SUBORDINATED TERM LOAN AGREEMENT

 

Exhibit 2.1

 

 

SUBORDINATED TERM LOAN AGREEMENT

 

 

dated as of September 26, 2008

 

 

among

 

 

CRESCENT STATE BANK

as Borrower

 

 

and

 

 

UNITED COMMUNITY BANK

as Lender

 

 

 

TABLE OF CONTENTS

 

ARTICLE I.	DEFINITIONS; CONSTRUCTION		1
Section 1.1.		Definitions.	1
Section 1.2.		Terms Generally	6
ARTICLE II.	AMOUNT AND TERMS OF THE SUBORDINATED TERM LOAN		6
Section 2.1.		Loan Commitment	6
Section 2.2.		Procedure for Borrowing	6
Section 2.3.		Funding of the Loan.	6
Section 2.4.		Termination of Commitment.	6
Section 2.5.		Repayment and Prepayments of Loan.	7
Section 2.6.		Interest on the Loan.	7
Section 2.7.		Certain Fees.	8
Section 2.8.		Computation of Interest and Fees	8
Section 2.9.		Inability to Determine Interest Rates	8
Section 2.10.		Evidence of Indebtedness	8
Section 2.11.		Illegality	9
Section 2.12.		Increased Costs.	9
Section 2.13.		Funding Indemnity	10
Section 2.14.		Taxes.	10
Section 2.15.		Payments Generally.	11
Section 2.16.		Mitigation of Obligations; Replacement of Lender	12
Section 2.17.		Subordinated and Unsecured Obligations	12
ARTICLE III.	CONDITIONS TO EFFECTIVENESS AND MAKING OF LOANS		13
Section 3.1.		Conditions To Effectiveness	13
Section 3.2.		Each Loan	14
ARTICLE IV.	REPRESENTATIONS AND WARRANTIES		15
Section 4.1.		Existence; Power	15
Section 4.2.		Organizational Power; Authorization	15
Section 4.3.		Governmental Approvals; No Conflicts	15
Section 4.4.		Financial Statements	15
Section 4.5.		Litigation Matters and Enforcement Actions	16
Section 4.6.		Compliance with Laws and Agreements	16
Section 4.7.		Investment Company Act	17
Section 4.8.		Taxes	17
Section 4.9.		Margin Regulations	17
Section 4.10.		Disclosure	17
Section 4.11.		Dividend Restrictions; Other Restrictions.	18
Section 4.12.		Capital Measures	18
Section 4.13.		FDIC Insurance	18
Section 4.14.		Ownership of Property.	18
Section 4.15.		OFAC	18
Section 4.16.		Patriot Act	19
Section 4.17.		Solvency	19
ARTICLE V.	COVENANTS		19
Section 5.1.		Financial Statements and Other Information	19
Section 5.2.		Notices of Material Events	22
Section 5.3.		Existence; Conduct of Business	22
Section 5.4.		Compliance with Laws, Etc.	22
Section 5.5.		Payment of Obligations	22
Section 5.6.		Books and Records	22

 

 

Schedules
	Schedule I	-	Commitment Amounts

 

SUBORDINATED TERM LOAN AGREEMENT

 

THIS SUBORDINATED TERM LOAN AGREEMENT (this “ Agreement ”)   is made and entered into as of September 26, 2008, by and among CRESCENT STATE BANK , a North Carolina state bank (the “ Borrower ”) and UNITED COMMUNITY BANK (the “ Lender ”).

 

WHEREAS , the Borrower has requested the Lender, and the Lender has agreed, subject to the terms and conditions of this Agreement, to make a subordinated term loan in the principal amount of $7,500,000, which loan is intended to qualify as Tier 2 Capital;

 

NOW, THEREFORE , in consideration of the premises and the mutual covenants herein contained, the Borrower and the Lender agree as follows:

 

 

 

“ Base Rate ” shall mean the higher of (i) the per annum rate which the Lender publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%). The Lender’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers. The Lender may make commercial loans or other loans at rates of interest at, above or below the Lender’s prime lending rate. Each change in the Lender’s prime lending rate shall be effective from and including the date such change is publicly announced as being effective.

 

“ Base Rate Loan ” shall mean any Loan accruing interest at the Base Rate.

 

“ Base Rate Margin ” shall mean 2.50% per annum.

 

“ Borrowing ”   shall mean the borrowing consisting of the Loan.

 

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

 

“ Call Report ” shall mean, with respect to the Borrower, the “Consolidated Reports of Condition and Income” (FFIEC Form 031 or 041 or any successor form of the Federal Financial Institutions Examination Council).

 

 

“ Change in Law ” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by any Lender (or for purposes of Section 2.12(b) , by such Lender’s holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

 

“ Closing Date ” shall mean the date on which the conditions precedent set forth in Section 3.1 have been satisfied or waived, and unless otherwise indicated, shall be the date of this Agreement.

 

“ Commitment ” shall mean the obligation of the Lender to make the Loan hereunder on the Closing Date. On the Closing Date, the Commitment shall equal $7,500,000.

 

“ Dollar(s) ” and the sign “ $ ” shall mean lawful money of the United States of America.

 

“ Environmental Laws ” shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters.

 

“ Environmental Liability ” shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) any actual or alleged violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) any actual or alleged exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute.

 

“ ERISA Affiliate ” shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

 

“ ERISA Event ” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator appointed by the PBGC of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

 

“ Event of Default ” shall have the meaning provided in Article VI .

 

“ Excluded Taxes ” shall mean with respect to the Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of the Lender, in which its applicable lending office is located and (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Lender is located.

 

“ FDIC ” shall mean the Federal Deposit Insurance Corporation.

 

“ Federal Funds Rate ” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100 ^th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender.

 

“ Fiscal Quarter ” shall mean each fiscal quarter (including the fiscal quarter at the fiscal year-end) of the Borrower.

 

“ FRB ” shall mean the Board of Governors of the Federal Reserve System.

 

 

“ GAAP ” shall mean generally accepted accounting principles in the United States applied on a consistent basis.

 

“ Governmental Authority ” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including without limitation, the FRB, the FDIC, the North Carolina Commissioner of Banks and any other federal or state agency charged with the supervision or regulation of depositary institutions or holding companies of depositary institutions (as used herein, including any trust company subsidiaries whether or not they take deposits), or engaged in the insurance of depositary institution deposits, or any court, administrative agency or commission or other governmental agency, authority or instrumentality having supervisory or regulatory authority with respect to the Borrower and/or any of its Subsidiaries.

 

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

 

“ Indemnified Taxes ” shall mean Taxes other than Excluded Taxes.

 

“ Interest Payment Date ” shall have the meaning assigned to such term in Section 2.6 .

 

“ Interest Rate ” shall have the meaning assigned to such term in Section 2.6 .

 

“ Interest Reset Date ” shall mean the first Business Day of April, July, October and January of each year.

 

“ LIBOR ” shall mean that rate per annum that is equal to the rate per annum for deposits in Dollars for a three-month period, which rate appears on Reuters Screen LIBOR01 Page (or any successor page), or such similar service as determined by the Lender that displays the British Bankers’ Association Interest Settlement Rates for deposits in Dollars as of 11:00 a.m. (London, England time) on the day that is two (2) Business Days prior to the Closing Date and each Interest Reset Date; provided , that if the Lender determines that no such offered rate appears on such page, the rate used will be the per annum rate of interest determined by the Lender to be the average (rounded upward, if necessary, to the nearest 1/100th of 1%) of the rates per annum at which deposits in Dollars for a three-month period are offered to the Lender by leading banks in the London interbank market as of 10:00 a.m. (New York, New York time) on the day that is two (2) Business Days prior to each Interest Reset Date.

 

 

“ Loan ” shall have the meaning set forth in Section 2.1 .

 

“ Loan Documents ” shall mean this Agreement, the Subordinated Term Note and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.

 

“ Material Adverse Effect ” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (i) the business, results of operations, financial condition, assets, liabilities or prospects of either (x) the Borrower or (y) the Parent and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform any of its obligations under the Loan Documents, (iii) the rights and remedies of the Lender under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents.

 

“ Maturity Date ” shall mean October 1, 2018.

 

“ Multiemployer Plan ” shall have the meaning set forth in Section 4001(a)(3) of ERISA.

 

“ Parent ” shall mean Crescent Financial Corporation, a North Carolina corporation, and its successors and assigns.

“ Participant ” shall have the meaning set forth in Section 7.4(b) .

 

“ Payment Office ” shall mean the office of the Lender located at P.O. Box 398, 63 Highway 515, Blairsville, Georgia 30514, or such other location as to which the Lender shall have given written notice to the Borrower.

 

 

“ PBGC ” shall mean the Pension Benefit Guaranty Corpora-tion referred to and defined in ERISA, and any successor entity performing similar functions.

 

“ Person ” shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

 

“ Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

“ Release ” means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

“ Responsible Officer ” shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Lender.

 

“ Subordinated Term Note ” shall mean the promissory note of the Borrower payable to the order of the Lender in substantially the form of Exhibit A .

“ Subsidiary ” shall mean, with respect to any Person (the “ parent ”), any corporation, partnership, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, part-nership, joint venture, limited liability company, association or other entity (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power, or in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (ii) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to “Subsidiary” hereunder shall mean a Subsidiary of the Borrower.

 

“ Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

“ Tier 2 Capital ” shall have the definition provided in, and shall be determined in accordance with, the rules and regulations of the FDIC.

 

 

“ Type ”, when used in reference to the Loan, refers to whether the rate of interest on such Loan, is determined by reference to LIBOR or the Base Rate.

 

“ Withdrawal Liability ” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

 

. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the word “to” means “to but excluding”. Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (iii) the words “hereof”, “herein” and “hereunder” and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to Atlanta, Georgia time, unless otherwise indicated.

 

AMOUNT AND TERMS OF THE SUBORDINATED TERM LOAN

 

. Subject to the terms and conditions set forth herein, the Lender agrees to make a single term loan (the “ Loan ”) to the Borrower on the Closing Date in a principal amount not to exceed the Commitment of the Lender; provided , that if for any reason the full amount of the Lender’s Commitment is not fully drawn on the Closing Date, the undrawn portion thereof shall automatically be cancelled.

 

. The execution and delivery of this Agreement by the Borrower and the satisfaction of all conditions precedent pursuant to Section 3.1 and Section 3.2 shall be deemed to constitute the Borrower’s request to borrow the Loan on the Closing Date.

 

 

The Commitment shall terminate on the Closing Date upon the making of the Loan.

 

 

 

(a)   The aggregate outstanding principal amount of the Loan shall be due and payable (together with accrued and unpaid interest thereon) on the Maturity Date. All payments in respect of the Loan shall be applied first to accrued interest and the balance, if any, to principal. Once repaid, the Loan may not be reborrowed.

 

(b)   The Borrower shall have the right at any time and from time to time, subject to the approval of the FDIC and other Governmental Authorities (if applicable), to prepay the Loan, in whole or in part, without premium or penalty, by giving irrevocable written notice to the Lender no later than five (5) Business Days prior to any such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of the Loan or portion thereof to be prepaid. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.15(a) . Each partial prepayment of the Borrowing shall be in a minimum aggregate amount of not less than $500,000. Each prepayment of the Borrowing shall be applied first to accrued interest and then to the principal balance. Notwithstanding anything to the contrary herein or otherwise, except as provided in Section 5.10 , the Borrower shall not (and shall not have the right to) prepay the Loan prior to October 1, 2013.

 

 

(a)   Interest on the principal amount of the Loan shall accrue from and including the date the Loan is made to but excluding the date of any repayment thereof. The Borrower shall pay interest on the Loan in arrears on the first day of April, July, October and January of each year and on the Maturity Date (each, an “ Interest Payment Date ”) at a rate equal to LIBOR plus four percent (4%) per annum (the “ Interest Rate ”). The initial Interest Payment Date in respect of the Loan shall be October 1, 2008.

 

(b)   The Interest Rate in respect of the Loan for the period from the Closing Date to October 1, 2008 shall be 7.21% per annum, which was determined by reference to the then prevailing LIBOR. Thereafter, the Interest Rate shall be reset on a quarterly basis on the first day of each Interest Reset Date by reference to the then prevailing LIBOR. If any Interest Reset Date falls on a day that is not a Business Day, the Interest Reset Date shall be postponed to the next succeeding Business Day, except if that Business Day is in the next succeeding calendar month, the Interest Reset Date shall be the immediately preceding Business Day.

 

(c)   Following the occurrence of an Event of Default, and in any event after acceleration, interest on the Loan shall cease to accrue interest at the Interest Rate and shall thereafter bear interest at the Base Rate plus the Base Rate Margin plus 2% per annum. All interest payable under this clause (c) shall be payable on demand.

 

 

(d)   The Lender shall determine each interest rate applicable to the Loan hereunder and shall promptly notify the Borrower of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error.

 

 

 

 

 

 

 

(a)   If any Change in Law shall:

 

 

(b)   If the Lender shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the ef-fect of reducing the rate of return on the Lender’s capital (or on the capital of the Lender’s parent corporation) as a consequence of its obligations here-under to a level below that which the Lender or the Lender’s parent corporation could have achieved but for such Change in Law (taking into consideration the Lender’s policies or the policies of the Lender’s parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written demand by the Lender, the Borrower shall pay to the Lender such additional amounts as will compensate the Lender or the Lender’s parent corporation for any such reduction suffered.

(c)   A certificate of the Lender setting forth the amount or amounts necessary to compensate the Lender or its parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be con-clusive, absent manifest error. The Borrower shall pay the Lender such amount or amounts within ten (10) days after receipt thereof.

 

 

(d)   Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender’s right to demand such compensation; provided , however , that the Borrower shall not be required to compensate the Lender pursuant to this Section for (x) any increased cost or reduction of amounts received or receivable described in paragraph (a) or (y) any reduction of the rate of return on the Lender’s capital described in paragraph (b), if such increase or reduction, as the case may be, is suffered more than 180 days prior to the date that the Lender gives any required notice and demand (except that, if the Change in Law that causes such increase or reduction, as the case may be, is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof).

 

 

 

(a)   Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Lender shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

 

(b)   In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

 

(c)   The Borrower shall indemnify the Lender, within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Lender on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by the Lender shall be conclusive absent manifest error.

(d)   As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender.

 

 

(a)   The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees or of amounts payable under Section 2.5 , Section 2.6 or Section 2.7 or otherwise) prior to 4:00 p.m., on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at the Payment Office, except that payments pursuant to Section 2.12 , Section 2.13 and Section 7.3 shall be made directly to the Persons entitled thereto. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars.

 

(b)   If at any time insufficient funds are received by and available to the Lender to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied first, towards payment of interest and fees then due hereunder and second, towards payment of principal then due hereunder.

 

(c)   The Lender agrees that, so long as the proceeds of the Loan are deemed to be Tier 2 Capital, and notwithstanding the limitation imposed by the second sentence of 12 C.F.R. Part 325, App. A(I)(A)(2)(e), the Lender waives its right to exercise any set-off or other right to appropriate and to apply any deposits or other assets of the Borrower at any time held by the Lender against or on account of the Loan owing hereunder or owing under the Subordinated Term Note to the Lender.

 

 

 

(a)   Prior to the Lender requesting compensation under Section 2.12 , or the Borrower being required to pay any additional amount to the Lender or any Governmental Authority for the account of the Lender pursuant to Section 2.14 , the Lender shall use reasonable efforts to designate a different lending office for funding or booking the Loan hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.12 or Section 2.14 , as the case may be, in the future and (ii) would not subject the Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to the Lender. The Borrower hereby agrees to pay all costs and expenses incurred by the Lender in connection with such designation or assignment.

 

(b)   If the Lender requests compensation under Section 2.12 , or if the Borrower is required to pay any additional amount to the Lender or any Governmental Authority for the account of the Lender pursuant to Section 2.14 , then the Borrower may, at its sole cost and expense, upon notice to the Lender, require the Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions set forth in Section 7.4 all of its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations; provided , that (i) the Lender shall have received payment of an amount equal to the outstanding principal amount of the Loans owed to it, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (in the case of such outstanding principal and accrued interest) and from the Borrower (in the case of all other amounts) and (ii) in the case of a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.14 , such assignment will result in a reduction or elimination of such compensation or payments. The Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of an irrevocable waiver by the Lender, the circumstances entitling the Borrower to require such assignment and delegation ceases to apply.

 

 

CONDITIONS TO EFFECTIVENESS AND MAKING OF LOANS

 

 

(a)   The Lender shall have received all fees and other amounts due and payable on or prior to the Closing Date, including (i) reimbursement or payment of all out-of-pocket expenses (including $5,000 of fees, charges and disbursements of counsel to the Lender) required to be reimbursed or paid by the Borrower hereunder, under any other Loan Document and as otherwise agreed in writing and (ii) the upfront fees payable to the Lender.

 

 

(b)   The Lender (or its counsel) shall have received the following, each in form and substance satisfactory to the Lender:

 

(i)   a counterpart of this Agreement signed by or on behalf of each party hereto or written evidence satisfactory to the Lender (which may include facsimile transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement;

 

(ii)   a duly executed Subordinated Term Note payable to the Lender in respect of the Loan;

 

(iii)   a certificate of the Secretary or Assistant Secretary of the Borrower in the form of Exhibit 3.1(b)(iii), attaching and certifying copies of its bylaws and of the resolutions of its board of directors, authorizing the execution, delivery and performance of the Loan Documents and certifying the name, title and true signature of each officer of the Borrower executing the Loan Documents;

 

(iv)   (a) a copy of the charter of the Borrower, certified by the appropriate Governmental Authority and (b) a certificate of good standing for the Borrower issued by the North Carolina Commissioner of Banks;

 

(v)   a favorable written opinion of Gaeta & Eveson, P.A., counsel to the Borrower, addressed to the Lender, and covering such matters relating to the Borrower, the Parent, the Loan Documents and the transactions contemplated therein, that are set forth in Exhibit 3.1(b)(v), subject to reasonable and customary qualifications and assumptions for transactions like the Loan;

 

(vi)   a certificate in the form of Exhibit 3.1(b)(vi), dated the Closing Date and signed by a Responsible Officer, certifying that (w) no Event of Default exists, (x) all representations and warranties of the Borrower set forth in the Loan Documents are true and correct, and (y) since the date of the financial statements of the Parent described in Section 4.4 , there shall have been no change, event or other circumstance which has had or could reasonably be expected to have a Material Adverse Effect;

 

(vii)   certified copies of all consents, approvals, authorizations, registrations and filings and orders required to be made or obtained under any applicable laws in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated thereby, and such consents, approvals, authorizations, registrations, filings and orders shall be in full force and effect and all applicable waiting periods shall have expired, and no investigation or inquiry by any Governmental Authority regarding the Commitment or any transaction being financed with the proceeds thereof shall be ongoing;

 

(viii)   a duly executed copy of the Call Report of the Borrower most recently available as of the Closing Date;

 

 

(ix)   evidence that the Loan will be deemed to be Tier 2 Capital by the applicable Governmental Authorities;

 

(x)   a written waiver of default executed by Silverton Bank, National Association based on the making of the Loan pursuant to this Agreement with respect to that certain Loan Agreement, dated as of June 27, 2008, by and between such bank and the Parent (the “ Holding Company Loan Agreement ”); and

 

(xi)   such other documents, agreements and instruments as the Lender may reasonably request.

 

 

(a)   at the time of and immediately after giving effect to the Loan, no Event of Default shall exist;

 

(b)   all representations and warranties of the Borrower herein shall be true and correct in all material respects on and as of the date of the Loan both before and after giving effect thereto;

(c)   since December 31, 2007, there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect;

 

(d)   no legislation has been passed or any suit or other proceeding has been instituted the effect of which is to prohibit, enjoin (or to declare unlawful or improper) or otherwise adversely affect the Borrower’s performance of its obligations hereunder, and no litigation or governmental proceeding has been instituted or threatened against the Parent or the Borrower or any of their officers or shareholders which may adversely affect the financial condition or operations of the Parent or the Borrower;

 

(e)   the Lender shall have received such other documents, certificates, information or legal opinions as it may reasonably request, all in form and substance reasonably sat-isfactory to the Lender.

 

REPRESENTATIONS AND WARRANTIES

 

The Borrower represents and warrants to the Lender as follows: