EX-10.1







Exhibit 10.1







Execution Version





 





INVESTMENT AGREEMENT




dated as of December 17, 2008




between




FLAGSTAR BANCORP, INC.




and




MP THRIFT INVESTMENTS L.P.





 





 








 








	 	 	 	 	 
	TABLE OF CONTENTS

	 
	 	 	 	 
	ARTICLE I

	 
	 	 	 	 
	PURCHASE; CLOSING

	 
	 	 	 	 
	1.1 Purchase
	 	 	2	 
	1.2 Closing
	 	 	3	 
	 
	 	 	 	 
	ARTICLE II

	 
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES

	 
	 	 	 	 
	2.1 Disclosure
	 	 	6	 
	2.2 Representations and Warranties of the Company
	 	 	7	 
	2.3 Representations and Warranties of Purchaser
	 	 	24	 
	 
	 	 	 	 
	ARTICLE III

	 
	 	 	 	 
	COVENANTS

	 
	 	 	 	 
	3.1 Filings; Other Actions
	 	 	27	 
	3.2 Access, Information and Confidentiality
	 	 	29	 
	3.3 Conduct of the Business
	 	 	30	 
	3.4 Acquisition Proposals
	 	 	34	 
	 
	 	 	 	 
	ARTICLE IV

	 
	 	 	 	 
	ADDITIONAL AGREEMENTS

	 
	 	 	 	 
	4.1 Governance Matters
	 	 	37	 
	4.2 Legend
	 	 	39	 
	4.3 Reservation for Issuance
	 	 	40	 
	4.4 Certain Transactions
	 	 	40	 
	4.5 Indemnity
	 	 	40	 
	4.6 Exchange Listing
	 	 	43	 
	4.7 Registration Rights
	 	 	43	 
	4.8 Certificate of Designations
	 	 	55	 
	 
	 	 	 	 
	ARTICLE V

	 
	 	 	 	 
	TERMINATION

	 
	 	 	 	 
	5.1 Termination
	 	 	55	 
	5.2 Effects of Termination
	 	 	57	 
	5.3 Fees
	 	 	57	 






i








 






	 	 	 	 	 
	ARTICLE VI

	 
	 	 	 	 
	MISCELLANEOUS

	 
	 	 	 	 
	6.1 Survival
	 	 	58	 
	6.2 Expenses
	 	 	58	 
	6.3 Amendment; Waiver
	 	 	58	 
	6.4 Counterparts and Facsimile
	 	 	59	 
	6.5 Governing Law
	 	 	59	 
	6.6 Waiver of Jury Trial
	 	 	59	 
	6.7 Notices
	 	 	59	 
	6.8 Entire Agreement, Etc
	 	 	60	 
	6.9 Interpretation; Other Definitions
	 	 	60	 
	6.10 Captions
	 	 	61	 
	6.11 Severability
	 	 	61	 
	6.12 No Third Party Beneficiaries
	 	 	61	 
	6.13 Time of Essence
	 	 	62	 
	6.14 Certain Adjustments
	 	 	62	 
	6.15 Public Announcements
	 	 	62	 
	6.16 Specific Performance
	 	 	62	 






ii









 






INDEX OF DEFINED TERMS




	 	 	 
	Term	 	Location of Definition
	Acquisition Proposal

	 	3.4(b)
	Affiliate

	 	6.9(a)
	Agency

	 	2.2(w)(2)(A)
	Agreement

	 	Preamble
	Alternative Acquisition Agreement

	 	3.4(c)(2)
	Applicant

	 	2.2(f)
	Authorizations

	 	2.2(a)(1)
	Bank

	 	1.2(c)(2)(D)
	Bank Charter

	 	2.2(a)(2)
	beneficial owner

	 	6.9(g)
	beneficially own

	 	6.9(g)
	Benefit Plan

	 	2.2(s)
	Board Observers

	 	4.1(a)
	Board of Directors

	 	1.2(G)
	Board Representative

	 	4.1(a)
	Burdensome Condition

	 	1.2(c)(2)(F)
	business day

	 	6.9(e)
	Capitalization Date

	 	2.2(b)
	CERCLA

	 	2.2(q)
	Certificate of Incorporation

	 	Recitals
	Change of Recommendation

	 	3.4(c)(2)
	Closing

	 	1.2(a)
	Closing Date

	 	1.2(a)
	Code

	 	2.2(j)
	Common Stock

	 	Recitals
	Company

	 	Preamble
	Company Financial Statements

	 	2.2(g)
	Company Preferred Stock

	 	2.2(b)
	Company Recommendation

	 	3.1(b)
	Company Reports

	 	2.2(h)(1)
	Company Significant Agreement

	 	2.2(m)
	Company 10-K

	 	2.1(c)(2)(A)
	control/controlled by/under common control with

	 	6.9(a)
	Converted Common Shares

	 	Recitals
	Convertible Preferred Stock

	 	Recitals
	Covered Persons

	 	4.9
	DIF

	 	2.2(a)(2)
	Disclosure Schedule

	 	2.1(a)
	ERISA

	 	2.2(s)(1)
	Exchange Act

	 	2.2(h)(1)
	Expense Reimbursement

	 	6.2
	FDIC

	 	2.2(a)(2)






iii









 






	 	 	 
	Term	 	Location of Definition
	GAAP

	 	2.1(b)
	Governance Committee

	 	4.1(a)
	Governmental Entity

	 	1.2(c)(1)(A)
	herein/hereof/hereunder

	 	6.9(d)
	HOLA

	 	2.2(a)(1)
	Holder

	 	4.7(l)(1)
	Holders’ Counsel

	 	4.7(l)(2)
	including/includes/included/include

	 	6.9(c)
	Indemnified Party

	 	4.5(c)
	Indemnifying Party

	 	4.5(c)
	Indemnitee

	 	4.7(g)(1)
	Information

	 	3.2(b)
	Insurer

	 	2.2(w)(2)(C)
	Interim Financials

	 	2.2(g)
	Investment Company Act

	 	2.2(ee)
	Investor Warrants

	 	Recitals
	Investor Amendments

	 	Recitals
	knowledge of the Company

	 	6.9(h)
	Liens

	 	2.2(d)(2)
	Loan Investor

	 	2.2(w)(2)(B)
	Losses

	 	4.5(a)
	Management Equity

	 	3.1(b)
	Management Purchased Shares

	 	Recitals
	Management Purchasers

	 	Recitals
	material

	 	2.1(b)
	Material Adverse Effect

	 	2.1(b)
	MatlinPatterson

	 	Recitals
	May Purchase Agreement

	 	Recitals
	Michigan Secretary

	 	Recitals
	NYSE

	 	1.2(c)(1)(D)
	NYSE Approval

	 	1.2(c)(1)(C)
	Operating Plan

	 	3.3(c)
	Option Shares

	 	Recitals
	or

	 	6.9(b)
	OTS

	 	2.2(f)
	Outside Date

	 	5.1(b)
	Pending Underwritten Offering

	 	4.7(m)
	person

	 	6.9(f)
	Piggyback Registration

	 	4.7(a)(4)
	Pre-Closing Period

	 	3.3(a)
	Preferred Stock Certificate of Designations

	 	Recitals
	Previously Disclosed

	 	2.1(c)
	Proprietary Rights

	 	2.2(z)
	Purchase Price

	 	1.2(b)(2)
	Purchased Shares

	 	Recitals






iv









 






	 	 	 
	Term	 	Location of Definition
	Purchaser

	 	Preamble
	Qualifying Ownership Interest

	 	3.2(a)
	Register, registered and shelf registration

	 	4.7(l)(3)
	Registrable Securities

	 	4.7(l)(4)
	Registration Demand

	 	4.7(a)(2)
	Registration Expenses

	 	4.7(l)(5)
	Regulatory Agreement

	 	2.2(u)
	Representatives

	 	3.4
	Required Approvals

	 	2.2(f)
	Rule 144

	 	4.7(l)(6)
	Rule 144A

	 	4.7(l)(6)
	Rule 159A

	 	4.7(l)(6)
	Rule 405

	 	4.7(l)(6)
	Rule 415

	 	4.7(l)(6)
	Scheduled Black-out Period

	 	4.7(l)(7)
	SEC

	 	2.1(c)(2)(A)
	Securities

	 	Recitals
	Securities Act

	 	Recitals
	Selling Expenses

	 	4.7(l)(8)
	Shelf Registration Statement

	 	4.7(a)(2)
	SLHC Parties

	 	2.2(f)
	Special Registration

	 	4.7(j)
	Stockholder Proposals

	 	3.1(b)
	Subsidiary

	 	2.2(a)(1)
	Superior Proposal

	 	3.4(b)
	TARP Approval

	 	Recitals
	TARP Documents

	 	Recitals
	TARP Preferred Stock

	 	Recitals
	TARP Securities

	 	Recitals
	TARP Transaction

	 	Recitals
	TARP Warrant

	 	Recitals
	TARP Warrant Shares

	 	Recitals
	Tax/Taxes

	 	2.2(j)
	Tax Return

	 	2.2(j)
	Termination Fee

	 	5.3(c)
	Threshold Amount

	 	4.5(e)
	Treasury

	 	Recitals
	Voting Debt

	 	2.2(b)






v









 






LIST OF SCHEDULES AND EXHIBITS




	 	 	 
	Schedule A

	 	List of Management Members for Recital D
	Schedule B

	 	List of Subsidiaries
	Schedule C

	 	[Reserved]
	Schedule D

	 	List of Management Purchasers
	Schedule E

	 	Terms of Management Equity
	Schedule F

	 	List of Applicants
	 
	 	 
	Exhibit A

	 	Preferred Stock Certificate of Designations






vi









 





     INVESTMENT AGREEMENT, dated as of December 17, 2008 (this “Agreement”), between
Flagstar Bancorp, Inc., a corporation organized under the laws of the State of Michigan (the
“Company”) and MP Thrift Investments L.P. a Delaware limited partnership
(“Purchaser”).



RECITALS:



A. Purchaser. Purchaser is formed as an “alternative investment vehicle” for the purpose
of making the investment described herein with capital intended to be contributed (subject to the
terms and conditions of this Agreement) by investors in MatlinPatterson Global Opportunities
Partners III L.P. and MatlinPatterson Global Opportunities Partners Cayman III L.P. The parties
acknowledge and agree that the investment is being made by Purchaser in accordance with the “silo”
structure set forth in Schedule 2.2(f) of the Purchaser Disclosure Schedule and neither
MatlinPatterson Global Advisers LLC or its Affiliates (“MatlinPatterson”), MatlinPatterson
Global Opportunities Partners III L.P., MatlinPatterson Global Opportunities Partners Cayman III
L.P., nor any other fund or entity sponsored or advised by MatlinPatterson shall have any
obligations hereunder;



B. The Investment. The Company intends to issue and sell to Purchaser, and Purchaser
intends to purchase from the Company, as an investment in the Company 250,000 shares of a series of
mandatory convertible participating voting preferred stock, $0.01 par value per share, of the
Company, having the terms set forth in Exhibit A (the “Convertible Preferred
Stock”), in each case on the terms and conditions described herein. Each share of Convertible
Preferred Stock will be sold to Purchaser at a purchase price of $1,000 per share and shall be
convertible into common stock, par value $0.01 per share, of the Company (the “Common
Stock”) at the liquidation preference divided by $0.80;



C. TARP Transaction. The Company submitted an application for participation in the TARP
Capital Purchase Program. If such application is approved by the United States Department of the
Treasury (“Treasury”), the Company intends to issue and sell to Treasury in transactions
exempt from registration under the Securities Act of 1933, as amended (the “Securities
Act”), (i) shares of fixed rate cumulative perpetual preferred stock (the “TARP Preferred
Stock”) and (ii) a warrant (the “TARP Warrant”) to purchase a specified number of
shares of Common Stock (the “TARP Warrant Shares” and together with the TARP Preferred
Stock and the TARP Warrant, collectively, the “TARP Securities”; the issuance and sale of
the TARP Securities are the “TARP Transaction”; the approval of the TARP Transaction
granted by Treasury is the “TARP Approval” and the definitive documents entered into in
connection therewith are the “TARP Documents”);



D. Management Agreement. In connection with the TARP Transaction, members of management of
the Company listed on Schedule A hereto have agreed, if and to the extent required, to amend their
respective employment agreements and executive compensation arrangements to comply with the
requirements of participation in the TARP Capital Purchase Program;



E. Certificate of Incorporation Amendment. The Company intends to amend its Amended and
Restated Articles of Incorporation (the “Certificate of Incorporation”) and its bylaws, in
form and substance reasonably satisfactory to Purchaser, to give effect to the transactions,




 









 







including the Stockholder Proposals and the governance matters described in Article IV hereof,
contemplated by this Agreement;



F. Investor Amendments. Certain of the several investors who purchased securities pursuant
to the Purchase Agreement, dated May 14, 2008, between the Company and the purchasers named therein
(the “May Purchase Agreement”) have, in connection with the TARP Transaction, agreed to
accept in full satisfaction of any and all obligations under Section 8 of the May Purchase
Agreement, warrants (the “Investor Warrants”) to purchase Common Stock (the “Investor
Amendments”);



G. Management Purchase. In connection with the investment by Purchaser, the Company shall
issue and sell to the persons listed in Schedule D hereto (the “Management Purchasers”)
shares of Common Stock (the “Management Purchased Shares”) for an aggregate purchase price
of not less than $4 million and not more than $5 million at a price per Management Purchased Share
of $0.80 per share, provided, however, that if the Company does not have sufficient shares of
Common Stock available for issuance prior to the Certificate of Incorporation amendment, then the
Management Purchasers shall instead purchase an equivalent number shares of Convertible Preferred
Stock on an as converted basis as would have been purchased if sufficient shares of Common stock
were available for issuance; and



H. The Securities. The term “Purchased Shares” refers to the Convertible Preferred
Stock to be purchased pursuant to the terms of Section 1.2(b)(1) of this Agreement. The term
“Securities” refers collectively to (1)  the Convertible Preferred Stock and the shares of
Common Stock into which the Convertible Preferred Stock is convertible in accordance with the terms
thereof and of this Agreement (the “Converted Common Shares”), (2) the Management Equity
(including the shares of Common Stock to be issued upon exercise of options, the “Option
Shares”), (3) the Investor Warrants (including shares of Common Stock to be issued upon
exercise thereof), (4) the TARP Securities and the shares of Common Stock issuable upon the
exercise of the TARP Warrant and (5) the Management Purchased Shares. When issued and purchased in
accordance with the terms of this Agreement, the Convertible Preferred Stock will be evidenced by a
share certificate incorporating the terms set forth in a certificate of designations for the
Convertible Preferred Stock substantially in the form attached as Exhibit A (the
“Preferred Stock Certificate of Designations”) made a part of the Certificate of
Incorporation by the filing of the Preferred Stock Certificate of Designations with the Michigan
Department of Labor and Economic Growth (the “Michigan Secretary”).




     NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements set forth herein, the parties agree as follows:



ARTICLE I




PURCHASE; CLOSING




     1.1 Purchase. On the terms and subject to the conditions set forth herein, Purchaser
will purchase from the Company, and the Company will sell to Purchaser a number of Purchased Shares
determined in accordance with Section 1.2(b)(1).



2









 





     1.2 Closing.




     (a) Subject to the satisfaction or waiver of the conditions to the Closing set forth in
this Agreement, the closing of the purchase of the Purchased Shares referred to in Section
1.1 by Purchaser pursuant hereto (the “Closing”) shall occur at 9:30 a.m., New York
time, on December 31, 2008, provided that if such conditions have not been so satisfied or
waived on such date, the Closing shall occur on the third business day after the
satisfaction or waiver (by the party entitled to grant such waiver) of the conditions to the
Closing set forth in this Agreement (other than those conditions that by their nature are to
be satisfied at the Closing, but subject to fulfillment or waiver of those conditions), at
the offices of Sullivan & Cromwell LLP located at 125 Broad Street, New York, New York 10004
or such other date or location as agreed by the parties. The date of the Closing is
referred to as the “Closing Date.”




     (b) Subject to the satisfaction or waiver on the Closing Date of the applicable
conditions to the Closing in Section 1.2(c), at the Closing:




     (1) the Company will deliver to Purchaser (A) the Expense Reimbursement in
accordance with Section 6.2 hereof and (B) 250,000 shares of Convertible Preferred
Stock; and




     (2) Purchaser will deliver $250,000,000 (the “Purchase Price”) to the
Company.




     (c) Closing Conditions. (1)  The obligation of Purchaser, on the one hand, and
the Company, on the other hand, to effect the Closing is subject to the fulfillment or
written waiver by Purchaser and the Company prior to the Closing of the following
conditions:




     (A) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the Closing or shall prohibit or
restrict Purchaser or its Affiliates from owning or voting, or, subject to
the receipt of approval of the Stockholder Proposals, converting any
Purchased Shares in accordance with the terms thereof and no lawsuit shall
have been commenced by any court, administrative agency or commission or
other governmental authority or instrumentality, whether federal, state,
local or foreign, or any applicable industry self-regulatory organization
(each, a “Governmental Entity”) seeking to effect any of the
foregoing;




     (B) the Company shall have received proceeds of the sale of the TARP
Securities of not less than $250,000,000 prior to the Closing Date;




     (C) the Company shall have received the approval of the NYSE to issue
the Convertible Preferred Stock and to convert the Convertible Preferred
Stock into Common Stock without the approval of the Company’s stockholders
in reliance on Section 312.05 of the NYSE



3









 







Listed Company Manual (the “NYSE Approval”), and such NYSE
Approval shall be in full force and effect; and




     (D) the Converted Common Shares shall have been authorized for listing
on the New York Stock Exchange (“NYSE”) or such other market on which the
Common Stock is then listed or quoted, subject to stockholder approval, if
necessary, and official notice of issuance.




     (2) The obligation of Purchaser to purchase the Purchased Shares at Closing is
also subject to the fulfillment or written waiver by Purchaser prior to the Closing
of each of the following conditions:




     (A) The Company shall have performed in all material respects all
obligations required to be performed by it at or prior to Closing;




     (B) All representations and warranties of the Company contained in this
Agreement shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representations and warranties expressly
relate to a specified date, in which case such representation and warranty
need only be true and correct as of such specified earlier date);




     (C) Purchaser shall have received a certificate signed on behalf of the
Company by a senior executive officer certifying to the effect that the
conditions set forth in Sections 1.2(c)(2)(A) and (B) have been satisfied;




     (D) Since the date of this Agreement, (i) no fact, event, change,
condition, development or circumstance shall have occurred that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect (as defined herein) with respect to the Company,
(ii) there shall have been no decrease greater than or equal to 7.5% in core
deposits (i.e., money market, demand, checking, savings and transactional
accounts for retail customers) of the Company as of September 30, 2008 and
(iii) there shall have been no material legislative change or change in
regulatory interpretation affecting the tax consequences of the Purchase to
Flagstar Bank, FSB (the “Bank”) under existing Notice 2008-83, or
any other material change to any rules under Section 382 that affect the
application of Section 382 to unrealized built-in losses of Flagstar Bank,
FSB (the “Bank”) and any Affiliate (if relevant) that exist on or
after the Closing Date;




     (E) As of the Closing Date, the Bank’s authorized line of credit under
the Advances, Pledge and Security Agreement, dated as of August 6, 1996,
among the Bank, Flagstar Capital Markets Corporation and the Federal Home
Loan Bank of Indianapolis shall not have decreased by



4









 







more than 5% from the date of this Agreement, such that such line of
credit is less than $6.65 billion;




     (F) Any Required Approvals (as defined herein) required to consummate
the transactions contemplated by this Agreement shall have been made or been
obtained and shall be in full force and effect as of the Closing Date;
provided, however, that (1) no such Required Approval shall impose any
restraint or condition that would reasonably be expected to impair in any
material respect the benefits to Purchaser of the transactions contemplated
by this Agreement and (2) no such Required Approval shall contemplate the
registration of MatlinPatterson or any fund sponsored or advised by it, or
any of its Affiliates (other than Purchaser or those companies identified as
possible Applicants in Schedule F) as a savings and loan company or
subsidiary thereof, or impose any activities or other restrictions, require
a modification of governance, fee arrangements and carried interests with
respect to, or impose any capital or other requirements on MatlinPatterson
or any person (other than Purchaser or those companies identified as
possible Applicants in Schedule F), including with respect to any person any
agreement or requirement to maintain or contribute to capital of the Company
or the Bank) (each, a “Burdensome Condition”) and, provided, further
that, notwithstanding any other provision of this Agreement, the imposition
of a Burdensome Condition in connection with any Required Approval shall
constitute a denial of such Required Approval and such Required Approval
shall be deemed not received for all purposes in this Agreement, including
Section 5.1(d);




     (G) The board of directors of the Company (the “Board of
Directors”) shall have adopted a board resolution nominating the Board
Representatives and appointing the Board Representatives effective as of
Closing, as contemplated in Section 4.1;




     (H) The Company shall have received proceeds of the sale of the
Management Purchased Shares of not less than $4 million on or prior to the
Closing Date; and




     (I) At the Closing, taking into account payment for the Purchased
Shares, Management Purchased Shares and the TARP Securities, the Bank’s
Tier I leverage ratio shall be no lower than a minimum of 7% and the Bank’s
total risk-based capital ratio shall be a minimum of 12%.




     (3) The obligation of the Company to effect the Closing is subject to the
fulfillment or written waiver by the Company prior to the Closing of the following
additional conditions:



5









 






     (A) Purchaser shall have performed in all material respects all
obligations required to be performed by it at or prior to the Closing;




     (B) All representations and warranties of Purchaser contained in this
Agreement shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representations and warranties expressly
relate to a specified date, in which case such representation and warranty
need only be true and correct as of such specified earlier date); and




     (C) the Company shall have received a certificate signed on behalf of
Purchaser by a senior executive officer certifying to the effect that the
conditions set forth in Sections 1.2(c)(3)(A) and (B) have been satisfied.



ARTICLE II




REPRESENTATIONS AND WARRANTIES




     2.1 Disclosure. (a) On or prior to the date hereof, the Company delivered to
Purchaser and Purchaser delivered to the Company a schedule (a “Disclosure Schedule”)
setting forth, among other things, items the disclosure of which is necessary or appropriate either
in response to an express disclosure requirement contained in a provision hereof or as an exception
to one or more representations or warranties contained in Section 2.2 with respect to the Company,
or in Section 2.3 with respect to Purchaser, or to one or more covenants contained in Article III.




     (b) As used in this Agreement, any reference to any fact, change, circumstance or
effect being “material” with respect to the Company means such fact, change, circumstance or
effect is material in relation to the business, assets, properties, prospects or results of
operations or condition (financial or otherwise) of the Company and the Subsidiaries taken
as a whole. As used in this Agreement, the term “Material Adverse Effect” means any
circumstance, event, change, development or effect (including changes in applicable laws,
rules and regulations or interpretations thereof by Governmental Entities, changes in U.S.
generally accepted accounting principals (“GAAP”) or changes in general economic, monetary
or financial conditions) that, individually or in the aggregate, (1) is material and adverse
to the business, assets, properties, prospects, results of operations or condition
(financial or otherwise) of the Company and Subsidiaries taken as a whole, or (2) would
materially impair the ability of the Company to perform its obligations under this Agreement
or to consummate the Closing.




     (c) “Previously Disclosed” with regard to (1) a party means information set
forth on its Disclosure Schedule, provided, however, that disclosure in any section of such
Disclosure Schedule shall apply only to the indicated section of this Agreement except to
the extent that it is reasonably apparent from the face of such disclosure that



6









 







such disclosure is relevant to another section of this Agreement, and (2) the Company
means information publicly disclosed by the Company in (A) its Annual Report on Form 10-K
for the fiscal year ended December 31, 2007, as filed by it with the Securities and Exchange
Commission (“SEC”) on March 13, 2008 (the “Company 10-K”), (B) its
Definitive Proxy Statement on Schedule 14A, as filed by it with the SEC on April 29, 2008,
(C) its Quarterly Reports filed on Form 10-Q for the periods ended March 31, 2008, June 30,
2008 and September 30, 2008 or (D) any Current Report on Form 8-K filed or furnished by it
with the SEC since January 1, 2008 and publicly available prior to the date of this
Agreement (excluding any risk factor disclosures contained in such documents under the
heading “Risk Factors” and any disclosure of risks included in any “forward-looking
statements” disclaimer or other statements that are similarly non-specific and are
predictive or forward-looking in nature).



     2.2 Representations and Warranties of the Company. The Company represents and
warrants to Purchaser, as of the date of this Agreement and as of the Closing Date (except to the
extent made only as of a specified date in which case as of such date), that:




     (a) Organization and Authority. (1) The Company is, and at the Closing Date
will be, a corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan. The Company is a savings and loan holding company under the Home
Owners’ Loan Act of 1933, as amended (“HOLA”). The Company has, and at the Closing
Date will have, the power and authority (corporate, governmental, regulatory and otherwise)
and has or will have all necessary approvals, orders, licenses, certificates, permits and
other governmental authorizations (collectively, the “Authorizations”) to own or
lease all of the assets owned or leased by it and to conduct its business in the manner
Previously Disclosed, and has the corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted. The Company is, and at
the Closing Date will be, duly licensed or qualified to do business and in good standing as
a foreign corporation in all jurisdictions (i) in which the nature of the activities
conducted by the Company requires such qualification and (ii) in which the Company owns or
leases real property other than such failures that would not have any material impact on the
Company. The Amended and Restated Articles of Incorporation of the Company comply in all
material respects with applicable law. A complete and correct copy of the Amended and
Restated Articles of Incorporation and bylaws of the Company, as amended and as currently in
effect, has been delivered or made available to Purchaser. The Company’s subsidiaries (each
a “Subsidiary” and collectively the “Subsidiaries”) are listed on Schedule B
to this Agreement.




     (2) The Bank is a Subsidiary of the Company and is a federally chartered stock
savings bank duly organized, validly existing and in good standing under HOLA. The
deposit accounts of the Bank are insured up to applicable limits by the Deposit
Insurance Fund (“DIF”), which is administered by the Federal Deposit
Insurance Corporation (the “FDIC”), and no proceedings for the termination
or revocation of such insurance are pending or, to the knowledge of the Company,
threatened. The Bank has the power and authority (corporate, governmental,
regulatory and otherwise) and has or will have all necessary Authorizations to own
or lease all of the assets owned or leased by it



7









 







and to conduct its business in the manner Previously Disclosed. The Bank is
duly licensed or qualified to do business and in good standing in all jurisdictions
(i) in which the nature of the activities conducted by the Bank requires such
qualification and (ii) in which the Bank owns or leases real property other than
such failures that would not have any material impact on the Company. The Federal
Stock Savings Bank Charter (“Bank Charter”) of the Bank complies in all
material respects with applicable law. A complete and correct copy of the Bank
Charter, as amended and as currently in effect, has been delivered or made available
to Purchaser.




     (3) Each of the Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its jurisdiction
of organization. Each such Subsidiary has the power and authority (corporate,
governmental, regulatory and otherwise) and has or will have all necessary
Authorizations to own or lease all of the assets owned or leased by it and to
conduct its business as Previously Disclosed. Each such Subsidiary is duly licensed
or qualified to do business and in good standing as a foreign corporation in all
jurisdictions (i) in which the nature of the activities conducted by such Subsidiary
requires such qualification and (ii) in which such Subsidiary owns or leases real
property other than such failures that would not have any material impact on the
Company. The articles or certificate of incorporation or certificate of trust of
each Subsidiary comply in all material respects with applicable law. A complete and
correct copy of the articles or certificate of incorporation or certificate of trust
of each Subsidiary, as amended and as currently in effect, has been delivered or
made available to Purchaser.




     (b) Capitalization. The authorized capital stock of the Company consists of
150,000,000 shares of Common Stock and 25,000,000 shares of preferred stock, $0.01 par value
per share, of the Company (the “Company Preferred Stock”). As of the close of
business on December 15, 2008 (the “Capitalization Date”), there were
83,626,726 shares of Common Stock outstanding and zero shares of Company Preferred Stock
outstanding. Since the Capitalization Date and through the date of this Agreement, except
in connection with (A) this Agreement and the transactions contemplated hereby, (B) the TARP
Securities, (C) the Management Equity, (D) the Investor Warrants, (E) the Management
Purchased Shares and (F) as set forth in Company Disclosure Schedule 2.2(b), the Company has
not (i) issued or authorized the issuance of any shares of Common Stock or Company Preferred
Stock, or any securities convertible into or exchangeable or exercisable for shares of
Common Stock or Company Preferred Stock, (ii) reserved for issuance any shares of Common
Stock or Company Preferred Stock or (iii) repurchased or redeemed, or authorized the
repurchase or redemption of, any shares of Common Stock or Company Preferred Stock. As of
the close of business on the Capitalization Date, other than in respect of the Convertible
Preferred Stock, the TARP Securities, the Management Equity, the Investor Warrants, the
Management Purchased Shares, the Flagstar Bancorp, Inc. 1997 Employees and Directors Stock
Option Plan, as amended, the Flagstar Bancorp, Inc. 2000 Stock Incentive Plan, as amended,
and the 2006 Equity Incentive Plan in respect of which an aggregate of 521,537 shares of
Common Stock have been reserved for issuance, no shares of Common Stock or



8









 







Company Preferred Stock were reserved for issuance. All of the issued and outstanding
shares of Common Stock and Company Preferred Stock have been duly authorized and validly
issued and are fully paid and nonassessable, and have been issued in compliance with all
federal and state securities laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities. No bonds,
debentures, notes or other indebtedness having the right to vote on any matters on which the
stockholders of the Company may vote (“Voting Debt”) are issued and outstanding. As
of the date of this Agreement, except (i) pursuant to any cashless exercise provisions of
any Company stock options or pursuant to the surrender of shares to the Company or the
withholding of shares by the Company to cover tax withholding obligations under the Benefit
Plans, and (ii) as set forth elsewhere in this Section 2.2(b), the Company does not have and
is not bound by any outstanding subscriptions, options, calls, commitments or agreements of
any character calling for the purchase or issuance of, or securities or rights convertible
into or exchangeable for, any shares of Common Stock or Company Preferred Stock or any other
equity securities of the Company or Voting Debt or any securities representing the right to
purchase or otherwise receive any shares of capital stock of the Company (including any
rights plan or agreement).




     (c) Subsidiaries. With respect to each of the Subsidiaries, (i) all the issued
and outstanding shares of such Subsidiary’s capital stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and (ii) there
are no outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of such Subsidiary’s capital stock, any
other equity security or any Voting Debt, or any such options, rights, convertible
securities or obligations.




     (d) Authorization. (1) The Company has the full legal right, corporate power
and authority to enter into this Agreement and the Preferred Stock Certificate of
Designations and to carry out its obligations hereunder. The execution, delivery and
performance of this Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors. This Agreement has
been duly and validly executed and delivered by the Company and, assuming due authorization,
execution and delivery by Purchaser, is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms (except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting creditors’
rights or by general equity principles). No other corporate proceedings are necessary for
the execution and delivery by the Company of this Agreement, the performance by it of its
obligations hereunder or the consummation by it of the transactions contemplated hereby,
subject, in the case of the authorization of the Converted Common Shares, to receipt of the
approval by the Company’s stockholders of the Stockholder Proposals. Assuming the receipt
of the NYSE Approval, no vote of stockholders will be needed for the issuance of the
Convertible Preferred Stock or the ability of Purchaser to exercise the voting rights
contained therein, except for the



9









 







approval described in Section 3.1(b)(A) to issue the Converted Common Shares. The only
vote of the stockholders of the Company required in connection with (i) the conversion of
the Convertible Preferred Stock into Common Stock and the amendments to the Company’s equity
compensation plan to effect the Management Equity issuance for purposes of Section 312.03 of
the NYSE Listed Company Manual is a majority of the votes cast on such proposal, provided
that the total vote cast on the proposal represents over 50% in interest of all securities
entitled to vote on the proposal (after taking into account any securities not entitled to
vote pursuant to the rules of the NYSE), (ii) the amendment of the Certificate of
Incorporation to increase the number of authorized shares of Common Stock to at least such
number as shall be sufficient to permit the full issuance of the Securities and the
amendment of the Certificate of Incorporation and bylaws to implement the governance matters
contemplated in Section 4.1 hereof, is the affirmative vote of the holders of not less than
a majority of the outstanding Common Stock. To the Company’s knowledge, all shares of
Common Stock outstanding on the record date for a meeting at which a vote is taken with
respect to the Stockholder Proposals shall be eligible to vote on such proposals.




     (2) Neither the execution and delivery by the Company of this Agreement, nor
the consummation of the transactions contemplated hereby, nor compliance by the
Company with any of the provisions hereof (including, without limitation, the
conversion provisions of the Convertible Preferred Stock), will (A) violate,
conflict with, or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or result in the loss of any
benefit or creation of any right on the part of any third party under, or accelerate
the performance required by, or result in a right of termination or acceleration of,
or result in the creation of any liens, charges, adverse rights or claims, pledges,
covenants, title defects, security interests and other encumbrances of any kind
(“Liens”) upon any of the material properties or assets of the Company or
any Subsidiary under any of the terms, conditions or provisions of (i) subject in
the case of the authorization and issuance of the Converted Common Shares to receipt
of the approval by the Company’s stockholders of the Stockholder Proposals, its
Certificate of Incorporation or bylaws (or similar governing documents) or the
certificate of incorporation, charter, bylaws or other governing instrument of any
Subsidiary or (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or any
Subsidiary is a party or by which it may be bound, or to which the Company or any
Subsidiary or any of the properties or assets of the Company or any Subsidiary may
be subject, or (B) subject to compliance with the statutes and regulations referred
to in Section 2.2(f), violate any law, statute, ordinance, rule, regulation, permit,
concession, grant, franchise or any judgment, ruling, order, writ, injunction or
decree applicable to the Company or any Subsidiary or any of their respective
properties or assets.




     (e) Accountants. Virchow, Krause & Company, LLP, who has expressed its opinion
with respect to the consolidated financial statements contained in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007, are registered



10









 







independent public accountants, within the meaning of the Code of Professional Conduct
of the American Institute of Certified Public Accountants, as required by the Securities Act
and the rules and regulations promulgated thereunder and by the rules of the Public
Accounting Oversight Board.




     (f) Consents. Schedule 2.2(f) of the Company Disclosure Schedule lists all
governmental and any other material consents, approvals, authorizations, applications,
registrations and qualifications that are required to be obtained in connection with or for
the consummation of the transactions contemplated by this Agreement (the “Required
Approvals”), including the approval of the persons listed on Schedule 2.2(f) of the
Purchaser Disclosure Schedule (the “SLHC Parties”) as savings and loan holding
companies and an application to the Office of Thrift Supervision (“OTS”) by the
persons listed in Schedule F hereto (such listed persons, including the SLHC Parties, the
“Applicants”) and the written determination by each of the FDIC and the OTS that
neither MatlinPatterson nor any fund sponsored or advised by it or their Affiliates (other
than the Applicants) will control the Company or the Bank or be an “institution affiliated
party” (as defined in 12 USC Section 1813(u)) with respect thereto in connection with the
structure outlined in Schedule 2.2(f) of the Purchaser Disclosure Schedule. Other than the
securities or blue sky laws of the various states and the Required Approvals, no material
notice to, registration, declaration or filing with, exemption or review by, or
authorization, order, consent or approval of, any Governmental Entity, or expiration or
termination of any statutory waiting period, is necessary for the consummation by the
Company of the transactions contemplated by this Agreement; no person other than each of the
Applicants is required to obtain any Required Approval or other consent or approval from any
Governmental Entity in connection with the transactions contemplated by this Agreement and
no person other than each of the SLHC Parties is required to be registered as a savings and
loan holding company in order to consummate the transactions contemplated by this Agreement.




     (g) Financial Statements. Each of the consolidated balance sheets of the
Company and the Subsidiaries and the related consolidated statements of income,
stockholders’ equity and cash flows, together with the notes thereto (collectively, the
“Company Financial Statements”), included in any Company Report filed with the SEC
prior to the date of this Agreement, and the unaudited consolidated balance sheets of the
Company and the Subsidiaries as of November 30, 2008 and the related consolidated statements
of income, stockholders’ equity and cash flows for the period ending November 30, 2008,
together with the notes thereto and in the form Previously Disclosed to Purchaser (the
“Interim Financials”) (1) have been prepared from, and are in accordance with, the
books and records of the Company and the Subsidiaries in all material respects, (2) other
than the Interim Financials, complied as to form, as of their respective date of filing with
the SEC, in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, (3) have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved and (4)
present fairly in all material respects the consolidated financial position of the Company
and the Subsidiaries as of the dates set forth therein and the consolidated results of
operations, changes in stockholders’ equity and cash flows



11









 







of the Company and the Subsidiaries for the periods stated therein subject, in the case
of any unaudited financial statements, to period end adjustments.




     (h) Reports. (1) Since December 31, 2005, the Company and each Subsidiary has
timely filed all material reports, registrations, documents, filings, statements and
submissions, together with any amendments thereto, that it was required to file with any
Governmental Entity (the foregoing, collectively, the “Company Reports”) and has
paid all material fees and assessments due and payable in connection therewith. As of their
respective dates of filing, the Company Reports complied in all material respects with all
statutes and applicable rules and regulations of the applicable Governmental Entities. To
the knowledge of the Company, as of the date of this Agreement, there are no outstanding
comments from the SEC or any other Governmental Entity with respect to any Company Report.
In the case of each such Company Report filed with or furnished to the SEC, such Company
Report did not, as of its date or if amended prior to the date of this Agreement, as of the
date of such amendment, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the statements
made in it, in light of the circumstances under which they were made, not misleading and
complied as to form in all material respects with the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). With respect to all other Company Reports, the Company Reports were complete and
accurate in all material respects as of their respective dates, or the dates of their
respective amendments. No executive officer of the Company or any Subsidiary has failed in
any respect to make the certifications required of him or her under Section 302 or 906 of
the Sarbanes-Oxley Act of 2002.




     (2) The records, systems, controls, data and information of the Company and the
Subsidiaries are recorded, stored, maintained and operated under means (including
any electronic, mechanical or photographic process, whether computerized or not)
that are under the exclusive ownership and direct control of the Company or the
Subsidiaries or their accountants (including all means of access thereto and
therefrom). The Company (i) keeps books, records and accounts that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company and the Bank, and (ii) maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management’s general or specific
authorization, (B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles and
to maintain accountability for assets, (C) access to assets is permitted only in
accordance with management’s general or specific authorization and (D) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company (A) has implemented and maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information
relating to the Company, including the consolidated Subsidiaries, is made known to
the chief executive officer and the chief financial officer of the Company by others
within those entities, and (B) has



12









 







disclosed, based on its most recent evaluation prior to the date hereof, to the
Company’s outside auditors and the audit committee of the Board of Directors (x) any
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) that are reasonably likely to adversely affect the Company’s ability
to record, process, summarize and report financial information and (y) any fraud,
whether or not material, that involves management or other employees who have a
significant role in the Company’s internal controls over financial reporting. Since
December 31, 2007 and until the date of this Agreement, (A) neither the Company nor
any Subsidiary nor, to the knowledge of the Company, any director, officer,
employee, auditor, accountant or representative of the Company or any Subsidiary has
received or otherwise had or obtained knowledge of any material complaint,
allegation, assertion or claim, whether written or oral, regarding the accounting or
auditing practices, procedures, methodologies or methods of the Company or any
Subsidiary or their respective internal accounting controls, including any material
complaint, allegation, assertion or claim that the Company or any Subsidiary has
engaged in questionable accounting or auditing practices, and (B) no attorney
representing the Company or any Subsidiary, whether or not employed by the Company
or any Subsidiary, has reported evidence of a material violation of securities laws,
breach of fiduciary duty or similar violation by the Company or any of its officers,
directors, employees or agents to the Board of Directors or any committee thereof or
to any director or officer of the Company. The Company is otherwise in compliance
in all material respects with all applicable provisions of the Sarbanes-Oxley Act of
2002, as amended and the rules and regulations promulgated thereunder.




     (i) Properties and Leases. The Company and the Subsidiaries have good and
marketable title to all real properties and all other properties and assets owned by them
(other than any assets the Company has repossessed), in each case free from Liens that would
affect the value thereof or interfere with the use made or to be made thereof by them in any
material respect. The Company and its Subsidiaries own or lease all properties as are
necessary to their operations as now conducted. The Company and the Subsidiaries hold all
leased real or personal property under valid and enforceable leases with no exceptions that
would interfere with the use made or to be made thereof by them in any material respect.




     (j) Taxes. Except as set forth in Schedule 2.2(j) of the Company Disclosure
Schedule, (1) each of the Company and the Subsidiaries has duly and timely filed
(including, pursuant to applicable extensions granted without penalty) all material Tax
Returns required to be filed by it and all such Tax Returns are correct and complete in all
material respects. Each of the Company and the Subsidiaries have paid in full all Taxes due
or made adequate provision in the financial statements of the Company (in accordance with
GAAP) for any such Taxes, whether or not shown as due on such Tax Returns; (2) no material
deficiencies for any Taxes have been proposed, asserted or assessed in writing against or
with respect to any Taxes due by, or Tax Returns of, the Company or any of the Subsidiaries
which deficiencies have not since been resolved; and (3) there are no Liens for Taxes upon
the assets of either the Company or the Subsidiaries



13









 







except for statutory Liens for current Taxes not yet due. None of the Company or any
of the Subsidiaries has been a “distributing corporation” or a “controlled corporation” in
any distribution occurring during the last two years in which the parties to such
distribution treated the distribution as one to which Section 355 of the Internal Revenue
Code of 1986, as amended (the “Code”) is applicable. None of the Company or any
Subsidiary has engaged in any transaction that is the same as or substantially similar to a
“reportable transaction” for federal income tax purposes within the meaning of Treasury
Regulations section 1.6011-4. Neither the Company nor any of the Subsidiaries has engaged
in a transaction of which it made disclosure to any taxing authority to avoid penalties
under Section 6662(d) or any comparable provision of state, foreign or local law. Neither
the Company nor any of the Subsidiaries has participated in any “tax amnesty” or similar
program offered by any taxing authority to avoid the assessment of penalties or other
additions to Tax. The Company and each of the Subsidiaries have complied in all material
respects with all requirements to report information for Tax purposes to any individual or
Taxing Authority, and have collected and maintained all requisite certifications and
documentation in valid and complete form with respect to any such reporting obligation,
including, without limitation, valid Internal Revenue Service Forms W-8 and W-9. No claim
has been made by a Tax Authority in a jurisdiction where the Company or any of the
Subsidiaries, as the case may be, does not file Tax Returns that the Company or any of such
Subsidiaries, as the case may be, is or may be subject to Tax by that jurisdiction. For
purposes of this Agreement, “Taxes” shall mean all taxes, charges, levies, penalties
or other assessments imposed by any United States federal, state, local or foreign taxing
authority, including any income, excise, property, sales, transfer, franchise, payroll,
withholding, social security, abandoned or unclaimed property or other taxes, together with
any interest or penalties attributable thereto, and any payments made or owing to any other
person measured by such taxes, charges, levies, penalties or other assessment, whether
pursuant to a tax indemnity agreement, tax sharing payment or otherwise (other than pursuant
to commercial agreements or Benefit Plans). For purposes of this Agreement, “Tax
Return” shall mean any return, report, information return or other document (including
any related or supporting information) required to be filed with any taxing authority with
respect to Taxes, including, without limitation, all information returns relating to Taxes
of third parties, any claims for refunds of Taxes and any amendments or supplements to any
of the foregoing.




     (k) Absence of Certain Changes. Since December 31, 2007 until the date hereof
and except as Previously Disclosed, (1) the Company and the Subsidiaries have conducted
their respective businesses in all material respects in the ordinary and usual course of
business and consistent with prior practice, (2) neither the Company nor the Bank has
issued any securities or incurred any liability or obligation, direct or contingent, for
borrowed money, except borrowings in the ordinary course of business, (3) except for
publicly disclosed ordinary dividends on the Common Stock and outstanding Company Preferred
Stock, the Company has not made or declared any distribution in cash or in kind to its
stockholders or issued or repurchased any shares of its capital stock or other equity
interests, (4) the Company has not had and no fact, event, change, condition, development or
circumstance has occurred that would reasonably be expected to have a Material Adverse
Effect with respect to the Company, and (5) no material default (or event which, with notice
or lapse of time, or both, would constitute a material default)



14









 







exists on the part of either the Company or the Bank or, to their knowledge, on the
part of any other party, in the due performance and observance of any term, covenant or
condition of any agreement to which the Company or the Bank is a party and which is,
individually or in the aggregate, material to the condition (financial or otherwise) of the
Company and the Bank, taken as a whole. Such agreements are in full force and effect, and
no other party to any such agreement has instituted or, to the knowledge of the Company or
the Bank, threatened any action or proceeding wherein the Company or the Bank is or would be
alleged to be in default thereunder, under circumstances where such action or proceeding, if
determined adversely to the Company or the Bank, would have or be reasonably likely to have
a Material Adverse Effect.




     (l) No Undisclosed Liabilities. Neither the Company nor any of the
Subsidiaries has any material liabilities or obligations of any nature and is not an obligor
under any guarantee, keepwell or other similar agreement (absolute, accrued, contingent or
otherwise) except for (i) liabilities or obligations reflected in or reserved against in the
Company’s consolidated balance sheet as of December 31, 2007 and September 30, 2008 and
current liabilities that have arisen since the respective dates thereof in the ordinary and
usual course of business and consistent with past practice and (ii) contractual liabilities
under (other than liabilities arising from any breach or violation of) agreements made in
the ordinary and usual course of business and consistent with past practice and that have
either been Previously Disclosed or would not have a material impact on the Company.




     (m) Commitments and Contracts. (i) The Company has Previously Disclosed or
provided (by hard copy, electronic data room or otherwise) to Purchaser or its
representatives true, correct and complete copies of, each of the following to which the
Company or any Subsidiary is a party or subject (whether written or oral, express or
implied) (each, a “Company Significant Agreement”):




     (1) any contract or agreement which is a “material contract” within the meaning
of Item 601(b)(10) of Regulation S-K to be performed in whole or in part after the
date of this Agreement;




     (2) any contract or agreement which limits the freedom of the Company or any of
the Subsidiaries to compete in any material line of business;




     (3) any material contract or agreement with a labor union or guild (including
any collective bargaining agreement);




     (4) any contract or agreement which grants any person a right of first refusal,
right of first offer or similar right with respect to any material properties,
assets or businesses of the Company or the Subsidiaries;




     (5) any indenture, deed of trust, loan agreement or other financing agreement
or instrument; and



15









 






     (6) any contract relating to the acquisition or disposition of any material
business or material assets (whether by merger, sale of stock or assets or
otherwise), which acquisition or disposition is not yet complete or where such
contract contains continuing material obligations, including continuing material
indemnity obligations, of the Company or any of the Subsidiaries.




(ii) Each of the Company Significant Agreements has been duly and validly authorized,
executed and delivered by the Company or any Subsidiary and is binding on the Company and
the Subsidiaries, as applicable, and in full force and effect; (iii) the Company and each of
the Subsidiaries, as applicable, are in all material respects in compliance with and have in
all material respects performed all obligations required to be performed by them to date
under each Company Significant Agreement; and (iv) as of the date hereof, to the Company’s
knowledge, neither the Company nor any of the Subsidiaries has received notice of any
material violation or default (or any condition which with the passage of time or the giving
of notice would cause such a violation of or a default) by any party under any Company
Significant Agreement.




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




     (o) Status of Purchased Shares. The Purchased Shares (upon filing of the
Preferred Stock Certificate of Designations with the Michigan Secretary) to be issued
pursuant to this Agreement have been duly authorized by all necessary corporate action,
subject to the approval of the Stockholder Proposals. When issued, delivered and sold
against receipt of the consideration therefore as provided in this Agreement, the Purchased
Shares will be validly issued, fully paid and nonassessable, will not be issued in violation
of or subject to preemptive rights of any other stockholder of the Company and, provided
that the TARP Transaction is consummated, will not result in the violation or triggering of
any price-based antidilution adjustments under any agreement to which the Company is a
party. The voting rights of the Holders of the Purchased Shares will be enforceable in
accordance with the terms of this Agreement and with the terms of the Certificate of
Designations. No stockholder of the Company has any right (which will not have been waived
or will not have expired by reason of lapse of time following notification of the Company’s
intention to file the Shelf Registration Statement (as defined herein)) to require the
Company to register the sale of any capital stock owned by such stockholder under the Shelf
Registration Statement.




     (p) Litigation and Other Proceedings. There is no pending or, to the knowledge
of the Company, threatened material claim, action, suit, investigation or proceeding,
against the Company or any Subsidiary or to which any of their assets are subject, nor is
the Company or any Subsidiary subject to any order, judgment or decree.



16









 







There is no material unresolved violation, criticism or exception by any Governmental
Entity with respect to any report or relating to any examinations or inspections of the
Company or any Subsidiaries.




     (q) Compliance with Laws. The Company and each Subsidiary have all material
permits, licenses, franchises, authorizations, orders and approvals of, and have made all
filings, applications and registrations with, Governmental Entities that are required in
order to permit them to own or lease their properties and assets and to carry on their
business as presently conducted and that are material to the business of the Company or such
Subsidiary. The Company and each Subsidiary has complied in all material respects and is
not in default or violation in any respect of, and none of them is, to the knowledge of the
Company, under investigation with respect to or, to the knowledge of the Company, has been
threatened to be charged with or given notice of any material violation of, any applicable
material domestic (federal, state or local) or foreign law, statute, ordinance, license,
rule, regulation, policy or guideline, order, demand, writ, injunction, decree or judgment
of any Governmental Entity. Except for statutory or regulatory restrictions of general
application, no Governmental Entity has placed any material restriction on the business or
properties of the Company or any Subsidiary. The Company and its Subsidiaries have, and at
the Closing Date will have complied in all material respects with all laws, regulations,
ordinances and orders relating to public health, safety or the environment (including
without limitation all laws, regulations, ordinances and orders relating to releases,
discharges, emissions or disposals to air, water, land or groundwater, to the withdrawal or
use of groundwater, to the use, handling or disposal of polychlorinated biphenyls, asbestos
or urea formaldehyde, to the treatment, storage, disposal or management of hazardous
substances, pollutants or contaminants, or to exposure to toxic, hazardous or other
controlled, prohibited or regulated substances), the violation of which would or might have
a material impact on the Company on the consummation of the transactions contemplated by
this Agreement. In addition, and irrespective of such compliance, neither the Company nor
any of its Subsidiaries is subject to any liability for environmental remediation or
clean-up, including any liability or class of liability of the lessee under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
(“CERCLA”), or the Resource Conservation and Recovery Act of 1976, as amended, which
liability would or might have a material impact on the consummation of the transactions
contemplated by this Agreement.




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



17









 







good. No executive officer of the Company (as defined in Rule 501(f) promulgated under
the Securities Act) has notified the Company that such officer intends to leave the Company
or otherwise terminate such officer’s employment with the Company. No executive officer of
the Company is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other agreement or any restrictive covenant, and the
continued employment of each such executive officer does not subject the Company or any
Subsidiary to any liability with respect to any of the foregoing matters.




     (s) Company Benefit Plans.




     (1) (A) With respect to each Benefit Plan, the Company and the Subsidiaries
have complied, and are now in compliance, in all material respects, with all
provisions of Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), the Code and all laws and regulations applicable to such Benefit
Plan; and (B) each Benefit Plan has been administered in all material respects in
accordance with its terms. “Benefit Plan” means any employee welfare
benefit plan within the meaning of Section 3(1) of ERISA, any employee pension
benefit plan within the meaning of Section 3(2) of ERISA, and any bonus, incentive,
deferred compensation, vacation, stock purchase, stock option, severance,
employment, change of control or fringe benefit plan, program, agreement or policy
sponsored or maintained by the Company and the Subsidiaries.




     (2) Except for liabilities fully reserved for or identified in the Financial
Statements, no claim has been made, or to the knowledge of the Company threatened,
against the Company or any of the Subsidiaries related to the employment and
compensation of employees or any Benefit Plan, including, without limitation, any
claim related to the purchase of employer securities or to expenses paid under any
defined contribution pension plan.




     (3) No Benefit Plans are subject to Title IV or described in Section 3(37) of
ERISA, and neither the Company nor its Subsidiaries has at any time within the past
six (6) years sponsored or contributed to, or has or had within the past six
(6) years any liability or obligation in respect of, any plan subject to Title IV or
described in Section 3(37) of ERISA. The Company has not incurred any current or
projected liability in respect of post-retirement health, medical or life insurance
benefits for Company Employees, except as required to avoid an excise tax under
Section 4980B of the Code or comparable State benefit continuation laws.




     (4) (A) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will (i) result in any payment
(including severance, unemployment compensation, “excess parachute payment” (within
the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise)
becoming due to any current or former employee,



18









 







officer or director of the Company or any Subsidiary from the Company or any
Subsidiary under any Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any Benefit Plan, (iii) result in any acceleration of the time of
payment or vesting of any such benefits, (iv) require the funding or increase in the
funding of any such benefits or (v) result in any limitation on the right of the
Company or any Subsidiary to amend, merge, terminate or receive a reversion of
assets from any Benefit Plan or related trust and (B) neither the Company nor any
Subsidiary has taken, or permitted to be taken, any action that required, and no
circumstances exist that will require the funding, or increase in the funding, of
any benefits, or will result, in any limitation on the right of the Company or any
Subsidiary to amend, merge, terminate any Benefit Plan or receive a reversion of
assets from any Benefit Plan or related trust.




     (5) The Company and the Subsidiaries will be in compliance as of the Closing
Date, with Sections 111 and 302 of the Emergency Economic Stabilization Act of 2008,
including all guidance issued thereunder by a Governmental Entity.




     (t) Risk Management Instruments. All material derivative instruments,
including, swaps, caps, floors and option agreements, whether entered into for the Company’s
own account, or for the account of one or more of the Subsidiaries, were entered into (1)
only in the ordinary and usual course of business and consistent with past practice, (2) in
accordance with prudent practices and in all material respects with all applicable laws,
rules, regulations and regulatory policies and (3) with counterparties believed to be
financially responsible at the time; and each of them constitutes the valid and legally
binding obligation of the Company or one of the Subsidiaries, enforceable in accordance with
its terms. Neither the Company or the Subsidiaries, nor, to the knowledge of the Company,
any other party thereto, is in breach of any of its material obligations under any such
agreement or arrangement.




     (u) Agreements with Regulatory Agencies. Except as set forth in Schedule
2.2(u) of the Company Disclosure Schedule, neither the Company nor any Subsidiary is subject
to any cease-and-desist or other similar order or enforcement action issued by, or is a
party to any written agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or is subject to any capital
directive by, or has adopted any board resolutions at the request of, any Governmental
Entity that currently restricts in any material respect the conduct of its business or that
in any material manner relates to its capital adequacy, its liquidity and funding policies
and practices, its ability to pay dividends, its credit, risk management or compliance
policies, its internal controls, its management or its operations or business (each item in
this sentence, a “Regulatory Agreement”), nor has the Company or any Subsidiary been
advised since December 31, 2006 and until the date hereof by any Governmental Entity that it
is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.
Neither the Company nor any Subsidiary is a party or subject to any Regulatory Agreement.



19









 






     (v) Environmental Liability. There is no legal, administrative, arbitral or
other proceeding, claim, action or notice of any nature seeking to impose, or that could
result in the imposition of, on the Company or any Subsidiary, any liability or obligation
of the Company or any Subsidiary with respect to any environmental health or safety matter
or any private or governmental, environmental health or safety investigation or remediation
activity of any nature arising under common law or under any local, state or federal
environmental, health or safety statute, regulation or ordinance, including CERCLA, pending
or, to the Company’s knowledge, threatened against the Company or any Subsidiary or any
property in which the Company or any Subsidiary has taken a security interest the result of
which has had or would reasonably be expected to have a material impact on the Company; to
the Company’s knowledge, there is no reasonable basis for, or circumstances that could
reasonably be expected to give rise to, any such proceeding, claim, action, investigation or
remediation; and to the Company’s knowledge, neither the Company nor any Subsidiary is
subject to any agreement, order, judgment, decree, letter or memorandum by or with any
Governmental Entity or third party that could impose any such environmental obligation or
liability.




     (w) Mortgage Banking Business.




     (1) Other than as set forth in Schedule 2.2(w)(i) of the Company Disclosure
Schedule, the Company and each Subsidiary has in all material respects complied
with, and all documentation in connection with the origination, processing,
underwriting and credit approval of any mortgage loan originated, purchased or
serviced by the Company or any Subsidiary satisfied in all material respects, (A)
all applicable federal, state and local laws, rules and regulations with respect to
the origination, insuring, purchase, sale, pooling, servicing, subservicing, or
filing of claims in connection with mortgage loans, including all laws relating to
real estate settlement procedures, consumer credit protection, truth in lending
laws, usury limitations, fair housing, transfers of servicing, collection practices,
equal credit opportunity and adjustable rate mortgages, (B) the responsibilities and
obligations relating to mortgage loans set forth in any agreement between the
Company or any Subsidiary and any Agency, Loan Investor or Insurer, (C) the
applicable rules, regulations, guidelines, handbooks and other requirements of any
Agency, Loan Investor or Insurer and (D) the terms and provisions of any mortgage or
other collateral documents and other loan documents with respect to each mortgage
loan; and




     (2) Other than as set forth in Schedule 2.2(w)(2) of the Company Disclosure
Schedule, no Agency, Loan Investor or Insurer has (A) claimed in writing that the
Company or any Subsidiary has violated or has not complied in all material respects
with the applicable underwriting standards with respect to mortgage loans sold by
the Company or any Subsidiary to a Loan Investor or Agency, or with respect to any
sale of mortgage servicing rights to a Loan Investor, (B) imposed in writing
restrictions on the activities (including commitment authority) of the Company or
any Subsidiary or (C) indicated in writing to the Company or any Subsidiary that it
has terminated or intends to terminate its relationship with the Company or any
Subsidiary for poor



20









 







performance, poor loan quality or concern with respect to the Company’s or any
Subsidiary’s compliance with laws.




For purposes of this Section 2.2(w):




     (A) “Agency” shall mean the Federal Housing Administration, the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Association, or any other
federal or state agency with authority to (i) authority to determine any
investment, origination, lending or servicing requirements with regard to
mortgage loans originated, purchased or serviced by the Company or any
Subsidiary or (ii) originate, purchase, or service mortgage loans, or
otherwise promote mortgage lending, including, without limitation, state and
local housing finance authorities;




     (B) “Loan Investor” shall mean any person (including an Agency)
having a beneficial interest in any mortgage loan originated, purchased or
serviced by the Company or any Subsidiary or a security backed by or
representing an interest in any such mortgage loan; and




     (C) “Insurer” means a person who insures or guarantees for the
benefit of the mortgagee all or any portion of the risk of loss upon
borrower default on any of the mortgage loans originated, purchased or
serviced by the Company or any Subsidiary, including, the Federal Housing
Administration, the United States Department of Veterans’ Affairs, the Rural
Housing Service of the U.S. Department of Agriculture and any private
mortgage insurer, and providers of hazard, title or other insurance with
respect to such mortgage loans or the related collateral.




     (x) Insurance. The Company maintains insurance underwritten by insurers of
recognized financial responsibility, of the types and in the amounts that the Company
reasonably believes is adequate for its business, including, but not limited to, insurance
covering all real and personal property owned or leased by the Company against theft,
damage, destruction, acts of vandalism and all other risks customarily insured against, with
such deductibles as are customary for companies in the same or similar business, all of
which insurance is in full force and effect.




     (y) Reinsurance. There are no provisions in any first lien residential mortgage
insurance policy or any other insurance policy, certificate of insurance or other contingent
obligation, or any derivative or hedging instrument, or any commitment to issue any of the
foregoing, under which Flagstar Bank, FSB or any of its affiliates is a beneficiary or owed
obligations, that require as a condition to payment or other performance of the obligor
hereunder that (i) Flagstar Reinsurance Company not be insolvent or subject to any
rehabilitation, liquidation, conservatorship or similar proceeding, (ii) Flagstar
Reinsurance Company be in compliance with, or not in default under, any or all of its
obligations under any reinsurance or other agreement, or (iii) any



21









 







reinsurance or other agreement to which Flagstar Reinsurance Company is a party to be
in full force and effect.




     (z) Intellectual Property. The Company and its Subsidiaries own or possess all
patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets,
applications and other unpatented or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names (collectively,
“Proprietary Rights”) used in or necessary for the conduct of the business of the
Company as now conducted and as proposed to be conducted as Previously Disclosed, except
where the failure to own such Proprietary Rights would not have any material impact on the
Company. The Company and its Subsidiaries have the right to use all Proprietary Rights used
in or necessary for the conduct of their respective businesses without infringing the rights
of any person or violating the terms of any licensing or other agreement to which the
Company or any Subsidiary is a party and, to the Company’s knowledge, no person is
infringing upon any of the Proprietary Rights, except where the infringement of or lack of a
right to use such Proprietary Rights would not have any material impact on the Company.
Except as Previously Disclosed, no charges, claims or litigation have been asserted or, to
the Company’s knowledge, threatened against the Company or any Subsidiary contesting the
right of the Company or any Subsidiary to use, or the validity of, any of the Proprietary
Rights or challenging or questioning the validity or effectiveness of any license or
agreement pertaining thereto or asserting the misuse thereof, and, to the Company’s
knowledge, no valid basis exists for the assertion of any such charge, claim or litigation.
All licenses and other agreements to which the Company or any Subsidiary is a party relating
to Proprietary Rights are in full force and effect and constitute valid, binding and
enforceable obligations of the Company or such Subsidiary, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity principles,
as the case may be, and there have not been and there currently are not any defaults (or any
event which, with notice or lapse of time, or both, would constitute a default) by the
Company or any Subsidiary under any license or other agreement affecting Proprietary Rights
used in or necessary for the conduct of the business of the Company or any Subsidiary,
except for defaults, if any, which would not have any material impact on the Company. The
validity, continuation and effectiveness of all licenses and other agreements relating to
the Proprietary Rights and the current terms thereof will not be affected by the
transactions contemplated by this Agreement.




     (aa) Anti-takeover Provisions Not Applicable. The Board of Directors has taken
all necessary action to ensure that the transactions contemplated by this Agreement and any
of the transactions contemplated hereby will be deemed to be exceptions to the provisions of
the Michigan Business Corporation Act, and that any other similar “moratorium,” “control
share,” “fair price,” “takeover” or “interested stockholder” law does not and will not apply
to this Agreement or to any of the transactions contemplated hereby.




     (bb) Knowledge as to Conditions. As of the date of this Agreement, the Company
knows of no reason why any regulatory approvals and, to the extent necessary, any other
approvals, authorizations, filings, registrations, and notices required or



22









 







otherwise a condition to the consummation of the transactions contemplated by this
Agreement will not be obtained or that any Required Approval will not be granted without
imposition of a Burdensome Condition.




     (cc) Brokers and Finders. Except as set forth in Schedule 2.2(cc) of the
Company Disclosure Schedule, neither the Company nor any Subsidiary nor any of their
respective officers, directors, employees or agents has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees, commissions or
finder’s fees, and no broker or finder has acted directly or indirectly for the Company or
any Subsidiary, in connection with this Agreement or the transactions contemplated hereby.




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




     (ee) Investment Company. The Company is not and, after giving effect to the
offering and sale of the Purchased Shares and the application of the proceeds thereof, will
not be an “investment company” or an “affiliated person” of, or “promoter” or “principal
underwriter” for an investment company, as such term is defined in the Investment Company
Act of 1940 (the “Investment Company Act”), as amended, and the rules and
regulations of the SEC promulgated thereunder.




     (ff) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income taxes) that are required to be paid in connection with the sale and
transfer of the Purchased Shares to be sold to the Purchaser hereunder will have been, fully
paid or provided for by the Company and all laws imposing such taxes will have been fully
complied with.




     (gg) Related Party Transactions. No transaction has occurred between or among
the Company, on the one hand, and its Affiliates, officers or directors on the other hand,
that is required to have been described under applicable securities laws in its Exchange Act
filings and is not so described in such filings.




     (hh) Listing. Except as Previously Disclosed, (i) the Company is in compliance
with the requirements of the NYSE for continued listing of the Common Stock thereon and
(ii) the Company has taken no action designed to, or, to its knowledge, likely to have the
effect of, terminating the registration of the Common Stock under the Exchange Act or the
listing of the Common Stock on the NYSE, nor has the Company received any notification that
the SEC or the NYSE is contemplating terminating such registration or listing. The
transactions contemplated by this Agreement will not contravene the rules and regulations of
the NYSE. The Company will comply with all requirements of the NYSE with respect to the
issuance of the Converted Common Shares and shall cause the Common Stock and Converted
Common Shares to be listed on the NYSE.



23









 






     (ii) Foreign Corrupt Practices. Neither the Company, nor any
Subsidiary, nor, to the knowledge of the Company, any director, officer, agent, employee or
other person acting on behalf of the Company or any Subsidiary has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.




     (jj) U.S. Real Property Holding Corporation Status. The Company is not, nor
has ever been, a U.S. real property holding corporation within the meaning of Section 897 of
the Internal Revenue Code of 1986, as amended.




     (kk) Shell Company Status. The Company is not, nor has ever been, an issuer of
the type described in Rule 144(i)(l) under the Securities Act.




     (ll) Solvency. The Company and each of its Subsidiaries does and will after
giving effect to the to the transactions contemplated hereby to occur at the Closing and the
issuance and sale of the Securities (a) own assets the fair saleable value of which are (i)
greater than the total amount of its liabilities (including known contingent liabilities)
and (ii) greater than the amount that will be required to pay the probable liabilities of
its existing debts as they become absolute and matured considering the financing
alternatives reasonably available to it and (b) not have capital that will be unreasonably
small in relation to its business as presently conducted or any contemplated. The Company
has no knowledge of any facts or circumstances which lead it to believe that it or any of
its Subsidiaries will be required to file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction, and has no present intent to so file.



     2.3 Representations and Warranties of Purchaser. Purchaser hereby represents and
warrants to the Company, as of the date of this Agreement and as of the Closing Date (except to the
extent made only as of a specified date, in which case as of such date), that:




     (a) Organization and Authority. Purchaser is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, is duly
qualified to do business and is in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so qualified, and
Purchaser has the corporate or other power and authority and governmental authorizations to
own its properties and assets and to carry on its business as it is now being conducted.




     (b) Authorization. (1) Purchaser has the corporate or other power and
authority to enter into this Agreement and to carry out its obligations hereunder. The
execution, delivery and performance of this Agreement by Purchaser and the consummation of
the transactions contemplated hereby have been duly authorized by



24









 







Purchaser’s board of directors, general partner or managing members, as the case may
be, and no further approval or authorization by any of its partners or other equity owners,
as the case may be, is required. This Agreement has been duly and validly executed and
delivered by Purchaser and assuming due authorization, execution and delivery by the
Company, is a valid and binding obligation of Purchaser enforceable against Purchaser in
accordance with its terms (except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors’ rights or by general equity principles).




     (2) Neither the execution, delivery and performance by Purchaser of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by Purchaser with any of the provisions hereof, will (A) violate,
conflict with, or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration of, or result in
the creation of any Lien upon any of the properties or assets of Purchaser under any
of the terms, conditions or provisions of (i) its certificate of limited partnership
or partnership agreement or similar governing documents or (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Purchaser is a party or by which it may be bound, or to which
Purchaser or any of the properties or assets of Purchaser may be subject, or (B)
subject to compliance with the statutes and regulations referred to in the next
paragraph, violate any law, statute, ordinance, rule or regulation, permit,
concession, grant, franchise or any judgment, ruling, order, writ, injunction or
decree applicable to Purchaser or any of its properties or assets except in the case
of clauses (A)(ii) and (B) for such violations, conflicts and breaches as would not
reasonably be expected to materially and adversely affect Purchaser’s ability to
perform its respective obligations under this Agreement or consummate the
transactions contemplated hereby on a timely basis.




     (3) Assuming the Company’s representation contained in Section 2.2(f) is true
and correct and other than the securities or blue sky laws of the various states or
as set forth in Schedule 2.3(c)(3) of the Purchaser Disclosure Schedule, no material
notice to, registration, declaration or filing with, exemption or review by, or
authorization, order, consent or approval of, any Governmental Entity, or expiration
or termination of any statutory waiting period, is necessary for the consummation by
the Purchaser of the transactions contemplated by this Agreement.




     (c) Purchase for Investment. Purchaser acknowledges that the Securities have
not been registered under the Securities Act or under any state securities laws. Purchaser
(1) is acquiring the Securities pursuant to an exemption from registration under the
Securities Act solely for investment with no present intention to distribute any of the
Securities to any person, (2) will not sell or otherwise dispose of any of the Securities,
except in compliance with the registration requirements or exemption provisions of the



25








 







Securities Act and any other applicable securities laws, (3) has such knowledge and
experience in financial and business matters and in investments of this type that it is
capable of evaluating the merits and risks of its investment in the Securities and of making
an informed investment decision, and (4) is an “accredited investor” (as that term is
defined by Rule 501 of the Securities Act).




     (d) Financial Capability. At Closing, Purchaser will have available funds
necessary to consummate the Closing on the terms and conditions contemplated by this
Agreement; Purchaser has available to it commitments for the full Purchase Price to be
funded by persons advised by MatlinPatterson. As of the date hereof, neither MatlinPatterson
Global Opportunities Partners III L.P. nor MatlinPatterson Global Opportunities Partners
Cayman III L.P. is the subject of any pending withdrawals or redemption requests that it
does not have the financial ability to fulfill, nor do either MatlinPatterson Global
Opportunities Partners III L.P. or MatlinPatterson Global Opportunities Partners Cayman III
L.P. have any knowledge of any pending withdrawal or redemption requests that it will not
have the financial ability to fulfill.




     (e) Purchaser’s Operations. Purchaser has not conducted any business other
than that (x) incidental to its formation for the sole purpose of carrying out the
transactions contemplated by this Agreement and (y) in relation to this Agreement the
transactions contemplated hereby.




     (f) Brokers and Finders. Neither Purchaser nor its Affiliates, any of their
respective officers, directors, employees or agents has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees, commissions or
finder’s fees, and no broker or finder has acted directly or indirectly for Purchaser, in
connection with this Agreement or the transactions contemplated hereby, in each case, whose
fees the Company would be required to pay (other than pursuant to the reimbursement of
expenses provisions of Section 6.2).




     (g) Knowledge as to Conditions. As of the date of this Agreement, the
Purchaser has not been advised by any Governmental Entity that any regulatory approvals and,
to the extent necessary, any other approvals, authorizations, filings, registrations, and
notices required or otherwise a condition to the consummation of the transactions
contemplated by this Agreement will not be obtained or that any Required Approval will not
be granted without the imposition of a Burdensome Condition.




     (h) Ownership. As of the date of this Agreement, Purchaser is not the owner of
record or the beneficial owner of shares of Common Stock or securities convertible into or
exchangeable for Common Stock.




     (i) Investment Company Status. The Purchaser is not an “investment company” nor
controlled by an “investment company” as such term is defined in the Investment Company Act
and the rules and regulations of the SEC promulgated thereunder.



26









 





ARTICLE III




COVENANTS




     3.1 Filings; Other Actions.




     (a) Purchaser, on the one hand, and the Company, on the other hand, will cooperate and
consult with the other and use reasonable best efforts to prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions, filings and other
documents, and to obtain all necessary permits, consents, orders, approvals and
authorizations of, or any exemption by, all third parties and Governmental Entities,
including, without limitation, the Required Approvals, and the expiration or termination of
any applicable waiting period, necessary or advisable to consummate the transactions
contemplated by this Agreement, and to perform the covenants contemplated by this Agreement.
Each party shall execute and deliver both before and after the Closing such further
certificates, agreements and other documents and take such other actions as the other party
may reasonably request to consummate or implement such transactions or to evidence such
events or matters. In particular, Purchaser will use its reasonable best efforts to
promptly obtain or submit, and the Company will cooperate as may reasonably be requested by
Purchaser to help Purchaser promptly obtain or submit, as the case may be, as promptly as
practicable, (i) the approvals and authorizations of, filings, applications and
registrations with, and notifications to, or expiration or termination of any applicable
waiting period, under the HOLA (it being understood and agreed that such application shall
reflect and seek approval for the “silo” structure previously disclosed to the Company (and
set forth in the Purchaser’s Disclosure Schedule) and that no person other than Purchaser
and the other Applicants listed on Schedule F (nor any investors in any fund sponsored or
advised by MatlinPatterson, including investors in MatlinPatterson Global Opportunities
Partners III L.P. or MatlinPatterson Global Opportunities Partners Cayman III L.P.) shall be
required to file or become parties to any such filing or registration, or in any way become
subject to HOLA or restrictions or requirements thereunder), and, as applicable, any such
approvals and authorizations, filings, applications and registrations shall include
information and documentation to implement the securities trading platform as described at
Schedule 3.1(a) of the Purchaser Disclosure Schedule and otherwise shall be consistent with
the silo structure referred to above and (ii) a written determination, in form and substance
reasonably satisfactory to the relevant Applicant and notified to Purchaser, of each of the
FDIC and the OTS that neither MatlinPatterson nor any fund sponsored or advised by it or its
Affiliates (other than the Applicants) will control the Company or the Bank or be an
“institution affiliated party” (as defined in 12 USC Section 1813(u)) with respect thereto.
Purchaser and the Company will have the right to review in advance, and to the extent
practicable, each will consult with the other in each case, subject to applicable laws
relating to the exchange of information, all the information relating to such other party,
and any of their respective Affiliates, which appears in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection with the
transactions to which it will be party contemplated by this Agreement. In exercising the
foregoing right, each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees to keep the other party apprised of the status of
matters referred to in this



27









 







Section 3.1(a). Purchaser shall promptly furnish the Company, and the Company shall
promptly furnish Purchaser, to the extent permitted by applicable law, with copies of
written communications received by it or its Subsidiaries from, or delivered by any of the
foregoing to, any Governmental Entity in respect of the transactions contemplated by this
Agreement.




     (b) Unless this Agreement has been terminated pursuant to Section 5.1, the Company
shall call a special meeting of its stockholders, as promptly as practicable following the
Closing but in any event no later than the next annual stockholder meeting, to vote on
proposals (collectively, the “Stockholder Proposals”) to (A) amend the Certificate
of Incorporation to increase the number of authorized shares of Common Stock to at least
such number as shall be sufficient to permit issuance of all of the Securities and (B) amend
the Certificate of Incorporation and bylaws to opt out of Article 7B of the Michigan
Business Corporation Act and to implement the governance matters contemplated in Section 4.1
hereof and (C) to amend the Company’s equity compensation plans as necessary to implement an
equity incentive program (the “Management Equity”) as described at Schedule E
hereto. The Board of Directors shall unanimously recommend to the Company’s stockholders
that such stockholders vote in favor of the Stockholder Proposals (subject to any legally
required abstentions) (such recommendation, the “Company Recommendation”) and the
Purchaser shall vote (to the extent it is entitled to vote) in favor of the Stockholder
Proposals, provided that, Purchaser’s obligation to vote in favor of the Stockholder
Proposal described in clause (C) above shall be conditioned upon the prior approval by the
stockholders of the Stockholder Proposals described in clauses (A) and (B) above. In
connection with such meeting, the Company shall promptly prepare (and Purchaser will
reasonably cooperate with the Company to prepare) and file with the SEC a preliminary proxy
statement, shall use its reasonable best efforts to respond to any comments of the SEC or
its staff and to cause a definitive proxy statement related to such stockholders’ meeting to
be mailed to the Company’s stockholders not more than five business days after clearance
thereof by the SEC, and shall use its reasonable best efforts to solicit proxies for such
stockholder approval. The Company shall notify Purchaser promptly of the receipt of any
comments from the SEC or its staff with respect to the proxy statement and of any request by
the SEC or its staff for amendments or supplements to such proxy statement or for additional
information and will supply Purchaser with copies of all correspondence between the Company
or any of its representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to such proxy statement. If at any time prior to such stockholders’ meeting
there shall occur any event that is required to be set forth in an amendment or supplement
to the proxy statement, the Company shall as promptly as practicable prepare and mail to its
stockholders such an amendment or supplement. Each of Purchaser and the Company agrees
promptly to correct any information provided by it or on its behalf for use in the proxy
statement if and to the extent that such information shall have become false or misleading
in any material respect, and the Company shall, as promptly as practicable, prepare and mail
to its stockholders an amendment or supplement to correct such information to the extent
required by applicable laws and regulations. The Company shall consult with Purchaser prior
to filing any proxy statement, or any amendment or supplement thereto, and provide Purchaser
with a reasonable opportunity to comment thereon. In the event that the approval of any of
the



28









 







Stockholder Proposals is not obtained at such special stockholders meeting, the Company
shall include a proposal to approve (and the Board of Directors shall unanimously recommend
approval of and the Purchaser shall vote in favor of) each such proposal at a meeting of its
stockholders no less than once in each subsequent six-month period beginning on March 1,
2009 until all such approvals are obtained or made.




     (c) Purchaser, on the one hand, agrees to furnish the Company, and the Company, on the
other hand, agrees, upon request, to furnish to Purchaser, all information concerning
itself, its Affiliates, directors, officers, partners and stockholders and such other
matters as may be reasonably necessary or advisable in connection with the proxy statement
in connection with any such stockholders meeting and any other statement, filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries to any
Governmental Entity in connection with the Closing and the other transactions contemplated
by this Agreement.




     (d) Unless this Agreement has been terminated pursuant to Section 5.1, Purchaser hereby
agrees that at any meeting of the stockholders of the Company held to vote on any
Stockholder Proposals contemplated herein and not previously approved by the Company’s
stockholders, however called, Purchaser shall vote, or cause to be voted, all of the
Purchased Shares owned by Purchaser and its Affiliates in favor of such Stockholder
Proposals; provided, further that, Purchaser’s obligation to vote in favor of the
Stockholder Proposal described in clause (C) of Section 3.1(b) above shall be conditioned
upon the prior approval by the stockholders of the Stockholder Proposals described in
clauses (A) and (B) of Section 3.1(b) above.



     3.2 Access, Information and Confidentiality.




     (a) From the date hereof until the date when the Securities purchased pursuant to this
Agreement and held by Purchaser represent less than 5% of the outstanding Common Stock
(counting as shares owned by Purchaser all Converted Common Shares and assuming that to the
extent Purchaser shall purchase any additional shares of Common Stock, any later sales of
Common Stock by Purchaser shall be deemed to be shares other than Securities to the extent
of such additional purchases) (the “Qualifying Ownership Interest”), the Company
will permit Purchaser to visit and inspect, at Purchaser’s expense, the properties of the
Company and the Subsidiaries, to examine the corporate books and to discuss the affairs,
finances and accounts of the Company and the Subsidiaries with the principal officers of the
Company, all upon reasonable notice and at such reasonable times and as often as Purchaser
may reasonably request. Any investigation pursuant to this Section 3.2 shall be conducted
during normal business hours and in such manner as not to interfere unreasonably with the
conduct of the business of the Company, and nothing herein shall require the Company or any
Subsidiary to disclose any information to the extent (i) prohibited by applicable law or
regulation, (ii) that the Company reasonably believes such information to be competitively
sensitive proprietary information (except to the extent Purchaser provides assurances
reasonably acceptable to the Company that such information shall not be used by Purchaser or
its Affiliates to compete with the Company and Subsidiaries), or (iii) that such disclosure
would reasonably be expected to cause a violation of any agreement to



29









 







which the Company or any Subsidiary is a party or would cause a risk of a loss of
privilege to the Company or any Subsidiary (provided that the Company shall use commercially
reasonable efforts to make appropriate substitute disclosure arrangements under
circumstances where the restrictions in this clause (iii) apply). In the event, and to the
extent, that, as a result of any change in applicable law or regulation or a judicial or
administrative interpretation of applicable law or regulation, it is reasonably determined
that the rights afforded pursuant to this Section 3.2 are not sufficient for purposes of the
Department of Labor’s “plan assets” regulations, to the extent such plan assets regulation
applies to the investment in the Securities, Purchaser and the Company shall cooperate in
good faith to agree upon mutually satisfactory management access and information rights
which satisfy such regulations.




     (b) Each party to this Agreement will hold, and will cause its respective Affiliates
and their directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless disclosure to a regulatory authority is necessary or appropriate
in connection with any necessary regulatory approval or unless disclosure is required by
judicial or administrative process or, in the written opinion of its counsel, by other
requirement of law or the applicable requirements of any regulatory agency or relevant stock
exchange, all non-public records, books, contracts, instruments, computer data and other
data and information (collectively, “Information”) concerning the other party hereto
furnished to it by such other party, its representatives or any Board Observer pursuant to
this Agreement (except to the extent that such information can be shown to have been (1)
previously known by such party on a non-confidential basis, (2) in the public domain through
no fault of such party or (3) later lawfully acquired from other sources by the party to
which it was furnished), and neither party hereto shall release or disclose such Information
to any other person, except its auditors, attorneys, financial advisors, other consultants
and advisors and as permitted by Section 4.1(f).



     3.3 Conduct of the Business.




     (a) The Company agrees that, prior to the earlier of the Closing Date and the
termination of this Agreement pursuant to Section 5.1 (the “Pre-Closing Period”),
except as Previously Disclosed in the comparable subsection of the Disclosure Schedule with
regard to the Company, without the prior written consent of Purchaser, it will not, and will
cause each of the Subsidiaries not to:




     (1) Ordinary Course. Fail to use commercially reasonable efforts to
carry on its business in the ordinary and usual course of business and consistent
with past practice or fail to use reasonable best efforts to maintain and preserve
its and such Subsidiary’s business (including its organization, assets, properties,
goodwill and insurance coverage) and to preserve its business relationships with
customers, strategic partners, suppliers, distributors and others having business
dealings with it.




     (2) Operations. Enter into any new line of business or materially
change its lending, investment, underwriting, risk and asset liability management,



30









 







and other banking and operating policies, except as required by applicable law
or policies imposed by any Governmental Entity.




     (3) Capital Expenditures. Make any capital expenditures in excess of
$500,000 individually or $2,500,000 in the aggregate, other than as required
pursuant to commitments already entered into.




     (4) Material Contracts. Terminate, enter into, amend, modify
(including by way of interpretation) or renew any material contract, other than in
the ordinary course of business and consistent with past practice, or terminate,
amend or modify (including by way of interpretation) any Investor Waiver.




     (5) Capital Stock. Issue, sell or otherwise permit to become
outstanding, or dispose of or encumber or pledge, or authorize or propose the
creation of, any additional shares of its stock or any additional options or other
rights, grants or awards with respect to the Common Stock, except the TARP
Securities, the Management Purchased Shares, the Investor Warrants and any shares of
Common Stock issued pursuant to the exercise of outstanding stock options or vesting
of restricted stock.




     (6) Dividends, Distributions, Repurchases. Make, declare, pay or set
aside for payment any dividend on or in respect of, or declare or make any
distribution on any shares of its stock (other than (A) dividends from its wholly
owned Subsidiaries to it or another of its wholly owned Subsidiaries or (B)
dividends on trust preferred securities issued by any Subsidiary) or directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise
acquire, any shares of its stock or any options or other rights, grants or awards
with respect to the Common Stock.




     (7) Dispositions. Sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its assets, deposits, business or properties,
except for sales, transfers, mortgages, encumbrances or other dispositions or
discontinuances in the ordinary course of business consistent with past practice and
in a transaction that individually or taken together with all other such
transactions is not material to it and the Subsidiaries, taken as a whole.




     (8) Extensions of Credit and Interest Rate Instruments. Make, renew or
amend (except in the ordinary and usual course of business and consistent with past
practice where there has been no material change in the relationship with the
borrower or in an attempt to mitigate loss with respect to the borrower) any
extension of credit in excess of $2,000,000, or enter into, renew or amend any
interest rate swaps, caps, floors and option agreements and other interest rate risk
management arrangements, whether entered into for the account of it or for the
account of a customer of it or one of the Subsidiaries, except in the ordinary and
usual course of business and consistent with past practice.



31









 






     (9) Acquisitions. Acquire (other than by way of foreclosures,
acquisitions of control in a fiduciary or similar capacity, acquisitions of loans or
participation interests, or in satisfaction of debts previously contracted in good
faith, in each case in the ordinary and usual course of business and consistent with
past practice) all or any portion of the assets, business, deposits or properties of
any other person.




     (10) Constituent Documents. Amend its Certificate of Incorporation or
bylaws or similar organizational documents of its Subsidiaries.




     (11) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by GAAP
or applicable accounting requirements of a Governmental Entity.




     (12) Tax Matters. Make, change or revoke any Tax election, file any
amended Tax Return (unless to correct an error), enter into any closing agreement,
settle any Tax claim or assessment, or surrender any right to claim a refund of
Taxes.




     (13) Claims. Settle any action, suit, claim or proceeding against it,
except for an action, suit, claim or proceeding that is settled in the ordinary and
usual course of business and consistent with past practice in an amount or for
consideration not in excess of $500,000 and that would not (A) impose any material
restriction on the business of it or the Subsidiaries and, after the Closing,
Purchaser or its Subsidiaries or (B) create precedent for claims that are reasonably
likely to be material to it or its subsidiaries and, after the Closing, Purchaser or
its subsidiaries.




     (14) Compensation. Terminate, enter into, amend, modify (including by
way of interpretation) or renew any employment, officer, consulting, severance,
change in control or similar contract, agreement or arrangement with any director,
officer, employee or consultant, or grant any salary or wage increase or increase
any employee benefit, including incentive or bonus payments (or, with respect to any
of the preceding, communicate any intention to take such action), except (A) to make
changes that are required by applicable law, or (B) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof, or (C) annual or merit-based
salary or wage increases or increases in benefits, in both cases to employees who
are not executive officers or directors of the Company, undertaken in the ordinary
and usual course of business and consistent with past practice and in any event not
to exceed three percent (3%) of such employees’ annual salaries in the aggregate, or
(D) pursuant to the TARP Transaction.




     (15) Benefit Arrangements. Terminate, enter into, establish, adopt,
amend, modify (including by way of interpretation), make new grants or awards under
or renew any pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or other



32









 







employee benefit, incentive or welfare contract, plan or arrangement, or any
trust agreement (or similar arrangement) related thereto, in respect of any
director, officer, employee or consultant, amend the terms of any outstanding
equity-based award, take any action to accelerate the vesting, exercisability or
payment (or fund or secure the payment) of stock options, restricted stock or other
compensation or benefits payable thereunder or add any new participants to any
non-qualified retirement plans (or, with respect to any of the preceding,
communicate any intention to take such action), except (A) as required by applicable
law and (B) to satisfy Previously Disclosed contractual obligations existing as of
the date hereof, or (C) pursuant to the TARP Transaction.




     (16) Intellectual Property. (i) grant, extend, amend (except as
required in the diligent prosecution of the Proprietary Rights owned (beneficially,
and of record where applicable) by or developed for the Company and its
Subsidiaries), waive, or modify any material rights in or to, sell, assign, lease,
transfer, license, let lapse, abandon, cancel, or otherwise dispose of, or extend or
exercise any option to sell, assign, lease, transfer, license, or otherwise dispose
of, any Proprietary Rights, or (ii) fail to exercise a right of renewal or extension
under any material agreement under which the Company or any of its Subsidiaries is
licensed or otherwise permitted by a third party to use any Proprietary Rights
(other than “shrink wrap” or “click through” licenses).




     (17) Communication. Make any written or oral communications to the
officers or employees of the Company or any of the Subsidiaries pertaining to
compensation or benefit matters that are affected by the transactions contemplated
by this Agreement without providing Purchaser with a copy or written description of
the intended communication and a reasonable period of time to review and comment on
such communication; provided, however, that the foregoing shall not prevent human
resources personnel of the Company from orally answering questions of individual
employees pertaining to compensation or benefit matters with respect to such
individual employee that are affected by the transactions contemplated by this
Agreement on an individual basis with such employee.




     (18) Adverse Actions. Notwithstanding any other provision hereof,
knowingly take, or knowingly omit to take, any action that is reasonably likely to
result in any of the conditions set forth in Section 1.2(c) not being satisfied, or
any action that is reasonably likely to materially impair its ability to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby, except as required by applicable law or this Agreement.




     (19) Commitments. Enter into any contract with respect to, or
otherwise agree or commit to do, any of the foregoing.




Notwithstanding the foregoing, nothing in this Section 3.3(a) shall limit or require any
actions that the Board of Directors may, in good faith, determine to be inconsistent with
their duties or the Company’s obligations under applicable law or imposed by any
Governmental Entity.




33











 






     (b) If applicable, in the event the Company takes any action that would require any
antidilution adjustment to be made under the Preferred Stock Certificate of Designations as
if issued on the date of this Agreement, the Company shall make appropriate adjustments such
that Purchaser will receive the benefit of such transaction as if the Securities to be
purchased by Purchaser at the Closing had been outstanding as of the date of such action.




     (c) As soon as practicable after the date of this Agreement, the Company shall develop
an operating plan (the “Operating Plan”) and use its best efforts to cause such
plan, in form and substance reasonably satisfactory to Purchaser (such approval not to be
unreasonably withheld), to be approved by the Board of Directors as soon as reasonably
practicable thereafter; provided that, such approval by the Board of Directors shall occur
no later than the Closing. The Board of Directors may make such changes or modifications to
the Operating Plan that, in the exercise of its fiduciary duties upon advice of counsel, it
determines are necessary or in the best interests of the Company, provided that, no change
or modification shall be made without providing Purchaser with a reasonable opportunity for
consultation prior to any such change or modification.




     (d) The Company shall cooperate with the Purchaser and use its reasonable best efforts
to take, or cause to be taken, all appropriate action to implement the securities trading
platform contemplated in Schedule 3.1(a) of the Purchaser Disclosure Schedule and from the
date hereof and through the closing of any such transactions contemplated thereby, shall
comply with the terms and obligations set forth in such Section 3.1(a) (provided that no
such transaction shall be required to be implemented prior to Closing).



     3.4 Acquisition Proposals.




     (a) No Solicitation or Negotiation. The Company agrees that, except for the
TARP Transaction or as expressly permitted by this Section 3.4, neither it nor any of the
Subsidiaries nor any of the officers and directors of it or the Subsidiaries shall, and that
it shall use its best efforts to instruct and cause its and the Subsidiaries’ employees,
investment bankers, attorneys, accountants and other advisors or representatives (such
directors, officers, employees, investment bankers, attorneys, accountants and other
advisors or representatives, collectively, “Representatives”) not to, directly or
indirectly:




     (1) initiate, solicit or encourage any inquiries or the making of any proposal
or offer that constitutes, or could reasonably be expected to lead to, any
Acquisition Proposal;




     (2) engage in, continue or otherwise participate in any discussions or
negotiations regarding, or provide any non-public information or data to any person
relating to, any Acquisition Proposal; or




     (3) otherwise facilitate knowingly any effort or attempt to make an Acquisition
Proposal.



34









 






Notwithstanding anything in the foregoing to the contrary, the Company may (A) provide
information in response to a request therefor by a person who has made an unsolicited bona
fide written Acquisition Proposal providing for the acquisition of more than 50% of the
assets (on a consolidated basis) or total voting power of the equity securities of the
Company if the Company receives from the person so requesting such information an executed
confidentiality agreement on terms not less restrictive to the other party than those
contained in the confidentiality agreement entered into by the Company and Purchaser on
November 18, 2008 and promptly discloses (and, if applicable, provides copies of) any such
information to Purchaser to the extent not previously provided to Purchaser; (B) engage or
participate in any discussions or negotiations with any person who has made such an
unsolicited bona fide written Acquisition Proposal; or (C) after having complied with
Section 3.4(c), approve, recommend, or otherwise declare advisable or propose to approve,
recommend or declare advisable (publicly or otherwise) such an Acquisition Proposal, if and
only to the extent that, (x) prior to taking any action described in clause (A), (B) or (C)
above, the Board of Directors determines in good faith after consultation with outside legal
counsel that such action is necessary in order for such directors to comply with the
directors’ fiduciary duties under applicable law, (y) in each such case referred to in
clause (A) or (B) above, the Board of Directors has determined in good faith based on the
information then available and after consultation with its financial advisor that such
Acquisition Proposal either constitutes a Superior Proposal or is reasonably likely to
result in a Superior Proposal, and (z) in the case referred to in clause (C) above, the
Board of Directors determines in good faith (after consultation with its financial advisor
and outside legal counsel) that such Acquisition Proposal is a Superior Proposal.




     (b) Definitions: For purposes of this Agreement:




     “Acquisition Proposal” means (i) any proposal or offer with respect to a
merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer,
recapitalization, reorganization, rights offering, share exchange, business combination or
similar transaction involving the Company or any of the Subsidiaries and (ii) any
acquisition by any person resulting in, or proposal or offer, which, if consummated, would
result in any person becoming the beneficial owner, directly or indirectly, in one or a
series of related transactions, of 15% or more of the total voting power of any class of
equity securities of the Company or those of any of the Subsidiaries, or 15% or more of the
consolidated total assets (including, without limitation, equity securities of its
Subsidiaries) of the Company, in each case other than the transactions contemplated by this
Agreement, including, but not limited to, the TARP Transaction.




     “Superior Proposal” means an unsolicited bona fide Acquisition Proposal that
would result in any person becoming the beneficial owner, directly or indirectly, more than
50% of the assets (on a consolidated basis) or more than 50% of the total voting power of
the equity securities of the Company that the Board of Directors has determined in its good
faith judgment is reasonably likely to be consummated in accordance with its terms, taking
into account all legal, financial and regulatory aspects of the proposal and the person
making the proposal, and, if consummated, would result in a transaction more favorable to
the Company’s stockholders from a financial point of view than the



35









 







transaction contemplated by this Agreement (after taking into account any revisions to
the terms of the transaction contemplated by Section 3.4(c) of this Agreement pursuant to
Section 3.4(c) and the time likely to be required to consummate such Acquisition Proposal).




     (c) No Change in Recommendation or Alternative Acquisition Agreement. The
Board of Directors and each committee of the Board of Directors shall not:




     (1) withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold,
withdraw, qualify or modify) the Company Recommendation in a manner adverse to Purchaser; or




     (2) except as expressly permitted by, and after compliance with, Section 5.1(g) hereof,
cause or permit the Company to enter into any letter of intent, memorandum of understanding,
agreement in principle, acquisition agreement, merger agreement or other agreement (other
than a confidentiality agreement referred to in Section 3.4(a) entered into in compliance
with Section 3.4(a)) (an “Alternative Acquisition Agreement”) relating to any
Acquisition Proposal.




     Notwithstanding anything to the contrary set forth in this Agreement, prior to the earlier
of the time, but not after, the Closing or the date the Stockholder Proposals are approved,
the Board of Directors may withhold, withdraw, qualify or modify the Company Recommendation
or approve, recommend or otherwise declare advisable any Superior Proposal made after the
date of this Agreement that was not solicited, initiated, encouraged or knowingly
facilitated in breach of this Agreement, if the Board of Directors determines in good faith,
after consultation with outside counsel, that such action is necessary in order for such
directors to comply with the directors’ fiduciary duties under applicable law (a “Change
of Recommendation”); provided, however, that no Change of Recommendation may be made
until after at least three business days following Purchaser’s receipt of notice from the
Company advising that management of the Company currently intends to recommend to the Board
of Directors that it take such action and the basis therefor, including all necessary
information under Section 3.4(f). In determining whether to make a Change of Recommendation
in response to a Superior Proposal or otherwise, the Board of Directors shall take into
account any changes to the terms of this Agreement proposed by Purchaser and any other
information provided by Purchaser in response to such notice. Any material amendment to any
Acquisition Proposal will be deemed to be a new Acquisition Proposal for purposes of this
Section 3.4(c), including with respect to the notice period referred to in this
Section 3.4(c).




     (d) Certain Permitted Disclosure. Nothing contained in this Section 3.4 shall
be deemed to prohibit the Company from complying with its disclosure obligations under U.S.
federal or state law with regard to an Acquisition Proposal; provided, however, that if such
disclosure does not reaffirm the Company Recommendation or has the substantive effect of
withdrawing or adversely modifying the Company Recommendation, such disclosure shall be
deemed to be a Change in Recommendation and Purchaser shall have the right to terminate this
Agreement as set forth in Section 5.1(h).



36









 






     (e) Existing Discussions. The Company agrees that it will immediately cease
and cause to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. The Company agrees
that it will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this Section 3.4.
The Company also agrees that it will promptly request each person that has heretofore
executed a confidentiality agreement in connection with its consideration of acquiring it or
any of the Subsidiaries to return or destroy all confidential information heretofore
furnished to such person by or on behalf of it or any of the Subsidiaries.




     (f) Notice. The Company agrees that it will promptly (and, in any event,
within 24 hours) notify Purchaser if any inquiries, proposals or offers with respect to an
Acquisition Proposal are received by, any such information is requested from, or any such
discussions or negotiation are sought to be initiated or continued with, it or any of its
Representatives indicating, in connection with such notice, the name of such person and the
material terms and conditions of any proposals or offers (including, if applicable, copies
of any written requests, proposals or offers, including proposed agreements) and thereafter
shall keep Purchaser informed, on a current basis, of the status and terms of any such
proposals or offers (including any amendments thereto) and the status of any such
discussions or negotiations, including any change in the Company’s intentions as previously
notified.



ARTICLE IV




ADDITIONAL AGREEMENTS





     4.1 Governance Matters. (a) At and following the Closing, the Company will
cause such number of persons nominated by Purchaser as will represent the Purchaser’s pro
rata share of the total number of members of the Board of Directors (each a “Board
Representative” and collectively, the “Board Representatives”) to be elected and
appointed to the Board of Directors, subject to satisfaction of all legal and governance
requirements regarding service as a director of the Company and to the reasonable approval
of the Company’s Nominating and Board of Directors Governance Committee (“Governance
Committee”) (such approval not to be unreasonably withheld or delayed). For purposes of
this Section 4.1, “pro rata share” shall mean that fraction where the numerator is all
shares of Common Stock beneficially owned by Purchaser, assuming full conversion of the
Convertible Preferred Stock and assuming sufficient Common Stock is authorized under the
Certificate of Incorporation to allow such conversion and the denominator is the total
number of issued shares of Common Stock (other than treasury shares) plus the number of
shares of Common Stock into which the Convertible Preferred Stock may be converted. After
such appointment, so long as Purchaser holds at least 10% of the voting power in the Company
(including for this purpose votes in respect of shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock acquired pursuant to this Agreement) acquired
by Purchaser in connection with the transactions contemplated by this Agreement (as adjusted
from time to time for any reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other like changes in the Company’s
capitalization), the Company will be



37








 






required to recommend to its stockholders the election of the Board Representatives at
the Company’s annual meeting, subject to satisfaction of all legal and governance
requirements regarding service as a director of the Company and to the reasonable approval
of the Governance Committee (such approval not to be unreasonably withheld or delayed), to
the Board of Directors. Purchaser shall also be entitled to appoint two observers to the
Board of Directors (the “Board Observers”), which Board Observers are reasonably
acceptable to the Board of Directors. The Board Observers shall be entitled to participate
fully in all meetings of the Board of Directors, but shall not have the authority to vote
thereat. If Purchaser no longer holds the minimum percentage of voting power specified in
the prior sentence, Purchaser will have no further rights under Sections 4.1(a) through
4.1(c) and, at the written request of the Board of Directors, shall use all reasonable best
efforts to cause its Board Representatives to resign from the Board of Directors and the
Board Observers to resign as promptly as possible thereafter. At the option of the Board
Representatives, the Board of Directors shall cause the Board Representatives to be
appointed to the Governance Committee of the Board of Directors (or any successor committee
thereto), so long as the Board Representatives qualify to serve on such Governance Committee
under the applicable rules of the NYSE or any other nationally recognized securities
exchange on which the Common Stock may be listed and the Company’s corporate governance
guidelines and the charter of such Governance Committee.




     (b) The Board Representatives (including any successor nominee) duly selected in
accordance with Section 4.1(a) shall, subject to applicable law, be the Company’s and the
Governance Committee’s nominees to serve on the Board of Directors. The Company shall use
its reasonable best efforts to have the Board Representatives elected as a director of the
Company and the Company shall solicit proxies for each such person to the same extent as it
does for any of its other nominees to the Board of Directors. If applicable law or the NYSE
rules and regulations prevent any Board Representative from serving on a committee, the
Purchaser shall be entitled to appoint a Board Observer to such committee, so long as any
such Board Observer meets any applicable independence rules of the NYSE.




     (c) Subject to Section 4.1(a), Purchaser shall have the power to designate each Board
Representative’s replacement upon the death, resignation, retirement, disqualification or
removal from office of such director, subject to satisfaction of all legal and governance
requirements regarding service as a director of the Company and to the reasonable approval
of the Governance Committee (such approval not to be unreasonably withheld or delayed). The
Board of Directors will promptly take all action reasonably required to fill the vacancy
resulting therefrom with such person (including such person, subject to applicable law,
being the Company’s and the Governance Committee’s nominee to serve on the Board of
Directors, using all reasonable best efforts to have such person elected as director of the
Company and the Company soliciting proxies for such person to the same extent as it does for
any of its other nominees to the Board of Directors).




     (d) The Board Representatives shall be entitled to the same compensation and same
indemnification and insurance coverage in connection with his or her role as a



38









 







director as the other members of the Board of Directors, and each Board Representative
shall be entitled to reimbursement for documented, reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors or any committees thereof, to the
same extent as the other members of the Board of Directors. The Company shall notify the
Board Representatives of all regular and special meetings of the Board of Directors and
shall notify the Board Representatives of all regular and special meetings of any committee
of the Board of Directors of which each Board Representative is a member. The Company shall
provide the Board Representatives with copies of all notices, minutes, consents and other
materials provided to all other members of the Board of Directors concurrently as such
materials are provided to the other members.




     (e)    Promptly following the execution of this Agreement, the Company will take all
steps necessary to amend (including recommending and submitting for stockholder approval in
accordance with Section 3.1(a)) its organizational documents (including, without limitation,
the Certificate of Incorporation, its bylaws, its corporate governance guidelines and the
charters of relevant committees of the Board of Directors) in form and substance reasonably
satisfactory to Purchaser, to effectuate, to the extent required, the purpose and intent of,
and the matters contemplated by, this Section 4.1 (including, without limitation, removal of
classified Board of Directors provisions).




     (f) For so long as Purchaser holds the Securities purchased pursuant to this Agreement,
the Company shall provide or permit the Board Observer to provide to Purchaser any
Information provided to the Board of Directors, including any materials presented at any
ordinary or special meeting of the Board of Directors or any committee thereof, and
Purchaser agrees to hold, and will cause its respective Affiliates and its and their
directors, officers, employees, agents, consultants and advisors and any prospective
participant in a sale or disposition of the Purchased Shares to hold, such Information in
strict confidence for three years from the receipt of such Information, unless disclosure to
a regulatory authority is necessary or appropriate in connection with any necessary
regulatory approval or unless disclosure is required by judicial or administrative process
or, in the written opinion of its counsel, by other requirement of law or the applicable
requirements of any regulatory agency or relevant stock exchange and except to the extent
that such Information can be shown to have been (1) previously known by such party on a
non-confidential basis, (2) in the public domain through no fault of such party or (3) later
lawfully acquired from other sources by the party to which it was furnished). In addition,
Purchaser agrees not to release or disclose such Information to any other person, except its
auditors, attorneys, financial advisors, other consultants and advisors and any prospective
participant in a sale or disposition of the Purchased Shares.



     4.2 Legend. (a) Purchaser agrees that all certificates or other instruments
representing the Securities subject to this Agreement will bear a legend substantially to the
following effect:




     (1) THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND
MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT



39









 







WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT OR SUCH LAWS.




     (2) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND
OTHER RESTRICTIONS SET FORTH IN AN INVESTMENT AGREEMENT, DATED AS OF DECEMBER 17,
2008, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE ISSUER.




     (b) Upon request of Purchaser, upon receipt by the Company of an opinion of counsel
reasonably satisfactory to the Company to the effect that such legend is no longer required
under the Securities Act and applicable state laws, the Company shall promptly cause clause
(1) of the legend to be removed from any certificate for any Securities to be Transferred in
accordance with the terms of this Agreement and clause (2) of the legend shall be removed
upon the expiration of such transfer and other restrictions set forth in this Agreement.



     4.3 Reservation for Issuance. The Company will reserve that number of shares of
Common Stock sufficient for issuance upon exercise or conversion of the Securities without regard
to any limitation on such conversion; provided that in the case of the Convertible Preferred Stock,
solely to the extent the Company is unable to reserve such number of shares under its charter the
Company will reserve such sufficient number of shares of Common Stock following the approval of the
Stockholder Proposals pursuant to Section 3.1(b).



     4.4 Certain Transactions. The Company will not merge or consolidate into, or sell,
transfer or lease all or substantially all of its property or assets to, any other party unless the
issuer constituent corporation, successor, transferee or lessee party, as the case may be (if not
the Company), expressly assumes the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the Company.



     4.5 Indemnity. (a) Following the Closing, the Company agrees to indemnify and hold
harmless Purchaser and its Affiliates and each of their respective officers, directors, partners,
members and employees, and each person who controls Purchaser within the meaning of the Exchange
Act and the rules and regulations promulgated thereunder, to the fullest extent lawful, from and
against any and all actions, suits, claims, proceedings, costs, losses, liabilities, damages,
expenses (including reasonable attorneys’ fees and disbursements), amounts paid in settlement and
other costs (in each case calculated to take into account Purchaser’s ownership interest in the
Company as of the relevant payment date – i.e., increased to take into account Purchaser’s
ownership interest in the capital of the Company as of such date) (collectively, “Losses”)
arising out of or resulting from (1) any inaccuracy in or breach of the Company’s representations
or warranties in this Agreement or (2) the Company’s breach of agreements or covenants made by the
Company in this Agreement or (3) any action, suit, claim, proceeding or investigation by any
Governmental Entity, stockholder of the Company or any other person (other than the Company)
relating to this Agreement or the transactions contemplated hereby (other than any Losses
attributable to the acts, errors or omissions on the part of Purchaser, but



40









 







not including the transactions contemplated hereby); and the Company agrees to indemnify and
hold harmless the Purchaser from and against any Losses with respect to Taxes of the Company for
taxable periods or portions thereof ending on or prior to the Closing Date.




     (b) Following the Closing, Purchaser agrees to indemnify and hold harmless each of the
Company and its Affiliates and each of their officers, directors, partners, members and
employees, and each person who controls the Company within the meaning of the Exchange Act
and the rules and regulations promulgated thereunder, to the fullest extent lawful, from and
against any and all Losses arising out of or resulting from (1) any inaccuracy in or breach
of Purchaser’s representations or warranties in this Agreement or (2) Purchaser’s breach of
agreements or covenants made by Purchaser in this Agreement.




     (c) A party entitled to indemnification hereunder (each, an “Indemnified
Party”) shall give written notice to the party indemnifying it (the “Indemnifying
Party”) of any claim with respect to which it seeks indemnification promptly after the
discovery by such Indemnified Party of any matters giving rise to a claim for
indemnification; provided that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations under this
Section 4.5 unless and to the extent that the Indemnifying Party shall have been actually
prejudiced by the failure of such Indemnified Party to so notify such party. Such notice
shall describe in reasonable detail such claim. In case any such action, suit, claim or
proceeding is brought against an Indemnified Party, the Indemnified Party shall be entitled
to hire, at its own expense, separate counsel and participate in the defense thereof;
provided, however, that the Indemnifying Party shall be entitled to assume and conduct the
defense thereof, unless the counsel to the Indemnified Party advises such Indemnifying Party
in writing that such claim involves a conflict of interest (other than one of a monetary
nature) that would reasonably be expected to make it inappropriate for the same counsel to
represent both the Indemnifying Party and the Indemnified Party, in which case the
Indemnified Party shall be entitled to retain its own counsel at the cost and expense of the
Indemnifying Party (except that the Indemnifying Party shall only be liable for the legal
fees and expenses of one law firm for all Indemnified Parties, taken together with respect
to any single action or group of related actions). If the Indemnifying Party assumes the
defense of any claim, all Indemnified Parties shall thereafter deliver to the Indemnifying
Party copies of all notices and documents (including court papers) received by the
Indemnified Party relating to the claim, and each Indemnified Party shall cooperate in the
defense or prosecution of such claim. Such cooperation shall include the retention and
(upon the Indemnifying Party’s request) the provision to the Indemnifying Party of records
and information that are reasonably relevant to such claim, and making employees available
on a mutually convenient basis to provide additional information and explanation of any
material provided hereunder. The Indemnifying Party shall not be liable for any settlement
of any action, suit, claim or proceeding effected without its written consent; provided,
however, that the Indemnifying Party shall not unreasonably withhold or delay its consent.
The Indemnifying Party further agrees that it will not, without the Indemnified Party’s
prior written consent (which shall not be unreasonably withheld or delayed), settle or
compromise any claim or consent to entry of any judgment in respect thereof in any pending
or threatened action, suit, claim or proceeding in respect of which indemnification has been
sought hereunder unless such settlement or



41









 







compromise includes an unconditional release of such Indemnified Party from all
liability arising out of such action, suit, claim or proceeding.




     (d) For purposes of the indemnity contained in Section 4.5(a)(1) and Section 4.5(b)(1),
all qualifications and limitations set forth in the parties’ representations and warranties
(other than Section 2.2(j)(3)) as to “materiality” and words of similar import, shall be
disregarded in determining whether there shall have been any inaccuracy in or breach of any
representations and warranties in this Agreement; provided that no inaccuracy in or breach
of the representations and warranties contained in Section 2.2(v) shall be deemed to occur
if such representations and warranties are true and correct in all material respects.




     (e) The Company shall not be required to indemnify the Indemnified Parties affiliated
with (or whose claims are permitted by virtue of their relationship with) Purchaser pursuant
to Section 4.5(a)(1) unless and until the aggregate amount of all Losses incurred with
respect to all claims pursuant to Section 4.5(a)(1) exceed $1,500,000 (the “Threshold
Amount”), in which event the Company shall indemnify the Indemnified Parties pursuant to
Section 4.5(a)(1) the full amount of such Losses (not merely the portion of such Losses
exceeding the Threshold Amount). Purchaser shall not be required to indemnify the
Indemnified Parties affiliated with (or whose claims are permitted by virtue of their
relationship with) the Company pursuant to Section 4.5(b)(1) unless and until the aggregate
amount of all Losses incurred with respect to all claims pursuant to Section 4.5(b)(1)
exceed the Threshold Amount, in which event Purchaser shall indemnify the Company pursuant
to Section 4.5(b)(1) the full amount of such Losses (not merely the portion of such Losses
exceeding the Threshold Amount). The cumulative indemnification obligation of (1) the
Company to Purchaser and all of the Indemnified Parties affiliated with (or whose claims are
permitted by virtue of their relationship with) Purchaser or (2) Purchaser to the Company
and the Indemnified Parties affiliated with (or whose claims are permitted by virtue of
their relationship with) the Company, in each case for inaccuracies in or breaches of
representations and warranties, shall in no event exceed the Purchase Price.
Notwithstanding the foregoing, the indemnification by the Company of the Purchaser for
Losses with respect to Taxes shall not be subject to the limitations of this Section 4.5(e).




     (f) Any claim for indemnification pursuant to this Section 4.5 for breach of any
representation or warranty can only be brought on or prior to the second anniversary of the
Closing Date; provided that if notice of a claim for indemnification pursuant to this
Section 4.5 for breach of any representation or warranty is brought prior to the end of such
period, then the obligation to indemnify in respect of such breach shall survive as to such
claim, until such claim has been finally resolved. Any claim for indemnification pursuant to
this Section 4.5 for Losses with respect to Taxes can only be brought on or before the
thirtieth (30) day following the expiration of the applicable statute of
limitations.




     (g) The indemnity provided for in this Section 4.5 shall be the sole and exclusive
monetary remedy of Indemnified Parties after the Closing for any inaccuracy of any
representation or warranty or any other breach of any covenant or agreement



42









 







contained in this Agreement; provided that nothing herein shall limit in any way any
such party’s remedies in respect of fraud by any other party in connection with the
transactions contemplated hereby. No party to this Agreement (or any of its Affiliates)
shall, in any event, be liable or otherwise responsible to any other party (or any of its
Affiliates) for any consequential or punitive damages of such other party (or any of its
Affiliates) arising out of or relating to this Agreement or the performance or breach
hereof.




     (h) No investigation of the Company by Purchaser, or by the Company of Purchaser,
whether prior to or after the date hereof, shall limit any Indemnified Party’s exercise of
any right hereunder or be deemed to be a waiver of any such right.




     (i) Any indemnification payments pursuant to this Section 4.5 shall be treated as an
adjustment to the Purchase Price for the Securities for U.S. federal income and applicable
state and local Tax purposes, unless a different treatment is required by applicable law.



     4.6 Exchange Listing. The Company shall promptly use its reasonable best efforts to
cause the shares of Common Stock reserved for issuance upon the conversion of the Convertible
Preferred Stock to be approved for listing on the NYSE or such other nationally recognized
securities exchange on which the Common Stock may be listed, subject to official notice of issuance
and upon receipt of the approval by the Company’s stockholders of the Stockholder Proposals, as
promptly as practicable, and in any event before the Closing if permitted by the rules of the NYSE.



     4.7 Registration Rights.



          (a) Registration.





     (1) Subject to the terms and conditions of this Agreement, the Company
covenants and agrees that no later than the date that is six months after the
Closing Date, the Company shall have prepared and filed with the SEC a Shelf
Registration Statement covering all Registrable Securities (or otherwise designate
an existing Shelf Registration Statement filed with the SEC to cover the Registrable
Securities), and, to the extent the Shelf Registration Statement has not theretofore
been declared effective or is not automatically effective upon such filing, the
Company shall use reasonable best efforts to cause such Shelf Registration Statement
to be declared or become effective and to keep such Shelf Registration Statement
continuously effective and in compliance with the Securities Act and usable for
resale of such Registrable Securities for a period from the date of its initial
effectiveness until such time as there are no Registrable Securities remaining
(including by refiling such Shelf Registration Statement (or a new Shelf
Registration Statement) if the initial Shelf Registration Statement expires). So
long as the Company is a well-known seasoned issuer (as defined in Rule 405 under
the Securities Act) at the time of filing of the Shelf Registration Statement with
the SEC, such Shelf Registration Statement shall be designated by the Company as an
automatic Shelf Registration Statement.



43









 






     (2) Any registration pursuant to this Section 4.7(a) shall be effected by means
of a shelf registration under the Securities Act (a “Shelf Registration
Statement”) in accordance with the methods and distribution set forth in the
Shelf Registration Statement and Rule 415. If Purchaser or any other holder of
Registrable Securities to whom the registration rights conferred by this Agreement
have been transferred in compliance with this Agreement intends to distribute any
Registrable Securities by means of an underwritten offering (a “Registration
Demand”) it shall promptly so advise the Company and the Company shall take all
reasonable steps to facilitate such distribution, including the actions required
pursuant to Section 4.7(c), provided that Purchaser and any other Holder will be
entitled to initiate no more than three such Registration Demands, and the Company
will not be obligated to facilitate an underwritten offering of Registrable
Securities unless the expected gross proceeds from such offering exceed $50,000,000.
The lead underwriters in any such distribution shall be selected by the holders of
a majority of the Registrable Securities to be distributed.




     (3) The Company shall not be required to effect a registration (including a
resale of Registrable Securities from an effective Shelf Registration Statement)
pursuant to this Section 4.7(a): (i) with respect to securities that are not
Registrable Securities; (ii) during any Scheduled Black-out Period or (iii) if the
Company has notified Purchaser that in the good faith judgment of the Board of
Directors, it would be materially detrimental to the Company or its securityholders
for such registration to be effected at such time, in which event the Company shall
have the right to defer such registration for a period of not more than 90 days
after receipt of the request of Purchaser; provided that such right to delay a
registration shall be exercised by the Company (A) only if the Company has generally
exercised (or is concurrently exercising) similar black-out rights against holders
of similar securities that have registration rights and (B) not more than twice in
any 12-month period and not more than 90 days in the aggregate in any 12-month
period.




     (4) Whenever the Company proposes to register any of its securities, other than
a registration pursuant to Section 4.7(a)(1) or a Special Registration, and the
registration form to be filed may be used for the registration or qualification for
distribution of Registrable Securities, the Company will give prompt written notice
to Purchaser and all other Holders of its intention to effect such a registration
(but in no event less than ten days prior to the anticipated filing date) and will
include in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within ten business days
after the date of the Company’s notice (a “Piggyback Registration”). Any
such person that has made such a written request may withdraw its Registrable
Securities from such Piggyback Registration by giving written notice to the Company
and the managing underwriter, if any, on or before the fifth business day prior to
the planned effective date of such Piggyback Registration. The Company may terminate
or withdraw any registration under this Section 4.7(a)(4) prior to the effectiveness
of such registration, whether or not



44









 







Purchaser or any other Holders have elected to include Registrable Securities
in such registration.




     (5) If the registration referred to in Section 4.7(a)(4) is proposed to be
underwritten, the Company will so advise Purchaser and all other Holders as a part
of the written notice given pursuant to Section 4.7(a)(4). In such event, the right
of Purchaser and all other Holders to registration pursuant to this Section 4.7(a)
will be conditioned upon such persons’ participation in such underwriting and the
inclusion of such person’s Registrable Securities in the underwriting, and each such
person will (together with the Company and the other persons distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such underwriting
by the Company. If any participating person disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to the
Company, the managing underwriter and Purchaser.




     (6) If a Piggyback Registration relates to an underwritten primary offering on
behalf of the Company, and the managing underwriters advise the Company that in
their reasonable opinion the number of securities requested to be included in such
registration exceeds the number which can be sold without adversely affecting the
marketability of such offering (including an adverse effect on the per share
offering price), the Company will include in such registration or prospectus only
such number of securities that in the reasonable opinion of such underwriters can be
sold without adversely affecting the marketability of the offering (including an
adverse effect on the per share offering price), which securities will be so
included in the following order of priority subject to any conflicting terms of the
TARP Documents: (i) first, the securities the Company proposes to sell, (ii) second,
Registrable Securities of Purchaser and all other Holders who have requested
registration of Registrable Securities pursuant to Section 4.7(a)(4), pro rata on
the basis of the aggregate number of such securities or shares owned by each such
person and (iii) third, any other securities of the Company that have been requested
to be so included, subject to the terms of this Agreement.




     (b) Expenses of Registration. All Registration Expenses incurred in connection
with any registration, qualification or compliance hereunder shall be borne by the Company.
All Selling Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the aggregate
offering or sale price of the securities so registered.




     (c) Obligations of the Company. The Company shall use its reasonable best
efforts for so long as there are Registrable Securities outstanding, to take such actions as
are under its control to not become an ineligible issuer (as defined in Rule 405 under the
Securities Act). In addition, whenever required to effect the registration of any
Registrable Securities or facilitate the distribution of Registrable Securities pursuant to
an effective Registration Statement, the Company shall, as expeditiously as reasonably
practicable:



45









 






     (1) Prepare and file with the SEC a prospectus supplement with respect to a
proposed offering of Registrable Securities pursuant to an effective registration
statement, subject to Section 4.7(c), keep such registration statement effective or
such prospectus supplement current.




     (2) Prepare and file with the SEC such amendments and supplements to the
applicable registration statement and the prospectus or prospectus supplement used
in connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.




     (3) Furnish to the Holders and any underwriters such number of copies of the
applicable registration statement and each such amendment and supplement thereto
(including in each case all exhibits) and of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned or to be distributed by them.




     (4) Use its reasonable best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky laws
of such jurisdictions as shall be reasonably requested by the Holders or any
managing underwriter(s), to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and to take any other action
which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such Holder; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of process
in any such states or jurisdictions.




     (5) Notify each Holder of Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the applicable prospectus, as then in
effect, includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.




     (6) Give written notice to the Holders:




     (A) when any registration statement filed pursuant to Section 4.7(a) or
any amendment thereto has been filed with the SEC and when such registration
statement or any post-effective amendment thereto has become effective;




     (B) of any request by the SEC for amendments or supplements to any
registration statement or the prospectus included therein or for additional
information;



46









 






     (C) of the issuance by the SEC of any stop order suspending the
effectiveness of any registration statement or the initiation of any
proceedings for that purpose;




     (D) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the
Common Stock for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose;




     (E) of the happening of any event that requires the Company to make
changes in any effective registration statement or the prospectus related to
the registration statement in order to make the statements therein not
misleading (which notice shall be accompanied by an instruction to suspend
the use of the prospectus until the requisite changes have been made); and




     (F) if at any time the representations and warranties of the Company
contained in any underwriting agreement contemplated by Section 4.7(c)(10)
cease to be true and correct.




     (7) Use its reasonable best efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of any registration statement
referred to in Section 4.7(c)(6)(C) at the earliest practicable time.




     (8) Upon the occurrence of any event contemplated by Section 4.7(c)(5) or
4.7(c)(6)(E), promptly prepare a post-effective amendment to such registration
statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to the Holders and any underwriters, the
prospectus will not contain an 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 the Company notifies
the Holders in accordance with Section 4.7(c)(6)(E) to suspend the use of the
prospectus until the requisite changes to the prospectus have been made, then the
Holders and any underwriters shall suspend use of such prospectus and use their
reasonable best efforts to return to the Company all copies of such prospectus (at
the Company’s expense) other than permanent file copies then in such Holder’s or
underwriter’s possession. The total number of days that any such suspension may be
in effect in any 12-month period shall not exceed 90 days.




     (9) Use reasonable best efforts to procure the cooperation of the Company’s
transfer agent in settling any offering or sale of Registrable Securities, including
with respect to the transfer of physical stock certificates into book-entry form in
accordance with any procedures reasonably requested by the Holders or any managing
underwriter(s).



47









 






     (10) Enter into an underwriting agreement in customary form, scope and
substance and take all such other actions reasonably requested by the Holders of a
majority of the Registrable Securities being sold in connection therewith or by the
managing underwriter(s), if any, to expedite or facilitate the underwritten
disposition of such Registrable Securities, and in connection therewith in any
underwritten offering (including making members of management and executives of the
Company available to participate in “road show”, similar sales events and other
marketing activities), (i) make such representations and warranties to the Holders
that are selling stockholders and the managing underwriter(s), if any, with respect
to the business of the Company and its Subsidiaries, and the Shelf Registration
Statement, prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in customary form, substance and
scope, and, if true, confirm the same if and when requested, (ii) use its reasonable
best efforts to furnish underwriters opinions of counsel to the Company, addressed
to the managing underwriter(s), if any, covering the matters customarily covered in
such opinions requested in underwritten offerings, (iii) use its reasonable best
efforts to obtain “cold comfort” letters from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any business acquired by the Company for which financial
statements and financial data are included in the Registration Statement) who have
certified the financial statements included in such Registration Statement,
addressed to each of the managing underwriter(s), if any, such letters to be in
customary form and covering matters of the type customarily covered in “cold
comfort” letters, (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures customary in underwritten
offerings, and (v) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being sold in
connection therewith, their counsel and the managing underwriter(s), if any, to
evidence the continued validity of the representations and warranties made pursuant
to clause (i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. Notwithstanding anything contained herein to the contrary, the Company
shall not be required to enter into any underwriting agreement or permit any
underwritten offering absent an agreement by the applicable underwriter(s) to
indemnify the Company in form, scope and substance as is customary in underwritten
offerings by the Company in which an affiliate of the Company acts as an
underwriter.




     (11) Make available for inspection by a representative of Holders that are
selling stockholders, the managing underwriter(s), if any, and any attorneys or
accountants retained by such Holders or managing underwriter(s), at the offices
where normally kept, during reasonable business hours, financial and other records,
pertinent corporate documents and properties of the Company, and cause the officers,
directors and employees of the Company to supply all information in each case
reasonably requested by any such representative, managing underwriter(s), attorney
or accountant in connection with such Registration Statement.



48









 






     (12) Cause all such Registrable Securities (other than Convertible Preferred
Stock) to be listed on each securities exchange on which similar securities issued
by the Company are then listed or, if no similar securities issued by the Company
are then listed on any securities exchange, use its reasonable best efforts to cause
all such Registrable Securities (other than Convertible Preferred Stock) to be
listed on the NYSE or the NASDAQ Stock Market, as determined by the Company.




     (13) If requested by Holders of a majority of the Registrable Securities being
registered and/or sold in connection therewith, or the managing underwriter(s), if
any, promptly include in a prospectus supplement or amendment such information as
the Holders of a majority of the Registrable Securities being registered and/or sold
in connection therewith or managing underwriter(s), if any, may reasonably request
in order to permit the intended method of distribution of such securities and make
all required filings of such prospectus supplement or such amendment as soon as
practicable after the Company has received such request.




     (14) Timely provide to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.




     (d) Suspension of Sales. During any Scheduled Black-out Period and upon
receipt of written notice from the Company that a registration statement, prospectus or
prospectus supplement contains or may contain an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that circumstances exist that make inadvisable use of
such registration statement, prospectus or prospectus supplement, Purchaser and each Holder
of Registrable Securities shall forthwith discontinue disposition of Registrable Securities
until termination of such Scheduled Black-Out Period or until Purchaser and/or Holder has
received copies of a supplemented or amended prospectus or prospectus supplement, or until
such Holder is advised in writing by the Company that the use of the prospectus and, if
applicable, prospectus supplement may be resumed, and, if so directed by the Company, such
Holder shall deliver to the Company (at the Company’s expense) all copies, other than
permanent file copies then in such Holder’s possession, of the prospectus and, if
applicable, prospectus supplement covering such Registrable Securities current at the time
of receipt of such notice. The total number of days that any such suspension may be in
effect in any 12-month period shall not exceed 90 days.




     (e) Termination of Registration Rights. A Holder’s registration rights as to
any securities held by such Holder (and its Affiliates, partners, members and former
members) shall not be available unless such securities are Registrable Securities.




     (f) Furnishing Information.




     (1) Neither Purchaser nor any Holder shall use any free writing prospectus (as
defined in Rule 405) in connection with the sale of Registrable Securities without
the prior written consent of the Company.



49









 






     (2) It shall be a condition precedent to the obligations of the Company to take
any action pursuant to Section 4.7(c) that Purchaser and/or the selling Holders and
the underwriters, if any, shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registered
offering of their Registrable Securities.



     (g) Indemnification.




     (1) The Company agrees to indemnify each Holder and, if a Holder is a person
other than an individual, such Holder’s officers, directors, employees, agents,
representatives and Affiliates, and each person, if any, that controls a Holder
within the meaning of the Securities Act (each, an “Indemnitee”), against
any and all losses, claims, damages, actions, liabilities, costs and expenses
(including, without limitation, reasonable fees, expenses and disbursements of
attorneys and other professionals incurred in connection with investigating,
defending, settling, compromising or paying any such losses, claims, damages,
actions, liabilities, costs and expenses), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of material fact contained in
any registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto or any documents
incorporated therein by reference or contained in any free writing prospectus (as
such term is defined in Rule 405) prepared by the Company or authorized by it in
writing for use by such Holder (or any amendment or supplement thereto); or any
omission to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, that the Company shall not be liable to such
Indemnitee in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of or
is based upon (i) an untrue statement or omission made in such registration
statement, including any such preliminary prospectus or final prospectus contained
therein or any such amendments or supplements thereto or contained in any free
writing prospectus (as such term is defined in Rule 405) prepared by the Company or
authorized by it in writing for use by such Holder (or any amendment or supplement
thereto), in reliance upon and in conformity with information regarding such
Indemnitee or its plan of distribution or ownership interests which was furnished in
writing to the Company by such Indemnitee for use in connection with such
registration statement, including any such preliminary prospectus or final
prospectus contained therein or any such amendments or supplements thereto, or (ii)
offers or sales effected by or on behalf, such Indemnitee “by means of” (as defined
in Rule 159A) a “free writing prospectus” (as defined in Rule 405) that was not
authorized in writing by the Company.




     (2) If the indemnification provided for in Section 4.7(g)(1) is unavailable to
an Indemnitee with respect to any losses, claims, damages, actions, liabilities,
costs or expenses referred to therein or is insufficient to hold the Indemnitee
harmless as contemplated therein, then the Company, in lieu of



50









 







indemnifying such Indemnitee, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, actions, liabilities,
costs or expenses in such proportion as is appropriate to reflect the relative fault
of the Indemnitee, on the one hand, and the Company, on the other hand, in
connection with the statements or omissions which resulted in such losses, claims,
damages, actions, liabilities, costs or expenses as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand, and
of the Indemnitee, on the other hand, shall be determined by reference to, among
other factors, whether the untrue statement of a material fact or omission to state
a material fact relates to information supplied by the Company or by the Indemnitee
and the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; the Company and each Holder agree
that it would not be just and equitable if contribution pursuant to this Section
4.7(g)(2) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred to in
this Section 4.7(g)(2). No Indemnitee guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Company if the Company was not guilty of such fraudulent
misrepresentation.




     (h) Assignment of Registration Rights. The rights of Purchaser to registration
of Registrable Securities pursuant to Section 4.7(a) may be assigned by Purchaser to a
transferee or assignee of Registrable Securities to which (i) there is transferred to such
transferee no less than $50,000,000 in Registrable Securities and (ii) such Transfer is
permitted under the terms hereof; provided, however, the transferor shall, within ten days
after such transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the number and type of Registrable Securities that are being
assigned.




     (i) “Market Stand-Off” Agreement; Agreement to Furnish Information. Purchaser
and each Holder hereby agrees:




     (1) that Purchaser shall not sell, transfer, make any short sale of, grant any
option for the purchase of, or enter into any hedging or similar transaction with
the same economic effect as a sale with respect to any common equity securities of
the Company or any securities convertible into or exchangeable or exercisable for
any common equity securities of the Company held by Purchaser (other than those
included in the registration) for a period specified by the representatives of the
underwriters of the common equity or equity-related securities not to exceed ten
days prior and 90 days following the effective date of any firm commitment
underwritten registered sale of common equity securities of the Company or any
securities convertible into or exchangeable or exercisable for any common equity
securities of the Company by the Company for the Company’s own account in which the
Company gave Purchaser an opportunity to participate in accordance with Sections
4.7(a)(4) through 4.7(a)(6); provided that all executive officers and directors of
the Company enter into similar agreements and only if such persons remain subject
thereto (and are not released from such



51









 







agreement) for such period; provided that nothing herein will prevent Purchaser
from making any distribution of Registrable Securities to the partners or
stockholders thereof or a transfer to an Affiliate that is otherwise in compliance
with applicable securities laws, so long as such distributees or transferees agree
to be bound by the restrictions set forth in this Section 4.7(i);




     (2) to execute and deliver such other agreements as may be reasonably requested
by the Company or the representatives of the underwriters which are consistent with
the foregoing obligation in Section 4.7(i)(1) or which are necessary to give further
effect thereto; and




     (3) if requested by the Company or the representative of the underwriters of
Common Stock (or other securities of the Company), Purchaser shall provide, within
ten days of such request, such information as may be required by the Company or such
representative in connection with the completion of any public offering of the
Company’s securities pursuant to a registration statement filed under the Securities
Act in which Purchaser participates;




provided, that clauses (1) and (2) of this Section 4.7(i) shall not apply to Purchaser or
any Holder that, together with its affiliates, is the beneficial owner of less than 5% of
the outstanding Common Stock.




     (j) With respect to any underwritten offering of Registrable Securities by Purchaser or
other Holders pursuant to this Section 4.7, the Company agrees not to effect (other than
pursuant to such registration or pursuant to a Special Registration) any public sale or
distribution, or to file any Registration Statement (other than such registration or a
Special Registration) covering any of its equity securities, or any securities convertible
into or exchangeable or exercisable for such securities, during the period not to exceed ten
days prior and 90 days following the effective date of such offering, if requested by the
managing underwriter. “Special Registration” means the registration of (i) equity
securities and/or options or other rights in respect thereof solely registered on Form S-4
or Form S-8 (or successor form) or (ii) shares of equity securities and/or options or other
rights in respect thereof to be offered to directors, members of management, employees,
consultants, customers, lenders or vendors of the Company or its direct or indirect
Subsidiaries or in connection with dividend reinvestment plans.




     (k) Rule 144; Rule 144A. With a view to making available to Purchaser and
Holders the benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company agrees to use
its reasonable best efforts to:




     (1) make and keep public information available, as those terms are understood
and defined in Rule 144(c)(1) or any similar or analogous rule promulgated under the
Securities Act, at all times after the effective date of this Agreement;



52









 






     (2) (A) file with the SEC, in a timely manner, all reports and other documents
required of the Company under the Exchange Act and (B) if at any time the Company is
not required to file such reports, make available, upon request of any Holder, such
information necessary to permit sales pursuant to Rule 144A (including the
information required by Rule 144A(d)(4) under the Securities Act);




     (3) so long as Purchaser or a Holder owns any Registrable Securities, furnish
to Purchaser or such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 under the
Securities Act, and of the Exchange Act; a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as Purchaser
or Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration; and




     (4) take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act.




     (l) As used in this Section 4.7, the following terms shall have the following
respective meanings:




     (1) “Holder” means Purchaser and any other holder of Registrable
Securities to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 4.7(h) hereof.




     (2) “Holders’ Counsel” means one counsel for the selling Holders chosen
by Holders holding a majority interest in the Registrable Securities being
registered.




     (3) “Register,” “registered,” and “Shelf Registration”
shall refer to a registration effected by preparing and (a) filing a registration
statement in compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of effectiveness of such registration
statement or (b) filing a prospectus and/or prospectus supplement in respect of an
appropriate effective Shelf Registration Statement.




     (4) “Registrable Securities” means the Purchased Shares (and any shares
of capital stock or other equity interests issued or issuable to any Holder with
respect to such Purchased Shares (including the Converted Common Shares) by way of
stock dividends or stock splits or in connection with a combination of shares,
recapitalization, merger or other reorganization), provided that, once issued, such
Securities will not be Registrable Securities when (i) they are sold pursuant to an
effective registration statement under the Securities Act, (ii) they may be sold
pursuant to Rule 144 without limitation thereunder on volume or manner of sale,
(iii) they shall have ceased to be outstanding or (iv) they have



53









 







been sold in a private transaction in which the transferor’s rights under this
Agreement are not assigned to the transferee of the securities. No Registrable
Securities may be registered under more than one registration statement at any one
time.




     (5) “Registration Expenses” means all expenses incurred by the Company
in effecting any registration pursuant to this Agreement (whether or not any
registration or prospectus becomes effective or final) or otherwise complying with
its obligations under this Section 4.7, including, without limitation, all
registration, filing and listing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, expenses incurred in connection
with any “road show”, the reasonable fees and disbursements of Holders’ Counsel, and
expenses of the Company’s independent accountants in connection with any regular or
special reviews or audits incident to or required by any such registration, but
shall not include Selling Expenses and the compensation of regular employees of the
Company, which shall be paid in any event by the Company.




     (6) “Rule 144”, “Rule 144A”, “Rule 159A”, “Rule
405” and “Rule 415” mean, in each case, such rule promulgated under the
Securities Act (or any successor provision), as the same shall be amended from time
to time.




     (7) “Scheduled Black-out Period” means the period from and including
the last day of a fiscal quarter of the Company to and including the business day
after the day on which the Company publicly releases its earnings for such fiscal
quarter, provided that the trading window applicable to the Company’s senior
management under the Company’s trading policies then in effect is not open any time
during such period.




     (8) “Selling Expenses” mean all discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any Holder (other than the fees and disbursements of
Holders’ Counsel included in Registration Expenses).




     (m) At any time, any holder of Securities (including any Holder) may elect to forfeit
its rights set forth in this Section 4.7 from that date forward; provided, that a Holder
forfeiting such rights shall nonetheless (i) be obligated under Section 4.7(i)(1) with
respect to any Pending Underwritten Offering to the same extent that such Holder would have
been obligated if the holder had not withdrawn and (ii) be entitled to participate under
Sections 4.7(a)(4)–(6) in any Pending Underwritten Offering to the same extent that such
Holder would have been entitled to if the holder had not withdrawn; and provided, further,
that no such forfeiture shall terminate a Holder’s rights or obligations under Section
4.7(f) with respect to any prior registration or Pending Underwritten Offering.
“Pending Underwritten Offering” means, with respect to any Holder forfeiting its
rights pursuant to this Section 4.7(m), (i) any registered sale described in Section
4.7(i)(1) that has an effective date prior to the date of such Holder’s forfeiture, and
(ii) any other underwritten offering of Registrable Securities (including an



54









 







underwritten offering pursuant to a Shelf Registration Statement) in which such Holder
has advised the Company of its intent to register its Registrable Securities either pursuant
to Section 4.7(a)(2) or 4.7(a)(4) prior to the date of such Holder’s forfeiture.



     4.8 Certificate of Designations. The Company shall file the Preferred Stock
Certificate of Designations for the Convertible Preferred Stock in the form attached to this
Agreement as Exhibit A with the Michigan Secretary, and such Preferred Stock Certificate of
Designations shall be in full force and effect as of the Closing Date.



     4.9 Indemnification. Neither Article XI nor Article XII of the Certificate of
Incorporation shall be amended, repealed or otherwise modified for a period of six years after the
Closing Date in any manner that would adversely affect the rights thereunder of any individuals
covered thereby (the “Covered Persons”). From and after the Closing Date, any
determination to be made pursuant to Article XI of the Certificate of Incorporation by the Board of
Directors with respect to the advancement of expenses shall be made without the participation of
any Board Representative. If the Board of Directors makes a determination that the facts then
known to the Board of Directors would not preclude indemnification under the Michigan Business
Corporation Act, and the Covered Person has complied with the requirements of clauses (a) and (b)
of the second sentence of Article XI of the Certificate of Incorporation, then the Company shall be
required to advance such expenses to such Covered Person to the fullest extent permitted by the
Michigan Business Corporations Act. The provisions of this Section 4.9 shall survive the Closing
Date and are intended to be for the benefit of, and shall be enforceable by, each Covered Person
and his or her heirs and representatives.



ARTICLE V




TERMINATION




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




     (a) by mutual written agreement of the Company and Purchaser;




     (b) by the Company or Purchaser, upon written notice to the other party, in the event
that the Closing Date does not occur on or before February 16, 2009 or such later date, if
any, as Purchaser and the Company agree upon in writing (as such date may be extended, the
“Outside Date”); provided, however, that the right to terminate this Agreement
pursuant to this Section 5.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement shall have been the cause of, or shall have resulted in,
the failure of the Closing Date to occur on or prior to the Outside Date;




     (c) by the Company or Purchaser, upon written notice to the other party, in the event
that any Governmental Entity shall have issued any order, decree or injunction or taken any
other action restraining, enjoining or prohibiting any of the transactions contemplated by
this Agreement, and such order, decree, injunction or other action shall have become final
and nonappealable;



55









 






     (d) by Purchaser, if Purchaser or any of its Affiliates receives written notice from or
is otherwise advised by a Governmental Entity that it will not grant (or intends to rescind
or revoke if previously approved) any Required Approval or receives written notice from such
Governmental Entity that it will not grant such Required Approval on the terms contemplated
by this Agreement without imposing any Burdensome Condition, provided that, prior to
terminating this Agreement, Purchaser shall have used its reasonable best efforts to obtain
such Required Approval without the imposition of such Burdensome Condition;




     (e) by the Company, if the Company is not in material breach of any of the terms of
this Agreement, and there has been a breach of any representation, warranty, covenant or
agreement made by Purchaser in this Agreement, or any such representation and warranty shall
have become untrue after the date of this Agreement, such that Section 1.2(c)(3)(A) or (B)
would not be satisfied and such breach or condition is not curable or, if curable, is not
cured within thirty (30) days after written notice thereof is given by the Company to
Purchaser;




     (f) by Purchaser, if the Purchaser is not in material breach of any of the terms of
this Agreement, and there has been a breach of any representation, warranty, covenant or
agreement made by the Company in this Agreement, or any such representation and warranty
shall have become untrue after the date of this Agreement, such that Section 1.2(c)(2)(A) or
(B) would not be satisfied and such breach or condition is not curable or, if curable, is
not cured within thirty (30) days after written notice thereof is given by Purchaser to the
Company;




     (g) by the Company, at any time following the date of this Agreement and prior to the
Closing Date, if (i) the Company is not in material breach of any of the terms of this
Agreement, (ii) the Board of Directors of the Company authorizes the Company, subject to
complying with the terms of this Agreement, to enter into an agreement with respect to a
Superior Proposal and the Company notifies Purchaser in writing that it intends to enter
into such an agreement, attaching the most current version of such agreement to such notice,
(iii) Purchaser does not make, within three business days of receipt of the Company’s
written notification of its intention to enter into a binding agreement for a Superior
Proposal, an offer that the Board of Directors determines, in good faith after consultation
with its financial advisors, is at least as favorable, from a financial point of view, to
the stockholders of the Company as the Superior Proposal and (iv) the Company prior to such
termination pays to Purchaser in immediately available funds any fees required to be paid
pursuant to Section 5.3. The Company agrees (x) that it will not enter into the binding
agreement referred to in clause (ii) above until at least the fourth business day after it
has provided the notice to Purchaser required thereby, (y) to notify Purchaser promptly if
its intention to enter into the written agreement referred to in its notification changes
and (z) during such three business day period, to negotiate in good faith with Purchaser
with respect to any revisions to the terms of the transaction contemplated by this Agreement
proposed by Purchaser in response to such proposed Superior Proposal, if any;



56









 






     (h) by Purchaser if the Board of Directors shall have made a Change of Recommendation
or the Company shall have breached the covenant contained in Section 3.4 hereof; or




     (i) by Purchaser (1) if the TARP Approval is not obtained on reasonably satisfactory
terms by January 19, 2009 or (2) if the OTS Required Approvals (as defined in Schedule
2.2(f) of the Company Disclosure Schedule), on reasonably satisfactory terms, are not
received on or before January 30, 2009.



     5.2 Effects of Termination. In the event of any termination of this Agreement as
provided in Section 5.1, subject to Section 5.3, this Agreement (other than Section 3.2(b) and
Articles V and VI, which shall remain in full force and effect) shall forthwith become wholly void
and of no further force and effect; provided that nothing herein shall relieve any party from
liability for intentional breach of this Agreement.



     5.3 Fees.




     (a) Subject to Section 5.3(b), if this Agreement is terminated by Purchaser pursuant to
any of the subsections of Section 5.1 (other than Section 5.1(i)), the Company shall pay to
Purchaser the Expense Reimbursement (not to exceed $5 million) pursuant to Sections 5.3(c)
and 6.2.




     (b) In lieu of any Expense Reimbursement payable pursuant to (a) above, (1) if this
Agreement is terminated pursuant to Section 5.1(f) if the Company breached Section 3.4, or
pursuant to Section 5.1 (g) or (h), the Company shall pay to Purchaser a Termination Fee in
accordance with Section 5.3(c) and (2) if an Acquisition Proposal is made to the Company,
any Subsidiary, or its stockholders generally, or becomes public and thereafter this
Agreement is terminated pursuant to Section 5.1(b), (f), (g), (h) or (i) and within 12
months after such termination the Company enters into a definitive agreement to effect, or
consummates, an Acquisition Proposal, the Company shall pay to Purchaser a Termination Fee
in accordance with Section 5.3(c).




     (c) “Termination Fee” means an amount in cash equal to 3.99% of the Purchase
Price. Any Termination Fee or Expense Reimbursement payable pursuant to this Section 5.3
shall be paid by wire transfer of immediately available funds to the account or accounts
designated by Purchaser (i) in the case of Section 5.3(a) or 5.3(b)(1), contemporaneously
with the termination of this Agreement, (ii) in the case of Section 5.3(b)(2), no later than
two business days after the day on which the obligation to pay such Termination Fee or
Expense Reimbursement arises. To the extent not paid when due, any Termination Fee shall
accrue interest at a rate equal to 18%. In the event the Termination Fee is paid when due,
the Company shall have no obligation to pay any Expense Reimbursement.




     (d) Each of the Company and Purchaser acknowledges that the agreements contained in
this Section 5.3 are an integral part of the transactions contemplated by this Agreement.
In the event that a party shall fail to pay the Termination Fee when due, the party
obligated to pay such Termination Fee shall reimburse the party receiving the



57









 







Termination Fee for all reasonable expenses actually incurred or accrued by such other
party (including reasonable expenses of counsel) in connection with the collection under and
enforcement of this Section 5.3. The parties hereto agree and understand that in no event
shall any party be required to pay a Termination Fee on more than one occasion, and in no
event shall the aggregate fees payable by any such party pursuant to Section 5.3 exceed the
maximum amount of the Termination Fee.



ARTICLE VI




MISCELLANEOUS




     6.1 Survival. Each of the representations and warranties set forth in this Agreement,
shall survive the Closing under this Agreement but only for a period of two years following the
Closing Date (or until final resolution of any claim or action arising from the breach of any such
representation and warranty, if notice of such breach was provided prior to the end of such period)
and thereafter shall expire and have no further force and effect, including in respect of Section
4.5 provided that (i) the representations and warranties contained in Section 2.2(a)
(Organization and Authority), Section 2.2(d) (Authorization), Section 2.2(b)
(Capitalization), Section 2.2(c) (Subsidiaries) each of which shall survive the Closing until the
date that is three years from the Closing Date, and (ii) the representations and warranties
contained in Section 2.2(j) (Taxes) which shall survive the Closing until 60 days after the
expiration of the applicable statute of limitations. Except as otherwise provided herein, all
covenants and agreements contained herein, other than those which by their terms are to be
performed in whole or in part after the Closing Date, shall terminate as of the Closing Date.



     6.2 Expenses. Each of the parties will bear and pay all other costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated pursuant to this
Agreement; except that the Company shall bear and upon Purchaser’s request in the manner specified
below, reimburse Purchaser for all of its reasonable out-of-pocket expenses incurred in connection
with due diligence, the negotiation and preparation of this Agreement and undertaking of the
transactions contemplated pursuant to this Agreement (including fees and expenses of attorneys,
consultants and accounting and financial advisers incurred by or on behalf of Purchaser or its
Affiliates in connection with the transactions contemplated pursuant to this Agreement) (the
“Expense Reimbursement”); provided that, if payable at any time other than in connection
with a termination pursuant to Section 5.1, such Expense Reimbursement shall not exceed $10
million.



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



58









 




The rights and remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.  




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



     6.5 Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be performed entirely
within such State (except to the extent that mandatory provisions of Michigan law are applicable).
The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the state and federal courts located in the Borough of Manhattan, State of New York for any
actions, suits or proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby.



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



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



          (a) If to Purchaser to it at:



MP Thrift Investments L.P.

520 Madison Avenue

New York, New York 10022

Attn: Robert H. Weiss, General Counsel

Telephone: 212-651-9525

Fax: 212-651-4014


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



Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

Attn: Mitchell S. Eitel

           George Sampas



59








 





Telephone: (212) 558-4000

Fax: (212) 558-3588



          (b) If to the Company:



Flagstar Bancorp, Inc.

5151 Corporate Drive

Troy, Michigan 48098-2639

Fax No.: (248) 312-6833

Attn: Paul Borja




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



Kutak Rock LLP

1101 Connecticut Avenue, N.W.

Suite 1000

Washington, DC 20036-4374
Fax No.: (202) 828-2488

Attn: Jeremy T. Johnson




     6.8 Entire Agreement, Etc. (a) This Agreement (including the Exhibits, Schedules and
Disclosure Schedules hereto) constitutes the entire agreement, and supersedes all other prior
agreements, understandings, representations and warranties, both written and oral, among the
parties, with respect to the subject matter hereof; and (b) this Agreement will not be assignable
by operation of law or otherwise (any attempted assignment in contravention hereof being null and
void); provided that Purchaser may assign its rights and obligations under this Agreement (i) to
any Affiliate, but only if the transferee agrees in writing for the benefit of the Company (with a
copy thereof to be furnished to the Company) to be bound by the terms of this Agreement (any such
transferee shall be included in the term “Purchaser”); provided, further, that no such
assignment shall relieve Purchaser of its obligations hereunder and (ii) for those rights contained
in Article IV (subject to applicable law).



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




     (a) the term “Affiliate” means, with respect to any person, any person directly
or indirectly controlling, controlled by or under common control with, such other person.
For purposes of this definition, “control” (including, with correlative meanings,
the terms “controlled by” and “under common control with”) when used with
respect to any person,



60








 







means the possession, directly or indirectly, of the power to cause the direction of
management or policies of such person, whether through the ownership of voting securities by
contract or otherwise;




     (b) the word “or” is not exclusive;




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




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




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




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




     (g) a person shall be deemed to “beneficially own” any securities of which such
person is considered to be a “beneficial owner” under Rule 13d-3 under the Exchange
Act; and




     (h) to the “knowledge of the Company” or “Company’s knowledge” means
the actual knowledge after due inquiry of the “officers” (as such term is defined in
Rule 3b-2 under the Exchange Act, but excluding any Vice President or Secretary) of the
Company.



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



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



     6.12 No Third Party Beneficiaries. Nothing contained in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto, any benefit right or
remedies, except that (i) the provisions of Sections 4.5 shall inure to the benefit of the persons
referred to in that Section, (ii) the provisions of Section 4.9 shall inure to the benefit of the



61









 







Covered Persons and (iii) the provisions of Sections 1.2(c)(1)(C), 3.1(a) and Section 3.2(b)
shall inure to the benefit of MatlinPatterson, and in the case of clause (iii) MatlinPatterson
shall be entitled to seek specific performance of the terms thereof, in addition to any other
remedies to which it is entitled at law or equity; provided that, it is understood that the rights
of MatlinPatterson pursuant to this Section 6.12 are not intended to create any obligation for
MatlinPatterson under this Agreement nor make MatlinPatterson a party to this Agreement.



     6.13 Time of Essence. Time is of the essence in the performance of each and every
term of this Agreement.



     6.14 Certain Adjustments. If the representations and warranties set forth in
Section 2.2(b) shall not be true and correct as of the Closing Date, the number of shares of Common
Stock and Convertible Preferred Stock to be purchased shall be, at Purchaser’s option,
proportionately adjusted to provide Purchaser the same economic effect as contemplated by this
Agreement in the absence of such failure to be true and correct.



     6.15 Public Announcements. Subject to each party’s disclosure obligations imposed by
law or regulation or the rules of any stock exchange upon which its securities are listed, each of
the parties hereto will cooperate with each other in the development and distribution of all news
releases and other public information disclosures with respect to this Agreement and any of the
transactions contemplated by this Agreement, and neither the Company nor Purchaser will make any
such news release or public disclosure without first consulting with the other, and, in each case,
also receiving the other’s consent (which shall not be unreasonably withheld or delayed) and each
party shall coordinate with the party whose consent is required with respect to any such news
release or public disclosure.



     6.16 Specific Performance. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in accordance with their
specific terms. It is accordingly agreed that the parties shall be entitled to seek specific
performance of the terms hereof, this being in addition to any other remedies to which they are
entitled at law or equity.



* * *





62









 






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



	 	 	 	 	 	 	 
	 	 	FLAGSTAR BANCORP, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Mark T. Hammond
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	Mark T. Hammond
	 

	 	 	 	Title:	 	President and Chief Executive
Officer
	 
	 	 	 	 	 	 
	 	 	MP THRIFT INVESTMENTS L.P.
	 
	 	 	 	 	 	 
	 	 	 	 	By: MP (Thrift) Global Partners III LLC, its General Partner
	 
	 
	 	 	 	/s/ Robert H. Weiss
	 	 	 	 	 
	 

	 	 	 	Name:

Title:	 	Robert H. Weiss

General Counsel





63








 





Schedule A




List of Management Members





	 	1.	 	Thomas J. Hammond
	 
	 	2.	 	Mark T. Hammond
	 
	 	3.	 	Paul D. Borja
	 
	 	4.	 	Kirstin A. Hammond
	 
	 	5.	 	Matthew I. Roslin
	 
	 	6.	 	Robert O. Rondeau





Schedule A-1




 









 





Schedule B




	 	 	 
	 	 	State or Other Jurisdiction of
	Name of Subsidiary	 	Incorporation/Organization
	Douglas Insurance Agency, Inc.

	 	Michigan
	Flagstar Bank, FSB

	 	United States of America
	Flagstar Commercial Corporation

	 	Michigan
	Flagstar Investment Group, Inc.

	 	Michigan
	Flagstar Reinsurance Company

	 	Vermont
	Flagstar Statutory Trust II

	 	Connecticut
	Flagstar Statutory Trust III

	 	Delaware
	Flagstar Statutory Trust IV

	 	Delaware
	Flagstar Statutory Trust V

	 	Delaware
	Flagstar Statutory Trust VI

	 	Delaware
	Flagstar Statutory Trust VII

	 	Delaware
	Flagstar Statutory Trust VIII

	 	Delaware
	Flagstar Statutory Trust IX

	 	Delaware
	Flagstar Statutory Trust X

	 	Delaware
	Flagstar Title Insurance Agency, Inc.

	 	Michigan
	Paperless Office Solutions, Inc.

	 	Michigan






Schedule B-1




 









 





Schedule C




[Reserved]




Schedule C-1




 









 





Schedule D




List of Management Purchasers of Management Purchased Shares





	1.	 	Thomas J. Hammond, who the Company represents is committed to invest $2
million.
	 
	2.	 	Mark T. Hammond, who the Company represents is committed to invest $2 million.
	 
	3.	 	Such other senior executives of the Company, who may invest, in the aggregate,
an additional $1 million.





Schedule D-1




 









 





Schedule E




     The following is a summary Term Sheet of the material terms of the equity awards that will be
applicable to certain senior executives of the Company, subject to (i) all requisite approvals of
the Compensation Committee of the Company’s Board of Directors, and (ii) the occurrence of the
Closing. Following the date hereof, the parties shall promptly and in good faith negotiate the
definitive terms and documents on customary terms, including with respect to antidilution, and
consistent with the terms below and reasonably acceptable to the parties.



	 	 	 
	PLAN

	 	Equity for 14.5% of the total shares of
Company common stock will be granted
under the Company’s
stockholder-approved Flagstar Bancorp,
Inc. 2006 Equity Incentive Plan (as
amended, the “Plan”). The executives
to receive grants below have agreed to
waive their current outstanding equity
grants, with the exception of
restricted stock grants that have been
issued but not yet vested.
	 
	 	 
	TYPE OF AWARDS

	 	Stock options and restricted shares
will be granted in three tranches.
	 
	 	 
	 

	 	The first tranch of awards will be
time-vested stock options, which will
be granted to the following executives
at the Closing, as further described
herein. The executives receiving the
first tranch will be determined prior
to Closing.
	 
	 	 
	 

	 	The second tranch of awards will be a
performance-vested stock option pool,
which will be granted subject to
performance criteria and allocation, as
further described herein.
	 
	 	 
	 

	 	The third tranch of awards will be
restricted shares, which will be
granted to the first tranch executives
at the time the Purchaser disposes of a
majority of the aggregate amount of
Company shares that it acquired at the
Closing (an “MP Sale”).






	 	 	 	 	 	 	 
	TIME VESTED STOCK OPTIONS TERMS	 	 	Time and Amount of Grants:
	 

	 	 	 	•
	 	The first tranch will be
options to acquire shares of Company
common stock equal to up to 3% of the
total shares of Company common stock on
the date of






Schedule E-1 








 






	 	 	 	 	 	 	 
	 

	 	 	 	 	 	grant (the “Time Vested
Stock Options”). The Time Vested Stock
Options will have a term that expires
10 years after the date of grant.
	 
	 	 	 	 	 	 
	 

	 	 	 	•	 	The allocation among the
executives of the Time Vested Stock
Options will be determined before
Closing.
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	In the event that there is not
a sufficient number of shares available
for issuance under the Plan to allow
for the award of the full 3% of the
Time Vested Stock Options on the
Closing, the proposed amendments to the
Plan as part of the Stockholder
Proposals will provide adequate
availability to increase the amount of
shares available for issuance under the
Plan to accommodate the equity grants
contemplated under this Term Sheet so
that, promptly following the approval,
the executives will receive an
additional grant of Time Vested Stock
Options equal to the remainder of the
Time Vested Stock Option 3% grant that
was not granted at the Closing.
	 
	 	 	 	 	 	 
	 	 	Vesting:
	 
	 	 	 	 	 	 
	 
	 	 	 	•
	 	The Time Vested Stock Options
will vest and become exercisable as
follows: (1) ratably over three years
from the date of grant on each
anniversary of grant, or (2)
immediately on the date of an MP Sale.
The vesting of the Time Vested Stock
Options will be subject to and
conditioned upon the continuous
employment of the grantee through the
relevant vesting date. If the
grantee’s employment is terminated for
any reason (other than as described
below), all unvested Time Vested Stock
Options will be forfeited upon such
termination of employment.
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	In the event that a grantee is
terminated by the Company without Cause or






Schedule E-2 








 






	 	 	 	 	 	 	 
	 
	 	 	 	 	 	resigns for Good Reason (each, as defined) prior to the vesting date, he or she will be automatically vested in
any unvested Time Vested Stock Options on the date of such termination. The Time Vested Stock Options will have a
post-termination exercise period equal to the shorter of (i) 1 year following the date of such termination or (ii)
the remainder of the term of the option.
	 
	 	 	 	 	 	 
	 	 	Exercise Price:
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	The exercise price of the Time
Vested Stock Options will be the
greater of (i) the per share Purchase
Price, or (ii) the fair market value of
the Company’s common stock on the date
of grant (“FMV”).
	 
	 	 	 	 	 	 
	PERFORMANCE-VESTED STOCK OPTION POOL	 	Time and Amount of Grant:
	 

	 	 	 	•
	 	After the approval of the
Stockholder Proposals concerning the
amended Plan, the Company will allocate
for options to acquire shares of
Company common stock equal to 4.5% of
the total shares of Company common
stock on the date of grant (the
“Performance Vested Stock Option
Pool”). The Performance Vested Stock
Option Pool will have a term that
expires 10 years from the date of
grant.
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	The allocation among the
executives, other members of management
and employees of the Performance Vested
Stock Option Pool will be established
as of the relevant performance vesting
dates as set forth in the grant
documentation approved by the
Compensation Committee of the Board.
The allocation mechanics and the
structure as options and/or restricted
stock and/or SARs will be subject to
further tax review and optimization.






Schedule E-3 








 






	 	 	 	 	 	 	 
	 	 	Allocation/Vesting:
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	The Performance Vested Stock
Option Pool will be allocated and will
initially vest based upon the
attainment of performance criteria to
be established by the Compensation
Committee. The subsequent vesting of
allocated portions of the Performance
Vested Stock Option Pool will also be
subject to and conditioned upon the
continuous employment of the applicable
grantee(s), with ratable vesting of the
allocated grants over the three years
following the date(s) of allocation on
each anniversary date. If an
applicable grantee terminates
employment for any reason (other than
as set forth in his or her specific
grant or employment contract), all
unvested grants from the Performance
Vested Stock Option Pool will be
forfeited upon such termination of
employment.
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	In the event of a Change of
Control (as defined) of the Company,
all performance criteria will be
measured by the Compensation Committee
as of the Change of Control date and
vesting/allocations will be effected
accordingly or, if determined by the
Board, the Performance Vested Stock
Option Pool will continue following
such event with such modifications to
performance criteria as the
Compensation Committee deems
appropriate to give effect to the
transaction.
	 
	 	 	 	 	 	 
	 	 	Exercise Price:
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	The “exercise price” of the
Performance Vested Stock Option Pool
grants will be the FMV at the initial
allocation date for the pool.






Schedule E-4 









 






	 	 	 	 	 	 	 
	RESTRICTED SHARE TERMS	 	 	TIME AND AMOUNT OF GRANT:
	 

	 	 	 	•	 	At the time of an MP Sale, all executives
who received the Time Vested Stock Options and who
remain employed with the Company at the time of an
MP Sale will receive a one-time grant of
restricted shares under the Plan (the “Restricted
Shares”).
	 
	 	 	 	 	 	 
	 
	 	 	 	•	 	Only one grant of Restricted Shares will
be granted to the executives under this program in
the amount described below.
	 
	 	 	 	 	 	 
	 
	 	 	 	•
	 	The initial allocation of the Restricted
Shares for issuance to the executives in
connection with a MP Sale shall be as set forth
below will be determined before Closing.
	 
	 	 	 	 	 	 
	 
	 	 	 	•	 	The aggregate number of Restricted Shares
subject to grant to the executives on the MP Sale
will be such number of shares of Common Stock that
equal the dollar value determined as follows:







(FMV per share of Company common stock determined
in MP Sale – the per-share Purchase Price) x
“n” shares of Company common stock.


“n” is determined as follows:


If and to the extent that the Purchaser’s return
on the MP Sale (as measured by the sale price of
Company common shares in the MP Sale compared to
the per-share Purchase Price) is equal to the
following multiples,1 then “n” shall be
set as follows:





 




			
	1	 	As a hypothetical example, if at the time of the MP
Sale, the FMV per share of Company stock is $2, and the return to Purchaser on
this MP Sale is a 2.0X return, the Executives as a group would receive a grant
of restricted shares in aggregate value equal to $1 [$2 — $1] multiplied
by 1.5% of the total shares
	 
	 	 	
 




Schedule E-5 








 









2.0X  = 1.5% of the total shares of Company common
stock at the Closing
 




3.0X  = + 1.5% of the total shares of Company
common stock at the Closing
 




4.0X = + 2.0% of the total shares of Company
common stock at the Closing
 




5.0X = + 2.0% of the total shares of Company
common stock at the Closing




	 	 	 	 	 	 	 
	 	 	Vesting:
	 
	 
	 	 	 	•
	 	The Restricted Shares will vest and the
restrictions thereon will lapse based upon the
percentage of interest in the Company that is sold
by Purchaser in the MP Sale.
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	If the MP Sale results in Purchaser
disposing of 100% of its interests in the Company,
the Restricted Shares that are issued in
connection with the MP Sale will fully vest in the
executives on such date.
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	If the MP Sale results in Purchaser
retaining any portion of its interest in the
Company, the Restricted Shares






 





of Company common stock at the Closing (i.e., the
value as if such 1.5% of the Company common stock had a value of $1 per share).



As another hypothetical example, if at the time of the MP Sale, the FMV per
share of Company is $5 per share, and the return to Purchaser on this MP Sale
is a 5.0X return, the Executives as a group would receive a grant of restricted
shares in aggregate value equal to $4 [$5 - $1] multiplied by 7.0% of the total
shares of Company common stock at the Closing (i.e., the value as if such 7.0%
of the Company common stock had a value of $4 per share).





Schedule E-6 








 








	 	 	 	 	 	 	 
	 

	 	 	 	 	 	that are issued
will vest in the executives as follows: (i) the
proportion of Restricted Shares equal to the
actual percentage disposed of by Purchaser in the
MP Sale will vest fully in the executives on such
date, and (ii) the remaining Restricted Shares
that are issued in connection with the MP Sale
will vest ratably over the two years following the
date of grant on each anniversary date,
conditioned on the continued employment of the
executive with the Company during such period,
provided, however, that if a Change of Control
occurs after the MP Sale, all unvested Restricted
Shares that were issued in connection with the MP
Sale shall vest on such date of the Change of
Control.
	 
	 	 	 	 	 	 
	 

	 	 	 	•
	 	In the event that an executive is
terminated by the Company without Cause or leaves
for Good Reason either prior to an MP Sale or
after such an MP Sale but prior to the relevant
vesting date, he or she will retain the rights to
receive the Restricted Shares for up to one year
from the date of such termination, and any
Restricted Shares that were or are issued to an
executive in connection with an MP Sale that would
remain subject to two-year vesting will be fully
vested.






Schedule E-7 









 




Schedule F


MP (Thrift) LLC

MP (Thrift) Asset Management  LLC

MP (Thrift) Global Partners III LLC

MP (Thrift) Global Opportunities Partners (Special) III LP

MP (Thrift) Global Opportunities Investments III LP


Schedule F-1


 








 




Exhibit A


     Preferred Stock Certificate of Designations