Document:

EXHIBIT 10(xxxviii)

   

EXECUTIVE EMPLOYMENT AGREEMENT

 

This EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is entered into by and between Crescent State Bank (the “Bank”), a North Carolina-chartered bank and Ray D. Vaughn (the “Executive”) on this 23rd day of February, 2011 to be effective as of the Effective Date (as defined herein).

 

Executive is currently employed by the Bank pursuant to the terms of that certain employment agreement dated September 10, 2008, by and among Crescent Financial Corporation, the registered bank holding company of the Bank (the “Company”), the Bank and the Executive, as amended December 31, 2010 and as modified January 1, 2009 (collectively, with such amendments and modifications, the “Existing Employment Agreement”).

 

The parties desire to enter into this Agreement to address exclusively the terms and conditions of the Executive’s continuing employment with the Bank immediately following the closing of the transaction (the “Effective Date”) contemplated by that certain Investment Agreement (the “Investment Agreement”) among Piedmont Community Bank Holdings, Inc., the Company and the Bank (the “Transaction”).

 

In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

Section 1.  Term.  Subject to, and conditioned upon, the closing of the Transaction, the Bank will employ Executive, and Executive accepts employment with the Bank, upon the terms and conditions set forth in this Agreement, for the period beginning on the Effective Date, and ending on the earlier of the second anniversary of the Effective Date or as provided in Section 4 (the “Employment Period”).  If the Executive’s employment with the Bank continues after the expiration of the Employment Period, such post-expiration employment shall be “at-will” and either party may terminate such employment with or without notice and for any reason or no reason.

 

Section 2.  Position and Duties.  During the Employment Period, Executive will serve as Senior Vice President of the Bank, reporting directly to the Chief Executive Officer of the Bank.  Executive will have duties as assigned by the Chief Executive Officer of the Bank that are consistent with the duties of the position of senior vice president of a community bank.  Executive will devote his best efforts and all of his business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Bank and its Affiliates.  Executive will perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner in accordance with the Bank’s policies and applicable law.  For purposes of this Agreement, “Affiliate” means, with respect to any specified individual, corporation, limited liability company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, or other entity (“Person”), at any time, each Person, directly or indirectly controlling, controlled by, or under direct or indirect common control with, such specified Person at such time.

 

  

  

  

 

Section 3.  Salary and Benefits.

 

(a)           Salary.  During the Employment Period, the Bank will pay Executive a salary (“Salary”) at a rate of at least One Hundred Eighty-Four Thousand Dollars ($184,000) per annum as compensation for all services as an officer and employee of the Bank and any Affiliate of the Bank.  The Executive’s Salary shall be reviewed by the Chief Executive Officer of the Bank at least annually for an increase, if any, as determined by the Chief Executive Officer of the Bank in his sole discretion, based on his evaluation of the Executive’s performance.  Salary will be payable in regular installments in accordance with the general payroll practices of the Bank (but payable no less frequently than monthly).

 

(b)           Bonus.  For each calendar year (or portion thereof) during the Employment Period (each, a “Bonus Year”), Executive will be eligible to receive a performance bonus (“Bonus”), based on the Bank’s achievement of performance measures.  The specific performance measures for each Bonus Year during the Employment Period will be determined by the Board of Directors of the Bank (the “Board”), in its sole discretion, as advised by the Compensation Committee of the Board.  The determination whether the Executive has achieved the performance measures for each Bonus Year, the amount of the Bonus to be awarded for each Bonus Year, and the terms and conditions applicable to payment of the Bonus from year to year (including, but not limited to, conditioning payment of the Bonus on the completion of the audit of the Bank or the Company, as applicable) will be determined by the Board, in its sole discretion, as advised by the Compensation Committee.  Except as the Board may otherwise expressly determine in writing, Executive must be employed by the Bank on the date a Bonus is paid for any Bonus Year as a condition to its receipt.

 

(c)           Salary Continuation Agreement.  Executive consents to the freezing of benefit accruals under that Amended Salary Continuation Agreement, dated September 10, 2008, and as amended from time to time, between the Bank and Executive (as amended, the “Salary Continuation Agreement”) as of April 30, 2011.  If, as of the Effective Date, the Salary Continuation Agreement has not been terminated or if benefits due under the Salary Continuation Agreement have not been fully paid, the Bank shall take such action as soon as practicable, but in no event later than thirty (30) days after the Effective Date, to terminate, if necessary, the Salary Continuation Agreement and to pay the Accrual Balance (as defined in the Salary Continuation Agreement and determined as of April 30, 2011) to the Executive in a lump sum; provided, however, that no benefits shall be paid in a manner or at a time that would cause the Executive’s benefits under the Salary Continuation Agreement to be subject to the imposition of tax on the Executive under Section 409A of the Internal Revenue Code of 1986 and applicable rules and regulations thereunder (the “Code”).

 

(d)           Benefits.  During the Employment Period, Executive will be entitled to those benefits to which senior executives of the Bank become entitled under benefit plans and programs approved by the Board (collectively, the “Benefits”), including any medical, dental, disability, life insurance and/or 401(k) plans, subject to all of the terms of such benefit plans applicable to any such Benefits.

 

(e)           Reimbursement of Business Expenses.  During the Employment Period, the Bank will reimburse Executive for all reasonable out-of-pocket expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Bank’s policies in effect from time to time with respect to travel, entertainment and other business expenses, including, but not limited to, monthly dues associated with the Executive’s membership in a country club or civic clubs for which such dues reimbursements have been approved by the Chief Executive Officer of the Bank, subject to the Bank’s requirements with respect to reporting and documentation of such expenses.  All expenses eligible for reimbursements described in this Agreement must be incurred by the Executive during the Employment Period to be eligible for reimbursement.  Any in-kind benefits provided pursuant to this subsection 3(e) must be provided by the Bank during the Employment Period.  The amount of reimbursable expenses incurred, and the amount of in-kind benefits provided, in one taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits provided, in any other taxable year.  Each category of reimbursement shall be paid as soon as administratively practicable, but in no event shall any such reimbursement be paid after the last day of the calendar year following the calendar year in which the expense was incurred.  Neither rights to reimbursement nor in-kind benefits are subject to liquidation or exchanges for other benefits.

 

  

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(f)           Withholdings and, Deductions.  All payments made under this Agreement by the Bank shall be subject to all required federal, state and local withholdings and such deductions as Executive may instruct the Bank to take that are authorized by applicable law.

 

(g)           Clawback of Incentive Compensation.  The Executive agrees to repay any incentive compensation previously paid or otherwise made available to him that is subject to recovery under any applicable law (including any rule of any exchange or service through which the securities of the Company or any Affiliate are then traded) where such incentive compensation was in excess of what should have been paid or made available because the determination of the amount due was based, in whole or in part, on materially inaccurate financial information of the Bank or any Affiliate.  The Executive agrees to return promptly any such incentive compensation identified by the Bank.  If the Executive fails to return such incentive compensation promptly, the Executive agrees that the amount of such incentive compensation may be deducted from any and all other compensation owed to the Executive by the Bank or any Affiliate.  The Executive acknowledges that the Bank may take appropriate disciplinary action (up to, and including, termination of employment) if the Executive fails to return such incentive compensation.  The provisions of this subsection 3(g) shall be modified to the extent, and remain in effect for the period, required by applicable law.

 

(h)           Retention Payment.  If Executive continues to be employed by the Bank on the first anniversary of the Effective Date (of the Transaction), the Bank shall make or cause to be made a lump-sum cash payment to Executive of Fifty Thousand Dollars ($50,000).  The lump sum cash payment will be payable as of the Bank’s next regular pay-day following the applicable employment continuation date.  However, as a condition precedent to Executive’s right to receive the retention payment set forth in this subsection 3(h), Executive must sign a release in substantially the form attached hereto as Exhibit A of all claims against the Bank, and its officers, directors, employees and agents, and the Bank’s Affiliates, and their officers, directors, employees and agents, in a form acceptable to the Bank.  Executive must sign and return the release, if at all, so that the release is effective (taking into account any revocation period provided for therein, if any) by no later than the thirtieth (30th) calendar day following the date the applicable retention payment becomes payable.  Where the period available to execute (and to not revoke) the release spans more than one calendar year, the related payment shall not be made until the second calendar year, or later, as required by the applicable terms of this Agreement and Section 409A of the Code.

 

  

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Section 4.  Termination.

 

(a)           In General.  This Agreement will terminate on the date of Executive’s death.  The Bank may terminate Executive’s employment during the Employment Period by the delivery of a written notice that Executive’s employment is being terminated as of a specified date, for reasons of Disability (as defined herein), Cause (as defined herein) or “Without Cause” (for any reason other than death, Disability, or Cause).  For purposes of this Agreement, “Cause” will mean, in the Bank’s good faith determination, Executive’s: (i) failure (except where due to Executive’s illness or injury) or refusal to perform, or neglect of, his duties hereunder which is not corrected by Executive within thirty (30) days of receipt by Executive of written notice from the Bank of such failure, neglect, or refusal, which notice will specifically set forth the factual basis for and the actions required to correct the same; (ii) commission of any intentional act that has the intended effect of injuring the reputation or business of the Bank or its Affiliates; (iii) use of illegal drugs or habitual abuse of alcohol (including, without limitation, reporting to work under the influence of alcohol); (iv) commission of any act involving moral turpitude; (v) refusal to follow the lawful directions of the Board or Chief Executive Officer of the Bank if such refusal is not corrected by Executive within thirty (30) days of receipt by Executive of written notice from the Board or Chief Executive Officer of the Bank of such refusal; (vi) failure or refusal to cooperate with the Bank, or at the Bank’s request, any governmental or regulatory agency or entity, in providing information with respect to any act or omission by Executive in his capacity as an officer, director, executive, agent or fiduciary of the Bank, or any Affiliate thereof for which Executive has rendered service in such capacity; (vii) violation of Bank policies, or any statute or regulation, in the performance of Executive’s duties that causes material harm to the Bank or its Affiliates; (viii) breach of the duty of loyalty, or commission of any other act or omission involving dishonesty, disloyalty, fraud, gross negligence or willful misconduct with respect to the Bank or any of its Affiliates; (ix) breach of Section 8 or Section 9 of this Agreement;  (x) material breach of any provision of this Agreement (other than Section 8 or Section 9) which is not cured within ten (10) days after written notice thereof to Executive, (xi) conviction of, or a plea of guilty or no contest or similar plea with respect to a felony, or any misdemeanor which involves either fraud, dishonesty or financial impropriety, or which results in the incarceration of Executive; or (xii) commission by Executive of an act of fraud, dishonesty or embezzlement with respect to any Person.  For purposes of this Agreement, “Disability” will mean, in the Board’s good faith determination, a physical or mental impairment that prevents the performance by Executive of his duties hereunder for a continuous period of ninety (90) calendar days, or for more than a total of seventy-five (75) business days, in any twelve (12)-month period, subject to the reasonable accommodation provisions of the Americans with Disabilities Act and other applicable state or local laws.

 

(b)           Death or Disability.  In the event of Executive’s death or termination by the Bank because of Disability during the Employment Period: (x) Executive will be paid his Salary and any Benefits accrued through the last day of his employment; (y) Executive will receive any Benefits to which he is entitled by reason of death or Disability pursuant to the terms of employee benefit plans in which he is a participant; and (z) Executive’s rights with respect to vested and unvested stock options will be determined as provided in the applicable stock option plan.

 

(c)           Resignation; Termination for Cause.  If Executive resigns during the Employment Period or is terminated for Cause: (i) Executive will solely be paid his Salary and receive any Benefits accrued through the last day of his employment; (ii) Executive will not be entitled to receive his Salary or any Benefits for periods after the termination of the Employment Period, or any Bonus for the year in which employment terminated; and (iii) Executive’s rights with respect to vested and unvested stock options will be determined as provided in the applicable stock option plan; provided, however, if Executive resigns for Good Reason (as defined in Section 5) within twelve (12) months following the Effective Date (of the Transaction), Executive shall be entitled to the benefits described in Section 5.

 

  

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(d)           Termination Without Cause.  If the Bank terminates Executive’s employment Without Cause during the Employment Period:  (i) Executive will be paid his Salary and any Benefits accrued through the last day of his employment; (ii) so long as Executive continues to comply with Sections 7, 8, and 9 of this Agreement, Executive will be entitled to receive continuing payments of Salary installments, at the Salary rate in effect as of the last day of employment, for a period equal to the lesser of twelve (12) months or the remaining Employment Period, determined as of the date Executive’s employment is terminated, subject to the requirement set forth below that the Executive execute a release agreement; and (iii) Executive’s rights with respect to vested and unvested stock options will be determined as provided in the applicable stock option plan; provided, however, if the effective date of such termination Without Cause occurs prior to the first anniversary of the Effective Date (of the Transaction), then Executive shall be entitled to the benefits in Section 5.  As a condition precedent to the Executive’s right to receive the severance payments set forth in clause (ii) of this subsection 4(d), Executive must sign a release of all claims against the Bank, and its officers, directors, employees and agents, and the Bank’s Affiliates, and their officers, directors, employees and agents, in a form acceptable to the Bank; provided, however, such release shall not cover any benefit plan, program, or agreement of the Bank that is applicable to the Executive.  Executive must sign and return the release, if at all, so that the release is effective (taking into account any revocation period provided for therein, if any) by no later than the sixtieth (60th) calendar day following the date the Executive’s employment is terminated.  The first payment will be made on the Bank’s next regular pay-day which is at least five (5) business days following the later of the effective date of the release or the date it is received by the Bank; but that first payment shall include all amounts accrued from the date of termination.  Where the period available to execute (and to not revoke) the release spans more than one calendar year, the payment shall not be made until the second calendar year, or later, as required by the applicable terms of this Agreement and Section 409A of the Code.

 

 (e)           Expiration or Mutual Termination.  If the employment of the Executive is terminated upon the expiration of the Agreement or pursuant to the mutual agreement of the parties: (i) Executive will solely be paid his Salary and any Benefits accrued through the last day of his employment; (ii) Executive will not be entitled to receive his Salary or any Benefits for periods thereafter, or any Bonus for the year in which employment terminated; and (iii) Executive’s rights with respect to vested and unvested stock options will be determined as provided in the Company’s stock option plan.

 

(f)           Suspensions of Certain Payments.  Upon Executive’s termination of employment hereunder for any reason, the Bank shall have no further obligations to the Executive or the Executive’s estate with respect to this Agreement, except for the payment of any amount earned and owing under this Agreement and payment set forth in this Section 4 or Section 5, as applicable.  Notwithstanding any provision in the Agreement to the contrary, to the extent necessary to avoid the imposition of tax on the Executive under Section 409A of the Code, any payments that are otherwise payable to the Executive within the first six (6) months following the effective date of termination of employment, shall be suspended and paid as soon as practicable following the end of the six-month period following such effective date if, immediately prior to the Executive’s termination of employment, the Executive is determined to be a “specified employee” (within the meaning of Code Section 409A(a)(2)(B)(i)) of the Bank (or any related “service recipient” within the meaning of Code Section 409A and the regulations thereunder).  Any payments suspended by operation of the foregoing sentence shall be paid as a lump sum within thirty (30) days following the end of such six-month period.  Payments (or portions thereof) that would be paid latest in time during the six-month period will be suspended first.  Any purported termination of the Executive’s employment which does not rise to the level of a termination of employment shall not entitle the Executive to any of the payments or benefits described in Section 5.  If the Executive is a member of the Board of Directors of either the Bank or any Affiliate and the Executive’s employment is terminated by the Bank or by the Executive, the Executive shall immediately resign from his position(s) on the board(s) of directors of such entities, effective as of the date his employment is terminated.  Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant to Section 4, Section 5, or any other provision herein in contravention of  the requirements of Section 2[18(k)] of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1828(k)).  For purposes of this Agreement, the phrases “termination of employment,” “termination,” “terminated,” and similar terminology all refer to a “separation from service” within the meaning of Code Section 409A.

 

  

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Section 5.  Change in Control.  In lieu of any benefits to which the Executive may be entitled under Section 4, if the Bank terminates Executive’s employment Without Cause or the Executive resigns for Good Reason within twelve (12) months following the Effective Date (of the Transaction) (provided the Transaction constitutes a change in ownership or effective control within the meaning of Section 409A of the Code), the Bank shall make or cause to be made a lump-sum cash payment to the Executive in the amount equal to one times the Executive’s annual compensation (reduced by the amount of any retention payments earned under subsection 3(i)) as of the date Executive’s employment is terminated.  For this purpose, annual compensation means (x) the Executive’s Salary in effect as of the effective date of the Transaction plus (y) any annual bonuses awarded for the calendar year ended immediately before the year in which the Transaction occurs, regardless of when the bonus earned for the preceding calendar year is paid and regardless of whether all or part of the bonus is subject to elective deferral or vesting.  Annual compensation shall be calculated without regard to any deferrals under qualified or nonqualified plans, but annual compensation shall not include interest or other earnings credited to the Executive under qualified or nonqualified plans.  The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value.  As a condition precedent to Executive’s right to receive the benefit set forth above, Executive must sign a release of all claims against the Bank, and its officers, directors, employees and agents, and the Bank’s Affiliates, and their officers, directors, employees and agents, in a form acceptable to the Bank; provided, however, such release shall not cover any benefit plan, program, or agreement of the Bank that is applicable to the Executive. Executive must sign and return the release, if at all, so that the release is effective (taking into account any revocation period provided for therein, if any) by no later than the sixtieth (60th) calendar day following the date the Executive’s employment is terminated.  The lump sum cash payment will be made on the Bank’s next regular pay-day which is at least five (5) business days following the later of the effective date of the release or the date it is received by the Bank.  Where the period available to execute (and to not revoke) the release spans more than one calendar year, any payment contingent on the execution of the release shall not be made until the second calendar year, or later, as required by the applicable terms of this Agreement and Section 409A of the Code.  For purposes of this Section 5, “Good Reason” means (I) a material diminution of the Executive’s rate of Salary; (II) a change in the Executive’s authority, duties or responsibilities that is not reasonably compatible with the Executive’s training and experience; (III) a material change in the geographic location at which Executive must perform the services to be performed by Executive pursuant to this Agreement, and (IV) any other action or inaction that constitutes a material breach by the Bank of this Agreement.  The Executive must give notice to the Bank of the existence of one or more of the conditions constituting Good Reason within ninety (90) days after the initial existence of the condition and the Bank shall have thirty (30) days thereafter to remedy the condition.  If the condition is not remedied within said period, the Executive’s resignation for Good Reason must occur within ninety (90) days of the initial existence of the condition for the resignation to be treated as a resignation for Good Reason.

 

Section 6.  Regulatory Action.

 

(a)           If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate, as of the effective date of such order, except for the payment of Salary due and owing under subsection 3(a) on the effective date of said order, and reimbursement under subsection 3(e) of expenses incurred as of the effective date of termination.  Additionally, as of the effective date of such order, the non-competition provisions contained in subsections 9(a), (b), and (c) of this Agreement shall cease to apply to the Executive.

(b)           If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Bank under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank shall reinstate any of its obligations which were suspended to the extent permitted by applicable law.  During the period under which the Bank’s obligations under this Agreement are suspended, the non-competition provisions contained in subsections 9(a), (b), and (c) shall cease to apply to the Executive; provided, however, that in the event the charges in the notice are dismissed and Executive remains employed by the Bank, such non-competition provisions in subsections 9(a), (b), and (c) shall be reinstated.

 

  

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(c)           If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but the vested rights of the parties shall not be affected.

(d)           If the Federal Deposit Insurance Corporation (“FDIC”) is appointed receiver or conservator under Section 11(c) of the FDIA (12 U.S.C. 1821(c)) of the Bank or any depository institution controlled by the Bank, the Bank shall have the right to terminate all obligations of the Bank under this Agreement as of the date of such receivership or conservatorship, other than any rights of the Executive that vested prior to such appointment.  To the extent the Bank is or encompasses a depository institution, any vested rights of the Executive may be subject to such modifications that are consistent with the authority of the FDIC.

(e)           If the FDIC provides open bank assistance under Section 13(c) of the FDIA (12 U.S.C. 1823(c)) to the Bank or any Affiliate, but excluding any such assistance provided to the industry generally, the Bank shall have the right to terminate all obligations of the Bank under this Agreement as of the date of such assistance, other than any rights of the Executive that vested prior to the FDIC action.  To the extent the Bank is or encompasses a depository institution, any vested rights of the Executive may be subject to such modifications that are consistent with the authority of the FDIC.

(f)           If the FDIC requires a transaction under Section 13(f) or 13(k) of the FDIA (12 U.S.C. 1823(f) and (k)) by the Bank or any Affiliate, the Bank shall have the right to terminate all obligations of the Bank under this Agreement as of the date of such transaction, other than any rights of the Executive that vested prior to the transaction.  To the extent the Bank is or encompasses a depository institution, any vested rights of the Executive may be subject to such modifications that are consistent with the authority of the FDIC.

(g)           All obligations under this Agreement are further subject to such conditions, restrictions, limitations and forfeiture provisions as may separately apply pursuant to any applicable state banking laws.

Section 7.  Intellectual Property Rights.

 

(a)           For purposes of this Agreement, “Works” shall mean intellectual property and proprietary rights, including without limitation, ideas, designs, concepts, techniques, inventions, discoveries and works of authorship, whether or not patentable or protectible by copyright or as a mask work, and whether or not reduced to practice, including, without limitation, devices, processes, trade secrets, formulas, techniques, compositions of matter, computer software programs, mask works and methods, together with any improvements thereon or thereto, derivative works made therefrom and know how related thereto.

 

  

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(b)           Executive hereby agrees that all Works made, conceived, developed or reduced to practice, in whole or in part, solely by Executive or jointly with others, either during or after his term of employment with the Bank, if such Works are (i) made through the use of any of the Confidential Information or any of Bank’s equipment, facilities, supplies or time, or (ii) result from any work performed by Executive for the Bank or its Affiliates, shall belong exclusively to the Bank and shall be deemed part of the Confidential Information for purposes of this Agreement whether or not fixed in a tangible medium of expression.  Without limiting the foregoing, Executive agrees that all such Works shall be deemed to be “works made for hire” under the U.S. Copyright Act of 1976, as amended, and that the Bank shall be deemed the author and owner thereof, provided that in the event and to the extent such Works are determined not to constitute “works made for hire” as a matter of law, Executive hereby irrevocably assigns and transfers to the Bank the entire right, title and interest, domestic and foreign, of Executive in and to such Works.  The Bank shall have the right to obtain and to hold in its own name, copyrights, registrations or such other protection as may be appropriate to the subject matter, and any extensions and renewals thereof.  Executive agrees to give the Bank, and any person designated by the Bank, any assistance the Bank deems necessary or appropriate to perfect the rights defined in this Section 7.

 

(c)           Executive will promptly disclose in writing (which may be by e-mail) to the Board, or its designee, every Work made, conceived, developed or reduced to practice, in whole or in part, solely by Executive or jointly with others, in connection with the business of the Bank either (i) during the Employment Period, whether or not Executive believes the Work to have been made, conceived, developed or reduced to practice within the course and scope of his employment, or (ii) after the termination of employment, if such Work is made through the use of Confidential Information or any of the Bank’s equipment, facilities, supplies or time, or results from any work performed by Executive for the Bank or its Affiliates.

 

(d)           Executive agrees to (i) keep and maintain adequate and current records (in the form of notes, drawings, software, object code, source code, manuals, plans, research, specifications, designs, documentation, data, processes, procedures, discoveries, models or in other appropriate forms) of all Works, which records shall be available at all times to the Bank and shall remain the sole property of the Bank; and (ii) assist the Bank, both during and subsequent to his employment with the Bank, in obtaining and enforcing for the Bank’s own benefit patents, copyrights, mask work rights, trade secret rights and other legal protections in any and all countries for any and all Works made by Executive (in whole or in part), the rights to which belong to or have been assigned to the Bank pursuant to this Agreement.  Upon request, Executive will execute all applications, assignments, instruments and papers and perform all acts that the Bank or its counsel may deem necessary or desirable to obtain or enforce any and all such patents, copyrights, mask work rights, trade secret rights and other legal protections in such Works and otherwise to protect the interests of the Bank therein.  The Bank agrees to bear all expenses which it causes to be incurred by Executive in assigning, obtaining, maintaining and enforcing said patents, copyrights, trade secret rights, mask work rights and other legal protections in accordance with this Agreement.

 

(e)           Executive understands that utilization of the Works is in the sole discretion of the Bank, and that the Bank is not obligated to develop, market or otherwise use any device or product.

 

Section 8.  Confidential Information.

 

(a)           Executive shall not at any time disclose or use for the benefit of others any information relative to the activities of the Bank which is of a secret or confidential nature, including without limitation financial information, contracts, contract proposals and negotiations, business plans, administration procedures and dealings with any customer or other business relationship of the Bank.  Specifically, Executive acknowledges that his duties and responsibilities will put Executive in a position of acquiring and creating Confidential Information (as that term is defined below), including without limitation Works as defined in Section 7 of this Agreement, concerning the Bank, the disclosure of which to competitors of the Bank or others could cause the Bank to suffer substantial and irreparable damage.  Executive acknowledges, therefore, that it is in the Bank’s legitimate business interest to restrict Executive’s disclosure or use of such Confidential Information (and other Bank Property) for any purpose other than the services provided by Executive to the Bank and to limit the possibility of any potential appropriation of such Confidential Information (and other Bank Property) by Executive for his own benefit or the benefit of the Bank’s competitors and to the detriment of the Bank.

 

  

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(b)           Executive hereby agrees and acknowledges that “Confidential Information” shall mean all non-public information, whether or not created or maintained in written or electronic form, which constitutes, relates or refers to any and all of the following: financial data; strategic business plans; acquisition plans; product development information (or other proprietary product data); marketing plans; processes; inventions; devices; Works; and all other non-public, proprietary or confidential information of, concerning or provided by or on behalf of the Bank and its Affiliates, or the Bank’s and its Affiliates’ clients, including without limitation, the terms and existence of this Agreement (provided, however, that Executive may disclose the terms and existence of this Agreement to his personal attorneys, immediate family, and/or accountants or in response to an inquiry of a governmental agency, court order or subpoena, or in order to enforce this Agreement). In addition, Executive may disclose his W-2 earnings, his job title, and the provisions of Section 9 to potential or future employers.  All of the foregoing is merely illustrative and Confidential Information is not limited to those illustrations.  Confidential Information shall not include information that is or becomes known or available to the public through no act or negligent omission by Executive.

 

(c)           Executive agrees and acknowledges that “Bank Property” shall mean all property and resources of the Bank, including without limitation, all Confidential Information, the Bank’s computer system and all software, e-mail and databases, telephone and facsimile services and all other administrative or support services provided by the Bank.  All Bank Property and Confidential Information is owned and/or held by and for the Bank exclusively, is intended for authorized, job-related purposes on behalf of the Bank only and shall not be used for any non-job-related purposes, nor for any amount of personal use that is not de minimus.  Further, without limitation, Executive shall not, directly or indirectly, except in the course of his duties hereunder (i) remove from the Bank’s premises, or divulge, disclose or make accessible to any other person, firm, partnership, corporation or other entity, any Confidential Information or non-public Bank Property, except as may be required by law, court order or subpoena and only after reasonable prior notice to the Bank where possible; or (ii) make use of any Confidential Information or Bank Property for any purpose outside the course of performing the authorized duties of his employment, including to benefit himself or any other person or entity.

 

(d)           Executive understands that the Bank, from time to time, may enter into agreements with other parties which impose obligations or restrictions on the Bank regarding inventions or Works (as defined in subsection 7(a)) made during the course of the performance of such agreements or regarding the confidential nature of such performance, or otherwise receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on the Bank’s part to maintain the confidentiality of such information and to use it only for certain limited purposes.  During the Employment Period and thereafter, Executive agrees to be bound by all such obligations and restrictions of which Executive has notice, will hold Third Party Information in the strictest confidence, will not disclose (to anyone other than the Bank personnel who need to know such information in connection with their work for the Bank) or use, except in connection with his work for the Bank, Third Party Information unless expressly authorized by the Bank in writing, and will otherwise take all action necessary to discharge the obligations to the Bank arising in connection with such Third Party Information.  Nothing in this Agreement prevents Executive from responding to a governmental inquiry, court order or subpoena, provided Executive gives the Bank reasonable advance notice, when possible.

 

  

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Section 9.  Non-Compete, Non-Solicitation.  Executive acknowledges and agrees that the Bank and its Affiliates have provided and will continue to provide Executive with Confidential Information (as defined in Section 8 of this Agreement), that the Bank’s business and profitability, and that of its Affiliates, depend to a significant degree on such Confidential Information remaining confidential, and that the covenants in Sections 8 and 9 of this Agreement are reasonable and necessary to protect the Confidential Information and trade secrets of the Bank.  Accordingly, Executive agrees that Executive shall not (except with the Bank’s prior written consent), directly or indirectly, as an owner, member, shareholder, employee, independent contractor, partner, consultant, joint venturer, investor, lender or otherwise, and whether acting alone or together with others:

 

(a)           during the Employment Period and the Restricted Period (as defined below), engage in (i) Wake County, North Carolina; (ii) all contiguous counties to Wake County, North Carolina; and (iii) any county with a branch or loan office established during the Employment Period (the “Territory”) in any activities which are competitive with any business conducted by the Bank or its Affiliates, except that nothing herein contained shall bar Executive from ownership of less than one percent (1%) of the number of outstanding shares of any securities listed for trading on any national exchange or automated quotation system of a competitive business;

 

(b)           during the Employment Period and the Restricted Period, call upon, solicit, induce or encourage any customer with whom the Bank or any of its Affiliates transacted business in the one year period before Executive’s employment terminated to: (i) reduce or terminate its business relationship with the Bank or any Affiliate; or (ii) to enter into or become the subject of any direct or indirect contractual or business arrangement with another bank that has offices or conducts substantial business in the Territory; and

 

(c)           during the Employment Period and the Restricted Period, recruit, employ, hire or retain or attempt to recruit, employ, hire or retain, directly or by assisting others, any other employees of the Bank or its Affiliates, or contact or communicate with any other employees of the Bank or its Affiliates for the purpose of inducing, encouraging or assisting such other employees to terminate their employment with the Bank or its Affiliates.  For purposes of this subsection 9(c), “other employees” shall refer to employees who are still actively employed by the Bank or its Affiliates at the time of the attempted contacting, communicating, recruiting, employing, hiring or retaining.

 

For purposes of this Section 9, the term “Restricted Period” means a period of twelve (12) months immediately following the Employment Period, unless the Executive is entitled to less than twelve (12) months of severance under this Agreement (including if the Executive is not entitled to any severance under this Agreement), in which event the term “Restricted Period” means a period of six (6) months or, if greater, the period during which the Executive is receiving severance under this Agreement.

 

  

10

  

 

Section 10.  Enforcement.  The Bank and Executive agree that if, at the time of enforcement of Section 7, 8 or 9, a court of competent jurisdiction holds that any restriction stated in any such Section is unreasonable under circumstances then existing, then the maximum period, scope or geographical area reasonable under such circumstances will be substituted for the stated period, scope or area.  Because Executive’s services are unique and because Executive has access to information of the type described in Sections 7, 8 and 9, the Executive agrees that, in addition to any other remedies, any breach of Section 7, 8, or 9 will result in the immediate forfeiture of any remaining payment that otherwise is or may become due under Section 4(d)(ii), if applicable.  Furthermore, the Bank and Executive agree that money damages would be an inadequate remedy for any breach of Section 7, 8 or 9.  Therefore, in the event of a breach of Section 7, 8 or 9, the Bank may, in addition to other rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions of Section 7, 8 or 9. The provisions of Sections 7, 8, 9 and 10 are intended to be for the benefit of the Bank and its Affiliates and their respective successors and assigns, each of which may enforce such provisions and each of which (other than the Bank) is an express third-party beneficiary of such provisions and this Agreement generally.  The existence of any claim or cause of action which Executive may have against the Bank shall not constitute a defense or bar to the enforcement of Section 7, 8 or 9, but may, at his option, be asserted as a counterclaim.  The provisions of this Section 10 shall not be construed as a waiver by the Bank of any rights which the Bank may have to damages or any other remedy against Executive for violation of Section 7, 8 or 9. Executive acknowledges that he has read carefully and had the opportunity to consult with legal counsel regarding the provisions of Sections 7, 8, 9 and 10.

 

Section 11.  Representations and Warranties of Executive.  Executive represents and warrants to the Bank and its Affiliates as follows:

 

(a)      Other Agreements.  Executive represents and warrants that he is not in breach of any agreement or other obligation requiring Executive to preserve the confidentiality of any information, client lists, trade secrets or other confidential information or any agreement not to compete or interfere with any prior employer, that he has provided copies of all such agreements to the Bank before signing this Agreement, and that neither the execution of this Agreement nor the performance by Executive of his obligations hereunder will conflict with, result in a breach of, or constitute a default under, any agreement or obligation to which Executive is a party or to which Executive may be subject.  Executive acknowledges and warrants that he will not bring to the Bank or use in the performance of his duties under this Agreement any documents or materials of any kind of a former employer or other Person that he is not legally authorized or permitted to use.

 

(b)           Prior Conduct.  Executive further represents and warrants that Executive: (i) is not currently under investigation or been served with a subpoena by any government agency or self-regulatory organization; (ii) has not engaged in any violation of any statute, regulation or rule governing banks or bank holding companies; and (iii) has not been convicted of or pled no lo contendere to any crime, or have been determined by any government agency or self-regulatory organization to have violated any statute, regulation or rule governing banks or bank holding companies.

 

(c)           Authorization.  This Agreement when executed and delivered will constitute a valid and legally binding obligation of Executive, enforceable against Executive in accordance with its terms.

 

Section 12.  Survival of Representations, Warranties and Covenants.  All representations and warranties contained herein will survive the execution and delivery of this Agreement.  The provisions of Sections 4, 5, 7, 8, 9, 10 and 13 shall survive the expiration of this Agreement, and the termination of Executive’s employment and/or the Employment Period for any reason.

 

  

11

  

 

Section 13.  Miscellaneous.

 

(a)           Notices.  All notices, demands or other communications to be given or delivered by reason of the provisions of this Agreement will be in writing and will be deemed to have been given (i) on the date of personal delivery to the recipient, if to Executive, or to the Chief Executive Officer of the Bank, if to the Bank, or (ii) on the date of transmission when sent by telecopy or facsimile machine to the number shown below on the date of such confirmed facsimile or telecopy transmission (provided that a confirming copy is sent via overnight mail), if sent at or before 5 p.m. on such date, or on the business day following the date of transmission if sent after 5 p.m., or (iii) on the business day following the date of deposit when properly deposited for next day delivery by a nationally recognized commercial overnight delivery service, prepaid; or (iv) on the date received by a recipient when properly deposited in the United States mail, certified or registered mail, postage prepaid, return receipt requested.  Such notices, demands and other communications will be sent to each party at the address indicated for such party below:

 

Notices to Executive, to:

Ray D. Vaughn

5528 Overleaf Ct.

Raleigh, North Carolina 27615

Notices to the Company or Bank, to:

 

Crescent State Bank

1005 High House Road

Cary, North Carolina  27513

Attention: Michael Carlton, Chief Executive Officer

 

with a copy (which will not constitute notice to the Bank), to:

 

Kenneth Henderson, Esq.

Jay P. Warren, Esq.

Bryan Cave LLP

1290 Avenue of the Americas

33rd Floor

New York, New York  10104

 

or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.

 

(b)           Consent to Amendments.  No modification, amendment or waiver of any provision of this Agreement will be effective against any party hereto unless such modification, amendment or waiver is approved in a writing executed by such party.  No course of dealing between the Bank and Executive or any delay in exercising any rights hereunder will operate as a waiver by any of the parties hereto of any rights hereunder.

 

(c)           Successors and Assigns.  All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.  Notwithstanding the foregoing, this Agreement may not be assigned by Executive and any such assignment shall be null and void.  This Agreement may be assigned by the Bank to any of its Affiliates, or to any successor, or to any purchaser of substantially all of the Bank’s assets.

 

(d)           Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

 

  

12

  

 

(e)           Counterparts.  This Agreement may be executed in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement.

 

(f)           Descriptive Headings.  The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement.

 

(g)           Governing Law.  Issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement will be governed by, and construed in accordance with, the laws of the State of North Carolina, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of North Carolina or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of North Carolina.  In furtherance of the foregoing, the law of the State of North Carolina will control the interpretation and construction of this Agreement, even though under North Carolina’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.

 

(h)           Waiver of Jury Trial.  Each party to this Agreement hereby waives, to the fullest extent permitted by law, any right to trial by jury of any claim, demand, action, or cause of action (i) arising under this Agreement or (ii) in any way connected with or related or incidental to the employment relationship between Executive and the Bank or the termination of that relationship for any reason.  Each party to this Agreement hereby agrees and consents that any such claim, demand, action, or cause of action will be decided by court trial without a jury and that the parties to this Agreement may file an original counterpart or a copy of this Agreement with any court as written evidence of the consent of the parties hereto to the waiver of their right to trial by jury.

 

(i)           Submission to Jurisdiction.  ANY AND ALL SUITS, LEGAL ACTIONS OR PROCEEDINGS ARISING OUT OF THIS AGREEMENT OR THE EMPLOYMENT RELATIONSHIP BETWEEN THE PARTIES WILL BE BROUGHT IN THE COURTS OF THE STATE OF NORTH CAROLINA OR THE UNITED STATES DISTRICT COURT WHICH HAVE JURISDICTION OVER THE COUNTY IN WHICH BANK HEADQUARTERS ARE LOCATED AT THE TIME ANY SUCH PROCEEDINGS ARE COMMENCED AND WHICH HAVE JURISDICTION OVER AN ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE EMPLOYMENT RELATIONSHIP BETWEEN EXECUTIVE AND THE BANK.  EACH PARTY HEREBY SUBMITS TO AND ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF SUCH SUITS, LEGAL ACTIONS OR PROCEEDINGS.  TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OR ANY SUCH SUIT, LEGAL ACTION OR PROCEEDING IN ANY SUCH COURT AND HEREBY FURTHER WAIVES ANY CLAIM THAT ANY SUIT, LEGAL ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(j)           Construction.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.  The use of the word “including” in this Agreement will be by way of example rather than by limitation.  This Agreement shall be interpreted and administered with the intent that it comply with all applicable requirements of Section 409A of the Code.

 

  

13

  

 

(k)           Entire Agreement.  Except as otherwise expressly set forth in this Agreement, this Agreement embodies the complete agreement and understanding among the parties to this Agreement with respect to the subject matter of this Agreement, and supersedes and preempts any prior understandings, agreements, or representations by or among the parties or their predecessors, written or oral, which may have related to the subject matter of this Agreement in any way, including, but not limited to, the Existing Employment Agreement.  Notwithstanding the foregoing, in the event the Transaction is not consummated on or before the first anniversary of the signing of the Investment Agreement, this Agreement shall become null and void and shall have no force or effect whatsoever.  Unless and until this Agreement becomes effective, the Existing Employment Agreement shall remain in effect in accordance with its terms.

 

[Remainder of Page Intentionally Left Blank]

 

  

14

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Executive Employment Agreement as of the dates written below.

 

	
CRESCENT STATE BANK

	  
	
By:

	
/s/ Michael G. Carlton

	  	
Name:

	  	
Title:

	  	  
	
Dated:

	
02/23/11

	
 

	  
	
/s/ Ray D. Vaughn

	
Ray D. Vaughn

	  	  
	
Dated:

	
02/23/11

 

  

15

  

 

EXHIBIT A

 

Form of

RETENTION PAYMENT RELEASE AGREEMENT

 

This Retention Payment Release Agreement (this “Agreement”) is made this ___ day of _____, 201_, by and between Crescent State Bank (the “Bank”), a North Carolina-chartered bank and ______________ (the “Executive”).

Introduction

Executive and the Bank entered into that certain employment agreement dated __________________, 2011, (the “Employment Agreement”).  Section 3(h) of the Employment Agreement provides the Executive with a retention payment, subject to the condition that the Executive execute a release of claims against the Bank, the Bank’s affiliates, and the directors, employees, and agents of the Bank and its affiliates.

NOW, THEREFORE, the parties agree as follows:

	
1.

	
Effective Date.  Executive has been offered twenty-one (21) days from receipt of this Agreement within which to consider this Agreement. The effective date of this Agreement shall be the date eight (8) days after the date on which Executive signs this Agreement (the “Effective Date”). For a period of seven (7) days following Executive’s execution of this Agreement, Executive may revoke this Agreement, and this Agreement shall not become effective or enforceable until such seven (7) day period has expired. Executive must communicate the desire to revoke this Agreement in writing.  Executive understands that Executive may sign the Agreement at any time before the expiration of the twenty-one (21) day review period.  Executive’s signing of the Agreement triggers the commencement of the seven (7) day revocation period.

	
2.

	
Retention Payment; Consideration.  In exchange for Executive’s execution of this Agreement and in full and complete settlement of any claims as specifically provided in this Agreement, the Bank will pay the Executive the retention payment payable pursuant to Section 3(h) of the Employment Agreement as of ______________, 201_ (the “Retention Payment”).

  

  

  

  

 

	
3.

	
Release.

	
  

	
a.

	
As a material inducement to the Bank to enter into this Agreement, Executive hereby irrevocably releases the Bank and each of the owners, stockholders, predecessors, successors, directors, officers, employees, representatives, attorneys, agents and affiliates of the Bank (and directors, officers, employees, representatives, attorneys and agents of such affiliates) and all persons acting by, through, under, or in concert with them (collectively, the “Releasees”), from any and all charges, claims, liabilities, agreements, damages, causes of action, suits, costs, losses, debts, and expenses (including attorneys’ fees and costs actually incurred) of any nature whatsoever, known or unknown, including, but not limited to, rights arising out of alleged violations of any contracts, express or implied, any covenant of good faith and fair dealing, express or implied, or any tort, or any legal restrictions on the Bank’s right to terminate employees, or any federal, state or other governmental statute, regulation, or ordinance, including, without limitation: (1) Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991 (race, color, religion, sex, and national origin discrimination); (2) the Employee Retirement Income Security Act (“ERISA”); (3) 42 U.S.C. § 1981 (discrimination); (4) the Americans with Disabilities Act (disability discrimination); (5) the Equal Pay Act; (6) Executive Order 11246 (race, color, religion, sex, and national origin discrimination); (7) Executive Order 11141 (age discrimination); (8) Section 503 of the Rehabilitation Act of 1973 (disability discrimination); (9) the Family and Medical Leave Act; (10) the Occupational Safety and Health Act; (11) the Ledbetter Fair Pay Act; (12) negligence; (13) negligent hiring and/or negligent retention; (14) intentional or negligent infliction of emotional distress or outrage; (15) defamation; (16) interference with contract and/or employment; (17) wrongful discharge; (18) invasion of privacy; or (19) violation of any other legal or contractual duty arising under the laws of the State of North Carolina or the laws of the United States, in each case, which Executive now has, or claims to have, or which Executive at any time heretofore had, or claimed to have, or which Executive at any time hereinafter may have, or claim to have, against each or any of the Releasees, in each case as to acts or omissions by each or any of the Releasees occurring up to and including the date of execution of this Agreement.

	
  

	
b.

	
The release in this Agreement shall not apply to any rights or benefits (such as base salary or reimbursement of expenses eligible for reimbursement) that the Executive is entitled to pursuant to the Employment Agreement, any other written agreement between the Bank and the Executive, or any compensation or benefit plan, program, or agreement of the Bank that is applicable to the Executive.

	
  

	
c.

	
By entering into this Agreement, Executive does not waive any rights or claims that may arise after the date this Agreement is executed.

	
4.

	
Non-Admission.  This Agreement shall in no way be construed as an admission by the Bank that it has acted wrongfully with respect to Executive or any other person or that Executive has any rights whatsoever against the Bank.  The Bank specifically disclaims any liability to or wrongful acts against Executive or any other person on the part of itself, its employees or its agents.

	
5.

	
Lawsuits and Proceedings.  Executive represents and warrants that Executive has not filed, nor assigned to others the right to file, nor are there currently pending, any complaints, charges, claims, grievances, or lawsuits against Bank with any administrative, state, federal, or governmental entity or agency or with any court.  Executive agrees never to file or pursue a lawsuit or to participate as a class member in any lawsuit, based on any claim released by this Agreement.  Executive understands that Executive may file a charge or participate in an investigation or proceeding conducted by an agency of the United States Government or of any state.  Executive further agrees that Executive will not seek personal recovery as a result of any charge or litigation based on claims released herein and hereby waives any right to personal recovery for claims filed on Executive’s behalf.

 

  

Exhibit A - Page 2 of 4

  

 

	
6.

	
Executive Acknowledgments.

 

	
  

	
a.

	
Executive acknowledges and understands that the restrictive covenants and nondisclosure provisions of the Employment Agreement, and all provisions related thereto, remain in full force and effect in accordance with the terms of the Employment Agreement.

	
  

	
b.

	
Executive acknowledges, understands, and agrees that Bank has made no representation as to the nature or extent of tax treatment of the Retention Payment.

	
7.

	
Agreement Binding; Governing Law; Severability.  The Bank and Executive agree that the terms of this Agreement shall be final and binding and that this Agreement shall be interpreted, enforced and governed under the laws of the State of North Carolina.  The provisions of this Agreement can be severed, and if any part of this Agreement is found to be unenforceable, the remainder of this Agreement will continue to be valid and effective.

	
8.

	
Entire Agreement.  This Agreement sets forth the entire agreement between the Bank and Executive and fully supersedes any and all prior agreements or understandings, written and/or oral, between the Bank and Executive pertaining to the subject matter of this Agreement.

	
9.

	
Executive’s Attorneys Fees. Executive is solely responsible for the payment of any fees incurred as the result of an attorney reviewing this Agreement on behalf of Executive.

 

This Agreement includes a release of all known and unknown claims through the date of this Agreement, except as otherwise provided herein.  Executive should carefully consider all of its provisions before signing it. Executive’s signature below indicates Executive’s understanding and agreement with all of the terms in this Agreement.

 

  

Exhibit A - Page 3 of 4

  

 

IN WITNESS WHEREOF, Executive and the Bank have executed this Agreement effective as of the Effective Date.

 

	
EXECUTIVE:

	  
	  
	  
	  
	
Date Signed

	  
	
THE BANK:

	  
	
CRESCENT STATE BANK

	  
	
By:

	  
	  	  
	
Print Name:

	  
	  	  
	
Title:

	  

  

Exhibit A - Page 4 of 4Unassociated Document

 

EXHIBIT 10(xxxix)

 

INVESTMENT AGREEMENT

BY AND AMONG

CRESCENT FINANCIAL CORPORATION,

CRESCENT STATE BANK

AND

PIEDMONT COMMUNITY BANK HOLDINGS, INC.

Dated as of February 23, 2011

 

  

  

  

 

TABLE OF CONTENTS

 

	  	  	
Page

	  	  	  
	
ARTICLE I DEFINITIONS

	
2

	
1.1

	
Definitions

	
2

	  	  	  
	
ARTICLE II PURCHASE AND SALE

	
14

	
2.1

	
Purchase and Sale of Common Stock

	
14

	
2.2

	
Closing

	
15

	
2.3

	
Delivery of Items at the Closing

	
15

	  	  
	
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE BANK

	
15

	
3.1

	
Organization and Authority

	
16

	
3.2

	
Capitalization

	
18

	
3.3

	
Subsidiaries

	
19

	
3.4

	
Authorization and Enforceability

	
20

	
3.5

	
No Conflicts

	
21

	
3.6

	
Consents

	
21

	
3.7

	
Financial Statements

	
22

	
3.8

	
Reports; Regulatory Matters

	
23

	
3.9

	
Absence of Undisclosed Liabilities

	
25

	
3.10

	
Absence of Certain Changes

	
26

	
3.11

	
Intellectual Property

	
26

	
3.12

	
Legal Compliance

	
29

	
3.13

	
Contracts

	
29

	
3.14

	
Properties and Leases

	
31

	
3.15

	
Employee Benefit Plans

	
32

	
3.16

	
Labor Matters

	
35

	
3.17

	
Litigation and Other Proceedings

	
35

	
3.18

	
Tax Matters

	
36

	
3.19

	
Environmental Matters

	
38

	
3.20

	
Brokers

	
39

	
3.21

	
Insurance

	
39

	
3.22

	
Related Party Transactions

	
40

	
3.23

	
Certain Payments

	
40

	
3.24

	
Privacy and Security

	
41

	
3.25

	
Loan Portfolio

	
41

	
3.26

	
Agreement with Regulatory Agencies and Regulatory Approvals

	
43

	
3.27

	
Anti-takeover Provisions

	
43

	
3.28

	
Offering of Purchased Shares

	
43

	
3.29

	
Status of Purchased Shares

	
43

	
3.30

	
Risk Management Instruments

	
44

	
3.31

	
Reservation for Issuance

	
44

	
3.32

	
Investment Company Act

	
44

	
3.33

	
No Material Adverse Effect

	
44

	
3.34  

	
Disclosure

	
44

 

  

1

  

	
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTOR

	
45

	
4.1

	
Organization and Authority

	
45

	
4.2

	
Authorization and Enforceability

	
45

	
4.3

	
No Conflicts

	
45

	
4.4

	
Restricted Securities; Limitation on Resale.

	
46

	
4.5

	
Purchase for Investment.

	
46

	
4.6

	
Brokers and Finders

	
46

	
4.7

	
Litigation and Other Proceedings.

	
46

	
4.8

	
Compliance with Law

	
47

	
4.9

	
Financial Capability

	
47

	
4.10

	
General Solicitation

	
47

	
4.11

	
Related Party Transactions

	
47

	
4.12

	
Certain Payments

	
47

	
4.13

	
Agreements with Regulatory Agencies

	
47

	
4.14

	
Corporate Governance and Financing Restrictions

	
48

	
4.15

	
No Material Adverse Effect

	
48

	
4.16

	
Non-Reliance

	
48

	  	  
	
ARTICLE V COVENANTS

	
48

	
5.1

	
Filings, Other Actions

	
48

	
5.2

	
Conduct of Business Prior to Closing

	
51

	
5.3

	
Acquisition Proposals

	
55

	
5.4

	
Access, Information and Confidentiality

	
57

	
5.5

	
D&O Indemnification

	
58

	
5.6

	
Notice of Certain Events

	
58

	
5.7

	
Public Announcements

	
59

	
5.8

	
Regulation O Loans

	
59

	
5.9

	
2010 Financial Statements

	
59

	
5.10

	
Status of Classified Loans

	
59

	  	  
	
ARTICLE VI ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES

	
59

	
6.1

	
Rights Offerings

	
59

	
6.2

	
Corporate Governance

	
61

	
6.3

	
Legend

	
61

	
6.4

	
Officers, Employees and Benefit Plans

	
62

	
6.5

	
The Offer

	
63

	
6.6

	
Company Actions

	
65

	
6.7

	
Tax Sharing Agreement

	
66

	
6.8

	
Competition and Corporate Opportunities

	
66

	 	 
	
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES

	
69

	
7.1

	
Conditions to Obligations of Parties

	
69

	
7.2

	
Conditions to Obligations of Investor

	
69

	
7.3

	
Conditions to Obligations of the Company and the Bank

	
71

	  	  
	
ARTICLE VIII TERMINATION PRIOR TO CLOSING

	
72

	
8.1

	
Termination

	
72

 

  

2

  

	
8.2

	
Effects of Termination

	
73

	
8.3

	
Fees

	
73

	  	  
	
ARTICLE IX GENERAL

	
74

	
9.1

	
Usage

	
74

	
9.2

	
Costs and Expenses

	
74

	
9.3

	
Survival

	
75

	
9.4

	
Governing Law

	
75

	
9.5

	
Consent to Jurisdiction

	
75

	
9.6

	
Successors and Assigns

	
75

	
9.7

	
Notices

	
75

	
9.8

	
Severability

	
77

	
9.9

	
Representation by Counsel; No Inferences

	
77

	
9.10

	
Divisions and Headings

	
77

	
9.11

	
No Third-Party Beneficiaries

	
77

	
9.12

	
Amendment and Waiver

	
77

	
9.13

	
Exhibits

	
77

	
9.14

	
Time of Essence

	
78

	
9.15

	
Counterparts

	
78

	
9.16

	
Entire Agreement

	
78

	
9.17

	
Specific Performance; Limitation on Damages

	
78

Exhibits:

Exhibit A – Executives

Exhibit B – Director Designees

Exhibit C – Form of Registration Rights Agreement

Exhibit D – Form of Amended and Restated Certificate of Incorporation

Exhibit E - Officers of the Company and the Bank as of Closing

Exhibit F – Form of Tax Sharing Agreement

Exhibit G – Form of Amended and Restated Bylaws

Annexes:

Annex A – Conditions to Offer

Schedules

Schedule A – Company Subsidiaries

 

  

3

  

INVESTMENT AGREEMENT

 

THIS INVESTMENT AGREEMENT, dated as of February 23, 2011 by and among Piedmont Community Bank Holdings, Inc., a Delaware corporation (“Investor”), Crescent Financial Corporation, a North Carolina corporation (the “Company”) and Crescent State Bank, a North Carolina state bank and a wholly-owned banking subsidiary of the Company (the “Bank”).  Investor, the Company and the Bank are sometimes collectively referred to herein as the “Parties” and individually as a “Party.”  Certain capitalized terms used in this Agreement and not otherwise defined have the meanings ascribed to them in Section 1.1.

 

WHEREAS, Investor operates as a bank holding company under the supervision of the Federal Reserve;

 

WHEREAS, the Investor intends to invest $75,000,000 in the Company, and in return the Company intends to issue and sell to the Investor, 18,750,000 shares of Common Stock of the Company at a purchase price of $4.00 per share (the “Investment”);

 

WHEREAS, in order to complete the Investment, the Company will seek the requisite shareholder approval required by NASDAQ listing rules;

 

WHEREAS, the Company’s board of directors has unanimously (i) determined that the Investment and the other transactions contemplated hereby are in the best interests of the Company and its shareholders, (ii) approved the Investment, the Offer (as defined below), the Voting Agreement (as defined below) and the other transactions contemplated hereby, and (iii) resolved to recommend approval by the Company’s Shareholders of (a) the Investment and (b) the Reincorporation Merger;

 

WHEREAS, each of the board of directors and the shareholders of Investor has approved this Agreement and the transactions contemplated hereby;

 

WHEREAS, on the date hereof, and as a condition to the willingness of Investor to enter into this Agreement, each of Michael G. Carlton, Charles A. Paul, III,  Brent D. Barringer and James A Lucas, Jr. has entered into a voting agreement with Investor pursuant to which, among other things, each such individual has agreed to (a) vote his shares of Common Stock in favor of (i) the approval of the Reincorporation Merger and (ii) the issuance and sale of the Purchased Shares (as defined herein) pursuant to the terms of this Agreement, and (b) take other actions in furtherance of the transactions contemplated by this Agreement (the “Voting Agreement”);

 

WHEREAS, on the date hereof, and as a condition to the willingness of Investor to enter into this Agreement, Michael G. Carlton has entered into the Indemnification Agreement (as defined herein) and the Affected Executives (as defined herein) have entered into new employment agreements (the “Employment Agreements”);

 

WHEREAS, pursuant to the terms of this Agreement, Investor has agreed to commence a tender offer (as it may be amended from time to time as permitted under this Agreement, the “Offer”) to purchase up to 6,442,105 shares of Common Stock (each, a “Share”), at a price per Share of $4.75 (the “Offer Price”) in cash, without interest, on the terms and subject to the conditions set forth in this Agreement.

 

  

 

  

 

NOW, THEREFORE, in consideration of the foregoing, the representations, warranties and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1 Definitions.  When used in this Agreement, the following terms shall have the meanings assigned to them in this Section 1.1.  For the avoidance of doubt, after the consummation of the Reincorporation Merger, the equivalent of the following terms shall apply to the surviving company.

 

“409A Plan” means any Benefit Plan that is a “non-qualified deferred compensation plan” within the meaning of Section 409A of the Code.

 

“Accrual Balance” has the meaning set forth in Section 6.4(c).

 

“Acquisition Agreement” has the meaning set forth in Section 5.3(b).

 

“Acquisition Proposal” means (a) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, rights offering, share exchange, business combination or similar transaction involving the Company, the Bank or any of the Subsidiaries and (b) any acquisition by any Person resulting in, or proposal or offer, that, if consummated, would result in any person becoming the beneficial owner, directly or indirectly, in one or a series of related transactions, of ten percent (10%) or more of the total voting power of any class of equity securities of the Company or the Bank or those of any of the Subsidiaries, or ten percent (10%) or more of the consolidated total assets (including, without limitation, equity securities of any Subsidiaries) of the Company, in each case other than the transactions contemplated by this Agreement.

 

“Action” has the meaning set forth in Section 3.17.

 

“Adverse Recommendation Change” means (a) the withdrawal or modification, or public proposal to withdraw or modify, in a manner adverse to Investor, the Company Recommendation with respect to either the action to be taken at the Shareholder Meeting or in connection with the Offer; (b) the failure to include the Company Recommendation in the Preliminary Proxy Statement, the Definitive Proxy Statement and the Schedule 14D-9, as applicable; or (c) if a tender offer or exchange offer for shares of Common Stock that constitutes an Acquisition Proposal is commenced, the failure to recommend against acceptance of such tender offer or exchange offer by the Company Shareholders (including, for these purposes, by taking no position with respect to the acceptance of such tender offer or exchange offer by the Company Shareholders, which shall constitute a failure to recommend against acceptance of such tender offer or exchange offer) within ten (10) Business Days after commencement thereof; or (d) the recommendation, or public proposal to recommend, any Acquisition Proposal made or received after the date hereof.

 

  

2

  

 

“Affected Executives” means the executives of the Company set forth on Exhibit A hereto listed under the heading “Affected Executives”.

 

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.  For purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Agency” and “Agencies” have the respective meanings set forth in Section 3.25(d).

 

“Agreed Designees” means those persons serving on the Company Board on the date hereof that have been mutually selected by the Company and the Investor to continue to serve on the Company Board and to be appointed to the board of directors of Investor following the Closing, and which persons are set forth on Exhibit B hereto under the heading “Agreed Designees”.

 

“Agreement” means this Investment Agreement as amended or supplemented together with all Exhibits attached or delivered with respect hereto or expressly incorporated herein by reference.

 

“Approval” means any approval, authorization, consent, notice, qualification, license or registration, or any extension, modification, amendment or waiver of any of the foregoing, of or from, or any notice, statement, filing or other communication to be filed with or delivered to, any Governmental Entity.

 

“Audited Balance Sheet” means the audited consolidated statement of financial condition of the Bank, the Company and the Subsidiaries as of December 31, 2009.

 

“Audited Financial Statements” has the meaning set forth in Section 3.7.

 

“Authorizations” has the meaning set forth in Section 3.1(a).

 

“Bank” has the meaning set forth in the first paragraph of this Agreement.

 

“Benefit Plan” means any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA, and any bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control, fringe benefit, or other compensation or employee benefit plan, program, agreement, arrangement or policy sponsored, maintained or contributed to or required to be contributed to by the Company or by any ERISA Affiliate, or to which the Company, the Bank, any Subsidiary or any of their respective ERISA Affiliates is party, whether written or oral, for the benefit of any director, former director, consultant, former consultant, employee or former employee of the Company, the Bank or any Subsidiary.

 

  

3

  

 

“Board Resolutions” means (i) the board resolutions adopted February 24, 2009, and August 24, 2010, by the board of directors of the Bank and (ii) the board resolution adopted September 28, 2010, by the Company’s Board setting forth certain commitments and agreements by, in the case of clause (i), the Bank with the NC Commissioner and/or the Regional Director of the FDIC’s Atlanta Office, and with respect to clause (ii), the Company with the Federal Reserve.

 

“Burdensome Condition” has the meaning set forth in Section 7.2(e).

 

“Business Opportunity Affiliate” shall mean (i) in respect of the Investor, any Person that, directly or indirectly, is controlled by the Investor, controls the Investor, or is under common control with the Investor, and shall include any principal, director, partner, member, shareholder, officer, employee or other representative of the Investor, (ii) in respect of a Non-Employee Director, any Person that, directly or indirectly, is controlled by such Non-Employee Director, and (iii) in respect of the Company and/or the Bank, any Person that, directly or indirectly, is controlled by the Company and/or the Bank, as applicable.

 

“Business Day” means a day other than a Saturday, Sunday or other day on which banks located in North Carolina are authorized or required by law to close.

 

“Certificate of Incorporation” has the meaning set forth in Section 2.3(e).

 

“Certificate of Merger” has the meaning set forth in Section 2.3(e).

 

“Classified Loans” has the meaning set forth in Section 3.25(c).

 

“Closing” has the meaning set forth in Section 2.2.

 

“Closing Condition” has the meaning set forth in Section 6.5(b).

 

“Closing Date” has the meaning set forth in Section 2.2.

 

“Code” means the Internal Revenue Code of 1986, as amended, and all applicable rules and regulations promulgated thereunder applicable to any provision referenced therein.

 

“Common Stock” means, as of the date hereof, the $1.00 par value per share common stock of the Company, or after the Reincorporation Merger, the $.0001 par value per share common stock of the Company.

 

“Community Reinvestment Act” has the meaning set forth in Section 3.1(e)(iii).

 

“Company” has the meaning set forth in the first paragraph of this Agreement, provided however, that “Company” shall mean the survivor of the Reincorporation Merger upon the effective time of such merger.

 

“Company 10-K” means the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed by it with the SEC on March 31, 2010.

 

“Company Board” means the board of directors of the Company.

 

  

4

  

 

“Company Disclosure Letter” means that certain letter, dated as of the date hereof, supplied by the Company and the Bank to Investor which sets forth the necessary exceptions or qualifications to the representations and warranties of the Company and the Bank set forth herein, which exceptions or qualifications are arranged in Sections corresponding to the numbered and lettered Sections contained in this Agreement, and the disclosures in any one Section or Sections of the Company Disclosure Letter shall qualify other Sections if it is readily apparent from a reading of such disclosure that it also qualifies or applies to such other Sections.

 

“Company Insurance Policies” has the meaning set forth in Section 3.21(a).

 

“Company Intellectual Property” has the meaning set forth in Section 3.11(d).

 

“Company Options” has the meaning set forth in Section 3.2(a).

 

“Company Reports” has the meaning set forth in Section 3.8(a).

 

“Company Recommendation” means, as the context requires, the recommendation of the Company Board that, (a) with respect to action to be taken at the Shareholder Meeting, the Company Shareholders approve the Investment pursuant to the terms of this Agreement and the Reincorporation Merger, and (b) with respect to the Offer, either (i) the holders of Common Stock accept the Offer and tender their shares of Common Stock pursuant to the Offer, or (ii) no favorable or negative recommendation regarding the tender of shares of Common Stock pursuant to the Offer by the Company’s Shareholders be made, and instead the Company Board has determined to remain neutral; provided that once the Company Board adopts the position in either subclause (i) or (ii), it shall not change its determination, except in accordance with Section 5.3.

 

“Company Shareholders” means, as of a date, the holders of the shares of Common Stock as of such date.

 

“Company Stock” has the meaning set forth in Section 3.2(a).

 

“Company Stock Plan” means, collectively, the Crescent Financial Corporation 1999 Incentive Stock Option Plan; the Crescent Financial Corporation 1999 Nonstatutory Stock Option Plan; the Crescent Financial Corporation 2003 Nonstatutory Stock Option Plan; the Crescent Financial Corporation 2003 Incentive Stock Option Plan; the PCCB Incentive Stock Option Plan; the PCCB Nonstatutory Stock Option Plan; and the Crescent Financial Corporation 2006 Omnibus Stock Ownership and Long Term Incentive Plan, each as described in the public filings of the Company.

 

“Company Warrant” has the meaning set forth in Section 3.2(a).

 

“Confidentiality Agreement” means the reciprocal confidentiality agreement, dated November 15, 2010, between Investor and the Company.

 

“Contract” means any written or oral agreement, contract, commitment, arrangement or understanding.

 

  

5

  

 

“Definitive Proxy Statement” has the meaning set forth in Section 5.1(c).

 

“Derivative Transactions” means any swap transaction, option, warrant, forward purchase or forward sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

 

“Direct Stock Purchase Plan” means the Crescent Financial Corporation Common Stock Direct Purchase Plan.

 

“Director’s Stock Purchase Plan” means the Crescent Financial Corporation and Crescent State Bank Amended and Restated Director’s Compensation Plan.

 

“EESA” has the meaning set forth in Section 7.2(i)(iii).

 

“Employment Agreements” has the meaning set forth in the Recitals to this Agreement.

 

“Environmental Laws” means the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”), the Resource Conservation and Recovery Act of 1976, as amended, and any other applicable Law as now or previously in effect and regulating, relating to, or imposing liability or standards of conduct concerning air emissions, water discharges, noise emissions, the release or threatened release or discharge of any Hazardous Material into the environment, the generation, handling, treatment, storage, transport or disposal of any Hazardous Material, or otherwise concerning pollution or the protection of the outdoor or indoor environment and employee or human health or safety.

 

“Environmental Permit” means any permit, license, approval, consent or other authorization by a federal, state, local or foreign government or regulatory entity pursuant to any Environmental Law.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations promulgated thereunder applicable to any provision referenced therein.

 

“ERISA Affiliate” means any trade or business, whether or not incorporated, that together with the Company would be deemed a “single employer” within the meaning of Section 4001(b) of ERISA.

 

“Escrow Agent” means Bryan Cave LLP.

 

“Escrow Agreement” means the escrow agreement, dated as of February 22, 2011, between Investor and Escrow Agent.

 

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

 

  

6

  

 

“Excluded Persons” means (a) Investor or its Affiliates, (b) any tax-qualified retirement plan maintained by the Company or any ERISA Affiliate, and (c) any participant with respect to any plan referenced in clause (b) of this definition, but only to the extent of such participant's beneficial ownership of shares of Common Stock held by such plan.

 

“Expense Reimbursement” means an amount in cash equal to one million dollars ($1,000,000.00) which is intended to reimburse the Investor’s or the Company’s expenses, as the case may be, incurred in connection with due diligence, the negotiation and preparation of this Agreement and otherwise in connection with the transactions contemplated hereby.

 

“Expiration Time” has the meaning set forth in Section 6.5(d).

 

“FDIA” means the Federal Deposit Insurance Act of 1950, as amended.

 

“FDIC” means the Federal Deposit Insurance Corporation.

 

“Federal Reserve” means the Board of Governors of the Federal Reserve System, including any Federal Reserve Bank acting under designated authority.

 

“Financial Advisor” has the meaning set forth in Section 3.20.

 

“Financial Statements” has the meaning set forth in Section 3.7.

 

“GAAP” means United States generally accepted accounting principles and practices as in effect from time to time.

 

“Governmental Entity” means any federation, nation, state, sovereign or government, any federal, supranational, regional, state or local political subdivision, any governmental or administrative body, instrumentality, department or agency or any court, administrative hearing body, commission or other similar dispute resolving panel or body, and any other entity exercising executive, legislative, judicial, regulatory or administrative functions of a government.

 

“Hazardous Material” shall mean any pollutant, contaminant or hazardous, toxic, biohazardous, or dangerous waste, substance, constituent or material, defined or regulated as such in, or for purposes of, any Environmental Law, including, without limitation, any asbestos, any petroleum, oil (including crude oil or any fraction thereof), any radioactive substance, any polychlorinated biphenyls, any toxin, chemical, microbial matter, greenhouse gas, and any other substance that may give rise to liability under any Environmental Law.

 

“Identified Person” has the meaning set forth in Section 6.8(b).

 

  

7

  

 

“Indebtedness” means (a) all indebtedness for borrowed money and all obligations issued in substitution for or exchange of obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations to pay the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (including all earn-out or similar obligations), (d) any commitment by which a Person assures a holder of Indebtedness against loss (including, without limitation, contingent reimbursement Liability with respect to letters of credit), (e) any indebtedness guaranteed in any manner by a Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse), (f) any Liabilities under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, including, without limitation, any lease termination payments or charges, (g) any indebtedness secured by a Lien on a Person’s assets, (h) any off-balance sheet financing of a Person, and (i) any accrued and unpaid interest on, and any prepayment premiums, penalties or similar contractual charges in respect of, any of the foregoing obligations; provided, however that Indebtedness shall not include deposits, federal funds purchased, cash management accounts, Federal Home Loan Bank or Federal Reserve borrowings that mature within one year and that have no put or call features and securities sold under agreements to repurchase that mature within 90 days, in each case in the Ordinary Course of Business consistent with past practice.

 

“Indemnification Agreement” means that certain indemnification agreement, dated the date hereof, between the Company, the Bank, and Michael G. Carlton.

 

“Indemnified Persons” has the meaning set forth in Section 5.5(b).

 

“Initial Expiration Time” has the meaning set forth in Section 6.5(d).

 

“Intellectual Property” means all of the following in any jurisdiction throughout the world, whether registered or unregistered: (a) patents, patent applications and patent disclosures, and all rights related thereto, (b) trademarks, service marks, trade dress, trade names, business and corporate names, identifying symbols, emblems, signs, logos and slogans (and all translations, abbreviations, adaptations, derivations and combinations of the foregoing) and internet domain names and rights to uniform resource locators, together with all goodwill associated with each of the foregoing; (c) copyrights and copyrightable works, mask works and derivative works; (d) registrations, applications and renewals for any of the foregoing; (e) trade secrets and confidential information, including, without limitation, discoveries, inventions, conceptions of inventions, ideas, formulae, algorithms, schematics, compositions, know-how and show-how, shop rights, developments, concepts, models, designs, manufacturing and production processes and techniques, research and development, drawings, specifications, proposals, technical data, financial and business plans, projections and data, marketing data and studies, pricing and cost information, technology, research results, disclosure and non-disclosure agreements, and prospect, customer and supplier lists and related information; (f) all computer programs and computer software, including any and all software implementations of algorithms, operating systems and specifications, models and methodologies whether in source code or object code form, databases and compilations, including any and all data and collections of data, operating systems, files, programs, and all documentation and materials related to any of the foregoing and the content and information contained on any web site; (g) all other intellectual property; (h) copies and tangible embodiments of all of the foregoing, in whatever form or medium; (i) rights to obtain and rights to apply for patents, to claim priority to earlier-filed patent applications and to register trademarks and copyrights; and (j) rights to sue and recover and retain damages and costs and attorneys’ fees for present and past infringement of any of the Intellectual Property rights set forth above.

 

  

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“Intellectual Property Licenses” means (a) any grant by the Company, the Bank or any Subsidiary to another Person, by Contract, agreement or otherwise, of any right to use any of the Company Intellectual Property, and (b) any grant by a third party to the Company, the Bank or any Subsidiary, by Contract, agreement or otherwise, of a right to use such Person’s intellectual property rights included in the Company Intellectual Property.

 

“Interim Balance Sheet” has the meaning set forth in Section 3.7.

 

“Investment” has the meaning set forth in the Recitals to this Agreement.

 

“Investor” has the meaning set forth in the first paragraph of this Agreement.

 

“Investor Designees” means those individuals set forth on Exhibit B attached hereto under the heading “Investor Designees”.

 

“Knowledge” of the Company and the Bank and words of similar import mean the knowledge of officers of the Company and the Bank, respectively, in each case after due inquiry made to appropriate employees of the Company or the Bank having responsibility for the type of information in question.

 

“Law” means any domestic or foreign constitutional provision, statute, ordinance or other law, duly enacted and enforceable rule or regulation, or any binding interpretation or Order of any Governmental Entity or applicable stock exchange.

 

“Liability” or “Liabilities” means any liability, Indebtedness, deposit, debt, obligation, deficiency, Tax, penalty, assessment, fine, claim, cause of action or other loss, fee, cost or expense of any kind or nature whatsoever, whether asserted or unasserted, absolute or contingent, known or unknown, accrued or unaccrued, liquidated or unliquidated, and whether due or to become due and regardless of when asserted.

 

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest of any kind or nature whatsoever or other encumbrance in respect of such property or asset.

 

“Loan” means any loan, loan agreement, note or borrowing arrangement or extension of credit (including any lease, credit enhancement, commitment, guaranty and interest-bearing asset), and “Loans” means all of them.

 

“Loan Tape” means a data storage disk produced by the Company from its management information systems regarding the Loans.

 

  

9

  

 

“Material Adverse Effect” means any event, circumstance, condition, change, occurrence or effect (including changes in applicable Laws, or interpretations thereof by a Governmental Entity, changes in GAAP or changes in general economic, monetary or financial conditions that are generally known in the banking industry and that a reasonable Person would conclude would affect the Company, the Bank or any Subsidiary) (a) that individually or in the aggregate with all other events, circumstances, conditions, changes, occurrences and effects, has or would reasonably be expected to have a material adverse effect upon the assets, liabilities, business, financial condition, or operating results of the Company, the Bank and any Subsidiary, taken as a whole (provided, however, that a “Material Adverse Effect” shall not be deemed to include any fact, event, change, condition, development, circumstance or effect to the extent resulting from actions or omissions by the Company taken with the prior written consent of Investor or as expressly required by this Agreement), or (b) that could reasonably be expected to prevent or materially impair the ability of the Company, the Bank or the Investor to perform its obligations under this Agreement or consummate the transactions contemplated by this Agreement, provided however, that any adverse event, circumstance, condition, change, occurrence or effect to the extent arising from: (i) national or international political or social conditions, including terrorism or the engagement by the United States in hostilities or acts of war except to the extent the Company and the Bank are affected in a disproportionate manner as compared to other community banks in the southeastern United States; (ii) any action taken by Investor prior to or at the Closing; (iii) any failure, in and of itself, by the Company or the Bank to meet any internal or disseminated projections, forecasts or revenue or earnings predictions for any period (providing that any underlying causes of such failure shall not be excluded in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur); (iv) any compliance by the Company or the Bank with any express written request made by Investor; or (v) the public announcement, pendency or completion of the transactions contemplated by this Agreement, including any action taken in response thereto by any person with which the Company or the Bank does business shall not, in any such case, be taken into account in determining whether a “Material Adverse Effect” has occurred or would reasonably be expected to occur. Notwithstanding any other provision contained herein, “Material Adverse Effect” shall not include the entry by the Company or the Bank into an informal enforcement action with any or all of the FDIC, the NC Commissioner or the Federal Reserve, or the recommendation by any such regulatory authority that the Company or the Bank enter into an informal enforcement action; provided, however, that any such informal enforcement action entered into or recommended (a) is based solely on asset quality classifications and the Bank’s capital position, and (b) does not impose restrictions on the Company, the Bank or any Subsidiaries that are, in the reasonable judgment of Investor, more restrictive in substance, individually or in the aggregate, than the Board Resolutions.

 

“Material Contract” has the meaning set forth in Section 3.13(a).

 

“Merger Sub” has the meaning set forth in Section 2.3(e).

 

“NASDAQ” means the NASDAQ Stock Market.

 

“NC Commissioner” means the North Carolina Commissioner of Banks.

 

“Non-Employee Directors” has the meaning set forth in Section 6.8(a).

 

“Notice of Recommendation Change” has the meaning set forth in Section 5.3(b).

 

“Offer” has the meaning set forth in the Recitals to this Agreement.

 

“Offer Closing” has the meaning set forth in Section 6.5(f).

 

“Offer Closing Date” has the meaning set forth in Section 6.5(f).

 

  

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“Offer Conditions” has the meaning set forth in Section 6.5(b).

 

“Offer Documents” has the meaning set forth in Section 6.5(h).

 

“Offer Price” has the meaning set forth in the Recitals to this Agreement.

 

“Offer to Purchase” has the meaning set forth in Section 6.5(c).

 

“Offered Common Stock” has the meaning set forth in Section 6.1.

 

“Order” means any binding and enforceable decree, injunction, judgment, order, ruling, assessment or writ issued by a Governmental Entity.

 

“Ordinary Course of Business” means ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

 

“Party” or “Parties” has the meaning set forth in the first paragraph of this Agreement.

 

“Patriot Act” has the meaning set forth in Section 3.1(e)(iii).

 

“Pension Plan” means any Benefit Plan that is an “employee pension benefit plan” within the meanings of Section 3(2) of ERISA.

 

“Per Share Purchase Price” means $4.00.

 

“Permits” has the meaning set forth in Section 3.6(a).

 

“Permitted Liens” means (a) Liens for Taxes that are not yet due and payable or that may hereafter be paid without material penalty or that are being contested in good faith, (b) workers’, carriers’, suppliers’ and mechanics’ or other like Liens incurred in the Ordinary Course of Business, and (c) Liens and encroachments which do not interfere with the present use of the properties they affect.

 

“Person” means an association, a corporation, a limited liability company, an individual, a partnership, a limited liability partnership, a trust or any other entity or organization, including a Governmental Entity.

 

“Pool” has the meaning set forth in Section 3.25(g).

 

“Preferred Stock” has the meaning set forth in Section 3.2(a).

 

“Preliminary Proxy Statement” has the meaning set forth in Section 5.1(b).

 

“Previously Disclosed” with regard to the Company or the Bank means any information (a) set forth in the Company Disclosure Letter, or (b) publicly disclosed by the Company in (i) the Company 10-K, (ii) its Quarterly Reports on Form 10-Q, as filed by it with the SEC on May 12, 2010, August 13, 2010 and November 15, 2010 or (iii) any Current Report on Form 8-K filed or furnished by it with the SEC since January 1, 2010 and publicly available prior to the date of this Agreement (excluding any risk factor disclosures contained in such documents under the heading “Risk Factors” and any disclosure of risks included in any “forward looking statements” disclaimer or other statements that are similarly non-specific and are predictive or forward looking in nature).

 

  

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“Purchase Price” means $75,000,000, the Investment purchase price.

 

“Purchased Shares” has the meaning set forth in Section 2.1.

 

“Record Date” has the meaning set forth in Section 6.1(a).

 

“Registration Rights Agreement” has the meaning set forth in Section 2.3(c).

 

“Regulatory Agreement” has the meaning set forth in Section 3.26.

 

“Reincorporation Merger” has the meaning set forth in Section 2.3(e).

 

“Release” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, dumping, emptying, disposal, discharge or leaching into the indoor or outdoor environment.

 

“Remedial Action” means all actions including, without limitation, any capital expenditures undertaken to (a) clean up, remove, treat or in any other way address any Hazardous Material; (b) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (c) perform remedial studies and investigations or post-remedial monitoring and care; or (d) correct a condition of noncompliance with Environmental Laws or Environmental Permits.

 

“Representatives” means, with respect to any Person, such Person’s employees, investment bankers, attorneys, accountants and other advisors or representatives.

 

“Required Approvals” means the approval by the Federal Reserve of the Investment and with respect to any Person who proposes to acquire 10% or more of the shares of Investor on or prior to the Closing, the approval by the NC Commissioner of such acquisition pursuant to section 53-42.1 of the General Statutes of North Carolina, or a determination by the NC Commissioner that such Approval is not required under North Carolina Law for the Investment to occur.

 

“Required Company Shareholder Vote” means the affirmative vote of the Company Shareholders and the shareholder(s) of the Preferred Stock required under the Laws of the State of North Carolina and the rules and regulations of NASDAQ to (a) approve the Reincorporation Merger, and (b) approve the issuance and sale of the Purchased Shares pursuant to the terms of this Agreement.

 

“Resigning Directors” has the meaning set forth in Section 6.2(a).

 

  

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“Right” means with respect to any Person, any warrant, option, right, convertible security and other arrangement or commitment which obligates such Person to issue or dispose of any of its capital stock or other ownership interests.

 

“Rights Offering” shall have the meaning set forth in Section 6.1.

 

“Sarbanes-Oxley Act” has the meaning set forth in Section 3.8(a).

 

“Schedule 14D-9” has the meaning set forth in Section 6.6(a).

 

“Schedule TO” has the meaning set forth in Section 6.5(h).

 

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

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Share” has the meaning set forth in the Recitals to this Agreement.

 

“Shareholder Meeting” has the meaning set forth in Section 5.1(b).

 

“Specified Executives” means those executives of the Company or the Bank that are listed on Exhibit A under the heading “Specified Executives”.

 

“SRO” has the meaning set forth in Section 3.8(a).

 

“Subsequent Placement” means an issuance and sale of Common Stock or securities convertible into or exercisable for Common Stock in exchange for cash consideration for the purpose of raising capital for the Company or the Bank and not in connection with any compensation plan or program, (a) which is not conducted as a public offering pursuant to a registration statement filed with and declared effective by the SEC, (b) which is consummated prior to the twenty-four (24) month anniversary of the Closing Date, and (c) in which Investor, its Affiliates or assignees in the aggregate acquire at least 95% of the Common Stock or securities convertible into or exercisable for Common Stock that are issued and sold in the transaction.

 

“Subsidiary” and “Subsidiaries” have the meanings set forth in Section 3.1(a).

 

“Superior Proposal” means any bona fide written proposal or offer made by a third party or group pursuant to which such third party or group would acquire, directly or indirectly more than seventy-five percent (75%) of the Common Stock or assets of the Company, the Bank, or their Subsidiaries (a) on terms which the Company Board reasonably determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) to be superior from a financial point of view to the Company Shareholders to the transactions contemplated by this Agreement (including any changes proposed by the Investor to the terms of this Agreement) and (b) that is reasonably likely to be completed, taking into account all financial, regulatory, legal and other aspects of such proposal on or before the date that the transactions contemplated by this Agreement are reasonably likely to be completed.

 

  

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“Tax” or “Taxes” means mean all taxes, charges, fees, levies, or other like assessments imposed by any Governmental Entity, including all federal, possession, state, local or non-U.S. (or governmental unit, agency, or political subdivision of any of the foregoing) income, gross income, profits, employment (including Social Security, unemployment insurance and employee income tax withholding), gains, gross receipts, sales, use, transfer, premium, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, customs, duties, value added and excise taxes and amounts payable with respect to unclaimed property and any other governmental charges of the same or similar nature or other taxes of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not and including any transferee, successor, or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a member of any “affiliated group” (or being included or required to be included) in any Tax Returns relating thereto.

 

“Tax Returns” means any return (including any amended return), declaration or other report (including elections, declarations, claims for refunds, schedules, estimates and information returns) with respect to any Taxes (including estimated Taxes), including any schedule or attachment thereto, and including any amendment thereof.  Any of the foregoing Tax Returns shall be referred to sometimes as a “Tax Return.”

 

“TARP” has the meaning set forth in Section 3.2(a).

 

“Termination Fee” means an amount in cash equal to three million dollars ($3,000,000.00), which Termination Fee shall be paid by wire transfer of immediately available funds to the account or accounts designated by Investor at the time specified in Section 8.3.

 

“Trigger Amount” has the meaning set forth in Section 6.1.

 

“Treasury” has the meaning set forth in Section 3.2(a).

 

“Unaudited Financial Statements” has the meaning set forth in Section 3.7.

 

“VA” has the meaning set forth in Section 3.25(d).

 

“Voting Agreement” has the meaning set forth in the Recitals to this Agreement.

 

ARTICLE II

PURCHASE AND SALE

 

2.1 Purchase and Sale of Common Stock.  On the terms and subject to the conditions set forth herein, the Investor hereby agrees to invest $75,000,000 in the Company, and the Company hereby agrees to issue and sell to the Investor, at the Closing, 18,750,000 shares of Common Stock (the “Purchased Shares”).

 

  

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2.2 Closing.  Subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the Investment (the “Closing”) will occur at the offices of Bryan Cave LLP, 301 S. College Street, Suite 3700 Charlotte, North Carolina, two (2) Business Days after the satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to fulfillment or waiver of those conditions) including any required regulatory waiting periods associated with such conditions, or such other place and date that the Parties may agree in writing.  The day the Closing occurs is referred to herein as the “Closing Date.”

 

2.3 Delivery of Items at the Closing.  At the Closing, the Parties shall make the following deliveries:

 

(a) Investor shall deliver the Purchase Price to the Company by wire transfer of immediately available funds;

 

(b) The Company shall deliver to Investor stock certificates evidencing the Purchased Shares, registered in the name of Investor, free and clear of all Liens of any kind or nature whatsoever (other than restrictions imposed by applicable securities Laws);

 

(c) The Company shall deliver to Investor a copy of the Registration Rights Agreement in the form attached hereto as Exhibit C (the “Registration Rights Agreement”), executed by the Company;

 

(d) Investor shall deliver to the Company a copy of the Registration Rights Agreement, executed by Investor;

 

(e)  The Company shall deliver to the Investor a copy of the (i) executed and filed certificate of merger (“Certificate of Merger”) evidencing the reincorporation of the Company into a Delaware corporation by way of merging the Company with and into a wholly-owned subsidiary of the Company, which subsidiary shall be a Delaware corporation (“Merger Sub”) with Merger Sub surviving (the “Reincorporation Merger”) which shall be accompanied by a certificate evidencing the acceptance thereof by the Secretary of State of the State of Delaware (ii) the executed, filed and effective amended and restated certificate of incorporation of Merger Sub substantially in the form attached hereto as Exhibit D (the “Certificate of Incorporation”) which shall be accompanied by a certificate evidencing the acceptance thereof by the Secretary of State of the State of Delaware; and (iii) resolutions  and other documents evidencing Merger Sub has adopted amended and restated bylaws in the form attached hereto as Exhibit G and that such bylaws remain in full force and effect.

 

(f) The Parties shall deliver such other documents necessary to consummate the transactions contemplated hereby as either Party shall reasonably request in writing.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE BANK

 

Except to the extent otherwise set forth in the Company Disclosure Letter, the Company and the Bank, jointly and severally, hereby represent and warrant to Investor as of the date hereof and as of the Closing Date (except to the extent made only as of a specified date in which case as of such date), as follows:

 

  

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3.1      Organization and Authority

 

(a)      The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina and at the Closing will be a corporation duly organized, validly existing and in good standing under the laws of Delaware.  The Company is a bank holding company duly registered under the Bank Holding Company Act of 1956, as amended.  The Company has, and at the Closing Date will have, the power and authority (corporate, governmental, regulatory and otherwise) and has or will have all necessary Approvals, Permits, and other governmental approvals (collectively, the “Authorizations”) to own or lease all of the assets owned or leased by it and to conduct its business in all material respects in the manner Previously Disclosed, and has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted.  The Company is, and at the Closing Date will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions (i) in which the nature of the activities or business conducted by the Company requires such qualification and (ii) in which the Company owns or leases real property, other than where any failure to be licensed or qualified would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  The articles of incorporation, as amended, of the Company comply with applicable Law and the Company has not violated its articles of incorporation, as amended, and is not in violation thereof.  A true, complete and correct copy of the Company’s articles of incorporation, as amended, and bylaws of the Company in each case as currently in effect, has been delivered or made available to Investor.  The Company’s direct and indirect subsidiaries (other than the Bank) (each a “Subsidiary” and collectively the “Subsidiaries”) are listed on Schedule A to this Agreement.  The minute books of each of the Company, the Bank and each of the Subsidiaries previously made available to Investor contain true, complete and correct records in all material respects of all meetings and other corporate actions held or taken of its shareholders and its board of directors (including committees thereof) through the date on which such minute books were first made available to Investor.

 

(b)      The Bank is a banking corporation duly organized, validly existing and in good standing under the laws of North Carolina.  The Bank has the power and authority and has all necessary Authorizations to own or lease all of the assets and properties owned or leased by it and to conduct its business as now being conducted.  The Bank is duly licensed or qualified to do business and in good standing in all jurisdictions (i) in which the nature of the activities or business conducted by the Bank requires such qualification and (ii) in which the Bank owns or leases real property.  The charter of the Bank complies in all material respects with applicable Law and the Bank has not violated its articles of incorporation and is not in violation thereof.  A true, complete and correct copy of the Bank’s articles of incorporation and bylaws as currently in effect, has been delivered or made available to Investor.  The Bank is duly licensed to operate as a commercial bank by the NC Commissioner.

 

(c)      The Company owns, directly or indirectly, all the issued and outstanding equity securities of the Bank, and (i) no equity securities of the Bank are or may become required to be issued (other than to the Company) by reason of any Right or otherwise, (ii) there are no contracts, commitments, understandings or arrangements by which the Bank is or may be bound to sell or otherwise transfer any of its equity securities (other than to the Company or any of its wholly-owned Subsidiaries) and (iii) there are no contracts, commitments, understandings, or arrangements relating to the Company’s right to vote or to dispose of such securities.

 

  

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(d)      Except as set forth in Section 3.1(d) of the Company Disclosure Letter and except for securities and other interests held in a fiduciary capacity and beneficially owned by third parties or taken in consideration of debts previously contracted, the Bank does not have any Subsidiaries nor own beneficially, directly or indirectly, any equity securities or similar interests of any Person or any interest in a partnership or joint venture of any kind.

 

(e)      Except as set forth in Section 3.1(e) of the Company Disclosure Letter:

 

(i)           The deposit accounts of the Bank are insured by the FDIC in accordance with the FDIA to the fullest extent permitted by Law, and the Bank has paid or accrued all deposit insurance premiums and assessments required by applicable Laws and regulations and filed all reports required by the FDIA.  No proceedings for the revocation or termination of such deposit insurance are pending or, to the Knowledge of the Company or the Bank, threatened.

 

(ii)          The Bank’s allowance for loan losses is, and shall be as of the effective time of the Closing, in compliance with the Bank’s existing methodology for determining the adequacy of its allowance for loan losses, standards established by GAAP as well as all regulatory requirements applicable to financial institutions and is and shall be adequate under all such standards.  The Bank has complied with all orders, comments and directives provided to it by any Governmental Entities relating to the Bank’s allowance for loan losses since inception.  Since its last regulatory examination of Community Reinvestment Act compliance, the Bank has not received any complaints as to Community Reinvestment Act compliance.  The Bank is, as of the date hereof, “well capitalized,” as such term is defined in the rules and regulations promulgated by the FDIC.

 

(iii)         The Bank has received a rating of “satisfactory” in its most recent examination or interim review with respect to the Community Reinvestment Act of 1977, as amended (the “Community Reinvestment Act”).  There are no facts or circumstances that would cause the Bank: (A) to be deemed to be in less than satisfactory compliance in any material respect with the Community Reinvestment Act, and the regulations promulgated thereunder, or to be assigned a rating for Community Reinvestment Act purposes by federal or the Bank regulators of lower than “satisfactory”; (B) to be deemed to be operating in violation in any material respect of the Bank Secrecy Act of 1970, as amended, the USA PATRIOT Act of 2001, as amended (the “Patriot Act”), any order issued with respect to anti-money laundering by the Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering statute, rule or regulation; or (C) to be deemed to be in less than satisfactory compliance in any material respect with the applicable privacy of customer information requirements contained in any federal and state privacy Laws and regulations, including without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999, as amended, and the regulations promulgated thereunder, as well as the provisions of the information security program adopted by the Bank.  No non-public customer information has been disclosed to or accessed by an unauthorized third party in a manner which would cause the Company or the Bank to undertake any remedial action.  The board of directors of the Bank has adopted, and the Bank has implemented, an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that comply with Section 326 of the Patriot Act and such anti-money laundering program meets the requirements in all material respects of Section 352 of the Patriot Act and the regulations thereunder, and the Bank has complied in all material respects with any requirements to file reports and other necessary documents as required by the Patriot Act and the regulations thereunder.

  

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(iv)        Neither the terms of any Loan, any of the documentation for any Loan, the manner in which any Loans have been administered and serviced, nor the Bank’s practices of approving or rejecting Loan applications, violate in any material respect any federal, state, or local Law, rule or regulation applicable thereto, including, without limitation, the Truth In Lending Act of 1968, as amended, Regulations O and Z of the Federal Reserve, the Community Reinvestment Act, the Equal Credit Opportunity Act of 1974, as amended, and any state Laws, rules and regulations relating to consumer protection, installment sales and usury.

 

(v)         Except for mortgage loans and participations the Bank has entered into in the Ordinary Course of Business, no agreement pursuant to which any Loans or other assets have been or shall be sold by the Bank entitle the buyer of such Loans or other assets to cause the Company or a Subsidiary to repurchase such Loans or other assets or the buyer to pursue any other form of recourse against the Company or a Subsidiary, unless there is material breach of a representation or covenant by the Bank.

 

3.2      Capitalization.

 

(a)      As of the date hereof and immediately prior to the Reincorporation Merger, the authorized capital stock of the Company consists solely of (i) 40,000,000 shares of common stock, $1.00 per value per share, 9,664,059 shares of which are issued and outstanding, and (ii) 5,000,000 shares of preferred stock, no par value, of which 24,900 shares are issued and outstanding (the “Preferred Stock” and, together with the Common Stock, the “Company Stock”).  Further, no shares of Company Stock are issued and held in treasury, and (iii) 299,611 shares of Common Stock in the aggregate are reserved for issuance upon exercise of outstanding options and other awards granted under the Company Stock Plan and 833,705 shares of Common Stock in the aggregate are reserved for issuance upon exercise of a warrant (the “Company Warrant”) issued and sold to the U.S. Treasury Department (the “Treasury”) on January 9, 2009 pursuant to the Troubled Asset Relief Program (“TARP”).  All of the securities of the Company sold to the Treasury pursuant to TARP are listed on Section 3.2(a) of the Company Disclosure Letter.  The Company has not issued any shares of capital stock since January 9, 2009, other than shares of Common Stock upon exercise of options and other awards granted under the Company Stock Plan (collectively, the “Company Options”) and shares issued pursuant to the Directors Stock Purchase Plan.  All of the outstanding shares of Company Stock have been duly authorized, are validly issued, fully paid and nonassessable and were offered, sold and issued in compliance with all applicable federal and state securities Laws and without violating any contractual obligation or any other preemptive or similar rights.  No authorized but previously unissued shares of Common Stock have been issued pursuant to the Direct Stock Purchase Plan, and neither the Company nor the Bank has been involved in the execution of open market purchases of Common Stock in connection with the administration of the Direct Stock Purchase Plan or the Director’s Stock Purchase Plan.

 

  

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(b)           Section 3.2(b) of the Company Disclosure Letter sets forth the following information with respect to each Company Stock Plan: a list of the number of shares of Common Stock issued under such Company Stock Plan, the number of shares of Common Stock subject to outstanding options under such Company Stock Plan and the number of shares of Common Stock reserved for future issuance under such Company Stock Plan.  Section 3.2(b) of the Company Disclosure Letter also contains a true, complete and accurate list of all outstanding Company Options as of the date hereof, indicating with respect to each such Company Option the name of the holder thereof, the Company Stock Plan under which it was granted, the number of shares of Common Stock subject to such Company Option, the exercise price, the reported date of grant, and the vesting schedule, including whether (and to what extent) the vesting will be accelerated in any way by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.  No Company Options have been granted since December 31, 2010.  The Company has made available to Investor complete and accurate copies of all forms of stock option agreements evidencing Company Options, as well as the Direct Stock Purchase Plan and the Directors Stock Purchase Plan.  Each outstanding Company Option has an exercise price which was equal to or greater than the fair market value of Common Stock on the grant date determined in accordance with the terms of the applicable Company Stock Plan, GAAP and applicable Law.

 

(c)           Subject to receipt of the Required Company Shareholder Vote, all of the shares of Common Stock to be issued to the Investor hereunder will be duly authorized for issuance prior to the Closing Date and, when issued, paid for and delivered as set forth herein the Common Stock will be validly issued, fully paid and non-assessable.

 

(d)           Except for this Agreement, the Company Options and the Company Warrant, there are no outstanding or authorized options, Rights, Contracts, calls, puts, rights to subscribe, conversion rights or other agreements or commitments to which the Company is a party or which are binding upon the Company providing for the issuance, disposition or acquisition by the Company of any of its capital stock or any rights or interests exercisable therefor. Except as set forth on Section 3.2(d) of the Company Disclosure Letter, there are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company.  To the Knowledge of the Company, no Company Shareholders have entered into any voting trusts, proxies or other agreements or understandings with respect to the voting of the capital stock of the Company that would continue in effect after the Closing. The Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock.

 

3.3      Subsidiaries.  Schedule A attached hereto sets forth a complete and accurate list of all of the Subsidiaries, including the jurisdiction of organization of each such Subsidiary.  Each of the Subsidiaries has been duly organized and qualified under the Laws of the jurisdiction of its organization and is duly qualified to do business and is in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified.  With respect to the Bank and each of the Subsidiaries, (a) all the issued and outstanding shares of such entity’s capital stock have been duly authorized and validly issued, are fully paid and nonassessable (except, with respect to the Bank, to the extent provided in Section 53-42 of the North Carolina General Statutes), have been issued in compliance with all federal and state securities Laws, and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and (b) there are no outstanding options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into or exchangeable for, or any contracts or commitments to issue or sell, shares of any such entity’s capital stock, any other equity security or similar security, or any such options, rights, convertible securities or obligations.  Except as set forth in Section 3.3 of the Company Disclosure Letter, the Company owns, directly or indirectly, all of the issued and outstanding shares of capital stock of each of the Bank and the Subsidiaries, free and clear of all Liens.  Except as set forth in Section 3.3 of the Company Disclosure Letter, the Company does not own, directly or indirectly, any capital stock or other equity securities of any person that is not a Subsidiary or the Bank.

 

  

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3.4      Authorization and Enforceability.  Subject to the receipt of all Required Approvals, and with respect to the Company, the receipt of the Required Company Shareholder Vote, each of the Company and the Bank has the full legal right, corporate power and authority to enter into this Agreement and the other agreements referenced herein to which it will be a party and to carry out its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the other agreements referenced herein to which each of the Company and the Bank will be a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the boards of directors of each of the Company and the Bank, including, without limitation, the Reincorporation Merger. This Agreement has been, and the other agreements referenced herein to which they will be a party, when executed by the Company, the Bank, Investor and Merger Sub, in each case to the extent applicable, will be, duly and validly executed and delivered by the Company and the Bank and, assuming due authorization, execution and delivery by Investor, is and will be a valid and binding obligation of each of the Company and the Bank enforceable against each of the Company and the Bank in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles). No other corporate proceedings are necessary for the execution and delivery by the Company or the Bank of this Agreement and the other agreements referenced herein to which each will be a party, the performance by them of their obligations hereunder and thereunder or the consummation by them of the transactions contemplated hereby, subject to receipt of the Required Company Shareholder Vote. The only votes of shareholders of the Company required in connection with the approval of the transactions contemplated by this Agreement are the affirmative vote of the holders of not less than a majority of the outstanding Common Stock voting at the meeting at which such a vote is taken and the affirmative vote of the holders of not less than a majority of the outstanding Preferred Stock voting at the meeting at which such a vote is taken. All shares of Common Stock outstanding on the record date for a meeting at which a vote is taken with respect to the transactions contemplated by this Agreement shall be eligible to vote on such proposal.  All shares of Preferred Stock outstanding on the record date for a meeting at which a vote is taken with respect to the Reincorporation Merger shall be eligible to vote on such proposal..

 

  

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3.5      No Conflicts.  Except as set forth on Section 3.5 of the Company Disclosure Letter, and assuming all amendments to agreements described in Section 6.4 shall have been executed and delivered by the parties thereto, neither the execution and delivery by the Company or the Bank of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by the Company or the Bank with any of the provisions hereof, will (a) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or result in the loss of any benefit or creation of any right on the part of any third party under, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of any Liens, upon any of the properties or assets of the Company, the Bank or any Subsidiary under any of the terms, conditions or provisions of (i) its articles of incorporation or bylaws (or similar governing documents), (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company, the Bank or any Subsidiary is a party or by which it may be bound, or to which the Company, the Bank or any Subsidiary or any of the properties or assets of the Company, the Bank or any Subsidiary may be subject, or (iii) any Material Contract or (b) assuming the consents and Permits referred to in Section 3.6 are duly obtained, violate any Law, Permit, concession, grant, franchise or any judgment, ruling, order, writ, injunction or decree applicable to the Company, the Bank or any Subsidiary or any of their respective properties or assets.

 

3.6      Consents.

 

(a)      The Company and the Bank have obtained, and are in material compliance with, all licenses, authorizations, permits, consents, approvals, variances, Orders, franchises, certificates of authority and qualifications (collectively, the “Permits”), or any exemptions or waivers of the foregoing that are required by any Governmental Entity for the operation of the businesses of the Company and the Bank as presently operated, other than where any failure to obtain any such Permits, exemptions or waivers would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b)      Other than as set forth on Section 3.6(b) of the Company Disclosure Letter or with respect to the Required Approvals, no material notice to, registration, declaration or filing with, exemption or review by, or authorization, order, consent or approval of, any Governmental Entity or SRO, or expiration or termination of any statutory waiting period, is necessary for the consummation by the Company or the Bank of the transactions contemplated by this Agreement, other than the filing of each of the Certificate of Merger and the Certificate of Incorporation with the Secretary of State of the State of Delaware.

 

  

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3.7      Financial Statements.  The Company has made available to Investor true and correct copies of: (a) the consolidated balance sheets of the Company and the Bank as of December 31 for the fiscal years 2007, 2008 and 2009 and the related consolidated statements of operations, of comprehensive income, of changes in stockholders’ equity and of cash flows for the fiscal years 2007 through 2009, inclusive, as reported in the Company 10-K (the “Audited Financial Statements”), in each case accompanied by the audit report of Dixon Hughes PLLC, and, (b) the unaudited consolidated balance sheets of the Company and the Bank as of September 30, 2010 (the “Interim Balance Sheet”) and the related unaudited consolidated statements of operations, of comprehensive income, of changes in stockholders’ equity and of cash flows for the nine month period ended September 30, 2009 and September 30, 2010, together with the notes thereto (the “Unaudited Financial Statements,” and, together with the Audited Financial Statements, the “Financial Statements”).  The December 31, 2009 consolidated balance sheets of the Company (including the related notes, where applicable) fairly presents in all material respects the consolidated financial position of the Company and the Bank as of the date thereof, and the other financial statements referred to in this Section 3.7 (including the related notes, where applicable) fairly present in all material respects, and the financial statements to be filed by the Company with the SEC after the date of this Agreement will fairly present in all material respects (subject, in the case of the unaudited statements, to recurring audit adjustments normal in nature and amount), the results of the consolidated operations, comprehensive income, changes in shareholders’ equity, cash flows and the consolidated financial position of the Company and the Bank for the respective fiscal periods or as of the respective dates therein set forth; each of such financial statements (including the related notes, where applicable) complies, and the financial statements to be filed by the Company with the SEC after the date of this Agreement will comply, with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been, and the financial statements to be filed by the Company with the SEC after the date of this Agreement will be, prepared in accordance with GAAP consistently applied during the periods involved, except as indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. There is no transaction, arrangement or other relationship between the Company, the Bank or any Subsidiary and an unconsolidated or other Affiliated entity that is not reflected on the financial statements specified in this Section 3.7.  The Company has delivered an unaudited balance sheet of Crescent Financial Capital Trust I as of December 31, 2010.  The books and records of the Company, the Bank and the Subsidiaries in all material respects have been, and are being, maintained in accordance with applicable legal and accounting requirements and reflect only actual transactions. Dixon Hughes PLLC has not resigned or been dismissed as independent public accountants of the Company as a result of or in connection with any disagreements with the Company on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Dixon Hughes PLLC, who has expressed its opinion with respect to the consolidated financial statements contained in the Company 10-K, is as of the date of such opinion a registered independent public accountant, within the meaning of the Code of Professional Conduct of the American Institute of Certified Public Accountants, as required by the Securities Act and the rules and regulations promulgated thereunder and by the rules of the Public Accounting Oversight Board.  As of the date hereof, there is not any existing, or to the Company’s Knowledge, any potential material disagreement with Dixon Hughes PLLC on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, or an issue involving any of the foregoing items, that is reasonably likely to become material if the matter is not resolved.

 

  

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3.8      Reports; Regulatory Matters.

(a)      Since December 31, 2008, each of the Company, the Bank and each Subsidiary has timely filed all material reports, registrations, documents, filings, statements and submissions, together with any amendments thereto, that it was required to file with any Governmental Entity or self-regulatory organization (“SRO”) (the foregoing, collectively, the “Company Reports”) and has paid all fees and assessments due and payable in connection therewith.  As of their respective dates of filing, the Company Reports complied in all material respects with all statutes and applicable rules and regulations of the applicable Governmental Entities or SROs.  There are no outstanding comments from the SEC or any other Governmental Entity or any SRO received by the Company with respect to any Company Report.  In the case of each such Company Report filed with or furnished to the SEC, such Company Report did not, as of its date or if amended prior to the date of this Agreement, as of the date of such amendment, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made in it, in light of the circumstances under which they were made, not misleading and complied as to form in all material respects with the applicable requirements of the Securities Act, and the Exchange Act. With respect to all other Company Reports, the Company Reports were complete and accurate in all material respects as of their respective dates, or the dates of their respective amendments.  No executive officer of the Company, the Bank or any Subsidiary has failed in any respect to make the certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”).  Copies of all Company Reports not otherwise publicly filed have, to the extent allowed by applicable Law, been made available to Investor by the Company. Except for normal examinations conducted by a Governmental Entity or SRO in the regular course of the business of the Company, the Bank and the Subsidiaries, or as set forth on Section 3.8(a) of the Company Disclosure Letter, no Governmental Entity or SRO has initiated any proceeding or investigation into the business or operations of the Company, the Bank or any Subsidiary since January 1, 2009.  There is no material unresolved violation, criticism or exception by any Governmental Entity or SRO with respect to any report or statement relating to any examinations of the Company, the Bank or any of the Subsidiaries.

 

(b)      The Company’s books, records and accounts represent a true and fair view of the overall financial condition of the Company.  The Company (i) keeps books, records and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, the Bank and the Subsidiaries, and (ii) maintains a system of internal accounting controls sufficient to provide adequate assurances that (A) transactions are executed in accordance with management’s general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (C) access to assets is permitted only in accordance with management’s general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Company (I) 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 Bank and the Subsidiaries, is made known to the chief executive officer and the chief financial officer of the Company by others within those entities, and (II) has disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s outside auditors and the audit committee of the Company Board (x) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and (y) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.  Since December 31, 2008, (X) none of the Company, the Bank or any Subsidiary or, to the Knowledge of the Company or the Bank, any director, officer, employee, auditor, accountant or representative of the Company, the Bank or any Subsidiary has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company, the Bank or any Subsidiary or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company, the Bank or any Subsidiary has engaged in questionable accounting or auditing practices, and (Y) no attorney representing the Company, the Bank or any Subsidiary, whether or not employed by the Company, the Bank or any Subsidiary, has reported evidence of a material violation of securities Laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Company Board or any committee thereof or to any director or officer of the Company.  The Company, the Bank, each of the Subsidiaries and each of their respective officers and directors are in material compliance in all material respects with (1) all applicable provisions of the Sarbanes-Oxley Act, as amended and the rules and regulations promulgated thereunder and, other than as set forth on Section 3.8(b) of the Company Disclosure Letter, the Company has no Knowledge of any reason that its outside auditors and its chief executive officer and chief financial officer shall not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes Oxley Act, without qualification, when next due and (2) the applicable listing and corporate governance rules and regulations of NASDAQ.

 

  

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(c)      Except as set forth on Section 3.8(c) of the Company Disclosure Letter, since December 31, 2008, the Company, the Bank and each of the Subsidiaries has duly filed with the Federal Reserve, the NC Commissioner and any other applicable Governmental Entity, in correct form, the reports required to be filed under applicable Laws and regulations and such reports were in all material respects complete and accurate and in compliance with the requirements of applicable Laws and regulations.

 

(d)      Except as set forth in Section 3.8(d) of the Company Disclosure Letter:

 

(i)           The Company, the Bank and each of the Subsidiaries has duly filed with the appropriate Governmental Entities in substantially correct form the monthly, quarterly and annual reports required to be filed under applicable Laws and regulations, and such reports were in all material respects complete and accurate and in compliance with the requirements of applicable Laws and regulations.  In connection with the most recent, completed examination of each of the Company and the Bank by the appropriate Governmental Entities, neither was required to correct or change any action, procedure or proceeding which the Company reasonably believes in good faith has not been now corrected or changed to satisfy the appropriate Governmental Entities.

 

(ii)          As of the date hereof, neither the Company nor the Bank nor any of the Subsidiaries nor any of the respective properties of the Company, the Bank or the Subsidiaries is a party to or is subject to any order, decree, directive, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, nor since December 31, 2008, has the Company, the Bank or any of the Subsidiaries adopted any policies, procedures or board resolutions at the request or suggestion of, any Governmental Entities.  The Company, the Bank and the Subsidiaries have paid all assessments made or imposed by any Governmental Entities.

 

(iii)         As of the date hereof, the Company is “well capitalized” as such term is defined in the rules and regulations promulgated by the Federal Reserve.

 

  

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(iv)        Neither the Company nor the Bank nor any of the Subsidiaries or any of their respective directors, officers, agents or employees is required to be registered, licensed or authorized under the Laws or regulations issued by any Governmental Entity as an investment adviser, a broker or dealer, an insurance agency or company, a commodity trading adviser, a commodity pool operator, a futures commission merchant, an introducing broker, a registered representative or associated person, investment adviser, representative or solicitor, a counseling officer, an insurance agent, a sales person or in any similar capacity with a Governmental Entity.

 

(v)         From December 31, 2008, through the date hereof and as of the Closing Date, the Company has not received any comment letter from the SEC or the staff thereof, or any correspondence from NASDAQ or the staff thereof, relating to the delisting or maintenance of listing of the Common Stock on the NASDAQ.

 

(vi)        Since December 31, 2008, there have been no internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer or chief financial officer of the Company, the Company Board or any committee thereof, other than ordinary course audits or reviews of accounting policies and practices or internal controls required by the Sarbanes-Oxley Act.

 

(vii)       Each of the Company, the Bank and the Subsidiaries have paid all assessments and made all accruals for known obligations or amounts that may be estimated for the FDIC or any other applicable assessment.

 

3.9      Absence of Undisclosed Liabilities.  None of the Company, the Bank or any of the Subsidiaries has any liabilities or obligations of any nature and is not an obligor under any guarantee, keepwell or other similar agreement (absolute, accrued, contingent or otherwise) except for (a) liabilities or obligations reflected in or reserved against in the Company’s Audited Balance Sheet, (b) current liabilities that have arisen since December 31, 2009 in the Ordinary Course of Business and that are set forth in Section 3.9 of the Company Disclosure Letter and (c) contractual liabilities under (other than liabilities arising from any breach or violation of) agreements that either are set forth in Section 3.9 of the Company Disclosure Letter or  made in the Ordinary Course of Business and would not have, individually or in the aggregate, a Material Adverse Effect.

 

  

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3.10       Absence of Certain Changes.  Except as disclosed in filings with the SEC made by the Company prior to the date hereof or in Section 3.10 of the Company Disclosure Letter, or as otherwise expressly permitted or expressly contemplated by this Agreement, since January 1, 2010, there has not been (a) any change or development in the business, operations, assets, liabilities, condition (financial or otherwise), results of operations, cash flows or properties of the Company, the Bank or a Subsidiary which has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and no fact or condition exists which is reasonably likely to cause a Material Adverse Effect in the future, (b) any change by the Company, the Bank or a Subsidiary in its accounting methods, principles or practices, other than changes required by applicable Law or GAAP or regulatory accounting as concurred by the Company’s independent accountants, (c) any entry by the Company, the Bank or a Subsidiary into any Material Contract, other than loans and loan commitments in the Ordinary Course of Business, (d) any declaration, setting aside or payment of any dividend or distribution in respect of any capital stock of the Company, the Bank or a Subsidiary or any redemption, purchase or other acquisition of any of its securities, other than in the Ordinary Course of Business, (e) any establishment of or amendment to any Benefit Plan (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), or any increase in the compensation payable or to become payable to any current or former directors, officers or employees of the Company, the Bank or a Subsidiary, or any grant of severance or termination pay, or any contract or arrangement entered into to make or grant any severance or termination pay, any payment of any bonus, or the taking of any action not in the Ordinary Course of Business with respect to the compensation or employment of any current or former directors, officers or employees of any member of the Company, the Bank or a Subsidiary, (f) any material election made by the Company, the Bank or a Subsidiary for federal or state income tax purposes, (g) any material change in the credit policies or procedures of the Company, the Bank or a Subsidiary, the effect of which was or is to make any such policy or procedure less restrictive in any respect, (h) any material acquisition or disposition of any assets or properties, or any contract for any such acquisition or disposition entered into other than loans and loan commitments, or (i) any material lease of real or personal property entered into, other than in connection with foreclosed property or in the Ordinary Course of Business.

 

3.11       Intellectual Property.

 

(a)      Section 3.11(a) of the Company Disclosure Letter sets forth a complete and correct list of the following Intellectual Property owned by the Company, the Bank or any Subsidiary: (i) all patented or registered Intellectual Property; (ii) all pending applications for patents or registration of other Intellectual Property; (iii) all trade names and unregistered marks and other source indicating designations; and (iv) all computer software and systems owned by the Company, the Bank or any Subsidiary.  For the avoidance of doubt, this Section 3.11(a) applies only to Intellectual Property owned by the Company, the Bank or any Subsidiary and not to Intellectual Property which the Company, the Bank or any Subsidiary uses under a license, including under any shrinkwrap or similar license.

 

(b)      Section 3.11(b) of the Company Disclosure Letter sets forth a complete and correct list of: (i) Intellectual Property Licenses; (ii) all licenses, agreements, contracts or other arrangements in effect as of the date hereof which (A) relate to the use of Intellectual Property by the Company, the Bank or any Subsidiary, including computer software licenses and assignments of rights from applicable inventors to all patents owned by the Company, the Bank or any Subsidiary; (B) limit the Company’s, the Bank’s or any Subsidiary’s ability to use or exploit any Intellectual Property, including without limitation, contacts containing a covenant not to compete, or containing an agreement to indemnify any Person against any claim related to Intellectual Property; or (C) materially limit or restrict the right of the Company, the Bank or any Subsidiary to use any Intellectual Property, including without limitation, any applicable Orders, judgments, settlements, or forbearances to sue; and (iii) all domain names used by the Company, the Bank or any Subsidiary, all of which are registered in the Company’s, the Bank’s or the Subsidiary’s name, as applicable, are validly issued, in full force and effect, and can continue to be used in conducting the Company’s, the Bank’s or any Subsidiary’s operations after the Closing in the same manner and to the same extent as prior to the Closing, and can be readily transferred or maintained in the applicable registry by Investor after Closing.  Notwithstanding anything contrary to the foregoing, with respect to Section 3.11(b)(i) and Section 3.11(b)(ii)(A), Section 3.11(b) of the Company Disclosure Letter need not contain a list of standard licenses and other agreements for readily available commercial software or internet based software as services utilized by the Company, the Bank or any Subsidiary in the Ordinary Course of Business; provided, however, the Company and the Bank represent and warrant that it has sufficient authorized copies or site license authorizations for all such standard licenses and other agreements for readily available commercial software or internet based software as services utilized by the Company, the Bank or any Subsidiary in the Ordinary Course of Business.

 

  

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(c)      Each Intellectual Property License is in full force and effect and is the legal, valid and binding obligation of the Company, the Bank or a Subsidiary, as applicable, enforceable by and/or against it in accordance with its terms.  No party to an Intellectual Property License is in default thereof, has made any claim or demand against the Company, the Bank or any Subsidiary, has exercised or threatened to exercise any termination rights, and no event has occurred that with the lapse of time and/or the giving of notice would constitute a default thereunder.

 

(d)      The Company, the Bank or a Subsidiary, as applicable, possesses legally enforceable rights to use all Intellectual Property necessary to conduct its respective business as currently conducted. The Company, the Bank or a Subsidiary, as applicable, owns and possesses all right, title and interest in and to the Intellectual Property set forth in Section 3.11(a) of the Company Disclosure Letter free and clear of all Liens and, except as provided in Section 3.11(e), otherwise owns and possesses all right, title and interest in and to all other Intellectual Property necessary for the operation of the Company, the Bank and the Subsidiaries’ businesses as currently conducted (the “Company Intellectual Property”).  All Company Intellectual Property was (i) developed by employees in the scope of their employment or third parties who executed written agreements giving the Company or the Bank ownership; or (ii) otherwise acquired by the Company or the Bank by operation of Law, valid assignment or agreement.  All registrations for Company Intellectual Property have been properly filed and paid for and are valid and enforceable; all applications to register Company Intellectual Property are timely and properly pending.  The Company or the Bank, as applicable, has taken all reasonable steps to maintain records related to the Company Intellectual Property and will take all steps necessary to preserve and maintain all right, title and interest in and to the Company Intellectual Property until the Closing.

 

(e)      The Company, Bank or Subsidiaries have the right to use Intellectual Property it does not own that is necessary for the operation of their respective businesses as currently conducted pursuant to an agreement set forth in Section 3.11(b) of the Company Disclosure Letter.  The consummation of the transactions contemplated hereby will not result in the loss, impairment, modification, breach or default of or to the Company’s Intellectual Property or an agreement described in Section 3.11(b).

 

  

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(f)      Neither the Company, the Bank nor any Subsidiary is a party to any understanding or agreement that grants or transfers any ownership or exclusive rights with respect to the Company Intellectual Property to any third party.  No agreement, contract or license of the Company Intellectual Property grants a most favored nation or preferential rights to the licensee or other third party that would restrict the Company, the Bank or applicable Subsidiary from setting terms in connection with other licenses or agreements.  No loss, cancellation, abandonment, expiration or termination of any of the Company Intellectual Property is threatened, pending or reasonably foreseeable.  All Company Intellectual Property is valid and enforceable and has not expired or been cancelled.  No Company Intellectual Property has been misused, used or enforced, or failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of the Company or the Bank’s rights in and to the Company Intellectual Property.  Except as set forth on Section 3.11(f) of the Company Disclosure Letter, to the Company’s Knowledge, no third party has infringed, violated, misappropriated or otherwise conflicted with any Company Intellectual Property or is currently doing so and neither the Company nor the Bank is aware of any facts that indicate a likelihood of any of the foregoing.

 

(g)      Neither the Company, the Bank, nor any Subsidiary, has, and its businesses as currently conducted does not, and except as set forth in Section 3.11(g) of the Company Disclosure Letter, will not upon consummation of transactions contemplated hereby infringe, violate or otherwise conflict with any Intellectual Property of any third party.  There is no legal proceeding, claim or demand pending, or to the Knowledge of the Company, threatened or that was pending or to the Knowledge of the Company threatened in the last six years, against or affecting the Company, the Bank or any Subsidiary in any material respect (i) based upon or challenging any Intellectual Property rights of the Company, the Bank or any Subsidiary or (ii) alleging that the operation of the business misappropriates, infringes or otherwise violates any Intellectual Property rights of any third party. There have been no written offers to license rights under a patent or other Intellectual Property made to the Company, the Bank or any Subsidiary in the past six years. Neither the Company nor the Bank is aware of any facts, circumstances or pending events that will cause any of the foregoing upon its occurrence or indicate a likelihood of any such occurrence.

 

(h)      Except for disclosures which would not have a Material Adverse Effect or are set forth in Section 3.11(h) of the Company Disclosure Letter, no disclosure of any trade secrets or confidential information has been permitted or made to any third party who was not authorized or had not signed an agreement with no specified termination or expiration date requiring confidential treatment of such information, with survival of the confidentiality obligation beyond termination of the agreement.

 

(i)      All personally identifiable information has been treated by the Company, the Bank and each Subsidiary in accordance with its privacy policies and applicable Law.

 

(j)      No Company, Bank or Subsidiary software contains any shareware, open source code, or other software whose use requires disclosure or licensing of Intellectual Property. Except as set forth in Section 3.11(j) of the Company Disclosure Letter, the computer software, computer firmware, computer hardware, and other similar or related items used or relied on by the Company, the Bank and any Subsidiary is sufficient in all material respects for the current and anticipated needs of such business for the next twelve (12) months (including the number of license seats but excluding any anticipated changes in such business resulting from the transactions contemplated hereby) and has not suffered an outage or failure in the past twelve (12) months that has had a Material Adverse Effect on the Company, the Bank or any Subsidiary.  All licensed computer software used in the Company’s, the Bank’s or any Subsidiary’s operations is maintained and supported under current software support and maintenance agreements except where the failure has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

  

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3.12       Legal Compliance.

 

(a)      The Company, the Bank and each Subsidiary have all material Permits, licenses, franchises, authorizations, orders, Approvals and Authorizations of, and have made all filings, applications and registrations with, Governmental Entities and SROs 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.  Each of the Company, the Bank and each Subsidiary is and has been in compliance in all material respects with and is not in default or violation in any material respect of, and none of them is under investigation with respect to or has been threatened to be charged with or given notice of any material violation of, any applicable material domestic (federal, state or local) or foreign Law, statute, ordinance, license, rule, regulation, policy or guideline, order, demand, writ, injunction, decree or judgment of any Governmental Entity or SRO.  Except for statutory or regulatory restrictions of general application, no Governmental Entity or SRO has placed any material restriction on the business or properties of the Company, the Bank or any Subsidiary.  Since December 31, 2008, except as set forth in Section 3.12 of the Company Disclosure Letter and as indicated in the Board Resolutions, none of the Company, the Bank or any Subsidiary has received any notification or communication from any Governmental Entity or SRO (a) asserting that the Company, the Bank or any Subsidiary is not in material compliance with any statutes, regulations or ordinances, (b) threatening to revoke any material Permit, license, franchise, authorization, Order, Approval or Authorization, or (c) threatening or contemplating revocation or limitation of, or which would have the effect of revoking or limiting, FDIC deposit insurance.

 

(b)      Each of the Company, the Bank and the Subsidiaries is in compliance with applicable federal and state securities laws and regulations governing the sale of non-FDIC insured products by FDIC-insured institutions.

 

3.13       Contracts.

 

(a)      Section 3.13(a) of the Company Disclosure Letter sets forth a list of, and the Company has provided or made available (by hard copy, electronic data room or otherwise) to Investor or its representatives true, correct and complete copies of, each of the following written Contracts to which the Company, the Bank or any Subsidiary is a party (each, a “Material Contract”):

 

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

 

(ii)          any Contract with respect to the employment of or the provision of other services by any current or former directors, officers, employees or consultants of the Company, the Bank or any of the Subsidiaries, including any agreements respecting the provision of post-service remuneration or benefits of any type, other than any agreements, amendments or renewals permitted under this Agreement;

 

  

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(iii)         any Contract with any director, officer, employee or Affiliate of the Company, the Bank or any of the Subsidiaries;

 

(iv)         any Contract limiting the freedom of the Company, the Bank or any Subsidiary to engage in any line of business or to compete with any other person or prohibiting the Company, the Bank or any Subsidiary from soliciting customers, clients or employees, in each case whether in any specified geographic region or business or generally;

 

(v)          any Contract with a labor union or guild (including any collective bargaining agreement);

 

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

 

(vii)        any trust indenture, mortgage, promissory note, loan agreement or other contract, agreement or instrument for the borrowing of money, any currency exchange, commodities or other hedging arrangement or any leasing transaction of the type required to be capitalized in accordance with GAAP, in each case, where the Company, the Bank or any Subsidiary is a lender, borrower or guarantor other than those entered into in the Ordinary Course of Business;

 

(viii)       any Contract entered into since January 1, 2006 (and any Contract entered into at any time to the extent that material obligations remain as of the date hereof) relating to the acquisition or disposition of any material business or material assets (whether by merger, sale of stock or assets or otherwise), which acquisition or disposition is not yet complete or where such contract contains continuing material obligations, including continuing material indemnity obligations, of the Company, the Bank or any of the Subsidiaries;

 

(ix)          any agreement of guarantee, support or indemnification by the Company, the Bank or any Subsidiary, assumption or endorsement by the Company, the Bank or any Subsidiary of, or any similar commitment by the Company, the Bank or any Subsidiary with respect to, the obligations, liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness of any other person;

 

(x)           any alliance, cooperation, joint venture, stockholders’ partnership or similar agreement involving a sharing of profits or losses relating to the Company, the Bank or any Subsidiary;

 

(xi)          any agreement, option or commitment or right with, or held by, any third party to acquire, use or have access to any assets or properties, or any interest therein, of the Company, the Bank or any Subsidiary;

 

(xii)         any material Contract that would require any consent or approval of a counterparty as a result of the consummation of the transactions contemplated by this Agreement;

 

(xiii)        any futures, forward or hedging agreement;

  

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(xiv)       any contract entered into in connection with the issuance of Company securities to the Treasury pursuant to TARP, or trust preferred securities;

 

(xv)        any settlement agreement relating to the settlement or proposed settlement of any dispute or Action; and

 

(xvi)       any Contract not listed above that is material to the financial condition, results of operations or business of the Company, the Bank or any Subsidiary.

 

(b)      (i)  Each of the Material Contracts has been duly and validly authorized, executed and delivered by the Company, the Bank or any Subsidiary, as applicable, and is binding on the Company, the Bank and the Subsidiaries, as applicable, and is in full force and effect; (ii) the Company, the Bank and each of the Subsidiaries, as applicable, are in all material respects in compliance with and have in all material respects performed all obligations required to be performed by them to date and as of the Closing Date, under each Material Contract; (iii) as of the date hereof and as of the Closing Date, none of the Company, the Bank nor any of the Subsidiaries has received notice of any material violation or default (or any condition that with the passage of time or the giving of notice would cause such a violation of or a default) by any party under any Material Contract; and (iv) to the Knowledge of the Company, no other party to any Material Contract is in default in any material respect thereunder.

 

3.14      Properties and Leases.  All real and personal property owned by either the Company, the Bank or any of the Subsidiaries and presently used by it in its business is in a good condition (ordinary wear and tear excepted) and is sufficient to carry on its business in the Ordinary Course of Business.  Each of the Company, the Bank and each Subsidiary has good and marketable title, free and clear of all Liens other than Permitted Liens, to all of the material properties and assets, real and personal, reflected on the balance sheet of the Company as of September 30, 2010, or acquired after such date, other than properties sold by the Company, the Bank or such Subsidiary in the Ordinary Course of Business, except (a) Liens for current Taxes and assessments not yet due or payable for which adequate reserves have been established, (b) pledges to secure deposits or advances incurred in the Ordinary Course of its Business, (c) such imperfections of title, easements and encumbrances, if any, as are not material in character, amount or extent or (d) as reflected on the balance sheet of the Company as of September 30, 2010.  The Company, the Bank and the Subsidiaries hold all leased real or personal property under valid and enforceable leases with no exceptions that would interfere with the use made or to be made thereof by them in any material respect. None of the Company, the Bank or any Subsidiary or, to the Knowledge of the Company, any other party thereto is in default under any lease described in the immediately preceding sentence.  There are no material condemnation or eminent domain proceedings pending or, to the Knowledge of the Company, threatened in writing, with respect to any of the real properties necessary to the operations of the Company, the Bank and the Subsidiaries as now conducted.  All of the real properties used by the Company, the Bank or any of the Subsidiaries in the conduct of their respective businesses are in material compliance with zoning, building code and other applicable land use regulations for their current uses.  None of the Company, the Bank or any of the Subsidiaries has, within the last two (2) years, made any material title claims, or has outstanding any material title claims, under any policy of title insurance respecting any parcel of real property.

 

  

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3.15       Employee Benefit Plans.

 

(a)      Section 3.15(a) of the Company Disclosure Letter sets forth a complete list of each Benefit Plan.  With respect to each Benefit Plan, except as set forth in Section 3.15(a) of the Company Disclosure Letter, the Company, the Bank and the Subsidiaries have complied, and are now in compliance, in all material respects, with ERISA, the Code and other applicable Laws; and (B) each Benefit Plan has been administered in all material respects in accordance with its terms (except for those terms which are inconsistent with the changes required by applicable Laws for which plan terms are not yet required to be modified).

 

(b)      With respect to each Benefit Plan, the Company has heretofore delivered or made available to Investor or Previously Disclosed true and complete copies of each of the following documents, to the extent applicable: (i) a copy of the Benefit Plan and any amendments thereto (or if the Plan is not a written Plan, a description thereof); (ii) a copy of the two most recent annual reports and actuarial reports, and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87; (iii) a copy of the most recent Summary Plan Description required under ERISA with respect thereto; (iv) if the Benefit Plan is funded through a trust or any third party funding vehicle, including insurance contracts, a copy of the trust or other funding agreement and the latest financial statements thereof; (v) the most recent determination letter received from the Internal Revenue Service with respect to each Benefit Plan intended to qualify under Section 401 of the Code; and (vi) except as set forth in Section 3.15(b) of the Company Disclosure Letter, a copy of any statement filed pursuant to 29 CFR Section 2520.104-23.

 

(c)      No claim has been made, or to the Knowledge of the Company threatened, against the Company, the Bank or any of the Subsidiaries related to the employment and compensation of employees or any Benefit Plan, including, without limitation, any claim related to the purchase of employer securities or to expenses paid under any defined contribution pension plan other than ordinary course claims for benefits.  There are no matters pending before any Governmental Entity respecting any Benefit Plan.

 

(d)      No Benefit Plans have been or are subject to Title IV of ERISA, Section 412 or 430 of the Code or have been described in Section 3(37) of ERISA, and none of the Company, the Bank or its Subsidiaries has at any time within the past six (6) years sponsored or contributed to, or has or had within the past six (6) years any liability or obligation in respect of, any plan subject to Title IV of ERISA, Section 412 or 430 of the Code or described in Section 3(37) of ERISA.  Except as set forth in Section 3.15(d) of the Company Disclosure Letter, neither the Company, the Bank, nor any Subsidiary has incurred any current or projected liability in respect of post-retirement health, medical or life insurance benefits for Company employees, except as required to avoid an excise tax under Section 4980B of the Code or comparable State benefit continuation Laws.  No Benefit Plan is or has been funded by, associated with, or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Code, a “welfare benefit fund” within the meaning of Section 419 of the Code, a “qualified asset account” within the meaning of Section 419A of the Code or a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA.  Liabilities attributable to post-retirement health, medical and life insurance benefits have been accrued on the financial statements of the Company, of the Bank and, to the extent applicable, of any Subsidiary to the extent required by and in accordance with GAAP.

 

  

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(e)      Each Benefit Plan intended to be “qualified” within the meaning of Section 401(a) of the Code is so qualified and the trusts maintained thereunder are exempt from taxation under Section 501(a) of the Code, and, no condition exists that could reasonably be expected to jeopardize any such qualification or exemption.  Each Pension Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service or is entitled to rely upon the opinion letter issued to the sponsor of the prototype or volume submitter plan documents.  Prior to the Closing Date, any Benefit Plan which is required to satisfy Sections 401(k)(3) or 401(m)(2) of the Code (or both) has been, or will be, tested for compliance with, and has satisfied, or will satisfy, the requirements of such sections of the Code for each plan year ending prior to the Closing Date.  Prior to the Closing Date, any Benefit Plan which is intended to satisfy Sections 401(k)(12) or 401(m)(11) of the Code (or both) has satisfied, or will satisfy, the requirements of such Sections of the Code for each plan year commencing prior to the Closing Date.  There has been no termination or partial termination, as defined in Section 411(d) of the Code, of any Pension Plan.  Neither the Company, the Bank nor any of the Subsidiaries has received any correspondence or written or verbal notice from any Governmental Entity, any participant in or beneficiary of, a Benefit Plan, or any agent representing any of the foregoing that could reasonably be expected to bring into question the qualification of any such Benefit Plan.

 

(f)       To the Knowledge of the Company, none of the Company, the Bank or any Subsidiary, any Benefit Plan, any trust created thereunder, or any trustee or administrator thereof has engaged in a transaction in connection with which the Company, the Bank or any Subsidiary, any Benefit Plan, any such trust, or any trustee or administrator thereof, or any party dealing with any Benefit Plan or any such trust could be subject to either a civil penalty assessed pursuant to Section 502(i) or Section 502(l) of ERISA or a tax imposed pursuant to Section 4975 of the Code in an amount that would be material.

 

(g)      There has been no material failure of a Benefit Plan that is a group health plan (as defined in Section 5000(b)(1) of the Code) to meet the requirements of Section 4980B(f) of the Code with respect to a qualified beneficiary (as defined in Section 4980B(g) of the Code).  No event or condition exists with respect to a Benefit Plan that could reasonably be expected to subject the Company, the Bank or any of the Subsidiaries to a tax under Sections 4980B or 4980D of the Code (or both) and each Benefit Plan that is required to comply with either or both of Parts 6 and 7 of Subtitle B of Title I of ERISA has complied in all material respects with the provisions of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act and all rules and regulations promulgated thereunder.

 

(h)      Except as set forth in Section 3.15(h) of the Company Disclosure Letter, each 409A Plan complies in all material respects with the requirements of Section 409A of the Code and the guidance promulgated thereunder or is not required to comply therewith due to its grandfathered status under, or other exemption from Section 409A of the Code, in which case such Benefit Plan complies in form (to the extent necessary) and has been operated in compliance with its terms and the requirements of Section 409A of the Code.  A list of all such Benefit Plans is included in Section 3.15(h) of the Company Disclosure Letter, including an identification of each such Benefit Plan that is in grandfathered status.

 

  

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(i)      (i)      Except as set forth in Section 3.15(i) of the Company Disclosure Letter, and assuming the amendments and consents contemplated in Section 6.4 are completed or obtained, neither the execution and delivery of this Agreement, Company Shareholder approval of the Agreement or the transaction contemplated hereby, nor the consummation of the transactions contemplated hereby, either alone or in combination with a subsequent event, will (A) result in any payment (including severance, unemployment compensation, “excess parachute payment” (within the meaning of Section 280G of the Code, but without regard to whether any such payment or portion thereof is reasonable compensation for personal services performed or to be performed in the future), tax gross-up, cash-out, forgiveness of indebtedness or otherwise) becoming due to any current or former employee, officer or director of the Company, the Bank or any Subsidiary from the Company, the Bank or any Subsidiary under any Benefit Plan or otherwise, (B) increase any benefits otherwise payable under any Benefit Plan, (C) result in any acceleration of the time of payment or vesting of any such benefits, (D) require the funding or increase in the funding of any such benefits, (E) result in any limitation on the right of the Company, the Bank or any Subsidiary to amend, merge, terminate or receive a reversion of assets from any Benefit Plan or related trust, or (F) result in any payment or portion of any payment that would not otherwise be deductible under Section 162(m) of the Code; and (ii) none of the Company, the Bank or any Subsidiary has taken, or permitted to be taken, any action that required, and no circumstances exist that will require the funding, or increase in the funding, of any benefits, or will result, in any limitation on the right of the Company, the Bank or any Subsidiary to amend, merge, terminate any Benefit Plan or receive a reversion of assets from any Benefit Plan or related trust.

 

(j)      (i) Except as set forth on Section 3.15(j) of the Company Disclosure Letter, all contributions required to be made under the terms of any Benefit Plan have been timely made or have been reflected in the financial statements of the Company, the Bank and, to the extent applicable, of any Subsidiary in accordance with GAAP, (ii) neither the Company, the Bank nor any of the Subsidiaries has any remaining liability under any previously maintained Benefit Plan, (iii) the actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) for which the Company, the Bank or any of the Subsidiaries are obligated have been fully and accurately reflected on the financial statements of the Company, the Bank and, to the extent applicable, of any Subsidiary to the extent required by and in accordance with GAAP, and (iv) the assets of each Benefit Plan are reported at their fair market value on the books and records of such plans, unless otherwise stated in such books and records.

 

(k)      All assets attributable to any Benefit Plan that is subject to ERISA have been held in trust, unless a statutory or administrative exemption to the trust requirements of Section 403(a) of ERISA applies.

 

(l)      Except as contemplated in this Agreement, neither the Company, the Bank nor any of the Subsidiaries has any plan or contract, whether legally binding or not, to create any additional plan, agreement or other arrangement that, if so created, would constitute a Benefit Plan or to modify any existing Benefit Plan, except as required by applicable Law.

 

  

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(m)   Except as set forth in Section 3.15(m) of the Company Disclosure Letter or as provided by the terms of any Benefit Plan on the date hereof (which has been disclosed to Investor), the Company, the Bank and the Subsidiaries, as applicable, may amend unilaterally in its sole discretion any Benefit Plan and may terminate unilaterally in its sole discretion any Benefit Plan prospectively, in either case, at any time without further liability to the Company, the Bank or any of the Subsidiaries, including, without limitation, any additional contributions, penalties, premiums, fees, surrender charges, market value adjustments or any other charges as a result of such termination, except to the extent of funds set aside for such purpose or reflected as reserved for such purpose on the financial statements of the Company and, to the extent applicable, of any Subsidiary.

 

3.16      Labor Matters  Employees of the Company, the Bank and the Subsidiaries are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees.  No labor organization or group of employees of the Company, the Bank or any Subsidiary has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority.  There are no organizing activities, strikes, work stoppages, slowdowns, lockouts, material arbitrations or material grievances, or other material labor disputes pending or threatened against or involving the Company, the Bank or any Subsidiary.  No executive officer (as defined in Rule 501(f) promulgated under the Securities Act) of the Company, the Bank or any Subsidiary has notified the Company, the Bank or any Subsidiary that such officer intends to leave the Company, the Bank or any Subsidiary or otherwise terminate such officer’s employment with the Company, the Bank or any Subsidiary.  No executive officer of the Company, the Bank or any Subsidiary is in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company, the Bank or any Subsidiary to any liability with respect to any of the foregoing matters.  The Company, the Bank and the Subsidiaries are in compliance with all notice and other requirements under the Worker Adjustment and Retraining Notification Act of 1988, and any other similar applicable foreign, state, or local Laws relating to facility closings and layoffs.  Each of the Company, the Bank and the Subsidiaries have paid or accrued in full all wages, salaries, commissions, bonuses, benefits and other compensation currently due to its employees.

 

3.17      Litigation and Other Proceedings.  None of the Company, the Bank or any Subsidiary is a party to any, and there are no pending or, to the Company’s Knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions, suits, litigations, arbitrations or governmental or regulatory investigations of any nature (each, and “Action”) (a) against the Company, the Bank or any Subsidiary (excluding those of the type contemplated by the following clause (b)) that, if adversely determined, would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, to the Company’s Knowledge there are no facts which could reasonably be expected to give rise thereto or (b) challenging the validity or propriety of the transactions contemplated by this Agreement.  Except as set forth on Section 3.17 of the Company Disclosure Letter, there is no material injunction, order, judgment, decree or regulatory restriction (other than regulatory restrictions of general application that are broadly applicable to banks and bank holding companies) imposed upon the Company, the Bank, any Subsidiary or the assets of the Company, the Bank or any Subsidiary.  There is no material unresolved violation, criticism or exception by any Governmental Entity with respect to any report or relating to any examinations or inspections of the Company, the Bank or any Subsidiary.  The Company, the Bank and each Subsidiary is in material compliance with each Order entered, issued or rendered by any Governmental Entity to which the Bank is subject.

 

  

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3.18        Tax Matters.

 

(a)     (i)  Except as set forth in Section 3.18(a)(i) of the Company Disclosure Letter, all Tax Returns that are required to be filed on or before the effective time of the Closing (taking into account any extensions of time within which to file which have not expired) by or with respect to the Company, the Bank or any of the Subsidiaries have been or will be timely filed on or before the effective time of the Closing, (ii) all such Tax Returns are or will be true and complete in all material respects, (iii) all Taxes shown to be due on the Tax Returns referred to in clause (i) have been or will be timely paid in full and all other Taxes that are imposed on the Company, the Bank or any of the Subsidiaries and that have due dates on or before the effective time of the Closing have or will be paid, (iv) the Tax Returns referred to in clause (i) are not currently under examination, (v) all deficiencies asserted or assessments made as a result of examinations conducted by any taxing authority have been paid in full, other than deficiencies and assessments that are being contested in good faith by appropriate proceedings and for which reserves adequate in accordance with GAAP have been provided, (vi) no issues that have been raised by the appropriate taxing authority in writing in connection with the examination of any of the Tax Returns referred to in clause (i) are currently pending and (vii) neither the Company, the Bank nor any of the Subsidiaries has extended or waived any statutes of limitation with respect to any Taxes of the Company, the Bank or the Subsidiaries.

 

(b)      There are no material Liens for Taxes upon the assets of the Company, the Bank or any of the Subsidiaries, other than with respect to Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings and for which reserves adequate in accordance with GAAP have been provided.

 

(c)      No written claim has ever been made by any Governmental Entity in a jurisdiction where the Company, the Bank or any of the Subsidiaries files Tax Returns that it is or may be subject to taxation by that jurisdiction.

 

(d)      The Company has made available to Investor true and correct copies of the United States federal and state income Tax Returns filed by the Company, the Bank and/or the Subsidiaries for each of the four most recent fiscal years for which such returns have been filed.

 

(e)      Neither the Company, the Bank nor any of the Subsidiaries has liability with respect to income, franchise or similar Taxes that accrued on or before the end of the most recent period covered by the consolidated financial statements of the Company, the Bank and the Subsidiaries in excess of the amounts accrued or subject to a reserve with respect thereto that are reflected therein.

 

  

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(f)      Except as set forth in Section 3.18(f) of the Company Disclosure Letter, none of the Company, the Bank or any of the Subsidiaries (i) is a party to any Tax allocation, Tax indemnity or Tax sharing agreement, is or has been a member of an affiliated group filing consolidated unitary or combined Tax Returns (other than a group the common parent of which is or was the Company) or, (ii), has any liability for Taxes of any Person (other than the Company, the Bank or a Subsidiary) arising from the application of Treasury Regulation Section 1.1502-6 or any analogous provision of state, local or foreign Law, or otherwise has any liability for the Taxes of any Person (other than the Company, the Bank or a Subsidiary) as a transferee or successor, by contract, or otherwise.

 

(g)      No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into or issued by any taxing authority with respect to the Company, the Bank or any of the Subsidiaries and no such agreement or ruling has been applied for and is currently pending.

 

(h)      Except as set forth in Section 3.18(h) of the Company Disclosure Letter, neither the Company, the Bank nor any of the Subsidiaries maintains any compensation or benefits plans, programs or arrangements the payments under which would not reasonably be expected to be deductible as a result of the limitations under Section 162(m), 280G or 404 of the Code and the regulations issued thereunder (or any similar provision of Laws).

 

(i)      No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transactions contemplated by this Agreement.

 

(j)      All Taxes that the Company, the Bank or any of the Subsidiaries is or was required by Law to withhold, collect or deposit have been duly withheld, collected or deposited and, to the extent required by applicable Law, have been paid to the proper Governmental Entity or other Person.

 

(k)      Neither the Company, the Bank nor any of the Subsidiaries has been a “distributing corporation” or a “controlled corporation” in a distribution occurring during the last five years in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.

 

(l)      Except as set forth in Section 3.18(l) of the Company Disclosure Letter, neither the Company, the Bank nor any of the Subsidiaries will be required to include amounts in income, or exclude items of deduction, in a taxable period beginning after the effective time of the Closing as a result of (i) a change in method of accounting occurring prior to the effective time of the Closing, (ii) an installment sale or open transaction arising in a taxable period (or portion thereof) ending on or before the effective time of the Closing, (iii) a prepaid amount received, or paid, prior to the effective time of the Closing or (iv) deferred intercompany gains or losses, intercompany items, or similar items arising prior to the effective time of the Closing.

 

(m)    Neither the Company, the Bank nor any of the Subsidiaries has engaged in any transaction that could give rise to (i) a registration obligation with respect to any Person under Section 6111 of the Code or the regulations thereunder, (ii) a list maintenance obligation with respect to any Person under Section 6112 of the Code or the regulations thereunder, or (iii) a disclosure obligation as a “reportable transaction” under Section 6011 of the Code and the regulations thereunder.

 

  

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(n)      Neither the Company, the Bank nor any of the Subsidiaries has and has never had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States and such foreign country, and neither the Company, the Bank nor any of the Subsidiaries has engaged in a trade or business within any foreign country.

 

3.19       Environmental Matters.

 

(a)      Except as set forth in Section 3.19(a) of the Company Disclosure Letter:

 

(i)           the Company, the Bank and the Subsidiaries are currently, and within applicable statutes of limitation, have been, in material compliance with all applicable Environmental Laws and Environmental Permits;

 

(ii)          (A) neither the Company, the Bank nor any Subsidiary has received written notice of any civil, criminal or administrative Action, demand, hearing, notice of violation, investigation, notice or demand letter or request for information pending or threatened under any Environmental Law against the Company, the Bank or any Subsidiary, and (B) neither the Company, the Bank nor any Subsidiary has received written notice of any actual or potential Liability under any Environmental Law that has not been resolved, including, but not limited to, any Liability that the Company, the Bank or any Subsidiary may have retained or assumed either contractually or by operation of Law, in either case (A) or (B) that would reasonably be expected to result in material Liabilities to, or Remedial Action by, the Company, the Bank or any Subsidiary; and

 

(iii)         to the Company’s Knowledge (A) there has been no Release or threatened Release of any Hazardous Material generated, used, owned, stored or controlled by the Company, the Bank or any Subsidiary or respective predecessors in interest, on, at or under any property presently or formerly owned, leased or operated by the Company, the Bank or any Subsidiary or any predecessor in interest, except in material compliance with Environmental Laws; and (B) there are no Hazardous Materials located in, at, on or under such facility or property, or at any other location, in either case (A) or (B), that could reasonably be expected to require Remedial Action by the Company, the Bank or any Subsidiary or that would be reasonably likely to result in material Liabilities of the Company, the Bank or any Subsidiary under any Environmental Law.

 

(b)      Except as set forth in Section 3.19(b) of the Company Disclosure Letter, the Company has provided or made available to Investor and its authorized representatives all records and files, including but not limited to, all assessments, reports, studies, analyses, audits, tests and data in the Company’s possession or control concerning the existence of Hazardous Materials or any other environmental concern at properties, assets or facilities currently or formerly owned, operated or leased by the Company, the Bank or any of their present or former subsidiaries or predecessors in interest, or concerning compliance by the Company, the Bank or the Subsidiaries with, or Liability under, any Environmental Laws.

 

  

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3.20       Brokers.  Except as set forth in Section 3.20 of the Company Disclosure Letter, none of the Company, the Bank or any Subsidiary or any of their respective officers, directors, employees or agents has employed any broker or finder or incurred any Liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no broker or finder has acted directly or indirectly for the Company, the Bank or any Subsidiary, in connection with this Agreement or the transactions contemplated hereby.  The fee payable by the Company to each of the brokers listed in Section 3.20 of the Company Disclosure Letter in connection with the transactions contemplated by this Agreement is described in an engagement letter between the Company and each such party, complete and correct copies of which have been previously provided to Investor.  The Company has received the opinion of Howe Barnes Hoefer & Arnett, Inc., or any successor thereto (the “Financial Advisor”), to the effect that, as of the date hereof, the Per Share Purchase Price and the Offer Price are fair from a financial point of view to the existing shareholders of the Company, and such opinion has not been amended or rescinded, and remains in full force and effect.  The Company has been authorized by the Financial Advisor to permit the inclusion of such opinion in its entirety in the Preliminary Proxy Statement and Definitive Proxy Statement.

 

3.21       Insurance.

 

(a)      The Company, the Bank and each Subsidiary maintain, and have maintained since each such entity’s inception, insurance underwritten by insurers of recognized financial responsibility, of the types and in the amounts that the Company, the Bank and the Subsidiaries reasonably believe in good faith are adequate for their respective businesses and constitute reasonably adequate coverage against all risks customarily insured against by banking institutions and their subsidiaries of comparable size and operations, including, but not limited to, a fidelity bond, insurance covering real and personal property owned or leased by the Company, the Bank and any Subsidiary against theft, damage, destruction, acts of vandalism and other risks customarily insured against, with such deductibles as are customary for companies in the same or similar business.  True, correct and complete copies of all material policies and binders of insurance, including any fidelity bonds, currently maintained in respect of the assets, properties, business, operations, employees, officers or directors of the Company, the Bank and the Subsidiaries, excluding such policies pursuant to which the Company, the Bank, any Subsidiary or an Affiliate of any of them acts as the insurer and that are identified with respective expiration dates on Section 3.21 of the Company Disclosure Letter (collectively, the “Company Insurance Policies”), and all correspondence relating to any material claims under the Company Insurance Policies, have been previously made available to Investor.  All of the Company Insurance Policies are in full force and effect, the premiums due and payable thereon have been or will be timely paid through the Closing Date, and there is no breach or default (and no condition exists or event has occurred which, with the giving of notice or lapse of time or both, would constitute such a breach or default) by the Company, the Bank or any of the Subsidiaries under any of the Company Insurance Policies or, to the Knowledge of the Company,  by any other party to the Company Insurance Policies, except for any such breach or default that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  None of the Company, the Bank or any of the Subsidiaries has received any written notice of cancellation or non-renewal of any Company Insurance Policy nor, to the Knowledge of the Company, is the termination of any such policies threatened, and there is no claim for coverage by the Company, the Bank or any of the Subsidiaries, pending under any of such Company Insurance Policies as to which coverage has been questioned, denied or disputed by the underwriters of such Company Insurance Policies or in respect of which such underwriters have reserved their rights.  There is no Liability or property claim under the Company Insurance Policies that exceeds the limit payable with respect to such claim under the applicable Company Insurance Policies.

 

  

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(b)      Set forth on Section 3.21(b) of the Company Disclosure Letter is a list of all known events, incidents, actions or omissions that may reasonably be expected to result in a material claim or Action against the Company, the Bank or any Subsidiary.  The Company, the Bank or the appropriate Subsidiary, as applicable, have given notice to the applicable insurer under the Company Insurance Policies of all such events, incidents, actions or omissions, or has the right under applicable Company Insurance Policies to timely do so in the future.

 

3.22       Related Party Transactions.

 

(a)      All “covered transactions” between the Company, the Bank or any of the Subsidiaries and an “affiliate,” within the meaning of Sections 23A and 23B of the Federal Reserve Act and regulations promulgated thereunder, have been in compliance with such provisions.  Except as set forth in Section 3.22(a) of the Company Disclosure Letter and except for bank deposits and loan transactions entered into by the Bank in the Ordinary Course of Business, there are no outstanding amounts payable to or receivable from, or advances by the Company, the Bank or a Subsidiary to, and neither the Company nor the Bank nor any Subsidiary is otherwise a creditor or debtor to, any shareholder, director, employee or “affiliate” of the Company, the Bank or a Subsidiary.  Except as set forth in Section 3.22(a) of the Company Disclosure Letter and except for bank deposits and loan transactions entered into by the Bank in the Ordinary Course of Business, neither the Company nor the Bank nor any Subsidiary is a party to any transaction or agreement with any of its “affiliates,” shareholders, directors, executive officers or any material transaction or agreement with any employee.

 

(b)      Section 3.22(b) of the Company Disclosure Letter sets forth a schedule of all of the current and former officers and directors of the Company, the Bank and each Subsidiary who have outstanding loans from the Company, the Bank or such Subsidiary, and (i) there has been no default on, or forgiveness of or waiver of, in whole or in part, any such loan during the two years immediately preceding the date hereof and the Closing Date, and (ii) to the Knowledge of the Company and the Bank, no current or former officers or directors of the Company, the Bank or any Subsidiary has indicated its inability or unwillingness to repay any such outstanding loan.

 

3.23       Certain Payments.  None of the Company, the Bank or any Subsidiary, or any director, officer, agent, employee or other person acting on behalf of the Company, the Bank or any Subsidiary has, in the course of its actions for, or on behalf of, the Company, the Bank or any Subsidiary (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (c) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (d) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

  

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3.24       Privacy and Security.  The Company, the Bank and each of its Subsidiaries materially complies and oversees the compliance of applicable third parties with all Laws, reputable industry practice and its own policies (which are in conformance with reputable industry practice) applicable to it with respect to (a) the protection of personal privacy, personally identifiable information, nonpublic personal information and any special categories of personal information regulated thereunder (including clients, customers and those persons included in any demographic or other analyses performed for clients), whether any of same is accessed or used by the Company, the Bank, any Subsidiary or any of their business partners, and (b) the sending of solicited or unsolicited electronic mail messages.

 

3.25       Loan Portfolio.

 

(a)      Each Loan on the books and records of the Bank was made or purchased and has been serviced in all material respects in accordance with customary lending standards in the Ordinary Course of Business, is evidenced in all material respects by appropriate and sufficient documentation, has been secured by valid liens and security interests that have been perfected to the extent secured, and, constitutes the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms in all material respects, subject to bankruptcy, insolvency, fraudulent transfer and similar Laws of general applicability relating to or affecting creditor’s rights or by general equity principles.  The Company has previously made available to Investor complete and correct copies of each of the Bank’s lending policies.  The deposit and loan agreements of the Bank are in material compliance with all applicable Laws, rules and regulations.

 

(b)      Except as set forth on Section 3.25(b) of the Company Disclosure Letter, with respect to each Loan owned by the Bank in whole or in part, neither the Bank nor any prior holder of a Loan has modified the note or any of the related security documents in any material respect or satisfied, canceled or subordinated the note or any of the related security documents except as otherwise disclosed by documents in the applicable Loan file; the Bank is the sole holder of legal and beneficial title to each Loan, except as otherwise referenced on the books and records of the Bank; the original note and the related security documents are included in the Loan files, and copies of any documents in the Loan files are true and correct copies of the documents they purport to be and have not been suspended, amended, modified, canceled or otherwise changed except as otherwise disclosed by documents in the applicable Loan file; and with respect to a Loan held in the form of a participation, the participation documentation is legal, valid, binding and enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

 

  

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(c)      Set forth in Section 3.25(c) of the Company Disclosure Letter, as to the Company, the Bank and each of the Subsidiaries as of the latest practicable date are: (i) any written or, to the Knowledge of the Bank, oral Loan under the terms of which the obligor is sixty (60) or more days delinquent in payment of principal or interest, or to the Knowledge of the Company and the Bank, in default of any other provision thereof; (ii) each Loan which has been classified as “other loans specially maintained,” “classified,” “criticized,” “credit risk assets,” “watch list assets,” “substandard,” “doubtful,” “loss” or “special mention” (or words of similar import) by the Company or the Bank or an applicable Governmental Entity (the “Classified Loans”); (iii) a listing of the “Other Real Estate Owned” acquired by foreclosure or by deed-in-lieu thereof, including the book value thereof; (iv) each Loan with any director, executive officer, employee or five percent or greater Company Shareholder, or any immediate family member of any of the same, or any Person controlling, controlled by or under common control with, any of the foregoing; and (v) a listing of each residential mortgage Loan and the lien position with respect to the property securing the Loan.  All Loans which are classified as “Insider Transactions” by Regulation O of the Federal Reserve Board have been made by the Bank in an arms-length manner made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other Persons and do not involve more than normal risk of collectability or present other unfavorable features.

 

(d)      The Bank is approved by and is in good standing: (i) as a supervised mortgagee by the Department of Housing and Urban Development to originate and service Title I FHA mortgage loans; (ii) as a GNMA I and II Issuer by the Government National Mortgage Association; (iii) by the Department of Veterans’ Affairs (“VA”) to originate and service VA loans; and (iv) as a seller/servicer by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to originate and service conventional residential mortgage Loans (each such entity being referred to herein as an “Agency” and, collectively, the “Agencies”).

 

(e)      None of the Company, the Bank or any of the Subsidiaries is now nor has it ever been since December 31, 2009 subject to any fine, suspension, settlement or other agreement or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Agency or any federal or state agency relating to the origination, sale or servicing of mortgage or consumer Loans.  None of the Company, the Bank or any of the Subsidiaries has received any notice, nor does it have any Knowledge as of the date of this Agreement and as of the Closing Date, that any Agency proposes to limit or terminate the underwriting authority of the Company, the Bank or any of the Subsidiaries or to increase the guarantee fees payable to any such Agency.

 

(f)      Each of the Company, the Bank and the Subsidiaries is in compliance in all material respects with all applicable Law, including the Truth-In-Lending Act and Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Real Estate Settlement Procedures Act and Regulation X, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and all Agency and other investor and mortgage insurance company requirements relating to the origination, sale and servicing of mortgage and consumer Loans.

 

(g)      Each Loan included in a pool of Loans originated, acquired or serviced by the Company, the Bank or any of the Subsidiaries (a “Pool”) meets all eligibility requirements (including all applicable requirements for obtaining mortgage insurance certificates and loan guaranty certificates) for inclusion in such Pool.  All such Pools have been finally certified or, if required, recertified in accordance with all applicable Laws, except where the time for certification or recertification has not yet expired.  No Pools have been improperly certified, and no Loan has been bought out of a Pool without all required approvals of the applicable investors.

 

  

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(h)      The information with respect to each Loan set forth in the Loan Tape, and, to the Knowledge of the Company, any third party information set forth in the Loan Tape is true, correct and accurate as of the dates specified therein, or, if no such date is indicated therein, as of September 30, 2010.

 

3.26       Agreement with Regulatory Agencies and Regulatory Approvals  Other than as set forth in Section 3.26 of the Company Disclosure Letter, the Bank is not subject to any cease-and-desist or other similar Order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any capital directive of, any Governmental Entity that in a material manner relates to its capital adequacy, its liquidity and funding policies and practices, its ability to pay dividends, its credit, risk management or compliance policies, its internal controls, its management or its operations or business, including compliance with applicable bank secrecy, anti-money laundering and consumer protection Laws and interpretations of any Governmental Entity (each item in this sentence, a “Regulatory Agreement”) and other than as set forth in Section 3.26 of the Company Disclosure Letter, the Bank has not been advised since December 31, 2008 by any Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.  As of the date hereof and as of the Closing Date, there is no reason why any regulatory approvals and, to the extent necessary, any other Approvals, Authorizations, filings, registrations and notices required or otherwise a condition to the consummation of the transactions contemplated hereby will not be obtained.

 

3.27       Anti-takeover Provisions.  The Company has taken all necessary action to ensure that the transactions contemplated by this Agreement, the Voting Agreements and the consummation of the transactions contemplated hereby and thereby will be exempt from any anti-takeover or similar provisions of the Bank’s Articles of Incorporation and bylaws, and any other provisions of any applicable “moratorium”, “control share”, “fair price”, “interested stockholder” or other anti-takeover Laws of any applicable jurisdiction, including the North Carolina Business Corporation Act, as amended.

 

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

 

3.29       Status of Purchased Shares.  The Purchased Shares to be issued pursuant to this Agreement have been duly authorized by all necessary corporate action, in each case subject to Required Company Shareholder Vote.  When issued, delivered and sold against receipt of the consideration therefor as provided in this Agreement, the Purchased Shares will be validly issued, fully paid and nonassessable and not subject to any preemptive rights.  The voting rights of the holders of the Purchased Shares will be enforceable in accordance with the terms of the Articles of Incorporation and bylaws of the Company and applicable Law.

 

  

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3.30      Risk Management Instruments.  There are no Derivative Transactions, except as forth in Section 3.30 of the Company Disclosure Letter.  All Derivative Transactions whether entered into for the Company’s own account, or for the account of the Bank or one or more of the Subsidiaries, were entered into (a) only in the Ordinary Course of Business, and (b) in accordance with commercially reasonable banking practices and in all material respects with all applicable Laws and regulatory policies; and each of them constitutes the valid and legally binding obligation of the Company, the Bank or one of the Subsidiaries, enforceable in accordance with its terms.  None of the Company, the Bank or the Subsidiaries, or, to the knowledge of the Company, any other party thereto, is in material breach of any of its obligations under any Derivative Transactions.

 

3.31      Reservation for Issuance.  Except as set forth in Section 3.31 of the Company Disclosure Letter, the Company has, on the date hereof, and shall have as of the Closing Date,  a number of shares of Common Stock reserved that is sufficient for the issuance of the Purchased Shares.

 

3.32      Investment Company Act.  Neither the Company, the Bank nor any Subsidiary is required to be registered as, and is not an affiliate of, and immediately following the Closing will not be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

3.33      No Material Adverse Effect.  Since September 30, 2010, no fact, circumstance, event, change, occurrence, condition or development has occurred that has not been Previously Disclosed to Investor and that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect.

 

3.34      Disclosure.  No representation or warranty of the Company or the Bank contained in this Agreement, and no statement contained in any document (including the Financial Statements, or other writing furnished by the Bank to Investor or any of its representatives pursuant to the provisions hereof or in connection with the transactions contemplated hereby), contains any untrue statement of material fact or, when read together as a whole, omits to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading.  Except as set forth in Section 3.34 of the Company Disclosure Letter, there are no facts regarding the Company’s finances, operations or prospects which have or could have a Material Adverse Effect on the Company, the Bank or its Subsidiaries which have not been set forth in this Agreement, including the Company Disclosure Letter, the Financial Statements, or any document or statement in writing which has been supplied by or on behalf of the Company in connection with the transactions contemplated by the Agreement.

 

  

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF INVESTOR

 

Investor hereby represents and warrants to the Company and the Bank as of the date of this Agreement and as of the Closing Date (except to the extent made only as of a specified date, in which case as of such date), as follows:

4.1      Organization and Authority.  Investor is duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified, and Investor has the power and authority and governmental authorizations to own its properties and assets and to carry on its business in all material respects as it is now being conducted.  Investor is a bank holding company duly registered under the Bank Holding Company Act of 1956, as amended.

 

4.2      Authorization and Enforceability.  Investor has the full legal right, corporate power and authority to enter into this Agreement and the other agreements referenced herein to which it will be a party and to carry out its obligations hereunder and thereunder.  The execution, delivery and performance of this Agreement and the other agreements referenced herein to which Investor will be a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by Investor’s board of directors.  This Agreement has been, and the other agreements referenced herein to which it will be a party, when executed by the Company, the Bank and Investor, will be, duly and validly executed and delivered by Investor and assuming due authorization, execution and delivery by the Company and the Bank to each such agreement to which the Company and the Bank are parties, is and will be a valid and binding obligation of Investor enforceable against Investor in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles).  Other than receipt of the Required Approvals, no other corporate proceedings are necessary for the execution and delivery by Investor of this Agreement and the other agreements referenced herein to which it will be a party, the performance by it of its obligations hereunder and thereunder or the consummation by it of the transactions contemplated hereby.

 

4.3      No Conflicts

 

(a)      Neither the execution, delivery and performance by Investor of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by Investor with any of the provisions hereof, will (i) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of any Lien upon any of the properties or assets of Investor under any of the terms, conditions or provisions of (A) its certificate of incorporation or similar governing documents or (B) any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Investor is a party or by which it may be bound, or to which Investor or any of the properties or assets of Investor may be subject, or (ii) subject to compliance with the statutes and regulations referred to in Section 4.3(b), violate any Law, Permit, concession, grant, franchise or any judgment, ruling, order, writ, injunction or decree applicable to Investor or any of its properties or assets.

 

(b)      Assuming the Company’s and the Bank’s representations contained in Section 3.6 are true and correct, receipt of the Required Approvals, compliance with the securities or blue sky laws of the various states and filings made to comply with applicable tender offer rules of the SEC, no material notice to, registration, declaration or filing with, exemption or review by, or authorization, order, consent or approval of, any Governmental Entity, or expiration or termination of any statutory waiting period, is necessary for the consummation by Investor of the transactions contemplated by this Agreement.

 

  

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4.4      Restricted Securities; Limitation on Resale.  Investor acknowledges that the Purchased Shares have not been registered under the Securities Act or under any state securities Laws and Investor understands that the Shares are “restricted securities” under applicable federal and state securities Laws and that, pursuant to these Laws, Investor must hold the Purchased Shares indefinitely unless they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements is available.

 

4.5      Purchase for Investment.   Investor (a) is acquiring the Purchased Shares pursuant to an exemption from registration under the Securities Act solely for investment and with no present intention to resell or distribute any of the Purchased Shares to any person, (b) will not sell or otherwise dispose of any of the Purchased Shares, except in compliance with the registration requirements the Securities Act, or an exemption thereunder, and any other applicable securities laws, (c) has such knowledge, sophistication and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Purchased Shares, of making an informed investment decision and of bearing the economic risk of such investment for an indefinite period of time, (d) has made its investment decision based upon its own judgment, due diligence, and advice from such advisors as it has deemed necessary and not upon the view of any Person, and (e) is an “accredited investor” (as that term is defined by Rule 501 of the Securities Act ). Investor has not been formed for the specific purpose of acquiring the Purchased Shares. Investor has had an opportunity to discuss the business, management, financial affairs of the Company and of the Bank and the terms and conditions of the offering of the Purchased Shares with management of the Company and of the Bank and has had an opportunity to review the facilities of the Company and the Bank.

 

4.6      Brokers and Finders.    Neither Investor nor its respective officers, directors, employees or agents has employed any broker or finder or incurred any Liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no broker or finder has acted directly or indirectly for Investor, in connection with this Agreement or the transactions contemplated hereby.

 

4.7      Litigation and Other Proceedings.     Investor is not a party to any, and there are no pending or, to Investor’s knowledge, threatened, Actions (a) against Investor (excluding those of the type contemplated by the following clause (b)) that, if adversely determined, would reasonably be expected to have a material adverse effect on Investor or (b) challenging the validity or propriety of the transactions contemplated by this Agreement.  There is no material injunction, order, judgment, decree or regulatory restriction (other than regulatory restrictions of general application that are broadly applicable to banks and bank holding companies) imposed upon the Investor or any subsidiary of the Investor or upon the assets of the Investor or any subsidiary of Investor.  There is no material unresolved violation, criticism or exception by any Governmental Entity with respect to any report or relating to any examinations or inspections of the Investor or any subsidiary of the Investor.  The Investor and each subsidiary of the Investor is in material compliance with each Order entered, issued or rendered by any Governmental Entity to which they are subject.

 

  

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4.8      Compliance with Law.  Investor has been in compliance in all material respects with and is not in default or violation in any material respect of, and to the knowledge of Investor, is not under investigation with respect to or, to the knowledge of Investor, been threatened to be charged with or given notice of any material violation of, any applicable material domestic or foreign Law, license, policy or guideline, order, demand, writ, injunction, decree or judgment of any Governmental Entity, except for such noncompliance that has not had nor reasonably would be expected to have a material adverse effect on Investor.

 

4.9      Financial Capability.  Investor has in an escrow account held pursuant to the Escrow Agreement funds necessary to pay the Purchase Price and consummate the Closing on the terms and conditions contemplated by this Agreement.  On the earlier of (i) the Closing Date or (ii) the date that is fifteen days after the date upon which all Required Approvals are obtained, Investor will have available funds necessary to pay the Purchase Price and to consummate the Closing on the terms and conditions contemplated by this Agreement.  Additionally, at the Expiration Time, Investor will have available sufficient funds necessary to pay for all Shares validly tendered and not validly withdrawn pursuant to the Offer.

 

4.10    General Solicitation.  Neither Investor, nor any of its officers, directors, employees, agents, stockholders or partners has either directly or indirectly, including through a broker or finder (i) engaged in any general solicitation, or (ii) published any advertisement in connection with the offer and sale of the Purchased Shares.

 

4.11    Related Party Transactions.  All “covered transactions” between the Investor and an “affiliate,” within the meaning of Sections 23A and 23B of the Federal Reserve Act and regulations promulgated thereunder, have been in compliance with such provisions.

 

4.12    Certain Payments.  To the knowledge of Investor, neither Investor, nor to the knowledge of Investor, any subsidiary, director, officer, agent, employee or other person acting on behalf of the Investor has, in the course of its actions for, or on behalf of, Investor (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (c) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (d) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

4.13    Agreements with Regulatory Agencies. Investor is neither subject to any Regulatory Agreement, nor been advised since December 31, 2009 by any Governmental Entity or SRO that it is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.  As of the date hereof, Investor has no knowledge of any reason why any regulatory approvals and, to the extent necessary, any other Approvals, Authorizations, filings, registrations and notices required or otherwise a condition to the consummation of the transactions contemplated hereby will not be obtained.

 

  

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4.14    Corporate Governance and Financing Restrictions.  Investor and, to Investor’s knowledge, its Affiliates, and any Person with a greater than 4.9% ownership interest in the Investor, are in material compliance with any and all corporate governance, management, ownership or other financing restrictions, limitations, or agreements (including any Passivity Commitments) that such Person may have with any Governmental Entity or SRO related to such Person’s ownership or involvement with the Investor.

 

4.15    No Material Adverse Effect.  Since September 30, 2010, no fact, circumstance, event, change, occurrence, condition or development has occurred that has not been previously disclosed to the Company and that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on Investor.

 

4.16    Non-Reliance.  Investor acknowledges and agrees that in entering into this Agreement it has not relied and is not relying on any representations, warranties or other statements whatsoever, whether written or oral (from or by the Company, the Bank or any Person acting on either such entity’s behalf) other than those expressly set out in this Agreement and that it will not have any right or remedy rising out of any representations, warranties or other statements not expressly set out in this Agreement.

 

ARTICLE V

COVENANTS

 

5.1      Filings, Other Actions.

 

(a)      Subject to the conditions set forth in this Agreement and the last sentence of this Section 5.1(a), Investor, on the one hand, and the Company and the Bank, on the other hand, will cooperate and consult with the other and use best efforts 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 Law so as to permit and otherwise enable consummation of the transactions contemplated by this Agreement as promptly as possible, to perform the covenants contemplated by this Agreement, including satisfaction of the conditions set forth in Article VII hereof and to prepare and file all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and to obtain all necessary permits, consents, orders, approvals and authorizations of, or any exemption by, all third parties and Governmental Entities, including, without limitation, the Required Approvals, and the expiration or termination of any applicable waiting period, necessary or advisable to consummate the transactions contemplated by this Agreement.  Each Party shall execute and deliver both before and after the Closing such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement such transactions or to evidence such events or matters.  In furtherance of the foregoing, Investor shall use its best efforts to file any required applications, notices or other filings with the Federal Reserve Board within thirty (30) days of the date hereof.  Investor and the Company will have the right to review in advance, and to the extent practicable, each will consult with the other with respect to, in each case subject to applicable Laws relating to the exchange of information, all written information submitted to any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement.  In exercising the foregoing right, each of the Parties hereto agrees to act reasonably and as promptly as practicable.  Each Party hereto agrees that it shall consult with the other Party hereto with respect to the obtaining of all permits, consents, approvals, waivers and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement, and each Party shall keep the other Party apprised of the status of material matters relating to the consummation of transactions contemplated by this Agreement.  Each Party agrees, upon request, to furnish the other Party with all information concerning itself, its subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application made by or on behalf of such other parties or any of their subsidiaries to any third party or Governmental Entity.  Investor shall promptly furnish the Company and the Bank, and the Company and the Bank shall promptly furnish Investor, to the extent permitted by applicable Law, with copies of written communications received by it or their subsidiaries from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated by this Agreement.  Notwithstanding anything in this Agreement to the contrary, Investor shall not be required to furnish the Company with any (i) personal biographical or financial information of any of the directors, officers, employees, managers, investors or partners of Investor or any of its present of former Affiliates (other than the personal biographical information of any of the directors, officers, employees, managers, investors or partners of Investor or any of its present or former Affiliates required to be furnished to the Company and, by applicable Law, to be disclosed by the Company by reason of the fact that such person will be appointed or elected to the Company Board) or (ii) proprietary and non-public information related to the organizational terms of, or investors in, Investor or any of its present or former Affiliates.

 

  

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(b)      The Company shall use its best efforts to, and Investor shall use its best efforts to cooperate with the Company in order to, prepare and file with the SEC under the Exchange Act, and with all other applicable regulatory bodies, a preliminary proxy statement pursuant to Section 14(a) of the Exchange Act (the “Preliminary Proxy Statement”) as promptly as practicable after the date hereof, but in no event later than thirty (30) days after the date hereof, which shall include proxy materials for the purpose of soliciting proxies from the Company Shareholders to obtain the Required Company Shareholder Vote of the Company Shareholders at a meeting of the Company Shareholders to be called and held for such purpose (“Shareholder Meeting”) as provided below, in accordance with the Company’s Articles of Incorporation and bylaws.  The Company shall use its best efforts to solicit or cause to be solicited from the Company Shareholders proxies in favor of the approval of (i) the Reincorporation Merger, and (ii) the issuance and sale of the Purchased Shares pursuant to the terms of this Agreement, and take all other action reasonably necessary or advisable to obtain the Required Company Shareholder Vote.  The Company and the Bank shall use their best efforts to ensure that all proxies solicited by or on behalf of the Company in connection with the Shareholder Meeting are solicited in compliance with applicable Law.  If the Company has not procured the Required Company Shareholder Vote as of the date of the Shareholder Meeting, at the request of Investor, the Company shall from time to time adjourn or postpone the Shareholder Meeting for such period of time as Investor shall reasonably request, not to exceed thirty (30) days, solely for the purpose of soliciting additional proxies in order to obtain the Required Company Shareholder Vote.  Except with the prior written consent of Investor, which consent shall not be unreasonably withheld, no other matters shall be submitted for the approval of the Company Shareholders at the Shareholder Meeting.  Investor shall furnish to the Company all information concerning Investor as the Company may reasonably request in connection with the preparation of the Preliminary Proxy Statement.  The Company shall promptly respond to any SEC comments on the Preliminary Proxy Statement, with the assistance of Investor, and shall otherwise use best efforts to resolve any such SEC comments relating to the Preliminary Proxy Statement.  The Company shall also take any and all such actions necessary to satisfy the requirements of the Securities Act and the Exchange Act with respect to the Preliminary Proxy, the Definitive Proxy, and any other actions required to be taken in connection with the transactions contemplated herein.  Notwithstanding the foregoing, prior to filing the Preliminary Proxy Statement or the Definitive Proxy Statement or mailing the Definitive Proxy Statement (or any amendment or supplement thereto) or responding to any comments of the SEC with respect thereto, the Company shall provide Investor with a reasonable opportunity and adequate time to review and comment on such document or response.  The Company, after giving reasonable consideration to any comments from Investor, shall have sole authority to determine the ultimate content of the Preliminary Proxy Statement, Definitive Proxy Statement, and any response to any SEC comments.

 

  

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(c)      As promptly as practicable (and in any event within five (5) Business Days) following the resolution of any SEC comments on the Preliminary Proxy Statement or the expiration of any waiting period required to be observed in connection with the filing of the Preliminary Proxy Statement, the Company shall file and distribute a definitive proxy statement pursuant to Section 14(a) of the Exchange Act (the “Definitive Proxy Statement”) to the Company Shareholders and, pursuant thereto, shall, as promptly as practicable, call the Shareholder Meeting and, subject to the other provisions of this Agreement, solicit proxies from the Company Shareholders to vote in favor of the matters required to be approved in order to obtain approval of all matters related to the Required Company Shareholder Vote.

 

(d)      The Company shall comply with all applicable provisions of and rules under the Exchange Act and all applicable provisions of the North Carolina Business Corporation Act as amended, in the preparation, filing and distribution of the Preliminary Proxy Statement and Definitive Proxy Statement, as applicable, the solicitation of proxies thereunder, and the calling and holding of the Shareholder Meeting.  Without limiting the foregoing, the Company shall ensure that the Definitive Proxy Statement does not, as of the date on which it is distributed to the Company Shareholders, and as of the date of the Shareholder Meeting, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, provided that the Company shall not be responsible for the accuracy or completeness of any information furnished by Investor with respect to Investor for inclusion in the Preliminary Proxy Statement or Definitive Proxy Statement.  Investor covenants and agrees that the information supplied by it for inclusion in the Preliminary Proxy Statement or Definitive Proxy Statement will not, as of the filing date of the Preliminary Proxy Statement or Definitive Proxy Statement (or any amendment or supplement thereto), as the case may be, contain any statement which, at such time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omits to state any material fact required to be stated therein or necessary in order to make the statement therein not false or misleading.

 

(e)      Subject to the limitation set forth in Section 5.3(b) below, the Company, acting through the Company Board, shall include in the Preliminary Proxy Statement and the Definitive Proxy Statement the Company Recommendation, as described in Section 5.1(b) above and shall otherwise use its best efforts to obtain approval of all matters related to the Required Company Shareholder Vote.

 

  

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(f)      The Company shall not submit to the vote of the Company Shareholders any Acquisition Proposal other than the transactions contemplated by this Agreement while this Agreement is in effect.  Additionally, for the avoidance of doubt, the obligations of the Company to call and hold the Shareholder Meeting and to file, finalize and mail the Definitive Proxy Statement related thereto, shall not be affected by the receipt of any Acquisition Proposal or by any Adverse Recommendation Change.

 

5.2      Conduct of Business Prior to Closing.  Each of the Company and the Bank agrees that, prior to the earlier of the consummation of the Offer or the termination of this Agreement pursuant to Section 8.1, except as otherwise expressly permitted or required by this Agreement, without the prior written consent of Investor, it will not, and will cause each of the Subsidiaries not to:

 

(a)     Ordinary Course.  Fail to carry on its business in the Ordinary Course of Business or fail to use commercially reasonable efforts to maintain and preserve its business (including its organization, assets, properties, goodwill and insurance coverage) and to preserve its current business relationships with customers, employees, strategic partners, suppliers, distributors and others having business dealings with it.

 

(b)     Operations.  Enter into any new line of business or introduce any new products or services other than in the Ordinary Course of Business; change its lending, investment, underwriting, pricing, servicing, risk and asset liability management and other material banking and operating policies, except as required by applicable Law, regulation or policies imposed by any Governmental Entity, or the manner in which its investment securities or loan portfolio is classified or reported; or invest in any mortgage-backed or mortgage-related security that would be considered “high risk” under applicable regulatory guidance; or file any application or enter into any contract with respect to the opening, relocation or closing of, or open, relocate or close, any branch, office, service center or other facility.

 

(c)     Deposits.  Alter materially its interest rate or fee pricing policies with respect to depository accounts of the Bank or waive any material fees with respect thereto, provided however, that the Bank may implement its existing interest rate and fee pricing policies in a manner consistent with its past practices based on competition and prevailing market rates in its banking market.

 

(d)     Capital Expenditures.  Make any capital expenditures in excess of (i) $100,000 individually or (ii) $1,000,000 in the aggregate, other than as required pursuant to Previously Disclosed commitments already entered into as of the date hereof.

 

(e)     Material Contracts.  Terminate, enter into, cancel, fail to renew, amend or modify any Material Contract, other than in the Ordinary Course of Business.

 

(f)      Capital Stock.  Issue, sell or otherwise permit to become outstanding, or dispose of or encumber or pledge, or authorize or propose the creation of, any additional shares of its capital stock or any additional options or other rights, grants or awards with respect to its capital stock, except pursuant to the exercise of the Company Warrant or Company Options outstanding on the date hereof and as set forth in Section 3.2(b) of the Company Disclosure Letter.

 

  

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

 

(h)     Dispositions.  (i) Sell, transfer, mortgage, encumber or otherwise dispose of or discontinue any of its assets, other than residential mortgage loans, in a single transaction, or in a series of transactions, having a value in excess of $1,000,000, or (ii) sell, transfer, mortgage, encumber or otherwise dispose of or discontinue residential mortgage loans other than in the Ordinary Course of Business.

 

(i)      Incurrence of Indebtedness.  Incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for the obligations of, any other Person, except in the Ordinary Course of Business.

 

(j)      Loans.  (i) Other than in the Ordinary Course of Business and other than renewals or modifications of existing loans (all of the foregoing done or made in compliance with the existing internal loan policies of the Company and Bank) (A) make any Loan with respect to unsecured Loans to be made to any one borrower, that have a principal balance of $100,000 or more in the aggregate (which amount includes any current outstanding principal balance to any such borrower), and, (B) with respect to Loans secured by real estate or other collateral to be made to any one borrower, that have a principal balance of $3,000,000 or more in the aggregate (which amount includes any current outstanding principal balance to any such borrower); (ii) take any action that would result in any discretionary release of collateral or guarantees or otherwise restructure the respective amounts set forth in clause (i) above; (iii) enter into any Company Loan securitization or create any special purpose funding entity, (iv) forgive Indebtedness under any Loan in an amount equal to or greater than $1,000,000 to any individual borrower or affiliated borrowers; or (v) renew or extend any watch list loan with a balance of $2,000,000 or greater.  In the event that Investor’s prior written consent is required pursuant to clause (i) above, Investor shall use commercially reasonable efforts to provide such consent within three (3) Business Days of any request by the Company or the Bank.

 

(k)      Acquisitions.  Acquire (other than by way of foreclosures, acquisitions of control in a fiduciary or similar capacity, acquisitions of loans or participation interests, or in satisfaction of debts previously contracted in good faith, in each case in the Ordinary Course of Business) all or any portion of the assets, business, deposits or properties of any other Person.

 

(l)      Banking Offices.  File any application or enter into, extend or renew any contract with respect to the opening, establishment, location, relocation or closing of, or open, establish, relocate or close, any banking office.

 

  

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(m)    Constituent Documents.  Amend its Articles of Incorporation or bylaws or similar organizational documents or enter into a plan of consolidation, merger, share exchange or reorganization with any person, or a letter of intent or agreement in principle or other understanding with respect thereto except as otherwise contemplated by the Reincorporation Merger.

 

(n)     Accounting Practices.  Implement or adopt any change in its accounting principles, practices or methodologies, other than as may be required by (i) GAAP as concurred by Dixon Hughes PLLC, its independent auditors, or (ii) applicable accounting requirements of a Governmental Entity.

 

(o)     Tax Matters.  Make or change any material Tax election, settle or compromise any material Tax Liability of the Company or a Subsidiary, agree to an extension or waiver of the statute of limitations with respect to the assessment or determination of a material amount of Taxes of the Company or a Subsidiary, enter into any closing agreement with respect to any material amount of Taxes or surrender any right to claim a material Tax refund, adopt or change any method of accounting with respect to Taxes, or file any amended Tax Return.

 

(p)     Claims.  Settle any action, suit, claim or proceeding against it, except for an action, suit, claim or proceeding that is settled in the Ordinary Course of Business in an amount or for consideration not in excess of $100,000 individually or $500,000 in the aggregate and that would not impose any material restriction on the business of the Company, the Bank or the Subsidiaries or, after the Closing, Investor or any of its Affiliates or create precedent for claims that are reasonably likely to be material to the Investor, the Company, the Bank or a Subsidiary.

 

(q)     Compensation.  Terminate, enter into, amend, renew or modify any payroll practice or other compensatory arrangement that is not a Benefit Plan, or grant any salary or wage increase or increase any employee benefit under any such arrangement, including incentive or bonus payments (or, with respect to any of the preceding, communicate any intention to take such action) or pay to any such individual any amount or benefit not due pursuant to such payroll practice or other compensatory arrangement established on or before January 1, 2011, except to make changes that are required by applicable Law.

 

(r)      Benefit Arrangements.  Except as contemplated by Section 6.4 below, terminate, enter into, establish, adopt, amend, modify (including by way of interpretation), make new grants or awards under or renew any Benefit Plan (or any arrangement that would following the applicable action be a Benefit Plan), amend the terms of any outstanding equity-based award, take any discretionary action to accelerate the vesting, exercisability or payment (or fund or secure the payment) of stock options, restricted stock or other compensation or benefits payable thereunder or add any new participants to any 409A Plans (or, with respect to any of the preceding, communicate any intention to take such action), except as required by applicable Law or by the terms of a Benefit Plan existing as of the date hereof and disclosed on Section 3.15(a) of the Company Disclosure Letter.

 

  

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(s)      Labor Matters.  Effectuate (i) a plant closing (as defined in the Worker Adjustment and Retraining Notification Act of 1988, and any other similar applicable foreign, state, or local Laws relating to plant closings and layoffs) affecting any site of employment or one or more facilities or operating units within any site of employment of the Company, the Bank or any of the Subsidiaries; (ii) a mass layoff as defined in such Laws affecting any site of employment of the Company, the Bank or any of the Subsidiaries; or (iii) any similar action under such Laws requiring notice to employees in the event of an employment loss or layoff.

 

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

 

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

 

(v)     Related Party Transactions.  Engage in (or modify in a manner adverse to the Company, the Bank or the Subsidiaries) any transactions (except for any ordinary course banking relationships permitted under applicable Law) with any Affiliate of the Company or any director or officer (senior vice president or above) of the Company, the Bank or the Subsidiaries (or any Affiliate of any such person).

 

(w)    Receivership or Liquidation.  Commence a voluntary procedure for reorganization, arrangement, adjustment, relief or composition of indebtedness or bankruptcy, receivership or a similar proceeding, or consent to the entry of an order for relief in an involuntary procedure for reorganization, arrangement, adjustment, relief or composition of indebtedness or bankruptcy, receivership or a similar proceeding or consent to the appointment of a receiver, liquidator, custodian or trustee, in each case, with respect to the Company, the Bank or any of the Subsidiaries, or any other liquidation or dissolution of the Company, the Bank or any of the Subsidiaries.

 

(x)      Credit Policy; Underwriting.  Make or permit any exceptions or changes to the Company’s or the Bank’s credit, underwriting, lending, investment, risk and asset-liability management and other material banking or operating policies in effect as of the date hereof except as to (i) update these policies to conform to recent regulatory or accounting guidance, or (ii) update these policies to address recently identified internal audit or regulatory examination deficiencies, but only if such updates reduce the Bank’s exposure to risk.

 

  

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(y)     Adverse Actions.  Take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the effective time of the Closing, (ii) any of the conditions to Closing set forth in Article VII not being satisfied or (C) a material violation of any provision of this Agreement, except as may be required by applicable Law or regulation.

 

(z)     Investments in Real Estate.  Make any investment or commitment to invest in real estate or in any real estate development project (other than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted in good faith, in each case in the Ordinary Course of Business).

 

(aa)  Working Capital.  Maintain working capital and net assets at levels generally consistent with the Ordinary Course of Business.

 

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

 

5.3      Acquisition Proposals.

 

(a)     The Company and the Bank agree that none of the Company, the Bank or any of the Subsidiaries or any of the officers or directors of the Company, the Bank or any of the Subsidiaries shall, and that they shall instruct and use their best efforts to cause their and the Subsidiaries’ Representatives not to (it being understood and agreed that any violation of the restrictions set forth in this Section 5.3 by a Representative, whether or not such Representative is so authorized and whether or not such Representative is purporting to act on behalf of the Company, the Bank or any Subsidiary or otherwise, shall be deemed to be a breach of this Agreement by the Company and the Bank), directly or indirectly:

 

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

 

(ii)          make or authorize any statement, recommendation or solicitation in support of any Acquisition Proposal or potential Acquisition Proposal;

 

(iii)         engage in, continue or otherwise participate in any discussions or negotiations or enter into an agreement regarding, or provide any non-public information or data to any person relating to, any Acquisition Proposal or potential Acquisition Proposal; or

 

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

 

  

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Notwithstanding any other provision contained herein, at any time prior to obtaining the Required Company Shareholder Vote, in response to a bona fide written Acquisition Proposal that the Company Board determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) constitutes or is reasonably likely to lead to a Superior Proposal, and which Acquisition Proposal was not solicited after the date of this Agreement and was made after the date of this Agreement and prior to the Shareholder Meeting and did not otherwise result from a breach of this Section 5.3(a) or any other exclusivity agreement between the Investor and the Company, the Company and the Bank may, subject to compliance with Section 5.3(e), (x) furnish information with respect to the Company and the Bank to the person making such Acquisition Proposal (provided that all such information has previously been provided to the Investor or is provided to the Investor prior to or substantially concurrent with the time it is provided to such person) pursuant to a customary confidentiality agreement not less restrictive of such person than the Confidentiality Agreement, and (y) participate in discussions regarding the terms of such Acquisition Proposal and the negotiation of such terms with, and only with, the Person making such Acquisition Proposal.

 

(b)           Except as set forth below, neither the Company Board nor any committee thereof shall (i) adopt an Adverse Recommendation Change or (ii) approve, recommend or declare advisable, or propose publicly to approve, recommend or declare advisable, or make any public statement inconsistent with the Company Recommendation, or allow the Company, the Bank, or any of their Affiliates to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, alliance agreement, partnership agreement or other agreement or arrangement (an “Acquisition Agreement”) constituting or related to, or that is intended to or would reasonably be expected to lead to, any Acquisition Proposal, or requiring, or reasonably expected to cause, the Company or the Bank to abandon, terminate, delay or fail to consummate, or that would otherwise impede, interfere with or be inconsistent with, the transactions contemplated by this Agreement, or requiring, or reasonably expected to cause, the Company or the Bank to fail to comply with this Agreement (other than the Confidentiality Agreement). Notwithstanding the foregoing, at any time prior to obtaining the Required Company Shareholder Vote, the Company Board may make an Adverse Recommendation Change in favor of a Superior Proposal if the Company Board reasonably determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) that the failure to do so would be a breach of its fiduciary duties under applicable Law; provided, however, that the Company shall not be entitled to exercise its right to make an Adverse Recommendation Change until after the third Business Day following the Investor’s receipt of written notice (a “Notice of Recommendation Change”) from the Company advising the Investor that the Company Board intends to take such action and specifying the reasons therefor, including the terms and conditions of the Superior Proposal that is the basis of the proposed action by the Company Board (it being understood and agreed that any amendment to any material term of such Superior Proposal shall require a new Notice of Recommendation Change and a new three (3) Business-Day period). In determining whether to make an Adverse Recommendation Change, the Company Board shall take into account any changes to the terms of this Agreement proposed by the Investor in response to a Notice of Recommendation Change or otherwise.

 

(c)           Nothing contained in this Section 5.3 shall prohibit the Company from taking and disclosing to the Company Shareholders a position required by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act; provided, however, that compliance with such rules shall not in any way limit or modify the effect that any action taken pursuant to such rules has under any other provision of this Agreement, including under Article VIII hereof.

 

  

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(d)           The Company and the Bank each agrees that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal and, between the date hereof and the consummation of the Offer, take such action as is necessary to enforce any “standstill” provisions or provisions of similar effect to which the Company is a party or of which the Company is a beneficiary. The Company and the Bank each agrees that it will take the necessary steps to promptly inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 5.3.  The Company and the Bank each also agrees that each such Party will promptly request each Person that has heretofore executed a confidentiality agreement in connection with its consideration of acquiring or investing in the Company, the Bank or any of the Subsidiaries to return or destroy all confidential information heretofore furnished to such person by or on behalf of it or any of the Subsidiaries; provided, however, that Investor acknowledges that such Persons may be permitted to retain a copy (or copies) of such confidential information in accordance with the terms of the respective confidentiality agreements between the Company and/or Bank and such Person, if any such confidentiality agreement requires that such Person be permitted to retain a copy (or copies) of such confidential information, and then only for the purposes permitted therein and the terms of such Confidentiality Agreement, including, without limitation the parties thereto, are promptly disclosed to the Investor.

 

(e)           The Company and the Bank each agrees that it will promptly (and, in any event, within 24 hours) notify Investor if any inquiries, proposals or offers with respect to an Acquisition Proposal are received by, any such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, the Company, the Bank or any Subsidiary or any of their respective Representatives indicating, in connection with such notice, the name of such person and the material terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) and thereafter shall keep Investor informed, on a current basis, of the status and terms of any such proposals or offers (including any amendments thereto) and the status of any such discussions or negotiations, including any change in the Company’s or the Bank’s intentions as previously notified.  Notwithstanding anything contained herein to the contrary, each of the Company and the Bank agrees that a non-exclusive right and remedy for noncompliance with this Section 5.3 is to have such provision specifically enforced by any court having equity jurisdiction; it being acknowledged and agreed that any such breach will cause irreparable injury to Investor and that money damages may not provide an adequate remedy to Investor.

 

5.4      Access, Information and Confidentiality. From the date hereof until the consummation of the Offer, the Company and the Bank will permit Investor and its Representatives to visit and inspect, at Investor’s expense, the properties of the Company, the Bank and the Subsidiaries, to examine the corporate books and records and to discuss the affairs, finances and accounts of the Company, the Bank and the Subsidiaries with the Representatives of the Company, all upon reasonable notice and at such reasonable times and as often as Purchaser may reasonably request. Any investigation pursuant to this Section 5.4 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, the Bank or any Subsidiary.

 

  

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5.5      D&O Indemnification.

 

(a)      From and after the Closing, in accordance with the Company’s Certificate of Incorporation and bylaws, the Company shall indemnify and provide advancement of expenses to each person who is now, or who becomes after the Closing, an officer or director of the Company, the Bank and any Subsidiary in connection with any claim, action, suit, proceeding or investigation for acts and omissions occurring after the effective time of the Closing based on or arising out of the fact that such person is a director or officer of the Company, the Bank or any Subsidiary.  From and after the Closing, in accordance with its Articles of Incorporation and bylaws, the Bank for its part shall likewise indemnify and provide advancement of expenses to each person who is now, or who becomes after the Closing, an officer or director of the Bank in connection with any claim, action, suit, proceeding or investigation for acts and omissions occurring after the effective time of the Closing based on or arising out of the fact that such person is a director or officer of the Bank.

 

(b)      The Company, the Bank and Investor hereby agree that all rights to indemnification, including the advancement of expenses, now existing in favor of those Persons who are or were directors and officers of the Company and the Bank (the “Indemnified Persons”), including Michael G. Carlton except to the extent otherwise provided in the Indemnification Agreement entered into with the Company and the Bank on the date hereof, for acts and omissions occurring prior to, through and including the effective time of the Closing, as provided in the Company’s and the Bank’s respective Articles of Incorporation and bylaws (as in effect as of the date of this Agreement) and as provided in any employment agreements between the Company and said Indemnified Persons (as in effect as of the date of this Agreement and as disclosed in Section 3.13(a)(ix) of the Company Disclosure Letter), shall survive the Closing and shall be observed by the Company and the Bank, respectively, for any proceeding pending at, or commenced within six (6) years after, the effective time of the Closing.  In furtherance of the foregoing, prior to the Closing, the Company shall purchase tail insurance coverage under its current policies of directors’ and officers’ liability insurance (or a policy with equivalent coverage from another insurer), for a term of six (6) years from the Closing date with respect to claims arising from facts or events which occurred prior to and through and including the Closing; provided, however, that the total premium payment for such insurance shall not exceed three times the amount of the last annual premium paid by the Company in respect of such insurance prior to the date hereof; provided, further, that if the Company is unable to obtain tail insurance coverage (or a policy with equivalent coverage from another insurer) as a result of the preceding proviso, the Company shall obtain as much comparable insurance as is available for such premium amount.

 

5.6      Notice of Certain Events.  Each Party hereto shall promptly notify the other Party hereto of (a) any event, condition, fact, circumstance, occurrence, transaction or other item of which such Party becomes aware after the date hereof and prior to the Closing that would constitute a violation or breach of this Agreement (or a breach of any representation or warranty contained herein) or, if the same were to continue to exist as of the Closing Date, would constitute the non-satisfaction of any of the conditions set forth in Article VII hereof, and (b) any event, condition, fact, circumstance, occurrence, transaction or other item of which such Party becomes aware which would have been required to have been disclosed pursuant to the terms of this Agreement had such event, condition, fact, circumstance, occurrence, transaction or other item existed as of the date hereof.  No disclosure by any Party pursuant to this Section 5.6 shall be deemed to amend or supplement the Company Disclosure Letter or to prevent or cure any misrepresentation or breach of violation of this Agreement.

 

  

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5.7      Public Announcements.  Each of Parties shall consult with the other Parties before issuing any press release or otherwise making any public statement with respect to the transactions contemplated by this Agreement, including, without limitation, communications to the Company’s or Bank’s employees and customers.  Without limiting the generality of the foregoing, no Party shall make any disclosure regarding the transactions contemplated by this Agreement unless (a) the other Parties shall have approved such disclosure, or (b) the disclosing Party shall have been advised by its outside legal counsel that such disclosure is required by applicable Law, in which case the disclosing Party shall use its reasonable best efforts to consult with the other Party before issuing any such release or making any such public statement.

 

5.8      Regulation O Loans.  Between the date hereof and the Closing Date, the Bank will (a) not make additional Loans, or renew any existing Loans, classified as “Insider Transactions” by Regulation O of the Federal Reserve, and (b) not expand the credit under any existing credit Loans classified as “Insider Transactions” by Regulation O; provided that nothing herein shall be deemed to prohibit the funding of any existing credit under any such Loan (including, without limitation, overdraft protection on checking accounts).  In the event the Bank makes or renews a Loan that it reasonably believes is not an “Insider Transaction” under Regulation O and the Bank later learns that such belief was incorrect, the Bank will use its best efforts to work with the applicable borrower on a cancellation of such Loan.

 

5.9      2010 Financial Statements.  Immediately upon its completion, the Company shall deliver to Investor true and correct copies of: (a) the consolidated statements of financial condition of the Company, the Bank and the Subsidiaries as of December 31, 2010 and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity and of cash flows for fiscal year 2010.

 

5.10    Status of Classified Loans.  With regards to Classified Loans defined in Section 3.25(c), the Company and Bank shall promptly after the end of each quarter after the date hereof and upon Closing inform Investor of the amount of Loans subject to each type of classification of the Classified Loans.

 

ARTICLE VI

ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES

 

6.1      Rights Offerings.  If the Company shall, within any 12-month period following the Closing Date and prior to the twenty-four (24)-month anniversary of the Closing Date, consummate one or more Subsequent Placements the gross proceeds of which exceed $10,000,000 in the aggregate (the “Trigger Amount”), then as promptly as reasonably practicable following the expiration of such twelve (12)-month period  the Company shall conduct an offering (a “Rights Offering”) of Common Stock (the “Offered Common Stock”) to the Company Shareholders of record other than Excluded Persons on the following terms:

 

  

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(a)      The Rights Offering shall be made to Company Shareholders of record (other than Excluded Persons) as of a record date (the “Record Date”) fixed by the Company Board as promptly as reasonably practicable following the expiration of such twelve (12) month period, and shall commence as promptly as practicable following the fixing of the Record Date; provided that the Company shall comply with all applicable securities Laws in fixing the Record Date and in making and conducting a Rights Offering; and provided further that the Company Board may elect to delay the fixing of a Record Date and the conduct of a Rights Offering if it determines that the delay is in the best interests of the Company due to market or other conditions, including without limitation pending transactions or other events;

 

(b)      The number of shares of Offered Common Stock offered in a Rights Offering will be equal to the number of shares of Common Stock purchased by the Investor in the Subsequent Placements during such twelve (12)-month period (and if the Investor purchased securities convertible or exercisable for Common Stock, the number of shares of Common Stock into which such securities are convertible or exercisable), divided by the percentage of the Company’s outstanding shares of Common Stock owned by Investor immediately prior to the initial Subsequent Placement pursuant to which, with all other Subsequent Placements in such twelve (12)-month period, the Trigger Amount of gross proceeds was received by the Company less the number of shares of Common Stock purchased by the Investor in the Subsequent Placements during such twelve (12)-month period (and if the Investor purchased securities convertible or exercisable for Common Stock, the number of shares of Common Stock into which such securities are convertible or exercisable).

 

(c)      Each Company Shareholder (other than the Excluded Persons) as of the Record Date shall have the right to purchase a whole number of shares of Offered Common Stock in the Rights Offering as to which such Record Date relates equal to the percentage ownership by such Company Shareholder of all outstanding shares of Common Stock owned by all Company Shareholders on the Record Date other than the Excluded Persons, multiplied by the total number of shares of Offered Common Stock in such Rights Offering.  The right to purchase shares in the Rights Offering will not be transferable by any Company Shareholder unless the Company Board determines otherwise in connection with fixing the terms and conditions of the Rights Offering.

 

(d)      The purchase price for the Offered Common Stock in a Rights Offering shall be equal to the weighted average price per share of Common Stock issued and sold in all Subsequent Placements during the relevant twelve (12)-month period.  If securities other than Common Stock are issued and sold in any Subsequent Placement then for purposes of determining the offering price of Offered Common Stock the price per share of Common Stock in such Subsequent Placement shall be deemed to be equal to the sum of (i) the purchase price of such other security and (ii) the price at which such other securities are exercisable or convertible for Common Stock.

 

(e)      No Company Shareholder shall be permitted to purchase Offered Common Stock to the extent such purchase would result in the ownership by such Person (alone or acting in concert with any other holder of Common Shares) in excess of 4.9% of the outstanding shares of the Common Stock or otherwise require regulatory approval.

 

  

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(f)       The Trigger Amount shall be computed without duplication, and a Subsequent Placement shall be counted only once when computing the Trigger Amount and for purposes of all other computations pursuant to this Section 6.1.

 

(g)      The Company Board shall determine such other terms and conditions of a Rights Offering not inconsistent with this Section 6.1.

 

6.2      Corporate Governance.  At the Closing, the board of directors of the Company, the Bank and Investor shall be constituted as follows, and the Company (with regard to clauses (a) and (b) and the Investor (with regard to clause (c)) shall take such actions prior to the Closing to cause the following:

 

(a)      the Company Board shall be fixed at twelve (12) directors as of the Closing, comprised of (i) the Investor Designees, two additional designees of Investor or, in replacement of any such person listed in this sub-clause (i), any other designee of Investor, and (ii) the Agreed Designees (or, in replacement of any such Agreed Designee, any other designee of the Company approved by the Investor), and the remaining five (5) current members of the Company Board shall have resigned from or otherwise ceased to serve on the Company Board (the “Resigning Directors”); and Mr. Abram shall become Chairman of the Company Board;

 

(b)      the board of directors of the Bank shall be increased to eleven (11), and shall consist of the current members of the Bank’s board of directors, plus Scott Custer and an individual designated by J. Adam Abram; and

 

(c)      the board of directors of Investor shall be comprised of the same persons as the Company Board.

 

6.3      Legend.

 

(a)      Investor agrees that all certificates or other instruments representing the Purchased 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 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)      Upon request of Investor, upon receipt by the Company of an opinion of counsel reasonably satisfactory to the Company to the effect that such legend is no longer required under the Securities Act and applicable state laws, the Company shall promptly cause the legend set forth above to be removed from any certificate for any securities purchased pursuant to this Agreement (or issued upon exercise thereof).

 

  

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6.4      Officers, Employees and Benefit Plans.

 

(a)      At the Closing, the persons set forth on Exhibit E shall be appointed to the positions with the Company or the Bank as set forth next to their name on such exhibit.

 

(b)      To the extent no violation of Section 409A of the Code and no violation of applicable compensation standards or regulations promulgated by the Treasury with regard to TARP, would result, the Company shall, and shall cause the Bank and the relevant individuals to, enter into amendments to the following existing benefit plans: (i) benefit plans (other than any restricted stock awards granted in conformance with TARP compensation restrictions and other than the salary continuation agreements) with all officers and with any other employee subject to TARP compensation restrictions on golden parachute payments, including any existing employment agreements that have change in control benefits (whether or not such benefits would be triggered by the transactions contemplated by this Agreement) shall be amended with respect to unvested amounts to substitute any provisions that provide payment or benefit enhancements contingent either upon a change in control or upon a voluntary resignation following a change in control with provisions that provide payment or benefit enhancements upon an involuntary separation from service within twelve (12) months following a change in control (including a separation from service for “good reason,” as defined by Treasury Regulations Section 1.409A-1(n)(2)(ii), except as may be limited in the following clause (ii)); and (ii) benefit plans (other than any restricted stock awards granted in conformance with TARP compensation restrictions and other than the salary continuation agreements) with all officers, including any existing employment agreements shall be amended to waive with respect to the transactions contemplated by this Agreement only the application of any “good reason” provision and any corresponding entitlement to change in control benefits and gross-up payments that would have arisen from such application to any change in title, position, authority, duties (other than any change in duties that is not reasonably compatible with such officer’s training and experience) or reporting responsibility in such officer’s employment relationship with the Company or the Bank as a result of, or in relation to, the transactions contemplated by this Agreement and provided such contractual agreement or amendment described in this clause (ii) shall not (A) extend to any element of such “good reason” provisions other than change in title, position, authority, duties (other than any change in duties that is not reasonably compatible with such officer’s training and experience) or reporting responsibility, (B) waive any rights to change in control benefits and gross-up payments in the event of a termination of such officer’s employment other than pursuant to such “good reason” provision expressly waived herein, and (C) waive the fact that the transactions contemplated by this Agreement constitute a change in control for purposes of the first trigger of any double trigger provision.

 

  

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(c)      Prior to the Closing, the Bank shall have amended, and shall obtain the express written consent of each executive of the Bank who is a party to a salary continuation agreement with the Bank to the amendment of each of the salary continuation agreements in favor of, such persons so that the amount of the benefit payable under each salary continuation agreement shall be the “Accrual Balance,” as defined by and determined in accordance with, each such agreement as of April 30, 2011 (and so that no increase to each such Accrual Balance will occur from and after such date on account of (A) the accrual process otherwise described under each such agreement prior to its amendment, (B) the consummation of the transaction contemplated by this Agreement or (C) otherwise).  As soon as legally permissible following Closing, taking into consideration applicable compensation restrictions and regulations promulgated by the Treasury with regard to TARP and the golden parachute prohibitions under 12 C.F.R. 359 et seq., the Bank will terminate all salary continuation agreements (as permitted under Section 409A of the Code following a change in control) and pay each executive his respective Accrual Balance, to the extent vested, as such was frozen as of April 30, 2011.  Prior to any such payment, the salary continuation agreements, the Accrual Balances of which have been frozen as of April 30, 2011, shall be amended, as necessary, so that each executive not already 100% vested shall be 100% vested in such Accrual Balance, unless such accelerated vesting is prohibited by applicable Law.

 

(d)      Prior to the Closing, the endorsement split dollar endorsement agreements between each of Michael G. Carlton, Bruce W. Elder, and Thomas E. Holder, Jr. will be amended to clarify that the Bank will not be permitted to terminate such agreements during the respective employee’s employment without the agreement of the respective employee.

 

6.5      The Offer.

 

(a)      Within five (5) Business Days following the date that the final Required Approval is received, Investor shall commence (within the meaning of Rule 14d-2 under the Exchange Act)) the Offer.

 

(b)      The obligation of the Investor to accept for payment and pay for any Shares validly tendered and not validly withdrawn pursuant to the Offer shall be subject only to: (i) the Closing having occurred (the “Closing Condition”); and (ii) the satisfaction, or waiver by Investor, of the other conditions and requirements set forth in Annex A (together with the Closing Condition, the “Offer Conditions”) (and shall not be subject to any other conditions). Subject to the prior satisfaction of the Closing Condition and the satisfaction, or waiver by Investor, of the other Offer Conditions, Investor shall consummate the Offer in accordance with its terms and accept for payment and pay for all Shares validly tendered and not validly withdrawn pursuant to the Offer as promptly as practicable after the Expiration Time.  The Offer Price payable in respect of each Share validly tendered and not validly withdrawn pursuant to the Offer shall be paid in cash, without interest, on the terms and subject to the conditions set forth in this Agreement.  Notwithstanding anything to the contrary contained herein, if more than 6,442,105 Shares are tendered and not validly withdrawn prior to the Expiration Time, all Shares accepted for payment shall be purchased on a pro rata basis in accordance with Rule 14d-8 promulgated under the Exchange Act.

 

(c)      The Offer shall be made by means of an offer to purchase (the “Offer to Purchase”) that describes the terms and conditions of the Offer as set forth in this Agreement, including the Offer Conditions. Investor expressly reserves the right (in its sole discretion) to waive, in whole or in part, any Offer Condition or to increase the Offer Price; provided, however, that unless otherwise provided by this Agreement or as previously approved in writing by the Company, Investor shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the Offer Price, (iii) change, modify or waive the Closing Condition, (iv) add to the conditions set forth in Annex A or otherwise impose any other condition to the Offer, (v) except as otherwise provided in this Section 6.5, extend or otherwise change the expiration date of the Offer, (vi) change the form of consideration payable in the Offer or (vii) otherwise amend, modify or supplement any of the terms of the Offer.

 

  

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(d)      The Offer shall expire at midnight (New York City time) on the date that is twenty (20) Business Days following the commencement (within the meaning of Rule 14d-2 under the Exchange Act) of the Offer (the “Initial Expiration Time”) or, in the event the Initial Expiration Time has been extended pursuant to this Agreement, the date and time to which the Offer has been so extended (the Initial Expiration Time, or such later date and time to which the Initial Expiration Time has been extended pursuant to this Agreement, is referred to as the “Expiration Time”).

 

(e)      Notwithstanding anything in this Agreement to the contrary, but subject to the Parties’ respective rights to terminate this Agreement under Article VIII, if applicable, Investor (i) may, in its sole discretion, without consent of the Company or the Bank, extend the Offer on one or more occasions for periods of up to ten (10) Business Days per extension, if on any then-scheduled Expiration Time the Closing Condition or any of the Offer Conditions shall not be satisfied or, in Investor’s sole discretion, waived, until such time as such condition or conditions are satisfied or waived, and (ii) shall extend the Offer for any period required by applicable Law, any interpretation or position of the SEC, the staff thereof or the NASDAQ applicable to the Offer.

 

(f)      On the terms and subject to the conditions of this Agreement, Investor shall accept and pay for (subject to any withholding or deduction from the Offer Price otherwise payable pursuant to this Agreement such amounts as are required to be withheld or deducted under the Code or any provision of U.S. state, local or foreign Law with respect to the making of such payment) all Shares validly tendered and not validly withdrawn pursuant to the Offer as soon as practicable after the Expiration Time (as it may be extended and re-extended in accordance with this Section 6.5). Acceptance for payment of Shares pursuant to and subject to the Offer Conditions upon the Expiration Time is referred to in this Agreement as the “Offer Closing”, and the date on which the Offer Closing occurs is referred to in this Agreement as the “Offer Closing Date”. Investor expressly reserves the right to, in its sole discretion, following the Offer Closing, extend the Offer for a “subsequent offering period” (and one or more extensions thereof) in accordance with Rule 14d-11 under the Exchange Act, and the Offer Documents may, in Investor’s sole discretion, provide for such a reservation of right.  Nothing contained in this Section 6.5 shall affect any termination rights in Article VIII, as to the Agreement, or in Annex A, as to the Offer.

 

(g)      Investor shall not terminate the Offer prior to any scheduled Expiration Time without the prior written consent of the Company except in the event that this Agreement is terminated pursuant to Article VIII.

 

  

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(h)      As soon as practicable on the date of the commencement of the Offer, Investor shall file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer (together with all amendments, supplements and exhibits thereto, the “Schedule TO”). The Schedule TO shall include, as exhibits, the Offer to Purchase and a form of letter of transmittal and summary advertisement (such Schedule TO and the documents included therein pursuant to which the Offer will be made, together with any amendments and supplements thereto, the “Offer Documents”). The Company shall furnish to Investor no later than ten (10) Business Days after the date of request all information concerning the Company requested by, and deemed required under the Exchange Act by, the Investor to be set forth in the Offer Documents. Investor agrees to take all steps necessary to cause the Offer Documents to be filed with the SEC and, immediately following such filing, disseminated to the stockholders of the Company, together with, to the extent requested by the Company, the Schedule 14D-9, in each case as and to the extent required by the Exchange Act. Investor, on the one hand, and the Company, on the other hand, agrees to correct promptly any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect or as otherwise required by applicable Law. Investor further agrees to take all steps necessary to cause the Offer Documents, as so corrected (if applicable), to be filed with the SEC and, immediately following such filing, disseminated to the stockholders of the Company, in each case as and to the extent required by the Exchange Act. Investor shall promptly notify the Company upon the receipt of any comments from the SEC, or any request from the SEC for amendments or supplements, to the Offer Documents, and shall promptly provide the Company with copies of all correspondence between them and their representatives, on the one hand, and the SEC, on the other hand and shall give the Company and its counsel a reasonable opportunity to participate in the response of Investor to those comments and to provide comments on any response and Investor shall give reasonable consideration to any such comments. Prior to the filing of the Offer Documents (including any amendments or supplements thereto) with the SEC or dissemination thereof to the stockholders of the Company, or responding to any comments of the SEC with respect to the Offer Documents, Investor shall provide the Company and its counsel a reasonable opportunity to review and comment on such Offer Documents or response, and Investor shall give reasonable consideration to any such comments.

 

6.6      Company Actions.

 

(a)      On the date the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (together with all amendments, supplements and exhibits thereto, the “Schedule 14D-9”) that shall, except as expressly provided in Section 5.3, contain the Company Recommendation with respect to the Offer. The Company agrees to take all steps necessary to cause the Schedule 14D-9 to be prepared and filed with the SEC and, immediately following such filing, subject to Section 6.5(h), disseminated to the stockholders of the Company, in each case as and to the extent required by the Exchange Act. Investor shall within ten (10) Business Days after the date hereof furnish to the Company all information concerning Investor required by the Exchange Act to be set forth in the Schedule 14D-9. The Company, on the one hand, and Investor, on the other hand, agree to correct promptly any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect or as otherwise required by applicable Law. The Company further agrees to take all steps necessary to cause the Schedule 14D-9, as so corrected (if applicable), to be filed with the SEC and, immediately following such filing, disseminated to the stockholders of the Company, in each case as and to the extent required by the Exchange Act. The Company shall promptly notify Investor upon the receipt of any comments from the SEC, or any request from the SEC for amendments or supplements, to the Schedule 14D-9, and shall promptly provide Investor with copies of all correspondence between it and its representatives, on the one hand, and the SEC, on the other hand and shall give the Investor and their counsel a reasonable opportunity to participate in the response of the Company to those comments and to provide comments on any response, and the Company shall give reasonable consideration to any such comments. Prior to the filing of the Schedule 14D-9 (including any amendments or supplements thereto) with the SEC or dissemination thereof to the stockholders of the Company, or responding to any comments of the SEC with respect to the Schedule 14D-9, the Company shall provide Investor and its counsel a reasonable opportunity to review and comment on such Schedule 14D-9 or response, and the Company shall give reasonable consideration to any such comments.  The Company hereby consents to the inclusion in the Offer Documents of the Company Recommendation contained in the Schedule 14D-9.

 

  

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(b)      In connection with the Offer, the Company shall promptly (and in any event within three (3) Business Days following the filing of the Preliminary Proxy Statement and request by Investor) furnish or cause to be furnished to Investor mailing labels, security position listings and any other available listings or computer files containing the names and addresses of the record holders or beneficial owners of the Shares as of the most recent practicable date, and shall promptly furnish Investor with such information and assistance (including lists of record holders or beneficial owners of the Shares, updated from time to time upon Investor’s or any of its Representatives’ request, and the addresses, mailing labels and lists of security positions of such record holders or beneficial owners) as Investor or any such Representatives may reasonably request for the purpose of communicating the Offer to the record holders and beneficial owners of the Shares. Such information shall be considered Confidential Information pursuant to, and as defined in, the Confidentiality Agreement.

 

6.7      Tax Sharing Agreement.  Following the consummation of the Offer (and payment by Investor of Shares validly tendered), if Investor shall own a sufficient amount of shares of Company Stock so that Investor and Company are eligible to file a U.S. Federal consolidated return, then Investor and the Company shall enter into a tax sharing agreement substantially in the form attached hereto as Exhibit F.

 

6.8      Competition and Corporate Opportunities.

 

(a)      In recognition and anticipation that (i) certain directors, principals, officers, shareholders, employees and/or other representatives of the Investor and its Business Opportunity Affiliates may serve as directors or officers of the Company and/or the Bank, (ii) the Investor and its Business Opportunity Affiliates may now engage and may continue to engage in and have and/or acquire an interest in the same or similar activities or related lines of business as those in which the Company and/or the Bank, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Company and/or the Bank, directly or indirectly, may engage, and (iii) members of the Company Board and/or the board of directors of the Bank who are not employees of either such entity (“Non-Employee Directors”) may now engage and may continue to engage in and have and/or acquire an interest in the same or similar activities or related lines of business as those in which the Company and/or the Bank, directly or indirectly, may engage or propose to engage and/or other business activities that overlap with or compete with those in which the Company and/or the Bank, directly or indirectly, may engage or propose to engage, the provisions of this Section 6.8 are set forth to regulate and define the conduct of certain affairs of the Company and/or the Bank with respect to certain classes or categories of business opportunities as they may involve the Investor, the Non-Employee Directors or their respective Business Opportunity Affiliates and the powers, rights, duties and liabilities of the Company and/or the Bank and their respective directors, officers and stockholders in connection therewith. In furtherance of the foregoing, the Company and the Bank each renounces any interest or expectancy in, or in being offered the opportunity to participate in, any corporate opportunity not allocated to it pursuant to this Section 6.8 to the fullest extent permitted by Law.

 

  

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(b)      None of (i) the Investor or any of its Business Opportunity Affiliates or (ii) any Non-Employee Director or his or her Business Opportunity Affiliates (the Persons identified in (i) and (ii) above being referred to, collectively, as the “Identified Persons” and, individually, as an “Identified Person”) shall have any duty to refrain from directly or indirectly (x) engaging in a corporate opportunity in the same or similar business activities or lines of business in which the Bank or any of its Business Opportunity Affiliates now engages or proposes to engage or (y) otherwise competing with the Company and/or the Bank, and no Identified Person shall be liable to the Company and/or the Bank, or any of their respective stockholders for breach of any fiduciary duty solely by reason of the fact that such Identified Person engages in any such activities. In the event that any Identified Person acquires knowledge of a potential transaction or other business opportunity or matter which may be a corporate opportunity for itself or himself (or for the benefit of such Identified Person’s Business Opportunity Affiliates) and the Company and/or the Bank or any of its Business Opportunity Affiliates, such Identified Person shall have no duty to communicate or offer such transaction or other business opportunity or matter to the Company and/or the Bank or any of their respective Business Opportunity Affiliates and shall not be liable to the Company and/or the Bank or any of their stockholders for breach of any fiduciary duty as a stockholder, director or officer of the Company and/or the Bank solely by reason of the fact that such Identified Person pursues or acquires such corporate opportunity for itself or himself (or for the benefit of such Identified Person’s Business Opportunity Affiliates), offers or directs such corporate opportunity to another Person, or does not communicate information regarding such corporate opportunity to the Investor.

 

(c)      Notwithstanding Sections 6.8(a) and 6.8(b) above, in the event that a director or officer of the Investor acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both the Company and/or the Bank and such director or officer, such director or officer shall to the fullest extent permitted by Law have fully satisfied and fulfilled his or her fiduciary duty with respect to such corporate opportunity, and the Company and/or the Bank, as applicable, to the fullest extent permitted by Law waives and renunciates any claim that such business opportunity constituted a corporate opportunity that should have been presented to the Company and/or the Bank or any of its Business Opportunity Affiliates, if such director or officer acts in a manner consistent with the following policy:

 

(i)           in the event a corporate opportunity is offered to any Person who is an officer or director of the Company and/or the Bank (and who is not also a director, principal, partner, member, officer, employee and/or other representative of any of the Investor or its Business Opportunity Affiliates), such opportunity shall belong to the Company and/or the Bank, as applicable, and such person who received such corporate opportunity shall satisfy his or her fiduciary obligation, if any, by promptly communicating the corporate opportunity to the Company Board and/or the board of directors of the Bank, as applicable; and

 

  

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(ii)          in the event a corporate opportunity is offered to any person who is an officer or director of the Company and/or the Bank (and who is also a director, principal, partner, member, officer, employee and/or other representative of any of the Investor or its Business Opportunity Affiliates), such opportunity shall belong to the Investor or its Business Opportunity Affiliates, as applicable, of which such person is a director, principal, partner, member, officer, employee and/or other representative, unless such opportunity was expressly and solely offered to such person in writing in his or her capacity as a director or officer of the Company and/or the Bank, as applicable, for the expressed purpose of causing such opportunity to be communicated to the Company and/or the Bank, as applicable, in which case, such person shall satisfy his or her fiduciary obligation, if any, by promptly delivering the written opportunity to the Company Board and/or the board of directors of the Bank, as applicable.

 

If, in the case of Section 6.8(c)(ii), (x) the Company Board and/or the board of directors of the Bank, as applicable, fails to deliver written notice (which notice shall indicate that the Company and/or the Bank, as applicable, will, in good faith, pursue or engage in such corporate opportunity within six months from the date the Company Board or the board of directors of the Bank made such determination) to the person who delivered the written opportunity to the applicable board of directors within 10 Business Days following receipt thereof, or (y) the Company and/or the Bank, as applicable, has failed to pursue or engage in such corporate opportunity within six months from the date such board of directors made a determination to pursue such corporate opportunity, then, in the case of clause (x) and (y), such person who delivered the written opportunity to the Company Board and/or the board of directors of the Bank, as applicable, and such person’s Business Opportunity Affiliates (including the Investor, of which such person is a director, principal, partner, member, officer, employee and/or other representative) may pursue or engage in such corporate opportunity and the provisions of Section 6.8(b) shall be applicable mutatis mutandis with respect to such corporate opportunity.

 

(d)      Any Person purchasing or otherwise acquiring any interest in any shares of capital stock of the Bank shall be deemed to have notice of and to have consented to the provisions of this Section 6.8.

 

(e)      Notwithstanding the foregoing, nothing in this Section 6.8 shall be construed to permit any officer or director of the Company and/or the Bank to utilize or disclose to third parties information obtained from the Company and/or the Bank, as applicable or from third parties to the extent obtained in their capacities as officers or directors of the Company and/or the Bank, as applicable.

 

  

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ARTICLE VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES

 

7.1      Conditions to Obligations of Parties.  The obligations of the Investor, on the one hand, and the Company and the Bank, on the other hand, to consummate the Closing is subject to the fulfillment or written waiver by the Investor and the Company and Bank prior to the Closing of the following conditions:

(a)      No Orders; Actions.  No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity that prohibits or restrains any of the transactions contemplated hereby and no Action shall have been commenced by any Governmental Entity that seeks to restrain or alter the transactions contemplated hereby that in the reasonable good faith determination of the Company, the Bank or Investor would render it unlawful to consummate the transactions contemplated by this Agreement;

 

(b)      Required Approvals.  Any Required Approvals required to consummate the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect as of the Closing Date;

 

(c)      Required Company Shareholder Vote.  The Required Shareholder Vote shall have been obtained;

 

7.2      Conditions to Obligations of Investor.  The obligation of Investor to purchase the Purchased Shares and effect the Closing shall be subject to the following conditions, except to the extent waived in writing by Investor:

 

(a)      Representations and Warranties of the Company and the Bank.  All representations and warranties of the Company and the Bank contained in this Agreement shall be true and correct (without regard to materiality or Material Adverse Effect qualifiers contained therein), both individually and in the aggregate, except where the failure of such representations and warranties to be so true and correct, individually or in the aggregate, has not had and would not be reasonably expected to have a Material Adverse Effect (other than the representations and warranties set forth in Sections 3.1, 3.4, 3.18, 3.20, 3.27 and 3.29, which shall be true and correct in all material respects) as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent any such representation and warranty expressly relates to a specified earlier date, in which case such representation and warranty need only be true and correct as of such specified earlier date);

 

(b)      Agreements, Covenants and Conditions of the Company and the Bank.  Each of the Company and the Bank shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing;

 

(c)      No Material Adverse Effect.  Since September 30, 2010, no fact, event, change, condition, development, circumstance or effect shall have occurred that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect;

 

(d)      Officer’s Certificates.  Investor shall have received a certificate signed on behalf of each of the Company and the Bank by a senior executive officer of the Company and Bank, respectively, certifying to the effect that the conditions set forth in Sections 7.2(a) and 7.2(b) have been satisfied;

 

  

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(e)      No Burdensome Condition.  (i) No Required Approval issued by any Governmental Entity shall impose or contain any material restraint, condition, change or requirement, and (ii) no Law, regulation, policy, consent order, interpretation or guidance shall have been enacted, issued, promulgated, enforced or entered by a Governmental Entity since the date of this Agreement, that, in the case of clause (i) and clause (ii), individually or in the aggregate, is adverse to Investor or any of its Affiliates or any equity holders of its Affiliates in any material respect (in the case of clause (ii), “adverse” shall mean substantially reducing the benefit or increasing the burden of the transactions contemplated hereby), as solely determined by Investor in its reasonable and good faith judgment (any material restraint, condition, change, requirement, Law, regulation, policy, interpretation or guidance of the type described in this Section 7.2(e), a “Burdensome Condition”); provided, however, for purposes of this Section 7.2(e), the definition of Affiliate shall be further limited to subsidiaries of Investor and those Persons who, together with their Affiliates (which defined term shall not be modified by this proviso), have at least a four and nine-tenths percent (4.9%) equity interest in Investor either individually or in the aggregate;

 

(f)      Board Representation.  The Company Board and the board of directors of the Bank shall have been reconstituted as set forth in Section 6.2 hereof.  Investor shall have received copies of corporate resolutions (i) validly adopting the bylaws of the Company set forth on Exhibit G attached hereto, (ii) reconstituting the Company Board to consist of 12 members and (iii) appointing the Investor Designees and the two additional designees of Investor or, in replacement of any such Investor Designee or additional designee of Investor, any other designee of Investor, and accepting the resignations of the Resigning Directors and appointing Mr. Custer and the other designee to the board of directors of the Bank.  Not less than ten (10) Business Days prior to the Closing, Investor shall provide to the Bank a list of the designees for election to the Company Board;

 

(g)      D&O Insurance.  The Company shall furnish evidence that it shall have obtained directors and officers liability insurance, as necessary to comply with Section 5.5 hereof;

 

(h)      NASDAQ.  The existing shares of Common Stock shall have been continually listed on the NASDAQ as of and from the date of this Agreement through the Closing Date, and (ii) the shares of Common Stock to be issued as Purchased Shares shall be approved for listing (subject only to official notice of issuance) on the NASDAQ as of the Closing Date;

 

(i)      Employee Benefit Agreements.

 

(i)           The Employment Agreements entered into by the Affected Executives on the date hereof shall be in full force and effect;

 

(ii)          Each Specified Executive shall have provided the consents and executed and delivered the amendments described in Section 6.4(c), and such amendments shall be in full force and effect;

 

  

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(iii)         Apart from the agreements and amendments described in clauses (i) and (ii) above, all other amendments to agreements described in Sections 6.4(b) and 6.4(c) shall have been executed and delivered by the applicable parties; provided, however, (A) if an executive who is not a Specified Executive is unwilling to agree to any amendment described in Section 6.4(b), including but not limited to an amended employment agreement, such executive shall receive the change in control payments to which they are entitled under such unamended contractual agreement(s) and Benefit Plan(s) in accordance with the terms of such arrangements and Section 409A of the Code; and (B) if an executive other than a Specified Executive is unwilling to agree to any amendment or consent described in Section 6.4(c), such executive shall receive the benefit payable on termination of such unamended salary continuation agreement after Closing in accordance with the terms of such unamended salary continuation agreement, unless the payments in clause (A) or (B) to such executive are forfeited as required by Sections 111 and 302 of the Emergency Economic Stabilization Act of 2008, as amended by the U.S. American Recovery and Reinvestment Act of 2009, including all guidance issued thereunder by a Governmental Entity (collectively “EESA”), or other applicable regulations promulgated by the Treasury with respect to TARP;

 

(j)      Indemnification Agreement.  The Indemnification Agreement shall be in full force and effect and shall not have been amended;

 

(k)      Material Contract.  Investor shall have received the consents from the third parties to the Material Contracts listed on Section 3.5 of the Company Disclosure Letter, in a form reasonably satisfactory to Investor and copies thereof shall have been delivered to Investor;

 

(l)      Voting Agreements.  The Voting Agreements entered into by each of the Agreed Designees and Investor shall be in full force and effect;

 

(m)     Reincorporation.  The Company shall have been reincorporated into a Delaware corporation by way of the Reincorporation Merger, and as part of such transaction, shall have adopted the Certificate of Incorporation and the amended and restated bylaws substantially in the form attached hereto as Exhibits G; and

 

(n)      Closing Deliveries.  Investor shall have received the items referred to in Sections 2.3(b) and 2.3(c)

 

7.3      Conditions to Obligations of the Company and the Bank.  The obligation of the Company and the Bank to effect the Closing shall be subject to the following conditions, except to the extent waived in writing by the Company or the Bank:

 

(a)      Representations and Warranties of Investor.  All representations and warranties of Investor contained in this Agreement shall be true and correct (without regard to materiality or material adverse effect qualifiers contained therein) in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to the extent any such representation and warranty expressly relates to a specified earlier date, in which case such representation and warranty need only be true and correct as of such specified earlier date, and except where the failure of any such representation or warranty to be true and correct would not, individually or in the aggregate, impair in any material respect the ability of Investor to consummate the transactions contemplated by this Agreement;

 

(b)      Agreements, Covenants and Conditions of Investor.  Investor shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date;

 

  

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(c)      Officer’s Certificates.  The Company shall have received a certificate signed on behalf of Investor by a senior executive officer of Investor certifying to the effect that the conditions set forth in Sections 7.3(a) and 7.3(b) have been satisfied; and

 

(d)      Board Representation.  Four designees of the Company, mutually agreeable to the Investor, shall have been appointed to the board of directors of the Investor, and the Company shall have received copies of corporate resolutions (i) reconstituting the board of directors of the Investor to consist of 12 members and (ii) appointing the Agreed Designees or such other designees of the Company as shall have been mutually agreed by the Company and the Investor and accepting the resignations of any necessary directors from the board of directors of the Investor.

 

ARTICLE VIII

TERMINATION PRIOR TO CLOSING

 

8.1      Termination.  Anything herein to the contrary notwithstanding, this Agreement and the transactions contemplated by this Agreement may be terminated at any time before the Closing as follows and in no other manner:

 

(a)      by mutual written agreement of the Company, the Bank and Investor;

 

(b)      by Investor, upon written notice to the Company and the Bank, or by the Company, upon written notice to Investor, in the event that the Closing Date does not occur on or before the date that is nine (9) months from the date hereof; provided, however, that the respective rights to terminate this Agreement pursuant to this Section 8.1(b) shall not be available to any party whose failure (or, in the case of the Company, the failure of the Bank) to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing Date to occur on or prior to such date;

 

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

 

(d)      by the Company, if neither the Company nor the Bank is in breach of any of the terms of this Agreement, and there has been a breach of any representation, warranty, covenant or agreement made by Investor in this Agreement, or any such representation and warranty shall have become untrue after the date of this Agreement, such that the condition set forth in Section 7.3(a) or (b) would not be satisfied and such breach is not curable or, if curable, is not cured within thirty (30) days after written notice thereof is given by the Company to Investor;

 

(e)      by Investor, if Investor is not in breach of any of the terms of this Agreement, and there has been a breach of any representation, warranty, covenant or agreement made by the Company or the Bank in this Agreement, or any such representation and warranty shall have become untrue after the date of this Agreement, such that the condition set forth in Section 7.2(a) or (b) would not be satisfied and such breach is not curable or, if curable, is not cured within thirty (30) days after written notice thereof is given by Investor to the Company and the Bank;

 

  

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(f)      by Investor on or prior to the day before the date of the Shareholder Meeting (as may be adjourned or postponed), if the Company or the Bank shall have breached the covenants contained in Section 5.3 hereof or if the Company Board shall have made any Adverse Recommendation Change; and

 

(g)      by Investor or the Company, if the approval of the Required Company Shareholder Vote is not obtained at the Shareholder Meeting.

 

8.2      Effects of Termination.  In the event of any termination of this Agreement as provided in Section 8.1, subject to Section 8.3, this Agreement (other than Articles VIII and IX, which shall remain in full force and effect) shall forthwith become wholly void and of no further force and effect; provided that nothing herein shall relieve any Party from liability for fraud or for a breach of this Agreement.

 

8.3      Fees.

 

(a)      If an Adverse Recommendation Change becomes public, the Required Shareholder Vote is not obtained, and this Agreement is terminated pursuant to Section 8.1(e) or (f), then the Company and the Bank shall be jointly and severally obligated to pay to Investor an amount equal to the Expense Reimbursement promptly, but in any event not later than two (2) Business Days, following such termination.

 

(b)      If this Agreement is terminated pursuant to Sections 8.1(e), (f) or (g), and (i) within eighteen (18) months of the date the Agreement was terminated, the Company and/or the Bank consummates a transaction with the party making a Superior Proposal, or (ii) within twelve (12) months of the date the Agreement was terminated, the Company and/or the Bank consummates any other transaction, in each case that constitutes an Acquisition Proposal, then the Company and the Bank shall be jointly and severally obligated to pay to Investor an amount equal to the Termination Fee promptly, but in any event not later than two (2) Business Days, following the consummation of such transaction.  For purposes of clarity, Investor may be eligible to receive the payment provided for in both Sections 8.3(a) and (b) if the criteria in each Section is satisfied.

 

(c)      (i)  If this Agreement is terminated pursuant to Section 8.1(d), Investor shall be obligated to pay to the Company an amount equal to the Expense Reimbursement in respect of the Company’s and the Bank’s out-of-pocket expenses incurred in connection with this Agreement and the transactions contemplated hereby promptly, but in any event not later than two (2) Business Days, following such termination.

 

(ii)           If this Agreement is terminated pursuant to Section 8.1(e), the Company and the Bank shall be jointly and severally obligated to pay to Investor an amount equal to the Expense Reimbursement promptly, but in any event not later than two (2) Business Days, following such termination.

 

  

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(d)      To the extent not paid when due, any amount payable pursuant to this Section 8.3 shall accrue interest at a rate equal to eighteen percent (18%) per annum or, if lower, the maximum rate allowable by Law.

 

(e)      Each of the Company, the Bank and Investor acknowledges that the agreements contained in this Section 8.3 are an integral part of the transactions contemplated by this Agreement. The amounts payable pursuant to this Section 8.3 constitute liquidated damages and not a penalty and shall be the sole monetary remedy in the event a Termination Fee, Expense Reimbursement by the Company or Expense Reimbursement by Investor is paid in connection with a termination of this Agreement on the bases specified in this Section 8.3. In the event that the Company or the Bank shall fail to make any payment pursuant to this Section 8.3 when due, the Company and the Bank shall be jointly and severally obligated to reimburse Investor for all reasonable expenses actually incurred or accrued by Investor (including reasonable expenses of counsel) in connection with the collection under and enforcement of this Section 8.3. In the event Investor fails to make any payment pursuant to this Section 8.3 when due, Investor shall be obligated to reimburse the Company and the Bank for all reasonable expenses actually incurred or accrued by the Company and the Bank (including reasonable expenses of counsel) in connection with the collection under and enforcement of this Section 8.3.

 

ARTICLE IX

GENERAL

 

9.1      Usage.  All terms defined herein have the meanings assigned to them herein for all purposes, and such meanings are equally applicable to both the singular and plural forms of the terms defined.  “Include,” “includes” and “including” shall be deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of like import.  “Writing,” “written” and comparable terms refer to printing, typing, lithography and other means of reproducing words in a visible form.  Any Law defined or referred to herein means such Law as from time to time amended, modified or supplemented by succession of comparable successor Laws.  References to a Person are, unless the context otherwise requires, also to its successors and assigns.  “Shall” and “will” have equal force and effect.  “Hereof,” “herein,” “hereunder” and comparable terms refer to the entire instrument in which such terms are used and not to any particular article, section or other subdivision thereof or attachment thereto.  References to “the date of this Agreement,” “the date hereof” or words of like import shall mean February 23, 2011.  References in an instrument to “Article,” “Section” or another subdivision or to an attachment are, unless the context otherwise requires, to an article, section or subdivision of or an attachment to such instrument.  References to any gender include, unless the context otherwise requires, references to all genders, and references to the singular include, unless the context otherwise requires, references to the plural and vice versa.

 

9.2      Costs and Expenses.  Except as provided in Section 8.3, each Party hereto shall bear its own costs and expenses in connection with the due diligence, negotiation and preparation of this Agreement and actions taken to consummate the transactions contemplated hereby, including fees and expenses of counsel, consultants, accounting and regulatory filing fees and out-of-pocket-expenses, whether or not the transactions contemplated hereby are consummated.

 

  

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9.3      Survival.  All covenants and agreements, other than those that by their terms apply in whole or in part after the Closing, shall terminate following the consummation or termination of the Offer.  The representations and warranties of the Company and the Bank made herein or in any certificates delivered in connection with the Closing shall survive until the date that is the one year anniversary of the Closing Date.

 

9.4      Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the Laws of any jurisdiction other than the State of North Carolina.

 

9.5      Consent to Jurisdiction.  Each Party hereto irrevocably submits to the exclusive jurisdiction of any state or Federal court located within the County of Wake in the State of North Carolina for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby, and agrees to commence any such action, suit or proceeding only in such courts.  Each Party further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth herein shall be effective service of process for any such action, suit or proceeding.  Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in such courts, and hereby irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.  EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

 

9.6      Successors and Assigns.  This Agreement may not be assigned by either Party without the prior written consent of the other Party.  Subject to the foregoing, all of the terms and provisions of this Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and permitted assigns.

 

9.7      Notices.  All notices and other communications under this Agreement must be in writing and delivered personally, sent by facsimile transmission (which is electronically confirmed), mailed by first class registered or certified mail, return receipt requested and prepaid, or sent by a nationally recognized overnight courier service, such as FedEx, to the Parties at the addresses set forth below (or at such other address for a Party as shall be specified by like notice).  Notices will be deemed to have been given hereunder (a) when delivered personally to the recipient, (b) one Business Day after being sent to the recipient by a nationally recognized overnight courier service for overnight delivery (charges prepaid), (c) upon machine generated acknowledgment of receipt after transmittal by facsimile if so acknowledged to have been received before 5:00 p.m. on a business day at the location of receipt and otherwise on the next following business day, provided that such notice, demand or other communication is also deposited within 24 hours thereafter with a reputable overnight courier service (charges prepaid) for delivery to the same Person, or (d) five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid.

 

  

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(i)           if to the Company, to:

 

Crescent Financial Corporation

1005 High House Road

Cary, North Carolina 27513

Attention:  Michael G. Carlton

Facsimile No.:  (919) 460-2528

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

 

Gaeta & Eveson, P.A.

700 Spring Forest Road

Suite 335

Raleigh, NC 27609

Attention: Anthony Gaeta, Jr.

Facsimile No.: (919) 518-2146

(ii)          if to the Bank, to:

 

Crescent State Bank

1005 High House Road

Carey, North Carolina 27513

Attention:  Michael G. Carlton

Facsimile No.:  (919) 460-2528

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

 

Gaeta & Eveson, P.A.

700 Spring Forest Road

Suite 335

Raleigh, NC 27609

Attention: Anthony Gaeta, Jr., Esq.

Facsimile No.: (919) 518-2146

 

(iii)         if to Investor, to :

 

Piedmont Community Bank Holdings, Inc.

4350 Lassiter at North Hills

Suite 330

Raleigh, NC 27609

Attention:  Scott Custer, Chief Executive Officer

Facsimile No.:  (919) 784-0029

 

  

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with copies to (which shall not constitute notice):

 

Bryan Cave LLP

1290 Avenue of the Americas

New York, NY 10104

Attention:  Kenneth Henderson, Esq.

Facsimile No.: (212) 541-1357

9.8        Severability.  If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any Party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by such provision or its severance herefrom and (d) in lieu of such provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such provision as may be possible.

 

9.9        Representation by Counsel; No Inferences.  The Parties each acknowledge that each Party has been represented by counsel in connection with this Agreement and the transactions contemplated hereby.  Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in any portions of this Agreement against the Party that drafted it has no application and is expressly waived.  If any provision of this Agreement is, in the judgment of the trier of fact, ambiguous or unclear, that provision shall be interpreted in a reasonable manner to effect the intent of the Parties.

 

9.10      Divisions and Headings.  The divisions of this Agreement into sections and subsections and the use of captions and headings in connection therewith are solely for convenience and shall have no legal effect in construing the provisions of this Agreement.

 

9.11      No Third-Party Beneficiaries.  Nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  Nothing in this Agreement is intended to relieve or discharge the obligation of any third person to any Party to this Agreement.

 

9.12      Amendment and Waiver.  This Agreement and any Exhibit attached hereto may be amended only by agreement in writing of all Parties.  No waiver of any provision nor consent to any exception to the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the Party to be bound and then only to the specific purpose, extent and instance so provided.  No failure on the part of any Party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right.

 

9.13      Exhibits.  Each Exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement.

 

  

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

 

9.15      Counterparts.  This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different Parties in separate counterparts.  All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each Party and delivered to the other Party.

 

9.16       Entire Agreement.  This Agreement (including the Exhibits hereto, which are incorporated herein by reference and made a part hereof) and the Company Disclosure Letter constitutes the entire agreement between the Parties hereto with respect to the subject matter hereof and supersedes any prior understandings, agreements or representations by or between the Parties hereto, written or oral, with respect to such subject matter (other than the Confidentiality Agreement; provided, however, if there shall exist any conflict between this Agreement and the Confidentiality Agreement, the terms of this Agreement shall govern).

 

9.17       Specific Performance; Limitation on Damages.

 

(a)      The Company and the Bank agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by them in accordance with their specific terms.  It is accordingly agreed that Investor shall be entitled to seek specific performance of the terms hereof, this being in addition to any other remedies to which Investor is entitled at law or equity.

 

(b)      Notwithstanding anything to the contrary in this Agreement, the Parties acknowledge that neither the Company nor the Bank shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by Investor or any remedy to enforce specifically the terms and provisions of this Agreement.

 

(c)      Notwithstanding anything to the contrary contained herein, in no event shall Investor on the one hand, or the Company or the Bank on the other, be responsible for any consequential, special or punitive damages.

 

[SIGNATURE PAGES FOLLOW]

 

  

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IN WITNESS WHERE OF, the Parties have caused this Agreement to be executed in multiple originals by their authorized officers, all as of the date and year first above written.

 

	
CRESCENT FINANCIAL CORPORATION

	  	  
	
By:

	
s/ Michael G. Carlton

	
Name: 

	
Michael G. Carlton

	
Title:

	
President & CEO

	  	  
	
CRESCENT STATE BANK

	  	  
	
By:

	
s/ Michael G. Carlton

	
Name:

	
Michael G. Carlton

	
Title:

	
President & CEO

	  	  
	
PIEDMONT COMMUNITY BANK HOLDINGS, INC.

	  	  
	
By:

	
/s/ Scott Custer

	
Name:

	
Scott Custer

	
Title:

	
CEO

 

[Signature Page to Investment Agreement]

 

  

 

  

Exhibit A

 

Executives

 

Affected Executives

 

Michael G. Carlton

Bruce W. Elder

 

Specified Executives

 

The Affected Executives

W. Keith Betts

Thomas E. Holder, Jr.

Ray D. Vaughn

  

 

  

Exhibit B

 

Director Designees

 

Investor Designees

 

J. Adam Abram

Alan Colner

Thierry Ho

Steven J. Lerner

A. Wellford Tabor

Scott Custer

 

Agreed Designees

 

Michael G. Carlton

Charles A. Paul, III

Brent D. Barringer

James A. Lucas, Jr.

 

  

 

  

Exhibit C

 

Form of Registration Rights Agreement

This REGISTRATION RIGHTS AGREEMENT (“Agreement”) is made as of [______________], 2011, by and between [______________], a Delaware corporation (the “Company”) and Piedmont Community Bank Holdings, Inc., a Delaware corporation (“Piedmont”), and each person or entity that subsequently becomes a party to this Agreement.  Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Investment Agreement (as defined below).

WHEREAS, pursuant to an Investment Agreement, dated as of February ______________, 2011 (the “Investment Agreement”), between Piedmont, Crescent Financial Corporation, a North Carolina corporation that is the predecessor of the Company and Crescent State Bank, a North Carolina state-chartered banking corporation and a banking subsidiary of the Company, Piedmont will purchase $75,000,000 of common stock of the Company (the “Investment”); and

WHEREAS, the Company and Piedmont are executing and delivering this Agreement as a condition to closing of the transactions set forth in the Investment Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows:

1.           Definitions.     As used in this Agreement, the following terms shall have the following respective meanings:

 

“Affiliate” shall mean, with respect to any specified Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified Person.  For the purposes of this definition, the term “control” (including the phrases “controlled by” and “under common control with”) when used with respect to any specified Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or interests, by contract or otherwise.

“Board” shall mean the Board of Directors of the Company.

“Board Approval” shall mean the approval by a vote of a majority of the members of the Board present at a meeting duly called and held or the written consent of all members of the Board.

“Commission” shall mean the Securities and Exchange Commission.

“correspondence” shall have the meaning set forth in Section 12(b).

“Demand Registration” shall have the meaning set forth in Section 3(a).

 

  

  

  

 

“EDGAR” shall mean the Electronic Data-Gathering, Analysis, and Retrieval System.

“Holder” shall mean Piedmont and any of its permitted successors and assigns under this Agreement; provided, however, that the term “Holder” shall not include any of the foregoing that ceases to own or hold any Registrable Securities.

“Indemnified Party” or “Indemnified Parties” shall have the meaning set forth in Section 9(a).

“Indemnifying Party” shall have the meaning set forth in Section 9(a).

“Losses” shall have the meaning set forth in Section 9(a).

“Participant” shall have the meaning set forth in Section 7(d).

“Person” shall mean an individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company or unincorporated organization.

“Piggyback Election Notice” shall have the meaning set forth in Section 5(b).

“Piggyback Election Period” shall have the meaning set forth in Section 5(b).

“Piggyback Notice” shall have the meaning set forth in Section 5(b).

“Proposed Registration” shall have the meaning set forth in Section 5(a).

“Prospectus” shall mean the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments to the Registration Statement of which such Prospectus is a part thereof, and all material incorporated by reference in such Prospectus.

“Registration Expenses” shall have the meaning set forth in Section 8.

 

“Registrable Security” or “Registrable Securities” shall mean any Shares owned by the Holder or which the Holder has the right to acquire upon conversion, exchange or exercise of any other securities issued by the Company, provided, however, that all Registrable Securities shall cease to be Registrable Securities once they have been sold pursuant to a registration statement or once such Shares are transferred pursuant to Rule 144 or are eligible to be sold without restriction pursuant to Rule 144(k).

 

  

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“Registration Statement” shall mean any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits, and all material incorporated by reference in such Registration Statement.

“Rule 144” shall mean Rule 144 promulgated under the Securities Act and any successor or substitute rule, law or provision.

“Rule 415” shall mean Rule 415 promulgated under the Securities Act and any successor or substitute rule, law or provision.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Shares” shall mean shares of common stock, par value $[.0001] per share, of the Company.

“Shelf Demand Notice” shall have the meaning set forth in Section 4(a).

“Shelf Demand Registration” shall have the meaning set forth in Section 4(a).

“Stockholders” shall mean, at any time, the then stockholders of Piedmont.

2.           Effectiveness.     This Agreement shall become effective and legally binding concurrently with the consummation of the Investment.

 

  

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3.           Demand Registration.

 

(a)           Request for Registration.          Each Holder shall have the right to cause the Company to file under the Securities Act a registration statement with respect to all or a portion of such Holder’s Registrable Securities in the Company (or, if the registering entity is an entity other than the Company, a number of registrable securities representing all or a portion of such Holder’s indirect interests in such registering entity and upon the effectiveness of such registration statement, if such Holder’s Shares have not previously been exchanged for such registrable securities, to effect such exchange in accordance with the terms of the Agreement) (a “Demand Registration”) and to use commercially reasonable best efforts to cause such registration statement to become effective; provided, however, that (i) no Holder shall be entitled to effect a Demand Registration more than twice and (ii) the Company shall not be required to file and cause to become effective more than two (2) registration statements in any twelve (12) month period.  If the Company furnishes to the Holder or Holders requesting a registration statement pursuant to this Section 3(a) a certificate signed by the Chief Executive Officer or President of the Company within thirty (30) days of receipt of the Demand Registration stating that, (i) in the good faith judgment of the Board, a material acquisition or disposition by the Company is being negotiated or has been publicly announced or that such registration statement would have a material detrimental effect on the Company, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after the receipt of the Demand Registration or (ii) the Company has on file or has current plans (which will be diligently pursued) to file another registration statement with the Commission, other than a Form S-8 relating to employee shares or stock options, then the Company shall have the right to defer the filing of the registration statement for a period of not more than one hundred and eighty (180) days after the receipt of the Demand Registration; provided, however, that the Company may not utilize these deferral rights more than once in any twelve (12) month period.  Unless the Company shall elect to defer the Demand Registration as provided in the previous sentence, upon such receipt of such Demand Registration, the Company shall within ten (10) business days after receipt of such request, give written notice of such request to all other Holders, if applicable, and will include in such registration all Registrable Securities with respect to which the Company receives written requests for inclusion therein within thirty (30) business days after it gives the Notice to the applicable Holders subject to paragraph (b) below.  Unless the Holder (or a majority interest of the Holders, if applicable) demanding the Demand Registration shall agree in writing, no other party, including the Company (but excluding another Holder, if applicable), shall be permitted to offer securities under any such Demand Registration.  Each Holder agrees that if the Company determines that there are material developments which the Company determines require the filing of a post-effective amendment to the Registration Statement, then each Holder agrees to refrain from selling any Registrable Securities until the post-effective amendment is declared effective.  The Company agrees to file and attempt to have declared effective such post-effective amendment as soon as reasonably practical.  Except as set forth in Section 8, the Company shall not be deemed to have effected a Demand Registration unless and until such Demand Registration is declared effective and the Registrable Securities registered thereunder have been sold pursuant thereto. Any such Registration Statement shall be subject to piggyback rights as described under Section 5 below.

 

(b)           Priority on Demand Registrations.          If the Company decides, based on the advice of the managing underwriter(s), that the number of Registrable Securities proposed to be sold in such Demand Registration exceeds the number of securities that can be sold in such offering because of market conditions or without an adverse effect on such offering, the Company will so notify the Holder or Holders desiring to participate in such registration in writing and include in such registration only the number of securities that, in the opinion of the underwriter(s), can be sold, selected pro rata among the Holders that have requested to be included in such Demand Registration based on the number of shares they had originally proposed to register, if applicable; provided, however, that if any Holder has requested inclusion in such Demand Registration and all Registrable Securities that such Holder has requested to be included in such Demand Registration pursuant to this Section 3 are not so included, then (i) no other Person (other than Holder or Holders) may sell securities in such registration and (ii) such Holder shall be entitled to one additional Demand Registration hereunder (with all expenses of registration relating to such additional registration to be borne by the Company) on the same terms and conditions as would have applied to such Holder had such earlier Demand Registration not been made.

 

  

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(c)           Selection of Underwriters.          If any Demand Registration is an underwritten offering with respect to any issue of Registrable Securities, the Company will select the investment banker or bankers and manager or managers of nationally recognized standing to administer the offering subject to the consent of the Holder or, if applicable, the Holders of a majority of such Registrable Securities to be included in such Demand Registration, such consent not to be unreasonably withheld.  The right of any Holder to registration shall be conditioned upon such Holder’s participation in such underwriting.  If any Holder of Registrable Securities disapproves of the terms of the underwriting, such Holder may, subject to Section 8 hereof, elect to withdraw therefrom by written notice to the Company, the managing underwriter and, if applicable, the other Holders.  The Registrable Securities and/or other securities so withdrawn from the underwriting shall also be withdrawn from registration; provided, however, that if applicable, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 3.

 

4.           Shelf Registration.

 

(a)           Subject to the consent of a majority of the Board, each Holder shall have the right to cause the Company to file a registration statement with the Commission on Form S-3 (provided that the Company is eligible to use such form) for an offering to be made on a continuous basis pursuant to Rule 415 of the Securities Act.  The Company shall use its commercially reasonable best efforts to cause such registration statement to become effective and to maintain the effectiveness of such shelf registration statement with respect to all or a portion of such Holders’ Registrable Securities in the Company (a “Shelf Demand Registration”), and to use commercially reasonable best efforts to cause such registration statement to become and maintain its effectiveness.  If, however, the Company shall furnish to the Holder or Holders requesting a registration statement pursuant to this Section 4 a certificate signed by the Chief Executive Officer or President of the Company, within thirty (30) days of receipt of the Shelf Demand Registration, stating that, in the good faith judgment of the Board, a material acquisition or disposition by the Company is being negotiated or has been publicly announced or that such registration statement would have a material detrimental effect on the Company, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the Shelf Demand Registration; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period.  If applicable and unless the Company shall elect to defer the Shelf Demand Registration as provided in the previous sentence, upon receipt of such Shelf Demand Registration, the Company shall within ten (10) business days after receipt of such request, give written notice (the “Shelf Demand Notice”) of such request to all other Holders and will include in such registration all Registrable Securities with respect to which the Company receives written requests for inclusion therein within thirty (30) business days after it gives the Shelf Demand Notice to the applicable Holders.  Unless the Holder or at least a majority in interest of the Holders demanding the Shelf Demand Registration shall agree in writing, no other party, including the Company (but excluding another Holder, if applicable) shall be permitted to offer securities under any such Shelf Demand Registration.  Any such Shelf Demand Registration shall be subject to piggyback rights as described under Section 5 below.

 

  

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(b)           Priority on Shelf Demand Registrations.          If the Company determines, based on the advice of the managing underwriter(s) (if the offering contemplated by the Shelf Demand Registration is being underwritten) or one or more Holders owning in the aggregate at least a majority of the Registrable Securities to be registered (if the offering is not being underwritten), that the number of securities proposed to be sold in such Shelf Demand Registration exceeds the number of securities that can be sold in such offering because of market conditions or without an adverse effect on such offering, the Company will so notify the Holder or Holders desiring to participate in such registration in writing and include in such registration only the number of securities that, in the opinion of such underwriter(s) (or the Holder or Holders, as the case may be) can be sold, selected pro rata among the Holders that have requested to be included in such Shelf Demand Registration, if applicable.

 

	
  

	
5.

	
Piggyback Registration.

 

(a)           Each Holder is entitled to elect to participate, directly or indirectly, in a sale of its Shares (A) if the Company proposes to register Registrable Securities (other than (x) a registration on Form S-4, S-3D, S-8, or a comparable form, or (y) a registration of securities solely relating to an offering and sale to employees pursuant to any employee stock plan or other employee benefit plan arrangement), including as a part of a shelf registration, or (B) if there is a proposed Registration Statement pursuant to Section 3 above (any such proposed registration described in clause (A) or (B), a “Proposed Registration”), in each case as described in paragraph (b) below.

 

(b)           The Company shall provide written notice (the “Piggyback Notice”) to each Holder of any Proposed Registration promptly following the Company’s determination to effect a Proposed Registration or upon its receipt of notice of such Registration Statement.  Such Piggyback Notice shall set forth the principal terms and conditions of the issuance, including the proposed offering price (or range of offering prices) and the anticipated filing date of the Registration Statement.  Each Holder shall have a period of ten (10) Business Days from the date the Piggyback Notice is delivered to such Holder (the “Piggyback Election Period”) within which to elect to include all or a portion of its Shares at the price and upon the terms specified in the Piggyback Notice, by delivering an irrevocable written notice (the “Piggyback Election Notice”) to the Company.  If any Holder does not deliver a Piggyback Election Notice within the Piggyback Election Period, such Holder shall be deemed to have irrevocably waived any and all rights under this Section 5 with respect to the Proposed Registration (but not with respect to future Proposed Registrations in accordance with this Section 5).

 

  

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(c)

	
Underwritten Offerings.

 

(i)           In the case of an underwritten offering under this Section 5, each Holder shall, with respect to the securities that such Holder then desires to sell, enter into an underwriting agreement with the same underwriter(s) engaged by the Company with respect to securities being offered by the Company, and the Company shall cause such underwriter(s) to include in any such underwriting all of the Registrable Securities that a Holder then desires to sell, subject to paragraph (ii) below; provided, however, that such underwriting agreement is in substantially the same form as the underwriting agreement that the Company enters into in connection with the primary offering it is making.  If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter(s).  Any Registrable Securities excluded or withdrawn from such an underwriting shall be withdrawn from such registration.

 

(ii)           The aggregate number of Registrable Securities to be included in a Proposed Registration in the case of an underwritten offering shall not exceed the number of Registrable Securities that the managing underwriter(s) in good faith advise the Company in writing that can be sold in such offering without being likely to have a material and adverse effect on the price, timing, or distribution of the Registrable Securities offered or the market for such Registrable Securities.  If the Company decides, based on the advice of the managing underwriter(s) with respect to such underwritten offering, that the number of securities to be offered by selling security holders be reduced because of market conditions or because the offering would be materially and adversely affected, then the Company will so notify the selling security holders in writing and such securities shall be reduced by such amount as the managing underwriter may determine, which reduced number of securities shall be included in the offering selected.  Such Registrable Securities shall be subject to the following priority: (A) first, to the Company for any Registrable Securities that it proposes to issue and sell for its own account; (B) second, to the Holders participating in such offering, as nearly as possible pro rata based on the number of Registrable Securities such Holders have requested to be included therein (but, for any Holder, not to exceed the amount requested to be included in such Holder’s Piggyback Election Notice); and (C) thereafter, to the extent available, to any other Persons (for whom the Company is obligated to register Registrable Securities pursuant to other registration rights agreements), as nearly as possible pro rata based on the number of securities such Persons have requested to be included herein.  In the case of a Proposed Registration that is initiated by a Holder pursuant to its demand registration rights under Section 3 above, such Registrable Securities shall be subject to the following priority: (A) to the Holders pursuant to the Registration Rights Agreement, in accordance with their respective percentage interests (but, for any Holder, not to exceed the amount requested to be included in such Holder’s Piggyback Election Notice); (B) to the Company for any Registrable Securities that it proposes to issue and sell for its own account; and (C) thereafter, to the extent available, to any other Persons (for whom the Company is obligated to register Registrable Securities pursuant to other registration rights agreements), as nearly as possible pro rata based on the number of securities such Persons have requested to be included herein.

 

  

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6.           Information.     Upon making a request pursuant to Section 3, 4 or 5, the Holder shall specify the number of shares of Registrable Securities to be registered on its behalf and the intended method of disposition thereof; provided, however, if, upon making a request pursuant to Section 3 or 4, one or more Holders of at least a majority of the Registrable Securities included in such request for registration specify one particular type of underwritten offering, such method of disposition shall be the type of underwritten offering or a series of such underwritten offerings used in connection with the disposition pursuant to such Registration Statement.

 

The Company may require the Holder or Holders to furnish in writing to the Company such information regarding themselves and the distribution of Registrable Securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act.  Each Holder agree to supply the Company as promptly as practicable with such information and to notify the Company as promptly as practicable of any inaccuracy or change in information they have previously furnished to the Company.  The Company shall not be obligated to pursue any registration statement for which the Holders do not timely furnish such information regarding themselves and the distribution of the Registrable Securities as may be required under the Securities Act.

 

7.           Registration Procedures.     If and whenever the Company is required by the provisions of Section 3 or 4 to effect a registration under the Securities Act and whenever Holders have requested inclusion in a Company’s registration under Section 5, the Company will, at its expense, as expeditiously as practicable, but in not event later than sixty (60) days after receipt of a request for registration pursuant to the terms of Section 3, 4 or 5:

 

(a)           Prepare and file with the Commission a registration statement on Form S-1, Form S-3, or such other form as may be utilized by the Company and as shall permit the disposition of the Registrable Securities in accordance with the intended method or methods thereof, as specified in writing by the Holders thereof;

 

(b)           In accordance with the Securities Act and the rules and regulations of the Commission, use its commercially reasonable best efforts to cause such Registration Statement to become and remain continuously effective until the earlier of (i) the time that all of the Registrable Securities covered by such Registration Statement have been sold in accordance with the intended methods of disposition of the seller or sellers set forth in such Registration statement and (ii) one (1) year after such Registration Statement has been declared effective; provided, that if for any portion of such one (1) year period the Registration Statement is not effective or if Holders are required to refrain from selling Registrable Securities pursuant to Section 3(a), then such one (1) year requirement for maintaining the effectiveness of the Registration Statement shall be extended by the length of such interruption(s), and shall prepare and file with the Commission such amendments to such Registration Statement and supplements to the Prospectus contained therein as may be necessary to keep such Registration Statement effective and such Registration Statement and Prospectus accurate and complete during such period;

 

  

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(c)           Furnish to each Holder participating in such registration (each of such Persons being referred to herein as a “Participant” in such registration) such reasonable number of copies (including manually executed and conformed copies) of the Registration Statement and Prospectus and such other documents as such Participant may reasonably request (including all annexes, appendices, schedules and exhibits), in order to facilitate the public offering of the Registrable Securities;

 

(d)           Use commercially reasonable efforts to register or qualify the securities covered by such Registration Statement under such state securities or blue sky laws of such jurisdictions as such Participants may reasonably request, and do any and all other acts and things that may be necessary under such securities or blue sky laws to enable the Holders, underwriter(s), and agent(s) to consummate the public sale or other disposition in such jurisdictions of the Registrable Securities owned by the Holders; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to subject itself to taxation in connection with any such registration or qualification of such securities;

 

(e)           Promptly notify the Participants in such registration, the managing underwriter(s), if any, thereof and the sales or placement agent(s), if any, therefor, and, if requested by any such party, confirm such notification in writing, (i) when a prospectus or any prospectus supplement has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has been filed with and declared effective by the Commission, (ii) of the receipt by the Company of any notification or stop order with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (iii) of any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus or for additional information; (iv) of the occurrence of any event that requires the making of any changes to the Registration Statement or related Prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to the Holders upon request, a reasonable number of copies of a supplemented or amended Prospectus such that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading), and (v) of the Company’s determination that the filing of a post-effective amendment to the Registration Statement shall be necessary or appropriate.  Upon the receipt of any notice from the Company of the occurrence of any event of the kind described in this Section 7(e)(ii) (but only with respect to the jurisdiction suspending qualification), (iii), (iv) or (v), (1) the Holders, underwriters and agents shall forthwith discontinue any offer and disposition of the Registrable Securities pursuant to Registration Statement and, if so directed by the Company, shall deliver to the Company all copies (other than permanent file copies) of the defective Prospectus covering such Registrable Securities that are then in the Holders’, underwriters’ and agents’ possession or control, and (2) the Company shall, as promptly as practicable, thereafter take such action as shall be necessary to remedy such event to permit the Holders (and the underwriter(s) and agent(s), if any) to continue to offer and dispose of the Registrable Securities, including, without limitation, preparing and filing with the Commission and furnishing to the Holders a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

  

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(f)           Prepare and file with the Commission, promptly upon the request of any Participant in such registration, the Registration Statement and any amendments or supplements to such Registration Statement or Prospectus that, in the reasonable opinion of counsel for such Participants, is required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Securities by such Participants or to otherwise comply with the requirements of the Securities Act and such rules and regulations;

 

(g)           Advise the Participants in such registration, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its commercially reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued;

 

(h)           If requested by any managing underwriter(s), any placement or sales agent or any Holder, promptly incorporate in a Prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter(s), such agent or such Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold by the Holders or agent or to any underwriter(s), the name and description of the Holders, agent or underwriter(s), the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriter(s) and with respect to any other terms of the offering of the Registrable Securities to be sold by the Holders or agent or to such underwriter(s); and make all required filings of such Prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment;

 

(i)           Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make generally available to the Company's security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days, if such a period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of a Registration Statement;

 

  

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(j)           Not file any amendment or supplement to such Registration Statement or Prospectus to which at least a majority in interest of the Participants in such registration has reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, after having been furnished with a copy thereof at least three (3) business days prior to the filing thereof, unless the Company shall have been advised in writing by its counsel that such amendment is required under the Securities Act or the rules or regulations adopted thereunder in connection with the distribution of Securities by the Company or the Participants;

 

(k)           Use its commercially reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, that may be required to effect such registration or the offering or sale in connection therewith or to enable the Holders to offer, or to consummate the disposition of, the Registrable Securities; and

 

(l)           Furnish to the Holders or the managing underwriter(s), if any, on a timely basis and at the Company’s expense, certificates free of any restrictive legends representing ownership of the Registrable Securities being sold in such denominations and registered in such names as the Holders or managing underwriters shall request, and notify the transfer agent of the Company’s securities that it may effect transfers of the Registrable Securities upon notification from each respective Holder that it has complied with this Agreement and the prospectus delivery requirements of the Securities Act.

8.           Expenses of Registration.     All expenses incurred in connection with the registration of the Registrable Securities pursuant to this Agreement (excluding underwriting, brokerage and other selling commissions and discounts), including without limitation all registration and qualification filing fees, printing, and fees and disbursements of counsel for the Company (collectively, “Registration Expenses”), shall be borne by the Company.  Notwithstanding the foregoing, if a request for a Demand Registration pursuant to Section 3 is made and is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, such Holders shall bear the Registration Expenses incurred prior to the withdrawal of such request (and such request and all actions of the Company with respect thereto shall not be counted as one of the Demand Registrations to which the Holders are entitled under this Agreement), unless the Holders of at least a majority of the Registrable Securities to be registered elect to have such request count as one of the Demand Registrations to which the Holders are entitled under this Agreement, in which case the Company shall bear all Registration Expenses with respect thereto; provided, however; that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to pay any of such Registration Expenses and such request shall not be counted as one of the Demand Registrations to which the Holders are entitled under this Agreement.  In all cases, the selling Holders will be responsible for, if applicable, underwriters’ discounts, brokerage or other selling commissions and fees and disbursements of counsel for such Holders.

 

  

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9.

	
Indemnification and Contribution.

 

(a)           Indemnification by the Company.     To the extent permitted by law, the Company (the “Indemnifying Party”) will indemnify and hold harmless each selling Holder, any investment banking firm acting as an underwriter for the selling Holder, any broker/dealer acting on behalf of any selling Holder and each officer and director of each selling Holder, such underwriter, such broker/dealer and each person, if any, who controls such selling Holder, underwriter or broker/dealer within the meaning of the Securities Act (the “Indemnified Parties”), against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities, joint or several (collectively, “Losses”), to which they may become subject under the Securities Act or otherwise, insofar as such Losses arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement, in any preliminary prospectus or final prospectus relating thereto or in any amendments or supplements to the Registration Statement or any such preliminary prospectus or final prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading in light of the circumstances in which they are made; and will reimburse the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending against any such Losses; provided, however, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of Losses if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any Losses to the extent that they arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with the Registration Statement, any preliminary prospectus or final prospectus relating thereto or any amendments or supplements to the Registration Statement or any such preliminary prospectus or final prospectus, in reliance upon and in conformity with written information furnished expressly for use in connection with the Registration Statement or any such benefit of any selling Holder with respect to any person asserting loss, damages, liability or action as a result of a selling Holder selling Registrable Securities in violation of Section 5(c) of the Securities Act.

 

  

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(b)           Indemnification by Holders.     To the extent permitted by law, each selling Holder will severally and not jointly indemnify and hold harmless the Company, each of its officers and directors, each person, if any, who controls the Company within the meaning of the Securities Act, any investment banking firm acting as underwriter for the Company or the selling Holder, or any broker/dealer acting on behalf of the Company or any other selling Holder, and all other selling Holders against any such Losses to which the Company or any such director, officer, controlling person, underwriter, or broker/dealer or other selling Holder may become subject to, under the Securities Act or otherwise, insofar as such Losses arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement or any preliminary prospectus or final prospectus, relating thereto or in any amendments or supplements to the Registration Statement or any such preliminary prospectus or final prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they are made, in each case to the extent and only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, in any preliminary prospectus or final prospectus relating thereto or in any amendments or supplements to the Registration Statement or any such preliminary prospectus or final prospectus, in reliance upon and in conformity with written information furnished by such selling Holder expressly for use in connection with the Registration Statement or any preliminary prospectus or final prospectus related thereto; and such selling Holders will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter, broker/dealer or other selling Holder in connection with investigating or defending any such Losses; provided, however, that the liability of each selling Holder hereunder shall be limited to the gross proceeds (net of underwriting discounts and commissions, if any) received by such selling Holder from the sale of Registrable Securities covered by the Registration Statement; and provided, further, however, that the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such Losses if such settlement is effected without the consent of those selling Holder(s) against which the request for indemnity is being made (which consent shall not be unreasonably withheld).

 

(c)           Conduct of Indemnification Proceedings.     Promptly after receipt by an Indemnified Party under this Section 9 of notice of the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against the Indemnifying Party under this Section 9, notify the Indemnifying Party in writing of the commencement thereof and the Indemnifying Party shall have the right to participate in and, to the extent the Indemnifying Party desires, jointly with any other Indemnifying Party similarly noticed, to assume at its expense the defense thereof with counsel mutually satisfactory to the Indemnifying Parties with the consent of the Indemnified Party (which consent will not be unreasonably withheld, conditioned or delayed).  In the event that the Indemnifying Party assumes any such defense, the Indemnified Party may participate in such defense with its own counsel and at its own expense, provided, however, that the counsel for the Indemnifying Party shall act as lead counsel in all matters pertaining to such defense or settlement of such claim and the Indemnifying Party shall only pay for such Indemnified Party’s expenses for the period prior to the date of its participation on such defense.  The failure to notify an Indemnifying Party promptly of the commencement of any such action, if materially prejudicial to his ability to defend such action, shall relieve the Indemnifying Party of any liability to the Indemnified Party under this Section 9 to the extent of such prejudice, but the omission so to notify the Indemnifying Party will not relieve him of any liability which he may have to any Indemnified Party otherwise other than under this Section 9.

 

Notwithstanding anything to the contrary herein, without the prior written consent of the Indemnified Party, the Indemnifying Party shall not be entitled to settle any claim, suit or proceeding unless in connection with such settlement the Indemnified Party receives an unconditional release with respect to the subject matter of such claim, suit or proceeding and such settlement does not contain any admission of fault by the Indemnified Party.

 

  

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(d)           Contribution.     If a claim for indemnification under Sections 9(a) or 9(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), or contribution under the Securities Act may be required on the part of any Indemnified Party, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, on the basis of relative fault as well as any other relevant equitable considerations.  The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable selling Holder on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 9(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 9(d).  The amount paid or payable by an indemnified party as a result of the Losses referred to above in this Section 9 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

Notwithstanding any other provision of this Section 9(d), in no event shall (i) any selling Holder be required to undertake liability to any person under this Section 9(d) for any amounts in excess of the dollar amount of the gross proceeds to be received by the selling Holder from the sale of such selling Holder’s Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are or were to be registered under the Securities Act and (ii) any underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement.

10.           Reports under the Securities Act.     With respect to each Holder, from the date of Closing until the date on which all of the Registrable Securities that such Holder owns become freely transferable under Rule 144(k) promulgated under the Securities Act, the Company agrees to use its commercially reasonable best efforts: (i) to make and keep public information available, as those terms are understood and defined in the General Instructions to Form S-3, or any successor or substitute form, and in Rule 144, (ii) to file with the Commission all reports and other documents required to be filed by an issuer of securities registered under Sections 13 or 15(d) of the Securities Act, and (iii) if such filings are not available via EDGAR, to furnish to such Holder as long as the Holder owns or has the right to acquire any Registrable Securities prior to the applicable termination date described above, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company under Sections 13 or 15(d) of the Securities Act as may be reasonably requested in availing such Holder of any rule or regulation of the Commission permitting the selling of any such Registrable Securities without registration.

  

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11.           Entire Agreement.     This Agreement constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof, and it also supersedes any and all prior negotiations, correspondence, agreements or understandings with respect to the subject matter thereof.

 

	
  

	
12.

	
Miscellaneous.

 

(a)           Term.     Except as otherwise provided herein, this Agreement and the obligations of the Company hereunder shall terminate on the earlier of: (i) the first date on which no Registrable Securities remain outstanding, or (ii) the five-year anniversary of the effectiveness of the first Registration Statement.

 

(b)           Notices.     Any notices, reports, or other correspondence (hereinafter collectively referred to as “correspondence”) required or permitted to be given hereunder shall be sent by courier (overnight or same day) or telecopy or delivered by hand to the party to whom such correspondence is required or permitted to be given hereunder.  The date of giving any notice shall be the date of its actual receipt.  Whenever pursuant to this Agreement any notice is required to be given by any Holder to any other Holder or Holders, such Holder may request from the Company a list of addresses of all Holders of the Company, which list shall be promptly furnished to such Holder.

(c)           Governing Law; Submission to Jurisdiction.     This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws of such state, and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors or permitted assigns. The parties also hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of Delaware for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby (and agree not to commence any action, suit or proceeding relating thereto except in such courts, and further agree that service of any process, summons, notice or document by U.S. registered mail shall be effective service of process for any action, suit or proceeding brought against such party in any such court).  The parties hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the courts of the State of Delaware, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

 

  

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(d)           Waiver of Jury Trial.     Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in any action, suit proceeding or counterclaim brought by either of them against the other in any matters arising out of or in any way connected with this agreement.

 

(e)           No Recourse.     Notwithstanding anything that may be expressed or implied in this Agreement, the Company and each Holder, agree and acknowledge that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be had against any current or future director, manager, officer, employee, general or limited partner or member of any Holder or of any Affiliate or assignee thereof, as such, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any current or future manager officer, agent or employee of any Holder or any current or future member of any Holder or any current or future director, manager, officer, employee, partner or member of any Holder or of any Affiliate or assignee thereof, as such, for any obligation of any Holder under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.

 

(f)           Successors and Assigns.     This Agreement shall be binding upon and shall inure to the benefit of the parties, and their respective successors and assigns.  If any transferee of any Holder shall acquire any Shares, in any manner, whether by operation of law or otherwise, such Shares shall be held subject to and entitled to the benefits of all of the terms of this Agreement, and by taking and holding such securities such Person shall be conclusively deemed to (i) have agreed to be bound by and to perform all of the terms and provisions of and (ii) be entitled to all of the benefit of this Agreement.

 

(g)           Confidentiality.     Except as required by law or other legal proceeding, each party hereto will maintain in confidence, any nonpublic or confidential proprietary information furnished to it by or on behalf of any other party or its representatives in connection with this Agreement or the transactions contemplated hereby.  All information provided under this Agreement shall be deemed confidential; provided, however, that information shall not be deemed confidential if (a) at the time of disclosure, such information is generally available to and known by the public (other than as a result of a disclosure directly by the recipient or any of its representatives), (b) such information was available to the recipient of such information on a non-confidential basis from a source that is not and was not prohibited from disclosing such information to the recipient of such information by a contractual, legal or fiduciary obligation or (c) such information is known to the recipient prior to or independently of its relationship with the party providing such information.

 

  

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(h)           Severability.     In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein shall, for any reason, be held to be invalid, illegal or unenforceable, such illegality, invalidity or unenforceability shall not affect any other provisions of this Agreement.

 

(i)           Headings.     Section headings are inserted herein for convenience only and shall not affect the interpretation or be deemed to form a part of this Agreement.  Unless otherwise indicated, reference in this Agreement to a Section shall be deemed to refer to such Section of this Agreement.

 

(j)           Inspection.     So long as this Agreement shall be in effect, this Agreement shall be made available for inspection by any Holder at the principal offices of the Company.

 

(k)           Waiver.     No failure or delay on the part of the parties or any of them in exercising any right, power or privilege hereunder, nor any course of dealing between the parties or any of them shall operate as a waiver of any such right, power or privilege nor shall any single or partial exercise of any such right, power or privilege preclude the simultaneous or later exercise of any other right, power or privilege.  The rights and remedies herein expressly provided are cumulative and are not exclusive of any rights or remedies that the parties or any of them would otherwise have.  No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the other parties or any of them to take any other or further action in any circumstances without notice or demand.

 

(l)           Parties in Interest.     Nothing in this Agreement, whether expressed or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns, nor is anything in this Agreement intended to relieve or discharge the obligations or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over or against any party to this Agreement.

 

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

 

(n)           Further Assurances.     Each of the parties shall, and shall cause their respective Affiliates to, use its commercially reasonable efforts to execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement.

 

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Exhibit C

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first above written.

 

	
CRESCENT FINANCIAL CORPORATION

	  	  	 
	
By:

	
  

	 
	  	
Name:

	 
	  	
Title:

	 
	  	  	 
	
PIEDMONT COMMUNITY BANK

	 
	
HOLDINGS, INC.

	 
	  	  	 
	
By:

	
  

	 
	  	
Name:

	 
	  	
Title:

	 

 

[Signature Page to Registration Rights Agreement]

 

  

 

  

 

Exhibit D

 

FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF

 

[______________________________________]

a Delaware Corporation

 

ARTICLE ONE

 

The name of the Corporation is [_______________] (the “Corporation”).

 

ARTICLE TWO

 

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road Suite 400, City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at that address is Corporation Service Company.

 

ARTICLE THREE

 

The nature of the business of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).

 

ARTICLE FOUR

 

Section 1. Authorized Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 80,000,000 shares, of which:

 

75,000,000 shares, par value $0.001 per share, shall be shares of common stock; and

 

5,000,000 shares, no par value, shall be shares of preferred stock, which shall be initially undesignated except as set forth in Section 4 of this Article Four.

Section 2. Common Stock. Except as (i) otherwise required by law or (ii) expressly provided in this Certificate of Incorporation, each share of common stock of the Corporation shall have the same powers, rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters.

 

(a) Dividends. Subject to the rights of the holders of preferred stock of the Corporation and to the other provisions of this Certificate of Incorporation, holders of common stock of the Corporation shall be entitled to receive equally, on a per share basis, such dividends and other distributions in cash, securities or other property of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.

 

(b) Voting Rights. At every annual or special meeting of stockholders of the Corporation, each holder of common stock of the Corporation shall be entitled to cast one (1) vote for each share of common stock of the Corporation standing in such holder’s name on the stock transfer records of the Corporation.

 

  

  

  

 

(c) Liquidation Rights. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the Corporation’s debts and amounts payable upon shares of preferred stock of the Corporation entitled to a preference, if any, over holders of common stock of the Corporation upon such dissolution, liquidation or winding up, the remaining net assets of the Corporation shall be distributed among holders of shares of common stock equally on a per share basis. A merger or consolidation of the Corporation with or into any other corporation or other entity, or a sale or conveyance of all or any part of the assets of the Corporation (which shall not in fact result in the liquidation of the Corporation and the distribution of assets to its stockholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this Paragraph (c).

 

(d) Conversion Rights. The common stock of the Corporation shall not be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same class of the Corporation’s capital stock.

 

(e) Preemptive Rights. No holder of common stock of the Corporation shall have any preemptive rights with respect to the common stock of the Corporation or any other securities of the Corporation, or to any obligations convertible (directly or indirectly) into securities of the Corporation whether now or hereafter authorized.

 

Section 3. Preferred Stock. The Board of Directors is authorized, subject to limitations prescribed by law or any exchange on which the Corporation’s securities may then be listed, to provide by resolution or resolutions for the issuance of all or any of the shares of preferred stock of the Corporation in one or more class or series, to establish the number of shares to be included in each such class or series, and to fix the voting powers, designations, powers, preferences, and relative, participating, optional, or other rights, if any, of the shares of each such class or series, and any qualifications, limitations, or restrictions thereof including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of capital stock, or of any other series of the same or any other class or classes of capital stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. Irrespective of the provisions of Section 242(b)(2) of the DGCL, the number of authorized shares of preferred stock of the Corporation may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the capital stock of the Corporation entitled to vote, without the separate vote of the holders of the preferred stock of the Corporation as a class. Subject to Section 1 of Article Four, the Board of Directors is also expressly authorized to increase or decrease the number of shares of any class or series of preferred stock of the Corporation subsequent to the issuance of shares of that class or series, but not below the number of shares of such class or series then outstanding. In case the number of shares of any class or series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such class or series.

 

Section 4.  Designated Preferred Stock.

 

(a)  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 24,900.

 

  

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

 

(c)  Definitions. The following terms are used in this Certificate of Incorporation (including the Standard Provisions in Annex A hereto) as defined below:

 

(i) “Common Stock” means the common stock, par value $0.001 per share, of the Corporation.

 

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

 

(iii) “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.

 

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

 

(v) “Minimum Amount” means $6,225,000.

 

(vi) “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).

 

(vii) “Signing Date” means January 9, 2009.

 

(d)  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.

 

ARTICLE FIVE

 

The Corporation is to have perpetual existence.

 

ARTICLE SIX

 

To the fullest extent permitted by the DGCL as it now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader rights than permitted prior thereto), no person who is serving, or has served, as a director of the Corporation shall be personally liable to the Corporation or any of its stockholders or otherwise for monetary damages for breach of any duty as a director. No amendment or repeal of this article, nor the adoption of any provision to this Certificate of Incorporation inconsistent with this article, shall eliminate or reduce the protection granted herein with respect to any matter that occurred prior to such amendment, repeal, or adoption.

ARTICLE SEVEN

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation.

 

  

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ARTICLE EIGHT

 

The Corporation elects not to be governed by Section 203 of the DGCL.

 

  

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Annex 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 Incorporation. 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 Incorporation” means the certificate of incorporation of the Corporation, of which these Standard Provisions form a part, as may be amended from time to time.

 

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

 

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

 

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

 

(j)            “Original Issue Date” means the date on which shares of Designated Preferred Stock were first issued by the Predecessor.

 

(k)           “Predecessor” means Crescent Financial Corporation, a North Corporation that is the predecessor to the Corporation.

 

(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 Incorporation.

 

(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 Incorporation, 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 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 Incorporation).

 

(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 purchase 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 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 subsidiary; (iv) any dividends or distributions of rights of 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 by the [Predecessor] 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.

 

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 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 articles of amendment 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 book-entry form through The Depository Trust Company 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.

 

  

  

  

 

(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 authorized number of directors of the Corporation shall automatically be increased by two and 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”) to fill such newly created directorships 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 consent of stockholders required by law or by the Certificate of Incorporation, the vote or consent of the holders of at least 66 2/3% 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 Incorporation for the Designated Preferred Stock 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;

 

(ii)           Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Incorporation for the Designated Preferred Stock (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 [Predecessor] 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 be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Certificate of Incorporation, 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.

 

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 the Certificate of Incorporation 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 Company 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 as provided by applicable law.

 

  

 

  

Exhibit E

 

Officers of the Company and the Bank as of Closing

 

	
Name

	  	
Entity

	  	
Position

	 	 	 	 	 
	
Scott Custer

	  	
Company

	  	
Chief Executive Officer

	 	 	 	 	 
	
Michael G. Carlton

	  	
Company

	  	
President

	 	 	 	 	 
	
Michael G. Carlton

	  	
Bank

	  	
Chief Executive Officer and President

 

  

 

  

 

Exhibit F

 

FORM OF TAX SHARING AGREEMENT

This TAX SHARING AGREEMENT (“Agreement”), dated as of ________, 2011, by and between Piedmont Community Bank Holdings, Inc., a Delaware corporation (“Parent”), by and on behalf of each Affiliate of Parent, and [______________], a Delaware corporation (“Holdco”) and Crescent State Bank, a North Carolina state bank and a wholly-owned banking subsidiary of Holdco (“Bank”).  Parent, its Affiliates, Holdco, and the Bank are sometimes collectively referred to herein as the “Parties” and individually as a “Party.”  Certain capitalized terms used in this Agreement and not otherwise defined have the meanings ascribed to them in Section 1.1.

 

WHEREAS, Parent operates as a bank holding company under the supervision of the Federal Reserve;

 

WHEREAS, pursuant to that certain Investment Agreement dated February —, 2011, by and among Parent, Crescent Financial Corporation, a North Carolina corporation that is the predecessor of Holdco, and Bank (the “Investment Agreement”), Parent purchased and holds ___________ shares of the Holdco common stock (“Common Stock”);

 

WHEREAS, pursuant to the terms of the Investment Agreement, Parent has agreed to commence a tender offer (as it may be amended from time to time as permitted under this Agreement, the “Offer”) to purchase up to 6,442,105 shares of Holdco Common Stock;

 

WHEREAS, upon acquisition of the shares of Common Stock by Parent pursuant to the terms of the Investment Agreement and consummation of the Offer, Parent is the owner of ____________ shares of Holdco Common Stock, which Common Stock represents at least 80 percent of the total voting power of the stock of Holdco and at least 80 percent of the total value of the stock of Holdco, making Parent, its Affiliates, Holdco, and Bank eligible to file a United States federal consolidated corporate income tax return; and

 

WHEREAS, pursuant to the terms of the Investment Agreement, the Parties have covenanted to enter into a tax sharing agreement upon consummation of the acquisition of Holdco Common Stock sufficient for Parent, Holdco, and Bank to be eligible to file a United States federal consolidated corporate income tax return with Parent as the common parent of consolidated return.

 

NOW, THEREFORE, in consideration of the foregoing, the representations, warranties and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

   

  

  

  

 

ARTICLE I.

DEFINITIONS

 

Section 1.01   Definitions When used in this Agreement, the following terms shall have the meanings assigned to them in this Section 1.01.

 

“Affiliate” means, with respect to Parent, any entity taxable as a corporation for United States federal income tax purposes, other than Holdco and Bank, in which Parent’s ownership in the stock or other equity interests of that entity is sufficient to cause the corporation to be an includible corporation in the affiliated group of which Parent is the common parent within the meaning of I.R.C. §1504(a).

 

“Acquisition Date” means, the date upon which Parent became the owner of ____________ shares of Common Stock, which Common stock represents at least 80 percent of the total voting power of the stock of Holdco and at least 80 percent of the total value of the stock of Holdco, making Parent, its Affiliates, if any, Holdco, and Bank eligible to file a United States federal consolidated corporate income tax return or, if later, the first day of the taxable year for which Parent, its Affiliates, if any, Holdco, and Bank elect to file a United States federal consolidated corporate income tax return.

 

“After Tax Amount” means the payment of both an amount otherwise required to be paid by any Party under the terms of this Agreement plus an additional amount (determined through a gross-up mechanism) such that the result of deducting the increase in any Taxes due (computed by taking into account the inclusion of the payment and such additional amount in income and any deductions, losses, and credits that are allowed for such payment and additional amount) from the sum of the payment and such additional amount equals the original payment determined to be due under this Agreement as if no Tax had been applied to such original payment.

 

“Agreement” means this Tax Sharing Agreement, including any schedules, exhibits, and appendices attached hereto.

 

"Combined Return" means any combined, unitary, or consolidated Tax Return or report used in the determination of a United States federal, state, local, or foreign Income Tax liability.

 

“Final Determination” shall mean the final resolution of liability for any Tax for a Tax period, including any related interest, penalties or other additions to tax, upon the earliest of  (i) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (ii) by a closing agreement or accepted offer in compromise under Section 7121 or Section 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iii) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; or (iv) by any other written agreement or final disposition, including by reason of the expiration of the applicable statute of limitations, whereby a Taxing Authority is prohibited from seeking any further judicial or administrative remedy with respect to such Tax or Tax period.

 

  

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“Holdco Separate Federal Tax Liability” means, for any Tax period, the amount of federal income tax that would be due and currently payable by Holdco and Bank assuming that Holdco and Bank separately filed a consolidated U.S. federal income tax return, instead of being included in the consolidated U.S. federal income tax return of Parent.

 

“Holdco Separate State Tax Liability” means, for any Tax period, the amount of state income tax that would be due and currently payable assuming that Holdco and Bank separately filed on a consolidated, combined or unitary basis for state income tax purposes, instead of being included in such consolidated, combined or unitary state income tax return of Parent or of one of its Affiliates.

 

“Income Tax” or “Income Taxes” means all federal, state, local, and foreign income Taxes or other Taxes based on net income, but not including franchise, net worth, or other similar Taxes regardless of how measured or computed.

 

“I.R.C.” means the Internal Revenue Code of 1986, as amended.

 

“IRS” means the Internal Revenue Service.

 

“Liability Issue” has the meaning prescribed in Section 3.03(b).

 

“Other Tax” or “Other Taxes” means all Taxes other than an Income Tax or Income Taxes.

 

“Owed Party” has the meaning prescribed in Section 4.03.

 

“Owing Party” has the meaning prescribed in Section 4.03.

 

“Responsible Party” has the meaning prescribed in Section 3.02(a).

 

“Separate Income Tax Liability” means, for any Tax period, the amount of federal state, local, and foreign Income Tax that is due and currently payable by Parent, Affiliate, Holdco, or Bank, as the case may be, on any Tax Return other than a Combined Return.

 

“Tax” and “Taxes” mean any form of taxation, whenever created or imposed, and whenever imposed by a Taxing Authority, and without limiting the generality of the foregoing, shall include any net income, alternative or add-on minimum tax, gross income, sales, use, ad valorem, gross receipts, value added, franchise, profits, license, transfer, recording, withholding, payroll, employment, excise, severance, stamp, occupation, property, windfall profit, custom duty, or other tax, government fee, or other like assessment or charge, of any kind whatsoever, together with any related interest, penalties, or other additions to tax, or additional amount imposed by any such Taxing Authority.

 

  

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 “Tax Benefit” means, with respect to any Party, a decrease in such Party’s Tax liability with respect to any Tax Return that may arise in connection with the resolution of any Tax Controversy.

 

“Tax Controversy” has the meaning prescribed in Section 3.02(a).

 

“Tax Detriment” means, with respect to any Party, an increase in such Party’s Tax liability with respect to any Tax Return that may arise in connection with the resolution of any Tax Controversy.

 

“Taxing Authority” means any national, municipal, governmental, state, federal, foreign, or other body, or any quasi-governmental or private body, having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

 

“Tax Item” means any item of income, gain, loss, deduction, credit, recapture of credit, or any other item (including the basis or adjusted basis of property).

 

“Tax Return” means any return, filing, questionnaire or other document required to be filed, including requests for extensions of time, filings made with estimated Tax payments, claims for refund or amended returns, that may be filed for any taxable period with any Taxing Authority in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing).

 

“Treasury Regulations” means the final and temporary (but not proposed) income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

 

ARTICLE II.

RESPONSIBILITY AND INDEMNIFICATION FOR TAXES

 

Section 2.01   Responsibility and Indemnification for Taxes.

 

(a)     From and after the Acquisition Date, without duplication, each of Parent and its Affiliates, on the one hand, and Holdco and Bank, on the other, shall be responsible for, and shall pay their respective shares of, the liability for Taxes of Parent and its Affiliates, and Holdco and Bank, respectively, as otherwise provided in this Agreement.  Parent and its Affiliates shall indemnify and hold harmless Holdco and Bank from any Taxes for which Parent or its Affiliates are responsible pursuant to this Agreement.  Holdco and Bank shall indemnify and hold harmless Parent and its Affiliates from any Taxes for which Bank and Holdco are responsible pursuant to this Agreement.

 

(b)    Payments to Taxing Authorities and between the Parties, as the case may be, shall be made in accordance with the provisions of this Agreement.

 

  

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Section 2.02   Income Taxes.

 

(a)     Holdco and Bank shall be liable for: (i) all Income Taxes incurred on any Combined Return of which Holdco is the common parent for any Tax period which ends on or before the Acquisition Date; (ii) 100% of any Holdco Separate Federal Income Tax Liability for any Tax period ending after the Acquisition Date; (iii) 100% of any Holdco Separate State Income Tax Liability for any Tax period ending after the Acquisition Date; and (iv) any Separate Income Tax Liability of Holdco or Bank for any Tax period ending after the Acquisition Date.

 

(b)    Parent shall be liable for: (i) the excess of (1) all Income Taxes incurred on any Combined Return for any Tax period ending after the Acquisition Date, less (2) all Income Taxes for such Tax period that Holdco or Bank are liable for pursuant to Section 2.02(a); and (ii) any Separate Income Tax Liability of Parent or Affiliate for any Tax period ending after the Acquisition Date.

 

Section 2.03   Other Taxes.

 

(a)     Holdco and Bank shall be responsible for all Other Taxes attributable to Holdco and Bank and their businesses for all Tax periods.

 

(b)    Parent shall be responsible for all Other Taxes attributable to Parent and its Affiliates  and to their business activities for all Tax periods.

 

Section 2.04   Responsibility for and Timing of Payments.

 

(a)     It shall be the responsibility of the Party in whose name any Tax return is filed or required to be filed to timely remit, in appropriate amounts, all Taxes, including estimated Taxes, due with respect to such Tax return to the appropriate Taxing Authority.

 

(b)    All Taxes that are the liability of Holdco and Bank, in accordance with the provisions of Sections 2.02(a)(ii) or 2.02(a)(iii) hereof, shall be paid to Parent not later than _____ (__) business days after a request for payment by Parent.

 

(c)     All payments and requests for payment under this Section 2.04 shall be accompanied by a calculation setting forth in reasonable detail the basis for the amount paid or demanded.

 

(d)    To the extent that there is a refund due with respect to any Tax Return, the Party receiving such refund shall remit such refund (including an appropriate share of any interest, if any, received as a part of such refund) to the Party or Parties who remitted in excess of their amount of Taxes for which they are liable under Section 2.02 not later than _____ (__) business days after a receipt of such refund by such Party.  In the event that there is an overpayment reported on any Tax Return that is treated as a credit in computing any Tax liability due with respect to a subsequent Tax Return required to be filed by the Parties, then the Party or Parties having contributed to such overpayment shall receive appropriate credit in determining such Party or Parties obligations with respect to the Tax liability for such subsequent Tax Return.

 

  

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Section 2.05   Payment for Use of Net Operating Loss.

 

If Holdco or Bank have no Holdco Separate Federal Income Tax or Holdco Separate State Income Tax liability with respect to a Tax period ending after the Acquisition Date, due to the existence of a current net operating loss for such Tax period, or a net operating loss incurred after the Acquisition Date and carried forward to such Tax period, and a Combined Return will be filed by Parent with respect to such Tax period, then Parent shall pay to Holdco an amount equal to the product of (1) 100% times (2) the excess, if any, of (i) the Tax that would otherwise have been due with respect to such Combined Return had the results of Holdco and Bank not been included in such Combined Return, over (ii) the actual tax shown as due with respect to such Combined Return.  Such payment shall be made by Parent to Holdco not later than 30 days following the filing of such Combined Return.

 

Section 2.06   Audit Adjustments.

 

(a)     Not later than 30 days after any Final Determination is made with respect to any Tax Return for any Tax period, the Party with responsibility for the payment of Tax with respect to such Tax Return under Section 2.04 (a) shall re-determine each such other Party’s Tax liability, if any, under Section 2.02 of this Agreement, as if such all such adjustments and items included in such Final Determination had been included in such original Tax Return.  Any Party whose re-determined liability for payments under Section 2.02 exceeds his original liability with respect to such Tax Return, shall remit the amount of such excess in the manner required under Section 2.02.  Any Party whose re-determined liability for payments under Section 2.02 is less than his original liability with respect to such Tax Return, shall be entitled to reimbursement of the amounts overpaid.  All such payments and reimbursements shall be made not later than _____ (__) business days after a request for payment by the Party entitled to receive the payment (or who is required to remit amounts to a Taxing Authority).

 

(b)    All payments and requests for payment or remittances of overpayments under this Section 2.06 shall be accompanied by a calculation setting forth in reasonable detail the basis for the amount paid or requested.

 

Section 2.07   Net Operating Loss Carrybacks.

 

(a)     If Holdco or Bank incurs a net operating loss on any Combined Return in which Parent is the common parent, and Holdco or Bank is entitled to carryback such net operating loss to a period ending prior to the Acquisition Date, and if Parent consents (which consent may be given or withheld in its sole discretion), then Holdco and/or Bank shall be permitted to carryback such net operating loss and file any claim for refund as may be required to recover such back Taxes.  Holdco and/or Bank may retain any refund of Taxes, including any interest paid with respect thereto.

 

(b)    If Parent or any of its Affiliates incur a net operating loss that is part of any Combined Return in which Holdco and Bank are members, and Parent or Affiliate is entitled to carryback such net operating loss to a period ending prior to the Acquisition Date, then Parent and /or Affiliate shall be permitted to carryback such net operating loss and file any claim for refund as may be required to recover such back Taxes.  Parent and/or Affiliate may retain any refund of Taxes, including any interest paid with respect thereto.

 

  

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ARTICLE III.

PREPARATION OF TAX RETURNS

COOPERATION AND EXCHANGE OF INFORMATION

 

Section 3.01   Preparation of Tax Returns.

 

It shall be the responsibility of the Party in whose name any Tax return is filed or required to prepare and timely file such Tax Return.  To the extent that such Return is a Combined Return, all such other Parties included in such Combined Return shall have the right to review and comment as to any tax elections and such other determinations made with respect to the preparation and filing of such Combined Return

 

Section 3.02   Cooperation.

 

(a)     Parent, its Affiliates, Holdco, and Bank shall cooperate fully at such time and to the extent reasonably requested by the other Party in connection with the preparation and filing of any Tax Return or the conduct of any audit, dispute, proceeding, suit, or Tax action concerning any issues or any other matter contemplated hereunder.  Each Party shall make its employees available on a mutually convenient basis, without cost to the other Party, to the extent needed to facilitate such cooperation.  In addition, upon 48 hours notice, each Party shall have the option to use its own employees or agents to view or obtain the materials contemplated in this Section 3.02 on a mutually convenient basis.

 

(b)    Each Party shall make its employees available on a mutually convenient basis, without cost to the other Party, to the extent needed to facilitate such cooperation.  In addition, upon 48 hours notice, each Party shall have the option to use its own employees or agents to view or obtain the materials contemplated in this Section 3.02 on a mutually agreeable and convenient basis.  Any materials contemplated under Section 3.02(a) shall be provided whether or not such material is or may be confidential or proprietary.  If, however, the providing Party determines in good faith that any materials are confidential or proprietary, the providing Party may require the requesting Party to enter into a confidentiality agreement with respect to such materials, not inconsistent with the purposes for which the Party made the request for information.  Each Party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other Party if it exercises the same care as it takes to preserve confidentially for its own similar information.

 

(c)     Notwithstanding anything to the contrary in this Agreement, if a Party materially fails to comply with any of its obligations set forth in this Section 3.02, upon reasonable request and notice by the other Party, the non-performing Party shall (i) reimburse the other Party for any internal or incremental costs incurred by such other Party in having its employees or agents view or obtain such material, and (ii) to the extent such failure results in the imposition of additional Taxes be liable in full for such additional Taxes including any necessary gross-up thereon.

 

  

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Section 3.03   Contest Provisions.

 

(a)     The Party responsible for preparation and filing a Tax Return under Section 3.01 (the “Responsible Party”) shall have the exclusive right to control, contest, and represent the interests of the other Parties in any Tax controversy, including (without limitation) any audit, protest, or claim for refund to the Appeals Division of the IRS, competent authority proceeding, and litigation in Tax Court or any other court of competent jurisdiction (a “Tax Controversy”) related to such Tax Return.  Subject to Section 3.03(c) hereof, such exclusive right shall include the right, in the Responsible Party’s reasonable discretion, to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Tax Controversy.  Such control rights shall extend to any matter pertaining to the management and control of a Tax Controversy, including execution of waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item.  Any costs incurred in the handling or contesting of a Tax Controversy shall be borne by the Responsible Party.

 

(b)    Parent shall notify Holdco in writing within 60 days of the initiation of any of Tax audits and litigation involving any issue that could give rise to a liability of Holdco or Bank under Section 2.02 and shall use reasonable efforts to keep Holdco advised as to the status of Tax audits and litigation; and Holdco shall notify Parent in writing within 60 days of the initiation of any Tax audits and litigation involving any issue that that could give rise to a liability of Parent or an Affiliate under Section 2.2 and shall use reasonable efforts to keep Holdco advised as to the status of Tax audits and litigation, (in each case, a “Liability Issue”).  Parent and Holdco shall promptly furnish to each other copies of any inquiries or requests for information from any Taxing Authority or any other administrative, judicial, or other governmental authority concerning any Liability Issue pertaining to the other Party.  Without limiting the foregoing, Parent or Holdco, as the case may be, shall each promptly furnish to the other within 30 days of receipt a copy of the relevant section of the revenue agent’s report or similar report, notice of proposed adjustment, or notice of deficiency received by Parent or by Holdco, as the case may be, relating to any Liability Issue or any adjustment referred to in this Section 3.02(b).

 

(c)     Notwithstanding anything in Section 3.03(a) to the contrary:

 

(i)           To the extent resolution of any Tax Controversy could give rise to a material Tax Detriment or loss of a material Tax Benefit to any Party totaling at least $____________, but such Party is not the Responsible Party, then the Responsible Party shall provide such other Party (at such other Party’s expense) reasonable participation rights with respect to so much of the Tax Controversy as relates to Taxes for which such other Party may be responsible; and

 

  

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(ii)           A Responsible Party shall not settle or otherwise voluntarily resolve or disclose any Tax Controversy which could give rise to a Tax Detriment or loss of a material Tax Benefit to the other Party totaling at least $______ without such other Party’s consent, not to be unreasonably withheld; provided that Parent shall be entitled to participate in such determination.

 

ARTICLE IV.

MISCELLANEOUS

 

Section 4.01   Effectiveness.  This Agreement shall become effective on the Acquisition Date.

 

Section 4.02   Disclaimers.

 

(a)     Parent disclaims all knowledge of or responsibility for the content or accuracy of any separate returns or filings made by or on behalf of Holdco and Bank beginning on or before the Acquisition Date.

 

(b)    Holdco and Bank disclaims all knowledge of or responsibility for the content or accuracy of any Tax Returns or filings made by or on behalf of Parent for any period beginning or prior to the Acquisition Date.

 

Section 4.03   Payments.

 

(a)     In the event that one Party (the “Owing Party”) is required to make a payment to another Party (the “Owed Party”) pursuant to this Agreement, then to the extent not otherwise provided for in this Agreement, such payment shall be made according to this Section 4.03.

 

(b)    All payments shall be made to the Owed Party or to the appropriate Taxing Authority as specified by the Owed Party within the time prescribed for the payment in this Agreement, or if no period is prescribed, within 30 days after delivery of written notice of payment owing together with a computation of the amounts due.

 

(c)     All actions required to be taken by any Party under this Agreement shall be performed within the time prescribed for performance in this Agreement, or if no period is prescribed, such actions shall be performed promptly.

 

(d)    If, pursuant to a Final Determination, it is determined that the receipt or accrual of any payment made under this Agreement (other than payments of interest) is subject to any Tax, the Party making such payment shall be liable for (i) the After Tax Amount with respect to such payment, and (ii) interest at the IRS prescribed rate for underpayments applicable in the case of a large corporation on the amount of such tax from the date such Tax is due through the date of payment of such After Tax Amount.  A Party making a demand for payment pursuant to this Agreement and for a payment of an After Tax Amount with respect to such payment shall separately specify and compute such After Tax Amount.  However, a Party may choose not to specify an After Tax Amount in a demand for payment pursuant to this Agreement without thereby being deemed to have waived its right subsequently to demand an After Tax Amount with respect to such payment.

 

  

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(e)     Any payment that is required to be made pursuant to this Agreement (A) by Holdco or Bank to Parent or any Parent Affiliate or (B) by Parent or any Parent Affiliate to Holdco or Bank, that is not made on or prior to the date that such payment is required to be made pursuant to this Agreement shall thereafter bear interest at the IRS prescribed rate for underpayments applicable in the case of a large corporation on the amount of such tax from the date such payment is due through the date of actual payment.

 

(f)     Any payment that is required to be made pursuant to this Agreement (A) by Holdco or Bank to Parent or (B) by Parent or any of its Affiliates to Holdco or Bank, shall be made by wire transfer of immediately available funds.

 

Section 4.04  Changes in Law. Any reference to a provision of the I.R.C., Treasury Regulations, or a law of another jurisdiction shall include a reference to any applicable successor provision or law.  If, due to any change in applicable law or regulations or their interpretation by any court of law or other governing body having jurisdiction subsequent to the date specified in the preamble to this Agreement, performance of any provision of this Agreement or any transaction contemplated hereby shall become impracticable or impossible, the Parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.

 

Section 4.05  Notices.  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by standard form of telecommunications, by courier, or by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

If to Parent or any Parent Affiliate, at:

Piedmont Community Bank Holdings, Inc.

4350 Lassiter at North Hills

Suite 330

Raleigh, NC 27609

Attn: Scott Custer, Chief Executive Officer

Facsimile No.: (919) 784-0029

With a copy to:

Bryan Cave LLP

1290 Avenue of the Americas

New York, NY 10104

Attn:  Kenneth Henderson, Esq.

Facsimile No.: (212) 541-1357

 

  

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If to Holdco or Bank, at:

Crescent State Bank

1005 High House Road

Carey, North Carolina 27513

Attention:  _____________

Facsimile No.:  _____________

With a copy to:

Gaeta & Eveson, P.A.

700 Spring Forest Road

Suite 335

Raleigh, NC 27609

Attention: Anthony Gaeta, Jr.

Facsimile No.: (919) 518-2146

 

or to such other address as any Party hereto may have furnished to the other Parties by a notice in writing in accordance with this Section 4.05.

 

Section 4.06   Complete Agreement; Corporate Power.

 

(a)     This Agreement shall constitute the entire agreement between the Parties hereto with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.

 

(b)    Parent, on behalf of itself and each Parent Affiliate, and Holdco and Bank represent, as follows:

 

 i)           each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to complete the transactions contemplated hereby and thereby;

 

 ii)          this Agreement has been duly executed and delivered and constitutes a valid and binding agreement enforceable in accordance with the terms thereof.

 

Section 4.07  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware as to all matters, including matters of validity, construction, effect, performance and remedies, and without regard to conflicts of laws principles.

 

Section 4.08  Successors and Assigns.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns, but neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned by any Party without the prior written consent of the other Party.  This Agreement is solely for the benefit of the Parties hereto and their subsidiaries and affiliates and is not intended to confer upon any other Persons any rights or remedies hereunder.

 

  

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Section 4.09   Parties in Interest.  Nothing in this Agreement, express or implied, is intended to confer on any Person other than the Parties, their respective Affiliates, and their respective successors and permitted assigns, any rights or remedies of any nature whatsoever under or by virtue of this Agreement.

 

Section 4.10   Expenses.  Unless otherwise expressly provided in this Agreement, each Party shall bear any and all expenses that arise from their respective obligations under this Agreement.

 

Section 4.11   Amendments and Modification.  This Agreement may be amended, modified or supplemented only by a written agreement signed by all of the Parties hereto.

 

Section 4.12  No Implied Waivers; Writing Required.  No delay or failure in exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any further exercise thereof or of any other right, power or remedy.  Any waiver, permit, consent or approval of any kind or character of any breach or default under this Agreement or any such waiver of any provision of this Agreement shall be effective only to the extent in such writing specifically set forth.

 

Section 4.13  Severability.  If any provision of this Agreement 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 provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall 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 adverse to any Party.

 

Section 4.14  Construction.  The descriptive headings herein are inserted for convenience of reference only and are not intended to be a substantive part of or to affect the meaning or interpretation of this Agreement. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs shall include the plural and vice versa. Reference to any agreement, document, or instrument means such agreement, document, or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. The Parties have participated jointly in the negotiation and drafting of this Agreement and the Separation Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. The Parties agree that prior drafts of this Agreement shall be deemed not to provide any evidence as to the meaning of any provision hereof or the intent of the Parties hereto with respect hereto.

 

  

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Section 4.15  Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

Section 4.16  Delivery by Facsimile and Other Electronic Means.  This Agreement, and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or other electronic transmission, shall be treated in all manner and respects as an original contract and shall be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any Party, each other Party shall re-execute original forms thereof and deliver them to all other Parties. No Party shall raise the use of a facsimile machine or other electronic means to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or other electronic means as a defense to the formation of a contract and each such Party forever waives any such defense.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

  

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in multiple originals by their authorized officers, all as of the date and year first above written.

 

	
CRESCENT FINANCIAL CORPORATION

	  	  
	
By:

	
   

	
Name:

	
   

	
Title:

	
   

	  	  
	
CRESCENT STATE BANK

	  	  
	
By:

	
   

	
Name:

	
   

	
Title:

	
   

	  	  
	
PIEDMONT COMMUNITY BANK HOLDINGS, INC. (on its behalf and on behalf of each of its Affiliate)

	  	  
	
By:

	
   

	
Name:

	
   

	
Title:

	
   

 

  

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Exhibit G

 

FORM OF AMENDED AND RESTATED BYLAWS

 

OF

 

[_____________________________]

 

 ADOPTED ON

[___________] , 2011

 

ARTICLE I

OFFICES

 

Section 1.1 Offices. In addition to the Corporation’s registered office in the State of Delaware, as provided for in the Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), the Corporation may also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

 

Section 1.2 Books and Records. The books and records of the Corporation may be kept at the Corporation’s headquarters in Cary, North Carolina, or such other location or locations inside or outside the State of Delaware as may from time to time be designated by the Board of Directors.

ARTICLE II

CORPORATE SEAL

 

Section 2.1 Corporate Seal. The corporate seal shall consist of a die bearing the name of the Corporation and the inscription, “Corporate Seal – Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

 

ARTICLE III

STOCKHOLDERS’ MEETINGS

 

Section 3.1 Place of Meetings. Meetings of the stockholders of the Corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but instead shall be held solely by means of remote communication as provided under the General Corporation Law of the State of Delaware, as amended (the “DGCL”).

 

Section 3.2 Annual Meeting. To the extent required by applicable law, an annual meeting of stockholders of the Corporation shall be held each year at such date and time designated by the Board of Directors. At each annual meeting of stockholders, directors shall be elected and any such other business as properly brought before the annual meeting may be transacted.

 

  

  

  

 

Section 3.3 Special Meetings. Except as may be provided by the Certificate of Incorporation or in a resolution or resolutions providing for any series of Preferred Stock of the Corporation, special meetings of stockholders of the Corporation may be called, for any purpose or purposes, only by the Chairman of the Board or by the Secretary upon direction of the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. At any special meeting, the business transacted shall be limited to the purpose or purposes of such meeting specified in the notice of the meeting.

Section 3.4 Notice of Meetings.

 

(a) Notice. Except as otherwise required by law, the Certificate of Incorporation or these Bylaws, written, printed or electronic notice stating the place, if any, date and hour of the meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be prepared and delivered by the Corporation not less than ten nor more than sixty days before the date of the meeting, either personally, by mail, or in the case of stockholders who have consented to such delivery, by electronic transmission (as such term is defined in the DGCL), to each stockholder of record entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, such notice to specify the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting.

 

(b) Notice Deemed Received. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at such address as it appears on the records of the Corporation. Notice given by electronic transmission shall be effective (1) if by facsimile, when faxed to a number where the stockholder has consented to receive notice; (2) if by electronic mail, when mailed electronically to an electronic mail address at which the stockholder has consented to receive such notice; (3) if by posting on an electronic network together with a separate notice of such posting, upon the later to occur of (i) the posting or (ii) the giving of separate notice of the posting; or (4) if by other form of electronic transmission, when directed to the stockholder in the manner consented to by the stockholder.

 

(c) Waiver of Notice. Notice of the date, hour and place, if any, and, if applicable, the purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any such stockholder’s attendance at the meeting in person, by remote communication, if applicable, or by proxy, except if the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

 

(d) Postponement-Cancellation. Any previously scheduled meeting of stockholders may be postponed, and, unless otherwise prohibited by applicable law or the Certificate of Incorporation, may be cancelled by resolution duly adopted by a majority of the entire Board of Directors, upon public notice given prior to the date previously scheduled for such meeting of stockholders.

 

  

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Section 3.5 Quorum and Adjournment. Unless otherwise provided in the Certificate of Incorporation or these Bylaws or required by applicable law, holders of a majority of the voting power of the issued and outstanding shares of capital stock of the Corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders. If such quorum is not so present or represented at any meeting of stockholders, then the chairman of the meeting or the holders of a majority in voting power of the shares present in person or represented by proxy at the meeting shall have power to adjourn the meeting from time to time until a quorum is so present or represented. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, of such adjourned meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At such adjourned meeting at which a quorum is so present or represented, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall also fix a new record date for determining the stockholders entitled to notice of such adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such adjourned meeting.

 

Section 3.6 Voting. Each stockholder shall be entitled to that number of votes for each share of capital stock held by such stockholder as set forth in the Certificate of Incorporation. In all matters, other than the election of directors and except as otherwise required by law, the Certificate of Incorporation, these Bylaws or the rules and regulations of any stock exchange applicable to the Corporation, the affirmative vote of a majority of the voting power of the shares present or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Subject to the rights of the holders of any series of Preferred Stock to elect directors, a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote with respect to the election of directors shall elect directors.

 

Section 3.7 Voting Rights; Proxies. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the Corporation on the record date for such purpose shall be entitled to vote at any meeting of stockholders. Every stockholder entitled to vote at a meeting may authorize another person or persons to act for such stockholder by proxy. No proxy shall be voted or acted upon after three years from its date unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date.

 

  

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Section 3.8 Administration of the Meetings.

 

(a) Annual Meetings of Stockholders.

 

(1) Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by stockholders may be made at an annual meeting of stockholders only (i) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (ii) by or at the direction of the Board of Directors or any duly authorized committee thereof, or (iii) by any stockholder of the Corporation who (A) was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf the nomination or proposal is made, only if such beneficial owner was the beneficial owner of shares of the Corporation) at the time the notice provided for in this Section 3.8 is delivered to the Secretary of the Corporation and at the time of the meeting, (B) is entitled to vote at the meeting and (C) complies with the procedures set forth in this Section 3.8.

 

  

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(2) For any nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of the immediately preceding paragraph, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and provide any updates or supplements to such notice required under paragraph (4) of this Section 3.8(a), and any proposed business must constitute a proper matter for stockholder action under the DGCL. To be timely, a stockholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the ninetieth day, nor earlier than the close of business on the one hundred twentieth day, prior to the first anniversary of the preceding year’s annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty days before or more than seventy days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth day prior to such annual meeting and not later than the close of business on the later of the ninetieth day prior to such annual meeting and the tenth day following the day on which public announcement of the date of such meeting is first made by the Corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (x) as to each person whom the stockholder proposes to nominate for election as a director: (i) all information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, (ii) all information relating to such person that would be required to be set forth in the notice provided for in this Section 3.8 if such person were the stockholder giving the notice, (iii) all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if the stockholder giving the notice were the “registrant” for purposes of such rule and such person were a director or executive officer of such registrant and (iv) such person’s written consent to being named in the proxy statement as a nominee, such person’s agreement to serve as a director if elected and, if applicable, to file an application for finding of suitability if required by any regulatory authority having jurisdiction over the Corporation or otherwise deemed necessary or advisable by the Board of Directors, and such person’s acknowledgement that, to the extent required by applicable law, such person’s eligibility to serve on the Board of Directors shall be contingent upon receipt of any such finding of suitability; (y) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (z) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made: (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of any such beneficial owner, (ii) the class or series and number of shares of capital stock of the Corporation which are directly or indirectly beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) and of record by such stockholder and any such beneficial owner, (iii) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and/or any such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of any nomination, the nominee, (iv) the class or series, if any, and number of options, warrants, puts, calls, convertible securities, stock appreciation rights, or similar rights, obligations or commitments with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares or other securities of the Corporation or with a value derived in whole or in part from the value of any class or series of shares or other securities of the Corporation, whether or not such instrument, right, obligation or commitment shall be subject to settlement in the underlying class or series of shares or other securities of the Corporation (each a “Derivative Security”), which are, directly or indirectly, beneficially owned by such stockholder or beneficial owner, (v) any agreement, arrangement, understanding, or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such stockholder or beneficial owner, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of capital stock or other securities of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder or beneficial owner with respect to any class or series of capital stock or other securities of the Corporation, or that provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of any class or series or capital stock or other securities of the Corporation, (vi) a description of any other direct or indirect opportunity to profit or share in any profit (including any performance-based fees) derived from any increase or decrease in the value of shares or other securities of the Corporation, (vii) any proxy, contract, arrangement, understanding or relationship pursuant to which such stockholder or beneficial owner has a right to vote any shares or other securities of the Corporation, (viii) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder or such beneficial owner that are separated or separable from the underlying shares of the Corporation, (ix) any proportionate interest in shares of the Corporation or Derivative Securities held, directly or indirectly, by a general or limited partnership in which such stockholder or beneficial owner is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, if any, (x) a description of all agreements, arrangements, and understandings between such stockholder or beneficial owner and any other person(s) (including their name(s)) in connection with or related to the ownership or voting of capital stock of the Corporation or Derivative Securities, (xi) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (xii) a representation as to whether the stockholder or the beneficial owner, if any, intends or is part of a group that intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (2) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination, and (xiii) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. The foregoing notice requirements of this Section 3.8 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence of such proposed nominee.

 

  

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(3) Notwithstanding anything in the second sentence of the immediately preceding paragraph to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased effective at the annual meeting and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 3.8 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.

 

(4) A stockholder providing notice of any nominations or other business to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice under this Section 3.8 shall be true and correct as of the record date for determining the stockholders entitled to notice of the meeting and as of the date that is ten business days prior to the date of the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than five business days after the record date of determining the stockholders entitled to notice of the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten business days prior to the date of the meeting or any adjournment or postponement thereof).

 

  

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(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors or any duly authorized committee thereof or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (x) is a stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf the nomination is made, only if such beneficial owner was the beneficial owner of shares of the Corporation) at the time the notice provided for in this Section 3.8 is delivered to the Secretary of the Corporation and at the time of the meeting, (y) is entitled to vote at the meeting and upon such election and (z) who complies with the notice procedures set forth in this Section 3.8. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, for any stockholder entitled to vote in such election of directors to nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, which notice shall set forth the information otherwise required to be included in a notice of a nomination to be made at an annual meeting in accordance with paragraph (a)(2) of this Section 3.8, and provide any updates or supplements to such notice required by this paragraph (b). To be timely, a stockholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth day prior to such special meeting and not later than the close of business on the later of the ninetieth day prior to such special meeting and the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

 

A stockholder providing notice of nominations of persons for election to the Board of Directors at a special meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice under this Section 3.8 shall be true and correct as of the record date for determining the stockholders entitled to notice of the meeting and as of the date that is ten business days prior to the date of the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than five business days after the record date for determining the stockholders entitled to notice of the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight business days prior to the date of the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten business days prior to the date of the meeting or any adjournment or postponement thereof).

 

  

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(c) General.

 

(1) Only such persons who are nominated in accordance with the procedures set forth in this Section 3.8 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 3.8. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (i) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 3.8 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group that solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s nominee or proposal in compliance with such stockholder’s representation as required by clauses (a)(2)(z)(xi) and (a)(2)(z)(xii) of this Section 3.8) and (ii) if any proposed nomination or business was not made or proposed in compliance with this Section 3.8, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 3.8, unless otherwise required by applicable law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 3.8, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such persons must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

 

(2) For purposes of this Section 3.8, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or other national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

 

(3) Notwithstanding the foregoing provisions of this Section 3.8, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 3.8; provided, however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 3.8, and compliance with this Section 3.8 shall be the exclusive means for a stockholder to make nominations or submit other business. Nothing in this Section 3.8 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

 

  

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Section 3.9 List of Stockholders. The officer of the Corporation who has charge of the stock ledger shall prepare and make available, at least ten days before every meeting of stockholders a complete list of the stockholders entitled to vote at said meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least ten days prior to the meeting (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours at the principal place of business of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 3.9 or to vote in person or by proxy at any meeting of stockholders.

 

Section 3.10 Conduct of Meetings.

 

(a) At every meeting of stockholders, the Chairman of the Board, or, if a Chairman of the Board has not been appointed or is absent, the Chief Executive Officer, or, if the Chief Executive Officer is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in voting power of the stockholders entitled to vote, present in person or by proxy, shall act as chairman of the meeting. The Secretary of the Corporation, or, in his or her absence, an Assistant Secretary or other person directed to do so by the chairman of the meeting, shall act as secretary of the meeting.

 

(b) The Board of Directors shall be entitled, to the extent not prohibited by law, to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, convening and (for any or no reason) adjourning the meeting, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on attendance at or participation in such meeting to stockholders of record of the Corporation entitled to vote at the meeting and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

 

  

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Section 3.11 Inspectors of Elections. The Corporation may, and to the extent required by law shall, in advance of any meeting of stockholders appoint one or more inspectors of election, which inspector or inspectors of election may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation, to act at the meeting and make a written report thereof. One or more persons may be designated as alternate inspectors of election to replace any inspector of election who fails to act. If no inspector or alternate has been appointed to act, or if all inspectors of election or alternates who have been appointed are unable to act, at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors of election to act at the meeting. Each inspector of election, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector of election with strict impartiality and according to the best of his or her ability. The inspectors of election shall have the duties prescribed by the DGCL.

 

ARTICLE IV

DIRECTORS

 

Section 4.1 General Powers.  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to such powers as are herein and in the Certificate of Incorporation expressly conferred upon it, the Board of Directors shall have and may exercise all the powers of the Corporation, subject to the provisions of the laws of the State of Delaware, the Certificate of Incorporation and these Bylaws.

 

Section 4.2 Number, Term and Qualifications.  The number of directors constituting the Board of Directors of the Corporation shall be fixed from time to time by resolution passed by a majority of the full Board of Directors, but shall not be less than five (5) nor more than twenty five (25). The directors shall, except as hereinafter otherwise provided for filling vacancies, be elected at the annual meeting of stockholders of the Corporation, and shall hold office until their respective successors are elected and qualified or until their earlier resignation or removal.  No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director.

 

Section 4.3 Vacancies.  Except as otherwise provided by law, any vacancy on the Board of Directors (whether because of death, resignation, removal, an increase in the number of directors, or any other cause) may be filled by the affirmative vote of a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and any director so chosen shall hold office until the next annual meeting of shareholders at which directors are elected and until his or her successor is duly elected and shall qualify, or until his or her earlier resignation or removal.

 

Section 4.4 Meetings.

 

(a) Regular Meetings. The Board of Directors may, by resolution, provide for the time and place for the holding of regular meetings of the Board of Directors. No further notice shall be required for regular meetings of the Board of Directors.

 

(b) Special Meetings. Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware, whenever called by the Chairman of the Board, the Chief Executive Officer or any two of the directors.

 

  

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(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

 

(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be given to each director at his business or residence in writing, or by facsimile transmission, telephone communication or electronic transmission. If mailed, such notice shall be deemed adequately delivered when deposited in the United States mail so addressed, with postage thereon prepaid, at least five days before such meeting. If by facsimile transmission or other electronic transmission, such notice shall be transmitted at least twenty-four hours before such meeting. If by telephone, the notice shall be given at least twelve hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice of such meeting.

 

(e) Waiver of Notice. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be deemed waived by any director by attendance at the meeting, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. All waivers shall be filed with the corporate records or made a part of the minutes of the meeting.

 

Section 4.5 Quorum and Voting.

 

(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the total number of directors constituting the entire Board of Directors, as such total number is fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn the meeting from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

 

(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote is required by the DGCL, the Certificate of Incorporation or these Bylaws.

 

Section 4.6 Action Without a Meeting. Unless otherwise prohibited by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or the committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or the committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

  

Section 4.7 Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.

 

  

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Section 4.8 Committees.

 

(a) Establishment of Committees. The Board of Directors may, by resolution of a majority of the entire Board of Directors, designate one or more committees, each such committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the DGCL and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval; or (ii) adopting, amending or repealing any Bylaw.

 

(b) Executive Committee. The Board of Directors, by resolution adopted by a majority of the number of directors fixed by these Bylaws, may designate two or more directors to constitute an Executive Committee, which committee, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors to the extent permitted by applicable law.

 

(c) Term. Except as provided by applicable law, the Board of Directors may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee.

 

(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of any committee appointed pursuant to this Section 4 shall be held at such times and places, if any, as are determined by the Board of Directors, the Chairman of the Board, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the matter provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be deemed waived by any director by attendance at the meeting, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

 

  

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Section 4.9 Conduct of Meetings. At every meeting of the Board of Directors, the Chairman of the Board, or, if a Chairman of the Board has not been appointed or is absent, the Chief Executive Officer (if a director), or if the Chief Executive Officer is absent, the President (if a director), or, if the President is absent, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his or her absence, an Assistant Secretary or other person directed to do so by the chairman of the meeting, shall act as a secretary of the meeting.

Section 4.10 Reliance on Books and Records.  A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall, in the performance of such person’s duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

ARTICLE V

OFFICERS

 

Section 5.1 Officers Designated. The officers of the Corporation shall include, if and when designated, a Chairman of the Board, a Chief Executive Officer, a President, a Chief Financial Officer, one or more Vice Presidents, a Secretary, and a Treasurer and such other officers and agents as the Board of Directors from time to time may designate. The Board of Directors may give any officer such further designations or alternative titles as it deems appropriate. The Chairman of the Board shall be chosen from the directors. All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article V. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by the DGCL. The salaries and other compensation of the officers of the Corporation shall be fixed by or in the manner designated by the Board of Directors.

 

Section 5.2 Term of Office. Each officer of the Corporation shall hold office at the pleasure of the Board of Directors and shall hold office until his or her successor shall have been duly elected and qualified, or until his or her death or until he or she shall resign or be removed.

 

Section 5.3 Duties of Officers.

 

(a) Chairman of the Board. The Chairman of the Board, when present, shall preside at all meetings of the stockholders and at all meetings of the Board of Directors. The Chairman of the Board shall have general supervision, direction and control of the business and affairs of the Corporation, subject only to the power and authority of the Board of Directors. The Chairman of the Board shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

 

  

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(b) Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and (if a director) at all meetings of the Board of Directors, unless a Chairman of the Board has been appointed and is present. The Chief Executive Officer shall have general supervision, direction and control of the business and affairs of the Corporation, subject only to the power and authority of the Board of Directors. The Chief Executive Officer shall perform other duties commonly incident to his or her office, and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

 

(c) President. The President shall preside at all meetings of the stockholders and (if a director) at all meetings of the Board of Directors, unless either the Chief Executive Officer has been appointed and is present or the Chairman of the Board has been appointed and is present. The President shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

 

(d) Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors, the President or the Chief Executive Officer. The Chief Financial Officer, subject to the order of the Board of Directors, shall have custody of all funds and securities of the Corporation. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors, at its regular meetings or when the Board of Directors so requires, an account of the financial condition of the Corporation. The Chief Financial Officer shall perform other duties commonly incident to his or her office, and shall also perform such other duties and have such other powers as the Board of Directors, the President or the Chief Executive Officer shall designate from time to time.

 

(d) Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

 

(e) Secretary. The Secretary shall attend all meetings of the stockholders and the Board of Directors and shall record all acts and proceedings thereof in the minute book of the Corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given to the Secretary in these Bylaws and other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. Any Assistant Secretary may assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The Secretary shall have custody of the seal of the Corporation and shall affix the same to all instruments requiring it, when authorized by the Board of Directors, the Chairman of the Board or the President, and attest to the same.

 

  

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(f) Treasurer. The Treasurer may assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer or whenever the office of Chief Financial Officer is vacant. The Treasurer shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. Any Assistant Treasurer may assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

 

Section 5.4 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

 

Section 5.5 Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation by the Corporation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the Corporation under applicable law, the Certificate of Incorporation, these Bylaws or any contract with the resigning officer.

 

Section 5.6 Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the entire Board of Directors, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.

 

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES

OWNED BY THE CORPORATION

 

Section 6.1 Execution of Corporate Instruments.

 

(a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation any corporate instrument or document, or to sign on behalf of the Corporation the corporate name, or to enter into contracts on behalf of the Corporation, except where otherwise provided by applicable law or these Bylaws, and such execution or signature shall be binding upon the Corporation.

 

(b) In the absence of any determination by the Board of Directors, all instruments and documents requiring the corporate signature, unless otherwise required by applicable law, may be executed, signed or endorsed by the Chairman of the Board, the Chief Executive Officer, the President or Chief Financial Officer or in such other manner as may be directed by the Board of Directors.

 

(c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation or in special accounts of the Corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

 

  

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(d) Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

 

Section 6.2 Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board, the Chief Executive Officer, the President, or any Vice President.

 

ARTICLE VII

SHARES OF STOCK

 

Section 7.1 Form and Execution of Certificates. The shares of stock of the Corporation shall be represented by certificates provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of its stock shall be uncertificated shares. If shares are represented by certificates, the certificates shall be in such form as required by applicable law and as determined by the Board of Directors. Each certificate shall certify the number of shares owned by such holder in the Corporation and shall be signed by, or in the name of the Corporation by the Chairman of the Board, or the President or any Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation designated by the Board of Directors. Any or all signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed, whose facsimile signature has been used on or who has duly affixed a facsimile signature or signatures to any such certificate or certificates shall cease to be such officer, transfer agent or registrar of the Corporation whether because of death, resignation or otherwise before such certificate or certificates have been issued by the Corporation, such certificate or certificates may nevertheless be issued as though the person or persons who signed such certificate or certificates, whose facsimile signature or signatures have been used thereon or who duly affixed a facsimile signature or signatures thereon had not ceased to be such officer, transfer agent or registrar of the Corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The Board of Directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar or both in connection with the transfer of any class or series of securities of the Corporation. The Corporation, or its designated transfer agent or other agent, shall keep a book or set of books to be known as the stock transfer books of the Corporation, containing the name of each holder of record, together with such holder’s address and the number and class or series of shares held by such holder and the date of issue. When shares are represented by certificates, the Corporation shall issue and deliver to each holder to whom such shares have been issued or transferred, certificates representing the shares owned by such holder, and shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation or its designated transfer agent or other agent of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates and record the transaction on its books. When shares are not represented by certificates, shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holder’s attorney duly authorized in writing, with such evidence of the authenticity of such transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps, and within a reasonable time after the issuance or transfer of such shares, the Corporation shall send the holder to whom such shares have been issued or transferred a written statement of the information required by applicable law. Unless otherwise provided by applicable law, the Certificate of Incorporation, these Bylaws or any other instrument the rights and obligations of shareholders are identical, whether or not their shares are represented by certificates.

 

  

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Section 7.2 Lost Certificates. A new certificate or certificates or uncertificated shares shall be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The Corporation may require, as a condition precedent to the issuance of a new certificate or certificates or uncertificated shares, the owner of such lost, stolen, or destroyed certificate or certificates, or such owner’s legal representative, to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

 

Section 7.3 Fixing Record Dates.

 

(a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty nor less than ten days before the date of such meeting. If the Board of Directors so fixes a record date, such record date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.

 

(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

  

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Section 7.4 Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by applicable law.

 

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

 

Section 8.1 Execution of Other Securities. All bonds, debentures and other corporate securities of the Corporation, other than stock certificates (covered in Section 7.1), may be signed by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal may be impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.

 

ARTICLE IX

DIVIDENDS

 

Section 9.1 Declaration of Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and applicable law.

 

Section 9.2 Dividend Reserve. The Board of Directors may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

 

  

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ARTICLE X

FISCAL YEAR

 

Section 10.1 Fiscal Year. The fiscal year of the Corporation shall end on December 31 or such other date as shall be fixed from time to time by resolution of the Board of Directors.

 

ARTICLE XI

INDEMNIFICATION

 

Section 11.1 Right of Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 11.3, the Corporation shall be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors.

 

Section 11.2 Prepayment of Expenses. The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any Proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article XI or otherwise.

 

Section 11.3 Claims. If a claim for indemnification (following the final disposition of the Proceeding with respect to which indemnification is sought, including any settlement of such Proceeding) or advancement of expenses under this Article XI is not paid in full within thirty days after a written claim therefor by the Covered Person has been received by the Corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by applicable law. In any such action the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under this Article XI and applicable law.

 

Section 11.4 Non-exclusivity of Rights. The rights conferred on any Covered Person by this Article XI shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, any other provision of the Certificate of Incorporation, these Bylaws, or any agreement, vote of stockholders or disinterested directors or otherwise.

 

Section 11.5 Amendment or Repeal. Any right to indemnification or to advancement of expenses of any Covered Person arising hereunder shall not be eliminated or impaired by an amendment to or repeal of this Article XI after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought.

 

  

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Section 11.6 Other Indemnification and Advancement of Expenses. This Article XI shall not limit the right of the Corporation, to the extent and in the matter permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.

 

ARTICLE XII

AMENDMENTS

 

Section 12.1 Amendments.  The Board of Directors may amend or repeal these Bylaws, except to the extent otherwise provided by law, the Certificate of Incorporation or a Bylaw adopted by the shareholders, and except that a Bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the Board of Directors unless the Certificate of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend or repeal that particular Bylaw or the Bylaws generally.

 

  

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Annex A

 

Conditions to the Offer

 

Reference is made to the Investment Agreement, dated as of February 23, 2011 (the “Agreement”), by and between Piedmont Community Bank Holdings, Inc., a Delaware corporation (“Investor”), Crescent Financial Corporation, a North Carolina corporation (the “Company”) and Crescent State Bank, a North Carolina state bank and a wholly-owned banking subsidiary of the Company (the “Bank”).  Capitalized terms that are used but not otherwise defined in this Annex A shall have the respective meanings ascribed thereto in the Agreement. Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) the rights and obligations of Investor to extend, terminate and/or modify the Offer (subject to the terms and conditions of the Agreement), Investor (i) shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC (including Rule 14e-1(c) under the Exchange Act (relating to the obligation of Investor to pay for or return tendered Shares promptly after termination or withdrawal of the Offer)), pay for, or may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered Shares and (ii) may terminate or amend the Offer as to Shares not then paid for, in the event that at the then-scheduled Expiration Time (as it may be extended pursuant to Section 6.5(d) of the Agreement) or immediately prior to such payment, any of the following shall have occurred:

 

(a) (i) any restraining order, preliminary or permanent injunction or other Order or similar legal restraint or prohibition shall have been issued by any Governmental Entity of competent jurisdiction and shall then be in effect, or (ii) any suit, Action or other proceeding shall have been instituted by any Governmental Entity and shall remain pending that would reasonably be expected to result in a restraining order, preliminary or permanent injunction or other Order or similar legal restraint or prohibition, in the case of either clause (i) or (ii) preventing the consummation of the Offer;

 

(b) Any Required Approvals required to consummate the transactions contemplated by this Agreement are not in full force and effect as of the date of consummation of the Offer and there shall be no Burdensome Condition;

 

(c) since the date of the Agreement, no Material Adverse Effect shall have occurred.

 

The foregoing conditions are for the sole benefit of Investor and, subject to the terms and conditions of the Agreement, may be waived by Investor, in whole or in part at any time and from time to time in the sole discretion of Investor. The failure or delay by Investor at any time to exercise any of the foregoing rights shall not operate as a waiver of any such right, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time.

 

  

 

  

 

Schedule A

 

Subsidiaries

 

Crescent State Bank

(a North Carolina banking corporation)

 

Crescent Financial Capital Trust I

(a Delaware statutory business trust)

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