Document:

Warrant - Michael Criden - 10-19-05

 

Exhibit 10.11

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (I) IN THE ABSENCE OF (A) EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OR
QUALIFICATION UNDER SAID ACT OR (II) UNLESS SUCH TRANSFER IS MADE PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

SMARTVIDEO TECHNOLOGIES, INC.

WARRANT

Warrant
No.: SCCPN - 03

Number of Shares: 66,667

Date of Issuance: October 19, 2005 (“Issuance Date”)

     SmartVideo Technologies, Inc., a Delaware corporation (the “Company”), hereby certifies that,
for value received, the receipt and sufficiency of which are hereby acknowledged, Michael E.
Criden, the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined
below) then in effect, at any time or times on or after the date hereof, but not after 11:59 p.m.,
New York Time, on the Expiration Date (as defined below), Sixty-six thousand six hundred
sixty-seven (66,667) fully paid nonassessable shares of Common Stock (as defined below) (the
“Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 16. The Warrant Shares shall have piggy-back registration
rights and shall be included in the Company’s next available registration statement wherein such
Warrant Shares are includable.

     1.    EXERCISE OF WARRANT.

     (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this Warrant may
be exercised by the Holder on any day on or after the date hereof, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of the Holder’s election to exercise this Warrant and (ii) (A) payment
to the Company of an amount equal to the applicable Exercise Price multiplied by the number
of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise
Price”) in cash or wire transfer of immediately available funds or (B) by notifying the
Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). Upon exercise in full of this Warrant, the Holder shall deliver the

 

 

original Warrant in order to effect an exercise hereunder, or, in the alternative, an
affidavit of lost instrument in form reasonably satisfactory to the Company. Execution and
delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall
have the same effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or before the
first Business Day following the date on which the Company has received each of the Exercise
Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise) (the “Exercise
Delivery Documents”), the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “Transfer Agent”). On or before the third Business Day following the
date on which the Company has received all of the Exercise Delivery Documents (the “Share
Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in
The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program and if the
Holder is entitled to receive shares not bearing a legend pursuant to Section 2(g) of the
Securities Purchase Agreement, upon the request of the Holder, credit such aggregate number
of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the
Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and dispatch by overnight courier to the
address as specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the
Exercise Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d), the Holder
shall be deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised, irrespective of the
date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is
submitted in connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater than the number
of Warrant Shares being acquired upon an exercise, then the Company shall as soon as
practicable and in no event later than three Business Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to
purchase the number of Warrant Shares purchasable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to
the nearest whole number. The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

     (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$2.00, subject to adjustment as provided herein.

     (c) Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder within three (3) Business Days of
receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common
Stock to which the Holder is entitled and register such shares of Common Stock on the
Company’s share register or to credit the Holder’s balance account with DTC for such number
of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this
Warrant, then, in addition to all other

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remedies available to the Holder, the Company shall pay in cash to the Holder on each
day after such third Business Day that the issuance of such shares of Common Stock is not
timely effected an amount equal to 1.5% of the product of (A) the sum of the number of
            shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is
entitled and (B) the Closing Sale Price of the shares of Common Stock on the trading day
immediately preceding the last possible date which the Company could have issued such shares
of Common Stock to the Holder without violating Section 1(a). In addition to the foregoing,
if within three (3) trading days after the Company’s receipt of the facsimile copy of a
Exercise Notice the Company shall fail to issue and transmit for delivery a certificate to
the Holder and register such shares of Common Stock on the Company’s share register or
credit the Holder’s balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon such holder’s exercise hereunder, and if on or after such
Trading Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the Company (a
“Buy-In"), then the Company shall, within three Business Days after the Holder’s request and
in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Buy-In Price"), at which point the Company’s obligation to
deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or certificates
representing such shares of Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) the Closing Bid Price on the date of exercise.

     (d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if a registration statement covering the Warrant Shares that are the subject of
the Exercise Notice (the “Unavailable Warrant Shares”) is not available for the resale of
such Unavailable Warrant Shares, the Holder may, in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated
to be made to the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

Net
Number = (A x B) – (A x C)

B

For purposes of the foregoing formula:

A= the total number of shares with respect to which this Warrant is then being exercised.

B= the Closing Sale Price of the shares of Common Stock (as reported by Bloomberg) on the
date immediately preceding the date of the Exercise Notice.

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such
exercise.

     (e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 13.

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     (f) Limitations on Exercises. The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this Warrant, to the
extent that after giving effect to such exercise, such Person (together with such Person’s
affiliates) would beneficially own in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which the determination of such sentence is being made, but
shall exclude shares of Common Stock which would be issuable upon (i) exercise of the
remaining, unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form
10-KSB, Form 10-QSB, Current Report on Form 8-K or other public filing with the Securities
and Exchange Commission, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer Agent setting forth the
number of shares of Common Stock outstanding. For any reason at any time, upon the written
or oral request of the Holder, the Company shall within one Business Day confirm orally and
in writing to the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company by the Holder and its
affiliates since the date as of which such number of outstanding shares of Common Stock was
reported.

     2.    ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to time as follows:

          (a)    Adjustment upon Issuance of Common Stock. If and whenever on or after the
Issuance Date, the Company issues or sells, or in accordance with this Section 2 and specifically
excluding the transaction as contemplated between the Company and Lender/Holder and the potential
strategic investment as understood between the Company and Lender/Holder is deemed to have issued
or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding Excluded Securities) for a
consideration per share (the “New Issuance Price”) less than a price (the “Applicable Price”) equal
to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing, a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Exercise
Price then in effect shall be reduced to an amount equal to the New Issuance Price. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the
number of shares of Common Stock determined by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of

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Warrant Shares acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such adjustment. For
purposes of determining the adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

          (i) Issuance of Options. If the Company in any manner grants any Options and the
lowest price per share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share. For purposes of this Section
2(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon exercise
of any such Option or upon conversion, exercise or exchange of any Convertible Securities” shall be
equal to the sum of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

          (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by
the Company at the time of the issuance or sale of such Convertible Securities for such price per
share. For the purposes of this Section 2(a)(ii), the “lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or exchange” shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the Company with respect to
one share of Common Stock upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the actual issuance of such Common
Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue
or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of
this Warrant has been or is to be made pursuant to other provisions of this Section 2(a), no
further adjustment of the Exercise Price or number of Warrant Shares shall be made by reason of
such issue or sale.

          (iii) Change in Option Price or Rate of Conversion. If the purchase price provided
for in any Options, the additional consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exercisable or exchangeable for Common Stock increases or decreases at any
time, the Exercise Price and the number of Warrant Shares in effect at the time of such increase or
decrease shall be adjusted to the Exercise Price and the number of Warrant Shares which would have
been in effect at such time had such Options or Convertible Securities provided for such increased
or decreased purchase price, additional consideration or increased or decreased conversion rate, as
the case may be, at the time initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date
of issuance of this Warrant are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible

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Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the number of Warrant Shares.

          (b) Calculation of Consideration Received. In case any Option is issued in connection
with the issue or sale of other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $0.0001. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Closing Sale Price of such
security on the date of receipt. If any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is attributable to such
Common Stock, Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the Board of Directors of
the Company and the holders of Warrants representing at least a majority of the shares of Common
Stock obtainable upon exercise of the Warrants then outstanding. If such parties are unable to
reach agreement within 10 days after the occurrence of an event requiring valuation (the “Valuation
Event”), the fair value of such consideration will be determined within 15 Business Days after the
tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the holders of Warrants representing at least a majority of the shares of Common
Stock obtainable upon exercise of the Warrants then outstanding. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company. Notwithstanding anything else contained
herein to the contrary, no penalties hereunder shall accrue to the Holder of this Warrant during
the period of time that there is a good faith dispute between the Company and the Holder relating
to the fair value of consideration received by the Company in connection with the issuance of any
Common Stock, Options or Convertible Securities.

          (c) Record Date. If the Company takes a record of the holders of Common Stock for the
purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of the issue or sale of
the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such right of subscription
or purchase, as the case may be.

          (d) Adjustment upon Subdivision or Combination of Common Stock. If the Company at any
time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time after the date of issuance of this Warrant combines (by combination,
reverse stock split or otherwise) one or more classes of its

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outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination will be proportionately increased and the number of
Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or combination becomes
effective.

          (e) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 2 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of the holder of this
Warrant; provided that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.

     3.    RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common
Stock, by way of return of capital or otherwise (including, without limitation, any distribution of
cash, stock or other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any
time after the issuance of this Warrant, then, in each such case:

          (a) any Exercise Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of Common Stock entitled to receive the Distribution shall
be reduced, effective as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the Common Stock on the trading day immediately preceding such record date minus the value
of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to
one share of Common Stock, and (ii) the denominator shall be the Closing Bid Price of the Common
Stock on the trading day immediately preceding such record date; and

          (b) the number of Warrant Shares shall be increased to a number of shares equal to the number
of shares of Common Stock obtainable immediately prior to the close of business on the record date
fixed for the determination of holders of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the event that the Distribution is of common stock (“Other Common Stock”) of a
company whose common stock is traded on a national securities exchange or a national automated
quotation system, then the holder of this Warrant may elect to receive a warrant to purchase Other
Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be exercisable into the number
of shares of Other Common Stock that would have been payable to the holder of this Warrant pursuant
to the Distribution had the holder exercised this Warrant immediately prior to such record date and
with an aggregate exercise price equal to the product of the amount by which the exercise price of
this Warrant was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding paragraph (a) and the number of Warrant Shares calculated in accordance with
the first part of this paragraph (b).

     4.    FUNDAMENTAL TRANSACTIONS. The Company shall not enter into or be party to a
Fundamental Transaction unless (a) the Successor Entity assumes in writing all of the obligations
of the Company under this Warrant and the other Transaction Documents in

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accordance with the provisions of this Section (4) pursuant to written agreements in form and
substance satisfactory to the Required Holders and approved by the Required Holders prior to such
Fundamental Transaction, including agreements to deliver to each holder of Warrants in exchange for
such Warrants a security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation, an adjusted exercise
price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard
to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (b) the Successor Entity (including its Parent Entity) is
a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to,
and be substituted for (so that from and after the date of such Fundamental Transaction, the
provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of the obligations of
the Company under this Warrant with the same effect as if such Successor Entity had been named as
the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or subscription rights) which
the Holder would have been entitled to receive upon the happening of such Fundamental Transaction
had this Warrant been exercised immediately prior to such Fundamental Transaction, as adjusted in
accordance with the provisions of this Warrant. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash,
assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had the Warrant been
exercised immediately prior to such Fundamental Transaction. Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory to the Required
Holders. The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events. Provision made pursuant to the preceding sentence
shall be in a form and substance satisfactory to the Required Holders. The provisions of this
Section shall apply similarly and equally to successive Fundamental Transactions and Corporate

Events and shall be applied without regard to any limitations on the exercise of this Warrant.
Notwithstanding the foregoing, if the Successor Entity is not a publicly traded corporation whose
common stock is quoted on or listed for trading on an Eligible Market, such Successor Entity agrees
to pay the Holder, at the closing of the transactions contemplated by such Fundamental Transaction,
for the outstanding Warrants immediately prior to the effective time of such Fundamental
Transaction and in consideration of the cancellation of each such outstanding Warrant, an amount in
cash determined according to the Black-Scholes Option Pricing Method.

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     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant,
and will at all times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the holder of this Warrant. Without limiting
the generality of the foregoing, the Company (i) will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect,
(ii) will take all such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) will, so long as any of the Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the exercise of the Warrants, 100% of the number of shares of Common Stock
as shall from time to time be necessary to effect the exercise of the Warrants then outstanding
(without regard to any limitations on exercise).

     6. HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein,
no holder, solely in such Person’s capacity as a holder, of this Warrant shall be entitled to vote
or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the holder hereof, solely in such
Person’s capacity as a holder of this Warrant, any of the rights of a shareholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive
notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance
to the holder of this Warrant of the Warrant Shares which such Person is then entitled to receive
upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such holder to purchase any securities (upon exercise of
this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the
Company will provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders.

     7. REISSUANCE OF WARRANTS.

          (a) Transfer of Warrant. If this Warrant is to be transferred, the holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the holder of this Warrant a new Warrant (in accordance with Section 7(d)), registered
as the holder of this Warrant may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of Warrant Shares then
underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to
the holder of this Warrant representing the right to purchase the number of Warrant Shares not
being transferred.

          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
holder of this Warrant to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a
new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.

-9-

 

          (c) Warrant Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the
right to purchase such portion of such Warrant Shares as is designated by the holder of this
Warrant at the time of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

          (d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant
pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this
Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the holder of this
Warrant which, when added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new
Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions
as this Warrant.

     8. NO SHORT TRANSACTIONS. During the term of the Warrant, the Holder, and any Person
who shall have a beneficial ownership interest (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), or a direct or indirect pecuniary interest (within
the meaning of Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) in the
Warrant Shares, shall not, directly or indirectly, make any short sale or maintain any short
position, establish or maintain a “put equivalent position” (within the meaning of Rule 16-a-1(h)
under the Securities Exchange Act of 1934, as amended), enter into any swap, derivative transaction
or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock (whether any such transaction is to be settled by
delivery of Common Stock, other securities, cash or other consideration) or any securities
convertible into, exercisable for or exchangeable for Common Stock of the Company.

     9. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(g) of the
Securities Purchase Agreement. The Company shall provide the holder of this Warrant with prompt
written notice of all actions taken pursuant to this Warrant, including in reasonable detail a
description of such action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the holder of this Warrant (i) immediately upon
any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or distribution upon
the Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property to holders of Common
Stock or (C) for determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be made known to the
public prior to or in conjunction with such notice being provided to such holder.

     10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the holders of Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided

-10-

 

that no such action may increase the exercise price of any Warrant or decrease the number of shares
or class of stock obtainable upon exercise of any Warrant without the written consent of the holder
of this Warrant. No such amendment shall be effective to the extent that it applies to less than
all of the holders of the Warrants then outstanding.

     11. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and performance of this
Warrant shall be governed by, the internal laws of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of Delaware or any
other jurisdictions) that would cause the application of the laws of any jurisdictions other than
the State of Delaware.

     12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and all the Buyers and shall not be construed against any person as the drafter hereof.
The headings of this Warrant are for convenience of reference and shall not form part of, or affect
the interpretation of, this Warrant.

     13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two Business Days of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the holder of
this Warrant. If the holder of this Warrant and the Company are unable to agree upon such
determination or calculation of the Exercise Price or the Warrant Shares within three Business Days
of such disputed determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two Business Days submit via facsimile (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the Company and approved by
the holder of this Warrant or (b) the disputed arithmetic calculation of the Warrant Shares to the
Company’s independent, outside accountant. The Company shall cause at its expense the investment
bank or the accountant, as the case may be, to perform the determinations or calculations and
notify the Company and the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

     14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the holder of this Warrant to pursue actual damages for any failure
by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the holder of this Warrant and that
the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in
addition to all other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being required.

     15. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by Section 2(f) of the
Securities Purchase Agreement.

-11-

 

     16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have
the following meanings:

          (a) “Approved Stock Plan” means any employee benefit plan which has been approved by the Board
of Directors of the Company, pursuant to which the Company’s securities may be issued to any
employee, officer or director for services provided to the Company.

          (b) “Bloomberg” means Bloomberg Financial Markets.

          (c) “Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.

          (d) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or last trade price, respectively, of such security prior
to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 14. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.

          (e) “Common Stock” means (i) the Company’s common stock, par value $0.001 per share, and (ii)
any capital stock into which such Common Stock shall have been changed or any capital stock
resulting from a reclassification of such Common Stock.

          (f) “Convertible Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for Common Stock.

          (g) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the
American Stock Exchange, the Nasdaq National Market or The Nasdaq SmallCap Market.

          (h) “Excluded Securities” means any Common Stock issued or issuable: (i) in connection with
any Approved Stock Plan; (ii) upon exercise of the Warrants; (iii) pursuant to a bona fide “best
efforts” or firm commitment underwritten public offering with a nationally recognized underwriter
which generates gross proceeds to the Company in excess of $25,000,000 (other than an
“at-the-market offering” as defined in Rule 415(a)(4) under the 1933 Act and “equity lines”); (iv)
upon conversion of any Options or Convertible Securities which are

-12-

 

outstanding on the day immediately preceding the Subscription Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or after the Subscription
Date; (v) in connection with acquisitions or strategic investments (including, without limitation,
any licensing or distribution arrangements) approved by the Board of Directors of the Company; or
(vi) securities in amounts that are not material issued to commercial banks or financial
institutions, the primary business of which is not making equity-related loans) or lessors in
connection with commercial credit arrangements, equipment financings or similar transactions, where
the principal consideration for such transaction is not the issuance of such securities.

          (i) “Expiration Date” means the sixty month anniversary of the Issuance Date.

          (j) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii)
allow another Person to make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of either the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase agreement or other
business combination), or (v) reorganize, recapitalize or reclassify its Common Stock.

          (k) “Options” means any rights, warrants or options to subscribe for or purchase Common Stock
or Convertible Securities.

          (l) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

          (m) “Person” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

          (n) “Principal Market” means the OTC Bulletin Board.

          (o) “Required Holders” means the holders of the Warrants representing at least a majority of
shares of Common Stock underlying the Warrants then outstanding.

          (p) “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent
Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

-13-

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date
set out above.

	 	 	 	 	 
	 	SMARTVIDEO TECHNOLOGIES, INC.

 	 
	 	By:  	/s/ Richard E. Bennett, Jr.
 	 
	 	 	Name:  	Richard E. Bennett, Jr. 	 
	 	 	Title:  	President & CEO 	 
	 

-14-

 

	 	 	 	 	 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT

SMARTVIDEO TECHNOLOGIES, INC.

To: SmartVideo Technologies, Inc.

     The undersigned is the holder of Warrant No. ______(the “Warrant”) issued by SmartVideo
Technologies, Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

     1. The Warrant is currently exercisable to purchase a total of _________Warrant
Shares.

     2. The undersigned holder hereby exercises its right to purchase _________Warrant Shares
pursuant to the Warrant.

     3. The Holder intends that payment of the Exercise Price shall be made as:

_________
a “Cash Exercise” with respect to _________Warrant
Shares; and/or

_________
a “Cashless Exercise” with respect to _________Warrant
Shares.

     4. Pursuant to this exercise, the Company shall deliver to the holder _________Warrant
Shares in accordance with the terms of the Warrant.

     5. Following this exercise, the Warrant shall be exercisable to purchase a total of
_________Warrant Shares.

     Please issue the Warrant Shares in the following name and to the following address:

     Issue to: ________________________________________________________________________________________________

     ______________________________________________________________________________________________________

     ______________________________________________________________________________________________________

     Account
Number:
_______________________________________________________________________________________
     (if electronic book entry transfer)

     DTC
Participant Number:
_______________________________________________________________________________________

     (if electronic book entry transfer)

Date: _______________ , ______

_____________________________________________

Name of Registered Holder

	 	 	 	 	 
	 	 	 
	 	By:  	/s/
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

 

 

	 	 	 	 	 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
__________________________ the right represented by the within Warrant to purchase
________ shares of Common Stock of SmartVideo Technologies, Inc. to which the within Warrant
relates and appoints ________________________________ attorney to transfer said right on the books of SmartVideo
Technologies, Inc. with full power of substitution in the premises.

	 	 	 	 	 
	Dated: __________ , _________ 	Registered Holder:

_________________________________________________

(Signature must conform in all respects to name of

holder as specified on the face of the Warrant)

_____________________________________________

Address of Transferee

_____________________________________________

_____________________________________________

 	 
	 	 	 
	 	 	 
	 	 	 
	 

In the presence of:EX-10.17

 

Exhibit
10.17

SECOND AMENDMENT TO TERM LOAN CREDIT AGREEMENT

          This Second Amendment, effective as of September 30, 2005, between Financial Institutions,
Inc. (the “Borrower”), a New York corporation having its head office at 220 Liberty Street, Warsaw,
New York 14569 and Manufacturers and Traders Trust Company (the
“Bank”), a New York banking
corporation having its principal banking office at One M&T Plaza, Buffalo, New York 14203.

WITNESSETH:

          WHEREAS, Bank and Borrower previously entered into a Term Loan Credit Agreement dated as of
December 15, 2003 (the “Original Agreement”); and

          WHEREAS, Bank, at Borrower’s request, amended certain provisions of the Original Agreement,
and the form of Promissory Note executed in connection therewith, in accordance with the provisions
of that certain First Amendment to Term Loan Credit Agreement, dated as of June 15, 2004 (the
Original Agreement, as amended by the First Amendment to Term Loan Credit Agreement, the “Amended
Agreement”); and

          WHEREAS, Bank and Borrower desire to extend the term and further amend the provisions of the
Amended Agreement, and further amend the form of the Promissory Note executed in connection with
the Amended Agreement;

          NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, Bank
and Borrower covenant and agree as follows:

     1. Maturity Date.

          The definition of “Maturity Date” contained in Section 1.1 of the Amended Agreement is hereby
amended in its entirety as follows:

          “Maturity Date. December 15, 2010 or such earlier date on which the Loan is terminated in
accordance with the terms hereof.”

     2. Promissory Note.

          The form of Promissory Note attached to the Amended Agreement is hereby replaced with the form
of Promissory Note attached hereto as Exhibit A (“Replacement Note”), provided that the LIBOR Rate
specified therein shall decrease from 2.00 percentage points above LIBOR to 1.75 percentage points
above LIBOR as of the beginning of the Interest Period immediately following Bank’s receipt of
Borrower’s third quarter 2006 covenant compliance certificate if such certificate accurately states
that that there has been no violation of any of the affirmative covenants contained in Section V of
the Amended Agreement, nor of any of the negative covenants contained in Section VI

-1-

 

of the Amended
Agreement, as further amended by this Second Amendment, and that no
“Event of Default” specified in Section VII of the Amended Agreement, as further amended by
this Second Amendment, nor any event which with notice or lapse of time or both would become such
an Event of Default, has occurred.

     3. Nonperforming Assets Ratio.

          Section 6.7 of the Amended Agreement is hereby deleted and replaced in its entirety as
follows:

          a6.7. Nonperforming Assets to Total Loans and Other Real Estate Ratio. The Borrower
shall not permit its Nonperforming Assets to Total Loans and Other Real Estate Ratio to be greater
than 5.00%. As used in this Section 6.7, “Nonperforming Assets to Total Loans and Other Real
Estate Ratio” means the ratio of (A) “Nonperforming Assets” to (B) the sum of (i) “Total Loans”,
plus (ii) “Other Real Estate”; “Nonperforming Assets” means the Consolidated loans, leases and
other assets of the Borrower that are not accruing interest or are 90 days or more past due in the
payment of principal or interest, plus Consolidated “other real estate owned” by the Borrower
(“Other Real Estate”); and “Total Loans” means the Consolidated principal of loans made by Borrower
to unrelated third parties; in each case as shown on the Consolidated financial statements of
Borrower, prepared in accordance with FFIEC requirements.@

     4. Minimum Tangible Common Equity.

          Section 6.9 of the Amended Agreement is hereby deleted and replaced in its entirety as
follows:

          “6.9. Minimum Tangible Common Equity. The Borrower shall not permit its Tangible Common
Equity to be less than $100,000,000.00, as of 9/30/05 and 12/31/05. The minimum amount of Tangible
Common Equity specified in the immediately preceding sentence shall increase $4,000,000.00 at each
succeeding year end thereafter. By way of example, the minimum Tangible Common Equity shall be
$104,000,000.00 as of 12/31/06, and $108,000,000.00 as of 12/31/07. As used in this Section 6.9,
“Tangible Common Equity” means the difference between (A) the Consolidated stockholder equity in
the Borrower, including, but not limited to, accumulated other comprehensive income accounted for
under FASB 115 as gains or losses on securities held for sale, minus (B) the sum of (i) the
Consolidated preferred stockholder equity in the Borrower, and (ii) the Consolidated goodwill and
intangibles of the Borrower; in each case as shown on the Consolidated financial statements of
Borrower, prepared in accordance with FFIEC requirements.”

     5. Debt Service Coverage Ratio.

          Section 6.10 of the Amended Agreement is hereby deleted and replaced in its entirety as
follows:

          “6.10. Debt Service Coverage Ratio. The Borrower shall not permit, on a “Rolling

-2-

 

Four-Quarter
Basis”, the ratio of (A) the Consolidated net income of the Borrower, during any such fiscal
period, as shown on the Consolidated financial statements of Borrower, prepared in accordance with
FFIEC requirements, to (B) the total of (i) the installments of all principal payable by the
Borrower in connection with any indebtedness or other obligation required to be paid during the
next four fiscal quarters and arising from the borrowing of any money or the deferral of the
purchase price of any asset and (ii) the total interest expense of the Borrower thereon during such
next four fiscal quarters, calculated on the basis of the interest rate(s) applicable to such
principal obligations as of the end of the last fiscal quarter included in the Rolling Four-Quarter
Basis, in each case excluding the one-time costs associated with the Borrower’s consolidation of
it’s four subsidiary banks into one, and as shown on the financial statements of Borrower, prepared
in accordance with FFIEC requirements, to be less than the following for the specified measurement
date:

	 	 	 
	9/30/05

	 	1.25 to 1.00
	12/31/05 through 9/30/06

	 	1.75 to 1.00
	12/31/06 and thereafter

	 	1.35 to 1.00.

The measurements for 9/30/05, 12/31/05 and 3/31/06 shall exclude Borrower’s second quarter 2005
loss of $11,965,000.00. The measurements for 9/30/05, 12/31/05, 3/31/06 and 6/30/06 shall exclude
Borrower’s third quarter 2005 after-tax gain on the sale of assets of $5,539,000.00. As used in
this Section 6.10, “Rolling Four-Quarter Basis” means a basis using the
most recently completed four (4) full consecutive fiscal quarters of Borrower which precede and
include the date on which the Debt Service Coverage Ratio is calculated.”

     6. Limitation on Indebtedness.

          A new Section 6.11 is hereby added to the Amended Agreement, as follows:

          “6.11 Limitation on Indebtedness. Without the Bank’s prior written consent, the Borrower
shall not at any time create, incur or assume, or become or be liable (directly or indirectly) in
respect of, any Indebtedness, other than Indebtedness arising under or contemplated by this
Agreement. For purposes of this Agreement, “Indebtedness” shall mean any obligation of Borrower
which, in accordance with GAAP, would be classified as indebtedness upon Borrower’s balance sheet
including any footnote thereto prepared at such time and, in any event shall include, without
limitation, and without duplication: (i) all indebtedness of arising or incurred under or in
respect of (A) any guaranties (whether direct or indirect) by Borrower of the indebtedness,
obligations or liabilities of any other person or entity, or (B) any endorsement by Borrower of any
of the indebtedness, obligations or liabilities of any other person or entity, or (C) the discount
by Borrower, with recourse to Borrower, of any of the indebtedness, obligations or liabilities of
any other person or entity.”

-3-

 

     7. No Adverse Change.

          A new Section 6.12 is hereby added to the Amended Agreement, as follows:

          “6.12 No Adverse Change. Borrower shall not suffer or permit (i) any change to occur in the
assets, liabilities or financial condition of Borrower which, individually or in the aggregate, are
materially adverse, or (ii) any adverse development in the business or in the operations or
prospects of Borrower.”

     8. Regulatory Enforcement.

          A new Section 6.13 is hereby added to the Amended Agreement, as follows:

          “6.13 Regulatory Enforcement. Neither Borrower nor any of its Material Subsidiaries shall be
subject to any enforcement action by any regulatory body that are unrelated in cause or nature to
the National Bank of Geneva Formal Agreement or the Bath National Bank Formal Agreement, both of
which Formal Agreements were entered into in September 2003 with the Office of the Comptroller of
the Currency.”

     9. Events of Default.

          Section 7.1(b) of the Amended Agreement is hereby deleted and replaced in its entirety
as follows:

          “(b) The Borrower shall fail to perform any term, covenant or agreement contained in Sections
5.1(f), 5.5, 6.2, 6.3, 6.5, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13; or”

     10. Form of CFO Report.

          Exhibit E to the Amended Agreement is hereby deleted in its entirety and replaced with the
Exhibit E attached to this Second Amendment.

     11. Inducement.

          As a material inducement to Bank to enter into this Second Amendment, the Borrower hereby:

	 	(a)	 	agrees that it shall simultaneously execute and deliver to Bank the
Replacement Note, effective as of September 30, 2005;
	 
	 	(b)	 	represents that no “Event of Default” specified in Section VII of
the Amended Agreement, nor any event which with notice or lapse of time or both
would become such an Event of Default, has occurred, except as has been disclosed
to Bank in writing;

-4-

 

	 	(c)	 	covenants that the representations and warranties contained in
Section IV of the Amended Agreement continue to be true and correct in all
respects on and as of the date of this Second Amendment, with the same force and
effect as if made on and as of the date of this Second Amendment;
	 
	 	(d)	 	represents and warrants that there has been no violation of any of
the affirmative covenants contained in Section V of the Amended Agreement, nor
of any of the negative covenants contained in Section VI of the Amended
Agreement, as further amended by this Second Amendment, except as has been
disclosed to Bank in writing;
	 
	 	(e)	 	agrees it shall, upon the consolidation of Borrower’s currently
existing four operating subsidiary banks, execute and deliver a Pledge of
Securities, in the form attached hereto as Exhibit B, whereby Borrower shall
pledge and deliver the stock of Borrower’s surviving consolidated subsidiary
operating bank, as collateral for all indebtedness of Borrower to Bank, now or
hereafter existing and however evidenced; and
	 
	 	(f)	 	agrees it shall pay to Bank a modification fee of $31,250 upon
execution of this Second Amendment, together with Bank’s legal fees arising out
of or in connection with this Second Amendment.

     12. Applicability of Amended Agreement Provisions.

          Except as they may have been specifically amended by this Second Amendment, the terms and
conditions of the Amended Agreement, remain in full force and effect.

     IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed by their duly
authorized officers as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	FINANCIAL INSTITUTIONS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Its:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	MANUFACTURERS AND TRADERS	 	 
	 	 	TRUST COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Its:	 	 	 	 
	 

	 	 	 	 

	 	 

-5-

 

ACKNOWLEDGMENTS

	 	 	 	 	 	 	 
	STATE OF NEW YORK

	 	 	)	 	 	 
	 

	 	 	 	 	 	: ss.
	COUNTY OF                     

	 	 	)	 	 	 

On the                      day of October, in the year 2005, before me, the undersigned, a
Notary Public in and for said State, personally appeared  Ronald A. Miller ,
personally known to me or proved to me on the basis of satisfactory evidence to be the
individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their
signature(s) on the instrument, the individual(s), or the person upon behalf of which the
individual(s) acted, executed the instrument.

                                                                                

Notary Public

	 	 	 	 	 	 	 
	STATE OF                     

	 	 	)	 	 	 
	 

	 	 	 	 	 	: ss.
	COUNTY OF                     

	 	 	)	 	 	 

On the                      day of October, in the year 2005, before me, the undersigned, a
Notary Public in and for said State, personally appeared  Christopher Padgett
, personally known to me or proved to me on the basis of satisfactory evidence to be the
individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their
signature(s) on the instrument, the individual(s), or the person upon behalf of which the
individual(s) acted, executed the instrument.

                                                                                

Notary Public

-6-

 

LIBOR TERM NOTE

New York

			
	Buffalo, New York September 30, 2005
	 	$25,000,000.00

BORROWER: FINANCIAL INSTITUTIONS, INC.

a(n) o individual(s) o partnership x
corporation o trust o                      organized under the laws of New York

Address of residence/chief executive office: 220 Liberty Street, Warsaw, New York 14569

BANK: MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation with its
principal banking office at One M&T Plaza, Buffalo, New York 14240, Attention: Office of General Counsel

1. DEFINITIONS. As used in this Note, each capitalized term shall have the meaning
specified in the Note or as it appears in initial capitalization. Additionally, the following
terms shall have the indicated meanings:

	 	a.	 	“Authorized Person” shall mean, each individually, Ronald A. Miller.
Mention of the Authorized Person’s name is for reference purposes only and the Bank may rely
on a person’s title to ascertain whether someone is an Authorized Person.
	 
	 	b.	 	“Applicable Rated” shall mean either the LIBOR Rate, the Base Rate, or
the Fixed Rate as the case may be.
	 
	 	c.	 	“Adjustment Date” shall mean two (2) Business Days before the last day
of the Interest Period selected below (see LIBOR Rate definition).
	 
	 	d.	 	“Base
Rate”
shall mean 0 percentage points above the
rate of interest announced by the Bank as its prime rate of interest.
	 
	 	e.	 	“Business Day” shall mean any day of the year on which banking
institutions in New York, New York are not authorized or required by law or other
governmental action to close and, in connection with the LIBOR Rate, on which dealings are
carried on in the London interbank market.
	 
	 	f.	 	“Continuation Date” shall mean the last day of each Interest Period.
	 
	 	g.	 	“Conversion Date” shall mean the date on which Borrower’s election to convert the
LIBOR Rate applicable to this Note to a Fixed Rate becomes effective in accordance with
this Note.
	 
	 	h.	 	“Fixed Rate” shall mean  2.00
 
 percentage points above the
most recent yield on the United States Treasury Obligations adjusted to a constant maturity
having a term most nearly corresponding to, but not greater than, the unexpired portion of
the term of this Note, in effect two (2) Business Days prior to the Conversion Date, as
published by the Board of Governors of the Federal Reserve System in the Federal Reserve
Statistical Release H15(519), or by such other quoting service, index or commonly available
source utilized by the Bank, plus the “ask” side of the swap spread most nearly
corresponding to, but not greater than, the unexpired portion of the term of this Note, in
effect two (2) Business Days prior to the Conversion Date, as set forth in Bloomberg, L.P.,
or by such other quoting service, index or commonly available source utilized by the Bank.
	 
	 	i	 	“Interest Period” shall mean, as to the LIBOR Rate, the period
commencing on the date of this Note or Continuation Date (as the case may be) and ending
on, with respect thereto, the numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) of the calendar month that is one (1), two (2), three
(3) or six (6) months thereafter (as selected by Borrower below); provided, however, that
if an Interest Period would end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless such next succeeding Business
Day would fall in the next calendar month, in which case such Interest Period shall end on
the immediately preceding Business Day.
	 
	 	j. 	 	“LIBOR” shall mean the rate per annum (rounded upward, if necessary, to
the nearest 1/16th of 1%) obtained by dividing (i) the one-day, one-month,
two-month,or three-month or six -month interest period London Interbank Offered Rate (as
selected by Borrower) as fixed by the British Bankers Association for United States dollar
deposits in the London Interbank Eurodollar Market at approximately 11:00 a.m. London,
England time (or as soon thereafter as practicable) as determined by the Bank from any
broker, quoting service or commonly available source utilized by the Bank by (ii) a
percentage equal to 100% minus the stated maximum rate of all reserves required to be
maintained against “Eurocurrency Liabilities” as specified in Regulation D (or against any
other category of liabilities which includes deposits by reference to which the interest
rate on LIBOR Rate Loan or Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States’ office of a bank to United
States’ residents) on such date to any member bank of the Federal Reserve System.
Notwithstanding any provision above, the practice of rounding to determine LIBOR may be
discontinued at any time in the Bank’s sole discretion.
	 
	 	k.	 	“LIBOR Rate” shall mean  2.00  percentage points
above LIBOR with an initial Interest Period duration of
o one month, o
two months, x three months or o six months. (Select applicable Interest
Period. If no interest period is selected, the one month interest period shall apply.)
	 
	 	l.	 	“Maturity Date” is the Payment Due Day in  December
, 2010 .
	 
	 	m.	 	“Payment Due Day” shall mean the 15th day of each calendar
month; provided, however, if that day is not a Business Day, the Payment Due Day shall be
extended to the next succeeding Business Day.
	 
	 	n.	 	“Principal Amount” shall mean Twenty-Five Million and 00/100
 Dollars ($ 25,000,000.00 ).

-7-

 

2. PAYMENT OF PRINCIPAL, INTEREST AND EXPENSES.

     a. Promise to Pay. For value received, and intending to be legally bound, Borrower
promises to pay to the order of the Bank on the dates set forth below, the Principal Amount, plus
interest as agreed below and all fees and costs (including without
limitation attorneys’ fees
and disbursements whether for internal or outside counsel) the Bank incurs in order to collect any
amount due under this Note, to negotiate or document a workout or restructuring, or to preserve its
rights or realize upon any guaranty or other security for the payment of this Note
(aExpenses@).

     b. Initial Applicable Rate. The initial Applicable Rate shall be the LIBOR Rate
based on the Interest Period (with the duration selected by Borrower) in effect two (2) Business
Days before the date of this Note. The initial Interest Period shall start on the date of this
Note.

     c. Interest. Interest shall accrue on the outstanding Principal Amount calculated on
the basis of a 360-day year for the actual number of days of each year (365 or 366) at the
Applicable Rate that on each day shall be:

	 	i.	 	If the LIBOR Rate is the Applicable Rate. Interest shall accrue on the Principal
Amount from and including the first day of the Interest Period (with the duration
selected by Borrower) until, but not including, the last day of such Interest Period or
the day the Principal Amount is paid in full (if sooner) at a rate per annum equal to
the LIBOR Rate in effect on the each Adjustment Date.
	 
	 	ii.	 	If the Base Rate is the Applicable Rate. Interest shall accrue on the Principal
Amount from and including the first date the Base Rate is the Applicable Rate to but not
including, the day such Principal Amount is paid in full or the Applicable Rate is
converted to the LIBOR Rate or the Fixed Rate, at the rate per annum equal to the Base
Rate. Any change in the Base Rate resulting from a change in the
Bank’s prime
rate shall be effective on the date of such change.
	 
	 	iii.	 	If the Fixed Rate is the Applicable Rate. Interest shall accrue on the
Principal Amount from and including the first date the Fixed Rate is the Applicable Rate
to but not including, the day such Principal Amount is paid in full, at the rate per
annum equal to the Fixed Rate in effect on the Conversion Date.

     d. Payment Schedule. Borrower shall pay the outstanding Principal Amount in the
following installments: (i) Six Million Two Hundred Fifty Thousand and 00/100 Dollars
($6,250,000.00) on December 15, 2007; (ii) Six Million Two Hundred Fifty Thousand and
00/100 Dollars ($6,250,000.00) on December 15, 2008; (iii) Six Million Two Hundred Fifty
Thousand and 00/100 Dollars ($6,250,000.00) on December 15, 2009; (iv) Six Million Two
Hundred Fifty Thousand and 00/100 Dollars ($6,250,000.00) on December 15, 2010; and (v)
ONE (1) FINAL INSTALLMENT on the Maturity Date in an amount equal to the outstanding Principal
Amount at that time together with all other amounts outstanding hereunder including, without
limitation, accrued interest, costs and Expense. In addition, until the outstanding Principal
Amount is paid in full, Borrower shall pay all accrued and unpaid interest, in amounts which may
vary, as follows: (i) if the LIBOR Rate is the Applicable Rate, on the last day of each Interest
Period; (ii) if the Base Rate is the Applicable Rate, on the Payment Due Date for each month; (iii)
if the Fixed Rate is the Applicable Rate, on the Payment Due Date for each month; and (iv) at
maturity (whether by acceleration or otherwise) and, after such maturity, on demand.

     e. Maximum Legal Rate. It is the intent of the Bank and Borrower that in no event
shall interest be payable at a rate in excess of the maximum rate permitted by applicable law (the
“Maximum Legal Rate”). Solely to the extent necessary to prevent interest under this
Note from exceeding the Maximum Legal Rate, any amount that would be treated as excessive under a
final judicial interpretation of applicable law shall be deemed to have been a mistake and
automatically canceled, and, if received by the Bank, shall be refunded to Borrower.

     f. Default Rate. If an Event of Default (defined below) occurs, the interest rate on
the unpaid Principal Amount shall immediately be automatically increased to 5 percentage points per
year above the higher of the LIBOR Rate or the Base Rate, and any judgment entered hereon or
otherwise in connection with any suit to collect amounts due hereunder shall bear interest at such
default rate.

     g. Repayment of Principal and Interest; Late Charge. Payments shall be made in
immediately available United States funds at any banking office of the Bank. Interest will
continue to accrue until payment is actually received. If payment is not received within five days
of its due date, Borrower shall pay a late charge equal to the greatest of (a) $50.00, (b) 5% of
the delinquent amount or (c) the Bank’s then current late charge as announced from time to time.
Payments may be applied in any order in the sole discretion of the Bank but, prior to default,
shall be applied first to past due interest, Expenses, late charges and principal, then to current
interest, Expenses, late charges and principal, and last to remaining principal.

     h. Prepayment.

	 	i.	 	Subject to the following, during the term of this Note, Borrower shall have the
option of paying the Principal Amount to the Bank in advance of the Maturity Date, in
whole or in part, at any time and from time to time upon written notice received by the
Bank at least three (3) business days prior to making such payment.

	 	(A)	 	If (i) Borrower pays, in whole or in part, any Principal Amount
when the Applicable Rate is the LIBOR Rate, before the expiration of its
respective Interest Rate Period, (ii) fails to draw down, in whole or in part,
any Principal Amount when the Applicable Rate is the LIBOR Rate after giving a
request therefor, (iii) otherwise tries to revoke any LIBOR Rate, in whole or in
part, or (iv) there occurs a “Bankruptcy Event “ as hereinafter defined, or the
Applicable Rate is converted from the LIBOR Rate to the Base Rate pursuant to
Section 3(b), then Borrower shall be liable for and shall pay the Bank, on
demand, the actual amount of the liabilities, expenses, costs or funding losses
that are a direct or indirect result of such prepayment, failure to draw, early
termination of

-8-

 

	 	 	 	an Interest Period, revocation, bankruptcy or otherwise, whether such liability, expense,
cost or loss is by reason of (a) any reduction in yield, by reason of the
liquidation or reemployment of any deposit or other funds acquired by the Bank,
or (b) the fixing of the interest rate payable on any LIBOR Rate Loans. The
determination by the Bank of the foregoing amount shall, in the absence of
manifest error, be conclusive and binding upon Borrower.
	 
	 	(B)	 	If Borrower prepays, in whole or in part, any Principal Amount
when the Applicable Rate is the Fixed Rate, then Borrower shall be liable for and
shall pay to the Bank, on demand, an amount equal to the present value of the
positive difference between (i) the amount of interest that would have accrued on
the Principal Amount during the original remaining term of this Note, at the
Applicable Rate in effect on the date of prepayment, minus 2.00 percentage
points, and (ii) the amount of interest that would have accrued on the Principal
Amount during the original remaining term of this Note at the Current Market
Rate. aCurrent Market Rate@ shall mean the most recent yield on
United States Treasury Obligations adjusted to a constant maturity having a term
most nearly corresponding to, but not greater than, the term remaining from the
date of prepayment to the original Maturity Date, in effect two (2) business days
prior to the date of prepayment as published by the Board of Governors of the
Federal Reserve System in the Federal Reserve Statistical Release H.15 (519), or
by such other quoting service, index or commonly available source utilized by the
Bank, plus the “ask” side of the swap spread most nearly corresponding to, but
not greater than, the term remaining form the date of prepayment to the original
Maturity Date, in effect two (2) Business Days prior to the date of prepayment,
as set forth in Bloomberg, L.P., or by such other quoting service, index or
commonly available source utilized by the Bank. The present value calculation
used herein shall use the Current Market Rate as the discount rate and shall be
calculated as if each installment of the Principal Amount had been made during
the original remaining term of this Note. Each partial prepayment of the
Principal shall be applied in inverse order of maturity.
	 
	 	(C)	 	In addition to any payments due under subparagraphs (A) and (B)
above, Borrower shall be liable for and shall pay to the Bank, at the time of
such prepayment, a premium of one percent (1%) of the amount so prepaid, provided
that Borrower may make such prepayment in an amount of up to $3,000,000.00 per
annum, non-cumulative, on December 15th of each year, commencing
December 15, 2006, without being liable for or required to pay such 1% premium.

	 	ii.	 	Upon making any prepayment of the Principal Amount in whole, Borrower shall pay
to the Bank all interest and Expenses owing pursuant to the Note and remaining unpaid.
Each partial prepayment of the Principal Amount shall be applied in inverse order of
maturity to the principal included in the installments provided herein.
	 
	 	iii.	 	In the event the Maturity Date is accelerated following an Event of Default by
Borrower, any tender of payment of the amount necessary to satisfy the entire
indebtedness made after such Event of Default shall be expressly deemed a voluntary
prepayment. In such a case, to the extent permitted by law, the Bank shall be entitled
to the amount necessary to satisfy the entire indebtedness, plus the appropriate
prepayment premium calculated in accordance with this Section 2(h).

3. CONTINUATIONS AND CONVERSIONS.

     a. Expiration of Interest Period. Subject to Section 3(b) and Section 3(c), upon the
expiration of the first Interest Period and each Interest Period thereafter, on the Continuation
Date the LIBOR Rate will be automatically continued with an Interest Period of the same duration as
the Interest Period duration initially selected by Borrower, unless Borrower shall have delivered
notice to the Bank of Borrower’s selection of an alternative Interest Period, set forth in Section
1(i), by 2:00 p.m. (Eastern Time) at least two (2) Business Days prior to the expiration of the
then applicable Interest Period.

     b. Conversion Upon Default. Unless the Bank shall otherwise consent in writing, if
(i) Borrower has failed to pay when due, in whole or in part, the indebtedness under the Note
(whether upon maturity, acceleration or otherwise), or (ii) there exists a condition or event which
with the passage of time, the giving of notice or both shall constitute an Event of Default, the
Bank, in its sole discretion, may (i) permit the LIBOR Rate to continue until the last day of the
applicable Interest Period at which time such the Applicable Rate shall automatically be converted
to the Base Rate or (ii) convert the LIBOR Rate to the Base Rate before the end of the applicable
Interest Period. Notwithstanding the foregoing, if Borrower commences, or has commenced against
it, any proceeding or request for relief under any bankruptcy, insolvency or similar laws now or
hereafter in effect in the United States of America or any state or territory thereof or any
foreign jurisdiction or any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against or winding up of affairs of Borrower (a “Bankruptcy Event”), the
Applicable Rate shall be automatically converted to the Base Rate without further action by the
Bank and Borrower shall have no right to have the Applicable Rate converted from the Base Rate to
the LIBOR Rate. Nothing herein shall be construed to be a waiver by the Bank to have the Principal
Amount accrue interest at the Default Rate or the right of the Bank to the amounts set forth in
Section 2(h) of this Note.

     c. Conversion To Fixed Rate. During the term of this Note, Borrower shall have a one
(1) time option to convert the Applicable Rate to the Fixed Rate, for the whole of the
then remaining term of this Note and with respect to the then total outstanding Principal Amount,
subject to all of the following conditions:

	 	i)	 	an Authorized Person must deliver to the Bank by 2:00 p.m. (Eastern Time) on a
Business Day a Notice of Conversion (“Notice of Conversion”) for an election under this
Section 3(c) .
	 
	 	ii)	 	The Continuation Date shall be the later of (A) two (2) Business Days from the
Business Day the Bank receives the Notice of Conversion in accordance with the foregoing
Section or (B) the last day of the relevant Interest Period if a Notice of Conversion is
received by the Bank more than two (2) Business Days before the last day of an Interest
Period. If a Notice of Conversion is received after 2:00 p.m. (Eastern Time), the
Notice of Conversion will be deemed to have been received on the next Business Day.
Notice of Conversion received more than two (2) Business Days before the end of an
Interest Period

-9-

 

	 	 	 	shall be deemed to have been received two (2) Business Days before
the end of such Interest Period for purposes of determining the Fixed Rate for the
remaining term of this Note pursuant to Section 1(h). Accordingly, if, for example,
Borrower has a LIBOR Rate Loan with a one month Interest Period ending on June 15 and
wants to convert the LIBOR Rate to the Fixed Rate, Borrower must deliver its Notice of
Conversion to the Bank by 2:00 p.m. (Eastern Time) on June 13 (provided that June 13 and
June 14 are Business Days).
	 
	 	iii)	 	The Bank may take action in reliance upon any oral, telephonic, written or
teletransmitted Notice of Conversion that the Bank in good faith believes to be valid
and to have been made by Borrower or on behalf of Borrower by an Authorized Person. No
Notice of Conversion may be delivered by e-mail. The Bank may act on the Notice of
Conversion from any Authorized Person until the Bank shall have received from Borrower,
and had a reasonable time to act on, written notice revoking the authority of such
Authorized Person. The Bank shall incur no liability to Borrower or to any other person
as a direct or indirect result of acting on any Notice of Conversion under this Note.
The Bank, in its sole discretion, may reject any Notice of Conversion that is
incomplete.
	 
	 	iv)	 	If the Bank shall determine that for any reason adequate and reasonable means do
not exist for ascertaining the Fixed Rate with respect to this Note, the Bank will give
notice of such determination to Borrower and the Applicable Rate shall remain equal to
the interest rate in effect prior to the Notice of Conversion.
	 
	 	v)	 	Nothing herein shall be construed to be a waiver by the Bank of the right to
accrue interest at the default rate, or of any other rights of the Bank set forth in
this Note.

4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower agrees that the
representations and warranties contained in that certain Term Loan Credit Agreement, of even date
herewith, by and between the Borrower and the Bank (the “Term Loan Credit Agreement”), are hereby
incorporated herein by reference as if fully set forth herein, which representations and warranties
shall continue from the date hereof until this Note is paid in full.

5. EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence of an “Event of Default” under
the Term Loan Credit Agreement , the Bank shall be entitled to the remedies set forth in Section
7.2 of the Term Loan Credit Agreement.

6. RIGHT OF SETOFF. After the occurrence of a “Default” as defined in the Term Loan
Credit Agreement, the Bank shall have the right to set off against the amounts owing under this
Note any property held in a deposit or other account with the Bank or any Affiliate or otherwise
owing by the Bank or any Affiliate in any capacity to Borrower or any guarantor or endorser of this
Note. Such set-off shall be deemed to have been exercised immediately at the time the Bank or such
Affiliate elect to do so.

7. INABILITY TO DETERMINE LIBOR RATES, INCREASED COSTS, ILLEGALITY.

     a. Increased Costs. If the Bank shall determine that, due to either (a) the
introduction of any change (other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the LIBOR) in or in the interpretation of any
requirement of law or (b) the compliance with any guideline or request from any central bank or
other governmental authority (whether or not having the force of law), there shall be any increase
in the cost to the Bank of agreeing to make or making, funding or maintaining any loans based on
LIBOR, then Borrower shall be liable for, and shall from time to time, upon demand therefor by the
Bank and pay to the Bank such additional amounts as are sufficient to compensate the Bank for such
increased costs.

     b. Inability to Determine Rates. If the Bank shall determine that for any reason
adequate and reasonable means do not exist for ascertaining LIBOR for the Interest Period specified
above, the Bank will give notice of such determination to Borrower. Thereafter, the Bank may not
maintain the loan hereunder at the LIBOR Rate until the Bank revokes such notice in writing and,
until such revocation, the Bank may convert the Applicable Rate from the LIBOR Rate to the Base
Rate.

     c. Illegality. If the Bank shall determine that the introduction of any law
(statutory or common), treaty, rule, regulation, guideline or determination of an arbitrator or of
a governmental authority or in the interpretation or administration thereof, has made it unlawful,
or that any central bank or other governmental authority has asserted that it is unlawful for the
Bank to make loans at based on LIBOR then, on notice thereof by the Bank to Borrower, the Bank may
suspend the maintaining of the loan hereunder at the LIBOR Rate until the Bank shall have notified
Borrower that the circumstances giving rise to such determination shall no longer exist. If the
Bank shall determine that it is unlawful to maintain the loan hereunder based on LIBOR, the Bank
may convert the Applicable Rate from the LIBOR Rate to the Base Rate.

8. MISCELLANEOUS. This Note, together with any related loan and security agreements and
guaranties, contains the entire agreement between the Bank and Borrower with respect to the Note,
and supersedes every course of dealing, other conduct, oral agreement and representation previously
made by the Bank. All rights and remedies of the Bank under applicable law and this Note or
amendment of any provision of this Note are cumulative and not exclusive. No single, partial or
delayed exercise by the Bank of any right or remedy shall preclude the subsequent exercise by the
Bank at any time of any right or remedy of the Bank without notice. No waiver or amendment of any
provision of this Note shall be effective unless made specifically in writing by the Bank. No
course of dealing or other conduct, no oral agreement or representation made by the Bank, and no
usage of trade, shall operate as a waiver of any right or remedy of the Bank. No waiver of any
right or remedy of the Bank shall be effective unless made specifically in writing by the Bank.
Borrower agrees that in any legal proceeding, a copy of this Note
kept in the Bank’s course
of business may be admitted into evidence as an original. This Note is a binding obligation
enforceable against Borrower and its successors and assigns and shall inure to the benefit of the
Bank and its successors and assigns. If a court deems any provision of this Note invalid, the
remainder of the Note shall remain in effect. Section headings are for convenience only. Borrower
hereby waives protest, presentment and notice of any kind in connection with this Note. Singular
number includes plural and neuter gender includes masculine and feminine as appropriate.

9. NOTICES. Any demand or notice hereunder or under any applicable law pertaining hereto
shall be in writing and duly given if delivered to Borrower (at its
address on the Bank’s
records) or to the Bank (at the address on page one and separately to the Bank officer responsible
for Borrower’s relationship with the Bank). Such notice or demand shall be deemed
sufficiently given for all purposes when

-10-

 

delivered (i) by personal delivery and shall be deemed
effective when delivered, or (ii) by mail or courier and shall be deemed effective three (3)
business days after deposit in an official depository maintained by the United States Post Office
for the collection of mail or one (1) business day after delivery to a nationally recognized
overnight courier service (e.g., Federal Express). Notice by e-mail is not valid notice under this
or any other agreement between Borrower and the Bank.

10. JOINT AND SEVERAL. If there is more than one Borrower, each of them shall be jointly
and severally liable for all amounts which become due under this Note and the term
aBorrower@ shall include each as well as all of them.

11. GOVERNING LAW; JURISDICTION. This Note has been delivered to and accepted by the Bank
and will be deemed to be made in the State of New York. This Note will be interpreted in
accordance with the laws of the State of New York excluding its conflict of laws rules.
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state or federal
court in Erie County, New York; provided that nothing contained in this Note will prevent the Bank
from bringing any action, enforcing any award or judgment or exercising any rights against Borrower
individually, against any security or against any property of Borrower within any other county,
state or other foreign or domestic jurisdiction. Borrower acknowledges and agrees that the
venue provided above is the most convenient forum for both the Bank and Borrower. Borrower waives
any objection to venue and any objection based on a more convenient forum in any action instituted
under this Note.

12. WAIVER OF JURY TRIAL. Borrower and the Bank hereby knowingly, voluntarily, and
intentionally waive any right to trial by jury Borrower and the Bank may have in any action or
proceeding, in law or in equity, in connection with this note or the transactions related hereto.
Borrower represents and warrants that no representative or agent of the Bank has represented,
expressly or otherwise, that the Bank will not, in the event of litigation, seek to enforce this
jury trial waiver. Borrower Acknowledges that the Bank has been induced to enter into this note
by, among other things, the provisions of this Section.

Preauthorized Transfers from Deposit Account. If a deposit account number is provided in the
following blank Borrower hereby authorizes the Bank to debit Borrower’s deposit account #
“XXXXXX” with the Bank automatically for
any amount which becomes due under this Note.

Acknowledgment. Borrower acknowledges that it has read and understands all the provisions of this
Note, including the Governing Law, Jurisdiction and Waiver of Jury Trial, and has been advised by
counsel as necessary or appropriate.

x Replacement Note. This Note is given in replacement of and in substitution for, but not in
payment of, a note dated  December 15, 2003, in the original
principal amount of $25,000,000.00 issued by Borrower to the Bank (or its predecessor in
interest), as the same may have been amended from time to time.

	 	 	 	 	 	 	 
	TAX ID/SS #                                                             	 	 FINANCIAL
INSTITUTIONS, INC.	 	 
	 	 	BORROWER	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	Name: Ronald A. Miller	 	 
	 	 	Its: Senior Vice President & CFO	 	 

ACKNOWLEDGMENT

	 	 	 
	STATE OF NEW YORK)
	 	 
	 

	 	: SS.
	COUNTY OF WYOMING)
	 	 

     On the                      day of October, in
the year 2005 , before me, the undersigned, a Notary Public in and for said State,
personally appeared  Ronald A. Miller , personally known to me or proved to me
on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to
the within instrument and acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the
person upon behalf of which the individual(s) acted, executed the instrument.

	 	 	 	 	 
	 

	 	 

Notary Public
	 	 

#196723v6
 

FOR BANK USE ONLY

Authorization Confirmed:                                                                                                                                                                 

Product Code: 22660

Disbursement of Funds:

	 	 	 	 	 	 	 	 	 	 	 
	Credit A/C      #

	 	 	 	Off Ck      #
	 	 	 	Payoff Obligation      #	 	 
	 

	 	 
	 	 	 	 
	 	 	 

-11-

 

	 	 	 	 	 	 	 	 	 	 	 
	$

	 	 	 	$
	 	 	 	$	 	 
	 

	 	 
	 	 	 	 
	 	 	 	 

-12-

 

PLEDGE
OF SECURITIES

New York

Pledgor: FINANCIAL INSTITUTIONS, INC.

A(n) o individual(s) x corporation o
partnership o                     
organized and registered under the laws of the State of New York

Organizational Identification Number (if any):                      (Note: this number is not
the same as the Taxpayer Identification Number.)

Chief executive office/principal residence: 220 Liberty Street, Warsaw, New York 14569

 

Borrower (if not same as Pledgor):

A(n) o individual(s) o
corporation o partnership o                      organized under the laws of the State of                                         

Chief executive office/principal residence:                 
                                 
                                                                               

 

Bank: Manufacturers and Traders Trust Company (the “Bank”), a New York banking
corporation with its principal office at One M&T Plaza, Buffalo, New York 14240 Attention: Office
of General Counsel.

THIS SECURITY AGREEMENT is granted to the Bank by Pledgor in consideration of and as further
security for payment of the Obligations, and for other valuable consideration, the receipt and
sufficiency of which is acknowledged. Pledgor, intending to be legally bound, agrees with the Bank
as follows:

1. DEFINITIONS. All terms unless otherwise defined in this Agreement shall have the
meanings assigned in the Uniform Commercial Code, as the same may be in effect in the State of New
York, as amended from time to time (“UCC”).

     a. “Brokerage Account” means any securities account or commodity account
included in the Collateral at any time together with all credit balances and money credited to the
account, all investment property carried in the account, and, except as otherwise agreed by the
Bank in writing, all other securities accounts and commodity accounts maintained by Pledgor with
the same Institution.

     b. “Collateral” means collectively, whether now owned or hereafter
acquired or existing and wherever located all Pledgor’s investment property described on
Schedule A, which Pledgor has delivered to the Bank or agrees to deliver (or cause to be delivered
or appropriate book-entries made) or otherwise identified on any
Institution’s books and
records as being subject to the Bank’s security interest, whether or not described in any
schedule delivered to the Bank, together with all Brokerage Accounts and all Income and Proceeds.
In addition, the word
“Collateral” includes all property of Pledgor (however owned) in
the possession of, or subject to the control of, the Bank (or in the possession of, or subject to
the control of, a third party subject to the control of the Bank including any Institution),
whether now owned or hereafter existing and whether tangible or intangible in character.

     c. “Control Agreement” means an agreement, in form and substance
acceptable to the Bank in its sole discretion, among Pledgor, the Bank and an Institution for the
purpose of perfecting the security interest granted to the Bank by Pledgor herein.

     d. Any
of the following events or conditions shall constitute an
“Event of
Default”: (i) the occurrence of an “Event of Default” under that certain Revolving Credit
Agreement, dated April 25, 2001, as amended from time to time (“Revolving Credit Agreement”), or
that certain Term Loan Credit Agreement, dated December 15, 2003, as amended from time to time
(“Term Loan Agreement”), by and between the Pledgor and the Bank; (ii) Pledgor defaults in the
performance of any covenant or other provision with respect to any Control Agreement; or (iii) any
Control Agreement is terminated without the consent of the Bank.

     e. “Income and Proceeds” mean all present and future income, proceeds,
earnings, increases, and substitutions from or for the Collateral of every kind and nature, whether
direct or indirect, including without limitation all payments, interest, profits, distributions,
benefits, rights, options, warrants, dividends, stock dividends, stock splits, stock rights,
regulatory dividends, distributions, subscriptions, monies, claims for money due and to become due,
proceeds of any insurance on the Collateral, shares of stock of different par value or no par value
issued in substitution or exchange for shares included in the Collateral (whether voluntary or
involuntary, by agreement or by operation of law), proceeds of any sale, transfer, surrender,
redemption, exchange or other disposition of the Collateral (whether merger, dissolution or
liquidation of the issuer of the Collateral) and all other property Pledgor is entitled to receive
on account of such Collateral, including accounts, documents, instruments, chattel paper,
investment property, and general intangibles.

     f. “Institution” means any (i) securities intermediary (ii) broker; (iii)
issuer; or (iv) any other entity holding or who has issued any of the Collateral to or on behalf of
Pledgor, including, without limitation, any fiduciary.

     g. “Obligations” means collectively, any and all indebtedness and other
liabilities or obligations of Pledgor (or if Pledgor is a partnership, any general partner of
Pledgor) to the Bank of every kind and character and all extensions, refinancings, renewals,
modifications and replacements thereof, including, without limitation, all unpaid accrued interest
thereon and all of the costs and expenses payable as hereinafter provided: (i) whether now
existing or hereafter incurred; (ii) whether direct, indirect, primary, absolute, secondary,
contractual, tortious, liquidated, unliquidated, contingent, secured, unsecured, matured or
unmatured, by guarantee or otherwise; (iii) whether such indebtedness or obligations are from time
to time reduced and thereafter increased, or entirely extinguished and thereafter reincurred; (iv)
whether such indebtedness was originally contracted with the Bank or with another or others; (v)
whether or not such indebtedness or obligations are evidenced by a negotiable or non-negotiable
instrument or any other writing; (vi) whether such indebtedness is contracted by Pledgor alone or
jointly or severally with another or others; and (vii) all indebtedness incurred prior to, during
or after any filing by or against Pledgor of any petition or request for liquidation,
reorganization, arrangement, adjudication as a bankrupt, relief as a debtor, or other relief under
bankruptcy, insolvency, or similar laws now or hereafter in effect in the United States of America
or any state or territory thereof or any foreign jurisdiction,
notwithstanding Pledgor’s
legal status as a debtor or a debtor-in-possession or Pledgor’s discharge in any such
proceeding. Obligations also include, without limitation, all payments recovered from the Bank such
as sums claimed as impermissible set-offs, diversion of trust funds or as a preference or
fraudulent transfer. Such recovered sums shall be reinstated as Obligations of Pledgor as of the
date they arose, but for purposes of any statute limiting action by the Bank under this Agreement
or relating to the Obligations, as of the date of recovery from the Bank. As used in this Section,
if Pledgor and Borrower are not the same person or entity, then any reference to
“Pledgor”
shall be deemed to include a reference to “Borrower”.

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     h. “Pledgor” means each of the persons or entities identified above as
Pledgor in any capacity, and each legal representative, successor or assign of any thereof.

2. SECURITY INTEREST.

     a. Grant of Security Interest. As security for payment and performance of the
Obligations, Pledgor grants a security interest in, and assigns, pledges and hypothecates to the
Bank all of its rights, title and interest in and to the Collateral, whether now or hereafter
acquired or existing and wheresoever located.

     b. Continuing and Unconditional Pledge. This Agreement is absolute and unconditional
and shall continue, notwithstanding any interim payment in full of the Obligations, until released
in writing by the Bank.

     c. Control Agreement. If any of the Collateral is, or is maintained in, a Brokerage
Account or with an Institution, Pledgor agrees that it shall before, or at the same time as, it has
executed and delivered this Agreement to the Bank, execute and deliver to the Bank, and cause any
Institution at which the Brokerage Account is maintained or any of the Collateral is held to
execute and deliver to the Bank, a Control Agreement. If the Institution refuses to execute a
Control Agreement that is acceptable to the Bank in its sole discretion, Pledgor shall transfer the
Collateral to a Brokerage Account maintained by M&T Securities, Inc. with National Financial
Services Corporation or if the Collateral is in certificated form, cause the Collateral to be
delivered to the Bank, duly endorsed in blank without restrictions and with all signatures
guaranteed with medallion signature guaranty acceptable to the Bank and with all necessary transfer
tax stamps affixed, if applicable. If any of the Collateral is held in a Brokerage Account with
National Financial Services Corporation through M&T Securities, Inc., Pledgor authorizes and
consents to such portion of the Collateral being subject to a Master Control Agreement between the
Bank, National Financial Services Corporation, M&T Securities, Inc. and other Affiliates dated as
of January 1, 1997, as such agreement may be amended, modified or replaced from time to time.
Pledgor acknowledges that such Master Control Agreement provides, among other things, that the Bank
has the ability and right to have such portion of the Collateral sold, transferred or otherwise
disposed of without further action or consent by Pledgor.

     d. Delivery of Certificated and Uncertificated Securities Not in Brokerage Account.
If the Collateral is not maintained in a Brokerage Account, then contemporaneously with the
execution and delivery of this Agreement to the Bank, Pledgor shall:

          i. Certificated Securities. If certificated securities, deliver such
certificated securities to the Bank, duly endorsed in blank without restrictions and with all
signatures guaranteed with medallion signature guaranty acceptable to the Bank and with all
necessary transfer tax stamps affixed.

          ii. Uncertificated Securities. If uncertificated securities, either (x)
procure the issuance of security certificates to represent such uncertificated securities and
endorse and deliver such certificates as required above; (y) cause the issuer thereof to register
the Bank as the registered owner of such uncertificated securities; or (z) cause the issuer of the
uncertificated securities to enter into a Control Agreement with the Bank and Pledgor.

3. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants to the Bank
that now and until this Agreement is terminated:

     a. Enforceability. Pledgor, if an entity, (i) is duly organized, validly existing
and in good standing under the law of the jurisdiction in which it was formed; (ii) is duly
authorized to do business in each jurisdiction in which failure to be so qualified might have a
material adverse effect on its business or assets; and (iii) has the power, authority and approvals
necessary to own the Collateral and grant a security interest in the Collateral under this
Agreement and execute and deliver this Agreement and each Control Agreement (if applicable). This
Agreement and each Control Agreement (if applicable) have been duly executed and delivered by
Pledgor, constitute valid and legally binding obligations of Pledgor and are enforceable in
accordance with their respective terms against Pledgor.

     b. No Conflicts. The execution, delivery and performance by Pledgor of this
Agreement and each Control Agreement (if applicable), the grant of the security interest in the
Collateral hereunder and the consummation of the transactions contemplated hereby and thereby do
not and will not (i) violate any statute, regulation or other law applicable to Pledgor; (ii)
violate any judgment, order or award of any court, agency or other governmental authority or of any
arbitrator applicable to Pledgor; (iii) if an entity, violate
Pledgor’s certificate of
incorporation, by-laws, partnership agreement, operating agreement or other applicable governing
documents; (iv) constitute a default under any agreement binding on Pledgor or result in a lien or
encumbrance on any assets of Pledgor; or (v) violate any restriction on the transfer of any of the
Collateral.

     c. No Consents. No consent, approval, license, permit or other authorization of any
third-party (other than an Institution) or any governmental body or office is required for the
valid and lawful execution and delivery of this Agreement and each Control Agreement, the creation
and perfection of the Bank’s security interest in the Collateral or the valid and lawful
exercise by the Bank of the remedies available to it under this Agreement, any Control Agreement or
applicable law or of the voting and other rights granted to the Bank in this Agreement or any
Control Agreement except as may be required for the offer of sale of those items of the Collateral
that are securities under applicable law.

     d. Sole Owner; No Other Lien. Pledgor is sole record and beneficial owner of the
Collateral free and clear of all liens, security interests, pledges encumbrances and adverse claims
(other than those created under this Agreement), has the unrestricted right to grant the security
interest granted under this Agreement and has granted to the Bank a valid security interest in the
Collateral free of all liens, encumbrances and adverse claims. There are no restrictions
applicable to the transfer of any of the Collateral, unless fully and accurately described in an
exhibit to this Agreement. The Collateral is held or registered in
Pledgor’s legal name.

     e. Brokerage Account. If any of the Collateral is, or is maintained in, a Brokerage
Account, such Brokerage Account is a valid and legally binding obligation of the Institution with
which such Brokerage Account is maintained, the securities entitlements credited thereto are valid
and genuine and are enforceable in accordance with their terms and Pledgor has provided the Bank
with a complete and accurate statement of the financial assets and money credited to such Brokerage
Account as of the date hereof.

     f. Certificates Genuine. If any of the Collateral is certificated securities, each
certificate or other document evidencing such portion of the Collateral is genuine, has been duly
authorized and validly issued by each of the respective Issuers, is in all respects what it
purports to be and is enforceable in accordance with its terms.

     g. Judgments and Litigation. There is no pending or threatened claim, audit,
investigation, action or other legal proceeding or judgment, order or award of any court, agency or
other governmental authority or arbitrator that involves Pledgor or any of the Collateral and might
have a material adverse effect upon, or threaten the validity of, this Agreement or any of the
Collateral. Pledgor shall immediately notify the Bank upon acquiring knowledge of such an action.

     h. Name,
Address and Organizational Information. Pledgor’s full legal name,
its principal residence or its chief executive office (if a business) address, and its state of
registration and organizational identification number (if any) are correctly set forth at the
beginning of this Agreement.

     i. Mutual Funds Held for 30 Days. If any of the Collateral consists of mutual fund
shares or any other interest in a mutual fund, such shares or interest shall have been owned by
Pledgor for more than thirty (30) days prior to the date of this Agreement.

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4. COVENANTS. Pledgor hereby covenants and agrees with the Bank that now and until this
Agreement is terminated Pledgor shall:

     a. Defend Title. Defend its title to the Collateral and the security interest of the
Bank therein against the claims of any person claiming rights in the Collateral against or through
Pledgor and maintain and preserve such security and its priority.

     b. Intentionally omitted.

     c. No Transfer. Neither sell, offer to sell nor otherwise transfer or encumber any
of the Collateral and if any of the Collateral is, or is in, a Brokerage Account or subject to a
Control Agreement, withdraw any money or property from such Brokerage Account or enter into a
control agreement with any third-party relating to the foregoing. If any of the Collateral is, or
is maintained in, a Brokerage Account, this provision shall not prohibit Pledgor from making
trades in such Brokerage Account before the occurrence of an Event of Default provided that (i) the
Bank has agreed in a writing (acceptable to the Bank in its sole discretion), signed by a duly
authorized officer of the Bank and the Institution, that Pledgor is authorized to engage in such trading; (ii) the proceeds
of such trades remain in the Brokerage Account; and (iii) the trades do not have a material adverse
effect on the value of all or any part of the Collateral and are not otherwise inconsistent with
the provisions of this Agreement or any Control Agreement.

     d. Control and Customer Agreements. If the Collateral is held in a Brokerage
Account, neither attempt to modify or attempt to terminate any Control Agreement or the customer
agreement with the Institution under which such Brokerage Account was established.

     e. Later Deliveries. Pledgor shall promptly deliver or transfer to the Bank (with
respect to any of the Collateral in the physical possession of the Bank) or to an Institution (with
respect to any of the Collateral held by such Institution) for credit to the Brokerage Account
and/or coverage by the Control Agreement with such Institution, such portion of the Collateral
(including, without limitation, any certificate or instrument constituting or representing such
portion of the Collateral and any replacement or related certificates or instruments, transaction
statements, option contracts, warrants or related documents evidencing transactions or proceeds
thereof) that Pledgor may obtain possession of after the date hereof, free and clear of all liens,
encumbrances, transfer restrictions and adverse claims so that the Bank has a first priority
interest in such portion of the Collateral. All such certificates, instruments and the like shall
be duly endorsed in blank without restriction and with all signatures guaranteed with a medallion
signature guaranty acceptable to the Bank. Until such delivery or transfer, Pledgor shall hold
each such item in trust for the Bank.

     f. Recordkeeping and Financial Statements. Maintain, or cause each agent to
maintain, accurate and complete records in conformity with generally accepted accounting principles
consistently applied and furnish to the Bank financial statements in accordance with the Term Loan
Agreement.

     g. Taxes to be Paid. Pay when due every tax, assessment, fee and charge and file
each report required by any taxing authority for Pledgor or its assets, including without
limitation the Collateral.

     h. Intentionally omitted..

     i. Notice of Changes. Immediately notify the Bank of (i) any Event of Default; (ii)
any event or condition that might have a material adverse effect upon Pledgor (or Borrower, if not
same) the Institution, the value of the Collateral or the security interest of the Bank; or (iii)
any encumbrance upon or claim asserted against any of the Collateral. Pledgor shall notify the
Bank at least ninety (90) days in advance of any change in (i) the name, identity or structure of
Pledgor (or Borrower, if not same) or (ii) the location of (A) any of the Collateral, (B) any
record concerning any of the Collateral, or (C) Pledgor’s (or Borrower’s, if not same)
state of registration, chief executive office or principal residence.

     j. Intentionally omitted.

     k. Further Assurances.

          i. At Pledgor’s expense, Pledgor shall do such further acts and execute and
deliver to the Bank all such additional conveyances, financing statements, certificates, stock or
bond powers, instruments, legal opinions and other assurances as the Bank may from time to time
request or require to protect, assure or enforce its interests, rights and remedies under this
Agreement. All endorsements must be in blank without restriction and with all signatures
guaranteed with a medallion signature guaranty acceptable to the Bank.

          ii. Pledgor will promptly deliver to the Bank (with respect to any of the Collateral
in the physical possession of the Bank) or to an Institution (with respect to any of the Collateral
held by such Institution), all endorsements and instruments that could be necessary or convenient
to transfer any financial asset in the physical possession of the Bank or an Institution, that are
registered in the name of, payable to the order of or specially endorsed to Pledgor, to such
Institution or one of their respective nominees.

5. POWER OF ATTORNEY, IRREVOCABLE PROXY.

     a. Pledgor irrevocably and unconditionally appoints the Bank as its attorney-in-fact
with full power to perform in the name of Pledgor each of Pledgor’s obligations under this
Agreement or any Control Agreement and take any action or execute any instrument that the Bank
deems necessary or convenient for such purpose including, without limitation, the power to endorse
or execute and deliver all stock or bond powers, pledges, instruments of assignment, certificates,
orders for transfer, financing statements, releases and other writings relating to any of the
Collateral in the Bank’s or Pledgor’s name. Such power of attorney is coupled with an
interest in favor of the Bank, and shall not be terminated or otherwise affected by the death,
bankruptcy, disability or incompetence of Pledgor or by lapse of time. The Bank may receive and
open any mail addressed to Pledgor, retain any enclosure constituting or relating to any of the
Collateral, and take any other action deemed necessary in the Bank’s sole discretion to
perfect or protect the Bank’s interests pursuant to this Agreement or any Control Agreement.
Pledgor authorizes (both prospectively and retroactively) the Bank to file in any public office
financing statements, and any continuations and amendments thereof, regarding any of the Collateral
without the signature of Pledgor. A photocopy or other reproduction of this Agreement or any
financing statement relating to any of the Collateral shall be sufficient as a financing statement.
Pledgor hereby consents and agrees that the issuers of or obligors of the Collateral or any
registrar or transfer agent or trustee for any of the Collateral shall be entitled to accept the
provisions hereof as conclusive evidence of the rights of the Bank to effect any transfer pursuant
to this Agreement and the authority granted to the Bank herein, notwithstanding any other notice or
direction to the contrary heretofore or hereafter given by Pledgor or any other person to any of
such issuers, obligors, registrars, transfer agents and trustees.

     b. Pledgor irrevocably consents and appoints the Bank, whether or not any of the
Collateral has been transferred into the name of the Bank or its nominee, as Pledgor’s proxy
with full power, in the same manner, to the same extent and with the same effect as if Pledgor were
to do the same: (i) to attend all meetings of stockholders of the issuer of any financial asset
which comprises the Collateral (the “Company”) held from the date hereof and to vote
such portion of the Collateral at such meeting in such manner as the Bank shall, in its sole
discretion, deem appropriate, including, without limitation, in favor of the liquidation of the
Company; (ii) to consent, in the sole discretion of the Bank, to any and all action by or with
respect to the Company for which the consent of the stockholders of the Company is or may be
necessary or appropriate; and (iii) without limitation, to do all things which Pledgor can or could
do as a stockholder of the Company, giving to the Bank full power of substitution and revocation.
Such proxy shall not be exercisable by the Bank and Pledgor alone shall have the foregoing powers
(whether or not any of the Collateral has been transferred into the name of the Bank or its
nominee) until the occurrence of an Event of Default; provided, however, Pledgor shall not exercise
or, as the case may be, shall not refrain from exercising such rights if, in the Bank’s
judgment, such action would impair or otherwise have a material adverse effect on the value of the
Collateral or would otherwise be inconsistent with this Agreement. The

15

 

Bank, in its sole
discretion, may elect to postpone having such proxy become exercisable notwithstanding the
occurrence of any Event of Default which would otherwise cause such proxy to become exercisable.
Such proxy shall terminate when this Agreement is no longer in full force and effect as hereinafter
provided. Any expenses incurred with the exercise of any of the rights hereunder shall constitute
part of the Obligations.

     c. Pledgor hereby revokes for the duration of this Agreement each power of attorney,
authorization and proxy granted by Pledgor to any other person (other than any Institution acting
as safekeeping agent, if any) with respect to the Collateral.

6. PLEDGOR’S WAIVERS. Neither Pledgor’s obligations under this Agreement nor
Bank’s interest in the Collateral shall be released, impaired or affected in any way by (i)
Pledgor’s (or Borrower’s, if not same) bankruptcy, reorganization or insolvency under
any law or that of any other party, or any action of a trustee in any such proceeding; (ii) failure
of any other party to perform its obligations to the Bank; or (iii) any other circumstance that
might constitute a legal or equitable defense to Pledgor’s (or Borrower’s, if not same)
obligations under this Agreement, including without limitation: (A) any new agreements or
obligations of Pledgor (or Borrower, if not same) with or to the Bank, amendments, changes in rate
of interest, extensions of time for payments, modifications, renewals or the existence of or
waivers of default as to any existing or future agreements of Pledgor (or Borrower, if not same) or
any other party with the Bank; (B) any adjustment, compromise or release of any of the Obligations
by the Bank or any other party; the existence or nonexistence or order of any filings, exchanges,
releases, impairment or sale of any security for the Obligations or any part thereof or the order
in which payments and proceeds of collateral are applied; or acceptance by the Bank of any writing
intended by any other party to create an accord and satisfaction with respect to any of the
Obligations; (C) any delay in or failure to call for, take, hold, continue, collect, preserve or
protect, replace, assign, sell, lease, exchange, convert or otherwise transfer or
dispose of, perfect a security interest in, realize upon or enforce any security interest in any
security for the Obligations or any part thereof, regardless of its value; (D) any exercise, delay
in the exercise or waiver of, any failure to exercise, or any forbearance or other indulgence
relating to, any right or remedy of the Bank against Pledgor (or Borrower, if not same) or other
person or relating to the Obligations, any part thereof or any security for the Obligations; (E)
any fictitiousness, incorrectness, invalidity or unenforceability, for any reason, of any
instrument or other agreement, or act of commission or omission by the Bank or Pledgor (or
Borrower, if not same); (F) any composition, extension, moratoria or other statutory relief granted
to Pledgor (or Borrower, if not same); or (G) any interruption in the business relations between
the Bank and Pledgor (or Borrower, if not same), or any dissolution or change in form of
organization, name or ownership of Pledgor (or Borrower, if not same) or death or declaration of
Pledgor or Borrower (if not same) if an individual as incompetent. Further, Pledgor (or Borrower,
if not same) waives without notice each demand, presentment, protest and other act or thing upon
which any of Pledgor’s (or Borrower’s, if not same) obligations or the Bank’s
rights or remedies pursuant to this Agreement or otherwise would or might be conditioned.

7. INCOME AND PROCEEDS OF THE COLLATERAL.

     a. Cash Income. Until the occurrence of an Event of Default, Pledgor reserves the
right to request to receive all cash income and cash dividends that comprise the Income and
Proceeds (except cash income or cash dividends paid or payable in respect of the total or partial
liquidation or dissolution of an issuer) paid on the Collateral; provided, however, until actually
paid, all rights to such cash income or cash dividends shall remain subject to the Bank’s
security interest granted hereunder. Any other Income and Proceeds shall be delivered to the Bank
immediately upon receipt (but not later than the next business day), in the exact form received and
without commingling with other property which may be received by, paid or delivered to Pledgor or
for Pledgor’s account, whether as an addition to, in discharge of, in substitution of, or in
exchange of any of the Collateral.

     b. Bond Coupons. If the Collateral consists of bonds with coupons, Pledgor
authorizes the Bank to remove all coupons from such bonds when interest is due and send them for
collection on Pledgor’s behalf. The proceeds of such bonds will be applied as directed by
Pledgor in writing. The Bank shall have no responsibility or liability for failure to process such
coupons in a timely fashion. If any coupon is returned unpaid, the Bank may either debit any of
Pledgor’s deposit accounts with the Bank or reverse the loan credit, as appropriate, in the amount
of each such coupon previously credited, plus the Bank expenses incurred in the attempted
collection. If Pledgor’s deposit accounts have insufficient funds to pay any or all such
amounts, each such unpaid amount shall be added to the Obligations, and shall be secured by the
Collateral.

     c. Cash Income After Event of Default. Upon the occurrence of an Event of Default,
Pledgor shall not demand or receive any cash income or cash dividends with regard to the
Collateral, and if Pledgor receives any such cash income or cash dividends, the same shall be held
by Pledgor in trust for the Bank in the same medium in which received, shall not be commingled with
any assets of Pledgor and shall be delivered to the Bank in the form received, properly endorsed to
permit collection, not later than the next business day following the day of its receipt. The Bank
may apply the net cash receipts from such income or cash dividends to payment of the Obligations or
any part thereof, provided that the Bank shall account for and pay over to Pledgor any such income
or interest remaining after payment in full of the Obligations.

     d. Increases and Profits. Whether or not an Event of Default has occurred, Pledgor
authorizes the Bank to receive Income and Proceeds on the Collateral and to hold the same as part
of the Collateral and agrees to deliver the Income and Proceeds (except as provided in 7(a) above)
to the Bank immediately upon receipt (but not later than the next business day), in the exact form
received and without commingling with other property which may be received by, paid or delivered to
Pledgor or for Pledgor’s account, whether as an addition to, in discharge of, in substitution
of, or in exchange of any of the Collateral.

8. ADDITIONAL DUTIES OF PLEDGOR AND RIGHTS OF THE BANK.

     a. Compliance with Securities Laws.

          i. Pledgor has not acquired or transferred any of the Collateral in any manner that
would result in a violation of any applicable law, including without limitation federal and state
securities laws. Pledgor shall execute and deliver or file each form and other writing (including
without limitation any application for exemption or notice of proposed sale pursuant to any
securities laws) and take each other action (including without limitation making public any
non-public material adverse information with respect to the issuer of any Security), that the Bank
deems necessary or desirable to permit the sale or other disposition of any portion of the
Collateral with or without registration. Pledgor shall upon the request of the Bank cause the
Collateral to be registered and take each other action including, without limitation, compliance
with all applicable “blue sky” and other securities laws and regulations to permit
transfer or registration of those items of the Collateral in each jurisdiction which the Bank shall
select; and Pledgor shall execute and deliver in form and substance satisfactory to the Bank its
indemnity of each underwriter of such Security against all of its liabilities, costs and expenses
in connection with the transfer, including attorneys’ fees and disbursements.

          ii. Pledgor acknowledges that compliance with the Securities Act of 1933, as amended,
the rules and regulations thereunder (collectively, the
“Act”) may impose limitations
on the right of the Bank to sell or otherwise dispose of securities included in the Collateral.
For this reason, Pledgor hereby authorizes the Bank to sell any securities included in the
Collateral in such manner and to such person as would, in the sole discretion of the Bank, help to
ensure the prompt transfer or sale of such securities and shall not require any of such securities
to be registered or qualified under any applicable securities law. Without limiting the generality
of the foregoing, in any such event the Bank in its sole discretion may (i) proceed to make a
private sale notwithstanding that a registration statement for the purpose of registering any of
such securities could be or shall have been filed under the Act; (ii) approach and negotiate with a
single possible purchaser to effect such sale; (iii) restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for investment and not
with a view to the distribution or sale of any of such securities; or (iv) require that any sale
hereunder (including a sale at auction) be conducted subject to restrictions (A) as to the
financial sophistication and ability of any person permitted to bid or purchase at sale, (B) as to
the content of legends to be placed upon any certificates representing the securities sold in such
sale, including restrictions on future transfer thereof, (C) as to the representations required to
be made by each person bidding or purchasing at such sale relating to that person’s access to
financial information about Pledgor or any issuer of any of such securities, such person’s
intentions as to the holding of any of such securities so sold for investment, for its own account,
and not

- 16 -

 

with a view to the distribution thereof, and (D) as to such other matters as the Bank may,
in its sole discretion, deem necessary or appropriate in order that such sale (notwithstanding any
failure so to register) may be effected in compliance with the UCC and other laws affecting the
enforcement of creditors’ rights under the Act and all applicable state securities laws.
Pledgor understands that a sale under the above circumstances may yield a substantially lower price
for such securities than would otherwise be obtainable if the same were registered and sold in the
open market, and Pledgor shall not attempt to hold the Bank responsible for sale of any of such
securities at an inadequate price even if the Bank accepts the first offer received or if only one
potential purchaser appears or bids at any such sale. If the Bank shall sell any securities
included in the Collateral at a sale, the Bank shall have the right to rely upon the advice and
opinion of any qualified appraiser, investment banker or broker as to the commercially reasonable
price obtainable on the sale thereof but shall not be obligated to obtain such advice or opinion.
Pledgor acknowledges that, notwithstanding the legal availability of a private sale or a sale
subject to restrictions of the character described above, the Bank may, in its sole discretion,
elect to seek registration of any securities included in the Collateral under the Act (or any
applicable state securities laws). Pledgor hereby assigns to the Bank any registration rights or
similar rights Pledgor may have from time to time with respect to any securities included in the
Collateral.

     b. Substitution of Collateral. Prior to an Event of Default, Pledgor may request the
Bank in writing to liquidate an item of the Collateral held by the Bank and use the Proceeds
thereof to purchase substitute items of the Collateral. If the Bank grants such request, the items
purchased with the Proceeds shall constitute part of the Collateral without the need for any
additional notice or action by the Bank or Pledgor.

     c. Subsequent Changes Affecting Collateral. Pledgor acknowledges that it has made
its own arrangements for keeping informed of changes or potential changes affecting the Collateral
including, but not limited to, conversions, subscriptions, exchanges, reorganizations, dividends,
tender offers, mergers, consolidations, maturity of bonds or other financial assets and shareholder
meetings. Pledgor agrees that the Bank has no responsibility to inform Pledgor of such matters or
to take any action with respect thereto even if any of the Collateral has been registered in the
name of the Bank or its agent or nominee.

     d. Tax Reporting. All items of income, gain, expense and loss recognized in any
Brokerage Account or any Collateral in the possession of the Bank shall be reported to the Internal
Revenue Service and all state and local taxing authorities under the name and taxpayer
identification number of Pledgor.

     e. Right to Cure. The Bank has the right, but not the obligation, to perform at
Pledgor’s expense any of Pledgor’s obligations with respect to the Collateral under
this Agreement. Further, at its option, the Bank may pay and discharge taxes, liens, securities
interest or other encumbrances on or adverse claim against the Collateral and Pledgor agrees to
reimburse the Bank for any payment made or any expenses incurred (including attorneys’ fees)
by the Bank pursuant to the foregoing.

9. DEFAULT.

     a. Remedies Upon Default. At any time, and from time to time, after the occurrence
or existence of any Event of Default the Bank may take one or more of the following remedies:

          i. Loan Agreements. The Bank shall be entitled to the remedies set forth in Section
7.2 of the Revolving Credit Agreement and Section 7.2 of the Term Loan Agreement.

          ii. Sale of Collateral.

               (1) The Bank may, in its sole discretion, transfer and realize upon its interest in
any portion of the Collateral by public or private sale or otherwise, without notice to Pledgor
including, without limitation, (i) deliver a notice under any Control Agreement to an Institution
for the sale or other disposition of the financial assets in a Brokerage Account, (ii) remove any
financial asset in a Brokerage Account and register such asset in the Bank’s name or the name
of the Bank’s Institution or nominee or any other nominee; (iii) exchange certificates
representing any of the Collateral for certificates of larger or smaller denominations; (iv)
collect, including by legal action, any notes, checks or other instruments for the payment of money
included in the Collateral and compromise or settle with any obligor of any such instrument.

               (2) If notice of the time and place of any public sale of any of the Collateral or
the time after which any private sale or other intended disposition thereof is required by the UCC,
Pledgor acknowledges that five (5) days advance notice shall constitute reasonable notice. The
Bank shall not be obligated to make any sale of any of the Collateral regardless of notice of sale
having been given. The Bank may adjourn any public or private sale from time to time by announcing
at the time and place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.

               (3) If, under the UCC, the Bank may purchase any portion of the Collateral, it may in
payment of any part of the purchase price thereof, cancel any part of the Obligations.

               (4) If any portion of the Collateral is sold on credit or for future delivery, it
need not be retained by the Bank until the purchase price is paid and the Bank shall incur no
liability if the purchaser fails to take up or pay for such portion of the Collateral. In case of
any such failure, such portion of the Collateral may be sold again.

               (5) Pledgor shall execute and deliver to the purchasers of any portion of the
Collateral all instruments and other documents necessary or proper to sell, convey and transfer
title to such portion of the Collateral and, if approval of any sale of such portion of the
Collateral by any governmental body or officer is required, Pledgor shall prepare or cooperate
fully in the preparation of and cause to be filed with such governmental body or officer all
necessary or proper applications, reports, registration statements and forms and do all other
things necessary or proper to expeditiously obtain such approval.

          iii. Set-off. The Bank shall have the right but not the obligation to set off
against the Obligations any amount owing by the Bank or any of its Affiliates in any capacity to
any Pledgor in any capacity. Such set-off shall be deemed to have been exercised immediately at
the time the Bank or such Affiliate elect to do so.

          iv. Termination of Commitments. Any commitment of the Bank to grant any financial
accommodation to Pledgor (or Borrower, if not same) shall terminate.

     b. Application of Proceeds. Any cash held by the Bank as part of the Collateral and
all cash Proceeds of any sale of, collection from or other realization upon any portion of the
Collateral may, in the sole discretion of the Bank, be held by the Bank as collateral for, or then
or at any time be applied, after payment of the Bank’s Costs (defined below), in whole or in
part against, the Obligations or any part thereof in such order as the Bank may elect, in its sole
discretion. Any surplus of such cash or cash Proceeds held by the Bank and remaining after the
Bank’s Costs and the Obligations have been indefeasibly paid in full shall be paid over to
Pledgor or to whomever may be lawfully entitled to receive such surplus.

     c. Consent to Change Collateral to Book-Entry or Uncertificated Form. Pledgor
authorizes the Bank and each Institution to take, at Pledgor’s expense, all steps necessary
to change to appropriate form each certificated item of the Collateral which is eligible for
safekeeping in uncertificated form, to be maintained in a Brokerage Account subject to a Control
Agreement (if held with an Institution) or to be held by the Bank (subject to the delivery
requirements in Section 2(d) hereof). Pledgor understands that there may be some delay and expense
in release of uncertificated items of the Collateral if Pledgor requires its reissue in
certificated form and that change to book-entry form for U.S. Treasury securities may not be
reversible.

- 17 -

 

     d. Registered Holder of Collateral. Pledgor authorizes the Bank to transfer any of
the Collateral into its own name or that of its nominee so that the Bank or its nominee may appear
on record as the sole owner thereof; provided, however, notwithstanding such a transfer, the Bank
shall refrain from exercising its rights under Section 9 hereof until the occurrence of an Event of
Default.

10. STANDARD OF CARE. Other than the exercise of reasonable care in the custody of the
Collateral in the Bank’s physical possession, the Bank shall have no responsibility or duty
with respect to any of the Collateral or any matter or proceeding arising out of or relating
thereto and shall have no liability to Pledgor (or Borrower, if not same) arising from any failure
or delay by the Bank. The Bank shall be deemed to have exercised reasonable care in the custody
and preservation of any portion of the Collateral which is in its possession if the Bank affords
such portion of the Collateral treatment substantially equal to the treatment that the Bank accords
its own assets of a similar nature; provided, however, that the Bank shall have no duty to sell or
convert any of the Collateral whose market value is declining. In no event shall the Bank be
obligated to (a) preserve any right or remedy of Pledgor against any party with respect to any of
the Collateral; (b) ascertain any maturity, call, exchange, conversion, redemption, offer, tender
or similar matter relating to any of the Collateral or provide notice of any such matter to
Pledgor; or (c) provide to Pledgor any communication received by the Bank or its nominee. Pledgor
acknowledges that Pledgor is not looking to the Bank to provide it with investment advice.

11. COSTS AND EXPENSES; INDEMNITY.

     a. Bank Costs. Pledgor agrees to pay on demand all costs and expenses incurred by
the Bank in enforcing this Agreement, in realizing upon or protecting any of the Collateral
(including preserving the value of any of the Collateral) and in enforcing and collecting any of
the Obligations or any guaranty thereof, including, without limitation, if the Bank retains counsel
for advice, suit, appeal, insolvency or other proceedings under the Federal Bankruptcy Code or
otherwise, or for any of the above purposes, the actual attorneys’ fees incurred by the Bank
(collectively “Bank Costs”). Payment of all Bank Costs is secured by the Collateral.
Bank Costs shall accrue interest at the highest legal rate from the date of demand until payment is
received by the Bank.

     b. Indemnity. Pledgor shall indemnify the Bank and its directors, officers and
employees, agents and attorneys against, and hold them harmless from, all liabilities, costs or
expenses, including attorneys’ fees, incurred by any of them under the corporate or
securities laws applicable to holding, registering or selling any of the Collateral, except for
liability, costs or expenses arising out of the recklessness or willful misconduct of the Bank.

12. MISCELLANEOUS.

     a. Remedies Cumulative; Non-Waiver. The Bank shall have all of the rights and
remedies of a secured party under the UCC and other applicable law as well as those specified by
agreement with Pledgor or Borrower. All rights and remedies of the Bank are cumulative, and no
right or remedy shall be exclusive of any other right or remedy. No single, partial or delayed
exercise by the Bank of any right or remedy shall preclude full and timely exercise at any time of
any right or remedy of the Bank without notice. No course of dealing or other conduct, no oral
agreement or representation made by the Bank, and no usage of trade, shall operate as a waiver of
any right or remedy of the Bank. No waiver of any right or remedy of the Bank shall be effective
unless made specifically in writing by the Bank.

     b. Construction This Agreement and any agreement executed in connection herewith
contains the entire agreement between the Bank and Pledgor with respect to the Collateral, and
supersedes every course of dealing, other conduct, oral agreement and representation previously
made by the Bank. Pledgor expressly disclaims any reliance on any oral representation of the Bank
with respect to the subject matter of this Agreement or otherwise. No change in this Agreement
shall be effective unless made in a writing duly executed by the Bank. This Agreement is a binding
obligation enforceable against Pledgor and its successors and assigns and shall inure to the
benefit of the Bank and its successors and assigns. Each provision of this Agreement shall be
interpreted as consistent with existing law and shall be deemed amended to the extent necessary to
comply with any conflicting law. If a court deems any provision invalid, the remainder of this
Agreement shall remain in effect. Pledgor agrees that, in any legal proceeding, a copy of this
Agreement kept in the course of the Bank’s business may be admitted into evidence as an
original. Unless the context otherwise clearly requires, references to plural includes the singular
and references to the singular include the plural and “or” has the inclusive meaning
represented by the phrase “and/or”. Section headings are for convenience only. Neuter
pronouns shall be construed as masculine or feminine, and singular forms as plural, as appropriate.

     c. Guaranty of Obligations. Solely to the extent required by applicable law to make
the Collateral available for payment of the Obligations, Pledgor guarantees the payment of the
Obligations, without set-off, counterclaim or other deduction and without limitation as to amount.

     d. Waiver of Subrogation. Pledgor hereby waives any claim, right or remedy which
Pledgor may now have or hereafter acquire against Borrower that arises hereunder or from the
performance by Pledgor hereunder including, without limitation, any claim, remedy or right of
subrogation, reimbursement, exoneration, indemnification, contribution or participation in any
claim, right or remedy of the Bank against Borrower or any security which the Bank now has or
hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise.

     e. Notices. Any demand or notice hereunder or under any applicable law pertaining
hereto shall be in writing and duly given if delivered to Pledgor (at its address on the
Bank’s records) or to the Bank (at the address on page one and separately to the Bank officer
responsible for Borrower’s relationship with the Bank). Such notice or demand shall be
deemed sufficiently given for all purposes when delivered (i) by personal delivery and shall be
deemed effective when delivered, or (ii) by mail or courier and shall be deemed effective three (3)
business days after deposit in an official depository maintained by the United States Post Office
for the collection of mail or one (1) business day after delivery to a nationally recognized
overnight courier service (e.g., Federal Express). Notice by e-mail is not valid notice under this
or any other agreement between Pledgor and the Bank.

     f. Joint and Several Liability. If there is more than one Pledgor, each of them
shall be jointly and severally liable pursuant to this Agreement and the term “Pledgor”
shall include each as well as all of them.

     g. Governing Law and Jurisdiction. This Agreement has been delivered to and accepted
by the Bank and will be deemed to be made in the State of New York. Except as otherwise provided
under federal law, this Agreement will be interpreted in accordance with the laws of the State of
New York excluding its conflict of laws rules. PLEDGOR HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT IN ERIE COUNTY, NEW YORK; PROVIDED THAT NOTHING
CONTAINED IN THIS NOTE WILL PREVENT THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR
JUDGMENT OR EXERCISING ANY RIGHTS AGAINST BORROWER INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST
ANY PROPERTY OF BORROWER WITHIN ANY OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION.
Pledgor acknowledges and agrees that the venue provided above is the most convenient forum for
both the Bank and Pledgor. Pledgor waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Agreement.

     h. Waiver of Jury Trial. Pledgor and The Bank hereby knowingly, voluntarily, and
intentionally waive any right to trial by jury Pledgor and The Bank may have in any action or
proceeding, in law or in equity, in connection with this Agreement or the transactions related
hereto. Pledgor represents and warrants that no representative or agent of The Bank has
represented, expressly or otherwise, that The Bank will not, in the event of litigation, seek to
enforce this Jury Trial Waiver. Pledgor acknowledges that The Bank has been induced to enter into
this Agreement by, among other things, the provisions of this section.

- 18 -

 

13. TIN CERTIFICATION. Under penalties of perjury, Pledgor certifies that: (1) the taxpayer number set forth below is
Pledgor’s correct social security or employer identification number (or I am waiting for a number to be issued to me); and (2)
Pledgor is not subject to backup withholding because (a) Pledgor is exempt from backup withholding; (b) Pledgor has not been notified by
the Internal Revenue Service (aIRS@) that it is subject to backup withholding as a result of a failure to report all interest
or dividends; or (c) the IRS has notified Pledgor that it is no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS:
Pledgor must cross out item (2) if it has been notified by the IRS that Pledgor is currently subject to backup withholding because of
under-reporting interest or dividends on Pledgor’s tax return.

(Please
check here o only if you are subject to backup withholding.)

The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.

14. RELEASE OF SECURITY INTEREST, TERMINATION OF PLEDGE. Notwithstanding any other
provision of this Agreement, the Revolving Credit Agreement or the Term Loan Agreement, the Bank
agrees to release the Collateral from the security interest granted hereunder, and terminate this
Agreement in writing, upon the concurrent satisfaction of all of the following conditions:

	 	a.	 	Capitalization. The Pledgor and its subsidiaries, are in compliance with the capital
ratios required by Section 6.8 of the Term Loan Agreement;
	 
	 	b.	 	Net Income. The consolidated net income of the Pledgor, calculated in accordance with
Section 6.10 (A) of the Term Loan Agreement, for the previous four fiscal quarters of the
Pledgor, shall not be less than Twenty Million Dollars ($20,000,000.00);
	 
	 	c.	 	Nonperforming Assets to Total Loans and Other Real Estate Ratio. The Pledgor’s
Nonperforming Assets to Total Loans and Other Real Estate Ratio, calculated in accordance
with Section 6.7 of the Term Loan Agreement, does not exceed 2.0%;
	 
	 	d.	 	Regulatory Enforcement. Neither Pledgor nor any of its subsidiaries is the subject of
any pending or, to Pledgor’s or any of its subsidiaries knowledge, threatened, regulatory
enforcement action, proceeding or investigation; and
	 
	 	e.	 	Other Default. No other default under this Agreement exists.

15. REINSTATEMENT OF SECURITY INTEREST AND PLEDGE. In the event that, after the release
of the security interest granted hereunder and the termination of this Agreement pursuant to
Section 14 hereof, Pledgor shall, at any time during the effective period of the Term Loan
Agreement, fail to satisfy the conditions contained in Section 14 (a) or Section 14(d)
hereof, Pledgor covenants and agrees that it shall promptly execute another pledge of securities,
in substantially the same form as this Agreement and acceptable to the Bank, once again subjecting
the Collateral to a security interest and pledge in favor of the Bank. At Pledgor’s expense,
Pledgor shall do such further acts and execute and deliver to the Bank all such additional
conveyances, financing statements, certificates, stock or bond powers, instruments, legal opinions
and other assurances as the Bank may from time to time request or require to protect, assure or
enforce its interests, rights and remedies under this Section 15. The provisions of this Section 15
shall survive any termination of this Agreement.

Dated:                                                                                 

	 	 	 	 	 	 	 
	TAX ID/SS #                                                                                 	 	FINANCIAL INSTITUTIONS, INC.	 	 
	 	 	PLEDGOR	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	Name: Ronald A. Miller

 

	 	 
	 
	 	 	 	 	 	 
	 	 	Its: Senior Vice President & CFO

 

	 	 

ACKNOWLEDGMENT

	 	 	 
	STATE OF NEW YORK)
	 	 
	 

	 	: SS.
	COUNTY OF WYOMING)
	 	 

     On the                      day of                     , in
the year 20 ___, before me, the undersigned, a Notary Public in and for said State,
personally appeared  Ronald A. Miller , personally known to me or proved to me
on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to
the within instrument and acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the
person upon behalf of which the individual(s) acted, executed the instrument.

	 	 	 	 	 
	 

	 	 

Notary Public
	 	 

- 19 -

 

FINANCIAL INSTITUTIONS, INC.

PLEDGE OF SECURITIES

SCHEDULE A

DESCRIPTION OF PLEDGED SECURITIES

- 20 -

 

EXHIBIT E

FINANCIAL INSTITUTIONS, INC. REPORT OF CHIEF FINANCIAL OFFICER

     Financial Institutions, Inc. (the “Borrower”) hereby certifies that:

     This Report is furnished pursuant to Section 5.1(c) of the Term Loan Credit Agreement dated as
of December 15, 2003, as amended from time to time, and Section 5.1(c) of the Revolving Credit
Agreement dated as of December 15, 2003, as amended from time to time (collectively, the “Credit
Agreements”) between the Borrower and MANUFACTURERS AND TRADERS TRUST COMPANY. Unless otherwise
defined herein, the terms used in this Report have the meanings given to them in the Credit
Agreements.

     As required by Section 5.1(a) and (b) of the Credit Agreements, the Consolidated financial
statements of the Borrower for the [year/quarter] ended                     , 200___(the “Financial
Statements”), prepared in accordance with generally accepted accounting principles consistently
applied, accompany this Report. The Financial Statements present fairly the Consolidated financial
position of the Borrower as at the date thereof and the Consolidated results of operations of the
Borrower for the period covered thereby (subject only to normal recurring year-end adjustments
which will not in the aggregate be material in amount).

     The figures set forth in Schedule A for determining compliance by the Borrower with the
financial covenants contained in Sections 6.7, 6.9 and 6.10 of the Credit Agreements are true and
complete as of the date hereof.

     As of the date hereof, Borrower and its Material Subsidiaries, including any other
federally-insured depository institution that was acquired after December 15, 2003 and prior to the
Maturity Date, have total “Risk-Based Capital Ratios”, “Tier I Risk-Based Capital Ratios”, and
“Leverage Ratios”, as defined in applicable FDIC regulations, as required by Section 6.8 of the
Credit Agreements.

     The activities of the Borrower and its Subsidiaries during the period covered by the Financial
Statements have been reviewed by me as Borrower’s Chief Financial Officer or by employees or agents
of Borrower under my immediate supervision. Based on such review, to my best knowledge and belief,
and as of the date of this Report, no Default has occurred. *

	 	 	 	 	 	 	 	 	 
	 	 	WITNESS my hand this ___ day of                     200___.	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	FINANCIAL INSTITUTIONS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

    Chief Financial Officer
	 	 

 

			
	*	 	If a Default has occurred, this paragraph is to be modified with an appropriate statement as
to the nature thereof, the period of existence thereof and what action the Borrower has taken, is
taking, or proposes to take with respect thereto.

- 21 -

 

SCHEDULE A

to

EXHIBIT E

AFFIRMATIVE (FINANCIAL) COVENANTS

Nonperforming
Assets to Total Loans and Other Real Estate Ratio
(Section 6.7)

	 	 	 	 	 	 	 	 	 	 	 	 	 
	MAXIMUM PERMITTED:	 	5.0	%	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	ACTUAL:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(i)
	 	Non accrual and other loans and
leases past due 90 days or more
and still accruing
	 	$                     	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(ii)
	 	Other real estate owned
	 	$                     	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(iii)
	 	Nonperforming Assets:	 	 	 	 	 	 	 	 
	 

	 	 	 	line (i) plus line(ii)
	 	 	 	 	 	$                     

	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(iv)
	 	Total Loans
	 	 	 	 	 	$                     

	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(v)
	 	Other real estate owned
	 	 	 	 	 	$                     

	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(vi)
	 	Nonperforming Assets to Total Loans	 	 	 	 	 	 	 	 
	 

	 	 	 	and Other Real Estate Ratio:	 	 	 	 	 	 	 	 
	 	 	 	 	[line (iii) divided by (line (iv) plus line (v)] times 100	 	 	 	      %

	 	 	 
	Minimum
Tangible Common Equity (Section 6.9)
	 	 
	 
	 	 
	REQUIRED:

	 	09/30/05 — 12/31/05   $100,000,000
	 

	 	01/01/06 — 12/31/06   $104,000,000
	 

	 	01/01/07 — 13/31/07   $108,000,000
	 

	 	and then similar increases thereafter

ACTUAL:

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(i)
	 	Consolidated stockholders’ equity
	 	 
	 	 
	 	$                     
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	(ii)
	 	Consolidated stockholders’ preferred equity
	 	 	 	 	 	$                     

-22-

 

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(iii)
	 	Consolidated goodwill and intangibles	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	(iv)
	 	Total Tangible Common Equity:	 	 	 	 	 	 
	 

	 	 	 	line (i) minus line (ii) minus line (iii)
	 	 	 	 	 	$                     

	 	 	 	 	 	 	 
	Debt
Service Coverage Ratio (Section 6.10)
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	MINIMUM PERMITTED:

	 	 	 	09/30/05
	 	1.25 : 1.00
	 

	 	12/31/05 —
	 	09/30/06
	 	1.75 : 1.00
	 	 	12/31/06 and thereafter	 	1.35 : 1.00

ACTUAL:

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	(i)
	 	Consolidated net income on
	 	 
	 	 	 	 
	 

	 	 	 	Rolling-Four Quarter Basis*
	 	 	 	 	 	$                     
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	(ii)
	 	Total principal payable by Borrower

during next four fiscal quarters
	 	 	 	 	 	$                     
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	(iii)
	 	Total interest accruing on total

principal payable by Borrower

during next four quarters
	 	 	 	 	 	$                     
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	(iv)
	 	Debt Service Coverage Ratio:	 	 	 	 	 	 
	 

	 	 	 	line (i) divided by [line (ii) plus line (iii)]
	 	 	 	 	 	     :
      1.00

 

			
	*	 	The measurements for 9/30/05, 12/31/05 and 3/31/06 shall exclude Borrower’s second quarter
2005 loss of $11,965,000.00

     WITNESS my hand this ___day of                     , 20___.

	 	 	 	 	 	 	 
	 	 	FINANCIAL INSTITUTIONS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

     Chief Financial Officer
	 	 

- 23 -

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