Agreement:

     

    (a)           All
      representations and warranties of the Company contained in this Agreement shall
      be true and correct in all Material respects as of the Closing Date as though
      made as of such date (except for representations and warranties that are made
      as
      of a specific date and except for representations and warranties expressly
      qualified by “Materiality” or that constitute a breach only if they have a
“Material Adverse Effect” or similar materiality qualifier, which must be
      accurate in all respects as of the Closing Date). The Company shall have
      performed and complied with all covenants and agreements contained in this
      Agreement required to be performed and complied with by it at or prior to the
      Closing.

     

    (b)           Holders
      of Company Shares representing no more than ten percent (10%) of the issued
      and
      outstanding Company Shares immediately prior to the Effective Time shall have
      exercised dissenters’ or similar rights with respect to the Merger.

     

    (c)           Holders
      of Company Options that include “Dividend Equivalent Rights” (as defined in the
      Option Plan) shall have delivered written waivers of such Dividend Equivalent
      Rights, which waivers shall be in form and substance reasonably satisfactory
      to
      the Buyer.

     

    (d)           The
      Buyer shall have received a copy of a favorable determination letter issued
      by
      the Internal Revenue Service with respect to the termination of the Company
      ESOP.

     

    (e)           All
      documents required to have been executed and delivered to the Buyer at or prior
      to the Closing shall have been so executed and delivered, whether or not such
      documents have been or will be executed and delivered by the other parties
      contemplated thereby.

     

    (f)           As
      of the Closing Date, the Buyer shall have received the following documents
      with
      respect to each of the Company and its subsidiaries:

     

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    (i)           a
      certificate of its corporate existence issued by the jurisdiction of its
      incorporation as of a recent date and a certificate of existence or authority
      as
      a foreign corporation issued as of a recent date by each of the jurisdictions
      in
      which it is qualified to do business as a foreign corporation;

     

    (ii)           a
      true and complete copy of its articles of incorporation or charter and all
      amendments thereto, certified by the jurisdiction of its incorporation as of
      a
      recent date;

     

    (iii)           a
      true and complete copy of its bylaws, certified by its Secretary or an Assistant
      Secretary;

     

    (iv)           a
      certificate from its Secretary or an Assistant Secretary certifying that its
      articles of incorporation or charter have not been amended since the date of
      the
      certificate described in subsection (ii) above, and that nothing has
      occurred since the date of issuance of the certificate of existence specified
      in
      subsection (i) above that would adversely affect its
      existence;

     

    (v)           with
      respect to the Company only, a true and complete copy of the resolutions of
      its
      Board of Directors and shareholders authorizing the execution, delivery and
      performance of this Agreement, and all instruments and documents to be delivered
      in connection herewith, and the transactions contemplated hereby, certified
      by
      its Secretary or an Assistant Secretary; and

     

    (vi)           with
      respect to the Company only, a certificate from its Secretary or an Assistant
      Secretary certifying the incumbency and signatures of its officers who will
      execute documents at the Closing or who have executed this
      Agreement.

     

    ARTICLE
      IX

     

    TERMINATION

     

    9.1           Termination.  The
      obligations of the parties hereunder may be terminated and the transactions
      contemplated hereby abandoned at any time prior to the Closing
      Date:

     

    (a)           By
      mutual written consent of the Company and the Buyer;

     

    (b)           By
      either the Buyer or the Company, if there shall be any law or regulation that
      makes consummation of this Agreement illegal or otherwise prohibited or if
      any
      judgment, injunction, order or decree enjoining the Company or the Buyer from
      consummating the Merger is entered and such judgment, injunction, order or
      decree shall become final and nonappealable; provided, however,
      that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to the party whose
      failure to fulfill its obligations hereunder shall have been the cause of or
      resulted in such law, regulation, judgment, injunction, order or
      decree;

     

    (c)           By
      either the Buyer or the Company if the Effective Time shall not have occurred
      on
      or before June 30, 2008; provided, however, that the right to
      terminate this Agreement under this
Section 9.1(c) shall not be
      available to any party whose failure to fulfill in any Material respect any
      obligation under this Agreement has been the cause of or resulted in the failure
      of the Effective Time to occur on or before June 30, 2008;

     

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    (d)           By
      either the Buyer or the Company, if a condition to the obligation to effect
      the
      transactions contemplated hereby of the party seeking termination shall have
      become incapable of fulfillment (notwithstanding the efforts of the party
      seeking to terminate as set forth in Section 6.3(c)), and
      has not been waived;

     

    (e)           At
      any time on or prior to the Closing Date, by the Buyer in writing, if the
      Company has, or by the Company, if the Buyer has, in any Material respect,
      breached (i) any covenant or agreement contained herein or (ii) any
      representation or warranty contained herein, and in either case if such breach
      has not been cured by the earlier of 10 Business Days after the date on which
      written notice of such breach is given to the party committing such breach
      or
      the Closing Date;

     

    (f)           By
      either the Buyer or the Company if the approval by the Company’s shareholders
      required for the consummation of the Merger shall not have been obtained by
      reason of the failure to obtain the required vote upon the taking of such vote
      at a duly held meeting of the Company’s shareholders or at any adjournment
      thereof;

     

    (g)           By
      the Buyer, if:

     

    (i)           the
      Company’s board of directors shall have failed to recommend the Merger to its
      shareholders at the Shareholder Meeting, (ii) withdrawn its recommendation
      of
      the Merger to its shareholders or (iii) modified or qualified its recommendation
      of the Merger in any manner adverse to the consummation of the
      Merger;

     

    (ii)           the
      Company shall have breached its obligation under this Agreement by reason of
      a
      failure to timely call and hold the Shareholder Meeting in accordance with
      Section 6.1(c); or

     

    (iii)           a
      tender or exchange offer relating to securities of the Company or any of its
      subsidiaries shall have been commenced by a Person unaffiliated with the Company
      or its subsidiaries, and the Company shall not have sent to its shareholders
      within 10 Business Days after such tender or exchange offer is first published,
      sent or given, a statement that the Company’s board of directors recommends
      rejection of such tender or exchange offer;

     

    (h)           by
      the Company, by written notice to the Buyer within five Business Days of the
      Measurement Date (as hereinafter defined), if the Average Closing Price of
      the
      Buyer’s Stock is less than $16.50 per share (adjusted for any Stock Adjustments)
      as of the Measurement Date; provided, however, that upon receipt
      of notice of termination pursuant to this Section
      9.1(h) from the Company, the Buyer shall have five Business Days
      to provide written notice to the Company of the Buyer’s agreement to increase
      the Exchange Ratio and/or pay cash to the shareholders of the Company, such
      that
      the sum of the increased Exchange Ratio multiplied by the Average Closing Price
      of the Buyer’s Stock, plus any cash paid per share, is at least
      $18.975.  If the Buyer so provides timely written notice that it
      agrees to increase the Merger Consideration as described above, the Company’s
      notice of termination shall be void and of no further force and
      effect.

     

    For
      purposes of this subclause (h): “Measurement Date” means the
      later to occur of (i) the date of shareholder approval of this Agreement by
      the
      Company’s shareholders, or (ii) the date of the last Consent from a Regulatory
      Authority required for consummation of the Merger (without giving effect to
      any
      required waiting periods in such Consent).

     

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    For
      purposes of this subclause (h):  “Average Closing
      Price” means, with respect to the Buyer’s Stock, the average of the
      daily closing sales price thereof on the Nasdaq Global Select Market, as
      reported in The Wall Street Journal, for the 20 trading days ending
      three Business Days prior to the Measurement Date.

     

    (i)           by
      the Company, if (i) the board of directors of the Company shall have determined,
      based upon the advice of outside counsel experienced in such matters, that
      an
      Acquisition Proposal constitutes a Superior Proposal; provided,
however, that the Company may not terminate this Agreement pursuant
      to
      this Section 9.1(i) unless, after giving the Buyer at
      least five Business Days notice to respond to such Acquisition Proposal (and
      after giving the Buyer notice of the latest Material terms and conditions
      comprising such Acquisition Proposal), and then taking into account any
      amendment or modification to this Agreement proposed by the Buyer, the Company’s
      board of directors believes, based upon the advice of outside counsel
      experienced in such matters, that such Acquisition Proposal constitutes a
      Superior Proposal, and (ii) the Company thereafter executes a definitive,
      binding transaction agreement to consummate an Acquisition Transaction in
      furtherance of such Acquisition Proposal.

     

    9.2           Procedure
      and Effect of Termination.

     

    (a)           In
      the event of a termination contemplated hereby by either party pursuant to
      Section 9.1, the party seeking to terminate this Agreement
      shall give prompt written notice thereof to the other party, and the
      transactions contemplated hereby shall be abandoned, without further action
      by
      either party hereto.  In such event:

     

    (i)           the
      parties hereto shall continue to be bound by (a) their obligations of
      confidentiality set forth in the Confidentiality Agreements,
      and all copies of the information provided by the a party hereto to the other
      party will be returned or destroyed immediately upon its request therefor,
      (b) the provisions set forth in Section 7.5 relating
      to publicity, and (c) the provisions set forth in
Section 10.1 relating to expenses;

     

    (ii)           all
      filings, applications and other submissions relating to the transactions
      contemplated hereby shall, to the extent practicable, be withdrawn from the
      Person to which made; and

     

    (iii)           if
      the termination is pursuant to
Section 9.1(e) or Section
      9.1(g), the terminating party shall be entitled to seek any remedy to
      which such party may be entitled at law or in equity for the violation or breach
      of any agreement, covenant, representation or warranty contained in this
      Agreement.

     

    9.3           Termination
      Fee; Expenses.

     

    (a)           If
      (i) this Agreement is terminated by the Company pursuant to Section
      9.1(i), or (ii) the Company or any of its subsidiaries receives an
      Acquisition Proposal and the Company’s board of directors fails to recommend or
      continue recommending approval of the Merger to the Company’s shareholders or
      amends or withdraws its recommendation of the Merger to the Company’s
      shareholders, and the Company’s shareholders do not approve the Merger at the
      Shareholder Meeting, then the Company shall pay to the Buyer, within one
      Business Day following the termination of this Agreement or the Shareholder
      Meeting, as applicable, the amount of $1,200,000 (the “Termination
      Fee”).  Notwithstanding anything in this Agreement to the
      contrary, if the Termination Fee is paid pursuant to this Section
      9.3(a), then the Buyer will not have any other rights or claims against
      the Company, Company Bank, their Affiliates or their respective officers and
      directors arising from the termination of 

     

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    this
      Agreement, it being agreed that the acceptance of the Termination Fee will
      constitute the Buyer’s sole and exclusive remedy for such termination.


     

    (b)           If
      this Agreement is terminated by the Company pursuant to Section
      9.1(e), the Buyer shall reimburse the Company’s Costs within one
      Business Day of the date of termination.

     

    (c)           If
      this Agreement is terminated by the Buyer pursuant to Section
      9.1(e), the Company shall reimburse the Buyer’s Costs within one
      Business Day of the date of termination.

     

    (d)           All
      amounts payable pursuant to this
Section 9.3 shall be payable by wire
      transfer of immediately available funds to an account designated by the
      recipient.

     

    ARTICLE
      X

     

    MISCELLANEOUS
      PROVISIONS

     

    10.1           Expenses.  Except
      as provided in Section 9.3, whether or not the transactions
      contemplated hereby are consummated, (i) the Buyer shall pay all costs and
      expenses incurred by it in connection with this Agreement and the Merger and
      (ii) the Company shall pay all costs and expenses incurred by it in
      connection with this Agreement and the Merger.

     

    10.2           Survival
      of Representations.  The
      representations and warranties made by the parties hereto will not survive
      the
      Closing, and no party shall make or be entitled to make any claim based upon
      such representations and warranties after the Closing Date.  No
      warranty or representation shall be deemed to be waived or otherwise diminished
      as a result of any due diligence investigation by the party to whom the warranty
      or representation was made or as a result of any actual or constructive
      knowledge by such party with respect to any facts, circumstances or claims
      or by
      the actual or constructive knowledge of such person that any warranty or
      representation is false at the time of signing or Closing.

     

    10.3           Amendment
      and Modification.  This
      Agreement may be amended, modified or supplemented only by written agreement
      of
      both parties hereto.

     

    10.4           Waiver
      of Compliance; Consents.  Except
      as otherwise provided in this Agreement, any failure of the Buyer, on one hand,
      and the Company, on the other, to comply with any obligation, representation,
      warranty, covenant, agreement or condition herein may be waived by the other
      party or parties only by a written instrument signed by the party or parties
      granting such waiver, but such waiver or failure to insist upon strict
      compliance with such obligation, representation, warranty, covenant, agreement
      or condition shall not operate as a waiver of, or estoppel with respect to,
      any
      subsequent or other failure.  Whenever this Agreement requires or
      permits consent by or on behalf of any party hereto, such consent shall be
      given
      in writing in a manner consistent with the requirements for a waiver of
      compliance as set forth in this Section 10.4.

     

    10.5           Notices.  All
      notices and other communications hereunder shall be in writing and shall be
      deemed given when delivered by hand or by facsimile transmission, one Business
      Day after sending by a reputable national over-night courier service or three
      Business Days after mailing when mailed by registered or certified mail (return
      receipt requested), postage prepaid, to the parties in the manner provided
      below:

     

    (a)           Any
      notice to any of the Company shall be delivered to the following
      addresses:

     

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    Great
      Pee
      Dee Bancorp, Inc.

    901
      Chesterfield Highway

    Cheraw,
      South Carolina  29520

    Attention:   
        John S. Long

    President
      and Chief Executive
      Officer

    Telephone:    (843)
      537-7656

    Facsimile:       (843)
      537-4436

     

    with
      a
      copy to:

     

    Luse
      Gorman Pomerenk & Schick, P.C.

    5335
      Wisconsin Ave., NW

    Suite
      400

    Washington,
      DC  20015

    Attention:   John
      J. Gorman

    Telephone: (202)
      274-2001

    Facsimile:    (202)
      362-2902

    


     

    (b)           Any
      notice to the Buyer shall be delivered to the following addresses:

     

    First
      Bancorp

    341
      North
      Main Street

    Post
      Office Box 508

    Troy,
      North Carolina 27371-0508

    Attention:     Chief
      Executive Officer

    Telephone:   (910)
      576-6171

    Facsimile:      (910)
      576-1070

     

    with
      a
      copy to:

     

    Robinson,
      Bradshaw & Hinson, P.A.

    101
      North
      Tryon Street, Suite 1900

    Charlotte,
      North Carolina  28246

    Attention:     Henry
      H. Ralston

    Telephone:   (704)
      377-2536

    Facsimile:   
        (704) 378-4000

     

    Any
      party
      may change the address to which notice is to be given by notice given in the
      manner set forth above.

     

    10.6           Assignment;
      Third Party Beneficiaries.  This
      Agreement and all of the provisions hereof shall be binding upon and inure
      to
      the benefit of the parties hereto and their respective heirs, legal
      representatives, successors and permitted assigns.  Neither this
      Agreement nor any of the rights, interests or obligations hereunder shall be
      assigned by any party hereto without the prior written consent of the other
      parties.  This Agreement shall not be deemed to confer upon any third
      party beneficiaries or other Persons, including any employees of the Company,
      any rights or remedies hereunder, except as expressly set forth
      herein.

     

    10.7           Separable
      Provisions.  If
      any provision of this Agreement shall be held invalid or unenforceable, the
      remainder nevertheless shall remain in full force and effect.

     

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    10.8           Governing
      Law.  The
      execution, interpretation and performance of this Agreement shall be governed
      by
      the internal laws and judicial decisions of the State of North
      Carolina.

     

    10.9           Counterparts.  This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument.

     

    10.10          Interpretation.  The
      article and section headings contained in this Agreement are solely for the
      purpose of reference, are not part of the agreement of the parties and shall
      not
      in any way affect the meaning or interpretation of this Agreement.

     

    10.11          Entire
      Agreement.  This
      Agreement, including the agreements and documents that are Schedules and
      Exhibits hereto, embodies the entire agreement and understanding of the parties
      with respect of the subject matter of this Agreement.  This Agreement
      supersedes all prior agreements and understandings between the parties with
      respect to the transactions contemplated hereby and subject matter hereof,
      except as explicitly provided herein.

     

    



    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the
      date first above written.

     

    
      
        	 	 	 	 
	 	
                COMPANY: 

              	 
	 	 	 	 
	 	
                GREAT
                  PEE DEE BANCORP, INC.  

              
	 	 	 	 
	 	 	 	 
	 	
                By:

              	/s/
                John S. Long  
	 	 	
                Name:

              	John
                S. Long 
	 	 	
                Title:

              	President
                & CEO 
	 	 	 	 
	 	 	 	 
	 	
                BUYER:

              	 	 
	 	 	 	 
	 	
                FIRST
                  BANCORP  

              
	 	 	 	 
	 	 	 	 
	 	
                By:

              	/s/
                Jerry L. Ocheltree  
	 	 	
                Name:

              	Jerry
                L. Ocheltree 
	 	 	
                Title:

              	President
                & CEO 


      



    


    


    



    
      
              

                  [Signature
            Page to Merger
            Agreement]      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    Appendix
      1

    


    


    “Acquisition
      Proposal” means any offer or proposal by any Person concerning any
      tender or exchange offer, proposal for a merger, share exchange,
      recapitalization, consolidation or other business combination involving the
      Company or any of its subsidiaries or any divisions of any of the foregoing,
      or
      any proposal or offer to acquire in any manner, directly or indirectly, a 10%
      or
      more equity interest in, or 10% or more of the assets, business or deposits
      of,
      the Company or any of its subsidiaries, other than pursuant to the transactions
      contemplated by this Agreement.

     

    “Acquisition
      Transaction” means the consummation of any merger, share exchange,
      recapitalization, consolidation or other business combination involving the
      Company or any of its subsidiaries or any divisions of the foregoing, or the
      acquisition in any manner, directly or indirectly, of a 10% or more equity
      interest in, or 10% or more of the assets, business or deposits of, the Company
      or any of its subsidiaries, other than pursuant to the transactions contemplated
      by this Agreement.

     

    “Affiliate”
      means, with respect to any Person, each of the Persons that directly or
      indirectly, through one or more intermediaries, owns or controls, or is
      controlled by or under common control with, such Person.  For the
      purpose of this Agreement, “control” means the possession,
      directly or indirectly, of the power to direct or cause the direction of
      management and policies, whether through the ownership of voting securities,
      by
      contract or otherwise.  Without limiting the foregoing, as used with
      respect to the Company, the term “Affiliates” includes its
      subsidiaries.

     

    “Agreement”
      means this Merger Agreement.

     

    “Assets”
      means all of the assets, properties, businesses and rights of a Person of every
      kind, nature, character and description, whether real, personal or mixed,
      tangible or intangible, accrued or contingent, whether or not carried on any
      books and records of such Person, whether or not owned in such Person’s name and
      wherever located.

     

    “Average
      Closing Price” has the meaning given to it
      in Section 9.1(h).

     

    “Benefit
      Plans” means all pension, retirement, profit-sharing, deferred
      compensation, stock option, employee stock ownership, restricted stock,
      severance pay, vacation, bonus, or other incentive plan, all other written
      employee programs or agreements, all medical, vision, dental, or other health
      plans, all life insurance plans, and all other employee benefit plans or fringe
      benefit plans, including without limitation “employee benefit plans” as that
      term is defined in Section 3(3) of ERISA maintained by, sponsored in whole
      or in
      part by, or contributed to by, a Person or any of its subsidiaries for the
      benefit of employees, retirees, dependents, spouses, directors, independent
      contractors, or other beneficiaries and under which employees, retirees,
      dependents, spouses, directors, independent contractors, or other beneficiaries
      are eligible to participate.

     

    “Business
      Day” means any day excluding Saturday, Sunday and any day that shall be
      a legal holiday in the State of North Carolina.

     

    “Buyer”
      has the meaning given to it in the introductory paragraph hereof.

     

    “Buyer
      Bank” means First Bank, a North Carolina bank and a wholly owned
      subsidiary of the Buyer.

     

    “Buyer
      Contracts” has the meaning given to it in Section
      5.15.

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Buyer
      ERISA Affiliate” has the meaning given to it in Section
      5.14.

     

    “Buyer
      Financial Statements” means, with respect to the Buyer and its
      subsidiaries, the consolidated audited statements of income and stockholder’s
      equity and cash flows for the years ended December 31, 2006, 2005 and 2004
      and consolidated audited balance sheets as of December 31, 2006 and 2005, as
      well as the interim unaudited consolidated statements of income and
      stockholders’ equity and cash flows for the fiscal quarter ended March 31, 2007
      and the consolidated interim balance sheet as of March 31, 2007.

     

    “Buyer
      Improvements” has the meaning given to it in Section
      5.9(b).

     

    “Buyer
      Proprietary Rights” has the meaning given to it in Section
      5.17(a).

     

    “Buyer
      Real Property” has the meaning given to it in Section
      5.9(a).

     

    “Buyer
      SEC Reports” has the meaning given to it in Section
      5.4.

     

     “Buyer’s
      Stock” means the common stock of First Bancorp, no par value, as traded
      on the Nasdaq Global Select Market.

     

    “Claim”
      has the meaning given to it in Section 6.2(d)(ii).

     

    “Closing”
      means the closing of the Merger, as identified more specifically in
Article III.

     

    “Closing
      Date” has the meaning given to it in Section
      3.1.

     

    “Code”
      means the Internal Revenue Code of 1986, as amended, and any successor statute
      of similar import, together with the regulations thereunder, in each case as
      in
      effect from time to time.  References to sections of the Code shall be
      construed also to refer to any successor sections.

     

    “Company”
      has the meaning given to it in the introductory paragraph hereof.

     

    “Company
      Bank” means Sentry Bank & Trust, a federal savings association and
      a wholly owned subsidiary of the Company.

     

    “Company
      Contracts” has the meaning given to it in Section
      4.15.

     

    “Company
      ERISA Affiliate” has the meaning given to it in Section
      4.14.

     

    “Company
      ESOP” means the Company’s Employee Stock Ownership Plan and
      Trust.

     

    “Company
      Financial Statements” means, with respect to the Company and its
      subsidiaries, the consolidated audited statements of operations, stockholders’
equity and cash flows for the years ended June 30, 2006, 2005 and 2004 and
      consolidated audited statements of financial condition as of June 30, 2006
      and
      2005, as well as the interim unaudited consolidated statements of operations
      and
      stockholders’ equity and cash flows for the periods ended September 30, 2006,
      December 31, 2006 and March 31, 2007 and the consolidated interim statements
      of
      financial condition as of September 30, 2006, December 31, 2006 and March 31,
      2007.

     

    “Company
      Improvements” has the meaning given to it in Section
      4.9(b).

     

    “Company
      Options” has the meaning given to it in Section
      2.7.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Company
      Pension Plan” means any Pension Plan operated or maintained at any time
      by the Company, the Company Bank, or any of their subsidiaries.

     

    “Company
      Proprietary Rights” has the meaning given to it in Section
      4.17.

     

    “Company
      Real Property” has the meaning given to it in Section
      4.9(a).

     

    “Company
      Shares” has the meaning given to it in Section
      2.2(a).

     

    “Confidentiality
      Agreements” has the meaning given to it in Section
      7.4.

     

    “Consent”
      means any consent, approval, authorization, clearance, exemption, waiver, or
      similar affirmation by any Person given or granted with respect to any Contract,
      Law, Order, or Permit.

     

    “Continuing
      Employees” has the meaning given to it in Section
      6.2(c).

     

    “Contract”
      means any agreement, warranty, indenture, mortgage, guaranty, lease, license
      or
      other contract, agreement, arrangement, commitment or understanding, written
      or
      oral, to which a Person is a party.

     

    “Costs”
      means the legal, accounting, investment banking, printing, mailing and other
      out-of-pocket fees and expenses incurred by the Company and it subsidiaries
      or
      the Buyer and its subsidiaries, as the case may be, in connection with this
      Agreement and the transactions contemplated herein.

     

    “Default”
      means (i) any breach or violation of or default under any Contract, Order
      or Permit (including any noncompliance with restrictions on assignment, where
      assignment is defined to include a change of control of the parties to this
      agreement or any of their subsidiaries or the merger or consolidation of any
      of
      them with another Person), (ii) any occurrence of any event that with the
      passage of time or the giving of notice or both would constitute such a breach
      or violation of or default under any Contract, Order or Permit, or
      (iii) any occurrence of any event that with or without the passage of time
      or the giving of notice would give rise to a right to terminate or revoke,
      change the current terms of, or renegotiate, or to accelerate, increase, or
      impose any Liability under, any Contract, Order or Permit.

     

    “Dissenting
      Shares” has the meaning given to it in Section
      2.6.

     

    “Effective
      Time” has the meaning given to it in
Section 2.1(e).

     

    “Employment
      Agreement” means that certain Employment Agreement to be entered into
      between the Buyer and John Long in connection with the
      transactions contemplated hereby, substantially in the form of Exhibit
      B.

     

    “Environmental
      Assessment” means any and all soil and groundwater tests, surveys,
      environmental assessments and other inspections, tests and inquiries conducted
      by the Buyer or any agent of the Buyer and related to the Real Property of
      the
      Company and its subsidiaries.

     

    “Environmental
      Laws” means any federal, state or local law, statute, ordinance, rule,
      regulation, permit, directive, license, approval, guidance, interpretation,
      order or other legal requirement relating to the protection of human health
      or
      the environment, including but not limited to any requirement pertaining to
      the
      manufacture, processing, distribution, use, treatment, storage, disposal,
      transportation, handling, reporting, licensing, permitting, investigation or
      remediation of materials that are or may constitute a threat to human health
      or
      the environment.  Without limiting the foregoing, each of
      the

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    following
      is an Environmental Law:  the Comprehensive Environmental Response,
      Compensation, and Liability Act (42 U.S.C. § 9601 et seq.) (“CERCLA”), the
      Hazardous Material Transportation Act (49 U.S.C. § 1801 et seq.),
      the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et
      seq.) (“RCRA”), the Federal Water Pollution Control Act (33 U.S.C.
§ 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et
      seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et
      seq.), the Safe Drinking Water Act (42 U.S.C. § 300 et seq.) and the
      Occupational Safety and Health Act (29 U.S.C. § 651 et seq.)
      (“OSHA”), as such laws and regulations have been or are in the future amended or
      supplemented, and each similar federal, state or local statute, and each rule
      and regulation promulgated under such federal, state and local
      laws.

     

    “Environmental
      Survey” has the meaning given to it in Section
      7.3.

     

    “ERISA”
      means the Employee Retirement Income Security Act of 1974, as amended, and
      any
      successor statute of similar import, together with the regulations thereunder,
      in each case as in effect from time to time.  References to sections
      of ERISA shall be construed also to refer to any successor
      sections.

     

    “ERISA
      Plan” means any Benefit Plan that is an “employee welfare benefit
      plan,” as that term is defined in Section 3(l) of ERISA, or an “employee pension
      benefit plan,” as that term is defined in Section 3(2) of ERISA.

     

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

     

    “Exchange
      Agent” has the meaning given to it in Section
      2.4.

     

    “Exchange
      Ratio” means 1.15 shares of the Buyer’s Stock for each Company Share,
      subject to adjustment pursuant to Section 9.1(h).

     

    “FDIC”
      means the Federal Deposit Insurance Corporation.

     

    “FHLB”
      means the Federal Home Loan Bank of Atlanta.

     

    “Generally
      Accepted Accounting Principles” or “GAAP” means
      generally accepted accounting principles as recognized by the American Institute
      of Certified Public Accountants, as in effect from time to time, consistently
      applied and maintained on a consistent basis for a Person throughout the period
      indicated and consistent with such Person’s prior financial
      practice.

     

    “Governmental
      Authority” means any nation, province or state, or any political
      subdivision thereof, and any agency, department, natural person or other entity
      exercising executive, legislative, regulatory or administrative functions of
      or
      pertaining to government, including Regulatory Authorities.

     

    “Hazardous
      Material” means any substance or material that either is or contains a
      substance designated as a hazardous waste, hazardous substance, hazardous
      material, pollutant, contaminant or toxic substance under any Environmental
      Law
      or is otherwise regulated under any Environmental Law, or the presence of which
      in some quantity requires investigation, notification or remediation under
      any
      Environmental Law.

     

    “Indemnified
      Parties” has the meaning given to it in Section
      6.2(d)(ii).

     

    “Indemnified
      Liabilities” has the meaning given to it in Section
      6.2(d)(ii).

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

     “Intellectual
      Property” means (i) all inventions and discoveries (whether
      patentable or unpatentable and whether or not reduced to practice), all
      improvements thereto, and all patents, patent applications and patent
      disclosures, together with all reissuances, continuations,
      continuations-in-part, revisions, extensions and reexaminations thereof,
      (ii) all trademarks, service marks, trade dress, logos, trade names and
      corporate names, together with all translations, adaptations, derivations and
      combinations thereof and including all goodwill associated therewith, and all
      applications, registrations and renewals in connection therewith, (iii) all
      copyrights and all applications, registrations and renewals in connection
      therewith, (iv) all know-how, trade secrets, whether patentable or
      unpatentable and whether or not reduced to practice (including ideas, research
      and development, know-how, formulas, compositions, manufacturing and production
      process and techniques, technical data, designs, drawings, specifications,
      pricing and cost information and business and marketing plans and proposals),
      (v) all computer software (including data and related documentation) and
      (vi) all other proprietary rights.

     

    “Knowledge
      of the Buyer” means the actual personal knowledge of any of the
      directors and officers of the Buyer and any of its subsidiaries.

     

    “Knowledge
      of the Company” means the actual personal knowledge of any of the
      directors and officers of the Company and any of its subsidiaries.

     

    “Law”
      means any code, law, ordinance, rule, regulation, reporting or licensing
      requirement, rule, or statute applicable to a Person or its Assets, Liabilities,
      business or operations promulgated, interpreted or enforced by any Governmental
      Authority.

     

    “Liability”
      means any direct or indirect, primary or secondary, liability, indebtedness,
      obligation, penalty, cost or expense (including costs of investigation,
      collection and defense), claim, deficiency, guaranty or endorsement of or by
      any
      Person (other than endorsements of notes, bills, checks, and drafts presented
      for collection or deposit in the ordinary course of business) of any type,
      whether accrued, absolute or contingent, liquidated or unliquidated, matured
      or
      unmatured or otherwise.

     

    “Lien”
      means, whether contractual or statutory, any conditional sale agreement,
      participation or repurchase agreement, assignment, default of title, easement,
      encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge,
      reservation, restriction, security interest, title retention or other security
      arrangement, or any adverse right or interest, charge or claim of any nature
      whatsoever of, on, or with respect to any property or property interest, other
      than (i) Liens for current property Taxes not yet due and payable, (ii)
      easements, restrictions of record and title exceptions that could not reasonably
      be expected to have a Material Adverse Effect, and (iii) Liens to secure
      advances and other borrowings from Regulatory Authorities incurred in the
      ordinary course of the banking business.

     

    “Litigation”
      means any action, arbitration, cause of action, complaint, criminal prosecution,
      governmental investigation, hearing, or administrative or other proceeding,
      but
      shall not include regular, periodic examinations of depository institutions
      and
      their Affiliates by Regulatory Authorities.

     

    “Loan
      Collateral” means all of the assets, properties, businesses and rights
      of every kind, nature, character and description, whether real, personal, or
      mixed, tangible or intangible, accrued or contingent, owned by whomever and
      wherever located, in which the Company or any of its subsidiaries has taken
      a
      security interest with respect to, on which the Company or any of it
      subsidiaries has placed a Lien with respect to, or which is otherwise used
      to
      secure, any loan made by the Company or any of its subsidiaries or any note,
      account, or other receivable payable to the Company or any of its
      subsidiaries.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Market
      Value” of the Buyer’s Stock on any date shall be the closing price of
      such stock on the Nasdaq Global Select Market (as reported by The Wall
      Street Journal or, if not reported thereby, any other authoritative
      source), or if such date is not a trading day, on the last trading day preceding
      that date.

     

    “Material”
      for purposes of this Agreement shall be determined in light of the facts and
      circumstances of the matter in question; provided that any specific monetary
      amount stated in this Agreement shall determine materiality in that
      instance.

     

    “Material
      Adverse Effect” on a Person shall mean an event, change, or occurrence
      that, individually or together with any other event, change, or occurrence,
      has
      a Material adverse impact on (i) the financial condition, results of
      operations, or business of such Person and its subsidiaries, taken as a whole,
      or (ii) the ability of such Person to perform its obligations under this
      Agreement or to consummate the Merger or the other transactions contemplated
      by
      this Agreement, provided that “Material Adverse Effect” shall not be deemed to
      include the impact of (a) changes in banking and similar Laws of general
      applicability or interpretations thereof by courts or governmental authorities,
      (b) changes in market interest rates, real estate markets or other market
      conditions applicable to banks or thrift institutions generally, (c) changes
      in
      GAAP or regulatory accounting principles generally applicable to banks or
      thrifts and their holding companies, (d) actions and omissions of a Person
      (or
      any of its subsidiaries) taken with the prior informed consent of the other
      Person in contemplation of the transactions contemplated hereby, or (e) the
      Merger (and the reasonable expenses incurred in connection therewith) and
      compliance with the provisions of this Agreement on the operating performance
      of
      the Persons.

     

    “Measurement
      Date” has the meaning given to it in
Section 9.1(h).

     

    “Merger”
      has the meaning given to it in the Background Statement hereof.

     

    “Merger
      Consideration” has the meaning given to it in Section
      2.3(a).

     

    “Option
      Plan” means the 2003 Long-Term Incentive Stock Benefit
      Plan.

     

    “Order”
      means any administrative decision or award, decree, injunction, judgment, order,
      quasi-judicial decision or award, ruling, or writ of any federal, state, local,
      foreign or other court, arbitrator, mediator, tribunal, administrative agency
      or
      Governmental Authority.

     

    “Participation
      Facility” shall mean any facility or property in which the Person in
      question or any of its subsidiaries participates in the management (including
      but not limited to participating in a fiduciary capacity) and, where required
      by
      the context, said term means the owner or operator of such facility or property,
      but only with respect to such facility or property.

     

    “Pension
      Plan” means any ERISA Plan that also is a “defined benefit plan” (as
      defined in Section 414(j) of the Internal Revenue Code or Section 3(35) of
      ERISA).

     

    “Permit”
      means any approval, authorization, certificate, easement, filing, franchise,
      license, notice, permit, or right given by a Governmental Authority to which
      any
      Person is a party or that is or may be binding upon or inure to the benefit
      of
      any Person or its securities, Assets or business.

     

    “Permitted
      Real Property Encumbrances” means (i) minor imperfections of
      title, if any, none of which materially detracts from the value or impairs
      the
      present or anticipated use of the Real Property subject thereto, or impairs
      the
      present or anticipated operations of the Company and (ii) zoning laws and
      other land use restrictions that do not impair the present or anticipated use
      of
      the Real Property subject thereto.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    “Person”
      means a corporation, a company, an association, a joint venture, a partnership,
      an organization, a business, an individual, a trust, a Governmental Authority
      or
      any other legal entity.

     

    “Per
      Share Stock Consideration” has the meaning given to in Section
      2.3(a).

     

    “Plan
      of Merger” means a Plan of Merger to give effect to the Merger, which
      shall be substantially in the form of Exhibit A
      hereto.

     

    “Proxy
      Statement” has the meaning given to it in Section
      4.19.

     

    “Real
      Property” means all of the land, buildings, premises, or other real
      property in which a Person has ownership or possessory rights, whether by title,
      lease or otherwise (including banking facilities and any foreclosed
      properties).  Notwithstanding the foregoing, “Real Property,” as used
      with respect to any of the Company and its subsidiaries, does not include any
      Loan Collateral not yet foreclosed and conveyed to the Company or one of its
      subsidiaries as of the date with respect to which the term “Real Property” is
      being used.

     

    “Registration
      Statement” has the meaning given to it in Section
      4.19.

     

    “Regulatory
      Authorities” means, collectively, the Federal Trade Commission, the
      United States Department of Justice, the Federal Reserve Board, the Office
      of
      the Comptroller of the Currency, the Office of Thrift Supervision, the North
      Carolina Commissioner of Banks, the South Carolina Board of Financial
      Institutions, the FDIC, the FHLB, the National Association of Securities Dealers
      and the SEC, and all other regulatory agencies having jurisdiction over the
      Parties and their respective subsidiaries.

     

    “Rights”
      shall mean all arrangements, calls, commitments, Contracts, options, rights
      to
      subscribe to, scrip, understandings, warrants, or other binding obligations
      of
      any character whatsoever relating to, or securities or rights convertible into
      or exchangeable for, shares of the capital stock of a Person or by which a
      Person is or may be bound to issue additional shares of its capital stock or
      other Rights.

     

    “SEC”
      means the Securities and Exchange Commission.

     

     “Securities
      Laws” means the Securities Act of 1933, the Securities Exchange Act of
      1934, the Investment Company Act of 1940, the Investment Advisors Act of 1940
      and the Trust Indenture Act of 1939, each as amended, and the rules and
      regulations of any Governmental Authority promulgated under each.

     

    “Settlement
      Agreement” has the meaning given to it in Section
      6.2(c).

     

    “Shareholder
      Meeting” has the meaning given to it in Section
      4.19.

     

    “Stock
      Adjustment” has the meaning given to it in Section
      2.3(b).

     

    “Superior
      Proposal” means a bona fide written unsolicited Acquisition Proposal
      (including a new or solicited proposal received by the Company or any of its
      subsidiaries after execution of this Agreement from a party whose initial
      contact with the Company may have been solicited prior to the execution of
      this
      Agreement) that the Company’s board of directors concludes in good faith to be
      more favorable from a financial point of view to the Company’s shareholders than
      the Merger and the other transactions contemplated hereby, (i) based on the
      advice of its financial advisors (which shall be reasonably acceptable to the
      Buyer), (ii) after taking into account the likelihood of consummation of such
      transaction on the terms set forth therein (as compared to, and with due regard
      for, the terms herein), and (iii) after taking into account all legal (with
      the
      advice of outside counsel reasonably acceptable to the Buyer), financial
      (including the financing terms of any such proposal), regulatory and other
      aspects of such proposal and any other relevant factors permitted under
      applicable Law.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    “Surviving
      Company” has the meaning given to it in Section
      2.1(a).

     

    “Tax”
      or “Taxes” means any and all taxes, charges, fees, levies or
      other assessments (whether federal, state, local or foreign), including without
      limitation income, gross receipts, excise, property, estate, sales, use, value
      added, transfer, license, payroll, franchise, ad valorem, withholding, Social
      Security and unemployment taxes, as well as any interest, penalties and other
      additions to such taxes, charges, fees, levies or other
      assessments.

     

    “Tax
      Return” means any report, return or other information required to be
      supplied to a taxing authority in connection with Taxes.

     

    “Taxable
      Period” shall mean any period prescribed by any Governmental Authority,
      including the United States or any state, local, or foreign government or
      subdivision or agency thereof for which a Tax Return is required to be filed
      or
      Tax is required to be paid.

     

    “Termination
      Fee” has the meaning given to it in Section
      9.3(a).

     

    “Transmittal
      Letter” has the meaning given to it in Section
      2.5(a).

     

    


    
8