Document:

Exhibit 10.2

 

BANK PLAN OF MERGER

 

THIS BANK PLAN OF MERGER (“Plan of Merger”) dated as of March 4, 2010,
is by and between GRAYSTONE TOWER BANK, a Pennsylvania bank and trust company (“Graystone
Bank”), and FIRST NATIONAL BANK OF CHESTER COUNTY, a national banking
association (“FNB”).

 

BACKGROUND

 

1.                                       Graystone Bank
is a Pennsylvania bank and trust company and a wholly-owned subsidiary of Tower
Bancorp, Inc., a Pennsylvania corporation (“Tower”).  The authorized capital stock of Graystone
Bank consists of 5,000,000 shares of common stock, par value $1.00 per share (“Graystone
Bank Common Stock”), of which at the date hereof 1,760,000 shares are issued
and outstanding.

 

2.                                       FNB is a
national banking association and a wholly-owned subsidiary of First Chester County
Corporation (“First Chester”).  The
authorized capital stock of FNB consists of 30,000 shares of common stock, par
value $20.00 per share (“FNB Common Stock”), of which at the date hereof 30,000
shares are issued and outstanding.

 

3.                                       The respective
Boards of Directors of Graystone Bank and FNB deem the merger of FNB with and
into Graystone Bank, pursuant to the terms and conditions set forth or referred
to herein, to be desirable and in the best interests of the respective
corporations and their respective stockholders.

 

4.                                       The respective
Boards of Directors of Graystone Bank and FNB have adopted resolutions
approving this Plan of Merger.  The
respective Boards of Directors of Tower and First Chester have adopted
resolutions approving an Agreement and Plan of Merger dated as of December 27,
2009, as subsequently amended on March 4, 2010 (the “Agreement”), between Tower
and First Chester, providing for the merger of First Chester with and into
Tower (the “Parent Merger”) and pursuant to which this Bank Plan of Merger is
being executed by Graystone Bank and FNB.

 

AGREEMENT

 

In consideration of the premises and of the mutual covenants and
agreements herein contained, Graystone Bank and FNB, intending to be legally
bound hereby, agree:

 

ARTICLE I

MERGER; BUSINESS

 

1.1                                 Subject to the
terms and conditions of this Plan of Merger and in accordance with the
applicable laws and regulations of the Commonwealth of Pennsylvania, on the
Effective Date (as that term is defined in Article V hereof):  FNB shall merge with and into Graystone Bank;
the separate existence of FNB shall cease; and Graystone Bank shall be the
surviving bank under the name and title “Graystone Tower Bank” (such
transaction referred to herein as the “Bank Merger”

 

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and
Graystone Bank, as the surviving bank in the Bank Merger, referred to herein as
the “Surviving Bank”).

 

1.2                                 Business.  The business of the Surviving Bank shall be
conducted at the main office of Graystone Bank, and shall be located at 100
Granite Run Drive, Lancaster, Pennsylvania 17601, and its legally established
branches, which shall include the main office and all of the branch offices of
FNB.

 

ARTICLE II

ARTICLES OF INCORPORATION AND BY-LAWS

 

On
and after the Effective Date of the Bank Merger, the articles of incorporation
and by-laws of Graystone Bank shall continue to be the articles of
incorporation and bylaws of the Surviving Bank.

 

ARTICLE III

BOARD OF DIRECTORS AND OFFICERS

 

3.1                                 Board
of Directors.  On and
after the Effective Date of the Bank Merger, the directors of Graystone Bank
immediately prior to the Effective Date shall continue to be the directors of
Graystone Bank as the Surviving Bank in the Bank Merger, provided that on the
Effective Date the number of directors serving on the board of directors of
Graystone Bank shall be increased by three (3) directors and three (3) of the
current directors of FNB who are not added to the Tower board in connection
with the Parent Merger, as selected by the board of directors of FNB with the
approval of the Graystone Bank board of directors and subject to the conditions
to board membership in the bylaws of Graystone Bank and other criteria
contained in Tower’s Corporate Governance Guidelines and applicable law and
regulation, shall be added to the board of directors of Graystone Bank.

 

3.2                                 Officers.  On and after the Effective Date of the Bank
Merger, the officers of Graystone Bank duly elected and holding office
immediately prior to such Effective Date shall be the officers of Graystone
Bank, as the Surviving Bank in the Bank Merger.

 

ARTICLE IV

CONVERSION OF SHARES

 

4.1                                 Stock
of Graystone Bank.  Each
share of Graystone Bank Common Stock issued and outstanding immediately prior
to the Effective Date shall, on and after the Effective Date, continue to be
issued and outstanding as a share of common stock of the Surviving Bank.

 

4.2                                 Stock
of FNB.  Each share
of FNB Common Stock issued and outstanding immediately prior to the Effective
Date shall, on the Effective Date, be canceled and no cash, stock or other
property shall be delivered in exchange therefore.

 

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ARTICLE
V

EFFECTIVE DATE OF THE MERGER

 

The
Merger shall be effective on the date on which articles of merger executed by
FNB and Graystone Bank are filed with and endorsed by the Pennsylvania
Department of Banking, unless a later date is specified in such articles of
merger (the “Effective Date”).

 

ARTICLE VI

EFFECT OF THE MERGER

 

On
the Effective Date:  The separate
existence of FNB shall cease; the principal and branch offices of FNB shall
become authorized branch offices of the Surviving Bank; and all of the property
(real, personal and mixed), rights, powers, duties and obligations of Graystone
Bank and FNB shall be taken and deemed to be transferred to and vested in the
Surviving Bank, without further act or deed, as provided by applicable laws and
regulations.

 

ARTICLE VII

CONDITIONS PRECEDENT

 

The
obligations of Graystone Bank and FNB to effect the Merger shall be subject to (i)
the approval of this Plan of Merger by First Chester and Tower in their
capacities as the sole shareholder of FNB and Graystone Bank, respectively, (ii)
receipt of the required approval of the Federal Deposit Insurance Corporation,
the Pennsylvania Department of Banking, and any other applicable regulatory
authority, (iii) receipt of any necessary approval to operate the main office
of FNB and the branch offices of FNB as offices of the Surviving Bank, and (iv)
the completion of the transactions contemplated by the Agreement on or before
the Effective Date.

 

ARTICLE VIII

TERMINATION

 

This
Plan of Merger shall terminate upon any termination of the Agreement in
accordance with its terms; provided, however, that any such termination of this
Plan of Merger shall not relieve any party hereto from liability on account of
a breach by such party of any of the terms hereof or thereof.

 

ARTICLE IX

AMENDMENT

 

Subject
to applicable law, this Plan of Merger may be amended, by action of the
respective Boards of Directors of the parties hereto, at any time prior to
consummation of the Merger, but only by an instrument in writing signed by duly
authorized officers on behalf of the parties hereto.

 

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ARTICLE
X

MISCELLANEOUS

 

10.1                           Extensions;
Waivers.  Each party,
by a written instrument signed by a duly authorized officer, may extend the
time for the performance of any of the obligations or other acts of the other
party hereto and may waive compliance with any of the obligations of the other
party contained in this Plan of Merger.

 

10.2                           Notices.  Any notice or other communication required or
permitted under this Plan of Merger shall be given, and shall be effective, in
accordance with the provisions of the Agreement.

 

10.3                           Captions.  The headings of the several Articles herein
are inserted for convenience of reference only and are not intended to be part
of, or to affect the meaning or interpretation of, this Plan of Merger.

 

10.4                           Counterparts.  For the convenience of the parties hereto,
this Plan of Merger may be executed in several counterparts, each of which
shall be deemed the original, but all of which together shall constitute one
and the same instrument.

 

10.5                           Governing
Law.  This Plan of Merger shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania without regard to the conflict of laws principles thereof.

 

[signature page follows]

 

4

 

IN
WITNESS WHEREOF, each party has caused this Plan of Merger to be executed on
its behalf and its corporate seal to be affixed hereto by its duly authorized
officers, all as of the day and year first written above.

 

	
  ATTEST:

  	
   

  	
  GRAYSTONE
  TOWER BANK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/
  Carl Lundblad

  	
   

  	
  By:

  	
  /s/
  Andrew S. Samuel

  
	
  Secretary

  	
   

  	
   

  	
  Andrew S. Samuel

  
	
   

  	
   

  	
   

  	
  Chairman, President & CEO

  
	
   

  	
   

  	
   

  
	
  (SEAL)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
   

  	
  FIRST
  NATIONAL BANK OF CHESTER COUNTY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/
  John B. Waldron

  	
   

  	
  By:

  	
  /s/
  John A. Featherman, III

  
	
  Secretary

  	
   

  	
   

  	
  John A. Featherman, III

  
	
   

  	
   

  	
   

  	
  Chairman, President & CEO

  
	
   

  	
   

  	
   

  	
   

  
	
  (SEAL)Exhibit 10.3

 

LOAN AGREEMENT

 

Dated as of March 4, 2010

 

By and Between

 

FIRST CHESTER COUNTY CORPORATION

 

and

 

TOWER BANCORP, INC.

 

 

THIS LOAN AGREEMENT, dated as of March 4, 2010, is entered into by and
between FIRST CHESTER COUNTY CORPORATION, a Pennsylvania business corporation
having its principal office at 9 North High Street, West Chester, Pennsylvania
19380 (the “Borrower”), and TOWER BANCORP, INC., a Pennsylvania business
corporation having an office at 112 Market Street, Harrisburg, Pennsylvania
17101 (the “Lender”).

 

WITNESSETH:

 

WHEREAS, Lender and Borrower are parties to that certain Agreement and
Plan of Merger dated as of December 27, 2009, which was subsequently amended on
March 4, 2010 (as amended, the “Merger Agreement”), pursuant to which Borrower
will be merged with and into Lender with Lender as the surviving institution;

 

WHEREAS, the Merger Agreement provides that Lender shall provide to
Borrower a non-revolving credit facility in the principal amount of $2,000,000,
which credit facility would permit draws thereunder from time to time by
Borrower under certain specified conditions for purposes of permitting Borrower
to contribute additional capital to First National Bank of Chester County,
Borrower’s wholly-owned subsidiary; and

 

WHEREAS, the Lender is willing to make the loan to the Borrower upon
the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I

Definitions

 

SECTION 1.01. Certain Definitions. In addition to the terms
defined elsewhere in this Agreement, the terms defined in this Section 1.01,
whenever used and capitalized in this Agreement, shall, unless the context
otherwise requires, have the respective meanings herein specified:

 

“AHB
Division” shall have the meaning ascribed to it in the Merger Agreement.

 

“Board
of Directors” shall mean the Board of Directors of the Borrower or any duly
authorized committee of the Board of Directors.

 

“Business
Day” shall mean any day except a Saturday, Sunday or other day on which
commercial banks in Pennsylvania are authorized by law to close.

 

“Change
of Control” shall mean with respect to either the Borrower or First
National, as the case may be (“Target”), the earliest to occur of any of the
following events, each of which shall be determined independently of the
others:

 

(a)   any Person becomes a “beneficial owner,” as
such term is used in Rule l3d-3 promulgated under the Securities Exchange Act  of
1934, as amended (the “Exchange Act”), of fifty percent (50%) or more of Target’s
stock entitled to vote in the election of 

 

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directors;

 

(b)   Target is a party to a merger, consolidation,
other form of business combination or a sale of all or substantially all of its
assets, unless the business of Target is continued following any such
transaction by a resulting entity (which may be, but need not be, Target) and
the shareholders of Target immediately prior to such transaction hold, directly
or indirectly, at least sixty-six percent (66%) of the voting power of the
resulting entity;

 

(c)   there is a change of control of Target of a
nature that would be required to be reported in response to Item 5.01 of a
Current Report on Form 8-K or Item 6(e) of Schedule l4A of Regulation l4A  or
any similar item, schedule or form under the Exchange Act, as in effect at the
time of the change, whether or not Target is then subject to such reporting
requirement; or

 

(d)   there has occurred a “change of control” as
such term (or any term of like import) is defined in any of the following
documents which is in effect with respect to Target at the time in question:
any note, evidence of indebtedness or agreement to lend funds to Target, any
option, incentive or employee benefit plan of Target or any employment, or
severance, termination or similar agreement with any person who is then an
employee of Target.

 

“Financial
Holding Company Letter” shall mean that certain letter issued by the Board
of Governors of the Federal Reserve System to Borrower dated November 9, 2009.

 

“Financial
Statements” shall mean the audited balance sheets for fiscal year end December
31, 2008, statements of income, statements of shareholder equity, and cash
flows for fiscal year end December 31, 2008, as set forth in the annual report
for fiscal year end December 31, 2008, and all other reports, proxy statements,
information statements or call reports filed or to be filed subsequent to December
31, 2008 with the SEC.

 

“Financial
Subsidiary Letter” shall mean that certain letter issued by the Office of
the Comptroller of the Currency to First National dated November 4, 2009.

 

“First
National” shall mean First National Bank of Chester County.

 

“FRB
Letter” shall mean that certain letter issued by the Federal Reserve Bank
of Philadelphia to Borrower dated November 3, 2009 requiring that Borrower
obtain the approval of the Federal Reserve Bank prior to declaring or paying
any dividend.

 

“GAAP”
means generally accepted accounting principles in the United States of America,
consistent with those used in
the preparation of the financial statements referred to in Section 3.01.

 

“Indebtedness”
of any Person shall mean (a) all items which, in accordance with GAAP, would be
included on the liability side of a balance sheet of such Person as at the date
as of which indebtedness is to be determined, excluding capital stock, surplus,
capital and earned surplus, surplus reserves which in effect were
appropriations of surplus or offsets to asset values 

 

2

 

(other than all reserves in
respect of obligations, the amount, applicability or validity of which is at
such date being contested in good faith by such Person) and deferred credits, (b)
all indebtedness secured by any mortgage, pledge, security interest or lien
existing on property owned subject to such mortgage, pledge, security interest
or liens whether or not the indebtedness secured thereby shall have been
assumed, (c) all proper accruals for federal and other taxes based on or measured by income or profits, and
(d) all guarantees, endorsements and other contingent obligations, including,
without limitation, all indebtedness guaranteed, directly or indirectly, in any
manner by such Person, or in effect guaranteed or supported, directly or
indirectly, by such Person through an agreement, contingent or otherwise, (i) to
purchase the indebtedness, or (ii) to purchase, sell, transport or lease (as
lessee or lessor) property or to purchase or sell services at prices or in
amounts designed to enable the debtor to make payment of the indebtedness or to
assure the owner of the indebtedness against loss, or (iii) to supply or
advance funds to or in any other manner invest in the debtor; provided, however,
that such term shall not mean and include any indebtedness in respect of which
monies sufficient to pay and discharge the same in full (either on the stated
date of maturity thereof or on such earlier date as such indebtedness may be
duly called for redemption and payment) shall be deposited with a depository,
agency or trustee in trust for the payment thereof.

 

“Loan”
shall mean the non-revolving line of credit from the Lender to Borrower in the
principal amount of $2,000,000.

 

“Loan
Documents” shall mean, collectively, this Agreement, the Pledge Agreement,
and any related Notes.

 

“Merger”
shall have the meaning ascribed to it in the Merger Agreement.

 

“MOU”
shall mean that certain Memorandum of Understanding dated October 16, 2009, by
and between the Office of the Comptroller of the Currency and First National.

 

“OCC
Letter” shall mean that certain letter issued by the Office of the
Comptroller of the Currency to First National dated November 4, 2009 requiring
that First National increase, by December 31, 2009, its Tier 1 leverage capital
ratio to not less than 8%, its Tier 1 risk-based capital ratio to not less than
10%, and its total risk-based capital ratio to not less than 12%.

 

“Note”
shall have the meaning ascribed to such term in Section 2.02.

 

“Person”
shall mean any individual, corporation, partnership, Limited Liability Company
or other entity, or government, foreign or domestic, or any agency or political
subdivision of any government.

 

“Pledge
Agreement” shall have the meaning ascribed to such term in Section 4.03.

 

“Regulatory
Letters” shall mean the MOU, the OCC Letter, the FRB Letter, the Financial
Subsidiary Letter and the Financial Holding Company Letter.

 

3

 

“Regulatory
Reports” shall mean the annual and quarterly reports of Borrower filed with
the SEC since December 31,  2008,
and the financial reports of First National and accompanying schedules for each
calendar quarter filed with the Office of the Comptroller of the Currency,
since the year ended December 31,  2009.

 

“SEC”
shall mean the Securities and Exchange Commission.

 

“Securities
Documents” shall mean all registration statements, schedules, statements,
forms, reports, proxy materials, and other documents required to be filed under
the federal securities laws.

 

ARTICLE II

The Loan

 

SECTION
2.01. Loan Commitment. Subject to the terms and conditions of, and
relying upon the representations and warranties of the Borrower contained in,
this Agreement, the Lender shall make the proceeds of the Loan available to the
Borrower on the date (the “Closing Date”) on which the Borrower executes and
delivers to the Lender the Note evidencing the Loan.

 

SECTION
2.02. Promissory Note. The
obligation of the Borrower to repay the unpaid principal amount of the Loan,
and to pay interest thereon, shall be evidenced by a Promissory Note of even
date herewith (such Promissory Note, and any extension, refinancing or renewal
of the same, is referred to herein as the “Note”). The unpaid principal balance
of the Note, the interest, if any, accrued thereon, the interest rate
applicable to such balance, and the term of the Loan shall be determined from
the terms of the Note and the records of the Lender in the absence of manifest
error.

 

SECTION
2.03.  Advances.

 

(a)   In accordance with this Agreement and other
Loan Documents, Borrower may from time to time request one or more advances
(each advance hereunder being referred to herein as an “Advance”).  The aggregate principal amount of all
Advances disbursed hereunder shall not exceed the lesser of an amount equal to
the amount of additional capital required for purposes of satisfying the
minimum capital ratios applicable to First National pursuant to the OCC Letter
and $2,000,000.00 (the “Principal Limit”).

 

(b)   By requesting an Advance, Borrower makes a
warranty that Borrower is in compliance with all Loan Documents.  When making a request for an Advance,
Borrower must specify the requested amount and the date.  All Advances will be made in United States
dollars.  Borrower agrees to indemnify
and hold harmless the Lender for the Lender’s reliance on any request for
Advances that the Lender reasonably believes to be genuine.  To the extent permitted by law, Borrower will
indemnify the Lender and hold the Lender harmless when the person making any
request represents that Borrower authorized the person to request an Advance
even when the person is unauthorized or the person’s signature is not
genuine.  The Borrower may request
Advances by the following methods: (1) in person; (2) by phone; or (3) by mail.

 

4

 

(c)   In addition to any other Loan conditions,
requests for, and access to, Advances are subject to the following limitations:

 

(1)   Obligatory Advances.  Lender will make all Advances under and
subject to this Agreement’s terms and conditions.

 

(2)   Advance Amount.  Subject to the terms and conditions contained
in this Agreement, Advances will be made in the amount requested by Borrower.

 

(3)   Disbursement of Advances.  On Borrower’s fulfillment of this Agreement’s
terms and conditions, Lender will disburse the Advance in any manner mutually
agreed upon.

 

(4)   Credit Limit.  Borrower understands that the Lender will not
ordinarily grant a request for an Advance that would cause the unpaid principal
of the Loan to be greater than the Principal Limit.  The Lender may, at its option, grant such a
request without obligating the Lender to do so in the future.  The Borrower will pay any over Advances in
addition to the regularly scheduled payments. 
The Borrower will repay any over Advance by repaying the Lender in full
within 10 days after the overdraft occurs.

 

(5)   Records.  The Lender’s records will be conclusive
evidence as to the amount of Advances, the Note’s unpaid principal balances and
the accrued interest.

 

(d)   All of the following conditions shall be
satisfied before the Lender will be required to make any Advances under this
Agreement.

 

(1)   No Default.  There has not been a default under this
Agreement or any other Loan Documents nor would a default result from making
the Loan or any Advance.

 

(2)   Information.  The Lender has received all documents,
information, certifications and warranties as the Lender may require, all
properly executed, if appropriate, on forms acceptable to the Lender.

 

(3)   Inspections.  The Lender has made all inspections it
considers necessary and is satisfied with this inspection.

 

(4)   Conditions and Covenants.  Borrower will have performed and complied
with all conditions required for an Advance and all covenants in this Agreement
and any other Loan Documents.

 

(5)   Warranties and
Representations. The warranties and representations contained in
this Agreement are true and correct at the time of making the requested
Advance.

 

5

 

(6)   Financial Statements.
The Borrower’s most recent financial statements and other financial reports,
delivered to the Lender, are current, complete, true and accurate in all
material respects and fairly represent the Borrower’s financial condition.

 

(7)   Bankruptcy Proceedings.  No proceeding under the United States
Bankruptcy Code has been commenced by or against the Borrower or any of the
Borrower’s affiliates.

 

(8)   Pledge Agreement.  Borrower shall have executed and delivered
the Pledge Agreement attached hereto and marked “Exhibit A” providing for the
Borrower’s pledge to the Lender of a second lien security interest in one
hundred percent (100%) of the issued and outstanding shares of First National
common stock in order to secure the Loan and the Borrower’s Obligations
hereunder (the “Pledge Agreement”).

 

(9)   Non-compliance with OCC
Letter.  As a result of the
attempt to sell the AHB Division, actual sale thereof, or the effects on First
National of such sale, First National’s regulatory capital ratios, as reported
in its Regulatory Reports, shall have fallen below the minimum regulatory
capital requirements established by the OCC as set forth in the OCC Letter, and
the OCC shall not have indicated, orally or in writing, that it will not take
immediate action to enforce such minimum levels prior to consummation of the
Merger.

 

(10) Officer’s Certificate.  The representations and warranties of the
Borrower contained in Article III shall be true on and as of the date of the
requested Advance with the same effect as though such representations and
warranties had been made on and as of such date, and no event shall have
occurred prior to such date which constitutes an Event of Default or which,
with notice or the lapse of time, or both, would constitute an Event of
Default, and all of the conditions to an Advance hereunder shall have been
satisfied, and the Borrower shall have delivered to the Lender on the date of
the requested Advance a certificate, dated such date and signed by the President
or Chief Financial Officer of the Borrower, to such effect, together with any
other evidence of the foregoing reasonably requested by Lender.

 

SECTION
2.04. Optional Prepayments.  The
Borrower may, at its option, prepay the Loan, in whole or in part, at any time
and from time to time.

 

SECTION
2.05. Payment upon Capital Raising Event.  Upon the completion of any capital raising
event by Borrower or First National, including, without limitation, any public
offering or private placement of Borrower common stock, preferred stock, trust
preferred securities, subordinated debt, or similar instruments or arrangements
that result in proceeds to Borrower or First National in an amount sufficient
to satisfy, after giving effect to the payment of amounts pursuant to this Section
2.04, the additional capital requirements imposed upon First National pursuant
to the OCC Letter, all amounts then outstanding under the Note, plus any late
charges, prepayment penalties or other fees owing hereunder or thereunder, shall
immediately 

 

6

 

and without any action by
the Lender become due and payable in full. Borrower agrees that if it undertakes a public
offering of its securities during the term of this Loan Agreement, it shall use
commercially reasonable efforts to raise net proceeds in the offering
sufficient, together with any other cash or cash equivalents on hand, to
satisfy both the additional capital requirements imposed upon First National
pursuant to the OCC Letter and the repayment of the outstanding amounts under
the Note, plus any late charges, prepayment penalties or other fees owing
hereunder or thereunder pursuant to this Section 2.04.

 

SECTION
2.06. General Provisions as to Loan Payments and Computation of Interest.
The Borrower shall make each payment of principal of, and interest on, the Loan
in lawful money of the United States of America and in federal or other funds
immediately available to the Lender at its address referred to in Section 8.03.
The Borrower hereby irrevocably authorizes the Lender to debit any of its
accounts at the Lender for the payment of all amounts payable under the Loan
Documents on the due date for such payments. Whenever any payment of principal
of, or interest on, the Loan shall be due on a day which is not a Business Day,
the date for payment thereof shall be extended to the next succeeding Business
Day and interest shall continue to accrue thereon. If the date for any payment
of principal of the Loan is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.  Interest on the Loan shall be computed on the
basis of a year of 360 days, and paid for the actual number of days elapsed
(including the first day but excluding the last day).

 

ARTICLE III

Representations and Warranties

 

The
Borrower represents and warrants that:

 

SECTION
3.01. Financial Statements.

 

(a)   Borrower has previously made available to the
Lender the Financial Statements filed as of the date hereof and will deliver to
the Lender within five (5) days of filing all the Financial Statements to be
filed after the date hereof. The Financial Statements have been, or will be,
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered by such statements, except as noted therein, and fairly
present, or will fairly present, the consolidated financial position, results
of operations and cash flows of Borrower as of and for the periods ending on
the dates thereof, in accordance with GAAP applied on a consistent basis,
except as noted therein.

 

(b)   Borrower has made its Regulatory Reports
through September 30, 2009, and First National’s Regulatory Reports through December
31, 2009, available to the Lender and will deliver to the Lender within five (5)
days of filing all Regulatory Reports to be filed after the date hereof. The
Regulatory Reports have been, or will be, prepared in all material respects in
accordance with applicable regulatory accounting principles and practices
throughout the periods covered by such statements, and fairly present, or will
fairly present in all material respects, the financial position, results of
operations, and changes in shareholders’ equity of Borrower or First National
as the case may be, as of and for the periods ended on the dates thereof, in
accordance with applicable regulatory 

 

7

 

accounting principles
applied on a consistent basis.

 

(c)   At the date of each balance sheet included in
the Financial Statements or Regulatory Reports, neither Borrower or First
National (as the case may be) had, or will have, any liabilities, obligations
or loss contingencies of any nature (whether absolute, accrued, contingent or
otherwise) of a type required to be reflected in such Financial Statements or
Regulatory Reports or in the footnotes thereto which are not fully reflected or
reserved against therein or disclosed in a footnote thereto, except for
liabilities, obligations or loss contingencies which are not material in the
aggregate to Borrower and which are incurred in the ordinary course of
business, consistent with past practice, and except for liabilities,
obligations or loss contingencies which are within the subject matter of a
specific representation and warranty herein and subject, in the case of any
unaudited statements, to normal recurring audit adjustments and the absence of
footnotes.

 

(d)   The allowance for loan losses reflected, and
to be reflected, in the Regulatory Reports, and shown, and to be shown, on the
balance sheets contained in the Financial Statements have been, and will be,
established in accordance with the requirements of GAAP and all applicable
regulatory criteria.

 

SECTION
3.02. Business and Properties. No report, document, certificate or
statement delivered to the Lender by or on behalf of the Borrower in connection
with the transactions contemplated by this Agreement contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained therein not misleading. Except with
respect to the Regulatory Letters, since December 31, 2008, there has not been
any adverse change in the business, operations, properties or assets of the
Borrower or its subsidiaries which is material to the Borrower and its subsidiaries
taken as a whole or to the Borrower alone.

 

SECTION
3.03. No Pending Material Litigation or Proceeding. There are no
actions, suits or proceedings (whether or not purportedly on behalf of the
Borrower or any of its subsidiaries) pending or, to the knowledge and belief of
the Borrower, threatened against or affecting the Borrower or any of its
subsidiaries, or the business or properties of the Borrower or any of its
subsidiaries, at law or in equity, or before or by any governmental department,
commission board, agency or instrumentality, domestic or foreign, or any
arbitrator, which might have a material adverse effect on the financial
position of the Borrower and its subsidiaries taken as a whole or which might
have any material adverse effect on the ability of (a) the Borrower or any
subsidiary to carry on its business as now conducted or (b) the Borrower to
perform any of its obligations under the Loan Documents. Neither the Borrower
nor any of its subsidiaries is, to the knowledge and belief of the Borrower, (i)
in default in any material respect under any order, writ, injunction or decree
of any court or arbitrator, or (ii) in default in any material respect under
any order, regulation or demand of any governmental agency, where the default
specified in (i) or (ii) would have consequences that might have a material
adverse effect on the financial position of the Borrower and its subsidiaries
taken as a whole.

 

SECTION
3.04. Valid Organization, Good Standing and Qualification of Borrower and
Subsidiaries. The Borrower and its subsidiaries are duly and validly
organized and existing entities in good standing under the laws of their
respective jurisdictions of organization. The Borrower and its subsidiaries are
duly licensed or qualified and in good standing as foreign 

 

8

 

entities in all other
jurisdictions where the ownership or leasing of property or the nature of
business transacted makes such qualification necessary, and are entitled to own
their respective properties and assets, and to carry on their respective
businesses, all as, and in the places where,  such properties and assets are now
owned or operated or such businesses are now conducted or presently proposed to
be conducted, except where failure to so qualify would not have a material
adverse effect on the business, properties or assets, or in the condition,
financial or otherwise, of the Borrower and its subsidiaries taken as a whole.
The Borrower and its subsidiaries have made payment of all franchise and
similar taxes in their respective jurisdictions in which they are qualified as
foreign entities, insofar as such taxes are due and payable at the date of this
agreement, except for any such taxes immaterial in amount or the validity of which
is being contested in good faith and for which proper reserves have been set
aside on the books of the Borrower or any of its subsidiaries, as the case may
be. The shares of capital stock of each subsidiary owned by the Borrower,
directly or indirectly, have been duly issued, are fully paid and
nonassessable, and are owned free and clear of any liens, charges and
encumbrances.

 

SECTION
3.05.
 No Leases
Affecting Balance Sheet Values: Status of Leases. None of the assets or
properties the values of which are reflected in the latest audited consolidated
balance sheet referred to in Section 3.01 is held by the Borrower or any of its
subsidiaries as lessee under any lease (excluding capitalized lease
obligations). The Borrower and its subsidiaries enjoy peaceful and undisturbed
possession under all of the leases under which they are operating, none of
which contains any unusual or burdensome provisions that will, in the judgment
of the Borrower, materially and adversely affect or impair the operations of
the Borrower and its subsidiaries taken as a whole. All of such leases are
valid, subsisting and in full force and effect and, to the best knowledge of
the Borrower, none of such leases is in default.

 

SECTION
3.06. No Adverse Contracts or Restrictions. Except with respect to the
Regulatory Letters, neither the Borrower or any of its subsidiaries is a party
to, or is bound by, any contract or agreement or instrument, or  subject
to any charter or other corporate restriction, which in the opinion of the
Borrower materially and adversely affects its business, property, assets,
operations or condition, financial or otherwise.

 

SECTION
3.07. No Legal Restrictions on Performance: No Defaults.  Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated by it, nor
compliance with its terms and conditions will conflict with or result in a
breach of, or constitute a default under, any of the terms, conditions or
provisions of any corporate restriction or of any indenture, mortgage, deed of
trust, pledge, bank loan or credit agreement, corporate charter, bylaws or any
other agreement or instrument to which the Borrower or any of its subsidiaries
is now a  party or by which any of them or their respective
properties may be bound or affected, or any judgment or order, writ,
injunction, decree or demand of any court, arbitrator, or federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or result in the creation or
imposition of any lien charge or encumbrance of any nature whatsoever upon any
of the property or assets of the Borrower or its subsidiaries under the terms
or provisions of any such agreement or instrument. Neither the Borrower or its
subsidiaries is in default in any material respect in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any indenture or other agreement creating, evidencing or securing
Indebtedness of the Borrower or its subsidiaries or pursuant to which any such
Indebtedness is issued or other agreement or

 

9

 

instrument to which the
Borrower or its subsidiaries is a party or by which the Borrower or its
subsidiaries or its properties may be bound or affected. No event has occurred
which constitutes an event of default or which, with notice or the lapse of time,
or both, would constitute an event of default under any agreement or instrument
evidencing Indebtedness for money borrowed of the Borrower or any of its
subsidiaries which enables the holders thereof or any Person on their behalf to
declare the same due and payable prior to the maturity thereof.

 

SECTION
3.08. Compliance with Statutes and Regulations. Except as set forth in
the Regulatory Letters, the Borrower and its subsidiaries have complied with,
and are currently in compliance with, all applicable statutes, regulations,
orders and restrictions of the United States of America, foreign countries,
states and municipalities, and agencies and instrumentalities of the foregoing,
in respect of the conduct of their respective businesses and ownership of their
respective properties (including, without limitation, applicable statutes,
regulations, orders and restrictions relating to bank holding companies, banks,
equal employment opportunities and environmental standards or controls), where
failure to comply therewith would have a material adverse effect on the
business, properties or assets, or in the condition, financial or otherwise, of
the Borrower and its subsidiaries taken as a whole. No governmental consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement. Without limiting the generality of the foregoing,
the Borrower and its subsidiaries have complied with, and are currently in
compliance with, to the extent compliance is required as of the date hereof,
all applicable requirements imposed upon the Borrower or its subsidiaries as a
result of any formal or informal regulatory enforcement action or guidance,
including, without limitation, the Regulatory Letters.

 

SECTION
3.09.  Regulatory Actions.  Except with respect to the Regulatory
Letters, as such are currently in effect, neither Borrower nor First National
has received any notification or communication from any applicable bank
regulatory authority (i) asserting that Borrower or First National is not in
compliance with any of the statutes, regulations or ordinances which such
regulatory authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material to Borrower
or First National; (iii) requiring or threatening to require Borrower or First
National, or indicating that Borrower or First National may be required, to
enter into a cease and desist order, agreement or memorandum of understanding
or any other agreement restricting or limiting, or purporting to restrict or
limit, in any manner the operations of Borrower or First National, including
without limitation any restriction on the payment of dividends; or (iv) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of Borrower or First National, including without
limitation any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this sentence is
hereinafter referred to as a “Regulatory Agreement”). Neither Borrower nor
First National has consented to or entered into any Regulatory Agreement,
except for the Regulatory Letters.

 

SECTION
3.10. “Well-Capitalized” Status. Borrower and First National are “well
capitalized” within the meaning of applicable banking regulations as of the
date of this Agreement and will continue to be for so long as obligations
remain outstanding hereunder.

 

SECTION
3.11.  Securities Documents.  The Securities Documents filed or to be filed
by 

 

10

 

Borrower under the
Securities Exchange Act of 1934, as amended, at any time since December 31,
2008 complied with or will comply, at the time filed with the SEC, in all
material respects, with the Exchange Act, and all applicable rules and
regulations of the SEC.

 

SECTION
3.12. Tax Status. The Borrower and its subsidiaries have filed all
United States income tax returns and all state, municipal and other tax returns
which are required to be filed, and have paid, or made provision for the
payment of, all taxes which have become due pursuant to said returns or
pursuant to any assessment received by the Borrower or any of its subsidiaries,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been finally determined by the Internal Revenue Service
and satisfied for all taxable years up to and including the taxable year ended December
31, 2008.

 

SECTION
3.13. Margin Regulation. The Borrower will not use any part of the
proceeds of the Loan (a) directly or indirectly to purchase or carry any “margin
security” as such term is defined in Regulation U of the Board of Governors of
the Federal Reserve System, as amended, or to reduce or retire any Indebtedness
originally incurred to purchase any such security within the meaning of such
regulation, (b) so as to involve the Borrower in a violation of Regulation X of
such Board, or (c) for any other purpose not permitted by Section 7 of the
Securities Exchange Act of 1934, as amended, or any of the rules and
regulations respecting the extension of credit promulgated thereunder.

 

SECTION
3.14. Investment Company Act. The Borrower is not an “investment company”,
or a company “controlled” by an “investment company”, within the meaning of the
Investment Company Act of 1940, as amended.

 

SECTION
3.15. Exempt Status Of Transaction Under Securities Act. The execution
and delivery of the Note by the Borrower constitutes a transaction exempt from
the registration provisions of the Securities Act of 1933, as amended.

 

SECTION
3.16. Authorization and Validity. The Loan Documents have been duly
authorized and delivered by the Borrower and constitute legal, valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms.

 

ARTICLE IV

Conditions of Closing

 

The
Lender’s obligation to make the Loan provided for in Article II shall be
subject to the performance by the Borrower prior to or at the Closing Date of
all its agreements theretofore to be performed under this Agreement, to the
accuracy of its representations and warranties contained in this Agreement, and
to the satisfaction, prior to or concurrently with the  closing of the
Loan of the following further conditions:

 

SECTION
4.01. Opinion of Counsel. The Lender shall have received on the Closing
Date from the Borrower’s counsel, an opinion, dated the Closing Date, in form
and substance satisfactory to Lender, opining that this Agreement has been duly
and validly authorized, executed and delivered on behalf of the Borrower, and
the Agreement and Loan Documents represent binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.

 

11

 

SECTION
4.02. Certificate as to Representations and Warranties and No Events of
Default; Corporate Resolutions.

 

(a)   The representations and warranties of the
Borrower contained in Article III shall be true on and as of the Closing Date
with the same effect as though such representations and warranties had been
made on and as of the Closing Date, and no event shall have occurred prior to
the Closing Date which constitutes an Event of Default or which, with notice or
the lapse of time, or both, would constitute an Event of Default, and the
Borrower shall have delivered to the Lender on the Closing Date a certificate,
dated the Closing Date and signed by the President or Chief Financial Officer
of the Borrower, to such effect.

 

(b)   Certified copies of all corporate action
taken by the Borrower, including resolutions of its Board of Directors
authorizing the execution, delivery and performance of the Loan Documents,
together with a certificate of the Secretary of the Borrower certifying the
names and true signatures of the officers of the Borrower authorized to sign
the Loan Documents, and an acknowledgement executed by a majority of the
members of the Board of Directors of Borrower authorizing the pledge of First
National common stock pursuant to Section 2.03.

 

SECTION
4.03.  Pledge Agreement.  Borrower shall have executed and delivered
the Pledge Agreement attached hereto and marked “Exhibit A”, and any ancillary
documents to be delivered pursuant thereto, providing for the Borrower’s pledge
to the Lender of a second lien security interest in one hundred percent (100%)
of the issued and outstanding shares of First National common stock in order to
secure the Loan and the Borrower’s obligations hereunder (the “Pledge Agreement”).

 

SECTION
4.04. Proceedings and Documents. All proceedings to be taken in
connection with the transactions contemplated by this Agreement and all
documents incident to such transactions shall be satisfactory in form and
substance to the Lender and the Lender’s counsel; and the Lender shall have
received all documents or other evidence which the Lender and the Lender’s
counsel may reasonably have requested in connection with such transaction and
compliance with the conditions set forth in this Article IV, in form and
substance satisfactory to the Lender and the Lender’s counsel.

 

ARTICLE V

Affirmative Covenants

 

The
Borrower covenants and agrees that, unless the Borrower obtains the prior
written consent of the Lender to the contrary:

 

SECTION
5.01. Payment of Principal and Interest. The Borrower will punctually
pay or cause to be paid the principal of and interest on the Note according to
the respective terms thereof.

 

SECTION
5.02.
Maintenance of Corporate Existence. The Borrower will
at all times do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights, patents and
franchises and the corporate existence, rights, patents and 

 

12

 

franchises of its
subsidiaries and comply with, and cause each subsidiary to comply with, all
related laws applicable to the Borrower or its subsidiaries in such manner as
counsel shall advise; provided, however, that nothing in this Section 5.02  shall
(a) require the Borrower or any of its subsidiaries to maintain, preserve or
renew any right, patent or franchise which is not, in the opinion of the Board
of Directors of Borrower, necessary or desirable in the conduct of the business
of the Borrower or such subsidiary, as the case may be, or (b) prevent the
termination of the corporate existence of any subsidiary (other than any of its
bank subsidiaries) if, in the opinion of the Board of Directors of Borrower,
such termination is in the best interest of the Borrower and not
disadvantageous to the Lender, or (c) require the Borrower or any of its
subsidiaries to comply with any law so long as the validity or applicability
thereof shall be contested in good faith.

 

SECTION
5.03. Maintenance of Insurance. The Borrower will keep adequately
insured, and cause each of its subsidiaries to keep adequately insured, by
financially sound and reputable insurers, all property of a character usually
insured by corporations engaged in the same or a similar business similarly
situated against loss or damage of the kinds customarily insured against by
such corporations, and carry, and cause each of its subsidiaries to carry, such
other insurance as is generally carried by corporations engaged in the same or
a similar business similarly situated.

 

SECTION
5.04.
Payment of Taxes, Assessments, Etc. The Borrower will
duly and promptly pay and discharge, and cause each of its subsidiaries duly
and promptly to pay and discharge, as the same become due and payable, all
taxes, assessments and governmental and other charges and claims lawfully
levied or imposed upon the franchises, properties, earnings and business of the
Borrower or such subsidiary, as the case may be, as well as all lawful claims
for labor, materials and supplies which, if unpaid, might become a lien or
charge upon such properties or any part thereof; provided, however, that
nothing contained in this Section 5.04  shall require the Borrower or any
such subsidiary to pay any such tax, assessment, charge or claim so long as the
Borrower or such subsidiary in good faith shall contest the validity thereof
and shall set aside on its books adequate reserves with respect thereto.

 

SECTION
5.05.
Payment of Indebtedness. The Borrower will, and will
cause each of its subsidiaries to, pay punctually or discharge when due, or
renew or extend, any Indebtedness heretofore or hereafter incurred by it or any
of them, as the case may be, and discharge, perform and observe the covenants,
provisions and conditions to be performed, discharged and observed on the part
of the Borrower or such subsidiary, as the case may be, in connection
therewith, or in connection with any agreement or other instrument relating
thereto, or in connection with any mortgage, pledge or lien existing at any
time upon any of the property or assets of the Borrower or such subsidiary, as
the case may be; provided, however, that nothing contained in this Section 5.05
shall require the Borrower or any such subsidiary to pay or discharge or renew
or extend any such Indebtedness or to discharge, perform or observe any such
covenants, provisions and conditions so long as the Borrower or such subsidiary
in good faith shall contest any claim which may be asserted against it in
respect of any such Indebtedness or of any such covenants, provisions and
conditions and shall set aside on its books adequate reserves with respect
thereto.

 

SECTION
5.06. Keeping of Books. The Borrower will, and will cause each of its
subsidiaries to, (a) keep at all times proper books of record and account in
which full, true and 

 

13

 

correct entries will be made
of its transactions in accordance with good accounting practice; and (b) set
aside on its books from its earnings, for each fiscal year, reserves for depreciation,
obsolescence and/or amortization of its properties during such years and all
other proper reserves, which, in accordance with good accounting practice,
should be set aside from such earnings in connection with its business.

 

SECTION
5.07.
Compliance with Law. The Borrower will, and will cause
each of its subsidiaries to, comply in all material respects with all
applicable statutes, regulations and orders of, and all restrictions imposed
by, the United States of America and all foreign countries having jurisdiction,
and any state, municipality or any other political subdivision or any agency of
any thereof, in respect of the conduct of their respective businesses and the
ownership of their respective properties (including all applicable statutes, regulations,
orders and restrictions relating to bank holding companies, banks, equal
employment opportunities and environmental standards and controls); provided,
however, that nothing contained in this Section 5.07 shall require the Borrower
or any such subsidiary to comply with any law so long as the validity or
applicability thereof shall be contested in good faith.  The Borrower shall, and shall cause First
National to, at all times remain in compliance with all applicable requirements
imposed upon the Borrower or its subsidiaries as a result of any formal or
informal regulatory enforcement action or guidance, including, without
limitation, to the extent compliance is required as of a particular date, the
Regulatory Letters.

 

SECTION
5.08. Borrower shall certify in writing within 20 days after the end of each
month that the Loan remains outstanding that the following covenants are true
as of such month end:

 

(a)   Other
than the Regulatory Letters, Borrower and First National are not subject to any
formal regulatory enforcement action.

 

(b)   Borrower
and First National have sufficient capital to satisfy all applicable regulatory
requirements in order to be considered well capitalized by regulatory
authorities, and in order to satisfy any additional requirements imposed by
formal or informal regulatory action.

 

(c)   Borrower and First National are in compliance
with all applicable requirements under any current or future formal or informal
regulatory enforcement action to the extent compliance is required as of a particular
date.

 

SECTION
5.09. Notice of Default. If any Event of Default shall occur, the
Borrower will at once give written notice to the Lender specifying the nature
of such Event of Default and the action, if any, being taken by the Borrower to
cure such Event of Default.

 

ARTICLE VI

Negative Covenants

 

SECTION
6.01. Indebtedness. The Borrower covenants and agrees that, unless the
Borrower obtains the Lender’s prior written consent to the contrary, the
Borrower will not create, incur, assume or suffer to exist any Indebtedness,
except:

 

14

 

(a)   Indebtedness owed to the Lender under the
Loan Documents;

 

(b)   Indebtedness existing or anticipated on the
Closing Date and reflected in the Financial Statements referred to in Section 3.01;

 

(c)   Unsecured Indebtedness to third party
creditors in an aggregate amount not to exceed $1,000,000, or unsecured
Indebtedness to one or more members of the Board of Directors of Borrower,
directly or indirectly, in an aggregate amount not to exceed $2,000,000;

 

(d)   accrued salaries, wages and benefits;

 

(e)   current accounts payable arising out of
transactions (other than borrowings) in the ordinary course of business;

 

(f)    capitalized leases; and

 

(g)   purchase money obligations.

 

ARTICLE VII

Events of Default

 

SECTION
7.01. Events of Default. In case one or more of the following events (“Events  of
Default”) shall have occurred and be continuing:

 

(a)   default shall be made in the performance or
observance of any of the covenants, conditions or agreements contained in the
Loan Documents and such default shall continue for a period of 30 days after written notice to the
Borrower from the Lender stating the specific default or defaults; or

 

(b)   default shall be made in the performance or
observance of any of the covenants, conditions or agreements contained in that
certain loan agreement dated November 20, 2009, as amended, by and between
Borrower and Graystone Tower Bank, or the promissory note or stock pledge
agreement executed in connection therewith; or

 

(c)   a decree or order by a court having
jurisdiction in the premises shall have been entered adjudging the Borrower a
bankrupt or insolvent or approving as properly filed a petition seeking
reorganization, readjustment, arrangement, composition or similar relief for
the Borrower under the federal bankruptcy laws, or any other similar applicable
federal or state law, and such decree or order shall have continued
undischarged or unstayed for a period of 60 days; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or solvency of the Borrower or
its property, or for the winding up or liquidation of its affairs, shall have
been entered, and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or any property of  the
Borrower shall be sequestered or attached and shall not be returned to the
possession of the Borrower or released from such attachment within 60 days
thereafter; or

 

15

 

(d)   the Borrower shall institute proceedings to
be adjudicated a voluntary bankrupt, or shall consent to the filing of a
bankruptcy proceeding against it, or shall file a petition or answer or consent
seeking reorganization, readjustment, arrangement, composition or similar
relief under the federal bankruptcy laws, or any other similar applicable
federal or state law, or shall consent to the filing of any such petition, or shall
consent to the appointment of a receiver or liquidator or trustee or assignee
in bankruptcy or insolvency out or of a substantial part of its property, or
shall make an assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become due, or shall
voluntarily suspend transaction of its usual business, or corporate action
shall be taken by the Borrower in furtherance of any of the aforesaid purposes;
or

 

(e)   final judgment for the payment of money in
excess of $500,000 (whether one judgment or several which in the aggregate
exceed $500,000) shall be rendered against the Borrower or any of its
subsidiaries and the same shall remain undischarged for a period of 60 days
during which execution shall not be effectively stayed; provided, however, if
the Borrower or any subsidiary posts a bond which would satisfy the judgment
and execution on the judgment is effectively stayed thereby, such judgment
shall not constitute an Event of Default during such time; or

 

(f)    the Borrower or First National, shall, prior
to the later of the date that the Loan has been repaid in full or November 20,
2010, enter into any agreement or take any action which will result in a Change
of Control, unless Tower and/or the Lender is a party to such Change of Control
transaction; or

 

(g)   the Borrower shall be in default under the
Merger Agreement, or the Merger Agreement is terminated by either party thereto
in accordance with its terms; or

 

(h)   any representation or warranty made or deemed
made by the Borrower in this Agreement or which is contained in any
certificate, document, opinion, financial or other statement furnished at any
time under or in connection with  this Agreement, or the making of
the Loan shall prove to have been incorrect in any material respect on or as of
the date made or deemed made;

 

then, and in each and every
such case, the Lender by notice in writing to the Borrower may declare the
principal of the Note to be immediately due and payable, and upon any such
declaration the same shall become immediately due and payable, anything in the
Loan Documents to the contrary notwithstanding and Lender may exercise all of
its remedies as set forth in the Pledge Agreement attached hereto as Exhibit “A”.  Without limiting the generality of the
foregoing, in the event of an Event of Default arising under Section 7.01(f),
Borrower shall pay to Lender, in addition to any other amounts then owing under
the Note, a fee in the amount of ten percent (10.00%) of the face amount of the
Loan (i.e., $200,000).

 

In
case of an Event of Default specified above in this Section 7.01 shall have
occurred and be continuing, the Lender may proceed to protect and enforce its
rights either by suit in equity or by action at law, or both, or by other
appropriate proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in the 

 

16

 

Loan Documents, or in aid  of
the exercise of any power granted in the Loan Documents, or may proceed to
enforce the payment of the Note or to enforce any other legal or equitable
right of the Lender. The Borrower shall pay all reasonable expenses incurred by
the Lender in connection with the enforcement of the Loan Documents.

 

ARTICLE VIII

Miscellaneous

 

SECTION
8.01. Consents, Waivers and Modifications. Any term, agreement or
condition of the Loan Documents may be amended, or compliance therewith may be
waived (either generally or in a particular instance and either retroactively
or prospectively), if the Borrower shall have obtained the prior written
consent of the Lender; provided, however, that any waiver shall be effective
only in the specific instance and for the purpose for which given.

 

SECTION
8.02. Survival of Covenants: Successors and Assigns. All covenants,
agreements, representations and warranties made by the Borrower in the Loan
Documents and in certificates or other documents delivered pursuant to the Loan
Documents, regardless of any investigation made by the Lender or on its behalf,
shall survive the execution and delivery of the Loan Documents to the Lender,
and shall continue in full force and effect until the date on which the Loan is
repaid in full.  Anything to the contrary
contained herein notwithstanding, Borrower’s obligation to pay to Lender, in
addition to any other amounts then owing under the Note, a fee in the amount of
ten percent (10.00%) of the face amount of the Loan (i.e., $200,000),
upon a Change of Control transaction prior to November 20, 2010, as provided in
Section 7.01(f), shall continue through the later of repayment of the Loan in
full or November 20, 2010. All such covenants, agreements, representations and
warranties shall be binding upon any successors and assigns of the Borrower.

 

SECTION
8.03. Notices. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when
deposited in the mails, postage prepaid, registered or certified mail, return
receipt requested, or, in the case of telegraphic notice, when delivered to the
telegraph company, charges prepaid, or when sent by courier system providing
for receipt of delivery, addressed as follows or to such other address as may
be hereafter designated in writing by the respective parties hereto:

 

	
  To the Borrower:

  	
   

  	
  First Chester County
  Corporation

  
	
   

  	
   

  	
  9 North High Street

  
	
   

  	
   

  	
  West
  Chester, PA 19380

  
	
   

  	
   

  	
  Attn: John A. Featherman, III,
  Chairman, President & CEO

  
	
   

  	
   

  	
   

  
	
  To the Lender:

  	
   

  	
  Tower Bancorp, Inc.

  
	
   

  	
   

  	
  112 Market Street

  
	
   

  	
   

  	
  Harrisburg, PA 17101

  
	
   

  	
   

  	
  Attn: Carl D. Lundblad,
  General Counsel

  

 

SECTION
8.04. Successors. This
Agreement shall be binding upon and inure to the benefit of the Borrower and
the Lender and their respective successors and assigns, except that neither
party may assign or transfer its rights hereunder without the prior written
consent of the other party.

 

17

 

SECTION
8.05. Construction. This Agreement, and the rights and obligations of
the parties hereunder, shall be governed by, and construed and interpreted in
accordance with, the domestic internal laws of the Commonwealth of Pennsylvania
without regard to its rules pertaining to conflict of laws. The Section headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.

 

SECTION
8.06. Severability. Any provision contained in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

SECTION
8.07. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument, but all of such counterparts taken together shall be
deemed to constitute one and the same instrument.

 

SECTION
8.08. Entire Agreement. The Loan Documents represent the entire
agreement between the Lender and the Borrower with respect to the financing
transactions to which they relate, and cannot be changed or amended except by
an agreement in writing signed by the party against whom enforcement of the change or amendment is sought.

 

[remainder of page intentionally left blank]

 

18

 

IN
WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed
and delivered as of the day and year first above written.

 

	
   

  	
  FIRST CHESTER COUNTY
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John A. Featherman, III

  
	
   

  	
   

  	
  Name: John A. Featherman, III

  
	
   

  	
   

  	
  Title: Chairman, President
  & CEO

  
	
   

  	
   

  	
   

  
	
   

  	
  TOWER BANCORP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Samuel

  
	
   

  	
   

  	
  Name: Andrew Samuel

  
	
   

  	
   

  	
  Title: Chairman, President
  & CEO

  

 

 

EXHIBIT A

 

STOCK PLEDGE AGREEMENT

 

THIS
STOCK PLEDGE AGREEMENT (“Agreement” or “Pledge”) is made and entered into this            day of March, 2010, by and between FIRST
CHESTER COUNTY CORPORATION, a Pennsylvania business corporation having its
principal office at 9 North High Street, West Chester, Pennsylvania 19380 (the “Pledgor”),
and TOWER BANCORP, INC., a Pennsylvania business corporation having an office
at 112 Market Street, Harrisburg, Pennsylvania (the “Pledgee”).

 

Background:

 

A.                                   Pursuant to that
certain Loan Agreement of even date herewith between Pledgor, as borrower, and
Pledgee, as lender, Pledgee has extended to Pledgor a non-revolving line of
credit not to exceed the principal sum of Two Million Dollars ($2,000,000.00)
(the “Loan”).  The Loan is evidenced by a
Promissory Note of even date herewith, as may be amended from time to time, in
the face amount of Four Million Dollars ($2,000,000.00) (the “Note”).

 

B.                                     To induce
Pledgee to provide the Loan to Pledgor, and as security for the payment of all
of Pledgor’s obligations in connection with and/or under the Loan and the Note,
as may be amended, from time to time, and any and all other contracts,
agreements and obligations of Pledgor to Pledgee (collectively, the “Obligations”),
Pledgor desires to pledge to Pledgee 30,000 shares of common stock (“Stock”) of
First National Bank of Chester County (the “Bank”).

 

NOW,
THEREFORE, for and in consideration of the matters recited above, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, Pledgor agrees
as follows:

 

1.                                       Security
Interest.  Pledgor
hereby pledges and grants to Pledgee a security interest in and a second lien
on all of the shares of Stock in the Bank now owned or hereafter acquired by
Pledgor, and all cash, securities and property paid and/or distributed to or
for the benefit of Pledgor or its assignee as a consequence of Pledgor’s
ownership of the Stock, or any portion thereof (collectively, the “Collateral”).
Pledgor hereby represents and warrants to Pledgee that, on the date of this
Agreement, Pledgor owns 30,000 shares of Stock in the Bank, which represents
all of the issued and outstanding shares of common stock of the Bank, free and
clear of any liens, claims and encumbrances, except for a first lien security
interest held by Graystone Tower Bank pursuant to that certain stock pledge
agreement dated November 20, 2009 (the “Graystone Pledge Agreement”).

 

2.                                       Obligations
Secured.  The
Collateral and the continuing security interest granted herein shall secure the
satisfaction in full of all Obligations and all amounts payable under the Note
and Loan Agreement.

 

3.                                       Delivery
of Stock and Assignments.  All original certificates and instruments
representing or evidencing 30,000 shares of Stock owned in the name of Pledgor
have been delivered to Graystone Tower Bank pursuant to the Graystone Pledge
Agreement, shall continue to be held by Graystone Tower Bank on behalf of
Pledgee pursuant hereto, and are in suitable 

 

1

 

form for transfer by
delivery.  Concurrently with the
execution of this Agreement, Pledgor shall deliver to Pledgee duly executed
instruments of transfer or assignments in blank, in such form as Pledgee may
request.

 

4.                                       Covenants.  Pledgor covenants and agrees that until all
Obligations are satisfied and the amounts due and owing under the Note have
been paid in full, Pledgor shall:

 

4.1                                 Sale
of Collateral.  Not sell,
transfer, assign or otherwise dispose of the Collateral, or any portion
thereof, without the prior written consent of Pledgee.

 

4.2                                 Creation
of Liens.  Not create,
incur or permit to exist any pledge, encumbrance, trust, lien, security
interest or charge of any kind on the Collateral, or any portion thereof,
except for that certain first lien on the Collateral granted to Graystone Tower
Bank pursuant to the Graystone Pledge Agreement.

 

4.3                                 Additional
Documents and Future Actions.  Pledgor will take such actions and provide
Pledgee, from time to time, with such agreements, financing statements and
additional instruments, documents or information as Pledgee may reasonably deem
necessary or advisable to perfect, protect and maintain its security interests
in the Collateral or any portion thereof, to permit Pledgee to protect its
interest in the Collateral or any portion thereof, and/or to carry out the
terms hereof.  Pledgor irrevocably
authorizes the filing of carbon, photographic or other copies of this Pledge,
or of a financing statement, as a financing statement, and agrees that such
filing shall be sufficient as a financing statement.

 

4.4                                 Requested
Information.   Pledgor
shall deliver to Pledgee such data and information in respect of the financial
condition and affairs of Pledgor and the value of the Collateral as Pledgee may
request, from time to time.

 

5.                                       Default.  The occurrence of an Event of Default as
defined under the Note or Loan Agreement and/or the failure of Pledgor to
perform any of its obligations hereunder shall constitute a default (“Default”)
hereunder.

 

6.                                       Voting,
Distribution and Other Rights of Pledgor and Pledgee.

 

6.1                                 Prior
to a Default.  So long as
no Default shall have occurred and is continuing, Pledgor shall be entitled to
continue to exercise any and all voting and other rights arising under the
Collateral and to receive and retain any and all dividends, distributions and
interest, declared, distributed or paid, with respect to the Collateral, or any
portion thereof.

 

6.2                                 After
a Default.  Upon a
Default and at all times thereafter, and subject to any superior rights of
Graystone Tower Bank in the Collateral:

 

(a)                                  Voting and
Dividends.  Pledgee
shall be entitled to exercise any and all voting and other consensual rights
arising under the Collateral and to receive and retain any and all dividends,
distributions and interest, declared, distributed or paid, with respect to the
Collateral, or any portion thereof.

 

2

 

(b)                                 Sale of
Collateral.  Pledgee may
exercise in respect of the Collateral any and all of the rights and remedies of
a secured party upon default under the Pennsylvania Uniform Commercial Code. In
addition to the foregoing, Pledgee may accept and take possession and title to
the Stock in full or partial satisfaction of the Obligations then owing by
Pledgor to Pledgee under the Note. 
Pledgee may also sell the Collateral, or any part thereof, in one or
more blocks at public or private sale, at any exchange or otherwise or for
future delivery, and at such price or prices and upon such other terms as are
commercially reasonable. Notwithstanding the foregoing, Pledgee shall not be
obligated to make any sale of Collateral.

 

(c)                                  Application of
Proceeds.  Any cash
held by Pledgee as Collateral and all cash proceeds received by Pledgee in
respect of any sale of, collection from, or other realization upon the
Collateral, or any portion thereof, may be held by Pledgee as Collateral for,
and/or then or at any time after a Default applied in whole or in part by
Pledgee against all or any Obligations and sums owing by Pledgor under the
Note.  Any surplus of such cash or cash
proceeds held by Pledgee and remaining after payment in full of the sums owing
under the Note shall be returned to Pledgor.

 

7.                                       Reasonable
Care.  Pledgee
shall exercise reasonable care in the custody and preservation of the
Collateral in its possession.

 

8.                                       Return
of Collateral.  Upon the satisfaction by the Pledgor of all of its
Obligations under the Note and the termination or full performance of any
agreement, contract or other arrangement as may exist between Pledgor and
Pledgee for the transfer or sale of any of the shares of Stock to Pledgee, this
Agreement and the security interest given in the Collateral shall be
terminated. Within ten (10) days thereof, the Pledgee shall deliver the
Collateral in its possession to Pledgor.

 

9.                                       Miscellaneous.

 

9.1                                 Communications
and Notices. Any notice given pursuant to this Agreement shall
be in writing, and may be telecopied, delivered by hand, mailed by first-class
certified mail, return receipt requested, postage prepaid, or dispatched by
next-day delivery service addressed, if to Pledgor or Pledgee, at the following
addresses, or at such other address as the addressee may designate in writing:

 

If to Pledgor:

 

First Chester County
Corporation

9 North High Street

West Chester, PA 19380

Attn: John A. Featherman, III,
Chairman, President & CEO

 

3

 

If to Pledgee:

 

Tower Bancorp, Inc.

112 Market Street

Harrisburg, PA 17101

Attn:  Carl D. Lundblad, General Counsel

 

Any communications given by
mail in accordance herewith are deemed to have been given three (3) business
days after the date of the mailing, if a domestic mailing, or five (5) business
days after the date of the mailing, if oversees; any communications sent by
next day delivery service are deemed to have been given the day after being
sent; and communications given by any other means are deemed to have been given
when sent or delivered, as the case may be.

 

9.2                                 Severability.  The provisions of this Pledge are deemed to
be severable, and the invalidity or unenforceability of any provision shall not
affect or impair the remaining provisions which shall continue in full force
and effect.

 

9.3                                 Headings.  The headings of the Articles, Sections,
paragraphs and clauses of this Pledge are inserted for convenience only and
shall not be deemed to constitute a part of this Pledge.

 

9.4                                 Binding
Effect.  This Pledge
and all rights and powers granted hereby will bind and inure to the benefit of
the parties hereto and their respective heirs, executors, personal
representatives and permitted successors and assigns, as applicable.

 

9.5                                 Amendment.  No modification of this Pledge shall be
binding or enforceable unless in writing and signed by or on behalf of the
party against whom enforcement is sought.

 

9.6                                 Governing
Law.  This Pledge has been made,
executed and delivered in the Commonwealth of Pennsylvania, United States of
America, and shall be construed in accordance with and governed by the laws of
such State.

 

9.7                                 No
Third-Party Beneficiaries.  The rights and benefits of this Pledge shall
not inure to the benefit of any third party.

 

9.8                                 Counterparts.  This Pledge may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Pledge by signing
any such counterpart.

 

9.9                                 No
Joint Venture.  Nothing
contained herein is intended to permit or authorize Pledgee to make any
contract on behalf of Pledgor, nor shall this Pledge be construed as creating a
partnership, joint venture or making Pledgee an investor in Pledgor.

 

4

 

9.10                           Jurisdiction
and Venue. For the purpose of any suit, action or proceeding
arising out of or relating to this Pledge, Pledgor hereby irrevocably consents
and submits to the jurisdiction and venue of any of the courts of the
Commonwealth of Pennsylvania, United States of America in and for the County of
Dauphin and irrevocably agrees to accept service of process by certified mail,
return receipt requested, postage prepaid, to its address set forth herein, in
lieu of personal service.  Pledgor
irrevocably waives any objection which it may now or hereafter have to the
venue of any such suit, action or proceeding brought in such court and any
claim that such suit, action or proceeding brought in such court has been
brought in an inconvenient forum, and agrees that service of process in
accordance with the foregoing sentence shall be deemed in every respect
effective and valid personal service of process upon Pledgor.  The provisions of this paragraph shall not
limit or otherwise affect the right of Pledgee to institute and conduct an
action in any other appropriate manner, jurisdiction or court.

 

9.11                           Waiver
of Jury Trial.  Pledgor
does hereby waive the right to trial by jury in any action arising hereunder,
or otherwise in connection herewith.

 

9.12                           Indemnification.  Pledgor hereby agrees to indemnify, defend
and hold Pledgee harmless from any loss, expense or damage on account of
anything arising out of or in connection with this Pledge, unless caused solely
by Pledgee’s gross negligence or willful misconduct.  This indemnity shall survive the repayment of
the Note.

 

9.13                           Scrivener.  Each and every provision of this Pledge has
been mutually negotiated, prepared and drafted and, in connection with the
construction of any provision hereof, no consideration shall be given to the
issue of which party actually prepared, drafted, requested, deleted or
negotiated any provision of this Pledge.

 

[remainder of page intentionally left blank]

 

5

 

IN
WITNESS WHEREOF, Pledgor has executed this Pledge as of the day and year first
above written.

 

	
   

  	
  PLEDGOR:

  
	
   

  	
   

  
	
   

  	
  FIRST CHESTER COUNTY
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: John A. Featherman, III

  
	
   

  	
   

  	
  Title: Chairman, President
  & CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PLEDGEE:

  
	
   

  	
   

  	
   

  
	
   

  	
  TOWER BANCORP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Andrew Samuel

  
	
   

  	
   

  	
  Title: Chairman, President
  & CEO

  

 

6

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