Document:

Exhibit 4.3

 

 

 

GUARANTEE
AGREEMENT

 

by and between

 

TENNESSEE
COMMERCE BANCORP, INC.

 

and

 

WILMINGTON
TRUST COMPANY

 

Dated as of June 20,
2008

 

 

 

 

GUARANTEE
AGREEMENT

 

This GUARANTEE AGREEMENT (this “Guarantee”),
dated as of June 20, 2008, is executed and delivered by Tennessee Commerce
Bancorp, Inc., a Tennessee corporation (the “Guarantor”), and Wilmington
Trust Company, a Delaware banking corporation, as trustee (the “Guarantee
Trustee”), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of Tennessee Commerce Statutory
Trust II, a Delaware statutory trust (the “Issuer”).

 

WHEREAS, pursuant to an Amended and Restated
Declaration of Trust (the “Declaration”), dated as of the date hereof, among
Wilmington Trust Company, not in its individual capacity but solely as
institutional trustee, the administrators of the Issuer named therein, the
Guarantor, as sponsor, and the holders from time to time of undivided
beneficial interests in the assets of the Issuer, the Issuer is issuing on the
date hereof those undivided beneficial interests, having an aggregate
liquidation amount of $14,500,000.00
(the “Capital Securities”); and

 

WHEREAS, as incentive for the Holders to
purchase the Capital Securities, the Guarantor desires irrevocably and
unconditionally to agree, to the extent set forth in this Guarantee, to pay to
the Holders of Capital Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth
herein;

 

NOW, THEREFORE, in consideration of the
purchase by each Holder of the Capital Securities, which purchase the Guarantor
hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers
this Guarantee for the benefit of the Holders.

 

ARTICLE I

 

DEFINITIONS
AND INTERPRETATION

 

Section 1.1.           Definitions and
Interpretation.  In this
Guarantee, unless the context otherwise requires:

 

(a)           capitalized terms used in this Guarantee but
not defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;

 

(b)           a term defined anywhere in this Guarantee
has the same meaning throughout;

 

(c)           all references to “the Guarantee” or “this
Guarantee” are to this Guarantee as modified, supplemented or amended from time
to time;

 

(d)           all references in this Guarantee to “Articles”
or “Sections” are to Articles or Sections of this Guarantee, unless otherwise
specified;

 

(e)           terms defined in the Declaration as of the
date of execution of this Guarantee have the same meanings when used in this
Guarantee, unless otherwise defined in this Guarantee or unless the context
otherwise requires; and

 

(f)            a reference to the singular includes the
plural and vice versa.

 

“Affiliate” has the same meaning as
given to that term in Rule 405 of the Securities Act of 1933, as amended,
or any successor rule thereunder.

 

 

“Beneficiaries” means any Person to
whom the Issuer is or hereafter becomes indebted or liable.

 

“Capital Securities” has the meaning
set forth in the recitals to this Guarantee.

 

“Common Securities” means the common
securities issued by the Issuer to the Guarantor pursuant to the Declaration.

 

“Corporate Trust Office” means the
office of the Guarantee Trustee at which the corporate trust business of the
Guarantee Trustee shall, at any particular time, be principally administered,
which office at the date of execution of this Guarantee is located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-1600,
Attention:  Corporate Trust
Administration.

 

“Covered Person” means any Holder of
Capital Securities.

 

“Debentures” means the debt securities
of the Guarantor designated the Floating Rate Junior Subordinated Deferrable
Interest Debentures due 2038 held by the Institutional Trustee (as defined in
the Declaration) of the Issuer.

 

“Declaration Event of Default” means
an “Event of Default” as defined in the Declaration.  “Event of Default” has the meaning set forth
in Section 2.4(a).

 

“Guarantee Payments” means the
following payments or distributions, without duplication, with respect to the
Capital Securities, to the extent not paid or made by the Issuer:  (i) any accrued and unpaid Distributions
(as defined in the Declaration) which are required to be paid on such Capital
Securities to the extent the Issuer shall have funds available therefor, (ii) the
Redemption Price to the extent the Issuer has funds available therefor, with
respect to any Capital Securities called for redemption by the Issuer, (iii) the
Special Redemption Price to the extent the Issuer has funds available therefor,
with respect to Capital Securities redeemed upon the occurrence of a Special
Event, and (iv) upon a voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Issuer (other than in connection with the
distribution of Debentures to the Holders of the Capital Securities in exchange
therefor as provided in the Declaration), the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid Distributions on the
Capital Securities to the date of payment, to the extent the Issuer shall have
funds available therefor, and (b) the amount of assets of the Issuer
remaining available for distribution to Holders in liquidation of the Issuer
(in either case, the “Liquidation Distribution”).

 

“Guarantee Trustee” means Wilmington
Trust Company, until a Successor Guarantee Trustee has been appointed and has
accepted such appointment pursuant to the terms of this Guarantee and
thereafter means each such Successor Guarantee Trustee.

 

“Guarantor” means Tennessee Commerce
Bancorp, Inc. and each of its successors and assigns.

 

“Holder” means any holder, as
registered on the books and records of the Issuer, of any Capital Securities;
provided, however, that, in determining whether the Holders of the requisite percentage
of Capital Securities have given any request, notice, consent or waiver
hereunder, “Holder” shall not include the Guarantor or any Affiliate of the
Guarantor.

 

“Indemnified Person” means the
Guarantee Trustee, any Affiliate of the Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees, representatives,
nominees, custodians or agents of the Guarantee Trustee.

 

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“Indenture” means the Indenture dated
as of the date hereof between the Guarantor and Wilmington Trust Company, not
in its individual capacity but solely as trustee, and any indenture
supplemental thereto pursuant to which the Debentures are to be issued to the
institutional trustee of the Issuer.

 

“Issuer” has the meaning set forth in
the opening paragraph to this Guarantee.

 

“Liquidation Distribution” has the
meaning set forth in the definition of “Guarantee Payments” herein.

 

“Majority in liquidation amount of the
Capital Securities” means Holder(s) of outstanding Capital Securities,
voting together as a class, but separately from the holders of Common
Securities, of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all Capital Securities then outstanding.

 

“Obligations” means any costs,
expenses or liabilities (but not including liabilities related to taxes) of the
Issuer other than obligations of the Issuer to pay to holders of any Trust
Securities the amounts due such holders pursuant to the terms of the Trust
Securities.

 

“Officer’s Certificate” means, with
respect to any Person, a certificate signed by one Authorized Officer of such
Person.  Any Officer’s Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee shall include:

 

(a)           a statement that the officer signing the
Officer’s Certificate has read the covenant or condition and the definitions
relating thereto;

 

(b)           a brief statement of the nature and scope of
the examination or investigation undertaken by the officer in rendering the
Officer’s Certificate;

 

(c)           a statement that the officer has made such
examination or investigation as, in such officer’s opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and

 

(d)           a statement as to whether, in the opinion of
the officer, such condition or covenant has been complied with.

 

“Person” means a legal person,
including any individual, corporation, estate, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated association, or government or any agency or political
subdivision thereof, or any other entity of whatever nature.

 

“Redemption Price” has the meaning set
forth in the Indenture.

 

“Responsible Officer” means, with
respect to the Guarantee Trustee, any officer within the Corporate Trust Office
of the Guarantee Trustee including any Vice President, Assistant Vice
President, Secretary, Assistant Secretary or any other officer of the Guarantee
Trustee customarily performing functions similar to those performed by any of the
above designated officers and also, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of that
officer’s knowledge of and familiarity with the particular subject.

 

“Special Event” has the meaning set
forth in the Indenture.

 

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“Special Redemption Price” has the
meaning set forth in the Indenture.

 

“Successor Guarantee Trustee” means a
successor Guarantee Trustee possessing the qualifications to act as Guarantee
Trustee under Section 3.1.

 

“Trust Securities” means the Common
Securities and the Capital Securities.

 

ARTICLE II

 

POWERS, DUTIES
AND RIGHTS OF

GUARANTEE TRUSTEE

 

Section 2.1.           Powers and Duties of the Guarantee
Trustee.

 

(a)           This Guarantee shall be held by the
Guarantee Trustee for the benefit of the Holders of the Capital Securities, and
the Guarantee Trustee shall not transfer this Guarantee to any Person except a
Holder of Capital Securities exercising his or her rights pursuant to Section 4.4(b) or
to a Successor Guarantee Trustee on acceptance by such Successor Guarantee
Trustee of its appointment to act as Successor Guarantee Trustee.  The right, title and interest of the
Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee,
and such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Guarantee Trustee.

 

(b)           If an Event of Default actually known to a
Responsible Officer of the Guarantee Trustee has occurred and is continuing,
the Guarantee Trustee shall enforce this Guarantee for the benefit of the
Holders of the Capital Securities.

 

(c)           The Guarantee Trustee, before the occurrence
of any Event of Default and after curing all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Guarantee, and no implied covenants shall be read into this
Guarantee against the Guarantee Trustee. 
In case an Event of Default has occurred (that has not been waived
pursuant to Section 2.4) and is actually known to a Responsible Officer of
the Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights
and powers vested in it by this Guarantee, and use the same degree of care and
skill in its exercise thereof, as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs.

 

(d)           No provision of this Guarantee shall be
construed to relieve the Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

 

(i)            prior to the occurrence of any Event of
Default and after the curing or waiving of all such Events of Default that may
have occurred:

 

(A)          the duties and obligations of the Guarantee
Trustee shall be determined solely by the express provisions of this Guarantee,
and the Guarantee Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this Guarantee,
and no implied covenants or obligations shall be read into this Guarantee
against the Guarantee Trustee; and

 

(B)           in the absence of bad faith on the part of
the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the
truth of the statements and the 

 

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correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee; but in the case
of any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Guarantee;

 

(ii)           the Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a Responsible Officer of the
Guarantee Trustee, unless it shall be proved that such Responsible Officer of
the Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining
the pertinent facts upon which such judgment was made;

 

(iii)          the Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it in good faith in
accordance with the written direction of the Holders of not less than a
Majority in liquidation amount of the Capital Securities relating to the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee, or relating to the exercise of any trust or power conferred
upon the Guarantee Trustee under this Guarantee; and

 

(iv)          no provision of this Guarantee shall require
the Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if the Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds is not
reasonably assured to it under the terms of this Guarantee or security and
indemnity, reasonably satisfactory to the Guarantee Trustee, against such risk
or liability is not reasonably assured to it.

 

Section 2.2.           Certain Rights of Guarantee Trustee.

 

(a)           Subject to the provisions of Section 2.1:

 

(i)            The Guarantee Trustee may conclusively
rely, and shall be fully protected in acting or refraining from acting upon,
any resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties.

 

(ii)           Any direction or act of the Guarantor
contemplated by this Guarantee shall be sufficiently evidenced by an Officer’s
Certificate.

 

(iii)          Whenever, in the administration of this
Guarantee, the Guarantee Trustee shall deem it desirable that a matter be
proved or established before taking, suffering or omitting any action
hereunder, the Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officer’s Certificate of the Guarantor which, upon
receipt of such request, shall be promptly delivered by the Guarantor.

 

(iv)          The Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument (or any
re-recording, refiling or re-registration thereof).

 

(v)           The Guarantee Trustee may consult with
counsel of its selection, and the advice or opinion of such counsel with
respect to legal matters shall be full and complete authorization 

 

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and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion. 
Such counsel may be counsel to the Guarantor or any of its Affiliates
and may include any of its employees. 
The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee from any court of
competent jurisdiction.

 

(vi)          The Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Guarantee at the request or direction of any Holder, unless such Holder shall
have provided to the Guarantee Trustee such security and indemnity, reasonably
satisfactory to the Guarantee Trustee, against the costs, expenses (including
attorneys’ fees and expenses and the expenses of the Guarantee Trustee’s
agents, nominees or custodians) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable advances as
may be requested by the Guarantee Trustee; provided, however,
that nothing contained in this Section 2.2(a)(vi) shall relieve the
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Guarantee.

 

(vii)         The Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit.

 

(viii)        The Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or
by or through agents, nominees, custodians or attorneys, and the Guarantee
Trustee shall not be responsible for any misconduct or negligence on the part
of any agent or attorney appointed with due care by it hereunder.

 

(ix)           Any action taken by the Guarantee Trustee or
its agents hereunder shall bind the Holders of the Capital Securities, and the
signature of the Guarantee Trustee or its agents alone shall be sufficient and
effective to perform any such action.  No
third party shall be required to inquire as to the authority of the Guarantee
Trustee to so act or as to its compliance with any of the terms and provisions
of this Guarantee, both of which shall be conclusively evidenced by the
Guarantee Trustee’s or its agent’s taking such action.

 

(x)            Whenever in the administration of this
Guarantee the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (i) may request instructions from the
Holders of a Majority in liquidation amount of the Capital Securities, (ii) may
refrain from enforcing such remedy or right or taking such other action until
such instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions.

 

(xi)           The Guarantee Trustee shall not be liable
for any action taken, suffered, or omitted to be taken by it in good faith,
without negligence, and reasonably believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Guarantee.

 

(b)           No provision of this Guarantee shall be
deemed to impose any duty or obligation on the Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or obligation conferred or
imposed on it, in any jurisdiction in which it shall be illegal or in which the
Guarantee Trustee shall be unqualified or incompetent in accordance with
applicable law to perform any such act or acts or to 

 

6

 

exercise any such right, power, duty or
obligation.  No permissive power or
authority available to the Guarantee Trustee shall be construed to be a duty.

 

Section 2.3.           Not Responsible for
Recitals or Issuance of Guarantee. 
The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Guarantee Trustee does not assume any
responsibility for their correctness. 
The Guarantee Trustee makes no representation as to the validity or
sufficiency of this Guarantee.

 

Section 2.4.           Events of Default; Waiver.

 

(a)           An Event of Default under this Guarantee
will occur upon the failure of the Guarantor to perform any of its payment or
other obligations hereunder.

 

(b)           The Holders of a Majority in liquidation
amount of the Capital Securities may, voting or consenting as a class, on
behalf of the Holders of all of the Capital Securities, waive any past Event of
Default and its consequences.  Upon such
waiver, any such Event of Default shall cease to exist, and shall be deemed to
have been cured, for every purpose of this Guarantee, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.

 

Section 2.5.           Events of Default; Notice.

 

(a)           The Guarantee Trustee shall, within 90 days
after the occurrence of an Event of Default, transmit by mail, first class
postage prepaid, to the Holders of the Capital Securities and the Guarantor,
notices of all Events of Default actually known to a Responsible Officer of the
Guarantee Trustee, unless such defaults have been cured before the giving of
such notice, provided, however, that the Guarantee Trustee shall
be protected in withholding such notice if and so long as a Responsible Officer
of the Guarantee Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders of the Capital Securities.

 

(b)           The Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default unless the Guarantee Trustee shall have
received written notice from the Guarantor or a Holder of the Capital
Securities (except in the case of a payment default), or a Responsible Officer
of the Guarantee Trustee charged with the administration of this Guarantee
shall have obtained actual knowledge thereof.

 

ARTICLE III

 

GUARANTEE
TRUSTEE

 

Section 3.1.           Guarantee Trustee; Eligibility.

 

(a)           There shall at all times be a Guarantee
Trustee which shall:

 

(i)            not be an Affiliate of the Guarantor, and

 

(ii)           be a corporation organized and doing
business under the laws of the United States of America or any state or
territory thereof or of the District of Columbia, or Person authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by federal, state, territorial or District of
Columbia authority.  If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority referred to above, then,
for the purposes of this Section 

 

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3.1(a)(ii), the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.

 

(b)           If at any time the Guarantee Trustee shall
cease to be eligible to so act under Section 3.1(a), the Guarantee Trustee
shall immediately resign in the manner and with the effect set forth in Section 3.2(c).

 

(c)           If the Guarantee Trustee has or shall
acquire any “conflicting interest” within the meaning of Section 310(b) of
the Trust Indenture Act of 1939, as amended, the Guarantee Trustee shall either
eliminate such interest or resign to the extent and in the manner provided by,
and subject to this Guarantee.

 

Section 3.2.           Appointment, Removal and Resignation of
Guarantee Trustee.

 

(a)           Subject to Section 3.2(b), the
Guarantee Trustee may be appointed or removed without cause at any time by the
Guarantor except during an Event of Default.

 

(b)           The Guarantee Trustee shall not be removed
in accordance with Section 3.2(a) until a Successor Guarantee Trustee
has been appointed and has accepted such appointment by written instrument
executed by such Successor Guarantee Trustee and delivered to the Guarantor.

 

(c)           The Guarantee Trustee appointed to office
shall hold office until a Successor Guarantee Trustee shall have been appointed
or until its removal or resignation.  The
Guarantee Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing executed by the Guarantee Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Guarantee Trustee has been appointed and has accepted such
appointment by an instrument in writing executed by such Successor Guarantee
Trustee and delivered to the Guarantor and the resigning Guarantee Trustee.

 

(d)           If no Successor Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section 3.2
within 60 days after delivery of an instrument of removal or resignation, the
Guarantee Trustee resigning or being removed may petition any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee.  Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.

 

(e)           No Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Guarantee Trustee.

 

(f)            Upon termination of this Guarantee or
removal or resignation of the Guarantee Trustee pursuant to this Section 3.2,
the Guarantor shall pay to the Guarantee Trustee all amounts owing to the
Guarantee Trustee under Sections 7.2 and 7.3 accrued to the date of such
termination, removal or resignation.

 

ARTICLE IV

 

GUARANTEE

 

Section 4.1.           Guarantee.

 

(a)           The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by the Issuer), as and when
due, 

 

8

 

regardless of any defense (except the defense
of payment by the Issuer), right of set-off or counterclaim that the Issuer may
have or assert.  The Guarantor’s
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Guarantor to the Holders or by causing the Issuer
to pay such amounts to the Holders.

 

(b)           The Guarantor hereby also agrees to assume
any and all Obligations of the Issuer and in the event any such Obligation is
not so assumed, subject to the terms and conditions hereof, the Guarantor
hereby irrevocably and unconditionally guarantees to each Beneficiary the full
payment, when and as due, of any and all Obligations to such
Beneficiaries.  This Guarantee is
intended to be for the benefit of, and to be enforceable by, all such
Beneficiaries, whether or not such Beneficiaries have received notice hereof.

 

Section 4.2.           Waiver of Notice and
Demand.  The Guarantor hereby
waives notice of acceptance of this Guarantee and of any liability to which it
applies or may apply, presentment, demand for payment, any right to require a
proceeding first against the Issuer or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor,
notice of redemption and all other notices and demands.

 

Section 4.3.           Obligations Not
Affected.  The obligations,
covenants, agreements and duties of the Guarantor under this Guarantee shall in
no way be affected or impaired by reason of the happening from time to time of
any of the following:

 

(a)           the release or waiver, by operation of law
or otherwise, of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the Capital
Securities to be performed or observed by the Issuer;

 

(b)           the extension of time for the payment by the
Issuer of all or any portion of the Distributions, Redemption Price, Special
Redemption Price, Liquidation Distribution or any other sums payable under the
terms of the Capital Securities or the extension of time for the performance of
any other obligation under, arising out of or in connection with, the Capital
Securities (other than an extension of time for payment of Distributions,
Redemption Price, Special Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures
permitted by the Indenture);

 

(c)           any failure, omission, delay or lack of
diligence on the part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the terms of
the Capital Securities, or any action on the part of the Issuer granting
indulgence or extension of any kind;

 

(d)           the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of debt of, or other similar proceedings affecting,
the Issuer or any of the assets of the Issuer;

 

(e)           any invalidity of, or defect or deficiency
in, the Capital Securities;

 

(f)            the settlement or compromise of any
obligation guaranteed hereby or hereby incurred; or

 

(g)           any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a guarantor,
it being the intent of this Section 4.3 that the obligations of the
Guarantor hereunder shall be absolute and unconditional under any and all
circumstances.

 

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There shall be no obligation of the Holders
to give notice to, or obtain consent of, the Guarantor with respect to the
happening of any of the foregoing.

 

Section 4.4.           Rights of Holders.

 

(a)           The Holders of a Majority in liquidation
amount of the Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of this Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under this Guarantee; provided,
however, that (subject to Section 2.1) the Guarantee Trustee shall
have the right to decline to follow any such direction if the Guarantee Trustee
being advised by counsel determines that the action or proceeding so directed
may not lawfully be taken or if the Guarantee Trustee in good faith by its
board of directors or trustees, executive committees or a trust committee of
directors or trustees and/or Responsible Officers shall determine that the
action or proceedings so directed would involve the Guarantee Trustee in
personal liability.

 

(b)           Any Holder of Capital Securities may
institute a legal proceeding directly against the Guarantor to enforce the
Guarantee Trustee’s rights under this Guarantee, without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other
Person.  The Guarantor waives any right
or remedy to require that any such action be brought first against the Issuer,
the Guarantee Trustee or any other Person before so proceeding directly against
the Guarantor.

 

Section 4.5.           Guarantee of Payment.  This Guarantee creates a guarantee of payment
and not of collection.

 

Section 4.6.           Subrogation.  The Guarantor shall be subrogated to all (if
any) rights of the Holders of Capital Securities against the Issuer in respect
of any amounts paid to such Holders by the Guarantor under this Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee, if, after
giving effect to any such payment, any amounts are due and unpaid under this
Guarantee.  If any amount shall be paid
to the Guarantor in violation of the preceding sentence, the Guarantor agrees
to hold such amount in trust for the Holders and to pay over such amount to the
Holders.

 

Section 4.7.           Independent
Obligations.  The Guarantor
acknowledges that its obligations hereunder are independent of the obligations
of the Issuer with respect to the Capital Securities and that the Guarantor
shall be liable as principal and as debtor hereunder to make Guarantee Payments
pursuant to the terms of this Guarantee notwithstanding the occurrence of any
event referred to in subsections (a) through (g), inclusive, of Section 4.3
hereof.

 

Section 4.8.           Enforcement by a
Beneficiary.  A Beneficiary may
enforce the obligations of the Guarantor contained in Section 4.1(b) directly
against the Guarantor and the Guarantor waives any right or remedy to require
that any action be brought against the Issuer or any other person or entity
before proceeding against the Guarantor. 
The Guarantor shall be subrogated to all rights (if any) of any
Beneficiary against the Issuer in respect of any amounts paid to the
Beneficiaries by the Guarantor under this Guarantee; provided, however,
that the Guarantor shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any rights that it may
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee, if at the
time of any such payment, and after giving effect to such payment, any amounts
are due and unpaid under this Guarantee.

 

10

 

ARTICLE V

 

LIMITATION OF
TRANSACTIONS; SUBORDINATION

 

Section 5.1.           Limitation of
Transactions.  So long as any
Capital Securities remain outstanding, if (a) there shall have occurred
and be continuing an Event of Default or a Declaration Event of Default or (b) the
Guarantor shall have selected an Extension Period as provided in the
Declaration and such period, or any extension thereof, shall have commenced and
be continuing, then the Guarantor shall not and shall not permit any Affiliate
to (x) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Guarantor’s or such Affiliate’s capital stock (other than payments of dividends
or distributions to the Guarantor or payments of dividends from direct or
indirect subsidiaries of the Guarantor to their parent corporations, which also
shall be direct or indirect subsidiaries of the Guarantor) or make any
guarantee payments with respect to the foregoing or (y) make any payment
of principal of or interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Guarantor or any Affiliate that rank pari
passu in all respects with or junior in interest to the Debentures (other than,
with respect to clauses (x) and (y) above, (i) repurchases,
redemptions or other acquisitions of shares of capital stock of the Guarantor
in connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
shareholder stock purchase plan or in connection with the issuance of capital
stock of the Guarantor (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
prior to the occurrence of the Event of Default, Declaration Event of Default
or Extension Period, as applicable, (ii) as a result of any exchange or
conversion of any class or series of the Guarantor’s capital stock (or any
capital stock of a subsidiary of the Guarantor) for any class or series of the
Guarantor’s capital stock or of any class or series of the Guarantor’s
indebtedness for any class or series of the Guarantor’s capital stock, (iii) the
purchase of fractional interests in shares of the Guarantor’s capital stock pursuant
to the conversion or exchange provisions of such capital stock or the security
being converted or exchanged, (iv) any declaration of a dividend in
connection with any shareholders’ rights plan, or the issuance of rights, stock
or other property under any shareholders’ rights plan, or the redemption or
repurchase of rights pursuant thereto, (v) any dividend in the form of
stock, warrants, options or other rights where the dividend stock or the stock
issuable upon exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks pari passu with or
junior to such stock and any cash payments in lieu of fractional shares issued
in connection therewith, (vi) payments of principal or interest on debt
securities or payments of cash dividends or distributions on any capital stock
issued by an Affiliate that is not, in whole or in part, a subsidiary of the
Guarantor (or any redemptions, repurchases or liquidation payments on such
stock or securities) or (vii) payments under this Guarantee).

 

Section 5.2.           Ranking.  This Guarantee will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all present and future Senior Indebtedness (as defined in the Indenture)
of the Guarantor.  By their acceptance
thereof, each Holder of Capital Securities agrees to the foregoing provisions
of this Guarantee and the other terms set forth herein.

 

The right of the Guarantor to participate in
any distribution of assets of any of its subsidiaries upon any such subsidiary’s
liquidation or reorganization or otherwise is subject to the prior claims of
creditors of that subsidiary, except to the extent the Guarantor may itself be
recognized as a creditor of that subsidiary. 
Accordingly, the Guarantor’s obligations under this Guarantee will be
effectively subordinated to all existing and future liabilities of the
Guarantor’s subsidiaries, and claimants should look only to the assets of the
Guarantor for payments hereunder.  This Guarantee
does not limit the 

 

11

 

incurrence or issuance of other secured or
unsecured debt of the Guarantor, including Senior Indebtedness of the
Guarantor, under any indenture that the Guarantor may enter into in the future
or otherwise.

 

ARTICLE VI

 

TERMINATION

 

Section 6.1.           Termination.  This Guarantee shall terminate as to the
Capital Securities (i) upon full payment of the Redemption Price or
Special Redemption Price of all Capital Securities then outstanding, (ii) upon
the distribution of all of the Debentures to the Holders of all of the Capital
Securities or (iii) upon full payment of the amounts payable in accordance
with the Declaration upon dissolution of the Issuer.  This Guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time any Holder of Capital
Securities must restore payment of any sums paid under the Capital Securities
or under this Guarantee.

 

ARTICLE VII

 

INDEMNIFICATION

 

Section 7.1.           Exculpation.

 

(a)           No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Guarantor or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith in
accordance with this Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Guarantee or by law, except that an Indemnified
Person shall be liable for any such loss, damage or claim incurred by reason of
such Indemnified Person’s negligence or willful misconduct with respect to such
acts or omissions.

 

(b)           An Indemnified Person shall be fully
protected in relying in good faith upon the records of the Issuer or the
Guarantor and upon such information, opinions, reports or statements presented
to the Issuer or the Guarantor by any Person as to matters the Indemnified
Person reasonably believes are within such other Person’s professional or expert
competence and who, if selected by such Indemnified Person, has been selected
with reasonable care by such Indemnified Person, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders of Capital Securities
might properly be paid.

 

Section 7.2.           Indemnification.

 

(a)           The Guarantor agrees to indemnify each
Indemnified Person for, and to hold each Indemnified Person harmless against,
any and all loss, liability, damage, claim or expense incurred without
negligence or willful misconduct on the part of the Indemnified Person, arising
out of or in connection with the acceptance or administration of the trust or
trusts hereunder, including, but not limited to, the costs and expenses
(including reasonable legal fees and expenses) of the Indemnified Person
defending itself against, or investigating, any claim or liability in
connection with the exercise or performance of any of the Indemnified Person’s
powers or duties hereunder.  The
obligation to indemnify as set forth in this Section 7.2 shall survive the
resignation or removal of the Guarantee Trustee and the termination of this
Guarantee.

 

12

 

(b)           Promptly after receipt by an Indemnified
Person under this Section 7.2 of notice of the commencement of any action,
such Indemnified Person will, if a claim in respect thereof is to be made
against the Guarantor under this Section 7.2, notify the Guarantor in
writing of the commencement thereof; but the failure so to notify the Guarantor
(i) will not relieve the Guarantor from liability under paragraph (a) above
unless and to the extent that the Guarantor did not otherwise learn of such
action and such failure results in the forfeiture by the Guarantor of
substantial rights and defenses and (ii) will not, in any event, relieve
the Guarantor from any obligations to any Indemnified Person other than the indemnification
obligation provided in paragraph (a) above.  The Guarantor shall be entitled to appoint
counsel of the Guarantor’s choice at the Guarantor’s expense to represent the
Indemnified Person in any action for which indemnification is sought (in which
case the Guarantor shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the Indemnified Person or Persons
except as set forth below); provided, however, that such counsel
shall be reasonably satisfactory to the Indemnified Person.  Notwithstanding the Guarantor’s election to
appoint counsel to represent the Guarantor in an action, the Indemnified Person
shall have the right to employ separate counsel (including local counsel), and
the Guarantor shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the Guarantor to
represent the Indemnified Person would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the Indemnified Person and the Guarantor and the
Indemnified Person shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Person(s) which are
different from or additional to those available to the Guarantor, (iii) the
Guarantor shall not have employed counsel satisfactory to the Indemnified
Person to represent the Indemnified Person within a reasonable time after
notice of the institution of such action or (iv) the Guarantor shall
authorize the Indemnified Person to employ separate counsel at the expense of
the Guarantor.  The Guarantor will not,
without the prior written consent of the Indemnified Persons, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
Indemnified Persons are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each Indemnified Person from all liability arising out of such claim,
action, suit or proceeding.

 

Section 7.3.           Compensation;
Reimbursement of Expenses.  The
Guarantor agrees:

 

(a)           to pay to the Guarantee Trustee from time to
time such compensation for all services rendered by it hereunder as the parties
shall agree to from time to time (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust); and

 

(b)           except as otherwise expressly provided
herein, to reimburse the Guarantee Trustee upon request for all reasonable
expenses, disbursements and advances incurred or made by it in accordance with
any provision of this Guarantee (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or willful
misconduct.

 

For purposes of clarification, this Section 7.3
does not contemplate the payment by the Guarantor of acceptance or annual
administration fees owing to the Guarantee Trustee for services to be provided
by the Guarantee Trustee under this Guarantee or the fees and expenses of the
Guarantee Trustee’s counsel in connection with the closing of the transactions
contemplated by this Guarantee.  The
provisions of this Section 7.3 shall survive the resignation or removal of
the Guarantee Trustee and the termination of this Guarantee.

 

13

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1.           Successors and
Assigns.  All guarantees and
agreements contained in this Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Guarantor and shall inure to the
benefit of the Holders of the Capital Securities then outstanding.  Except in connection with any merger or
consolidation of the Guarantor with or into another entity or any sale,
transfer or lease of the Guarantor’s assets to another entity, in each case, to
the extent permitted under the Indenture, the Guarantor may not assign its
rights or delegate its obligations under this Guarantee without the prior
approval of the Holders of at least a Majority in liquidation amount of the Capital
Securities.

 

Section 8.2.           Amendments.  Except with respect to any changes that do
not adversely affect the rights of Holders of the Capital Securities in any
material respect (in which case no consent of Holders will be required), this
Guarantee may be amended only with the prior approval of the Holders of not
less than a Majority in liquidation amount of the Capital Securities.  The provisions of the Declaration with
respect to amendments thereof apply to the giving of such approval.

 

Section 8.3.           Notices.  All notices provided for in this Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:

 

(a)           If given to the Guarantee Trustee, at the
Guarantee Trustee’s mailing address set forth below (or such other address as
the Guarantee Trustee may give notice of to the Holders of the Capital
Securities and the Guarantor):

 

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware 19890-1600

Attention:  Corporate Trust
Administration

Telecopy:  302-636-4140

 

(b)           If given to the Guarantor, at the Guarantor’s
mailing address set forth below (or such other address as the Guarantor may
give notice of to the Holders of the Capital Securities and to the Guarantee
Trustee):

 

Tennessee Commerce Bancorp, Inc.

381 Mallory Station Road, Suite 207

Franklin, Tennessee 37067-8264

Attention:  Michael Sapp

Telecopy:  615-599-2275

 

(c)           If given to any Holder of the Capital
Securities, at the address set forth on the books and records of the Issuer.

 

All such notices shall be deemed to have been
given when received in person, telecopied with receipt confirmed, or mailed by
first class mail, postage prepaid, except that if a notice or other document is
refused delivery or cannot be delivered because of a changed address of which
no notice was given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver.

 

14

 

Section 8.4.           Benefit.  This Guarantee is solely for the benefit of
the Beneficiaries and, subject to Section 2.1(a), is not separately
transferable from the Capital Securities.

 

Section 8.5.           Governing Law.  THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAW).

 

Section 8.6.           Counterparts.  This Guarantee may be executed in one or more
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the
same instrument.

 

Section 8.7            Separability.  In
case one or more of the provisions contained in this Guarantee shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provisions of this Guarantee, but this Guarantee shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein.

 

Signatures appear on the following page

 

15

 

THIS GUARANTEE is executed as of the day and year
first above written.

 

 

	
   

  	
  TENNESSEE COMMERCE BANCORP, INC.,
  as 

  Guarantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Michael R. Sapp

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael R. Sapp

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WILMINGTON
  TRUST COMPANY, as Guarantee 

  Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Christopher J. Slaybaugh

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Christopher J. Slaybaugh

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Assistant Vice President

  
								

 

16Exhibit 10.1

 

FAIRPOINT
COMMUNICATIONS, INC.

 

2008
ANNUAL INCENTIVE PLAN

 

1

 

TABLE OF CONTENTS

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE
  I PURPOSES

  	
  3

  
	
   

  	
   

  
	
  ARTICLE
  II POWERS OF THE COMMITTEE

  	
  3

  
	
   

  	
   

  
	
  2.1 POWER TO GRANT AWARDS

  	
  3

  
	
   

  	
   

  
	
  2.2 ADMINISTRATION

  	
  3

  
	
   

  	
   

  
	
  2.3 DELEGATION BY THE COMMITTEE

  	
  3

  
	
   

  	
   

  
	
  2.4 PARTICIPANTS BASED OUTSIDE THE UNITED
  STATES

  	
  3

  
	
   

  	
   

  
	
  ARTICLE
  III ELIGIBILITY

  	
  3

  
	
   

  	
   

  
	
  ARTICLE
  IV INCENTIVE AWARDS

  	
  4

  
	
   

  	
   

  
	
  4.1 GENERAL

  	
  4

  
	
   

  	
   

  
	
  4.2 PERFORMANCE CRITERIA

  	
  4

  
	
   

  	
   

  
	
  4.3 TERMINATION OF EMPLOYMENT

  	
  4

  
	
   

  	
   

  
	
  4.4 PAYMENT OF AWARDS

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  V FORFEITURE AND RECOUPMENT FOR FINANCIAL REPORTING MISCONDUCT

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  VI SECTION 409 A OF THE CODE

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  VII AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  VIII DEFINITIONS

  	
  6

  
	
   

  	
   

  
	
  8.1 CERTAIN DEFINITIONS

  	
  6

  
	
   

  	
   

  
	
  8.2 GENDER AND NUMBER

  	
  7

  
	
   

  	
   

  
	
  ARTICLE
  IX MISCELLANEOUS PROVISIONS

  	
  7

  
	
   

  	
   

  
	
  9.1 NONTRANSFERABILITY OF AWARDS

  	
  7

  
	
   

  	
   

  
	
  9.2 BENEFICIARY DESIGNATION

  	
  7

  
	
   

  	
   

  
	
  9.3 NO GUARANTEE OF EMPLOYMENT OR
  PARTICIPATION

  	
  7

  
	
   

  	
   

  
	
  9.4 TAX WITHHOLDING

  	
  7

  
	
   

  	
   

  
	
  9.5 INDEMNIFICATION

  	
  8

  
	
   

  	
   

  
	
  9.6 EFFECTIVE DATE

  	
  8

  
	
   

  	
   

  
	
  9.7 NO LIMITATION ON COMPENSATION

  	
  8

  
	
   

  	
   

  
	
  9.8 GOVERNING LAW

  	
  8

  
	
   

  	
   

  
	
  9.9 SEVERABILITY; BLUE PENCIL

  	
  8

  
	
   

  	
   

  
	
  9.10 NO IMPACT ON BENEFITS

  	
  8

  
	
   

  	
   

  
	
  9.11 NO CONSTRAINT ON CORPORATE ACTION

  	
  8

  
	
   

  	
   

  
	
  9.12 HEADINGS AND CAPTIONS

  	
  8

  

 

2

 

FAIRPOINT COMMUNICATIONS, INC.

 

2008 ANNUAL INCENTIVE PLAN

 

ARTICLE I

 

Purposes

 

FairPoint Communications, Inc.
desires to adopt the FairPoint Communications, Inc. 2008 Annual Incentive
Plan to provide annual incentive compensation to employees based on the
performance of FairPoint Communications, Inc. consistent with the “performance-based
compensation” requirements of Section 162(m) of the Code.

 

ARTICLE II

 

Powers of the Committee

 

 2.1  Power to
Grant Awards.  The
Committee shall determine the Participants to whom Awards shall be granted and
the terms and conditions of any and all such Awards. The Committee may
establish different terms and conditions for different Participants receiving
the same type of Award and for the same Participant for each Award such
Participant may receive, whether or not granted at different times.

 

 2.2  Administration.  The Committee shall be responsible for the
administration of the Plan, including, without limitation, determining which
Participants receive Awards and the other terms and conditions of each such
Award. The Committee shall have the responsibility of construing and
interpreting the Plan and of establishing, amending and rescinding such rules and
regulations as it may deem necessary or desirable for the proper administration
of the Plan. Any decision or action taken or to be taken by the Committee,
arising out of or in connection with the construction, administration,
interpretation and effect of the Plan and of its rules and regulations,
shall, to the greatest extent permitted by applicable law, be within its
absolute discretion (except as otherwise specifically provided herein) and
shall be conclusive and binding upon the Company and its Subsidiaries, all
Participants and any person claiming under or through any Participant.

 

 2.3  Delegation by the Committee.  The Committee may delegate its authority
under this Plan; provided that
the Committee shall in no event delegate its authority with respect to the
compensation of any “covered employee” (as determined under Section 162(m) of
the Code and regulations thereunder) of the Company or any other individual
whose compensation the Board or Committee reasonably believes may become
subject to Section 162(m) of the Code.

 

 2.4  Participants Based Outside the United States.  The Committee, in order to conform with
provisions of local laws and regulations in foreign countries in which the
Company or its Subsidiaries operate, shall have sole discretion to (i) modify
the terms and conditions of Awards granted to Participants employed outside the
United States, (ii) establish subplans with modified exercise procedures
and such other modifications as may be necessary or advisable under the
circumstances presented by local laws and regulations, and (iii) take any
action which it deems advisable to obtain, comply with or otherwise reflect any
necessary governmental regulatory procedures, exemptions or approvals with
respect to the Plan or any subplan established hereunder.

 

ARTICLE III

 

Eligibility

 

Awards may be granted to any
Employee who is designated as a Participant from time to time by the Committee.
The Committee shall determine which Employees shall be Participants, and the
terms, conditions, and limitations applicable to each Award not inconsistent
with the Plan. Designation by the 

 

3

 

Committee as a Participant for an Award in
one period shall not confer on a Participant the right to participate in the
Plan for any other period.

 

ARTICLE IV

 

Incentive Awards

 

 4.1.  General.  The Committee shall have the authority to
grant Awards to any Participant and to determine the other terms and conditions
of such Awards. The Committee, at the time an Award is made, shall specify the
terms and conditions which govern the Award, which terms and conditions shall
prescribe that the Award shall be earned only upon, and to the extent that,
Performance Criteria as described in Section 4.2 are satisfied within a
designated time.

 

 4.2.  Performance Criteria.

 

(a)           Within 90 days after each
Performance Period begins (or such other date as may be required or permitted
under Section 162(m) of the Code, if applicable), the Committee shall
establish the performance objective or objectives for the applicable
Performance Period that must be satisfied in order for an Award to be vested
and payable (the “Performance Criteria”).
Any such Performance Criteria will be based upon the relative or comparative
achievement of one or more of the following criteria, or such other criteria,
as may be determined by the Committee: (i) revenue growth; (ii) earnings
before interest, taxes, depreciation and amortization; (iii) earnings
before interest, taxes and amortization; (iv) operating income; (v) pre-
or after-tax income; (vi) cash flow; (vii) cash flow per share; (viii) net
earnings; (ix) earnings per share; (x) return on equity;
(xi) return on invested capital; (xii) return on assets;
(xiii) economic value added (or an equivalent metric); (xiv) share
price performance; (xv) total stockholder return; (xvi) improvement
in or attainment of expense levels; (xvii) improvement in or attainment of
working capital levels; or (xviii) debt reduction. Any of the Performance
Criteria set forth above may measure performance on a Company-wide basis or
with respect to one or more business units, divisions or Subsidiaries, and
either in absolute terms, relative to the performance of one or more similarly
situated companies, relative to the performance of an index covering a peer
group of companies, or other external measures of the selected performance
criteria. Any Performance Criteria may measure performance on an individual
basis, as appropriate.

 

(b)           When establishing Performance
Criteria for the applicable Performance Period, the Committee may exclude any
or all “extraordinary items” as determined under U.S. generally acceptable
accounting principles including, without limitation, the charges or costs
associated with restructurings of the Company, discontinued operations, other
unusual or nonrecurring items, and the cumulative effects of accounting
changes, and as identified in the Company’s financial statements, notes to the
Company’s financial statements or management’s discussion and analysis of
financial condition and results of operations contained in the Company’s most
recent annual report filed with the U.S. Securities and Exchange Commission
pursuant to the Exchange Act.

 

(c)           The Performance Criteria related to
an Award shall be achieved upon the determination by the Committee that the
objective or objectives for the applicable Performance Period have been
attained, in whole or in part. The Committee may provide at the time of grant
that in the event the objective or objectives are attained in part, a specified
portion (which may be zero) of the Award will vest and become payable and the
remaining portion shall be forfeited. The Committee shall have the right to
reduce or eliminate the portion of an Award that might otherwise vest and
become payable hereunder based on individual performance or any other factors
that the Committee, in its discretion, shall deem appropriate.

 

4.3  Termination
of Employment. 
Unless otherwise determined by the Committee at or after the date of
grant and except as provided in Article V, in the event that a Participant’s
employment is 

 

4

 

terminated by the Company without Cause or by
reason of a Qualifying Termination of Employment during the Performance Period,
any Award shall become vested and payable at the end of the Performance Period
as to that amount that is equal to that percentage, if any, of such Award that
would have been earned had the Participant’s employment not so terminated prior
to the expiration of the Performance Period times a fraction, the numerator of
which is the number of days employed during the Performance Period and the
denominator of which is the total number of days during the Performance Period.
Unless otherwise determined by the Committee at or after the date of grant, in
the event that a Participant’s employment terminates because of death during
the Performance Period, any Award shall become vested and payable at the end of
the Performance Period as to that amount that is equal to that percentage, if
any, of such Award that would have been earned had the Participant’s employment
not so terminated prior to the expiration of the Performance Period. Unless
otherwise determined by the Committee at or after the date of grant, in the
event a Participant’s employment is terminated for any reason other than by the
Company without Cause, death or a Qualifying Termination of Employment during
the Performance Period, any Award by such Participant shall be forfeited and
cancelled as of the date of such termination of employment.

 

 4.4  Payment of Awards.  Awards shall be paid to Participants in a
single lump sum in cash at a time determined by the Committee, but in no event
later than two and one-half months after the end of the fiscal year in which
the Performance Period ends. In no event shall a Participant receive an Award
payment in any fiscal year that exceeds the lesser of (i) $2,500,000 or (ii) 300%
of the Employee’s base salary (prior to any salary reduction or deferral
elections) as of the date of grant of the Award.

 

ARTICLE V

 

Forfeiture and Recoupment for Financial
Reporting Misconduct

 

If within twelve months of
the payment of any Award made under the Plan, the Company is required to
prepare an accounting restatement due to material noncompliance by the Company
with any financial reporting requirement under the securities laws, then the
Participant, whether or not he engaged in any misconduct, shall forfeit and
disgorge to the Company the payment of any Award or portion thereof that would
not have been earned hereunder absent such materially non-complying financial
reporting.

 

ARTICLE VI

 

Section 409A of the Code

 

In connection with a
Participant’s termination of employment, the payment, settlement or
exercisability of an Award held by a Participant who the Committee reasonably
believes is a “specified employee” (within the meaning of Section 409A of
the Code) shall not be made before the first business day that is six months
and one day after the date of such Participant’s termination of employment (or,
if earlier, upon death) if the Committee reasonably believes an Award to be
subject to Section 409A(a)(2)(B) of the Code. Notwithstanding
anything to the contrary in the Plan, the Committee may in its absolute
discretion alter or amend any of the provisions of this Plan if such alteration
or amendment would be required to comply with Section 409A of the Code or
any regulations promulgated thereunder.

 

ARTICLE VII

 

Amendment, Modification, and Termination of
Plan

 

The Board or the Committee
at any time may terminate or suspend the Plan, and from time to time may amend
or modify the Plan, provided that no amendment, modification, or termination of
the 

 

5

 

Plan shall in any manner adversely affect any
Award theretofore granted under the Plan, without the consent of the
Participant. Unless earlier terminated, the Plan shall terminate on the tenth
anniversary of the date it is approved by the Company’s stockholders.

 

ARTICLE VIII

 

Definitions

 

8.1  Certain
Definitions. 
Capitalized terms used herein without definition shall have the
respective meanings set forth below:

 

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

 

“Award” means an incentive award which, subject to such terms
and conditions as may be prescribed by the Committee, entitles a Participant to
receive a cash payment from the Company or a Subsidiary pursuant to Article IV.

 

“Board” means the Board of Directors of the Company.

 

“Cause” means, unless otherwise provided in an Award, (i) the
refusal or neglect of the Participant to perform substantially all of his or
her employment-related duties, (ii) the Participant’s personal dishonesty,
incompetence, willful misconduct or breach of fiduciary duty, (iii) the
Participant’s conviction of a crime constituting a felony (or a crime or
offense of equivalent magnitude in any jurisdiction) or his or her willful
violation of any other law, rule, or regulation (other than a traffic violation
or other offense or violation outside of the course of employment which in no
way adversely affects the Company or its reputation or the ability of the
Participant to perform his or her employment related duties or to represent the
Company) or (iv) the material breach by the Participant of any applicable
written policy of the Company or any Subsidiary; provided that, with respect to any Participant who is a
party to an employment agreement with the Company or a Subsidiary, “Cause”
shall have the meaning specified in such Participant’s employment agreement.
The determination as to whether “Cause” has occurred shall be made by the
Committee, which shall have the authority to waive the consequences under the
Plan of the existence or occurrence of any of the events, acts or omissions
constituting “Cause.”

 

“Code” means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute, and applicable regulations.

 

“Committee” means the Compensation Committee of the Board, or
when Section 162(m) of the Code or Rule 16b promulgated under
the Act would require action to be taken by a committee of “outside directors”
or “Non-Employee Directors,” as the case may be, the “Committee” shall, if
appropriate, be deemed to refer to a subcommittee of the Compensation Committee
that consists of two or more members meeting such requirements, or the full
Board in the absence of such a subcommittee.

 

“Company” means FairPoint Communications, Inc., a
Delaware corporation, and any successor thereto.

 

“Disability” means, unless otherwise provided in an Award, a
long term disability within the meaning of the long term disability or other
similar program then applicable to a Participant or, in the absence of any such
program, as determined by the Committee; provided
that with respect to any Participant who is a party to an employment agreement
with the Company or a Subsidiary, “Disability” shall have the meaning, if any,
specified in such agreement.

 

“Employee” means any officer or employee, including a member
of the Board, employed by the Company or a Subsidiary on a regular, full time
basis.

 

6

 

“Normal Retirement” means a termination of the Participant’s
employment after attaining age 60 and completing at least 10 years of
service.

 

“Participant” means any Employee or prospective Employee
designated by the Committee to receive an Award under the Plan.

 

“Performance Criteria” has the meaning given in Section 4.2.

 

“Performance Period” means the period, as determined by the
Committee, during which the performance of the Company, any Subsidiary, any
business unit and any individual is measured to determine whether and the
extent to which the applicable performance measures have been achieved; provided, that the duration of any
Performance Period shall be at least twelve months.

 

“Plan” means the FairPoint Communications, Inc. 2008
Annual Incentive Plan, as set forth herein and as amended from time to time.

 

“Qualifying Termination of Employment” means a termination of
a Participant’s employment with the Company or any of its Subsidiaries by
reason of the Participant’s Disability, early retirement with the consent of
the Committee or Normal Retirement.

 

“Subsidiary” means any corporation in which the Company owns,
directly or indirectly, stock representing 50% or more of the voting power of
all classes of stock entitled to vote and any other business organization,
regardless of form, in which the Company possesses directly or indirectly 50%
or more of the total combined equity interests in such organization.

 

 8.2  Gender and Number.  Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.

 

ARTICLE IX

 

Miscellaneous Provisions

 

 9.1  Nontransferability of Awards.  No Award shall be assignable or transferable
except by will or the laws of descent and distribution. Except to the extent
required by law, no right or interest of any Participant shall be subject to
any lien, obligation or liability of the Participant.

 

 9.2  Beneficiary Designation.  Each Participant under the Plan may from time
to time name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid or by whom any
right under the Plan is to be exercised in case of his death. Each designation
will revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during his lifetime. In the absence
of any such designation, benefits remaining unpaid at the Participant’s death
shall be paid to or exercised by the Participant’s surviving spouse, if any, or
otherwise to or by his or her estate.

 

 9.3  No Guarantee of Employment or Participation.  Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant’s employment at any time, nor to confer upon any Participant any
right to continue in the employ of the Company or any Subsidiary. No Employee
shall have a right to be selected as a Participant, or, having been so
selected, to receive any future Awards.

 

 9.4  Tax Withholding.  The Company shall have the right to deduct
from all amounts paid to a Participant in cash (whether under this Plan or
otherwise) any taxes required by law to be withheld in respect of Awards under
this Plan.

 

7

 

 9.5  Indemnification.  Each person who is or shall have been a member
of the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company’s approval, or paid by him in satisfaction of any
judgment in any such action, suit, or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company’s Articles of Incorporation or By-laws, by contract,
as a matter of law, or otherwise.

 

 9.6  Effective Date.  The Plan shall be effective upon its approval
by the Company’s stockholders.

 

 9.7  No Limitation on Compensation.  Nothing in the Plan shall be construed to
limit the right of the Company to establish other plans or to pay compensation
to its employees, in cash or property, in a manner which is not expressly
authorized under the Plan.

 

 9.8  Governing Law.  The Plan shall be construed in accordance
with and governed by the laws of the State of Delaware, without reference to
principles of conflict of laws which would require application of the law of
another jurisdiction, except to the extent that the corporate law of the State
of Delaware specifically and mandatorily applies.

 

 9.9  Severability; Blue Pencil.  In the event that any one or more of the
provisions of this Plan shall be or become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. If, in the opinion
of any court of competent jurisdiction such covenants are not reasonable in any
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of these covenants as to the court shall
appear not reasonable and to enforce the remainder of these covenants as so
amended.

 

 9.10  No Impact On Benefits.  Except as may otherwise be specifically
stated under any employee benefit plan, policy or program, no amount payable in
respect of any Award shall be treated as compensation for purposes of
calculating a Participant’s right under any such plan, policy or program.

 

 9.11  No Constraint on Corporate Action.  Nothing in this Plan shall be construed (i) to
limit, impair or otherwise affect the Company’s right or power to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, or to merge or consolidate, or dissolve, liquidate, sell,
or transfer all or any part of its business or assets or (ii) to limit the
right or power of the Company or any Subsidiary to take any action which such
entity deems to be necessary or appropriate.

 

 9.12  Headings and Captions.  The headings and captions herein are provided
for reference and convenience only, shall not be considered part of this Plan,
and shall not be employed in the construction of this Plan.

 

8

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