Document:

Exhibit 10.1

 

UNITED STATES DEPARTMENT OF THE TREASURY

1500 PENNSYLVANIA AVENUE, NW

WASHINGTON, D.C.  20220

 

Dear Ladies
and Gentlemen:

 

The company
set forth on the signature page hereto (the “Company”) intends to issue in a private placement the number
of shares of a series of its preferred stock set forth on Schedule A
hereto (the “Preferred Shares”)
and a warrant to purchase the number of shares of its common stock set forth on
Schedule A hereto (the “Warrant”
and, together with the Preferred Shares, the “Purchased
Securities”) and the United States Department of the Treasury (the “Investor”) intends to purchase from the
Company the Purchased Securities.

 

The purpose of
this letter agreement is to confirm the terms and conditions of the purchase by
the Investor of the Purchased Securities. Except to the extent supplemented or
superseded by the terms set forth herein or in the Schedules hereto, the
provisions contained in the Securities Purchase Agreement — Standard Terms
attached hereto as Exhibit A (the “Securities
Purchase Agreement”) are incorporated by reference herein. Terms
that are defined in the Securities Purchase Agreement are used in this letter
agreement as so defined. In the event of any inconsistency between this letter
agreement and the Securities Purchase Agreement, the terms of this letter
agreement shall govern.

 

Each of the
Company and the Investor hereby confirms its agreement with the other party
with respect to the issuance by the Company of the Purchased Securities and the
purchase by the Investor of the Purchased Securities pursuant to this letter
agreement and the Securities Purchase Agreement on the terms specified on
Schedule A hereto.

 

This letter
agreement (including the Schedules hereto) and the Securities Purchase
Agreement (including the Annexes thereto) and the Warrant constitute the entire
agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties,
with respect to the subject matter hereof. This letter agreement constitutes
the “Letter Agreement” referred to in the Securities Purchase Agreement.

 

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

 

* 
*  *

 

1

 

In witness
whereof, this letter agreement has been duly executed and delivered by the duly
authorized representatives of the parties hereto as of the date written below.

 

	
   

  	
   

  	
  UNITED STATES DEPARTMENT

  
	
   

  	
   

  	
  OF THE  TREASURY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Neel Kashkari

  
	
   

  	
   

  	
  Name:

  	
  Neel Kashkari

  
	
   

  	
   

  	
  Title:

  	
  Interim Assistant Secretary for Financial
  Stability

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HERITAGE COMMERCE CORP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Walter T. Kaczmarek

  
	
   

  	
   

  	
   

  	
   

  	
  Walter T. Kaczmarek

  
	
   

  	
   

  	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  November 21

  	
   

  	
   

  
									

 

2

 

EXHIBIT A

SECURITIES PURCHASE AGREEMENT

 

 

EXHIBIT A

 

 

SECURITIES PURCHASE AGREEMENT

 

STANDARD TERMS

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
  Article I

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Purchase;
  Closing

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Purchase

  	
  1

  
	
  1.2

  	
  Closing

  	
  2

  
	
  1.3

  	
  Interpretation

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  Article II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Representations
  and Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Disclosure

  	
  4

  
	
  2.2

  	
  Representations
  and Warranties of the Company

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  Article III

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Commercially
  Reasonable Efforts

  	
  13

  
	
  3.2

  	
  Expenses

  	
  14

  
	
  3.3

  	
  Sufficiency
  of Authorized Common Stock; Exchange Listing

  	
  14

  
	
  3.4

  	
  Certain
  Notifications Until Closing

  	
  15

  
	
  3.5

  	
  Access,
  Information and Confidentiality

  	
  15

  
	
   

  	
   

  	
   

  
	
   

  	
  Article IV

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Additional
  Agreements

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Purchase for
  Investment

  	
  16

  
	
  4.2

  	
  Legends

  	
  16

  
	
  4.3

  	
  Certain
  Transactions

  	
  18

  
	
  4.4

  	
  Transfer of
  Purchased Securities and Warrant Shares; Restrictions on Exercise of the
  Warrant

  	
  18

  
	
  4.5

  	
  Registration
  Rights

  	
  19

  
	
  4.6

  	
  Voting of
  Warrant Shares

  	
  30

  
	
  4.7

  	
  Depositary
  Shares

  	
  31

  
	
  4.8

  	
  Restriction
  on Dividends and Repurchases

  	
  31

  
	
  4.9

  	
  Repurchase
  of Investor Securities

  	
  32

  
	
  4.10

  	
  Executive
  Compensation

  	
  33

  

 

i

 

 

	
   

  	
  Article V

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Termination

  	
  34

  
	
  5.2

  	
  Survival of Representations
  and Warranties

  	
  34

  
	
  5.3

  	
  Amendment

  	
  34

  
	
  5.4

  	
  Waiver of
  Conditions

  	
  34

  
	
  5.5

  	
  Governing Law: Submission to Jurisdiction, Etc.

  	
  35

  
	
  5.6

  	
  Notices

  	
  35

  
	
  5.7

  	
  Definitions

  	
  35

  
	
  5.8

  	
  Assignment

  	
  36

  
	
  5.9

  	
  Severability

  	
  36

  
	
  5.10

  	
  No Third
  Party Beneficiaries

  	
  36

  

 

ii

 

LIST OF
ANNEXES

 

ANNEX A:                                    FORM OF
CERTIFICATE OF DESIGNATIONS FOR PREFERRED STOCK

 

ANNEX B:                                      FORM OF
WAIVER

 

ANNEX C:                                      FORM OF
OPINION

 

ANNEX D:                                     FORM OF
WARRANT

 

iii

 

INDEX
OF DEFINED TERMS

 

	
  Term

  	
   

  	
  Location
  of

  Definition

  
	
  Affiliate

  	
   

  	
  5.7(b)

  
	
  Agreement

  	
   

  	
  Recitals

  
	
  Appraisal
  Procedure

  	
   

  	
  4.9(c)(i)

  
	
  Appropriate
  Federal Banking Agency

  	
   

  	
  2.2(s)

  
	
  Bankruptcy
  Exceptions

  	
   

  	
  2.2(d)

  
	
  Benefit
  Plans

  	
   

  	
  1.2(d)(iv)

  
	
  Board of
  Directors

  	
   

  	
  2.2(f)

  
	
  Business
  Combination

  	
   

  	
  4.4

  
	
  business day

  	
   

  	
  1.3

  
	
  Capitalization
  Date

  	
   

  	
  2.2(b)

  
	
  Certificate
  of Designations

  	
   

  	
  1.2(d)(iii)

  
	
  Charter

  	
   

  	
  1.2(d)(iii)

  
	
  Closing

  	
   

  	
  1.2(a)

  
	
  Closing Date

  	
   

  	
  1.2(a)

  
	
  Code

  	
   

  	
  2.2(n)

  
	
  Common Stock

  	
   

  	
  Recitals

  
	
  Company

  	
   

  	
  Recitals

  
	
  Company
  Financial Statements

  	
   

  	
  2.2(h)

  
	
  Company
  Material Adverse Effect

  	
   

  	
  2.1(a)

  
	
  Company
  Reports

  	
   

  	
  2.2(i)(i)

  
	
  Company
  Subsidiary; Company Subsidiaries

  	
   

  	
  2.2(i)(i)

  
	
  control;
  controlled by; under common control with

  	
   

  	
  5.7(b)

  
	
  Controlled
  Group

  	
   

  	
  2.2(n)

  
	
  CPP

  	
   

  	
  Recitals

  
	
  EESA

  	
   

  	
  1.2(d)(iv)

  
	
  ERISA

  	
   

  	
  2.2(n)

  
	
  Exchange Act

  	
   

  	
  2.1(b)

  
	
  Fair Market
  Value

  	
   

  	
  4.9(c)(ii)

  
	
  GAAP

  	
   

  	
  2.1(a)

  
	
  Governmental
  Entities

  	
   

  	
  1.2(c)

  
	
  Holder

  	
   

  	
  4.5(k)(i)

  
	
  Holders’
  Counsel

  	
   

  	
  4.5(k)(ii)

  
	
  Indemnitee

  	
   

  	
  4.5(g)(i)

  
	
  Information

  	
   

  	
  3.5(b)

  
	
  Initial
  Warrant Shares

  	
   

  	
  Recitals

  
	
  Investor

  	
   

  	
  Recitals

  
	
  Junior Stock

  	
   

  	
  4.8(c)

  
	
  knowledge of
  the Company; Company’s knowledge

  	
   

  	
  5.7(c)

  
	
  Last Fiscal
  Year

  	
   

  	
  2.1(b)

  
	
  Letter
  Agreement

  	
   

  	
  Recitals

  
	
  Officers

  	
   

  	
  5.7(c)

  
	
  Parity Stock

  	
   

  	
  4.8(c)

  

 

iv

 

	
  Term

  	
   

  	
  Location
  of

  Definition

  
	
  Pending
  Underwritten Offering

  	
   

  	
  4.5(l)

  
	
  Permitted
  Repurchases

  	
   

  	
  4.8(a)(ii)

  
	
  Piggyback
  Registration

  	
   

  	
  4.5(a)(iv)

  
	
  Plan

  	
   

  	
  2.2(n)

  
	
  Preferred
  Shares

  	
   

  	
  Recitals

  
	
  Preferred
  Stock

  	
   

  	
  Recitals

  
	
  Previously
  Disclosed

  	
   

  	
  2.1(b)

  
	
  Proprietary
  Rights

  	
   

  	
  2.2(u)

  
	
  Purchase

  	
   

  	
  Recitals

  
	
  Purchase
  Price

  	
   

  	
  1.1

  
	
  Purchased
  Securities

  	
   

  	
  Recitals

  
	
  Qualified
  Equity Offering

  	
   

  	
  4.4

  
	
  register;
  registered; registration

  	
   

  	
  4.5(k)(iii)

  
	
  Registrable
  Securities

  	
   

  	
  4.5(k)(iv)

  
	
  Registration
  Expenses

  	
   

  	
  4.5(k)(v)

  
	
  Regulatory
  Agreement

  	
   

  	
  2.2(s)

  
	
  Rule 144;
  Rule 144A; Rule 159A; Rule 405; Rule 415

  	
   

  	
  4.5(k)(vi)

  
	
  Schedules

  	
   

  	
  Recitals

  
	
  SEC

  	
   

  	
  2.1(b)

  
	
  Securities
  Act

  	
   

  	
  2.2(a)

  
	
  Selling
  Expenses

  	
   

  	
  4.5(k)(vii)

  
	
  Senior
  Executive Officers

  	
   

  	
  4.10

  
	
  Share
  Dilution Amount

  	
   

  	
  4.8(a)(ii)

  
	
  Shelf
  Registration Statement

  	
   

  	
  4.5(a)(ii)

  
	
  Signing Date

  	
   

  	
  2.1(a)

  
	
  Special
  Registration

  	
   

  	
  4.5(i)

  
	
  Stockholder
  Proposals

  	
   

  	
  3.1(b)

  
	
  Subsidiary

  	
   

  	
  5.8(a)

  
	
  Tax; Taxes

  	
   

  	
  2.2(o)

  
	
  Transfer

  	
   

  	
  4.4

  
	
  Warrant

  	
   

  	
  Recitals

  
	
  Warrant
  Shares

  	
   

  	
  2.2(d)

  

 

v

 

SECURITIES PURCHASE AGREEMENT – STANDARD
TERMS

 

Recitals:

 

WHEREAS, the
United States Department of the Treasury (the “Investor”)
may from time to time agree to purchase shares of preferred stock and warrants
from eligible financial institutions which elect to participate in the Troubled
Asset Relief Program Capital Purchase Program (“CPP”);

 

WHEREAS, an
eligible financial institution electing to participate in the CPP and issue
securities to the Investor (referred to herein as the “Company”) shall enter into a letter
agreement (the “Letter Agreement”)
with the Investor which incorporates this Securities Purchase Agreement –
Standard Terms;

 

WHEREAS, the
Company agrees to expand the flow of credit to U.S. consumers and businesses on
competitive terms to promote the sustained growth and vitality of the U.S.
economy;

 

WHEREAS, the
Company agrees to work diligently, under existing programs, to modify the terms
of residential mortgages as appropriate to strengthen the health of the U.S.
housing market;

 

WHEREAS, the
Company intends to issue in a private placement the number of shares of the
series of its Preferred Stock (“Preferred
Stock”) set forth on Schedule A to the Letter Agreement (the “Preferred Shares”) and a warrant to
purchase the number of shares of its Common Stock (“Common Stock”) set forth on Schedule A to the Letter
Agreement (the “Initial Warrant Shares”)
(the “Warrant” and, together with
the  Preferred Shares, the “Purchased Securities”) and the Investor
intends to purchase (the “Purchase”)
from the Company the Purchased Securities; and

 

WHEREAS, the
Purchase will be governed by this Securities Purchase Agreement – Standard
Terms and the Letter Agreement, including the schedules thereto (the “Schedules”), specifying additional terms
of the Purchase. This Securities Purchase Agreement – Standard Terms (including
the Annexes hereto) and the Letter Agreement (including the Schedules thereto)
are together referred to as this “Agreement”. 
All references in this Securities Purchase Agreement – Standard Terms to
“Schedules” are to the Schedules attached to the Letter Agreement.

 

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

 

Article I

Purchase;
Closing

 

1.1                                 Purchase.
On the terms and subject to the conditions set forth in this Agreement, the
Company agrees to sell to the Investor, and the Investor agrees to purchase
from the Company, at the Closing (as hereinafter defined), the Purchased
Securities for the price set forth on Schedule A (the “Purchase Price”).

 

1

 

1.2                                 Closing.

 

(a)                                  On
the terms and subject to the conditions set forth in this Agreement, the
closing of the Purchase (the “Closing”)
will take place at the location specified in Schedule A, at the time and
on the date set forth in Schedule A or as soon as practicable
thereafter, or at such other place, time and date as shall be agreed between
the Company and the Investor. The time and date on which the Closing occurs is
referred to in this Agreement as the “Closing
Date”.

 

(b)                                 Subject
to the fulfillment or waiver of the conditions to the Closing in this Section 1.2,
at the Closing the Company will deliver the Preferred Shares and the Warrant,
in each case as evidenced by one or more certificates dated the Closing Date
and bearing appropriate legends as hereinafter provided for, in exchange for
payment in full of the Purchase Price by wire transfer of immediately available
United States funds to a bank account designated by the Company on Schedule
A.

 

(c)                                  The
respective obligations of each of the Investor and the Company to consummate
the Purchase are subject to the fulfillment (or waiver by the Investor and the
Company, as applicable) prior to the Closing of the conditions that (i) any
approvals or authorizations of all United States and other governmental,
regulatory or judicial authorities (collectively, “Governmental Entities”) required for the consummation of the
Purchase shall have been obtained or made in form and substance reasonably
satisfactory to each party and shall be in full force and effect and all
waiting periods required by United States and other applicable law, if any,
shall have expired and (ii) no provision of any applicable United States
or other law and no judgment, injunction, order or decree of any Governmental
Entity shall prohibit the purchase and sale of the Purchased Securities as
contemplated by this Agreement.

 

(d)                                 The
obligation of the Investor to consummate the Purchase is also subject to the
fulfillment (or waiver by the Investor) at or prior to the Closing of each of
the following conditions:

 

(i)                                     (A) the
representations and warranties of the Company set forth in (x) Section 2.2(g) of
this Agreement shall be true and correct in all respects as though made on and
as of the Closing Date, (y) Sections 2.2(a) through (f) shall be
true and correct in all material respects as though made on and as of the
Closing Date (other than representations and warranties that by their terms
speak as of another date, which representations and warranties shall be true
and correct in all material respects as of such other date) and (z) Sections
2.2(h) through (v) (disregarding all qualifications or limitations
set forth in such representations and warranties as to “materiality”, “Company
Material Adverse Effect” and words of similar import) shall be true and correct
as though made on and as of the Closing Date (other than representations and
warranties that by their terms speak as of another date, which representations
and warranties shall be true and correct as of such other date), except to the
extent that the failure of such representations and warranties referred to in
this Section 1.2(d)(i)(A)(z) to be so true and correct, individually
or in the aggregate, does not have and would not reasonably be expected to have
a Company Material Adverse Effect and (B) the Company shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing;

 

2

 

(ii)                                  the
Investor shall have received a certificate signed on behalf of the Company by a
senior executive officer certifying to the effect that the conditions set forth
in Section 1.2(d)(i) have been satisfied;

 

(iii)                               the
Company shall have duly adopted and filed with the Secretary of State of its
jurisdiction of organization or other applicable Governmental Entity the
amendment to its certificate or articles of incorporation, articles of
association, or similar organizational document (“Charter”)  in substantially
the form attached hereto as Annex A 
(the “Certificate of Designations”)
and such filing shall have been accepted;

 

(iv)                              (A) the
Company shall have effected such changes to its compensation, bonus, incentive
and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) (collectively, “Benefit Plans”) with respect to its Senior
Executive Officers (and to the extent necessary for such changes to be legally
enforceable, each of its Senior Executive Officers shall have duly consented in
writing to such changes), as may be necessary, during the period that the
Investor owns any debt or equity securities of the Company acquired pursuant to
this Agreement or the Warrant, in order to comply with Section 111(b) of
the Emergency Economic Stabilization Act of 2008 (“EESA”) as implemented by guidance or regulation thereunder
that has been issued and is in effect as of the Closing Date, and (B) the
Investor shall have received a certificate signed on behalf of the Company by a
senior executive officer certifying to the effect that the condition set forth
in Section 1.2(d)(iv)(A) has been satisfied;

 

(v)                                 each
of the Company’s Senior Executive Officers shall have delivered to the Investor
a written waiver in the form attached hereto as Annex B releasing the
Investor from any claims that such Senior Executive Officers may otherwise have
as a result of the issuance, on or prior to the Closing Date, of any
regulations which require the modification of, and the agreement of the Company
hereunder to modify, the terms of any Benefit Plans with respect to its Senior
Executive Officers to eliminate any provisions of such Benefit Plans that would
not be in compliance with the requirements of Section 111(b) of the
EESA as implemented by guidance or regulation thereunder that has been issued
and is in effect as of the Closing Date;

 

(vi)                              the
Company shall have delivered to the Investor a written opinion from counsel to
the Company (which may be internal counsel), addressed to the Investor and
dated as of the Closing Date, in substantially the form attached hereto as Annex
C;

 

(vii)                           the
Company shall have delivered certificates in proper form or, with the prior
consent of the Investor, evidence of shares in book-entry form, evidencing the
Preferred Shares to Investor or its designee(s); and

 

(viii)                        the
Company shall have duly executed the Warrant in substantially the form attached
hereto as Annex D and delivered such executed Warrant to the Investor or
its designee(s).

 

3

 

1.3                                 Interpretation.
When a reference is made in this Agreement to “Recitals,” “Articles,” “Sections,”
or “Annexes” such reference shall be to a Recital, Article or Section of,
or Annex to, this Securities Purchase Agreement — Standard Terms, and a
reference to “Schedules” shall be to a Schedule to the Letter Agreement, in
each case, unless otherwise indicated. The terms defined in the singular have a
comparable meaning when used in the plural, and vice versa. References to “herein”,
“hereof”, “hereunder” and the like refer to this Agreement as a whole and not
to any particular section or provision, unless the context requires otherwise.
The table of contents and headings contained in this Agreement are for reference
purposes only and are not part of this Agreement. Whenever the words “include,”
“includes” or “including” are used in this Agreement, they shall be deemed
followed by the words “without limitation.” No rule of construction
against the draftsperson shall be applied in connection with the interpretation
or enforcement of this Agreement, as this Agreement is the product of
negotiation between sophisticated parties advised by counsel. All references to
“$” or “dollars” mean the lawful currency of the United States of America.
Except as expressly stated in this Agreement, all references to any statute, rule or
regulation are to the statute, rule or regulation as amended, modified,
supplemented or replaced from time to time (and, in the case of statutes, include
any rules and regulations promulgated under the statute) and to any
section of any statute, rule or regulation include any successor to the
section. References to a “business day”
shall mean any day except Saturday, Sunday and any day on which banking
institutions in the State of New York generally are authorized or required by
law or other governmental actions to close.

 

Article II

Representations
and Warranties

 

2.1                                 Disclosure.

 

(a)                                  “Company Material Adverse Effect” means a
material adverse effect on (i) the business, results of operation or
financial condition of the Company and its consolidated subsidiaries taken as a
whole; provided, however, that Company Material Adverse
Effect shall not be deemed to include the effects of (A) changes after the
date of the Letter Agreement (the “Signing
Date”) in general business, economic or market conditions (including
changes generally in prevailing interest rates, credit availability and
liquidity, currency exchange rates and price levels or trading volumes in the
United States or foreign securities or credit markets), or any outbreak or
escalation of hostilities, declared or undeclared acts of war or terrorism, in
each case generally affecting the industries in which the Company and its
subsidiaries operate, (B) changes or proposed changes after the Signing
Date in generally accepted accounting principles in the United States (“GAAP”) or regulatory accounting
requirements, or authoritative interpretations thereof, (C) changes or
proposed changes after the Signing Date in securities, banking and other laws
of general applicability or related policies or interpretations of Governmental
Entities (in the case of each of these clauses (A), (B) and (C), other
than changes or occurrences to the extent that such changes or occurrences have
or would reasonably be expected to have a materially disproportionate adverse
effect on the Company and its consolidated subsidiaries taken as a whole
relative to comparable U.S. banking or financial services organizations), or (D) changes
in the market price or trading volume of the Common Stock or any other equity,
equity-related or debt securities of the Company or its consolidated
subsidiaries (it being understood and agreed that the exception set forth in
this clause (D) does

 

4

 

not apply to the underlying
reason giving rise to or contributing to any such change); or (ii) the
ability of the Company to consummate the Purchase and the other transactions
contemplated by this Agreement and the Warrant and perform its obligations
hereunder or thereunder on a timely basis.

 

(b)                                 “Previously Disclosed” means information
set forth or incorporated in the Company’s Annual Report on Form 10-K for
the most recently completed fiscal year of the Company filed with the
Securities and Exchange Commission (the “SEC”)
prior to the Signing Date (the “Last Fiscal
Year”) or in its other reports and forms filed with or furnished to
the SEC under Sections 13(a), 14(a) or 15(d) of the Securities
Exchange Act of 1934 (the “Exchange Act”)
on or after the last day of the Last Fiscal Year and prior to the Signing Date.

 

2.2                                 Representations
and Warranties of the Company. Except as Previously Disclosed, the Company
represents and warrants to the Investor that as of the Signing Date and as of
the Closing Date (or such other date specified herein):

 

(a)                                  Organization,
Authority and Significant Subsidiaries. The Company has been duly
incorporated and is validly existing and in good standing under the laws of its
jurisdiction of organization, with the necessary power and authority to own its
properties and conduct its business in all material respects as currently
conducted, and except as has not, individually or in the aggregate, had and
would not reasonably be expected to have a Company Material Adverse Effect, has
been duly qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require such
qualification; each subsidiary of the Company that is a “significant subsidiary”
within the meaning of Rule 1-02(w) of Regulation S-X under the
Securities Act of 1933 (the “Securities Act”)
has been duly organized and is validly existing in good standing under the laws
of its jurisdiction of organization.  The
Charter and bylaws of the Company, copies of which have been provided to the
Investor prior to the Signing Date, are true, complete and correct copies of
such documents as in full force and effect as of the Signing Date.

 

(b)                                 Capitalization.
The authorized capital stock of the Company, and the outstanding capital stock
of the Company (including securities convertible into, or exercisable or
exchangeable for, capital stock of the Company) as of the most recent fiscal
month-end preceding the Signing Date (the “Capitalization
Date”) is set forth on Schedule B.  The outstanding shares of capital stock of
the Company have been duly authorized and are validly issued and outstanding,
fully paid and nonassessable, and subject to no preemptive rights (and were not
issued in violation of any preemptive rights). Except as provided in the
Warrant, as of the Signing Date, the Company does not have outstanding any
securities or other obligations providing the holder the right to acquire
Common Stock that is not reserved for issuance as specified on Schedule B,
and the Company has not made any other commitment to authorize, issue or sell
any Common Stock.  Since the
Capitalization Date, the Company has not issued any shares of Common Stock,
other than (i) shares issued upon the exercise of stock options or
delivered under other equity-based awards or other convertible securities or
warrants which were issued and outstanding on the Capitalization Date and disclosed
on Schedule B and (ii) shares disclosed on Schedule B.

 

5

 

(c)                                  Preferred
Shares. The Preferred Shares have been duly and validly authorized, and,
when issued and delivered pursuant to this Agreement, such Preferred Shares
will be duly and validly issued and fully paid and non-assessable, will not be
issued in violation of any preemptive rights, and will rank pari passu with or senior to all other
series or classes of Preferred Stock, whether or not issued or outstanding,
with respect to the payment of dividends and the distribution of assets in the
event of any dissolution, liquidation or winding up of the Company.

 

(d)                                 The
Warrant and Warrant Shares. The Warrant has been duly authorized and, when
executed and delivered as contemplated hereby, will constitute a valid and
legally binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors’ rights generally and general equitable
principles, regardless of whether such enforceability is considered in a
proceeding at law or in equity (“Bankruptcy
Exceptions”). The shares of Common Stock issuable upon exercise of
the Warrant (the “Warrant Shares”)
have been duly authorized and reserved for issuance upon exercise of the
Warrant and when so issued in accordance with the terms of the Warrant will be
validly issued, fully paid and non-assessable, subject, if applicable, to the
approvals of its stockholders set forth on Schedule C.

 

(e)                                  Authorization,
Enforceability.

 

(i)                                     The
Company has the corporate power and authority to execute and deliver this
Agreement and the Warrant and, subject, if applicable, to the approvals of its
stockholders set forth on Schedule C,  to
carry out its obligations hereunder and thereunder (which includes the issuance
of the Preferred Shares, Warrant and Warrant Shares). The execution, delivery
and performance by the Company of this Agreement and the Warrant and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company and its
stockholders, and no further approval or authorization is required on the part
of the Company, subject, in each case, if applicable, to the approvals of its
stockholders set forth on Schedule C. This Agreement is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, subject to the Bankruptcy Exceptions.

 

(ii)                                  The
execution, delivery and performance by the Company of this Agreement and the
Warrant and the consummation of the transactions contemplated hereby and
thereby and compliance by the Company with the provisions hereof and thereof,
will not (A) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration of, or result in the creation of, any lien,
security interest, charge or encumbrance upon any of the properties or assets
of the Company or any Company Subsidiary under any of the terms, conditions or
provisions of (i) subject, if applicable, to the approvals of the Company’s
stockholders set forth on Schedule C, its organizational documents or (ii) any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to

 

6

 

which the Company or any Company Subsidiary is a party or by which it
or any Company Subsidiary may be bound, or to which the Company or any Company
Subsidiary or any of the properties or assets of the Company or any Company
Subsidiary may be subject, or (B) subject to compliance with the statutes
and regulations referred to in the next paragraph, violate any statute, rule or
regulation or any judgment, ruling, order, writ, injunction or decree
applicable to the Company or any Company Subsidiary or any of their respective
properties or assets except, in the case of clauses (A)(ii) and (B), for
those occurrences that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.

 

(iii)                               Other
than the filing of the Certificate of Designations with the Secretary of State
of its jurisdiction of organization or other applicable Governmental Entity,
any current report on Form 8-K required to be filed with the SEC, such
filings and approvals as are required to be made or obtained under any state “blue
sky” laws, the filing of
any proxy statement contemplated by Section 3.1 and such as
have been made or obtained, no notice to, filing with, exemption or review by,
or authorization, consent or approval of, any Governmental Entity is required
to be made or obtained by the Company in connection with the consummation by
the Company of the Purchase except for any such notices, filings, exemptions,
reviews, authorizations, consents and approvals the failure of which to make or
obtain would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.

 

(f)                                    Anti-takeover
Provisions and Rights Plan.  The
Board of Directors of the Company (the “Board
of Directors”) has taken all necessary action to ensure that the
transactions contemplated by this Agreement and the Warrant and the
consummation of the transactions contemplated hereby and thereby, including the
exercise of the Warrant in accordance with its terms, will be exempt from any
anti-takeover or similar provisions of the Company’s Charter and bylaws, and
any other provisions of any applicable “moratorium”, “control share”, “fair
price”, “interested stockholder” or other anti-takeover laws and regulations of
any jurisdiction.  The Company has taken
all actions necessary to render any stockholders’ rights plan of the Company
inapplicable to this Agreement and the Warrant and the consummation of the
transactions contemplated hereby and thereby, including the exercise of the
Warrant by the Investor in accordance with its terms.

 

(g)                                 No
Company Material Adverse Effect. Since the last day of the last completed
fiscal period for which the Company has filed a Quarterly Report on Form 10-Q
or an Annual Report on Form 10-K with the SEC prior to the Signing Date,
no fact, circumstance, event, change, occurrence, condition or development has
occurred that, individually or in the aggregate, has had or would reasonably be
expected to have a Company Material Adverse Effect.

 

(h)                                 Company
Financial Statements.  Each of the
consolidated financial statements of the Company and its consolidated
subsidiaries (collectively the “Company
Financial Statements”) included or incorporated by reference in the
Company Reports filed with the SEC since December 31, 2006, present fairly
in all material respects the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates indicated therein (or if amended
prior to the Signing Date, as of the date of such amendment) and the
consolidated results of their operations for the periods specified therein; and
except as stated therein, such

 

7

 

financial
statements (A) were prepared in conformity with GAAP applied on a
consistent basis (except as may be noted therein), (B) have been prepared
from, and are in accordance with, the books and records of the Company and the
Company Subsidiaries and (C) complied as to form, as of their respective
dates of filing with the SEC, in all material respects with the applicable
accounting requirements and with the published rules and regulations of
the SEC with respect thereto.

 

(i)                                     Reports.

 

(i)                                     Since
December 31, 2006, the Company and each subsidiary of the Company (each a “Company Subsidiary” and, collectively, the
“Company Subsidiaries”) has
timely filed all reports, registrations, documents, filings, statements and submissions,
together with any amendments thereto, that it was required to file with any
Governmental Entity (the foregoing, collectively, the “Company Reports”) and has paid all fees
and assessments due and payable in connection therewith, except, in each case,
as would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect.  As of
their respective dates of filing, the Company Reports complied in all material
respects with all statutes and applicable rules and regulations of the
applicable Governmental Entities.  In the
case of each such Company Report filed with or furnished to the SEC, such
Company Report (A) did not, as of its date or if amended prior to the
Signing Date, as of the date of such amendment, contain an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, and (B) complied as to form in all material respects
with the applicable requirements of the Securities Act and the Exchange
Act.  With respect to all other Company
Reports, the Company Reports were complete and accurate in all material
respects as of their respective dates. 
No executive officer of the Company or any Company Subsidiary has failed
in any respect to make the certifications required of him or her under Section 302
or 906 of the Sarbanes-Oxley Act of 2002.

 

(ii)                                  The
records, systems, controls, data and information of the Company and the Company
Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of the Company or the Company Subsidiaries or their accountants (including all
means of access thereto and therefrom), except for any non-exclusive ownership
and non-direct control that would not reasonably be expected to have a material
adverse effect on the system of internal accounting controls described below in
this Section 2.2(i)(ii).  The
Company (A) has implemented and maintains disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act) to
ensure that material information relating to the Company, including the
consolidated Company Subsidiaries, is made known to the chief executive officer
and the chief financial officer of the Company by others within those entities,
and (B) has disclosed, based on its most recent evaluation prior to the
Signing Date, to the Company’s outside auditors and the audit committee of the
Board of Directors (x) any significant deficiencies and material
weaknesses in the design or operation of internal controls over financial
reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are
reasonably likely to adversely affect the Company’s ability to

 

8

 

record, process, summarize and report financial information and (y) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the Company’s internal controls over financial
reporting.

 

(j)                                     No
Undisclosed Liabilities.  Neither the
Company nor any of the Company Subsidiaries has any liabilities or obligations
of any nature (absolute, accrued, contingent or otherwise) which are not
properly reflected or reserved against in the Company Financial Statements to
the extent required to be so reflected or reserved against in accordance with
GAAP, except for (A) liabilities that have arisen since the last fiscal
year end in the ordinary and usual course of business and consistent with past
practice and (B) liabilities that, individually or in the aggregate, have
not had and would not reasonably be expected to have a Company Material Adverse
Effect.

 

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

 

(l)                                     Litigation
and Other Proceedings.  Except (i) as
set forth on Schedule D or (ii) as would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect,
there is no (A) pending or, to the knowledge of the Company, threatened,
claim, action, suit, investigation or proceeding, against the Company or any
Company Subsidiary or to which any of their assets are subject nor is the
Company or any Company Subsidiary subject to any order, judgment or decree or (B) unresolved
violation, criticism or exception by any Governmental Entity with respect to
any report or relating to any examinations or inspections of the Company or any
Company Subsidiaries.

 

(m)                               Compliance
with Laws.  Except as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, the Company and the Company Subsidiaries have all
permits, licenses, franchises, authorizations, orders and approvals of, and
have made all filings, applications and registrations with, Governmental
Entities that are required in order to permit them to own or lease their
properties and assets and to carry on their business as presently conducted and
that are material to the business of the Company or such Company
Subsidiary.  Except as set forth on Schedule
E, the Company and the Company Subsidiaries have complied in all respects
and are not in default or violation of, and none of them is, to the knowledge
of the Company, under investigation with respect to or, to the knowledge of the
Company, have been threatened to be charged with or given notice of any
violation of, any applicable domestic (federal, state or local) or foreign law,
statute, ordinance, license, rule, regulation, policy or guideline, order,
demand, writ, injunction, decree or judgment of any Governmental Entity, other
than such noncompliance, defaults or violations that would not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.  Except for statutory or
regulatory restrictions of general application or as set forth on Schedule E,
no Governmental Entity has placed any restriction on the business or properties
of

 

9

 

the Company or
any Company Subsidiary that would, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.

 

(n)                                 Employee
Benefit Matters.  Except as would not
reasonably be expected to have, either individually or in the aggregate, a
Company Material Adverse Effect: (A) each “employee benefit plan” (within
the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”))
providing benefits to any current or former employee, officer or director of
the Company or any member of its “Controlled
Group” (defined as any organization which is a member of a
controlled group of corporations within the meaning of Section 414 of the
Internal Revenue Code of 1986, as amended (the “Code”)) that is sponsored, maintained or contributed to by
the Company or any member of its Controlled Group and for which the Company or
any member of its Controlled Group would have any liability, whether actual or
contingent (each, a “Plan”) has
been maintained in compliance with its terms and with the requirements of all
applicable statutes, rules and regulations, including ERISA and the Code; (B) with
respect to each Plan subject to Title IV of ERISA (including, for purposes of
this clause (B), any plan subject to Title IV of ERISA that the Company or any
member of its Controlled Group previously maintained or contributed to in the
six years prior to the Signing Date), (1) no “reportable event” (within
the meaning of Section 4043(c) of ERISA),  other than a reportable event for which the
notice period referred to in Section 4043(c) of ERISA has been
waived, has occurred in the three years prior to the Signing Date or is
reasonably expected to occur, (2) no “accumulated funding deficiency”
(within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived, has occurred in the three years prior to the
Signing Date or is reasonably expected to occur, (3) the fair market value
of the assets under each Plan exceeds the present value of all benefits accrued
under such Plan (determined based on the assumptions used to fund such Plan)
and (4) neither the Company nor any member of its Controlled Group has
incurred in the six years prior to the Signing Date, or reasonably expects to
incur, any liability under Title IV of ERISA (other than contributions to the
Plan or premiums to the PBGC in the ordinary course and without default) in
respect of a Plan (including any Plan that is a “multiemployer plan”, within
the meaning of Section 4001(c)(3) of ERISA); and (C) each Plan
that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service
with respect to its qualified status that has not been revoked, or such a determination
letter has been timely applied for but not received by the Signing Date, and
nothing has occurred, whether by action or by failure to act, which could
reasonably be expected to cause the loss, revocation or denial of such
qualified status or favorable determination letter.

 

(o)                                 Taxes.  Except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) the
Company and the Company Subsidiaries have filed all federal, state, local and
foreign income and franchise Tax returns required to be filed through the
Signing Date, subject to permitted extensions, and have paid all Taxes due
thereon, and (ii) no Tax deficiency has been determined adversely to the
Company or any of the Company Subsidiaries, nor does the Company have any
knowledge of any Tax deficiencies.  “Tax” or “Taxes”
means any federal, state, local or foreign income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll, withholding,
alternative or add on minimum, ad valorem, transfer or excise tax, or any other
tax, custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty, imposed by any
Governmental Entity.

 

10

 

(p)                                 Properties
and Leases. Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, the Company
and the Company Subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances, claims and defects that would affect the value
thereof or interfere with the use made or to be made thereof by them.  Except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect,
the Company and the Company Subsidiaries hold all leased real or personal
property under valid and enforceable leases with no exceptions that would
interfere with the use made or to be made thereof by them.

 

(q)                                 Environmental
Liability. Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect:

 

(i)                                     there
is no legal, administrative, or other proceeding, claim or action of any nature
seeking to impose, or that would reasonably be expected to result in the
imposition of, on the Company or any Company Subsidiary, any liability relating
to the release of hazardous substances as defined under any local, state or
federal environmental statute, regulation or ordinance, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
pending or, to the Company’s knowledge, threatened against the Company or any
Company Subsidiary;

 

(ii)                                  to
the Company’s knowledge, there is no reasonable basis for any such proceeding,
claim or action; and

 

(iii)                               neither
the Company nor any Company Subsidiary is subject to any agreement, order,
judgment or decree by or with any court, Governmental Entity or third party
imposing any such environmental liability.

 

(r)                                    Risk
Management Instruments.  Except as
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect, all derivative instruments, including, swaps,
caps, floors and option agreements, whether entered into for the Company’s own
account, or for the account of one or more of the Company Subsidiaries or its
or their customers, were entered into (i) only in the ordinary course of
business, (ii) in accordance with prudent practices and in all material
respects with all applicable laws, rules, regulations and regulatory policies
and (iii) with counterparties believed to be financially responsible at
the time; and each of such instruments constitutes the valid and legally
binding obligation of the Company or one of the Company Subsidiaries,
enforceable in accordance with its terms, except as may be limited by the
Bankruptcy Exceptions.  Neither the
Company or the Company Subsidiaries, nor, to the knowledge of the Company, any
other party thereto, is in breach of any of its obligations under any such
agreement or arrangement other than such breaches that would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.

 

(s)                                  Agreements
with Regulatory Agencies.  Except as
set forth on Schedule F, neither the Company nor any Company Subsidiary
is subject to any material cease-and-desist or other similar order or
enforcement action issued by, or is a party to any material written agreement,
consent agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any capital
directive by, or since December 31, 2006,

 

11

 

has adopted
any board resolutions at the request of, any Governmental Entity (other than
the Appropriate Federal Banking Agencies with jurisdiction over the Company and
the Company Subsidiaries) that currently restricts in any material respect the
conduct of its business or that in any material manner relates to its capital
adequacy, its liquidity and funding policies and practices, its ability to pay
dividends, its credit, risk management or compliance policies or procedures,
its internal controls, its management or its operations or business (each item
in this sentence, a “Regulatory Agreement”),
nor has the Company or any Company Subsidiary been advised since December 31,
2006 by any such Governmental Entity that it is considering issuing, initiating,
ordering, or requesting any such Regulatory Agreement.  The Company and each Company Subsidiary are
in compliance in all material respects with each Regulatory Agreement to which
it is party or subject, and neither the Company nor any Company Subsidiary has
received any notice from any Governmental Entity indicating that either the
Company or any Company Subsidiary is not in compliance in all material respects
with any such Regulatory Agreement.  “Appropriate Federal Banking Agency” means
the “appropriate Federal banking agency” with respect to the Company or such
Company Subsidiaries, as applicable, as defined in Section 3(q) of
the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)).

 

(t)                                    Insurance.  The Company and the Company Subsidiaries are
insured with reputable insurers against such risks and in such amounts as the
management of the Company reasonably has determined to be prudent and
consistent with industry practice.  The
Company and the Company Subsidiaries are in material compliance with their
insurance policies and are not in default under any of the material terms
thereof, each such policy is outstanding and in full force and effect, all
premiums and other payments due under any material policy have been paid, and
all claims thereunder have been filed in due and timely fashion, except, in
each case, as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.

 

(u)                                 Intellectual
Property.  Except as would not,
individually or in the aggregate, 
reasonably be expected to have a Company Material Adverse Effect, (i) the
Company and each Company Subsidiary owns or otherwise has the right to use, all
intellectual property rights, including all trademarks, trade dress, trade
names, service marks, domain names, patents, inventions, trade secrets,
know-how, works of authorship and copyrights therein, that are used in the
conduct of their existing businesses and all rights relating to the plans,
design and specifications of any of its branch facilities (“Proprietary Rights”) free and clear of all
liens and any claims of ownership by current or former employees, contractors,
designers or others and (ii) neither the Company nor any of the Company
Subsidiaries is materially infringing, diluting, misappropriating or violating,
nor has the Company or any or the Company Subsidiaries received any written
(or, to the knowledge of the Company, oral) communications alleging that any of
them has materially infringed, diluted, misappropriated or violated, any of the
Proprietary Rights owned by any other person. 
Except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, to the Company’s knowledge,
no other person is infringing, diluting, misappropriating or violating, nor has
the Company or any or the Company Subsidiaries sent any written communications
since January 1, 2006 alleging that any person has infringed, diluted,
misappropriated or violated, any of the Proprietary Rights owned by the Company
and the Company Subsidiaries.

 

12

 

(v)                                 Brokers
and Finders.  No broker, finder or
investment banker is entitled to any financial advisory, brokerage, finder’s or
other fee or commission in connection with this Agreement or the Warrant or the
transactions contemplated hereby or thereby based upon arrangements made by or
on behalf of the Company or any Company Subsidiary for which the Investor could
have any liability.

 

Article III

Covenants

 

3.1                                 Commercially
Reasonable Efforts.

 

(a)                                  Subject
to the terms and conditions of this Agreement, each of the parties will use its
commercially reasonable efforts in good faith to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Purchase as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall use commercially reasonable
efforts to cooperate with the other party to that end.

 

(b)                                 If
the Company is required to obtain any stockholder approvals set forth on Schedule
C, then the Company shall comply with this Section 3.1(b) and Section 3.1(c).
The Company shall call a special meeting of its stockholders, as promptly as
practicable following the Closing, to vote on proposals (collectively, the “Stockholder Proposals”) to (i) approve
the exercise of the Warrant for Common Stock for purposes of the rules of
the national security exchange on which the Common Stock is listed and/or (ii) amend
the Company’s Charter  to increase
the number of authorized shares of Common Stock to at least such number as
shall be sufficient to permit the full exercise of the Warrant for Common Stock
and comply with the other provisions of this Section 3.1(b) and Section 3.1(c).
The Board of Directors shall recommend to the Company’s stockholders that such
stockholders vote in favor of the Stockholder Proposals.  In connection with such meeting, the Company
shall prepare (and the Investor will reasonably cooperate with the Company to
prepare) and file with the SEC as promptly as practicable (but in no event more
than ten business days after the Closing) a preliminary proxy statement, shall
use its reasonable best efforts to respond to any comments of the SEC or its
staff thereon and to cause a definitive proxy statement related to such
stockholders’ meeting to be mailed to the Company’s stockholders not more than
five business days after clearance thereof by the SEC, and shall use its
reasonable best efforts to solicit proxies for such stockholder approval of the
Stockholder Proposals.  The Company shall
notify the Investor promptly of the receipt of any comments from the SEC or its
staff with respect to the proxy statement and of any request by the SEC or its
staff for amendments or supplements to such proxy statement or for additional
information and will supply the Investor with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to such proxy statement.  If at any time prior to such stockholders’
meeting there shall occur any event that is required to be set forth in an
amendment or supplement to the proxy statement, the Company shall as promptly
as practicable prepare

 

13

 

and mail to its stockholders such an amendment or supplement.  Each of the Investor and the Company agrees
promptly to correct any information provided by it or on its behalf for use in
the proxy statement if and to the extent that such information shall have
become false or misleading in any material respect, and the Company shall as
promptly as practicable prepare and mail to its stockholders an amendment or
supplement to correct such information to the extent required by applicable
laws and regulations.  The Company shall
consult with the Investor prior to filing any proxy statement, or any amendment
or supplement thereto, and provide the Investor with a reasonable opportunity
to comment thereon.  In the event that
the approval of any of the Stockholder Proposals is not obtained at such
special stockholders meeting, the Company shall include a proposal to approve
(and the Board of Directors shall recommend approval of) each such proposal at
a meeting of its stockholders no less than once in each subsequent six-month
period beginning on January 1, 2009 until all such approvals are obtained
or made.

 

(c)                                  None
of the information supplied by the Company or any of the Company Subsidiaries
for inclusion in any proxy statement in connection with any such stockholders
meeting of the Company will, at the date it is filed with the SEC, when first
mailed to the Company’s stockholders and at the time of any stockholders
meeting, and at the time of any amendment or supplement thereof, contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.

 

3.2                                 Expenses.
Unless otherwise provided in this Agreement or the Warrant, each of the parties
hereto will bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated under this Agreement and the
Warrant, including fees and expenses of its own financial or other consultants,
investment bankers, accountants and counsel.

 

3.3                                 Sufficiency
of Authorized Common Stock; Exchange Listing.

 

(a)                                  During
the period from the Closing Date (or, if the approval of the Stockholder
Proposals is required, the date of such approval)  until the date on which the Warrant has been fully exercised,
the Company shall at all times have reserved for issuance, free of preemptive
or similar rights, a sufficient number of authorized and unissued Warrant
Shares to effectuate such exercise. Nothing in this Section 3.3 shall
preclude the Company from satisfying its obligations in respect of the exercise
of the Warrant by delivery of shares of Common Stock which are held in the
treasury of the Company. As soon as reasonably practicable following the
Closing, the Company shall, at its expense, cause the Warrant Shares to be
listed on the same national securities exchange on which the Common Stock is
listed, subject to official notice of issuance, and shall maintain such listing
for so long as any Common Stock is listed on such exchange.

 

(b)                                 If
requested by the Investor, the Company shall promptly use its reasonable best
efforts to cause the Preferred Shares to be approved for listing on a national
securities exchange as promptly as practicable following such request.

 

3.4                                 Certain
Notifications Until Closing. From the Signing Date until the Closing, the
Company shall promptly notify the Investor of (i) any fact, event or
circumstance of which it is aware and which would reasonably be expected to
cause any representation or warranty of the Company contained in this Agreement
to be untrue or inaccurate in any material respect or to cause any covenant or
agreement of the Company contained in this Agreement not to be complied with or
satisfied in any material respect and (ii) except as Previously Disclosed,
any fact, circumstance, event, change, occurrence, condition or development of
which the Company 

 

14

 

is aware and
which, individually or in the aggregate, has had or would reasonably be
expected to have a Company Material Adverse Effect; provided, however,
that delivery of any notice pursuant to this Section 3.4 shall not limit
or affect any rights of or remedies available to the Investor; provided, further,
that a failure to comply with this Section 3.4 shall not constitute a
breach of this Agreement or the failure of any condition set forth in Section 1.2
to be satisfied unless the underlying Company Material Adverse Effect or
material breach would independently result in the failure of a condition set
forth in Section 1.2 to be satisfied.

 

3.5                                 Access,
Information and Confidentiality.

 

(a)                                  From
the Signing Date until the date when the Investor holds an amount of Preferred
Shares having an aggregate liquidation value of less than 10% of the Purchase
Price, the Company will permit the Investor and its agents, consultants,
contractors and advisors (x) acting through the Appropriate Federal
Banking Agency, to examine the corporate books and make copies thereof and to
discuss the affairs, finances and accounts of the Company and the Company
Subsidiaries with the principal officers of the Company, all upon reasonable
notice and at such reasonable times and as often as the Investor may reasonably
request and (y) to review any information material to the Investor’s
investment in the Company provided by the Company to its Appropriate Federal
Banking Agency. Any investigation pursuant to this Section 3.5 shall be
conducted during normal business hours and in such manner as not to interfere
unreasonably with the conduct of the business of the Company, and nothing
herein shall require the Company or any Company Subsidiary to disclose any
information to the Investor to the extent (i) prohibited by applicable law
or regulation, or (ii)  that such disclosure would reasonably be expected
to cause a violation of any agreement to which the Company or any Company
Subsidiary is a party or would cause a risk of a loss of privilege to the
Company or any Company Subsidiary (provided
that the Company shall use commercially reasonable efforts to make appropriate
substitute disclosure arrangements under circumstances where the restrictions
in this clause (ii) apply).

 

(b)                                 The
Investor will use reasonable best efforts to hold, and will use reasonable best
efforts to cause its agents, consultants, contractors and advisors to hold, in
confidence all non-public records, books, contracts, instruments, computer data
and other data and information (collectively, “Information”)
concerning the Company furnished or made available to it by the Company or its
representatives pursuant to this Agreement (except to the extent that such
information can be shown to have been (i) previously known by such party
on a non-confidential basis, (ii) in the public domain through no fault of
such party or (iii) later lawfully acquired from other sources by the
party to which it was furnished (and without violation of any other
confidentiality obligation)); provided
that nothing herein shall prevent the Investor from disclosing any Information
to the extent required by applicable laws or regulations or by any subpoena or
similar legal process.

 

Article IV

Additional Agreements

 

4.1                                 Purchase
for Investment. The Investor acknowledges that the Purchased Securities and
the Warrant Shares have not been registered under the Securities Act or under
any state securities laws. The Investor (a) is acquiring the Purchased
Securities pursuant to an exemption 

 

15

 

from
registration under the Securities Act solely for investment with no present
intention to distribute them to any person in violation of the Securities Act
or any applicable U.S. state securities laws, (b) will not sell or
otherwise dispose of any of the Purchased Securities or the Warrant Shares,
except in compliance with the registration requirements or exemption provisions
of the Securities Act and any applicable U.S. state securities laws, and (c) has
such knowledge and experience in financial and business matters and in
investments of this type that it is capable of evaluating the merits and risks
of the Purchase and of making an informed investment decision.

 

4.2                                 Legends.

 

(a)                                  The
Investor agrees that all certificates or other instruments representing the
Warrant and the Warrant Shares will bear a legend substantially to the
following effect:

 

“THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.”

 

(b)                                 The
Investor agrees that all certificates or other instruments representing the
Warrant will also bear a legend substantially to the following effect:

 

“THIS
INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE
WITH THE ISSUER.  THE SECURITIES
REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. 
ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE
VOID.”

 

(c)                                  In
addition, the Investor agrees that all certificates or other instruments
representing the Preferred Shares will bear a legend substantially to the
following effect:

 

“THE
SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

 

THE SECURITIES
REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT
WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER 

 

16

 

SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES REPRESENTED BY
THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.  ANY TRANSFEREE OF THE
SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS
THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT EXCEPT (A) PURSUANT
TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR
SO LONG AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED
INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS
INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.”

 

(d)                                 In
the event that any Purchased Securities or Warrant Shares (i) become
registered under the Securities Act or (ii) are eligible to be transferred
without restriction in accordance with Rule 144 or another exemption from
registration under the Securities Act (other than Rule 144A), the Company
shall issue new certificates or other instruments representing such Purchased
Securities or Warrant Shares, which shall not contain the applicable legends in
Sections 4.2(a) and (c) above; provided
that the Investor surrenders to the Company the previously issued certificates
or other instruments.  Upon Transfer of
all or a portion of the Warrant in compliance with Section 4.4, the
Company shall issue new certificates or other instruments representing the
Warrant, which shall not contain the applicable legend in Section 4.2(b) above;
provided that the Investor
surrenders to the Company the previously issued certificates or other
instruments.

 

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

 

4.4                                 Transfer
of Purchased Securities and Warrant Shares; Restrictions on Exercise of the
Warrant.  Subject to compliance with
applicable securities laws, the Investor shall be permitted to transfer, sell,
assign or otherwise dispose of (“Transfer”)
all or a portion of the 

 

17

 

Purchased
Securities or Warrant Shares at any time, and the Company shall take all steps
as may be reasonably requested by the Investor to facilitate the Transfer of
the Purchased Securities and the Warrant Shares; provided that the Investor shall not Transfer a portion or
portions of the Warrant with respect to, and/or exercise the Warrant for, more
than one-half of the Initial Warrant Shares (as such number may be adjusted
from time to time pursuant to Section 13 thereof) in the aggregate until
the earlier of (a) the date on which the Company (or any successor by
Business Combination) has received aggregate gross proceeds of not less than
the Purchase Price (and the purchase price paid by the Investor to any such
successor for securities of such successor purchased under the CPP) from one or
more Qualified Equity Offerings (including Qualified Equity Offerings of such
successor) and (b) December 31, 2009. 
“Qualified Equity Offering”
means the sale and issuance for cash by the Company  to persons other than the Company or any of the Company
Subsidiaries after the Closing Date of shares of perpetual Preferred Stock, Common
Stock or any combination of such stock, that, in each case, qualify as and may
be included in Tier 1 capital of the Company at the time of issuance under the
applicable risk-based capital guidelines of the Company’s Appropriate Federal
Banking Agency (other than any such sales and issuances made pursuant to
agreements or arrangements entered into, or pursuant to financing plans which
were publicly announced, on or prior to October 13, 2008). “Business Combination” means a merger,
consolidation, statutory share exchange or similar transaction that requires
the approval of the Company’s stockholders.

 

4.5                                 Registration
Rights.

 

(a)                                  Registration.

 

(i)                                     Subject to the
terms and conditions of this Agreement, the Company covenants and agrees that
as promptly as practicable after the Closing Date (and in any event no later
than 30 days after the Closing Date), the Company shall prepare and file with
the SEC a Shelf Registration Statement covering all Registrable Securities (or
otherwise designate an existing Shelf Registration Statement filed with the SEC
to cover the Registrable Securities), and, to the extent the Shelf Registration
Statement has not theretofore been declared effective or is not automatically
effective upon such filing, the Company shall use reasonable best efforts to
cause such Shelf Registration Statement to be declared or become effective and
to keep such Shelf Registration Statement continuously effective and in
compliance with the Securities Act and usable for resale of such Registrable
Securities for a period from the date of its initial effectiveness until such
time as there are no Registrable Securities remaining (including by refiling
such Shelf Registration Statement (or a new Shelf Registration Statement) if
the initial Shelf Registration Statement expires).  So long as the Company is a well-known
seasoned issuer (as defined in Rule 405 under the Securities Act) at the
time of filing of the Shelf Registration Statement with the SEC, such Shelf
Registration Statement shall be designated by the Company as an automatic Shelf
Registration Statement.  Notwithstanding
the foregoing, if on the Signing Date the Company is not eligible to file a
registration statement on Form S-3, then the Company shall not be
obligated to file a Shelf Registration Statement unless and until requested to
do so in writing by the Investor.

 

18

 

(ii)                                  Any registration
pursuant to Section 4.5(a)(i) shall be effected by means of a shelf
registration on an appropriate form under Rule 415 under the Securities
Act (a “Shelf Registration Statement”).  If the Investor or any other Holder intends
to distribute any Registrable Securities by means of an underwritten offering
it shall promptly so advise the Company and the Company shall take all
reasonable steps to facilitate such distribution, including the actions
required pursuant to Section 4.5(c); provided
that the Company shall not be required to facilitate an underwritten offering
of Registrable Securities unless the expected gross proceeds from such offering
exceed (i) 2% of the initial aggregate liquidation preference of the
Preferred Shares if such initial aggregate liquidation preference is less than
$2 billion and (ii) $200 million if the initial aggregate liquidation
preference of the Preferred Shares is equal to or greater than $2 billion.  The lead underwriters in any such
distribution shall be selected by the Holders of a majority of the Registrable
Securities to be distributed; provided
that to the extent appropriate and permitted under applicable law, such Holders
shall consider the qualifications of any broker-dealer Affiliate of the Company
in selecting the lead underwriters in any such distribution.

 

(iii)                               The Company shall not be
required to effect a registration (including a resale of Registrable Securities
from an effective Shelf Registration Statement) or an underwritten offering
pursuant to Section 4.5(a):  (A) with
respect to securities that are not Registrable Securities; or (B) if the
Company has notified the Investor and all other Holders that in the good faith
judgment of the Board of Directors, it would be materially detrimental to the
Company or its securityholders for such registration or underwritten offering
to be effected at such time, in which event the Company shall have the right to
defer such registration for a period of not more than 45 days after receipt of
the request of the Investor or any other Holder; provided that such right to delay a registration or
underwritten offering shall be exercised by the Company (1) only if the
Company has generally exercised (or is concurrently exercising) similar
black-out rights against holders of similar securities that have registration
rights and (2) not more than three times in any 12-month period and not
more than 90 days in the aggregate in any 12-month period.

 

(iv)                              If during any period when
an effective Shelf Registration Statement is not available, the Company
proposes to register any of its equity securities, other than a registration
pursuant to Section 4.5(a)(i) or a Special Registration, and the
registration form to be filed may be used for the registration or qualification
for distribution of Registrable Securities, the Company will give prompt
written notice to the Investor and all other Holders of its intention to effect
such a registration (but in no event less than ten days prior to the
anticipated filing date) and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within ten business days after the date of the Company’s
notice (a “Piggyback Registration”).  Any such person that has made such a written
request may withdraw its Registrable Securities from such Piggyback
Registration by giving written notice to the Company and the managing
underwriter, if any, on or before the fifth business day prior to the planned
effective date of such Piggyback Registration. The Company may terminate or
withdraw any registration under this Section 4.5(a)(iv) prior to the
effectiveness of such registration, whether or not Investor or any other
Holders have elected to include Registrable Securities in such registration.

 

19

 

(v)                                 If the registration
referred to in Section 4.5(a)(iv) is proposed to be underwritten, the
Company will so advise Investor and all other Holders as a part of the written
notice given pursuant to Section 4.5(a)(iv).  In such event, the right of Investor and all
other Holders to registration pursuant to Section 4.5(a) will be
conditioned upon such persons’ participation in such underwriting and the
inclusion of such person’s Registrable Securities in the underwriting if such
securities are of the same class of securities as the securities to be offered
in the underwritten offering, and each such person will (together with the
Company and the other persons distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company; provided that the Investor (as opposed to
other Holders) shall not be required to indemnify any person in connection with
any registration. If any participating person disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriters and the Investor (if the Investor is
participating in the underwriting).

 

(vi)                              If either (x) the
Company grants “piggyback” registration rights to one or more third parties to
include their securities in an underwritten offering under the Shelf
Registration Statement pursuant to Section 4.5(a)(ii) or (y) a
Piggyback Registration under Section 4.5(a)(iv) relates to an
underwritten offering on behalf of the Company, and in either case the managing
underwriters advise the Company that in their reasonable opinion the number of
securities requested to be included in such offering exceeds the number which
can be sold without adversely affecting the marketability of such offering
(including an adverse effect on the per share offering price), the Company will
include in such offering only such number of securities that in the reasonable
opinion of such managing underwriters can be sold without adversely affecting
the marketability of the offering (including an adverse effect on the per share
offering price), which securities will be so included in the following order of
priority: (A) first, in the case of a Piggyback Registration under Section 4.5(a)(iv),
the securities the Company proposes to sell, (B) then the Registrable
Securities of the Investor and all other Holders who have requested inclusion
of Registrable Securities pursuant to Section 4.5(a)(ii) or Section 4.5(a)(iv),
as applicable, pro rata on the
basis of the aggregate number of such securities or shares owned by each such
person and (C) lastly, any other securities of the Company that have been
requested to be so included, subject to the terms of this Agreement; provided, however, that if the Company
has, prior to the Signing Date, entered into an agreement with respect to its
securities that is inconsistent with the order of priority contemplated hereby
then it shall apply the order of priority in such conflicting agreement to the
extent that it would otherwise result in a breach under such agreement.

 

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

 

(c)                                  Obligations
of the Company.  The Company shall
use its reasonable best efforts, for so long as there are Registrable
Securities outstanding, to take such actions as are under its 

 

20

 

control to not
become an ineligible issuer (as defined in Rule 405 under the Securities
Act) and to remain a well-known seasoned issuer (as defined in Rule 405
under the Securities Act) if it has such status on the Signing Date or becomes
eligible for such status in the future. 
In addition, whenever required to effect the registration of any
Registrable Securities or facilitate the distribution of Registrable Securities
pursuant to an effective Shelf Registration Statement, the Company shall, as
expeditiously as reasonably practicable:

 

(i)                                     Prepare and file
with the SEC a prospectus supplement with respect to a proposed offering of
Registrable Securities pursuant to an effective registration statement, subject
to Section 4.5(d), keep such registration statement effective and keep
such prospectus supplement current until the securities described therein are
no longer Registrable Securities.

 

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

 

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

 

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

 

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

 

(vi)                              Give written notice to
the Holders:

 

(A)                              when any registration
statement filed pursuant to Section 4.5(a) or any amendment thereto
has been filed with the SEC (except for any amendment 

 

21

 

effected by the filing of a document with the SEC pursuant to the
Exchange Act) and when such registration statement or any post-effective
amendment thereto has become effective;

 

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

 

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

 

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

 

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

 

(F)                                 if at any time the
representations and warranties of the Company contained in any underwriting
agreement contemplated by Section 4.5(c)(x) cease to be true and
correct.

 

(vii)                           Use its reasonable best
efforts to prevent the issuance or obtain the withdrawal of any order
suspending the effectiveness of any registration statement referred to in Section 4.5(c)(vi)(C) at
the earliest practicable time.

 

(viii)                        Upon the occurrence of any
event contemplated by Section 4.5(c)(v) or 4.5(c)(vi)(E), promptly
prepare a post-effective amendment to such registration statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to the Holders and any underwriters, the
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.  If the Company notifies the Holders in
accordance with Section 4.5(c)(vi)(E) to suspend the use of the
prospectus until the requisite changes to the prospectus have been made, then
the Holders and any underwriters shall suspend use of such prospectus and use
their reasonable best efforts to return to the Company all copies of such
prospectus (at the Company’s expense) other than permanent file copies then in
such Holders’ or underwriters’ possession. 
The total number of days that any such suspension may be in effect in
any 12-month period shall not exceed 90 days.

 

(ix)                                Use reasonable best
efforts to procure the cooperation of the Company’s transfer agent in settling
any offering or sale of Registrable Securities, including with respect to the
transfer of physical stock certificates into book-entry form in accordance 

 

22

 

with any procedures reasonably requested by the Holders or any managing
underwriter(s).

 

(x)                                   If an underwritten
offering is requested pursuant to Section 4.5(a)(ii), enter into an
underwriting agreement in customary form, scope and substance and take all such
other actions reasonably requested by the Holders of a majority of the
Registrable Securities being sold in connection therewith or by the managing
underwriter(s), if any, to expedite or facilitate the underwritten disposition
of such Registrable Securities, and in connection therewith in any underwritten
offering (including making members of management and executives of the Company
available to participate in “road shows”, similar sales events and other
marketing activities), (A) make such representations and warranties to the
Holders that are selling stockholders and the managing underwriter(s), if any,
with respect to the business of the Company and its subsidiaries, and the Shelf
Registration Statement, prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, in customary
form, substance and scope, and, if true, confirm the same if and when
requested, (B) use its reasonable best efforts to furnish the underwriters
with opinions of counsel to the Company, addressed to the managing
underwriter(s), if any, covering the matters customarily covered in such
opinions requested in underwritten offerings, (C) use its reasonable best
efforts to obtain “cold comfort” letters from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any business acquired by the Company for which financial
statements and financial data are included in the Shelf Registration Statement)
who have certified the financial statements included in such Shelf Registration
Statement, addressed to each of the managing underwriter(s), if any, such
letters to be in customary form and covering matters of the type customarily
covered in “cold comfort” letters, (D) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
customary in underwritten offerings (provided that the Investor shall not be
obligated to provide any indemnity), and (E) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold in connection therewith, their counsel and
the managing underwriter(s), if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.

 

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

 

23

 

(xii)                             Use reasonable best
efforts to cause all such Registrable Securities to be listed on each national
securities exchange on which similar securities issued by the Company are then
listed or, if no similar securities issued by the Company are then listed on
any national securities exchange, use its reasonable best efforts to cause all
such Registrable Securities to be listed on such securities exchange as the
Investor may designate.

 

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

 

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

 

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

 

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

 

(f)                                    Furnishing
Information.

 

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

 

(ii)                                  It shall be a
condition precedent to the obligations of the Company to take any action
pursuant to Section 4.5(c) that Investor and/or the selling Holders
and the

 

24

 

underwriters, if any, shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be required to effect the
registered offering of their Registrable Securities.

 

(g)                                 Indemnification.

 

(i)                                     The Company agrees
to indemnify each Holder and, if a Holder is a person other than an individual,
such Holder’s officers, directors, employees, agents, representatives and
Affiliates, and each Person, if any, that controls a Holder within the meaning
of the Securities Act (each, an “Indemnitee”),
against any and all losses, claims, damages, actions, liabilities, costs and
expenses (including reasonable fees, expenses and disbursements of attorneys
and other professionals incurred in connection with investigating, defending,
settling, compromising or paying any such losses, claims, damages, actions,
liabilities, costs and expenses), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of material fact
contained in any registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto
or any documents incorporated therein by reference or contained in any free
writing prospectus (as such term is defined in Rule 405) prepared by the
Company or authorized by it in writing for use by such Holder (or any amendment
or supplement thereto); or any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided, that the Company shall not be
liable to such Indemnitee in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon (A) an untrue statement or omission
made in such registration statement, including any such preliminary prospectus
or final prospectus contained therein or any such amendments or supplements
thereto or contained in any free writing prospectus (as such term is defined in
Rule 405) prepared by the Company or authorized by it in writing for use
by such Holder (or any amendment or supplement thereto), in reliance upon and
in conformity with information regarding such Indemnitee or its plan of
distribution or ownership interests which was furnished in writing to the
Company by such Indemnitee for use in connection with such registration
statement, including any such preliminary prospectus or final prospectus
contained therein or any such amendments or supplements thereto, or (B) 
offers or sales effected by or on behalf of such Indemnitee “by means of” (as
defined in Rule 159A) a “free writing prospectus” (as defined in Rule 405)
that was not authorized in writing by the Company.

 

(ii)                                  If the
indemnification provided for in Section 4.5(g)(i) is unavailable to
an Indemnitee with respect to any losses, claims, damages, actions,
liabilities, costs or expenses referred to therein or is insufficient to hold
the Indemnitee harmless as contemplated therein, then the Company, in lieu of
indemnifying such Indemnitee, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, actions,
liabilities, costs or expenses in such proportion as is appropriate to reflect
the relative fault of the Indemnitee, on the one hand, and the Company, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, actions, liabilities, costs or expenses as well
as any other relevant 

 

25

 

equitable considerations.  The
relative fault of the Company, on the one hand, and of the Indemnitee, on the
other hand, shall be determined by reference to, among other factors, whether
the untrue statement of a material fact or omission to state a material fact
relates to information supplied by the Company or by the Indemnitee and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; 
the Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 4.5(g)(ii) were
determined by pro rata allocation
or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 4.5(g)(i).  No Indemnitee guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from the Company if the
Company was not guilty of such fraudulent misrepresentation.

 

(h)                                 Assignment
of Registration Rights.  The rights
of the Investor to registration of Registrable Securities pursuant to Section 4.5(a) may
be assigned by the Investor to a transferee or assignee of Registrable
Securities with a liquidation preference or, in the case of Registrable
Securities other than Preferred Shares, a market value, no less than an amount
equal to (i) 2% of the initial aggregate liquidation preference of the
Preferred Shares if such initial aggregate liquidation preference is less than
$2 billion and (ii) $200 million if the initial aggregate liquidation
preference of the Preferred Shares is equal to or greater than $2 billion; provided, however,
the transferor shall, within ten days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the number and type of Registrable Securities that are being assigned.  For purposes of this Section 4.5(h), “market
value” per share of Common Stock shall be the last reported sale price of the
Common Stock on the national securities exchange on which the Common Stock is
listed or admitted to trading on the last trading day prior to the proposed
transfer, and the “market value” for the Warrant (or any portion thereof) shall
be the market value per share of Common Stock into which the Warrant (or such
portion) is exercisable less the exercise price per share.

 

(i)                                     Clear
Market.  With respect to any
underwritten offering of Registrable Securities by the Investor or other
Holders pursuant to this Section 4.5, the Company agrees not to effect
(other than pursuant to such registration or pursuant to a Special
Registration) any public sale or distribution, or to file any Shelf
Registration Statement (other than such registration or a Special Registration)
covering, in the case of an underwritten offering of Common Stock or Warrants,
any of its equity securities or, in the case of an underwritten offering of
Preferred Shares, any Preferred Stock of the Company, or, in each case, any
securities convertible into or exchangeable or exercisable for such securities,
during the period not to exceed ten days prior and 60 days following the effective
date of such offering or such longer period up to 90 days as may be requested
by the managing underwriter for such underwritten offering.  The Company also agrees to cause such of its
directors and senior executive officers to execute and deliver customary
lock-up agreements in such form and for such time period up to 90 days as may
be requested by the managing underwriter. 
“Special Registration”  means the registration of (A) equity
securities and/or options or other rights in respect thereof solely registered
on Form S-4 or Form S-8 (or successor form) or (B) shares of
equity securities and/or options or other rights in respect thereof to be
offered to directors, members of management, employees, consultants, customers,
lenders or vendors of the Company or Company Subsidiaries or in connection with
dividend reinvestment plans.

 

26

 

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

 

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

 

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

 

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

 

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

 

(k)                                  As
used in this Section 4.5, the following terms shall have the following
respective meanings:

 

(i)                                     “Holder” means the Investor and any other
holder of Registrable Securities to whom the registration rights conferred by
this Agreement have been transferred in compliance with Section 4.5(h) hereof.

 

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

 

(iii)                               “Register,” “registered,” and “registration”
shall refer to a registration effected by preparing and (A) filing a
registration statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of effectiveness of
such registration statement or (B) filing a prospectus and/or prospectus
supplement in respect of an appropriate effective registration statement on Form S-3.

 

(iv)                              “Registrable Securities”  means (A) all Preferred Shares, (B) the
Warrant (subject to Section 4.5(p)) and (C) any equity securities
issued or issuable directly or indirectly with respect to the securities
referred to in the foregoing clauses (A) or (B) by way of conversion,
exercise or exchange thereof, including the Warrant Shares, or share 

 

27

 

dividend or share split or in connection with a combination of shares,
recapitalization, reclassification, merger, amalgamation, arrangement,
consolidation or other reorganization,   provided
that, once issued, such securities will not be Registrable Securities when (1) they
are sold pursuant to an effective registration statement under the Securities
Act, (2) except as provided below in Section 4.5(o), they may be sold
pursuant to Rule 144 without limitation thereunder on volume or manner of
sale, (3) they shall have ceased to be outstanding or (4) they have
been sold in a private transaction in which the transferor’s rights under this
Agreement are not assigned to the transferee of the securities.  No Registrable Securities may be registered
under more than one registration statement at any one time.

 

(v)                                 “Registration Expenses” mean all expenses
incurred by the Company in effecting any registration pursuant to this
Agreement (whether or not any registration or prospectus becomes effective or
final) or otherwise complying with its obligations under this Section 4.5,
including all registration, filing and listing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses,
expenses incurred in connection with any “road show”, the reasonable fees and
disbursements  of  Holders’ Counsel,  and expenses of the Company’s independent
accountants in connection with any regular or special reviews or audits incident
to or required by any such registration, but shall not include Selling
Expenses.

 

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

 

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

 

(l)                                     At
any time, any holder of Securities (including any Holder) may elect to forfeit
its rights set forth in this Section 4.5 from that date forward; provided, that a Holder forfeiting such
rights shall nonetheless be entitled to participate under Section 4.5(a)(iv) —
(vi) in any Pending Underwritten Offering to the same extent that such
Holder would have been entitled to if the holder had not withdrawn; and provided, further,
that no such forfeiture shall terminate a Holder’s rights or obligations under Section 4.5(f) with
respect to any prior registration or Pending Underwritten Offering.  “Pending
Underwritten Offering” means,
with respect to any Holder forfeiting its rights pursuant to this Section 4.5(l),
any underwritten offering of Registrable Securities in which such Holder has
advised the Company of its intent to register its Registrable Securities either
pursuant to Section 4.5(a)(ii) or 4.5(a)(iv) prior to the date
of such Holder’s forfeiture.

 

(m)                               Specific
Performance.  The parties hereto
acknowledge that there would be no adequate remedy at law if the Company fails
to perform any of its obligations under this Section 4.5 and that the
Investor and the Holders from time to time may be irreparably harmed by any
such failure, and accordingly agree that the Investor and such Holders, in
addition to any other remedy to which they may be entitled at law or in equity,
to the fullest extent permitted and 

 

28

 

enforceable
under applicable law shall be entitled to compel specific performance of the
obligations of the Company under this Section 4.5 in accordance with the
terms and conditions of this Section 4.5.

 

(n)                                 No
Inconsistent Agreements.  The Company
shall not, on or after the Signing Date, enter into any agreement with respect
to its securities that may impair the rights granted to the Investor and the
Holders under this Section 4.5 or that otherwise conflicts with the provisions
hereof in any manner that may impair the rights granted to the Investor and the
Holders under this Section 4.5.  In
the event the Company has, prior to the Signing Date, entered into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Investor and the Holders under this Section 4.5 (including
agreements that are inconsistent with the order of priority contemplated by Section 4.5(a)(vi))
or that may otherwise conflict with the provisions hereof, the Company shall
use its reasonable best efforts to amend such agreements to ensure they are
consistent with the provisions of this Section 4.5.

 

(o)                                 Certain
Offerings by the Investor.  In the
case of any securities held by the Investor that cease to be Registrable Securities
solely by reason of clause (2) in the definition of “Registrable
Securities,” the provisions of Sections 4.5(a)(ii), clauses (iv), (ix) and
(x)-(xii) of Section 4.5(c), Section 4.5(g) and Section 4.5(i) shall
continue to apply until such securities otherwise cease to be Registrable
Securities.  In any such case, an “underwritten”
offering or other disposition shall include any distribution of such securities
on behalf of the Investor by one or more broker-dealers, an “underwriting
agreement” shall include any purchase agreement entered into by such
broker-dealers, and any “registration statement” or “prospectus” shall include
any offering document approved by the Company and used in connection with such
distribution.

 

(p)                                 Registered
Sales of the Warrant.  The Holders
agree to sell the Warrant or any portion thereof under the Shelf Registration
Statement only beginning 30 days after notifying the Company of any such sale,
during which 30-day period the Investor and all Holders of the Warrant shall
take reasonable steps to agree to revisions to the Warrant to permit a public
distribution of the Warrant, including entering into a warrant agreement and
appointing a warrant agent.

 

4.6                                 Voting
of Warrant Shares.  Notwithstanding
anything in this Agreement to the contrary, the Investor shall not exercise any
voting rights with respect to the Warrant Shares.

 

4.7                                 Depositary
Shares. Upon request by the Investor at any time following the Closing
Date, the Company shall promptly enter into a depositary arrangement, pursuant
to customary agreements reasonably satisfactory to the Investor and with a
depositary reasonably acceptable to the Investor, pursuant to which the
Preferred Shares may be deposited and depositary shares, each representing a
fraction of a Preferred Share as specified by the Investor, may be issued. From
and after the execution of any such depositary arrangement, and the deposit of
any Preferred Shares pursuant thereto, the depositary shares issued pursuant
thereto shall be deemed “Preferred Shares” and, as applicable, “Registrable
Securities” for purposes of this Agreement.

 

29

 

4.8                                 Restriction
on Dividends and Repurchases.

 

(a)                                  Prior
to the earlier of (x) the third anniversary of the Closing Date and (y) the
date on which the Preferred Shares have been redeemed in whole or the Investor
has transferred all of the Preferred Shares to third parties which are not
Affiliates of the Investor, neither the Company nor any Company Subsidiary
shall, without the consent of the Investor:

 

(i)                                     declare or pay any
dividend or make any distribution on the Common Stock (other than (A) regular
quarterly cash dividends of not more than the amount of the last quarterly cash
dividend per share declared or, if lower, publicly announced an intention to
declare, on the Common Stock prior to October 14, 2008, as adjusted for
any stock split, stock dividend, reverse stock split, reclassification or
similar transaction, (B) dividends payable solely in shares of Common
Stock and (C) dividends or distributions of rights or Junior Stock in
connection with a stockholders’ rights plan); or

 

(ii)                                  redeem, purchase or
acquire any shares of Common Stock or other capital stock or other equity
securities of any kind of the Company, or any trust preferred securities issued
by the Company or any Affiliate of the Company, other than (A) redemptions,
purchases or other acquisitions of the Preferred Shares, (B) redemptions,
purchases or other acquisitions of shares of Common Stock or other Junior
Stock, in each case in this clause (B) in connection with the
administration of any employee benefit plan in the ordinary course of business
(including purchases to offset the Share Dilution Amount (as defined below)
pursuant to a publicly announced repurchase plan) and consistent with past
practice; provided that any
purchases to offset the Share Dilution Amount shall in no event exceed the
Share Dilution Amount, (C) purchases or other acquisitions by a
broker-dealer subsidiary of the Company solely for the purpose of
market-making, stabilization or customer facilitation transactions in Junior
Stock or Parity Stock in the ordinary course of its business, (D) purchases
by a broker-dealer subsidiary of the Company of capital stock of the Company
for resale pursuant to an offering by the Company of such capital stock
underwritten by such broker-dealer subsidiary, (E) any redemption or
repurchase of rights pursuant to any stockholders’ rights plan, (F) the
acquisition by the Company or any of the Company Subsidiaries of record
ownership in Junior Stock or Parity Stock for the beneficial ownership of any
other persons (other than the Company or any other Company Subsidiary),
including as trustees or custodians, and (G) the exchange or conversion of
Junior Stock for or into other Junior Stock or of Parity Stock or trust
preferred securities for or into other Parity Stock (with the same or lesser
aggregate liquidation amount) or Junior Stock, in each case set forth in this
clause (G), solely to the extent required pursuant to binding contractual
agreements entered into prior to the Signing Date or any subsequent agreement
for the accelerated exercise, settlement or exchange thereof for Common Stock
(clauses (C) and (F), collectively, the “Permitted
Repurchases”).  “Share Dilution Amount” means the increase
in the number of diluted shares outstanding (determined in accordance with
GAAP, and as measured from the date of the Company’s most recently filed
Company Financial Statements prior to the Closing Date) resulting from the
grant, vesting or exercise of equity-based compensation to employees and
equitably adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction.

 

30

 

(b)                                 Until
such time as the Investor ceases to own any Preferred Shares, the Company shall
not repurchase any Preferred Shares from any holder thereof, whether by means
of open market purchase, negotiated transaction, or otherwise, other than
Permitted Repurchases, unless it offers to repurchase a ratable portion of the
Preferred Shares then held by the Investor on the same terms and conditions.

 

(c)                                  “Junior Stock” means Common Stock and any
other class or series of stock of the Company the terms of which expressly
provide that it ranks junior to the Preferred Shares as to dividend rights
and/or as to rights on liquidation, dissolution or winding up of the Company. “Parity Stock” means any class or series of
stock of the Company the terms of which do not expressly provide that such
class or series will rank senior or junior to the Preferred Shares as to
dividend rights and/or as to rights on liquidation, dissolution or winding up
of the Company (in each case without regard to whether dividends accrue
cumulatively or non-cumulatively).

 

4.9                                 Repurchase
of Investor Securities.

 

(a)                                  Following
the redemption in whole of the Preferred Shares held by the Investor or the
Transfer by the Investor of all of the Preferred Shares to one or more third
parties not affiliated with the Investor, the Company may repurchase, in whole
or in part, at any time any other equity securities of the Company purchased by
the Investor pursuant to this Agreement or the Warrant and then held by the
Investor, upon notice given as provided in clause (b) below, at the Fair
Market Value of the equity security.

 

(b)                                 Notice
of every repurchase of equity securities of the Company held by the Investor
shall be given at the address and in the manner set forth for such party in Section 5.6.  Each notice of repurchase given to the
Investor shall state: (i) the number and type of securities to be
repurchased, (ii) the Board of Director’s determination of Fair Market
Value of such securities and (iii) the place or places where certificates
representing such securities are to be surrendered for payment of the
repurchase price.  The repurchase of the
securities specified in the notice shall occur as soon as practicable following
the determination of the Fair Market Value of the securities.

 

(c)                                  As
used in this Section 4.9, the following terms shall have the following
respective meanings:

 

(i)                                     “Appraisal Procedure” means a procedure
whereby two independent appraisers, one chosen by the Company and one by the
Investor, shall mutually agree upon the Fair Market Value.  Each party shall deliver a notice to the
other appointing its appraiser within 10 days after the Appraisal Procedure is
invoked.  If within 30 days after
appointment of the two appraisers they are unable to agree upon the Fair Market
Value, a third independent appraiser shall be chosen within 10 days thereafter
by the mutual consent of such first two appraisers.  The decision of the third appraiser so
appointed and chosen shall be given within 30 days after the selection of such
third appraiser.  If three appraisers
shall be appointed and the determination of one appraiser is disparate from the
middle determination by more than twice the amount by which the other
determination is disparate from the middle determination, then the
determination of such appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall 

 

31

 

be binding and conclusive upon the Company and the Investor; otherwise,
the average of all three determinations shall be binding upon the Company and
the Investor.  The costs of conducting
any Appraisal Procedure shall be borne by the Company.

 

(ii)                                  “Fair Market Value” means, with respect to
any security, the fair market value of such security as determined by the Board
of Directors, acting in good faith in reliance on an opinion of a nationally
recognized independent investment banking firm retained by the Company for this
purpose and certified in a resolution to the Investor.  If the Investor does not agree with the Board
of Director’s determination, it may object in writing within 10 days of receipt
of the Board of Director’s determination. In the event of such an objection, an
authorized representative of the Investor and the chief executive officer of the
Company shall promptly meet to resolve the objection and to agree upon the Fair
Market Value. If the chief executive officer and the authorized representative
are unable to agree on the Fair Market Value during the 10-day period following
the delivery of the Investor’s objection, the Appraisal Procedure may be
invoked by either party to determine the Fair Market Value by delivery of a
written notification thereof not later than the 30th day after
delivery of the Investor’s objection.

 

4.10                           Executive
Compensation.  Until such time as the
Investor ceases to own any debt or equity securities of the Company acquired
pursuant to this Agreement or the Warrant, the Company shall take all necessary
action to ensure that its Benefit Plans with respect to its Senior Executive
Officers comply in all respects with Section 111(b) of the EESA as
implemented by any guidance or regulation thereunder that has been issued and
is in effect as of the Closing Date, and shall not adopt any new Benefit Plan
with respect to its Senior Executive Officers that does not comply
therewith.  “Senior Executive Officers” means the Company’s “senior
executive officers” as defined in subsection 111(b)(3) of the EESA and
regulations issued thereunder, including the rules set forth in 31 C.F.R. Part 30.

 

Article V

Miscellaneous

 

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

 

(a)                                  by
either the Investor or the Company if the Closing shall not have occurred by
the 30th calendar day following the Signing Date; provided, however,
that in the event the Closing has not occurred by such 30th calendar
day, the parties will consult in good faith to determine whether to extend the
term of this Agreement, it being understood that the parties shall be required
to consult only until the fifth day after such 30th calendar day and
not be under any obligation to extend the term of this Agreement thereafter; provided, further,
that the right to terminate this Agreement under this Section 5.1(a) shall
not be available to any party whose breach of any representation or warranty or
failure to perform any obligation under this Agreement shall have caused or
resulted in the failure of the Closing to occur on or prior to such date; or

 

(b)                                 by
either the Investor or the Company in the event that any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or 

 

32

 

otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable; or

 

(c)                                  by
the mutual written consent of the Investor and the Company.

 

In the event
of termination of this Agreement as provided in this Section 5.1, this
Agreement shall forthwith become void and there shall be no liability on the
part of either party hereto except that nothing herein shall relieve either
party from liability for any breach of this Agreement.

 

5.2                                 Survival
of Representations and Warranties. 
All covenants and agreements, other than those which by their terms
apply in whole or in part after the Closing, shall terminate as of the Closing.
The representations and warranties of the Company made herein or in any
certificates delivered in connection with the Closing shall survive the Closing
without limitation.

 

5.3                                 Amendment.  No amendment of any provision of this
Agreement will be effective unless made in writing and signed by an officer or
a duly authorized representative of each party; provided that the Investor may unilaterally amend any
provision of this Agreement to the extent required to comply with any changes
after the Signing Date in applicable federal statutes.  No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise of any other right, power or privilege.  The rights and remedies herein provided shall
be cumulative of any rights or remedies provided by law.

 

5.4                                 Waiver
of Conditions. The conditions to each party’s obligation to consummate the
Purchase are for the sole benefit of such party and may be waived by such party
in whole or in part to the extent permitted by applicable law. No waiver will
be effective unless it is in a writing signed by a duly authorized officer of
the waiving party that makes express reference to the provision or provisions
subject to such waiver.

 

5.5                                 Governing Law: Submission to Jurisdiction, Etc.
This Agreement will be governed by and
construed in accordance with the federal law of the United States if and to the
extent such law is applicable, and otherwise in accordance with the laws of the
State of New York applicable to contracts made and to be performed entirely within
such State. Each of the parties hereto agrees (a) to submit to the
exclusive jurisdiction and venue of the United States District Court for the
District of Columbia and the United States Court of Federal Claims for any and
all civil actions, suits or proceedings arising out of or relating to this
Agreement or the Warrant or the transactions contemplated hereby or thereby,
and (b) that notice may be served upon (i) the Company at the address
and in the manner set forth for notices to the Company in Section 5.6 and (ii) the
Investor in accordance with federal law. 
To the extent permitted by applicable law, each of the parties hereto
hereby unconditionally waives trial by jury in any civil legal action or
proceeding relating to this Agreement or the Warrant or the transactions
contemplated hereby or thereby.

 

5.6                                 Notices.
Any notice, request, instruction or other document to be given hereunder by any
party to the other will be in writing and will be deemed to have been duly
given (a) on the date of delivery if delivered personally, or by
facsimile, upon confirmation of receipt, or (b) on 

 

33

 

the second
business day following the date of dispatch if delivered by a recognized next
day courier service. All notices to the Company shall be delivered as set forth
in Schedule A, or pursuant to such other instruction as may be
designated in writing by the Company to the Investor.  All notices to the Investor shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the Investor to the Company.

 

	
   

  	
  If to the
  Investor:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  United
  States Department of the Treasury

  
	
   

  	
   

  	
  1500
  Pennsylvania Avenue, NW, Room 2312

  
	
   

  	
   

  	
  Washington,
  D.C. 20220

  
	
   

  	
   

  	
  Attention:
  Assistant General Counsel (Banking and Finance)

  
	
   

  	
   

  	
  Facsimile:
  (202) 622-1974

  

 

5.7                                 Definitions.

 

(a)                                  When
a reference is made in this Agreement to a subsidiary of a person, the term “subsidiary” means any corporation,
partnership, joint venture, limited liability company or other entity (x) of
which such person or a subsidiary of such person is a general partner or (y) of
which a majority of the voting securities or other voting interests, or a
majority of the securities or other interests of which having by their terms
ordinary voting power to elect a majority of the board of directors or persons
performing similar functions with respect to such entity, is directly or
indirectly owned by such person and/or one or more subsidiaries thereof.

 

(b)                                 The
term “Affiliate” means, with respect
to any person, any person directly or indirectly controlling, controlled by or
under common control with, such other person. For purposes of this definition, “control” (including, with correlative
meanings, the terms “controlled by”
and “under common control with”)
when used with respect to any person, means the possession, directly or
indirectly, of the power to cause the direction of management and/or policies
of such person, whether through the ownership of voting securities by contract
or otherwise.

 

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

 

5.8                                 Assignment.
Neither this Agreement nor any right, remedy, obligation nor liability arising
hereunder or by reason hereof shall be assignable by any party hereto without
the prior written consent of the other party, and any attempt to assign any
right, remedy, obligation or liability hereunder without such consent shall be
void, except (a) an assignment, in the case of a Business Combination
where such party is not the surviving entity, or a sale of substantially all of
its assets, to the entity which is the survivor of such Business Combination or
the purchaser in such sale and (b) as provided in Section 4.5.

 

5.9                                 Severability.
If any provision of this Agreement or the Warrant, or the application thereof
to any person or circumstance, is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such 

 

34

 

provision to
persons or circumstances other than those as to which it has been held invalid
or unenforceable, will remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.

 

5.10                           No
Third Party Beneficiaries. Nothing contained in this Agreement, expressed
or implied, is intended to confer upon any person or entity other than the
Company and the Investor any benefit, right or remedies, except that the
provisions of Section 4.5 shall inure to the benefit of the persons
referred to in that Section.

 

*  *  *

 

35

 

ANNEX A

 

FORM OF
CERTIFICATE OF DESIGNATIONS

 

[SEE ATTACHED]

 

 

ANNEX
A

 

CERTIFICATE
OF DETERMINATION

 

OF

 

FIXED
RATE CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A

 

OF

 

HERITAGE
COMMERCE CORP

 

Pursuant to Section 401
of the Corporations Code of the State of California:

 

We, Walter T.
Kaczmarek, Chief Executive Officer and Rebecca A. Levey, Secretary, of Heritage
Commerce Corp, a corporation organized under the laws of the State of
California (hereinafter called the “Corporation”), do hereby certify as follows:

 

1.                                       On
November 12, 2008, the Board of Directors of the Corporation adopted a
resolution designating 40,000 shares of Preferred Stock as Fixed Rate
Cumulative Perpetual Preferred Stock, Series A.

 

2.                                       No
shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A have
been issued.

 

3.                                       Pursuant
to the authority conferred upon the Board of Directors by the Articles of
Incorporation of the Corporation, the following resolution was duly adopted by
the Board of Directors on November 12, 2008 creating the series of
Preferred Stock designated as Fixed Rate Cumulative Perpetual Preferred Stock, Series A:

 

RESOLVED, that
pursuant to the provisions of the Articles of Incorporation of the Corporation
and applicable law, a series of Preferred Stock of the Corporation be and
hereby is created, and that the designation and number of shares of such
series, and the voting and other powers, preferences and relative,
participating, optional or other rights, and the qualifications, limitations
and restrictions thereof, of the shares of such series are as follows:

 

Part 1.               Designation and
Number of Shares.  There is hereby
created out of the authorized and unissued shares of preferred stock of the
Corporation a series of preferred stock designated as the “Fixed Rate
Cumulative Perpetual Preferred Stock, Series A” (the “Designated Preferred
Stock”). The authorized number of shares of Designated Preferred Stock
shall be 40,000.

 

Part 2.               Standard
Provisions.  The Standard Provisions
contained in Exhibit A attached hereto are incorporated herein by
reference in their entirety and shall be deemed to be a part of this
Certificate of Determination to the same extent as if such provisions had been
set forth in full herein.

 

1

 

Part 3.               Definitions.  The following terms are used in this
Certificate of Determination (including the Standard Provisions in Exhibit A
hereto) as defined below:

 

(a)                                  “Common
Stock” means the common stock of the Corporation.

 

(b)                                 “Dividend
Payment Date” means February 15, May 15, August 15 and November 15
of each year.

 

(c)                                  “Junior
Stock” means the Common Stock and any other class or series of stock of the
Corporation the terms of which expressly provide that it ranks junior to
Designated Preferred Stock as to dividend rights and/or as to rights on
liquidation, dissolution or winding up of the Corporation.

 

(d)                                 “Liquidation
Amount” means $1,000 per share of Designated Preferred Stock.

 

(e)                                  “Minimum
Amount” means $10,000,000.

 

(f)                                    “Parity
Stock” means any class or series of stock of the Corporation (other than
Designated Preferred Stock) the terms of which do not expressly provide that
such class or series will rank senior or junior to Designated Preferred Stock
as to dividend rights and/or as to rights on liquidation, dissolution or
winding up of the Corporation (in each case without regard to whether dividends
accrue cumulatively or non-cumulatively).

 

(g)                                 “Signing
Date” means the Original Issue Date.

 

Part 4.               Certain Voting
Matters.  Holders of shares of Designated
Preferred Stock will be entitled to one vote for each such share on any matter
on which holders of Designated Preferred Stock are entitled to vote, including
any action by written consent.

 

2

 

We further
declare under penalty of perjury under the laws the State of California that
the matters set forth in this certificate are true and correct of own
knowledge.

 

 

Dated: 
November         , 2008

 

 

	
   

  	
   

  
	
   

  	
  Walter T. Kaczmarek

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Rebecca A. Levey,

  
	
   

  	
  Secretary

  

 

3

 

EXHIBIT
A

 

STANDARD
PROVISIONS

 

Section 1.  General Matters.  Each share of Designated Preferred Stock
shall be identical in all respects to every other share of Designated Preferred
Stock.  The Designated Preferred Stock
shall be perpetual, subject to the provisions of Section 5 of these
Standard Provisions that form a part of the Certificate of Determination.  The Designated Preferred Stock shall rank
equally with Parity Stock and shall rank senior to Junior Stock with respect to
the payment of dividends and the distribution of assets in the event of any
dissolution, liquidation or winding up of the Corporation.

 

Section 2.  Standard Definitions.  As used herein with respect to Designated
Preferred Stock:

 

(a)                                  “Applicable
Dividend Rate” means (i) during the period from the Original Issue
Date to, but excluding, the first day of the first Dividend Period commencing
on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from
and after the first day of the first Dividend Period commencing on or after the
fifth anniversary of the Original Issue Date, 9% per annum.

 

(b)                                 “Appropriate
Federal Banking Agency” means the “appropriate Federal banking agency” with
respect to the Corporation as defined in Section 3(q) of the Federal
Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor
provision.

 

(c)                                  “Business
Combination” means a merger, consolidation, statutory share exchange or
similar transaction that requires the approval of the Corporation’s
stockholders.

 

(d)                                 “Business
Day” means any day except Saturday, Sunday and any day on which banking
institutions in the State of New York generally are authorized or required by
law or other governmental actions to close.

 

(e)                                  “Bylaws”
means the bylaws of the Corporation, as they may be amended from time to time.

 

(f)                                    “Certificate
of Determination” means the Certificate of Determination or comparable
instrument relating to the Designated Preferred Stock, of which these Standard
Provisions form a part, as it may be amended from time to time.

 

(g)                                 “Charter”
means the Corporation’s certificate or articles of incorporation, articles of
association, or similar organizational document.

 

(h)                                 “Dividend
Period” has the meaning set forth in Section 3(a).

 

(i)                                     “Dividend
Record Date” has the meaning set forth in Section 3(a).

 

(j)                                     “Liquidation
Preference” has the meaning set forth in Section 4(a).

 

A-1

 

(k)                                  “Original
Issue Date” means the date on which shares of Designated Preferred Stock
are first issued.

 

(l)                                     “Preferred
Director” has the meaning set forth in Section 7(b).

 

(m)                               “Preferred
Stock” means any and all series of preferred stock of the Corporation,
including the Designated Preferred Stock.

 

(n)                                 “Qualified
Equity Offering” means the sale and issuance for cash by the Corporation to
persons other than the Corporation or any of its subsidiaries after the
Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any
combination of such stock, that, in each case, qualify as and may be included
in Tier 1 capital of the Corporation at the time of issuance under the
applicable risk-based capital guidelines of the Corporation’s Appropriate
Federal Banking Agency (other than any such sales and issuances made pursuant
to agreements or arrangements entered into, or pursuant to financing plans
which were publicly announced, on or prior to October 13, 2008).

 

(o)                                 “Share
Dilution Amount” has the meaning set forth in Section 3(b).

 

(p)                                 “Standard
Provisions” mean these Standard Provisions that form a part of the
Certificate of Determination relating to the Designated Preferred Stock.

 

(q)                                 “Successor
Preferred Stock” has the meaning set forth in Section 5(a).

 

(r)                                    “Voting
Parity Stock” means, with regard to any matter as to which the holders of
Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and
7(b) of these Standard Provisions that form a part of the Certificate of
Determination, any and all series of Parity Stock upon which like voting rights
have been conferred and are exercisable with respect to such matter.

 

Section 3.  Dividends.

 

(a)                                  Rate.  Holders of Designated Preferred Stock shall
be entitled to receive, on each share of Designated Preferred Stock if, as and
when declared by the Board of Directors or any duly authorized committee of the
Board of Directors, but only out of assets legally available therefor,
cumulative cash dividends with respect to each Dividend Period (as defined
below) at a rate per annum equal to the Applicable Dividend Rate on (i) the
Liquidation Amount per share of Designated Preferred Stock and (ii) the
amount of accrued and unpaid dividends for any prior Dividend Period on such
share of Designated Preferred Stock, if any. 
Such dividends shall begin to accrue and be cumulative from the Original
Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other
dividends unless and until the first Dividend Payment Date for such other
dividends has passed without such other dividends having been paid on such
date) and shall be payable quarterly in arrears on each Dividend Payment Date,
commencing with the first such Dividend Payment Date to occur at least 20 calendar
days after the Original Issue Date.  In
the event that any Dividend Payment Date would otherwise fall on a day that is
not a Business Day, the dividend payment due on that date will be postponed to
the next day that is a Business Day and no additional dividends will accrue as
a result of that postponement.  The
period from and including any Dividend Payment Date to, but

 

A-2

 

excluding, the next Dividend Payment Date is
a “Dividend Period”, provided that the initial Dividend Period shall be
the period from and including the Original Issue Date to, but excluding, the
next Dividend Payment Date.

 

Dividends that
are payable on Designated Preferred Stock in respect of any Dividend Period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.  The amount of dividends payable
on Designated Preferred Stock on any date prior to the end of a Dividend
Period, and for the initial Dividend Period, shall be computed on the basis of
a 360-day year consisting of twelve 30-day months, and actual days elapsed over
a 30-day month.

 

Dividends that
are payable on Designated Preferred Stock on any Dividend Payment Date will be
payable to holders of record of Designated Preferred Stock as they appear on
the stock register of the Corporation on the applicable record date, which
shall be the 15th calendar day immediately preceding such Dividend Payment Date
or such other record date fixed by the Board of Directors or any duly
authorized committee of the Board of Directors that is not more than 60 nor
less than 10 days prior to such Dividend Payment Date (each, a “Dividend
Record Date”).  Any such day that is
a Dividend Record Date shall be a Dividend Record Date whether or not such day
is a Business Day.

 

Holders of
Designated Preferred Stock shall not be entitled to any dividends, whether
payable in cash, securities or other property, other than dividends (if any)
declared and payable on Designated Preferred Stock as specified in this Section 3
(subject to the other provisions of the Certificate of Determination).

 

(b)                                 Priority
of Dividends.  So long as any share
of Designated Preferred Stock remains outstanding, no dividend or distribution
shall be declared or paid on the Common Stock or any other shares of Junior
Stock (other than dividends payable solely in shares of Common Stock) or Parity
Stock, subject to the immediately following paragraph in the case of Parity
Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or
indirectly, purchased, redeemed or otherwise acquired for consideration by the
Corporation or any of its subsidiaries unless all accrued and unpaid dividends
for all past Dividend Periods, including the latest completed Dividend Period
(including, if applicable as provided in Section 3(a) above,
dividends on such amount), on all outstanding shares of Designated Preferred
Stock have been or are contemporaneously declared and paid in full (or have
been declared and a sum sufficient for the payment thereof has been set aside
for the benefit of the holders of shares of Designated Preferred Stock on the
applicable record date).  The foregoing
limitation shall not apply to (i) redemptions, purchases or other
acquisitions of shares of Common Stock or other Junior Stock in connection with
the administration of any employee benefit plan in the ordinary course of
business (including purchases to offset the Share Dilution Amount (as defined
below) pursuant to a publicly announced repurchase plan) and consistent with
past practice, provided that any
purchases to offset the Share Dilution Amount shall in no event exceed the
Share Dilution Amount; (ii) purchases or other acquisitions by a
broker-dealer subsidiary of the Corporation solely for the purpose of
market-making, stabilization or customer facilitation transactions in Junior
Stock or Parity Stock in the ordinary course of its business; (iii) purchases
by a broker-dealer subsidiary of the Corporation of capital stock of the
Corporation for resale pursuant to an offering by the Corporation of such
capital stock underwritten by such broker-dealer 

 

A-3

 

subsidiary; (iv) any dividends or
distributions of rights or Junior Stock in connection with a stockholders’
rights plan or any redemption or repurchase of rights pursuant to any
stockholders’ rights plan; (v) the acquisition by the Corporation or any
of its subsidiaries of record ownership in Junior Stock or Parity Stock for the
beneficial ownership of any other persons (other than the Corporation or any of
its subsidiaries), including as trustees or custodians; and (vi) the
exchange or conversion of Junior Stock for or into other Junior Stock or of
Parity Stock for or into other Parity Stock (with the same or lesser aggregate
liquidation amount) or Junior Stock, in each case, solely to the extent
required pursuant to binding contractual agreements entered into prior to the
Signing Date or any subsequent agreement for the accelerated exercise,
settlement or exchange thereof for Common Stock.  “Share Dilution Amount” means the
increase in the number of diluted shares outstanding (determined in accordance
with generally accepted accounting principles in the United States, and as
measured from the date of the Corporation’s consolidated financial statements
most recently filed with the Securities and Exchange Commission prior to the
Original Issue Date) resulting from the grant, vesting or exercise of
equity-based compensation to employees and equitably adjusted for any stock
split, stock dividend, reverse stock split, reclassification or similar
transaction.

 

When dividends
are not paid (or declared and a sum sufficient for payment thereof set aside
for the benefit of the holders thereof on the applicable record date) on any
Dividend Payment Date (or, in the case of Parity Stock having dividend payment
dates different from the Dividend Payment Dates, on a dividend payment date
falling within a Dividend Period related to such Dividend Payment Date) in full
upon Designated Preferred Stock and any shares of Parity Stock, all dividends
declared on Designated Preferred Stock and all such Parity Stock and payable on
such Dividend Payment Date (or, in the case of Parity Stock having dividend
payment dates different from the Dividend Payment Dates, on a dividend payment
date falling within the Dividend Period related to such Dividend Payment Date)
shall be declared pro rata so that the respective amounts of such dividends
declared shall bear the same ratio to each other as all accrued and unpaid
dividends per share on the shares of Designated Preferred Stock (including, if
applicable as provided in Section 3(a) above, dividends on such
amount) and all Parity Stock payable on such Dividend Payment Date (or, in the
case of Parity Stock having dividend payment dates different from the Dividend
Payment Dates, on a dividend payment date falling within the Dividend Period
related to such Dividend Payment Date) (subject to their having been declared
by the Board of Directors or a duly authorized committee of the Board of
Directors out of legally available funds and including, in the case of Parity
Stock that bears cumulative dividends, all accrued but unpaid dividends) bear
to each other.  If the Board of Directors
or a duly authorized committee of the Board of Directors determines not to pay
any dividend or a full dividend on a Dividend Payment Date, the Corporation
will provide written notice to the holders of Designated Preferred Stock prior
to such Dividend Payment Date.

 

Subject to the
foregoing, and not otherwise, such dividends (payable in cash, securities or
other property) as may be determined by the Board of Directors or any duly
authorized committee of the Board of Directors may be declared and paid on any
securities, including Common Stock and other Junior Stock, from time to time
out of any funds legally available for such payment, and holders of Designated
Preferred Stock shall not be entitled to participate in any such dividends.

 

A-4

 

Section 4.  Liquidation Rights.

 

(a)                                  Voluntary
or Involuntary Liquidation.  In the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, holders of Designated Preferred
Stock shall be entitled to receive for each share of Designated Preferred
Stock, out of the assets of the Corporation or proceeds thereof (whether
capital or surplus) available for distribution to stockholders of the
Corporation, subject to the rights of any creditors of the Corporation, before any
distribution of such assets or proceeds is made to or set aside for the holders
of Common Stock and any other stock of the Corporation ranking junior to
Designated Preferred Stock as to such distribution, payment in full in an
amount equal to the sum of (i) the Liquidation Amount per share and (ii) the
amount of any accrued and unpaid dividends (including, if applicable as
provided in Section 3(a) above, dividends on such amount), whether or
not declared, to the date of payment (such amounts collectively, the “Liquidation
Preference”).

 

(b)                                 Partial
Payment.  If in any distribution
described in Section 4(a) above the assets of the Corporation or
proceeds thereof are not sufficient to pay in full the amounts payable with
respect to all outstanding shares of Designated Preferred Stock and the
corresponding amounts payable with respect of any other stock of the
Corporation ranking equally with Designated Preferred Stock as to such
distribution, holders of Designated Preferred Stock and the holders of such other
stock shall share ratably in any such distribution in proportion to the full
respective distributions to which they are entitled.

 

(c)                                  Residual
Distributions.  If the Liquidation
Preference has been paid in full to all holders of Designated Preferred Stock
and the corresponding amounts payable with respect of any other stock of the
Corporation ranking equally with Designated Preferred Stock as to such
distribution has been paid in full, the holders of other stock of the
Corporation shall be entitled to receive all remaining assets of the
Corporation (or proceeds thereof) according to their respective rights and
preferences.

 

(d)                                 Merger,
Consolidation and Sale of Assets Not Liquidation.  For purposes of this Section 4, the
merger or consolidation of the Corporation with any other corporation or other
entity, including a merger or consolidation in which the holders of Designated
Preferred Stock receive cash, securities or other property for their shares, or
the sale, lease or exchange (for cash, securities or other property) of all or
substantially all of the assets of the Corporation, shall not constitute a
liquidation, dissolution or winding up of the Corporation.

 

Section 5.  Redemption.

 

(a)                                  Optional
Redemption.  Except as provided
below, the Designated Preferred Stock may not be redeemed prior to the first
Dividend Payment Date falling on or after the third anniversary of the Original
Issue Date.  On or after the first
Dividend Payment Date falling on or after the third anniversary of the Original
Issue Date, the Corporation, at its option, subject to the approval of the
Appropriate Federal Banking Agency, may redeem, in whole or in part, at any
time and from time to time, out of funds legally available therefor, the shares
of Designated Preferred Stock at the time outstanding, upon notice given as
provided in Section 5(c) below, at a redemption price equal to the sum of (i) the
Liquidation Amount per share and (ii) except as 

 

A-5

 

otherwise provided below, any accrued and
unpaid dividends (including, if applicable as provided in Section 3(a) above,
dividends on such amount) (regardless of whether any dividends are actually
declared) to, but excluding, the date fixed for redemption.

 

Notwithstanding
the foregoing, prior to the first Dividend Payment Date falling on or after the
third anniversary of the Original Issue Date, the Corporation, at its option,
subject to the approval of the Appropriate Federal Banking Agency, may redeem,
in whole or in part, at any time and from time to time, the shares of
Designated Preferred Stock at the time outstanding, upon notice given as
provided in Section 5(c) below, at a redemption price equal to the
sum of (i) the Liquidation Amount per share and (ii) except as
otherwise provided below, any accrued and unpaid dividends (including, if
applicable as provided in Section 3(a) above, dividends on such
amount) (regardless of whether any dividends are actually declared) to, but
excluding, the date fixed for redemption; provided
that (x) the Corporation (or any successor by Business Combination) has
received aggregate gross proceeds of not less than the Minimum Amount (plus the
“Minimum Amount” as defined in the relevant certificate of determination for
each other outstanding series of preferred stock of such successor that was
originally issued to the United States Department of the Treasury (the “Successor
Preferred Stock”) in connection with the Troubled Asset Relief Program
Capital Purchase Program) from one or more Qualified Equity Offerings
(including Qualified Equity Offerings of such successor), and (y) the
aggregate redemption price of the Designated Preferred Stock (and any Successor
Preferred Stock) redeemed pursuant to this paragraph may not exceed the
aggregate net cash proceeds received by the Corporation (or any successor by
Business Combination) from such Qualified Equity Offerings (including Qualified
Equity Offerings of such successor).

 

The redemption
price for any shares of Designated Preferred Stock shall be payable on the
redemption date to the holder of such shares against surrender of the
certificate(s) evidencing such shares to the Corporation or its
agent.  Any declared but unpaid dividends
payable on a redemption date that occurs subsequent to the Dividend Record Date
for a Dividend Period shall not be paid to the holder entitled to receive the
redemption price on the redemption date, but rather shall be paid to the holder
of record of the redeemed shares on such Dividend Record Date relating to the
Dividend Payment Date as provided in Section 3 above.

 

(b)                                 No
Sinking Fund.  The Designated
Preferred Stock will not be subject to any mandatory redemption, sinking fund
or other similar provisions.  Holders of
Designated Preferred Stock will have no right to require redemption or
repurchase of any shares of Designated Preferred Stock.

 

(c)                                  Notice
of Redemption.  Notice of every
redemption of shares of Designated Preferred Stock shall be given by first
class mail, postage prepaid, addressed to the holders of record of the shares
to be redeemed at their respective last addresses appearing on the books of the
Corporation.  Such mailing shall be at
least 30 days and not more than 60 days before the date fixed for redemption.  Any notice mailed as provided in this
Subsection shall be conclusively presumed to have been duly given, whether or
not the holder receives such notice, but failure duly to give such notice by
mail, or any defect in such notice or in the mailing thereof, to any holder of
shares of Designated Preferred Stock designated for redemption shall not affect
the validity of the proceedings for the redemption of any other shares of
Designated Preferred Stock. 
Notwithstanding the foregoing, if shares of Designated Preferred Stock
are issued in 

 

A-6

 

book-entry form through The Depository Trust
Corporation or any other similar facility, notice of redemption may be given to
the holders of Designated Preferred Stock at such time and in any manner
permitted by such facility.  Each notice
of redemption given to a holder shall state: (1) the redemption date; (2) the
number of shares of Designated Preferred Stock to be redeemed and, if less than
all the shares held by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (3) the redemption price; and (4) the
place or places where certificates for such shares are to be surrendered for
payment of the redemption price.

 

(d)                                 Partial
Redemption.  In case of any
redemption of part of the shares of Designated Preferred Stock at the time
outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the
Board of Directors or a duly authorized committee thereof may determine to be
fair and equitable.  Subject to the
provisions hereof, the Board of Directors or a duly authorized committee
thereof shall have full power and authority to prescribe the terms and
conditions upon which shares of Designated Preferred Stock shall be redeemed
from time to time.  If fewer than all the
shares represented by any certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without charge to the holder thereof.

 

(e)                                  Effectiveness
of Redemption.  If notice of
redemption has been duly given and if on or before the redemption date
specified in the notice all funds necessary for the redemption have been
deposited by the Corporation, in trust for the pro rata benefit of the holders
of the shares called for redemption, with a bank or trust company doing
business in the Borough of Manhattan, The City of New York, and having a
capital and surplus of at least $500 million and selected by the Board of
Directors, so as to be and continue to be available solely therefor, then,
notwithstanding that any certificate for any share so called for redemption has
not been surrendered for cancellation, on and after the redemption date
dividends shall cease to accrue on all shares so called for redemption, all
shares so called for redemption shall no longer be deemed outstanding and all
rights with respect to such shares shall forthwith on such redemption date
cease and terminate, except only the right of the holders thereof to receive
the amount payable on such redemption from such bank or trust company, without
interest.  Any funds unclaimed at the end
of three years from the redemption date shall, to the extent permitted by law,
be released to the Corporation, after which time the holders of the shares so
called for redemption shall look only to the Corporation for payment of the
redemption price of such shares.

 

(f)                                    Status
of Redeemed Shares.  Shares of
Designated Preferred Stock that are redeemed, repurchased or otherwise acquired
by the Corporation shall revert to authorized but unissued shares of Preferred
Stock (provided that any such
cancelled shares of Designated Preferred Stock may be reissued only as shares
of any series of Preferred Stock other than Designated Preferred Stock).

 

Section 6.  Conversion.  Holders of Designated Preferred Stock shares
shall have no right to exchange or convert such shares into any other
securities.

 

Section 7.  Voting Rights.

 

(a)                                  General.  The holders of Designated Preferred Stock
shall not have any voting rights except as set forth below or as otherwise from
time to time required by law.

 

A-7

 

(b)                                 Preferred
Stock Directors.  Whenever, at any
time or times, dividends payable on the shares of Designated Preferred Stock
have not been paid for an aggregate of six quarterly Dividend Periods or more,
whether or not consecutive, the holders of the Designated Preferred Stock shall
have the right, with holders of shares of any one or more other classes or
series of Voting Parity Stock outstanding at the time, voting together as a
class, to elect two directors (hereinafter the “Preferred Directors” and
each a “Preferred Director”) at the Corporation’s next annual meeting of
stockholders (or at a special meeting called for that purpose prior to such
next annual meeting) and at each subsequent annual meeting of stockholders
until all accrued and unpaid dividends for all past Dividend Periods, including
the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above,
dividends on such amount), on all outstanding shares of Designated Preferred
Stock have been declared and paid in full at which time such right shall
terminate with respect to the Designated Preferred Stock, except as herein or
by law expressly provided, subject to revesting in the event of each and every
subsequent default of the character above mentioned; provided that it shall be
a qualification for election for any Preferred Director that the election of
such Preferred Director shall not cause the Corporation to violate any
corporate governance requirements of any securities exchange or other trading
facility on which securities of the Corporation may then be listed or traded
that listed or traded companies must have a majority of independent
directors.  Upon any termination of the
right of the holders of shares of Designated Preferred Stock and Voting Parity
Stock as a class to vote for directors as provided above, the Preferred
Directors shall cease to be qualified as directors, the term of office of all
Preferred Directors then in office shall terminate immediately and the
authorized number of directors shall be reduced by the number of Preferred
Directors elected pursuant hereto.  Any
Preferred Director may be removed at any time, with or without cause, and any
vacancy created thereby may be filled, only by the affirmative vote of the
holders a majority of the shares of Designated Preferred Stock at the time
outstanding voting separately as a class together with the holders of shares of
Voting Parity Stock, to the extent the voting rights of such holders described
above are then exercisable.  If the
office of any Preferred Director becomes vacant for any reason other than
removal from office as aforesaid, the remaining Preferred Director may choose a
successor who shall hold office for the unexpired term in respect of which such
vacancy occurred.

 

(c)                                  Class Voting
Rights as to Particular Matters.  So
long as any shares of Designated Preferred Stock are outstanding, in addition
to any other vote or written consent of stockholders required by law or by the
Charter, the vote or written consent of the holders of at least 662/3%
of the shares of Designated Preferred Stock at the time outstanding, voting as
a separate class, given in person or by proxy, either in writing without a
meeting or by vote at any meeting called for the purpose, shall be necessary
for effecting or validating:

 

(i)                                     Authorization
of Senior Stock.  Any amendment or
alteration of the Certificate of Determination for the Designated Preferred
Stock or the Charter to authorize or create or increase the authorized amount
of, or any issuance of, any shares of, or any securities convertible into or
exchangeable or exercisable for shares of, any class or series of capital stock
of the Corporation ranking senior to Designated Preferred Stock with respect to
either or both the payment of dividends and/or the distribution of assets on
any liquidation, dissolution or winding up of the Corporation;

 

A-8

 

(ii)                                  Amendment
of Designated Preferred Stock.  Any
amendment, alteration or repeal of any provision of the Certificate of
Determination for the Designated Preferred Stock or the Charter (including,
unless no vote on such merger or consolidation is required by Section 7(c)(iii) below,
any amendment, alteration or repeal by means of a merger, consolidation or
otherwise) so as to adversely affect the rights, preferences, privileges or
voting powers of the Designated Preferred Stock; or

 

(iii)                               Share
Exchanges, Reclassifications, Mergers and Consolidations.  Any consummation of a binding share exchange
or reclassification involving the Designated Preferred Stock, or of a merger or
consolidation of the Corporation with another corporation or other entity,
unless in each case (x) the shares of Designated Preferred Stock remain
outstanding or, in the case of any such merger or consolidation with respect to
which the Corporation is not the surviving or resulting entity, are converted
into or exchanged for preference securities of the surviving or resulting
entity or its ultimate parent, and (y) such shares remaining outstanding
or such preference securities, as the case may be, have such rights,
preferences, privileges and voting powers, and limitations and restrictions
thereof, taken as a whole, as are not materially less favorable to the holders
thereof than the rights, preferences, privileges and voting powers, and
limitations and restrictions thereof, of Designated Preferred Stock immediately
prior to such consummation, taken as a whole;

 

provided, however,
that for all purposes of this Section 7(c), any increase in the amount of
the authorized Preferred Stock, including any increase in the authorized amount
of Designated Preferred Stock necessary to satisfy preemptive or similar rights
granted by the Corporation to other persons prior to the Signing Date, or the
creation and issuance, or an increase in the authorized or issued amount,
whether pursuant to preemptive or similar rights or otherwise, of any other
series of Preferred Stock, or any securities convertible into or exchangeable
or exercisable for any other series of Preferred Stock, ranking equally with
and/or junior to Designated Preferred Stock with respect to the payment of
dividends (whether such dividends are cumulative or non-cumulative) and the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation will not be deemed to adversely affect the rights, preferences,
privileges or voting powers, and shall not require the affirmative vote or
consent of, the holders of outstanding shares of the Designated Preferred
Stock.

 

(d)                                 Changes
after Provision for Redemption.  No
vote or consent of the holders of Designated Preferred Stock shall be required
pursuant to Section 7(c) above if, at or prior to the time when any
such vote or consent would otherwise be required pursuant to such Section, all outstanding
shares of the Designated Preferred Stock shall have been redeemed, or shall
have been called for redemption upon proper notice and sufficient funds shall
have been deposited in trust for such redemption, in each case pursuant to Section 5
above.

 

(e)                                  Procedures
for Voting and Consents.  The rules and
procedures for calling and conducting any meeting of the holders of Designated
Preferred Stock (including, without limitation, the fixing of a record date in
connection therewith), the solicitation and use of proxies at such a meeting,
the obtaining of written consents and any other aspect or matter with regard to
such a meeting or such consents shall conform to the requirements of the
Charter, the Bylaws, and applicable law and the rules of any national
securities exchange or other trading facility on which Designated Preferred
Stock is listed or traded at the time.

 

A-9

 

Section 8.  Record Holders.  To the fullest extent permitted by applicable
law, the Corporation and the transfer agent for Designated Preferred Stock may
deem and treat the record holder of any share of Designated Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Corporation
nor such transfer agent shall be affected by any notice to the contrary.

 

Section 9.  Notices.  All notices or communications in respect of
Designated Preferred Stock shall be sufficiently given if given in writing and
delivered in person or by first class mail, postage prepaid, or if given in
such other manner as may be permitted in this Certificate of Determination, in
the Charter or Bylaws or by applicable law. 
Notwithstanding the foregoing, if shares of Designated Preferred Stock
are issued in book-entry form through The Depository Trust Corporation or any
similar facility, such notices may be given to the holders of Designated
Preferred Stock in any manner permitted by such facility.

 

Section 10.  No Preemptive Rights.  No share of Designated Preferred Stock shall
have any rights of preemption whatsoever as to any securities of the
Corporation, or any warrants, rights or options issued or granted with respect
thereto, regardless of how such securities, or such warrants, rights or
options, may be designated, issued or granted.

 

Section 11.  Replacement Certificates.  The Corporation shall replace any mutilated
certificate at the holder’s expense upon surrender of that certificate to the
Corporation.  The Corporation shall
replace certificates that become destroyed, stolen or lost at the holder’s
expense upon delivery to the Corporation of reasonably satisfactory evidence
that the certificate has been destroyed, stolen or lost, together with any
indemnity that may be reasonably required by the Corporation.

 

Section 12.  Other Rights.  The shares of Designated Preferred Stock
shall not have any rights, preferences, privileges or voting powers or
relative, participating, optional or other special rights, or qualifications,
limitations or restrictions thereof, other than as set forth herein or in the
Charter or as provided by applicable law.

 

A-10

 

ANNEX B

 

FORM OF WAIVER

 

In
consideration for the benefits I will receive as a result of my employer’s
participation in the United States Department of the Treasury’s TARP Capital
Purchase Program, I hereby voluntarily waive any claim against the United
States or my employer for any changes to my compensation or benefits that are
required to comply with the regulation issued by the Department of the Treasury
as published in the Federal Register on October 20, 2008.

 

I acknowledge
that this regulation may require modification of the compensation, bonus,
incentive and other benefit plans, arrangements, policies and agreements
(including so-called “golden parachute” agreements) that I have with my
employer or in which I participate as they relate to the period the United
States holds any equity or debt securities of my employer acquired through the
TARP Capital Purchase Program.

 

This waiver
includes all claims I may have under the laws of the United States or any state
related to the requirements imposed by the aforementioned regulation, including
without limitation a claim for any compensation or other payments I would
otherwise receive, any challenge to the process by which this regulation was
adopted and any tort or constitutional claim about the effect of these
regulations on my employment relationship.

 

 

ANNEX C

 

FORM OF OPINION

 

(a)                                  The
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the state of its incorporation.

 

(b)                                 The
Preferred Shares have been duly and validly authorized, and, when issued and
delivered pursuant to the Agreement, the Preferred Shares will be duly and
validly issued and fully paid and non-assessable, will not be issued in
violation of any preemptive rights, and will rank pari passu with or senior to all other series or classes of
Preferred Stock issued on the Closing Date with respect to the payment of
dividends and the distribution of assets in the event of any dissolution,
liquidation or winding up of the Company.

 

(c)                                  The
Warrant has been duly authorized and, when executed and delivered as
contemplated by the Agreement, will constitute a valid and legally binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally and general equitable principles,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.

 

(d)                                 The
shares of Common Stock issuable upon exercise of the Warrant have been duly
authorized and reserved for issuance upon exercise of the Warrant and when so
issued in accordance with the terms of the Warrant will be validly issued,
fully paid and non-assessable [insert, if applicable:  ,  subject
to the approvals of the Company’s stockholders set forth on Schedule C].

 

(e)                                  The
Company has the corporate power and authority to execute and deliver the
Agreement and the Warrant and [insert, if applicable: ,  subject to the approvals of the Company’s
stockholders set forth on Schedule C,]
to carry out its obligations thereunder (which includes the issuance
of the Preferred Shares, Warrant and Warrant Shares).

 

(f)                                    The
execution, delivery and performance by the Company of the Agreement and the
Warrant and the consummation of the transactions contemplated thereby have been
duly authorized by all necessary corporate action on the part of the Company
and its stockholders, and no further approval or authorization is required on
the part of the Company  [insert, if
applicable:  ,  subject, in each case, to the approvals of
the Company’s stockholders set forth on Schedule C].

 

(g)                                 The
Agreement is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally and general equitable
principles, regardless of whether such enforceability is considered in a
proceeding at law or in equity; provided,
however, such counsel need
express no opinion with respect to Section 4.5(g) or the severability
provisions of the Agreement insofar as Section 4.5(g) is concerned.

 

 

ANNEX D

 

FORM OF WARRANT

 

[SEE ATTACHED]

 

 

ANNEX D

 

FORM OF WARRANT TO PURCHASE COMMON STOCK

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT
WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR SUCH LAWS.  THIS
INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE
WITH THE ISSUER.  THE SECURITIES
REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. 
ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE
VOID.

 

WARRANT

to purchase

 

462,963

Shares of Common Stock 

of Heritage Commerce Corp

 

Issue Date: 
November 21, 2008.

 

1.                                       Definitions.  Unless the context otherwise requires, when
used herein the following terms shall have the meanings indicated.

 

“Affiliate” has the
meaning ascribed to it in the Purchase Agreement.

 

“Appraisal Procedure”
means a procedure whereby two independent appraisers, one chosen by the Company
and one by the Original Warrantholder, shall mutually agree upon the
determinations then the subject of appraisal. 
Each party shall deliver a notice to the other appointing its appraiser
within 15 days after the Appraisal Procedure is invoked.  If within 30 days after appointment of the
two appraisers they are unable to agree upon the amount in question, a third
independent appraiser shall be chosen within 10 days thereafter by the mutual
consent of such first two appraisers. 
The decision of the third appraiser so appointed and chosen shall be
given within 30 days after the selection of such third appraiser.  If three appraisers shall be appointed and
the determination of one appraiser is disparate from the middle determination
by more than twice the amount by which the other determination is disparate
from the middle determination, then the determination of such appraiser shall
be excluded, the remaining two determinations shall be averaged and such
average shall be binding and conclusive upon the Company and the Original
Warrantholder; otherwise, the average of all three determinations shall be
binding upon the Company and the Original Warrantholder.  The costs of conducting 

 

1

 

any Appraisal Procedure shall be borne by the
Company.

 

“Board of Directors”
means the board of directors of the Company, including any duly authorized
committee thereof.

 

“Business Combination”
means a merger, consolidation, statutory share exchange or similar transaction
that requires the approval of the Company’s stockholders.

 

“business day” means any
day except Saturday, Sunday and any day on which banking institutions in the
State of New York generally are authorized or required by law or other
governmental actions to close.

 

“Capital Stock” means (A) with
respect to any Person that is a corporation or company, any and all shares,
interests, participations or other equivalents (however designated) of capital
or capital stock of such Person and (B) with respect to any Person that is
not a corporation or company, any and all partnership or other equity interests
of such Person.

 

“Charter” means, with
respect to any Person, its certificate or articles of incorporation, articles
of association, or similar organizational document.

 

“Common Stock” has the
meaning ascribed to it in the Purchase Agreement.

 

“Company” means the
Person whose name, corporate or other organizational form and jurisdiction of
organization is set forth in Item 1 of Schedule A hereto.

 

“conversion” has the
meaning set forth in Section 13(B).

 

“convertible securities”
has the meaning set forth in Section 13(B).

 

“CPP” has the meaning
ascribed to it in the Purchase Agreement.

 

“Exchange Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and
regulations promulgated thereunder.

 

“Exercise Price” means
the amount set forth in Item 2 of Schedule A hereto.

 

“Expiration Time” has the
meaning set forth in Section 3.

 

“Fair Market Value”
means, with respect to any security or other property, the fair market value of
such security or other property as determined by the Board of Directors, acting
in good faith or, with respect to Section 14, as determined by the
Original Warrantholder acting in good faith. 
For so long as the Original Warrantholder holds this Warrant or any
portion thereof, it may object in writing to the Board of Director’s
calculation of fair market value within 10 days of receipt of written notice
thereof.  If the Original Warrantholder
and the Company are unable to agree on fair market value during the 10-day
period following the delivery of the Original Warrantholder’s objection, the
Appraisal Procedure may be invoked by either party to determine Fair Market
Value by delivering written notification thereof not later than the 30th day
after delivery of the Original Warrantholder’s objection.

 

2

 

“Governmental Entities”
has the meaning ascribed to it in the Purchase Agreement.

 

“Initial Number” has the
meaning set forth in Section 13(B).

 

“Issue Date” means the
date set forth in Item 3 of Schedule A hereto.

 

“Market Price” means,
with respect to a particular security, on any given day, the last reported sale
price regular way or, in case no such reported sale takes place on such day,
the average of the last closing bid and ask prices regular way, in either case
on the principal national securities exchange on which the applicable
securities are listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
ask prices as furnished by two members of the Financial Industry Regulatory
Authority, Inc.  selected from time
to time by the Company for that purpose. 
“Market Price” shall be determined without reference to after hours or
extended hours trading.  If such security
is not listed and traded in a manner that the quotations referred to above are
available for the period required hereunder, the Market Price per share of
Common Stock shall be deemed to be (i) in the event that any portion of
the Warrant is held by the Original Warrantholder, the fair market value per
share of such security as determined in good faith by the Original
Warrantholder or (ii) in all other circumstances, the fair market value
per share of such security as determined in good faith by the Board of
Directors in reliance on an opinion of a nationally recognized independent
investment banking corporation retained by the Company for this purpose and
certified in a resolution to the Warrantholder. 
For the purposes of determining the Market Price of the Common Stock on
the “trading day” preceding, on or following the occurrence of an event, (i) that
trading day shall be deemed to commence immediately after the regular scheduled
closing time of trading on the New York Stock Exchange or, if trading is closed
at an earlier time, such earlier time and (ii) that trading day shall end
at the next regular scheduled closing time, or if trading is closed at an
earlier time, such earlier time (for the avoidance of doubt, and as an example,
if the Market Price is to be determined as of the last trading day preceding a
specified event and the closing time of trading on a particular day is 4:00 p.m.
and the specified event occurs at 5:00 p.m.  on that day, the Market Price would be
determined by reference to such 4:00 p.m. closing price).

 

“Ordinary Cash Dividends”
means a regular quarterly cash dividend on shares of Common Stock out of
surplus or net profits legally available therefor (determined in accordance
with generally accepted accounting principles in effect from time to time),
provided that Ordinary Cash Dividends shall not include any cash dividends paid
subsequent to the Issue Date to the extent the aggregate per share dividends
paid on the outstanding Common Stock in any quarter exceed the amount set forth
in Item 4 of Schedule A hereto, as adjusted for any stock split, stock
dividend, reverse stock split, reclassification or similar transaction.

 

“Original Warrantholder”
means the United States Department of the Treasury.  Any actions specified to be taken by the
Original Warrantholder hereunder may only be taken by such Person and not by
any other Warrantholder.

 

“Permitted Transactions”
has the meaning set forth in Section 13(B).

 

“Person” has the meaning
given to it in Section 3(a)(9) of the Exchange Act and as used 

 

3

 

in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act.

 

“Per Share Fair Market Value”
has the meaning set forth in Section 13(C).

 

“Preferred Shares” means
the perpetual preferred stock issued to the Original Warrantholder on the Issue
Date pursuant to the Purchase Agreement.

 

“Pro Rata Repurchases”
means any purchase of shares of Common Stock by the Company or any Affiliate
thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or
14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any
other offer available to substantially all holders of Common Stock, in the case
of both (A) or (B), whether for cash, shares of Capital Stock of the
Company, other securities of the Company, evidences of indebtedness of the
Company or any other Person or any other property (including, without
limitation, shares of Capital Stock, other securities or evidences of indebtedness
of a subsidiary), or any combination thereof, effected while this Warrant is
outstanding.  The “Effective Date” of a Pro Rata Repurchase
shall mean the date of acceptance of shares for purchase or exchange by the
Company under any tender or exchange offer which is a Pro Rata Repurchase or
the date of purchase with respect to any Pro Rata Repurchase that is not a
tender or exchange offer.

 

“Purchase Agreement”
means the Securities Purchase Agreement — Standard Terms incorporated into the
Letter Agreement, dated as of the date set forth in Item 5 of Schedule A
hereto, as amended from time to time, between the Company and the United States
Department of the Treasury (the “Letter
Agreement”), including all annexes and schedules thereto.

 

“Qualified Equity Offering”
has the meaning ascribed to it in the Purchase Agreement.

 

“Regulatory Approvals”
with respect to the Warrantholder, means, to the extent applicable and required
to permit the Warrantholder to exercise this Warrant for shares of Common Stock
and to own such Common Stock without the Warrantholder being in violation of
applicable law, rule or regulation, the receipt of any necessary approvals
and authorizations of, filings and registrations with, notifications to, or
expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder.

 

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

 

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

 

“Shares” has the meaning
set forth in Section 2.

 

“trading day” means (A) if
the shares of Common Stock are not traded on any national or regional
securities exchange or association or over-the-counter market, a business day
or (B) if the shares of Common Stock are traded on any national or
regional securities exchange or association or over-the-counter market, a
business day on which such relevant exchange or quotation system is scheduled
to be open for business and on which the shares of Common Stock (i) are
not suspended from trading on any national or regional securities exchange or
association 

 

4

 

or over-the-counter market for any period or
periods aggregating one half hour or longer; and (ii) have traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the shares
of Common Stock.

 

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

 

“Warrantholder” has the
meaning set forth in Section 2.

 

“Warrant” means this
Warrant, issued pursuant to the Purchase Agreement.

 

2.                                       Number
of Shares; Exercise Price.  This
certifies that, for value received, the United States Department of the
Treasury or its permitted assigns (the “Warrantholder”)
is entitled, upon the terms and subject to the conditions hereinafter set
forth, to acquire from the Company, in whole or in part, after the receipt of
all applicable Regulatory Approvals, if any, up to an aggregate of the number
of fully paid and nonassessable shares of Common Stock set forth in Item 6 of
Schedule A hereto, at a purchase price per share of Common Stock equal to the
Exercise Price.  The number of shares of
Common Stock (the “Shares”) and
the Exercise Price are subject to adjustment as provided herein, and all
references to “Common Stock,” “Shares” and “Exercise Price” herein shall be
deemed to include any such adjustment or series of adjustments.

 

3.                                       Exercise
of Warrant, Term.  Subject to Section 2,
to the extent permitted by applicable laws and regulations, the right to
purchase the Shares represented by this Warrant is exercisable, in whole or in
part by the Warrantholder, at any time or from time to time after the execution
and delivery of this Warrant by the Company on the date hereof, but in no event
later than 5:00 p.m., New York City time on the tenth anniversary of the
Issue Date (the “Expiration Time”),
by (A) the surrender of this Warrant and Notice of Exercise annexed
hereto, duly completed and executed on behalf of the Warrantholder, at the
principal executive office of the Company located at the address set forth in
Item 7 of Schedule A hereto (or such other office or agency of the Company in
the United States as it may designate by notice in writing to the Warrantholder
at the address of the Warrantholder appearing on the books of the Company), and
(B) payment of the Exercise Price for the Shares thereby purchased:

 

(i)                                     by
having the Company withhold, from the shares of Common Stock that would
otherwise be delivered to the Warrantholder upon such exercise, shares of
Common Stock issuable upon exercise of the Warrant equal in value to the aggregate
Exercise Price as to which this Warrant is so exercised based on the Market
Price of the Common Stock on the trading day on which this Warrant is exercised
and the Notice of Exercise is delivered to the Company pursuant to this Section 3,
or

 

(ii)                                  with
the consent of both the Company and the Warrantholder, by tendering in cash, by
certified or cashier’s check payable to the order of the Company, or by wire
transfer of immediately available funds to an account designated by the
Company.

 

If the Warrantholder does not exercise this Warrant in its entirety,
the Warrantholder will be entitled to receive from the Company within a
reasonable time, and in any event not exceeding three business days, a new
warrant in substantially identical form for the purchase of that number of
Shares equal to the difference between the number of Shares subject to this

 

5

 

Warrant and the number of Shares as to which this Warrant is so
exercised.  Notwithstanding anything in
this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees
that its exercise of this Warrant for Shares is subject to the condition that
the Warrantholder will have first received any applicable Regulatory Approvals.

 

4.             Issuance of
Shares; Authorization; Listing. 
Certificates for Shares issued upon exercise of this Warrant will be
issued in such name or names as the Warrantholder may designate and will be
delivered to such named Person or Persons within a reasonable time, not to
exceed three business days after the date on which this Warrant has been duly
exercised in accordance with the terms of this Warrant.  The Company hereby represents and warrants
that any Shares issued upon the exercise of this Warrant in accordance with the
provisions of Section 3 will be duly and validly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges (other
than liens or charges created by the Warrantholder, income and franchise taxes
incurred in connection with the exercise of the Warrant or taxes in respect of
any transfer occurring contemporaneously therewith).  The Company agrees that the Shares so issued
will be deemed to have been issued to the Warrantholder as of the close of
business on the date on which this Warrant and payment of the Exercise Price
are delivered to the Company in accordance with the terms of this Warrant,
notwithstanding that the stock transfer books of the Company may then be closed
or certificates representing such Shares may not be actually delivered on such
date.  The Company will at all times
reserve and keep available, out of its authorized but unissued Common Stock,
solely for the purpose of providing for the exercise of this Warrant, the
aggregate number of shares of Common Stock then issuable upon exercise of this
Warrant at any time.  The Company will (A) procure,
at its sole expense, the listing of the Shares issuable upon exercise of this
Warrant at any time, subject to issuance or notice of issuance, on all
principal stock exchanges on which the Common Stock is then listed or traded
and (B) maintain such listings of such Shares at all times after
issuance.  The Company will use
reasonable best efforts to ensure that the Shares may be issued without
violation of any applicable law or regulation or of any requirement of any
securities exchange on which the Shares are listed or traded.

 

5.             No Fractional
Shares or Scrip.  No fractional
Shares or scrip representing fractional Shares shall be issued upon any
exercise of this Warrant.  In lieu of any
fractional Share to which the Warrantholder would otherwise be entitled, the
Warrantholder shall be entitled to receive a cash payment equal to the Market
Price of the Common Stock on the last trading day preceding the date of
exercise less the pro-rated Exercise Price for such fractional share.

 

6.             No Rights as
Stockholders; Transfer Books.  This
Warrant does not entitle the Warrantholder to any voting rights or other rights
as a stockholder of the Company prior to the date of exercise hereof.  The Company will at no time close its
transfer books against transfer of this Warrant in any manner which interferes
with the timely exercise of this Warrant.

 

7.             Charges, Taxes
and Expenses.  Issuance of
certificates for Shares to the Warrantholder upon the exercise of this Warrant
shall be made without charge to the Warrantholder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company.

 

6

 

8.             Transfer/Assignment.

 

(A)          Subject to compliance
with clause (B) of this Section 8, this Warrant and all rights
hereunder are transferable, in whole or in part, upon the books of the Company
by the registered holder hereof in person or by duly authorized attorney, and a
new warrant shall be made and delivered by the Company, of the same tenor and
date as this Warrant but registered in the name of one or more transferees,
upon surrender of this Warrant, duly endorsed, to the office or agency of the
Company described in Section 3.  All
expenses (other than stock transfer taxes) and other charges payable in connection
with the preparation, execution and delivery of the new warrants pursuant to
this Section 8 shall be paid by the Company.

 

(B)           The transfer of the
Warrant and the Shares issued upon exercise of the Warrant are subject to the
restrictions set forth in Section 4.4 of the Purchase Agreement.  If and for so long as required by the
Purchase Agreement, this Warrant shall contain the legends as set forth in
Sections 4.2(a) and 4.2(b) of the Purchase Agreement.

 

9.             Exchange and
Registry of Warrant.  This Warrant is
exchangeable, upon the surrender hereof by the Warrantholder to the Company,
for a new warrant or warrants of like tenor and representing the right to
purchase the same aggregate number of Shares. 
The Company shall maintain a registry showing the name and address of
the Warrantholder as the registered holder of this Warrant.  This Warrant may be surrendered for exchange
or exercise in accordance with its terms, at the office of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.

 

10.           Loss, Theft,
Destruction or Mutilation of Warrant. 
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in the case of
any such loss, theft or destruction, upon receipt of a bond, indemnity or
security reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company shall
make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant,
a new Warrant of like tenor and representing the right to purchase the same
aggregate number of Shares as provided for in such lost, stolen, destroyed or
mutilated Warrant.

 

11.           Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a business day, then such action may be
taken or such right may be exercised on the next succeeding day that is a
business day.

 

12.           Rule 144
Information.  The Company covenants
that it will use its reasonable best efforts to timely file all reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations promulgated by the SEC
thereunder (or, if the Company is not required to file such reports, it will,
upon the request of any Warrantholder, make publicly available such information
as necessary to permit sales pursuant to Rule 144 under the Securities
Act), and it will use reasonable best efforts to take such further action as
any Warrantholder may reasonably request, in each case to the extent required
from time to time to enable such holder to, if permitted by the terms of this
Warrant and the Purchase Agreement, sell this Warrant without registration
under the Securities Act within the limitation 

 

7

 

of the
exemptions provided by (A) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (B) any successor rule or
regulation hereafter adopted by the SEC. 
Upon the written request of any Warrantholder, the Company will deliver
to such Warrantholder a written statement that it has complied with such
requirements.

 

13.           Adjustments and
Other Rights.  The Exercise Price and
the number of Shares issuable upon exercise of this Warrant shall be subject to
adjustment from time to time as follows; provided, that if more than one
subsection of this Section 13 is applicable to a single event, the
subsection shall be applied that produces the largest adjustment and no single
event shall cause an adjustment under more than one subsection of this Section 13
so as to result in duplication:

 

(A)          Stock Splits,
Subdivisions, Reclassifications or Combinations.  If the Company shall (i) declare and pay
a dividend or make a distribution on its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares, the number
of Shares issuable upon exercise of this Warrant at the time of the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Warrantholder after such date shall be entitled to purchase the number of
shares of Common Stock which such holder would have owned or been entitled to
receive in respect of the shares of Common Stock subject to this Warrant after
such date had this Warrant been exercised immediately prior to such date.  In such event, the Exercise Price in effect
at the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted to the number obtained by dividing (x) the product of (1) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment and (2) the Exercise Price in effect immediately prior to the
record or effective date, as the case may be, for the dividend, distribution,
subdivision, combination or reclassification giving rise to this adjustment by (y) the
new number of Shares issuable upon exercise of the Warrant determined pursuant
to the immediately preceding sentence.

 

(B)           Certain Issuances
of Common Shares or Convertible Securities. 
Until the earlier of (i) the date on which the Original
Warrantholder no longer holds this Warrant or any portion thereof and (ii) the
third anniversary of the Issue Date, if the Company shall issue shares of
Common Stock (or rights or warrants or other securities exercisable or
convertible into or exchangeable (collectively, a “conversion”) for shares of Common Stock) (collectively, “convertible securities”) (other than in
Permitted Transactions (as defined below) or a transaction to which subsection (A) of
this Section 13 is applicable) without consideration or at a consideration
per share (or having a conversion price per share) that is less than 90% of the
Market Price on the last trading day preceding the date of the agreement on
pricing such shares (or such convertible securities) then, in such event:

 

(A)          the number of Shares issuable upon the
exercise of this Warrant immediately prior to the date of the agreement on
pricing of such shares (or of such convertible securities) (the “Initial Number”) shall be increased to the
number obtained by multiplying the Initial Number by a fraction (A) the
numerator of which shall be the sum of (x) the number of shares of Common

 

8

 

Stock of the
Company outstanding on such date and (y) the number of additional shares
of Common Stock issued (or into which convertible securities may be exercised
or convert) and (B) the denominator of which shall be the sum of (I) the
number of shares of Common Stock outstanding on such date and (II) the
number of shares of Common Stock which the aggregate consideration receivable
by the Company for the total number of shares of Common Stock so issued (or
into which convertible securities may be exercised or convert) would purchase
at the Market Price on the last trading day preceding the date of the agreement
on pricing such shares (or such convertible securities); and

 

(B)           the Exercise Price payable upon
exercise of the Warrant shall be adjusted by multiplying such Exercise Price in
effect immediately prior to the date of the agreement on pricing of such shares
(or of such convertible securities) by a fraction, the numerator of which shall
be the number of shares of Common Stock issuable upon exercise of this Warrant
prior to such date and the denominator of which shall be the number of shares
of Common Stock issuable upon exercise of this Warrant immediately after the
adjustment described in clause (A) above.

 

For purposes
of the foregoing, the aggregate consideration receivable by the Company in
connection with the issuance of such shares of Common Stock or convertible
securities shall be deemed to be equal to the sum of the net offering price
(including the Fair Market Value of any non-cash consideration and after
deduction of any related expenses payable to third parties) of all such
securities plus the minimum aggregate amount, if any, payable upon exercise or
conversion of any such convertible securities into shares of Common Stock; and “Permitted Transactions” shall mean
issuances (i) as consideration for or to fund the acquisition of
businesses and/or related assets, (ii) in connection with employee benefit
plans and compensation related arrangements in the ordinary course and
consistent with past practice approved by the Board of Directors, (iii) in
connection with a public or broadly marketed offering and sale of Common Stock
or convertible securities for cash conducted by the Company or its affiliates
pursuant to registration under the Securities Act or Rule 144A thereunder
on a basis consistent with capital raising transactions by comparable financial
institutions and (iv) in connection with the exercise of preemptive rights
on terms existing as of the Issue Date. 
Any adjustment made pursuant to this Section 13(B) shall
become effective immediately upon the date of such issuance.

 

(C)           Other
Distributions.  In case the Company
shall fix a record date for the making of a distribution to all holders of
shares of its Common Stock of securities, evidences of indebtedness, assets,
cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its
Common Stock and other dividends or distributions referred to in Section 13(A)),
in each such case, the Exercise Price in effect prior to such record date shall
be reduced immediately thereafter to the price determined by multiplying the
Exercise Price in effect immediately prior to the reduction by the quotient of (x) the
Market Price of the Common Stock on the last trading day preceding the first
date on which the Common Stock trades regular way on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
without the right to receive such distribution, minus the amount of cash and/or
the Fair Market Value of the securities, evidences of indebtedness, assets,
rights or warrants to be so distributed in respect of one share of Common Stock
(such amount and/or Fair Market Value, the “Per
Share Fair Market Value”) divided by (y) such Market Price on
such date specified in clause (x); such 

 

9

 

adjustment
shall be made successively whenever such a record date is fixed.  In such event, the number of Shares issuable
upon the exercise of this Warrant shall be increased to the number obtained by
dividing (x) the product of (1) the number of Shares issuable upon
the exercise of this Warrant before such adjustment, and (2) the Exercise
Price in effect immediately prior to the distribution giving rise to this
adjustment by (y) the new Exercise Price determined in accordance with the
immediately preceding sentence.  In the
case of adjustment for a cash dividend that is, or is coincident with, a
regular quarterly cash dividend, the Per Share Fair Market Value would be
reduced by the per share amount of the portion of the cash dividend that would
constitute an Ordinary Cash Dividend.  In
the event that such distribution is not so made, the Exercise Price and the
number of Shares issuable upon exercise of this Warrant then in effect shall be
readjusted, effective as of the date when the Board of Directors determines not
to distribute such shares, evidences of indebtedness, assets, rights, cash or
warrants, as the case may be, to the Exercise Price that would then be in
effect and the number of Shares that would then be issuable upon exercise of
this Warrant if such record date had not been fixed.

 

(D)          Certain
Repurchases of Common Stock.  In case
the Company effects a Pro Rata Repurchase of Common Stock, then the Exercise
Price shall be reduced to the price determined by multiplying the Exercise
Price in effect immediately prior to the Effective Date of such Pro Rata
Repurchase by a fraction of which the numerator shall be (i) the product
of (x) the number of shares of Common Stock outstanding immediately before
such Pro Rata Repurchase and (y) the Market Price of a share of Common
Stock on the trading day immediately preceding the first public announcement by
the Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase, minus (ii) the aggregate purchase price of the Pro Rata
Repurchase, and of which the denominator shall be the product of (i) the
number of shares of Common Stock outstanding immediately prior to such Pro Rata
Repurchase minus the number of shares of Common Stock so repurchased and (ii) the
Market Price per share of Common Stock on the trading day immediately preceding
the first public announcement by the Company or any of its Affiliates of the
intent to effect such Pro Rata Repurchase. 
In such event, the number of shares of Common Stock issuable upon the
exercise of this Warrant shall be increased to the number obtained by dividing (x) the
product of (1) the number of Shares issuable upon the exercise of this
Warrant before such adjustment, and (2) the Exercise Price in effect
immediately prior to the Pro Rata Repurchase giving rise to this adjustment by (y) the
new Exercise Price determined in accordance with the immediately preceding
sentence.  For the avoidance of doubt, no
increase to the Exercise Price or decrease in the number of Shares issuable
upon exercise of this Warrant shall be made pursuant to this Section 13(D).

 

(E)           Business
Combinations.  In case of any
Business Combination or reclassification of Common Stock (other than a
reclassification of Common Stock referred to in Section 13(A)), the
Warrantholder’s right to receive Shares upon exercise of this Warrant shall be
converted into the right to exercise this Warrant to acquire the number of
shares of stock or other securities or property (including cash) which the
Common Stock issuable (at the time of such Business Combination or
reclassification) upon exercise of this Warrant immediately prior to such
Business Combination or reclassification would have been entitled to receive
upon consummation of such Business Combination or reclassification; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the Warrantholder shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to the
Warrantholder’s right to exercise this Warrant in exchange for any shares of
stock or 

 

10

 

other
securities or property pursuant to this paragraph.  In determining the kind and amount of stock,
securities or the property receivable upon exercise of this Warrant following
the consummation of such Business Combination, if the holders of Common Stock
have the right to elect the kind or amount of consideration receivable upon
consummation of such Business Combination, then the consideration that the
Warrantholder shall be entitled to receive upon exercise shall be deemed to be
the types and amounts of consideration received by the majority of all holders
of the shares of common stock that affirmatively make an election (or of all
such holders if none make an election).

 

(F)           Rounding of
Calculations; Minimum Adjustments. 
All calculations under this Section 13 shall be made to the nearest
one-tenth (1/10th) of a cent or to the nearest one-hundredth (1/100th) of a
share, as the case may be.  Any provision
of this Section 13 to the contrary notwithstanding, no adjustment in the
Exercise Price or the number of Shares into which this Warrant is exercisable
shall be made if the amount of such adjustment would be less than $0.01 or
one-tenth (1/10th) of a share of Common Stock, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the
time of and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate
$0.01 or 1/10th of a share of Common Stock, or more.

 

(G)           Timing of
Issuance of Additional Common Stock Upon Certain Adjustments.  In any case in which the provisions of this Section 13
shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of such
event (i) issuing to the Warrantholder of this Warrant exercised after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such exercise by reason of the adjustment
required by such event over and above the shares of Common Stock issuable upon
such exercise before giving effect to such adjustment and (ii) paying to
such Warrantholder any amount of cash in lieu of a fractional share of Common
Stock; provided, however, that the Company upon request shall deliver to such
Warrantholder a due bill or other appropriate instrument evidencing such
Warrantholder’s right to receive such additional shares, and such cash, upon
the occurrence of the event requiring such adjustment.

 

(H)          Completion of
Qualified Equity Offering.  In the
event the Company (or any successor by Business Combination) completes one or
more Qualified Equity Offerings on or prior to December 31, 2009 that
result in the Company (or any such successor) receiving aggregate gross
proceeds of not less than 100% of the aggregate liquidation preference of the
Preferred Shares (and any preferred stock issued by any such successor to the
Original Warrantholder under the CPP), the number of shares of Common Stock
underlying the portion of this Warrant then held by the Original Warrantholder
shall be thereafter reduced by a number of shares of Common Stock equal to the
product of (i) 0.5 and (ii) the number of shares underlying the
Warrant on the Issue Date (adjusted to take into account all other theretofore
made adjustments pursuant to this Section 13).

 

(I)            Other Events.  For so long as the Original Warrantholder
holds this Warrant or any portion thereof, if any event occurs as to which the
provisions of this Section 13 are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the 

11

 

Board of
Directors of the Company, fairly and adequately protect the purchase rights of
the Warrants in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make such adjustments in the
application of such provisions, in accordance with such essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of the Board
of Directors, to protect such purchase rights as aforesaid.  The Exercise Price or the number of Shares
into which this Warrant is exercisable shall not be adjusted in the event of a
change in the par value of the Common Stock or a change in the jurisdiction of
incorporation of the Company.

 

(J)            Statement
Regarding Adjustments.  Whenever the
Exercise Price or the number of Shares into which this Warrant is exercisable
shall be adjusted as provided in Section 13, the Company shall forthwith
file at the principal office of the Company a statement showing in reasonable
detail the facts requiring such adjustment and the Exercise Price that shall be
in effect and the number of Shares into which this Warrant shall be exercisable
after such adjustment, and the Company shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each
Warrantholder at the address appearing in the Company’s records.

 

(K)          Notice of
Adjustment Event.  In the event that
the Company shall propose to take any action of the type described in this Section 13
(but only if the action of the type described in this Section 13 would
result in an adjustment in the Exercise Price or the number of Shares into
which this Warrant is exercisable or a change in the type of securities or
property to be delivered upon exercise of this Warrant), the Company shall give
notice to the Warrantholder, in the manner set forth in Section 13(J),
which notice shall specify the record date, if any, with respect to any such
action and the approximate date on which such action is to take place.  Such notice shall also set forth the facts
with respect thereto as shall be reasonably necessary to indicate the effect on
the Exercise Price and the number, kind or class of shares or other securities
or property which shall be deliverable upon exercise of this Warrant.  In the case of any action which would require
the fixing of a record date, such notice shall be given at least 10 days prior
to the date so fixed, and in case of all other action, such notice shall be
given at least 15 days prior to the taking of such proposed action.  Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.

 

(L)           Proceedings Prior
to Any Action Requiring Adjustment. 
As a condition precedent to the taking of any action which would require
an adjustment pursuant to this Section 13, the Company shall take any
action which may be necessary, including obtaining regulatory, New York Stock
Exchange, NASDAQ Stock Market or other applicable national securities exchange
or stockholder approvals or exemptions, in order that the Company may
thereafter validly and legally issue as fully paid and nonassessable all shares
of Common Stock that the Warrantholder is entitled to receive upon exercise of
this Warrant pursuant to this Section 13.

 

(M)         Adjustment Rules.  Any adjustments pursuant to this Section 13
shall be made successively whenever an event referred to herein shall
occur.  If an adjustment in Exercise
Price made hereunder would reduce the Exercise Price to an amount below par
value of the Common Stock, then such adjustment in Exercise Price made
hereunder shall reduce the Exercise Price to the par value of the Common Stock.

 

12

 

14.           Exchange.  At any time following the date on which the
shares of Common Stock of the Company are no longer listed or admitted to
trading on a national securities exchange (other than in connection with any
Business Combination), the Original Warrantholder may cause the Company to
exchange all or a portion of this Warrant for an economic interest (to be
determined by the Original Warrantholder after consultation with the Company)
of the Company classified as permanent equity under U.S. GAAP having a value
equal to the Fair Market Value of the portion of the Warrant so exchanged.  The Original Warrantholder shall calculate
any Fair Market Value required to be calculated pursuant to this Section 14,
which shall not be subject to the Appraisal Procedure.

 

15.           No Impairment.  The Company will not, by amendment of its
Charter 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 to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Warrantholder.

 

16.           Governing Law.  This
Warrant will be governed by and construed in accordance with the federal law of
the United States if and to the extent such law is applicable, and otherwise in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State. 
Each of the Company and the Warrantholder agrees (a) to submit to
the exclusive jurisdiction and venue of the United States District Court for
the District of Columbia for any civil action, suit or proceeding arising out
of or relating to this Warrant or the transactions contemplated hereby, and (b) that
notice may be served upon the Company at the address in Section 20 below
and upon the Warrantholder at the address for the Warrantholder set forth in
the registry maintained by the Company pursuant to Section 9 hereof.  To the extent permitted by applicable law,
each of the Company and the Warrantholder hereby unconditionally waives trial
by jury in any civil legal action or proceeding relating to the Warrant or the
transactions contemplated hereby or thereby.

 

17.           Binding Effect.  This Warrant shall be binding upon any
successors or assigns of the Company.

 

18.           Amendments.  This Warrant may be amended and the
observance of any term of this Warrant may be waived only with the written
consent of the Company and the Warrantholder.

 

19.           Prohibited
Actions.  The Company agrees that it
will not take any action which would entitle the Warrantholder to an adjustment
of the Exercise Price if the total number of shares of Common Stock issuable
after such action upon exercise of this Warrant, together with all shares of
Common Stock then outstanding and all shares of Common Stock then issuable upon
the exercise of all outstanding options, warrants, conversion and other rights,
would exceed the total number of shares of Common Stock then authorized by its
Charter.

 

20.           Notices.  Any notice, request, instruction or other document
to be given hereunder by any party to the other will be in writing and will be
deemed to have been duly given (a) on the 

 

13

 

date of
delivery if delivered personally, or by facsimile, upon confirmation of
receipt, or (b) on the second business day following the date of dispatch
if delivered by a recognized next day courier service.  All notices hereunder shall be delivered as
set forth in Item 8 of Schedule A hereto, or pursuant to such other instructions
as may be designated in writing by the party to receive such notice.

 

21.           Entire Agreement.  This Warrant, the forms attached hereto and
Schedule A hereto (the terms of which are incorporated by reference herein),
and the Letter Agreement (including all documents incorporated therein),
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
undertakings with respect thereto.

 

[Remainder of page intentionally left
blank]

 

14

 

	
   

  	
  [Form of Notice of Exercise]

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
				

 

	
  TO:

  	
   

  	
  Heritage
  Commerce Corp

  
	
   

  	
   

  	
   

  
	
  RE:

  	
   

  	
  Election to
  Purchase Common Stock

  

 

The
undersigned, pursuant to the provisions set forth in the attached Warrant,
hereby agrees to subscribe for and purchase the number of shares of the Common
Stock set forth below covered by such Warrant. 
The undersigned, in accordance with Section 3 of the Warrant,
hereby agrees to pay the aggregate Exercise Price for such shares of Common
Stock in the manner set forth below.  A
new warrant evidencing the remaining shares of Common Stock covered by such
Warrant, but not yet subscribed for and purchased, if any, should be issued in
the name set forth below.

 

Number of
Shares of Common Stock                                                                

 

Method of
Payment of Exercise Price (note if cashless exercise pursuant to Section 3(i) of
the Warrant or cash exercise pursuant to Section 3(ii) of the
Warrant, with consent of the Company and the Warrantholder)                                                              

 

Aggregate
Exercise Price:                                       

 

	
   

  	
  Holder:

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

 

IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed by a duly
authorized officer.

 

Dated:  November 21, 2008

 

	
   

  	
  Heritage
  Commerce Corp

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Walter T. Kaczmarek

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Rebecca A.
  Levey

  
	
   

  	
  Corporate
  Secretary

  

 

[Signature Page to Warrant]

 

S-1

 

SCHEDULE A

 

	
  Item 1

  	
   

  	
  Name:

  	
   

  	
  Heritage
  Commerce Corp

  Corporate

  California

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 2

  	
   

  	
  Exercise
  Price:

  	
   

  	
  $12.96

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 3

  	
   

  	
  Issue Date:

  	
   

  	
  November 21,
  2008

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 4

  	
   

  	
  Amount of
  last dividend declared prior to the Issue Date:

  	
   

  	
  $0.08 per
  share payable in cash

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 5

  	
   

  	
  Date of
  Letter Agreement between the Company and the United States Department of the
  Treasury:

  	
   

  	
  November 21,
  2008

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 6

  	
   

  	
  Number of
  shares of Common Stock:

  	
   

  	
  462,963
  shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 7

  	
   

  	
  Company’s
  address:

  	
   

  	
  Heritage
  Commerce Corp

  150 Almaden Blvd.

  San Jose, CA 95113

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 8

  	
   

  	
  Notice
  information:

  	
   

  	
  Heritage
  Commerce Corp

  150 Almaden Blvd.

  San Jose, CA 95113

  Attn: Chief Financial Officer

  Phone: 408-494-4562

  Fax Number: 408-497-6919

  

 

A-1

 

SCHEDULE A

 

ADDITIONAL TERMS AND CONDITIONS

 

Company
Information:

 

	
   

  	
   

  	
  Name of the
  Company:

  	
   

  	
  Heritage
  Commerce Corp

  
	
   

  	
   

  	
  Corporate or
  other organizational form:

  	
   

  	
  Corporate

  
	
   

  	
   

  	
  Jurisdiction
  of Organization:

  	
   

  	
  California

  
	
   

  	
   

  	
  Appropriate
  Federal Banking Agency:

  	
   

  	
  Federal
  Reserve Bank

  
	
   

  	
   

  	
  Notice of
  Information:

  	
   

  	
  Lawrence D.
  McGovern - CFO

  
	
   

  	
   

  	
  Address:

  	
   

  	
  150 Almaden
  Blvd. San Jose, CA 95113

  
	
   

  	
   

  	
  Phone
  Number:

  	
   

  	
  408-494-4562

  
	
   

  	
   

  	
  Fax Number:

  	
   

  	
  408-947-6919

  
	
   

  	
   

  	
  E-Mail
  Address:

  	
   

  	
  larry.mcgovern@herbank.com

  

 

Terms of the
Purchase:

 

	
   

  	
   

  	
  Series of
  Preferred Stock Purchased:

  	
   

  	
  Fixed Rate
  Cumulative Perpetual 

  Preferred Stock Series A

  
	
   

  	
   

  	
  Per Share
  Liquidation Preference of Preferred Stock:

  	
   

  	
  $1,000

  
	
   

  	
   

  	
  Number of
  Shares of Preferred Stock Purchased:

  	
   

  	
  40,000

  
	
   

  	
   

  	
  Dividend
  Payment Dates on the Preferred Stock:

  	
   

  	
  2/15, 5/15,
  8/15, & 11/15

  
	
   

  	
   

  	
  Number of
  Initial Warrant Shares:

  	
   

  	
  462,963

  
	
   

  	
   

  	
  Exercise
  Price of the Warrant:

  	
   

  	
  $12.96

  
	
   

  	
   

  	
  Purchase
  Price:

  	
   

  	
  $40,000,000

  

 

Closing:

 

	
   

  	
   

  	
   

  	
   

  	
  Hughes
  Hubbard & Reed

  
	
   

  	
   

  	
  Location of
  Closing:

  	
   

  	
  One Battery
  Park Plaza 

  New York, New York 10004

  
	
   

  	
   

  	
  Time of
  Closing:

  	
   

  	
  9:00 A.M.
  (New York Time)

  
	
   

  	
   

  	
  Date of
  Closing:

  	
   

  	
  November 21,
  2008

  
	
   

  	
   

  	
  Wire Information for Closing:

  	
  ABA Number:

  	
   

  	
  121142287

  
	
   

  	
   

  	
   

  	
  Bank:

  	
   

  	
  Heritage
  Bank of Commerce

  
	
   

  	
   

  	
   

  	
  Account Name:

  	
   

  	
  Finance

  
	
   

  	
   

  	
   

  	
  Account Number:

  	
   

  	
  1520005

  
	
   

  	
   

  	
   

  	
  Beneficiary:

  	
   

  	
  Finance
  Dept.

  

 

A-1

 

SCHEDULE B

 

CAPITALIZATION

 

	
  Capitalization
  Date:

  	
   

  	
  9/30/08

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Common Stock

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Par value:

  	
   

  	
  No Par

  
	
   

  	
   

  	
  Total Authorized:

  	
   

  	
  30,000,000

  
	
   

  	
   

  	
  Outstanding:

  	
   

  	
  11,820,509
  (at 9/30/08)

  
	
   

  	
   

  	
  Subject to warrants, options, convertible securities, etc.:

  	
   

  	
  1,084,956
  (Total Options Outstanding at 9/30/08)

  
	
   

  	
   

  	
  Reserved for benefit plans and other issuances:

  	
   

  	
  870,558
  (Total Available for Grant at 9/30/08)

  
	
   

  	
   

  	
  Remaining authorized but unissued:

  	
   

  	
  18,179,491

  
	
   

  	
   

  	
  Shares issued after Capitalization Date (other than pursuant to
  warrants, options, convertible securities, etc. as set forth above):

  	
   

  	
  None

  

 

	
   

  	
   

  	
  Preferred
  Stock

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Par value:

  	
   

  	
  No Par

  
	
   

  	
   

  	
  Total Authorized:

  	
   

  	
  10,000,000

  
	
   

  	
   

  	
  Outstanding (by series):

  	
   

  	
  -0-

  
	
   

  	
   

  	
  Reserved for issuance:

  	
   

  	
  0-

  
	
   

  	
   

  	
  Remaining authorized but unissued:

  	
   

  	
  10,000,000

  

 

1

 

SCHEDULE C

 

REQUIRED STOCKHOLDER APPROVALS

 

	
   

  	
   

  	
  Required(1)

  	
   

  	
  % Vote Required

  	
   

  
	
  Warrants – Common Stock Issuance

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Charter Amendment

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stock Exchange Rules

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

If no stockholder approvals are required,
please so indicate by checking the box: x

 

(1)    If
stockholder approval is required, indicate applicable class/series of capital
stock that are required to vote.

 

1

 

SCHEDULE D

 

LITIGATION

 

List any
exceptions to the representation and warranty in Section 2.2(1) of
the Securities Purchase Agreement — Standard Terms.

 

If none,
please so indicate by checking the box:  x

 

1

 

SCHEDULE E

 

COMPLIANCE WITH LAWS

 

List any
exceptions to the representation and warranty in the second sentence of Section 2.2(m) of
the Securities Purchase Agreement — Standard Terms.

 

If none,
please so indicate by checking the box:  x

 

List any
exceptions to the representation and warranty in the last sentence of Section 2.2(m) of
the Securities Purchase Agreement — Standard Terms.

 

If none,
please so indicate by checking the box:  x

 

1

 

SCHEDULE F

 

REGULATORY AGREEMENTS

 

List any
exceptions to the representation and warranty in Section 2.2(s) of
the Securities Purchase Agreement — Standard Terms.

 

If none,
please so indicate by checking the box:  x

 

1Exhibit 10.1

 

FIRST
AMENDMENT TO SECOND AMENDED AND RESTATED FORBEARANCE AGREEMENT

 

THIS FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED FORBEARANCE AGREEMENT (this “Amendment”),
dated as of November 20, 2008, is entered into by and among the financial
institutions identified on the signature pages hereto (collectively, the “Lenders”),
U.S. Bank National Association, as administrative agent for the Lenders (in
such capacity, the “Agent”), Westaff (USA), Inc., a California
corporation (the “Borrower”), and Westaff, Inc., a Delaware
corporation and the sole shareholder of the Borrower, as parent guarantor (the “Parent
Guarantor”), with reference to the following
facts:

 

RECITALS

 

A.            The Borrower, the Parent
Guarantor, the Agent and the Lenders are parties to a Second Amended and
Restated Forbearance Agreement, dated as of September 30, 2008 (the “Forbearance
Agreement”), pursuant to which the Agent and the Lenders agreed to forbear
through November 21, 2008 from exercising their available Default Rights
and Remedies in response to the occurrence and continuation of certain Existing
Events of Default under the Financing Agreement, dated as of February 14,
2008, among the Borrower, the Parent Guarantor, the Agent and the Lenders, as
amended.

 

B.            The parties are in the process of exploring
further negotiations with respect to certain additional terms and conditions of
an extended forbearance period and, in an effort to provide additional time for
such discussions, the parties hereto wish to amend the Forbearance Agreement to
extend the term of the forbearance period thereunder by ten (10) business
days, from November 21, 2008 to December 5, 2008.

 

NOW, THEREFORE, the parties hereby agree as
follows:

 

1.             Defined Terms.  Any and all initially-capitalized terms used
in this Amendment (including, without limitation, in the recitals to this Amendment)
without definition shall have the respective meanings assigned thereto in the Forbearance
Agreement.

 

2.             Extension of Forbearance
Period.  Section 2 of the
Forbearance Agreement is hereby amended to read in full as follows:

 

                “2.  Limited Forbearance Agreement.  So long as no additional Events of Default
occur during such period, the Agent and the Lenders hereby agree to forbear
from exercising any of their Default Rights and Remedies in response to the
occurrence and continuance of the Existing Events of Default throughout the
period commencing on November 21, 2008 and ending on December 5, 2008
(the ‘Forbearance Period’).”

 

3.             No Waiver.  The agreement of the Agent and the Lenders
under Section 2 of this Amendment conditionally to forbear from exercising
their Default Rights and Remedies throughout the Forbearance Period as extended
hereby shall not constitute a waiver of either of the Existing Events of
Default, and the Agent and the Lenders hereby expressly reserve all their Default
Rights and Remedies in connection with the Existing Events of Default.

 

1

 

4.             General Release.  In consideration of the agreement of the
Agent and the Lenders to enter into this Amendment and hereby conditionally
forbear from exercising their available Default Rights and Remedies throughout
the Forbearance Period as extended hereby, the Borrower and the Parent Guarantor
hereby release, discharge and acquit the Agent, each Lender and their
respective agents, servants, employees, successors and assigns from any and all
claims, demands, liabilities, obligations and causes of action, whether known
or unknown, against them, which the Borrower or the Parent Guarantor now own or
hold, which the Borrower or the Parent Guarantor has at any time heretofore
owned or held, or which the Borrower or the Parent Guarantor hereafter may own
or hold, by reason of any action, matter, cause or thing whatsoever done prior
to the date of this Amendment, including specifically, but not limited to, any
and all claims, demands, rights and causes of action whatsoever arising out of
or which could be alleged to arise out of the Forbearance Agreement, the Financing
Agreement or any of the other Loan Documents.

 

It is the intention of the
Borrower and the Parent Guarantor in executing this Amendment that the same
shall be effective as a bar to each and every claim, demand, and cause of
action hereinabove specified, and in furtherance of this intention the Borrower
and the Parent Guarantor each waives and relinquishes all rights and benefits
under Section 1542 of the Civil Code of the State of California, which
provides:

 

“A general release does not
extend to claims which the creditor does not know or suspect to exist in his or
her favor at the time of executing the release, which if known by him or her might
have materially affected his or her settlement with the debtor.”

 

The Borrower and the Parent Guarantor
acknowledge that each of them may hereafter discover facts different from or in
addition to those now known or believed to be true with respect to such claims,
demands, or causes of action and agree that this Amendment shall be and remain
effective in all respects notwithstanding any such differences or additional
facts.

 

5.             Condition Precedent.  The effectiveness of this Amendment shall be
subject to the Agent’s receipt of this Amendment, duly executed by the
Borrower, the Parent Guarantor and each of the Lenders.

 

6.             Reaffirmation and
Ratification.  The Borrower
and the Parent Guarantor hereby reaffirm, ratify and confirm their respective Obligations
under the Forbearance Agreement, the Financing Agreement and the other Loan
Documents, acknowledge that all of the terms and conditions of the Forbearance
Agreement, the Financing Agreement and such other Loan Documents remain in full
force and effect, and further acknowledge that the security interests granted
to Agent in the Collateral are valid and perfected.

 

7.             Integration.  This Agreement constitutes the entire
agreement of the parties in connection with the subject matter hereof and
cannot be changed or terminated orally. 
All prior agreements, understandings, representations, warranties and
negotiations regarding the subject matter hereof, if any, are merged into this
Amendment.

 

2

 

8.             Counterparts.  This Agreement may be executed in multiple
counterparts, each of which when so executed and delivered shall be deemed an
original, and all of which, taken together, shall constitute but one and the
same agreement.

 

9.             Governing Law.  This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws (as opposed to the
conflicts of law principles) of the State of California.

 

10.           Consent.      In connection with the Sale,
referred to in the consent letter attached hereto as Annex A, dated as
of September 26, 2008 (the “Consent”), which was delivered to
Westaff Support, Inc. and Parent Guarantor, Parent Guarantor has informed
the Agent that the Borrower received net proceeds in an amount of approximately
US$5,000,000. Notwithstanding this fact, and after consultation with the Parent
Guarantor regarding any adjustments to the Sale terms, the Agent hereby (i) acknowledges
that an amount less than $7,500,000 was received by Borrower in connection with
the Sale, and (ii) consents to the filing of a UCC-3 partial release of
the collateral in the form of Exhibit A to the Consent, as well as
the filing of the same form of UCC-3 partial release with respect to the UCC-1
financing statement filed by the Agent against the Parent Guarantor (Delaware
Department of State UCC filing 0744373 filed 2/29/08).

 

[Rest of page intentionally
left blank; signature pages follow]

 

3

 

IN WITNESS WHEREOF, the parties hereto have
executed this Amendment by their respective duly authorized officers as of the
date first above written.

 

 

	
   

  	
  WESTAFF (USA), INC.,

  
	
   

  	
  a California corporation,

  
	
   

  	
  as the Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen J. Russo

  
	
   

  	
   

  	
  Name: Stephen J. Russo

  
	
   

  	
   

  	
  Title: EVP, COO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WESTAFF, INC.,

  
	
   

  	
  a Delaware corporation,

  
	
   

  	
  as the Parent Guarantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen J. Russo

  
	
   

  	
   

  	
  Name: Stephen J. Russo

  
	
   

  	
   

  	
  Title: EVP, COO

  

 

1

 

	
   

  	
  U.S. BANK NATIONAL ASSOCIATION,

  
	
   

  	
  as the Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Suzanne E. Geiger

  
	
   

  	
   

  	
  Suzanne E. Geiger

  
	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION,

  
	
   

  	
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Suzanne E. Geiger

  
	
   

  	
   

  	
  Suzanne E. Geiger

  
	
   

  	
   

  	
  Senior Vice President

  

 

2

 

	
   

  	
  WELLS FARGO BANK,

  
	
   

  	
  NATIONAL ASSOCIATION,

  
	
   

  	
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Supremna Thurmond

  
	
   

  	
   

  	
  Supremna
  Thurmond

  
	
   

  	
   

  	
  Relationship
  Manager

  

 

3

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