Exhibit 10.12

 

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ADVANCES AND SECURITY AGREEMENT

 

This ADVANCES AND SECURITY AGREEMENT (this “Agreement”), dated as of the earlier
of the date of execution by the Bank (as hereinafter defined) and November 30,
2004, is entered into between Cooperative Bank, a state bank organized under the
laws of and located in the state of North Carolina, having its principal place
of business at 201 Market Street, Wilmington, NC 28401-4443 (the “Borrower”) and
the Federal Home Loan Bank of Atlanta, a corporation organized and existing
under the laws of the United States, having its principal office at 1475
Peachtree Street, N.E., Atlanta, Georgia 30309 (the “Bank”).

 

WHEREAS, the Borrower desires from time to time to participate in the Bank’s
credit programs under the terms of this Agreement, and the Bank is authorized to
extend credit to the Borrower pursuant to the provisions of the Federal Home
Loan Bank Act, as now and hereafter amended (the “Act”), and the regulations and
guidelines of the Federal Housing Finance Board (the “Board”) or any successor
entity, as now and hereafter in effect (collectively, the “Regulations”);

 

WHEREAS, the Bank requires that extensions of credit by the Bank be secured
pursuant to this Agreement, and the Borrower and any Obligor (as hereinafter
defined) joined to this Agreement from time to time, as provided herein, agree
to provide the security the Bank requests in accordance with this Agreement; and

 

WHEREAS, the Borrower and each other Obligor acknowledges, understands and
agrees that (a) the Bank shall not have any obligation or commitment (under this
Agreement, the Credit and Collateral Policy, or otherwise) to approve any
application by the Borrower for Advances, Credit Products, Derivative
Transactions, or Other Products, (b) the terms and conditions of any Advances,
Credit Products, Derivative Transactions, or Other Products which the Bank may
make or issue, except for any such terms and conditions specified in a
Confirmation, may change after the date made or issued, in connection with a
modification to the Bank’s Credit and Collateral Policy as provided in Section
6.01 of this Agreement, and (c) the Bank, in its sole discretion, may modify the
Credit and Collateral Policy from time to time after the date of this Agreement
and need not obtain any further consent from any Obligor in order for those
modifications to become binding upon each Obligor.

 

NOW THEREFORE, the Borrower and the Bank agree as follows:

 

ARTICLE I: DEFINITIONS

 

Section 1.01 Definitions. As used herein, the following terms shall have the
following meanings:

 

(A) “Advances” means any and all loans or other similar extensions of credit,
heretofore, now or hereafter granted by the Bank to, on behalf of, or for the
account of, the Borrower.

 

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(B) “Affiliate” means an affiliate of the Borrower which (i) has been accepted
by the Bank, in its sole discretion, as a person which may pledge collateral to
the Bank and otherwise support the obligations of the Borrower to the Bank
hereunder and (ii) has entered into a joinder Agreement. The Affiliate and the
Borrower are hereinafter jointly referred to as the “Obligors.”

 

(C) “Application” means an application or other writing, in such form or forms
as shall be specified by the Bank from time to time, by which the Borrower
requests an Advance or a Credit Product, and by which an Obligor requests a
Derivative Transaction or an Other Product.

 

(D) “Borrowed Money” means, with respect to any Person, without duplication (a)
all indebtedness for borrowed money, (b) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, or upon which
interest payments are customarily made, (c) that portion of obligations with
respect to capital leases that is properly classified as a liability on a
balance sheet in conformity with GAAP, (d) any obligations of such Person issued
or assumed as the deferred purchase price of property or services purchased by
such Person (other than trade debt incurred in the ordinary course of business
and due within six months of the incurrence thereof or evidenced by a note or
other instrument), (e) all Borrowed Money of others secured by (or for which the
holder of such Borrowed Money has an existing right, contingent or otherwise, to
be secured by) any lien on, or payable out of the proceeds of production from,
any property or asset owned, held or acquired by such Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person, (f) all guaranty obligations of
such Person in respect of any Borrowed Money of any other person, (g) the
maximum amount of all standby letters of credit issued or bankers’ acceptances
facilities created for the account of such Person and, without duplication, all
drafts drawn thereunder (to the extent unreimbursed), (h) the principal balance
outstanding under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product plus any
accrued interest thereon, and (i) the Borrowed Money of any partnership or
unincorporated joint venture in which such Person is a general partner or joint
venturer.

 

(E) “Borrowing Documents” means this Agreement (as amended by any and all
Joinder Agreements and any and all Collateral Pledge Amendments), all
Applications, all Confirmations, and all Supplemental Documentation.

 

(F) “Capital Stock” means all of the capital stock in the Bank held by the
Borrower and all payments which have been or hereafter are made on account of
subscriptions to and all unpaid dividends on such capital stock.

 

(G) “Collateral” means (i) all property, including the products and proceeds
thereof, heretofore assigned, transferred or pledged to the Bank by any Obligor
as collateral for an Advance, a Credit Product, a Derivative Transaction, an
Other Product or any other Liability prior to the date hereof and (ii) all
Capital Stock, Deposits, Residential First Mortgage Collateral, Commercial
Mortgage Collateral, Multifamily Mortgage Collateral, Government and Agency
Securities Collateral, HELOC and Second Mortgage Collateral, Other Securities
Collateral and Other Collateral, including the products and proceeds thereof,
which is now or hereafter pledged to the Bank pursuant to Section 3.01 hereof or
any Joinder Agreement.

 

(H) “Collateral Maintenance Level” means the aggregate dollar amount equal to
such percentage(s) as the Bank may specify from time to time of all Liabilities
(1) for Advances

 

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and Credit Products; (2) with respect to Derivative Transactions for which an
Obligor is required to maintain Collateral; and (3) with respect to any Other
Product or under any Borrowing Documents. The Bank may increase or decrease the
Collateral Maintenance Level at any time as provided in the Credit and
Collateral Policy, and such increase or decrease, as specified by the Bank, will
apply to all existing as well as after-arising Liabilities.

 

(I) “Collateral Pledge Amendment” means a Collateral Pledge Amendment,
substantially in the form attached hereto as Exhibit B, whereby the Obligors and
the Bank have agreed to amend the collateral pledge provisions of Section 3.01
(ii) hereof as provided therein.

 

(J) “Commercial Mortgage Collateral” means all notes, bonds, instruments,
mortgages, deeds of trust, deeds to secure debt, security agreements, policies
and certificates of insurance, guarantees, evidences of recordation,
applications, underwriting materials, surveys, appraisals, approvals, permits,
notices, opinions of counsel, loan servicing data and all other electronically
stored and written records or materials relating to fully-disbursed loans held
by any Obligor secured by a first lien on property improved by one or more
commercial buildings, together with all rights and interests associated with
such loans and documents, including all legal, beneficial, residual and
servicing rights, and any endorsements or assignments thereof.

 

(K) “Confirmation” means a confirmation, in such form or forms as the Bank may
generate from time to time, by which the Bank agrees to, confirms and provides
any additional terms with respect to any Advance, Credit Product, Derivative
Transaction, or Other Product.

 

(L) “Credit and Collateral Policy” means the policies and procedures of the Bank
governing the administration of its credit and other programs, including the
requirements for maintenance of collateral to secure extensions of credit by the
Bank, as any such policies and procedures may be amended, supplemented, restated
or otherwise modified from time to time hereafter, in accordance with Section
6.01.

 

(M) “Credit Products” means any and all commitments or obligations under which
the Bank agrees to make payments on behalf of or for the account of the
Borrower, including letters of credit, guarantees or other arrangements intended
to facilitate transactions between the Borrower and third parties, or under
which the Bank enters into a credit or financial accommodation, agreement or
other arrangement with the Borrower, irrespective of whether the Bank’s
obligation is contingent or conditional.

 

(N) “Deposits” means all deposit accounts maintained by any Obligor with the
Bank, all money, cash, checks, drafts, notices, bills, bills of exchange and
bonds deposited therein or credited thereto, any increases, renewals,
extensions, substitutions and replacements thereof, whether or not deposited in
any such deposit account and all statements, certificates, passbooks and
instruments representing any such deposit account.

 

(O) “Derivative Transactions” means all interest rate swaps, all interest rate
caps, floors and collars, all currency exchange transactions, all options and
all similar transactions entered into between the Bank and any Obligor.

 

(P) “GAAP” means generally accepted accounting principles.

 

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(Q) “Government and Agency Securities Collateral” means mortgage-backed
securities (including participation certificates) issued by the Federal Home
Loan Mortgage Corporation or the Federal National Mortgage Association,
obligations guaranteed by the Government National Mortgage Association, and
obligations issued or guaranteed by the United States or an agency thereof.

 

(R) “HELOC and Second Mortgage Collateral” means all notes, bonds, instruments,
mortgages, deeds of trust, deeds to secure debt, security agreements, policies
and certificates of insurance or guarantees, evidences of recordation,
applications, underwriting materials, surveys, appraisals, approvals, permits,
notices, opinions of counsel and loan servicing data and all other
electronically stored and written records or materials relating to home equity
lines of credit held by any Obligor, loans held by any Obligor secured by a
junior lien on one-to-four unit single-family dwellings, or other similar loans
held by any Obligor which have not been fully disbursed, together with all
rights and interests associated with such loans and documents, including all
legal, beneficial, residual and servicing rights, and any endorsements or
assignments thereof.

 

(S) “Joinder Agreement” means a joinder agreement, substantially in the form
attached hereto as Exhibit A, whereby an Obligor has agreed in writing to be
primarily, jointly and severally liable for all obligations of all of the
Obligors to the Bank under this Agreement and to pledge Collateral satisfactory
to the Bank as security for such obligations.

 

(T) “Lendable Collateral Value” means an amount equal to such percentage as the
Bank shall from time to time, in its sole discretion, ascribe in the Credit and
Collateral Policy to the market value or unpaid principal balances (as the Bank
may specify or define) of Qualifying Collateral.

 

(U) “Liabilities” means all fees, expenses, obligations, liabilities or
indebtedness of any Obligor to the Bank, due or to become due, direct or
indirect, absolute or contingent, joint or several, now existing or hereafter at
any time created, arising or incurred, under this Agreement, any Application,
Confirmation, Supplemental Documentation, Advance, Derivative Transaction,
Credit Product, Other Product or Deposit, including any overdrafts or other
charges in connection therewith, or under any other obligation for any other
service provided by the Bank, including any obligations under indemnification
provisions in any agreement or document between any Obligor and the Bank, and
any renewal, extension or substitution of any such obligations, liabilities and
indebtedness, including reasonable attorneys’ fees of the Bank in the collection
thereof and the enforcement of any remedies with respect to any Collateral
therefor.

 

(V) “Material Adverse Effect” means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of any Obligor or (b) the impairment of the ability of any Obligor to perform
its obligations under any Borrowing Document to which it is a party or of Bank
to enforce any Borrowing Document or collect any of the Liabilities. In
determining whether any individual event would result in a Material Adverse
Effect, notwithstanding that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred if the cumulative
effect of such event and all other then existing events would result in a
Material Adverse Effect.

 

(W) “Multifamily Mortgage Collateral” means all notes, bonds, instruments,
mortgages, deeds of trust, deeds to secure debt, security agreements, policies
and certificates of insurance, guarantees, evidences of recordation,
applications, underwriting materials, surveys, appraisals,

 

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approvals, permits, notices, opinions of counsel, loan servicing data and all
other electronically stored and written records or materials relating to the
fully-disbursed loans held by any Obligor secured by a first lien on property
improved by one or more multifamily buildings, together with all rights and
interests associated with such loans and documents, including all legal,
beneficial, residual and servicing rights, and any endorsements or assignments
thereof.

 

(X) “Obligors” means, collectively, the Borrower and any Affiliate joined
hereunder as provided herein.

 

(Y) “Other Collateral” means such items of personal property, other than Capital
Stock, Deposits, Residential First Mortgage Collateral, Commercial Mortgage
Collateral, Multifamily Mortgage Collateral, Government and Agency Securities
Collateral, HELOC and Second Mortgage Collateral, and Other Securities
Collateral, that are offered by any Obligor as Collateral and are specifically
accepted by the Bank as Collateral; provided, Other Collateral may from time to
time include specific items of Residential First Mortgage Collateral, Commercial
Mortgage Collateral, Multifamily Mortgage Collateral and HELOC and Second
Mortgage Collateral which are identified and offered by an Obligor as Collateral
and are specifically accepted by the Bank as Collateral.

 

(Z) “Other Products” means all products and services, other than an Advance,
Credit Product or Derivative Transaction, offered by the Bank to any Obligor
from time to time, including correspondent banking services, mortgage purchase
programs and affordable housing and community investment products and services.

 

(AA) “Other Securities Collateral” means securities (other than Government and
Agency Securities Collateral) representing unsubordinated interests in, or
collateralized by first lien security interests in, both the interest and
principal payments on first lien residential mortgages.

 

(BB) “Person” means an individual, partnership, corporation, trust, joint
venture, joint stock company, limited liability company, association,
unincorporated organization, governmental authority, or any other entity.

 

(CC) “Qualifying Collateral” means Collateral, other than Capital Stock and
Deposits, which is eligible as collateral to support the origination of
Advances, Credit Products, Derivative Transactions and Other Products under the
terms and conditions of the Act, the Regulations and the Credit and Collateral
Policy, and which satisfies such other requirements for lending as may be
established by the Bank.

 

(DD) “Residential First Mortgage Collateral” means all notes, bonds,
instruments, mortgages, deeds of trust, deeds to secure debt, security
agreements, policies and certificates of insurance or guarantees, evidences of
recordation, applications, underwriting materials, surveys, appraisals,
approvals, permits, notices, opinions of counsel and loan servicing data and all
other electronically stored and written records or materials relating to
fully-disbursed loans held by any Obligor secured by a first lien on one-to-four
unit single family dwellings, together with all rights and interests associated
with such loans and documents, including all legal, beneficial, residual and
servicing rights, and any endorsements or assignments thereof.

 

(EE) “Supplemental Documentation” means any document, agreement or other writing
(other than this Agreement) between the Bank and an Obligor relating to
Deposits, Advances,

 

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Credit Products, Derivative Transactions and Other Products, including
reimbursement agreements, mortgage purchase documents, wire transfer agreements,
automated clearinghouse agreements, agreements related to the loans held for
sale program, International Swap Dealers Association (“ISDA”) master agreements,
schedules to ISDA master agreements and credit support annexes to ISDA master
agreements.

 

Section 1.02 Other Definitional Provisions. References to “Sections”
“Subsections” and “Exhibits” shall be to Sections, Subsections and Exhibits,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in Section 1.01 may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference. In this
Agreement, “hereof,” “herein,” “hereto,” “hereunder” and the like mean and refer
to this Agreement as a whole and not merely to the specific section, paragraph
or clause in which the respective word appears; words importing any gender
include the other gender; references to “writing” include printing, typing,
lithography, facsimile, electronic and other means of reproducing words or other
data in a tangible visible form; the words “including,” “includes” and “include”
shall be deemed to be followed by the words “without limitation”; references to
agreements and other contractual instruments shall be deemed to include
subsequent amendments, assignments, and other modifications thereto, but only to
the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement; references to Persons include their
respective permitted successors and assigns or, in the case of governmental
Persons, Persons succeeding to the relevant functions of such Persons; and all
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations.

 

ARTICLE II: ADVANCES AGREEMENT

 

Section 2.01 Documentation. Subject to Section 6.03 hereof, the Borrower may
apply to the Bank for Advances, Credit Products, Derivative Transactions and
Other Products in accordance with the Credit and Collateral Policy. The final
terms of any Advance, Credit Product, Derivative Transaction or Other Product
shall be conclusively established by this Agreement and any Confirmation and
Supplemental Documentation related thereto. Any Obligor shall be estopped from
asserting any claim or defense with respect to the terms applicable to any
Advance, Credit Product, Derivative Transaction or Other Product unless, within
the earlier of (i) any time period specified in any Confirmation or Supplemental
Documentation relating thereto and (ii) two (2) business days of receipt of the
final documents relating to such product or service, the Borrower delivers to
the Bank a written notice specifying the disputed term(s) or condition(s) of the
Advance, Credit Product, Derivative Transaction or Other Product. Upon the
request of the Bank, or as provided in the Credit and Collateral Policy, the
Borrower shall sign and deliver to the Bank a promissory note or notes and such
other Supplemental Documentation in such form as the Bank may reasonably require
evidencing any Advance, Credit Product, Derivative Transaction or Other Product.
Unless otherwise agreed by the Bank in writing, all Advances shall be made by
crediting the Borrower’s demand deposit account(s) with the Bank. All Borrowing
Documents shall be deemed to have been executed and delivered in Atlanta,
Georgia, and all payments made under the Borrowing Documents shall be deemed to
have been made in Atlanta, Georgia. The Bank’s obligation to fund any portion of
any approved Advance, issue any approved letter of credit, guaranty or financial
accommodation relating to a Credit Product or continue under any Derivative
Transaction or Other Product shall be subject to (i) continuing compliance by
the Obligors with the terms and provisions of this Agreement (ii) there having
occurred no Event of Default hereunder and (iii) the continuing satisfaction by
the Obligors of the credit and collateral considerations of the

 

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Bank and the eligibility requirements and policies prescribed in the Act, the
Regulations and the Credit and Collateral Policy.

 

Section 2.02 Repayment of Liabilities. Each Obligor agrees to repay all
Liabilities in accordance with this Agreement, the Credit and Collateral Policy
and the terms and conditions of the Confirmation and Supplemental Documentation
evidencing such Liabilities. Interest shall be paid on all Liabilities at the
times specified by the Bank in the Credit and Collateral Policy and in the
Confirmation or Supplemental Documentation and shall be charged for each day
that such Liabilities are outstanding at the rate applicable to such
Liabilities. Each Obligor shall pay to the Bank, immediately and without demand,
interest on any past due principal of and interest on any Liabilities at an
interest rate which is the greater of (i) the rate applicable to such
Liabilities plus one percent or (ii) the rate in effect and being charged by the
Bank from time to time on overdrafts on demand deposit accounts of its members,
but in no event more than any applicable limit established by the Regulations
(the “Default Rate”). The Borrower shall ensure that, on any day on which any
payment is due to the Bank with respect to any Liabilities, whether by maturity,
prepayment or acceleration, the Borrower’s demand deposit account(s) with the
Bank has an available balance in an amount at least equal to the amounts then
due and payable to the Bank, and the Borrower hereby authorizes the Bank to
debit the Borrower’s demand deposit account(s) with the Bank for all amounts due
and payable with respect to any Liabilities and for all other amounts due and
payable hereunder. In the event that the available balance in the Borrower’s
demand deposit account(s) is insufficient to pay such due and payable amounts,
the Bank may, without notice to or request from any Obligor, apply any other
deposits, credits, or monies of any Obligor then in the possession of the Bank
to the payment of amounts due and payable. Each Obligor agrees that, in the
event that any such debit results in any of the Borrower’s accounts with the
Bank being overdrawn, the Obligor shall immediately reimburse the Bank for such
overdraft amount and pay overdraft charges thereon at the Default Rate, in
addition to any minimum fees for overdrafts imposed by the Bank from time to
time. All payments with respect to Liabilities shall be applied first to any
fees or charges applicable thereto and to interest due thereon, in such order as
the Bank may determine, and then to any principal amount thereof that is then
due and payable.

 

Section 2.03 Payment of Prepayment Charges. All prepayment fees and charges
described in the Credit and Collateral Policy, or in any Application,
Confirmation or Supplemental Documentation, shall be payable at the time of any
voluntary or involuntary payment of all or part of the principal of any
Liabilities prior to the originally scheduled maturity thereof, including
without limitation payments that are made as a part of a liquidation of any
Obligor or that become due by operation of law or as a result of an acceleration
pursuant to Section 5.02 hereof, whether such payment is made by any Obligor, by
a conservator, receiver, liquidator or trustee of or for any Obligor, or by any
successor to or any assignee of any Obligor.

 

Section 2.04 Compliance with the Credit and Collateral Policy. Each Obligor
hereby agrees to comply at all times with the Credit and Collateral Policy.

 

 

ARTICLE III: SECURITY AGREEMENT

 

Section 3.01 Creation of Security Interest. As security for all Liabilities, the
Borrower hereby assigns, transfers, and pledges to the Bank, and grants to the
Bank a security interest in, (i) all property heretofore assigned, transferred
or pledged by the Borrower to the Bank as collateral securing Liabilities and
other obligations of the Borrower prior to the date hereof, (ii) except as

 

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otherwise provided in a Collateral Pledge Amendment, all of the Capital Stock,
Deposits, Residential First Mortgage Collateral, Commercial Mortgage Collateral,
Multifamily Mortgage Collateral and HELOC and Second Mortgage Collateral now or
hereafter owned by the Borrower and (iii) all of the Government and Agency
Securities Collateral, Other Securities Collateral, and Other Collateral,
specifically identified by the Borrower to the Bank as Qualifying Collateral and
accepted by the Bank, and all proceeds and products of any items of the
Collateral described in clauses (i) through (iii) above. In addition, as
security for all Liabilities, each Affiliate will assign, transfer and pledge to
the Bank, and grant to the Bank a security interest in, the Collateral set forth
in its Joinder Agreement.

 

Section 3.02 Representations and Warranties Concerning Collateral. Each Obligor
represents and warrants to the Bank, as of the date hereof, the date of each
Advance, Credit Product, Derivative Transaction or Other Product, and the date
of delivery of each collateral report required under Section 3.07(A) hereof, as
follows:

 

(A) The Obligor owns and has marketable title to the Collateral pledged by it
hereunder and has the right and authority to grant a security interest in such
Collateral and to subject all of such Collateral to this Agreement;

 

(B) The information given from time to time by the Obligor as to each item of
Collateral pledged by it hereunder is true, accurate and complete in all
material respects;

 

(C) The Obligors own Qualifying Collateral with a Lendable Collateral Value at
least equal to the Collateral Maintenance Level;

 

(D) The lien of the Residential First Mortgage Collateral, Commercial Mortgage
Collateral and Multifamily Mortgage Collateral on the real property securing
such Collateral is a first, prior and perfected lien under applicable law;

 

(E) The Obligor has not conveyed or otherwise created, and there does not
otherwise exist, any participation interest or other direct, indirect, legal, or
beneficial interest, lien or encumbrance in any Collateral on the part of any
Person other than the Bank and the Obligor, except that the Obligor may sell or
otherwise dispose of Collateral not necessary to meet the requirements of
Section 3.03(A), and not otherwise reported to the Bank as Qualifying Collateral
for purposes of meeting the requirements of Section 3.03(A), to the extent such
sale or disposition is made to a person not controlling, controlled by or in
common control with any Obligor;

 

(F) No account debtor or other obligor owing any obligation to the Obligor with
respect to any Qualifying Collateral necessary to meet the collateral
maintenance requirement in Section 3.03(A) hereof, or otherwise reported to the
Bank as Qualifying Collateral for purposes of meeting the requirements of
Section 3.03(A), has or shall have any defenses, offsetting claims, or other
rights affecting the right of the Obligor or the Bank to enforce the terms of
such Qualifying Collateral, and no defaults (or conditions that, with the
passage of time or the giving of notice or both, would constitute a default)
exist under any such Qualifying Collateral; and

 

(G) No part of any real property or interest in real property that is included
within the Collateral contains or is subject to the effects of toxic or
hazardous materials or other hazardous substances (including those defined in
the Comprehensive Environmental Response Compensation

 

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and Liability Act of 1980, as amended, 42 U.S.C. §9601, et seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. §1801 et seq.; the Resource Conservation
and Recovery Act, 42 U.S.C. §6901 et seq.; and in the regulations adopted and
publications promulgated pursuant to said laws) the presence of which could
subject the Bank to any liability under applicable state or Federal law or local
ordinance either at any time that such property is pledged to the Bank or upon
the enforcement by the Bank of its security interest therein.

 

Section 3.03 Collateral Maintenance Requirement.

 

(A) The Obligors shall at all times maintain Qualifying Collateral which has a
Lendable Collateral Value that is at least equal to the Collateral Maintenance
Level. In addition, the Obligors agree to maintain such additional amounts of
Collateral as may be required by the Bank in order to protect the Bank’s
security position with respect to the outstanding Liabilities of the Obligors to
the Bank.

 

(B) All documents and other matters pertaining to the Qualifying Collateral
necessary to meet the requirements of Section 3.03(A), or otherwise reported to
the Bank as Qualifying Collateral for purposes of meeting the requirements of
Section 3.03(A), must be satisfactory to the Bank and, if not, the Bank may
refuse to accept such Qualifying Collateral or may assign such Qualifying
Collateral a Lendable Collateral Value less than the Lendable Collateral Value
otherwise applicable under the Credit and Collateral Policy.

 

(C) No Obligor shall assign, pledge, transfer, create any lien, encumbrance or
security interest in, sell, or otherwise dispose of any Collateral; provided,
however, (i) an Obligor may sell or otherwise dispose of Collateral not
necessary to meet the requirements of Section 3.03(A) and not otherwise reported
to the Bank as Qualifying Collateral for purposes of meeting the requirements of
Section 3.03(A), so long as no Event of Default has occurred and is continuing
and such Collateral is sold to a person not controlling, controlled by or in
common control with any Obligor and (ii) upon the written request of the
Obligors, the Bank will agree to release such Collateral as shall be mutually
agreeable to the Bank and the Obligors so long as such Collateral to be released
is not necessary to meet the requirements of Section 3.03(A) and not otherwise
reported to the Bank as Qualifying Collateral for purposes of meeting the
requirements of Section 3.03(A).

 

Section 3.04 Holding of Collateral.

 

(A) Each Obligor shall hold any Collateral in its possession in such manner as
reasonably identifies the security interest of the Bank and as the Bank shall
further direct.

 

(B) Except for Collateral required to be delivered to the Bank or its custodian
as required hereunder, Collateral shall be held by each Obligor in its
possession (except as otherwise provided herein) in trust for the benefit of,
and subject to the direction, and control of, the Bank and shall be physically
safeguarded by the Obligor in accordance with reasonable commercial procedures.
To the extent that any Obligor enters into any Custodial arrangement with
respect to the Collateral, the Obligor shall notify the Bank in writing of such
arrangement, shall provide the Bank with copies of all agreements evidencing
such arrangement, which shall be satisfactory to the Bank in all respects, and
shall cause such agreements to provide that the custodian holds the Collateral
for the benefit of the Bank and no other person and that the custodian shall
accept instructions from the Bank with respect to the Collateral. Without
limitation of the foregoing, each Obligor shall take all action

 

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necessary or desirable to protect and preserve the Collateral and the Bank’s
interest therein, including, the collection of payments under all mortgages and
under any insurance, assuring that all mortgages are serviced in accordance with
the standards of a reasonable and prudent mortgagee and compliance with all
requirements with respect to the Collateral set forth in the Credit and
Collateral Policy.

 

(C) Any Collateral which is a security or other investment property shall be
delivered to the Bank, together with such assignments, powers and other
documents as the Bank shall require in connection with its perfected,
first-priority security interest in such Collateral. With respect to any
uncertificated securities pledged to the Bank as Collateral hereunder, the
delivery requirements contained in this Agreement shall be satisfied by the
transfer of a perfected, first-priority security interest in such securities to
the Bank, such transfer to be effected in such manner and to be evidenced by
such documents as shall be reasonably specified by the Bank.

 

Section 3.05 Delivery of Collateral.

 

(A) Promptly upon the Bank’s written or oral request, or as provided in the
Credit and Collateral Policy, the Obligors shall deliver to the Bank, or to a
custodian designated by the Bank, such Qualifying Collateral as may be necessary
so that the Lendable Collateral Value of Qualifying Collateral held by the Bank,
or such custodian, meets or exceeds the Collateral Maintenance Level at all
times. Collateral delivered to the Bank shall be endorsed and assigned, as
appropriate, in such form as reasonably specified by the Bank and together with
such information with respect to such Collateral as the Bank shall request.

 

(B) Each Obligor agrees to pay to the Bank such reasonable fees and charges as
may be assessed by the Bank to cover the Bank’s overhead and other costs
relating to the receipt, holding and redelivery of Collateral and other
reasonable expenses, disbursements and advances incurred or made by the Bank in
connection therewith (including the reasonable compensation and the expenses and
disbursements of any custodian, consultant or appraiser that may be appointed by
the Bank hereunder, and the agents and legal counsel of the Bank and of such
custodian).

 

Section 3.06 Collateral Reports; Access to Collateral.

 

(A) At the times provided in the Credit and Collateral Policy, and promptly
after any additional requests by the Bank, each Obligor shall deliver to the
Bank such information, reports, verification reviews and schedules with respect
to the Collateral, the Qualifying Collateral and compliance with this Agreement
and the Credit and Collateral Policy as provided in the Credit and Collateral
Policy, or as the Bank shall request, all in form and substance as prescribed by
the Bank.

 

(B) Each Obligor shall provide the Bank with such financial reports and other
information relating to the Obligor’s financial condition as the Bank may
reasonably request.

 

(C) Each Obligor shall give the Bank, its agents and representatives access at
reasonable times and locations to the Collateral, and to the Obligor’s books and
records of account relating to such Collateral, for the purpose of the Bank or
its agents and representatives examining, verifying or reconciling the
Collateral and the Obligor’s reports to the Bank thereon. At the Bank’s request,
the Obligors shall make any or all documents and information pertaining to the
Collateral available to the Bank, its agents and representatives at reasonable
times and locations for their inspection and

 

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approval. Each Obligor shall make adequate working facilities available to the
Bank, its agents and representatives for purposes of such verifications and
reviews. Reasonable fees and charges may be assessed to the Obligors by the Bank
to cover overhead and other costs relating to such verifications and reviews,
including, any costs and expenses of third parties engaged by the Bank for such
purposes.

 

(D) If any Obligor becomes aware or has reason to believe that the Lendable
Collateral Value of the Obligors’ Qualifying Collateral has fallen below the
Collateral Maintenance Level, that a contingency exists which with the lapse of
time could result in the Obligors’ failure to meet the Collateral Maintenance
Level, or any event has occurred which could reasonably be expected to have a
material adverse effect on the operations or financial condition of the Obligor,
such Obligor shall immediately notify the Bank.

 

(E) Each Obligor shall notify the Bank prior to (i) any change in the Obligor’s
name, charter or organizational documents, jurisdiction of organization or form
of organization and (ii) any event that could result in a change in the
Obligor’s “location” as defined in the Uniform Commercial Code.

 

Section 3.07 Additional Documentation; Further Assurances.

 

(A) Each Obligor shall, or the Bank may, in lieu of the Obligor, make, execute,
record and deliver such agreements, financing statements, notices, assignments,
listings, powers, and other documents with respect to the Collateral and the
Bank’s first-priority security interest therein and in such form as the Bank may
reasonably require. Each Obligor shall, upon request of the Bank, immediately
take such actions as the Bank shall deem necessary or appropriate to perfect the
Bank’s first-priority security interest in the Collateral or otherwise to
obtain, preserve, protect, enforce or collect the Collateral or the proceeds
thereof.

 

(B) The Bank may from time to time hereafter require any Obligor to provide
representations, warranties, and undertakings, in addition to those contained
herein, reasonably related to the securing, perfecting, maintaining or enforcing
of the Bank’s rights and interests in the Collateral.

 

Section 3.08 Bank’s Responsibilities as to Collateral. The Bank’s duty as to the
Collateral shall be solely to use reasonable care in the custody and
preservation of the Collateral in its possession, which shall not include any
steps necessary to preserve rights against prior parties nor the duty to send
notices, perform services, or take any action in connection with the management
of the Collateral. The Bank shall not have any responsibility or liability for
the form, sufficiency, correctness, genuineness or legal effect of any
instrument or document constituting a part of the Collateral, or any signature
thereon or the description or misdescription, or value of property represented,
or purported to be represented, by any such document or instrument. Each Obligor
agrees that any and all Collateral may be removed by the Bank from the state or
location where situated, and may be subsequently dealt with by the Bank as
provided in this Agreement.

 

Section 3.09 Bank’s Rights as to Collateral; Power of Attorney. At any time or
times, at the expense of the Obligors, the Bank may in its discretion, before or
after the occurrence of an Event of Default as defined in Section 5.01 hereof,
in its own name or in the name of its nominee or of any Obligor, do any or all
things and take any and all actions that are pertinent to the protection

 

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of the Bank’s interest hereunder and are lawful under applicable law, including,
but not limited to, the following:

 

(A) Terminate any consent given hereunder;

 

(B) Notify obligors on any Collateral to make payments or render performance
thereon directly to the Bank;

 

(C) Endorse any Collateral in any Obligor’s name;

 

(D) Enter into any extension, compromise, settlement, or other agreement
relating to or affecting any Collateral;

 

(E) Take any action any Obligor is required to take or which is otherwise
reasonably necessary to file a financing statement, take possession of
Collateral, obtain control of Collateral or otherwise perfect a security
interest in any or all of the Collateral.

 

(F) Take any action any Obligor is permitted to take in connection with the
Collateral, to the same extent as if the Bank were the originator of the
Collateral;

 

(G) Take control of any funds or other proceeds generated by the Collateral and
use the same to reduce Liabilities as they become due; and

 

(H) Cause the Collateral to be transferred to its name or the name of its
nominee.

 

Each Obligor hereby appoints the Bank as its true and lawful attorney, for and
on behalf of the Obligor and in its name, place and stead, to prepare, execute
and record endorsements and assignments to the Bank of all or any item of
Collateral, giving or granting to the Bank, as such attorney, full power and
authority to do or perform every lawful act necessary or proper in connection
therewith as fully as the Obligor might or could do. Each Obligor hereby
ratifies and confirms all that the Bank shall lawfully do or cause to be done by
virtue of this special power of attorney. This special power of attorney is
granted for a period commencing on the date hereof and continuing until the
discharge of all Liabilities and all obligations of the Obligors hereunder
regardless of any default by any Obligor, is coupled with an interest, and is
irrevocable for the period granted.

 

Section 3.10 Proceeds of Collateral. Each Obligor, as the Bank’s agent, shall
collect all payments when due on all Collateral. If the Bank so requires, each
Obligor shall hold such collections separate from its other monies in one or
more designated cash collateral accounts maintained at the Bank and apply them
to the reduction of Liabilities as they become due; otherwise, the Bank consents
to the Obligors’ use and disposition of all such collections.

 

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ARTICLE IV: ADDITIONAL REPRESENTATIONS,

WARRANTIES AND COVENANTS

 

Section 4.01 General Representations and Warranties by the Obligors. Each
Obligor hereby represents and warrants that, as of the dale hereof, the date of
each Advance, Credit Product, Derivative Transaction or Other Product, and the
date of delivery or each collateral report required under Section 3.07(A)
hereof:

 

(A) The Obligor is not, and neither the execution of nor the performance of any
of the transactions or obligations of the Obligor under this Agreement shall,
with the passage of time, the giving of notice or otherwise, cause the Obligor
to be: (i) in violation of its charter or articles of incorporation, by-laws,
the Act or the Regulations, any other law or administrative regulation, or any
court decree; or (ii) in default under or in breach of any material indenture,
contract or other instrument or agreement to which the Obligor is a party or by
which it or any of its property is bound;

 

(B) The Obligor has full corporate power and authority and has received all
corporate and governmental authorizations and approvals (including those
required under the Act and the Regulations) as may be required to enter into and
perform its obligations under this Agreement and to obtain any Derivative
Transaction or Other Product, and the Borrower has full corporate power and
authority and has received all corporate and governmental authorizations and
approvals (including those required under the Act and the Regulations) as may be
required to borrow each Advance and to obtain each Credit Product, Derivative
Transaction and Other Product;

 

(C) The information given by the Obligor herein or in any Application,
Confirmation or Supplemental Documentation, or in any oral statement made in
connection with transactions contemplated thereunder, is true, accurate and
complete in all material respects;

 

(D) The name, location (as defined in the Uniform Commercial Code) and corporate
form of the Obligor is, and for the lesser of its entity existence or the four
months prior to the date of this Agreement has been, the same as set forth in
the opening paragraph of this Agreement or in a Joinder Agreement;

 

(E) All financial statements concerning any Obligor which have been furnished to
the Bank or will hereafter be furnished to the Bank pursuant to this Agreement
or any Joinder Agreement, have been or will be prepared in accordance with GAAP
consistently applied (except as disclosed therein) and do or will present fairly
the financial condition of the entities covered thereby as at the dates thereof
and the results of their operations for (he periods then ended, subject to, in
the case of unaudited financial statements, the absence of footnotes and
year-end adjustments;

 

(F) Since the date of the most recent audited financial statements of any
Obligor referred to in Section 4.01 (E) above, there have been no events or
changes in facts or circumstances affecting any Obligor which individually or in
the aggregate have had or could reasonably be expected to have a Material
Adverse Effect;

 

(G) (i) No Obligor is the subject of any review or audit by any governmental or
regulatory investigation concerning the violation or possible violation of any
law, and (ii) there are no judgments outstanding against any Obligor or
affecting any property of any Obligor, nor is there any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation or arbitration
now pending or, to the best knowledge of Borrower after due inquiry, threatened
against or affecting any Obligor or any property of any Obligor which could
reasonably be expected to result in any Material Adverse Effect;

 

(H) None of the proceeds of any Advance (or other credit extension hereunder)
will be used in connection with any “reportable transaction” within the meaning
of Treasury Regulation Section

 

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1.6011-4(b) or in connection with any “potentially abusive tax shelter” within
the meaning of Section 6112(b) of the Internal Revenue Code of 1986, as amended;
and

 

(I) Each Borrowing Document is and will remain (notwithstanding any amendment
thereto occurring after the date of this Agreement) the legally valid and
binding obligation of each Obligor, enforceable in accordance with its terms.

 

Section 4.02 General Covenants by the Obligors. Until the termination of this
Agreement and the indefeasible satisfaction in full of all of the Liabilities:

 

(A) To the extent that the Borrower relies upon the Lendable Collateral Value of
Qualifying Collateral owned by an Affiliate in obtaining or maintaining any
Advance (or other extension of credit under the Borrowing Documents), the
Borrower will use, directly or indirectly, all of the proceeds of such Advance
(or other extension of credit) for the benefit of such Affiliate; and

 

(B) Each Obligor will (a) comply with (i) the requirements of all applicable
laws, rules, regulations and orders of any governmental authority (including,
laws, rules, regulations and orders relating to taxes, employer and employee
contributions, securities, employee retirement and welfare benefits,
environmental protection matters, employee health and safety and credit
protection, anti-predatory and fair lending) as now in effect and which may be
imposed in the future in all jurisdictions in which such Obligor is now doing
business or may hereafter be doing business and (ii) the obligations, covenants
and conditions contained in all binding contracts of such Obligor, as
applicable, other than those laws, rules, regulations, orders and provisions of
such contracts the noncompliance with which could not be reasonably expected to
have, either individually or in the aggregate, a Material Adverse Effect, and
(b) maintain or obtain all licenses, qualifications and permits now held or
hereafter required to be held by such Obligor, for which the loss, suspension,
revocation or failure to obtain or renew, could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. This
subsection shall not preclude any Obligor from contesting any taxes or other
payments, if they are being diligently contested in good faith in a manner which
stays enforcement thereof and if appropriate expense provisions have been
recorded in conformity with GAAP.

 

ARTICLE V: DEFAULT; REMEDIES

 

Section 5.01 Events of Default. Each of the following events shall constitute an
Event of Default hereunder:

 

(A) Failure of any Obligor to pay when due any interest on or principal of any
Liabilities; or

 

(B) Failure of any Obligor to perform any promise or obligation or to satisfy
any condition or liability contained herein, or in any Application, Confirmation
or Supplemental Documentation, or the occurrence of a default or an event of
default under any Supplemental Documentation; or

 

(C) Evidence coming to the attention of the Bank that any representation,
statement, covenant or warranty made or furnished in any manner to the Bank by
or on behalf of any Obligor in connection with this Agreement or any
Application, Confirmation, Supplemental Documentation, Liabilities or Collateral
was false in any material respect when made or furnished; or

 

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(D) The issuance of any tax, levy, seizure, attachment, garnishment, levy of
execution, or other process with respect to the Collateral which has not been
stayed; or

 

(E) Any suspension of payment by any Obligor to any creditor of sums due or the
occurrence of any event which results in another creditor having the right to
accelerate the maturity of any indebtedness of any Obligor under any security
agreement, indenture, loan agreement, or comparable undertaking; or

 

(F) Appointment of a conservator, receiver, or similar official for any Obligor
or any subsidiary of any Obligor, of any Obligor’s property, entry of a judgment
or decree adjudicating any Obligor or any subsidiary of any Obligor insolvent or
bankrupt or an assignment by any Obligor or any subsidiary of any Obligor for
benefit of creditors; or

 

(G) Sale by any Obligor of all or a material part of any Obligor’s assets or the
taking of any other action by any Obligor to liquidate or dissolve; or

 

(H) Termination for any reason of the Borrower’s membership in the Bank, failure
of the Borrower to comply with the stock purchase requirements of the Bank in
effect from time to time, or the Borrower’s ceasing to be eligible to become a
member of the Bank or any Obligor ceasing to be eligible to pledge Collateral or
support the obligations of the Borrower hereunder under the Act, the Regulations
or the Credit and Collateral Policy; or

 

(I) Merger, consolidation or other combination of any Obligor with an entity
that is not a member of the Bank if the nonmember entity is the surviving
entity; or

 

(J) Any Obligor or any of its respective directors or senior officers is
criminally indicted or convicted of or under a felony or a crime involving fraud
against or in relation to such Obligor; or

 

(K) The Bank reasonably and in good faith determines that a Material Adverse
Effect has occurred.

 

Section 5.02 Acceleration; Other Remedies. Upon the occurrence of an Event of
Default, in addition to any other remedies provided herein, in any Supplemental
Documentation or at law or in equity, the Bank may at its option, by a notice to
the Borrower, declare all or any part(s) of the Liabilities and accrued interest
thereon, including any prepayment fees or charges which are applicable thereto,
to be immediately due and payable, without presentment, demand, protest, or any
further notice. Furthermore, upon the occurrence of an Event of Default, the
Bank shall have all of the rights and remedies provided by applicable law, which
shall include, but not be limited to, all of the remedies of a secured party
under the Uniform Commercial Code as in effect in the State of Georgia. In
addition, the Bank may take immediate possession of any of the Collateral or any
part thereof wherever the same may be found. The Bank may sell, assign and
deliver the Collateral or any part thereof at public or private sale for such
price as the Bank deems appropriate without any liability for any loss due to
decrease in the market value of the Collateral during the period held. The Bank
shall have the right to purchase all or part of the Collateral at such sale. If
the Collateral includes insurance or securities which will be redeemed by the
issuer upon surrender, or any accounts or deposits in the possession of the
Bank, the Bank may realize upon such Collateral without notice to any Obligor.
If any notification of intended disposition of any of the Collateral is required
by applicable law, such notification shall be deemed reasonable and properly
given if given

 

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as provided by applicable law or in accordance with Section 6.06 hereof at least
ten days before any such disposition. The proceeds of any sale shall be applied
in the order that the Bank, in its sole discretion, may choose, subject to
applicable law. Each Obligor agrees that the Bank may exercise any and all of
its rights of setoff upon the occurrence of an Event of Default. Notwithstanding
any other provision hereof, upon the occurrence of any Event of Default at any
time when all or part of the Liabilities shall be the subject of a guarantee by
a third party for the Bank’s benefit, and there shall be other outstanding
obligations of any Obligor to the Bank that are not so guaranteed, but that are
secured by the Collateral, then any sums realized by the Bank from the
Collateral, or from any other collateral pledged or furnished to the Bank by any
Obligor under any other agreement, shall be applied first to the satisfaction of
such other nonguaranteed obligations and then to such Obligor’s guaranteed
obligations hereunder. Each Obligor agrees to pay all the costs and expenses of
the Bank in the collection of the Liabilities and enforcement of the Bank’s
rights and remedies in case of default, including, reasonable attorneys’ fees.
The Bank shall, to the extent required by law, apply any surplus, after (i)
payment of the Liabilities, (ii) provision for repayment to the Bank of any
amounts to be paid or advanced under Other Credit Products, and (iii) payment of
all costs of collection and enforcement, to the claims of person(s) legally
entitled thereto, with any remaining surplus paid to the Borrower. Each Obligor
shall be liable to the Bank for any deficiency remaining.

 

Section 5.03 Certain Provisions as to Sale of Collateral. The Bank may, from
time to time, attempt to sell certain Collateral by means of a private
placement. In so doing, the Bank may restrict the bidders and prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for distribution or otherwise impose restrictions deemed
appropriate by the Bank for the purpose of complying with the requirements of
applicable securities laws. The Bank may solicit offers to buy such Collateral,
for cash or otherwise, from a limited number of investors deemed by the Bank to
be responsible parties who might be interested in purchasing such Collateral. If
the Bank solicits offers from not less than three such investors, then the
acceptance by the Bank of the highest offer obtained therefrom (whether or not
three offers are obtained) shall be deemed to be a commercially reasonable
method of disposing of the Collateral.

 

ARTICLE VI: MISCELLANEOUS

 

Section 6.01 Changes to Credit and Collateral Policy. The Bank reserves the
right to amend, supplement, restate or otherwise modify the Credit and
Collateral Policy (each, a “Policy Modification”) at any time, in its sole
discretion, without the consent of any Obligor, and each Obligor hereby (i)
acknowledges and agrees that this Agreement shall be deemed to have been amended
by each such Policy Modification, (ii) acknowledges and agrees that each such
Policy Modification shall apply to all Advances, Credit Products, Derivative
Transactions and Other Products (whether outstanding on the date of such Policy
Modification or issued after the date thereof) and (iii) agrees to be bound by
each and every Policy Modification occurring on, prior to, or after the date of
this Agreement. Each Policy Modification shall become effective immediately upon
adoption by the Bank; provided, however, the Borrower shall have ten days after
such effective date to cure any Event of Default caused by such Policy
Modification. The Bank shall provide notice of any Policy Modification by
displaying the revised Credit and Collateral Policy on the portion of the Bank’s
website accessible to members of the Bank. Notwithstanding the provisions of
this section, the Bank shall not amend, supplement, restate or otherwise modify
the terms and conditions of any Advance, Credit Product, Derivative Transaction
or Other Product specified in a Confirmation, without the consent of the
Borrower.

 

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Section 6.02 Assignment. Each Obligor hereby gives the Bank the full right,
power and authority to pledge or assign to any party all or part of the
Liabilities, together with all or any part of the Collateral, as security for
consolidated Federal Home Loan Bank obligations issued pursuant to the
provisions of the Act or for any other purpose authorized by the Act, the
Regulations or the Federal Housing Finance Board. In case of any such pledge or
assignment, the Bank shall have no further responsibility with respect to
Collateral transferred to the pledgee or assignee. The Obligors may not (whether
voluntarily, involuntarily, by operation of law or otherwise) assign or transfer
any or their rights or obligations hereunder or with respect to any Advance,
Credit Product, Derivative Transaction or Other Product without the express
prior written consent of the Bank. The Bank may at any time, subject to
applicable law, sell, assign, grant participations in, or otherwise transfer to
any other person, firm or corporation, including another Federal Home Loan Bank,
all or part of the Liabilities outstanding hereunder. Each Obligor hereby
acknowledges and agrees that any such disposition shall give rise to a direct
obligation of the Obligor to such assignee, participant or transferee. Each
Obligor hereby authorizes the Bank and each assignee, participant or transferee,
in case of default by any Obligor hereunder, to proceed directly, by right of
setoff, banker’s lien, or otherwise, against any assets of any Obligor which may
at the time of such default be in the respective hands of the Bank or any such
assignee, participant or transferee. Each Obligor further agrees that the Bank
may furnish any information pertaining to any Obligor which is in the possession
of the Bank to any prospective assignee, participant or transferee to assist it
in evaluating such assignment, participation or transfer provided that any
non-public information reasonably designated in writing to the Bank by any
Obligor as constituting non-public information shall be furnished to such
prospective assignee, participant or transferee on a confidential basis. Nothing
contained herein shall be deemed to grant to any third party any rights
hereunder.

 

Section 6.03 Discretion of the Bank to Grant or Deny Advances. Nothing contained
herein or in any documents describing the Bank’s credit program and credit
policies, including the Credit and Collateral Policy, shall be construed as an
agreement or commitment on the part of the Bank to grant Advances or enter into
Credit Products, Derivative Transactions or Other Products. No Obligor, except
the Borrower, shall have any right to apply to the Bank for Advances or Credit
Products. The right and power of the Bank in its discretion to either grant or
deny any Advance, Credit Product, Derivative Transaction or Other Product
requested hereunder is hereby expressly reserved. The determination by the Bank
of Lendable Collateral Value and the Collateral Maintenance Level shall not
constitute a determination by the Bank that the Borrower may obtain Advances,
Credit Products, Derivative Transactions or Other Products in amounts up to such
Lendable Collateral Value and Collateral Maintenance Level.

 

Section 6.04 Amendment; Waivers. No modification, amendment or waiver of any
provision of this Agreement (other than the provisions of the Credit and
Collateral Policy incorporated by reference herein) or consent to any departure
therefrom shall be effective unless in a writing executed by a responsible
officer of the party against whom such change is asserted and shall be effective
only in the specific instance and for the purpose of which given. No notice to
or demand on any Obligor in any case shall entitle any Obligor to any other or
further notice or demand in the same, or similar or other circumstances. Any
forbearance, failure or delay by the Bank in exercising any right, power or
remedy hereunder shall not be deemed to be a waiver thereof, and any single or
partial exercise by the Bank of any right, power or remedy hereunder shall not
preclude the further exercise thereof. Every right, power and remedy of the Bank
shall continue in full force and effect until specifically waived by the Bank in
writing.

 

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Section 6.05 Consent to Jurisdiction. In any action or proceeding brought by the
Bank or any Obligor in order to enforce any right or remedy under this
Agreement, the parties hereby consent to, and agree that they will submit to,
the nonexclusive jurisdiction of the United States District Court for the
Northern District of Georgia or, if such action or proceeding may not be brought
in Federal court, the jurisdiction of the courts of the State of Georgia located
in the City of Atlanta.

 

Section 6.06 Notices. Except as provided in the last sentence of this Section,
any written notice, advice, request, consent or direction given, made or
withdrawn pursuant to this Agreement (other than notice by the Bank of a Policy
Modification) shall be in writing, and shall be given by first class mail,
postage prepaid, by telecopy or other facsimile transmission, or by private
courier or delivery service. All non-oral notices shall be deemed given when
actually received at the principal office of the Bank or the Borrower (for all
Obligors), as appropriate. All notices shall be designated to the attention of
an office or section of the Bank or of the Borrower if the Bank or the Borrower
has made a request for the notice to be so addressed. Any notice by the Bank to
the Borrower-pursuant to Section 3.06 hereof may be oral and shall be deemed to
have been duly given to and received by the Borrower at the time of the oral
communication.

 

Section 6.07 Signatures of Obligors. For purposes of this Agreement, documents
shall be deemed signed by each Obligor when a signature (electronic or manual)
of an authorized signatory or an authorized facsimile thereof appears on the
document. The Bank may rely on any signature (electronic or manual) or facsimile
thereof which reasonably appears to the Bank to be the signature of an
authorized person, including signatures appearing on documents transmitted
electronically to and reproduced mechanically at the Bank. The Secretary or an
Assistant Secretary of each Obligor shall from time to time certify to the Bank
on forms provided by the Bank the names and specimen signatures of the persons
authorized to apply on behalf of the Borrower to the Bank for Advances and
commitments for Advances and otherwise act for and on behalf of the Obligors in
accordance with this Agreement. The Obligors shall promptly notify the Bank of
any changes to such certifications, and until receipt of such notice, the Bank
shall be authorized to rely on the authorizations in such current
certifications. Such certifications are incorporated herein and made a part of
this Agreement and shall continue in effect until expressly revoked or amended
in writing by the Obligors, notwithstanding that subsequent certifications may
authorize additional persons to act for and on behalf of the Obligors.

 

Section 6.08 Applicable Law; Severability. In addition to the terms and
conditions specifically set forth herein and in any Application, Confirmation or
Supplemental Documentation, this Agreement and all Advances, Credit Products,
Derivative Transactions and Other Products shall be governed by the statutory
and common law of the United States and, to the extent Federal law incorporates
or defers to state law, the laws (exclusive of the choice of law provisions) of
the State of Georgia. Notwithstanding the foregoing, the Uniform Commercial Code
as in effect in the State of Georgia shall be deemed applicable to this
Agreement and any Application, Confirmation and Supplemental Documentation and
to any Advance, Credit Product, Derivative Transaction or Other Product and
shall govern the attachment and perfection of any security interest granted
hereunder or thereunder. In the event that any portion of this Agreement, or any
Application, Confirmation or Supplemental Documentation, conflicts with
applicable law, such conflict shall not affect other provisions of this
Agreement or such Application, Confirmation or Supplemental Documentation, which
may be given effect without the conflicting provision, and to this end the
provisions of this

 

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Agreement and any Application, Confirmation and Supplemental Documentation are
declared to be severable.

 

Section 6.09 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Obligors and
the Bank.

 

Section 6.10 Entire Agreement. This Agreement, together with any Confirmation or
Supplemental Documentation, and any amendments or addenda thereto executed by
the Bank and the Obligors, embody the entire agreement and understanding between
the parties hereto relating to the subject matter hereof and supersedes all
prior agreements between such parties that relate to such subject matter. If,
prior to the date of this Agreement, the Borrower and the Bank have entered into
an Agreement for Advances and Security Agreement with Blanket Floating Lien (as
amended) or an Advances, Specific Collateral Pledge and Security Agreement
(each, a “Prior Agreement”), then this Agreement shall amend and restate the
Prior Agreement in its entirety as the date hereof.

 

Section 6.11 Attorneys’ Fees. Each Obligor agrees to pay all charges and
expenses incurred by Bank (including reasonable attorneys’ fees and expenses) in
connection with the administration of the Borrowing Documents, any investigation
by Bank in respect of any Borrowing Document, the enforcement, protection or
preservation of any right or claim of Bank, the termination of this Agreement or
any other Borrowing Document, the termination of any liens of Bank on the
Collateral, or the collection of any amounts due under the Borrowing Documents.
If Bank uses in-house counsel for any of these purposes, each Obligor further
agrees that its Liabilities under the Borrowing Documents includes reasonable
charges for such work commensurate with the fees that would otherwise be charged
by outside legal counsel selected by Bank for the work performed.

 

Section 6.12 Indemnification of the Bank. Each Obligor hereby indemnifies and
agrees to defend (with counsel acceptable to the Bank) and hold harmless the
Bank and each of its directors, officers, agents and employees (each, an
“Indemnitee”) from and against any liability, loss, cost or expense (including
reasonable attorneys’ fees and expenses for both in-house and outside counsel)
incurred in connection with any claim, damage, suit, arbitration, action,
proceeding, investigation, pre-filing settlement discussion or negotiation, or
any other matter, whenever taking place, and suffered by any one or more of the
Indemnitees (collectively, “Losses”) or in which any one or more of the
Indemnitees may ever be or become involved (whether as a party, witness or
otherwise), in connection with, or in any way relating to, any Liability, this
Agreement, any Borrowing Document, any Advance, any Credit Product, any
Derivative Transaction, or any Other Product and including any Loss (a) arising
from any Obligor’s failure to observe, perform or discharge any of its
covenants, obligations, agreements or duties under this Agreement or any other
Borrowing Document, (b) arising from the breach of any of the representations or
warranties contained in any Borrowing Document, (c) relating to claims of any
Person with respect to any Collateral, or (d) arising from any Obligor’s failure
to comply with any federal, state, or local statute, regulation, ordinance or
other provision of law; provided, an Indemnitee shall not be indemnified for
Losses to the extent they result solely from the gross negligence or willful
misconduct of such Indemnitee. Notwithstanding any contrary provision in any
Borrowing Document, obligations of each Obligor under this Section 6.12 shall
survive the payment in full of the Liabilities and the termination of this
Agreement.

 

-19-

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[Signatures appear on following page.]

 

-20-

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IN WITNESS WHEREOF, Borrower and Bank have caused this Agreement to be signed in
their names by their duly authorized officers as of the date first above
mentioned.

 

COOPERATIVE BANK

By:

 

/s/ Frederick Willetts, III

   

Name:

 

Frederick Willetts, III

   

Title:

 

President

By:

 

/s/ Todd Sammons

   

Name:

 

Todd Sammons

   

Title:

 

Treasurer

FEDERAL HOME LOAN BANK OF ATLANTA

By:

 

/s/ Charles I. Abbitt

   

Name:

 

Charles I. Abbitt

   

Title:

 

Senior Vice President

By:

 

/s/ Randy B. Gonzalez

   

Name:

 

Randy B. Gonzalez

   

Title:

 

First Vice President

 

-21-

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FEDERAL HOME LOAN BANK OF ATLANTA

 

BORROWER ACKNOWLEDGEMENT

AND NOTARIZATION

 

STATE OF North Carolina          

} ss

County of New Hanover     

 

On this 23rd day of November, before me personally came Frederick Willetts, III
and Todd Sammons, to me known, who being by me duly sworn, did depose and state
that they are the President and Treasurer of Cooperative Bank (the “Borrower”);
and that they are signing their names thereto in my presence by order of the
Board of Directors or other governing body of the Borrower and that said
Frederick Willetts, III and Todd Sammons acknowledge the execution of said
instrument to be the voluntary act and deed of the Borrower.

 

/s/ Patricia K. O’Quinn Notary Public Signature

 

Notary Public in and for the State of    North Carolina

(NOTARY PUBLIC’S SEAL)

 

My commission expires: 1-3-07

 

-22-

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JOINDER AGREEMENT

 

THIS JOINDER AGREEMENT (the “Agreement”), dated as of the earlier of the date of
execution by the Bank (as hereinafter defined) and November 30, 2004, is among
CS&L Real Estate Trust, Inc., a North Carolina corporation, having its principal
place of business at 201 Market Street, Wilmington, NC 28401-4443 (“CSLREIT”),
CS&L Holdings, Inc., a Virginia corporation, having its principal place of
business at 293 Independence Blvd., Suite 109, Virginia Beach, VA 23462 (the
“Holding Company”; CSLREIT and the Holding Company collectively, the
“Affiliate”), Cooperative Bank (the “Borrower”), and the Federal Home Loan Bank
of Atlanta (the “Bank”). The Affiliate wishes to provide security and credit
support to the Borrower under the Advances and Security Agreement, dated as of
the earlier of the date of execution by the Bank and November 30, 2004, between
the Borrower and the Bank (the “Advances and Security Agreement”). The Bank has
agreed to accept such security and credit support of Affiliate subject to the
terms and conditions of this Agreement. All of the defined terms in the Advances
and Security Agreement are incorporated herein by reference.

 

Accordingly, the Borrower and the Affiliate hereby agree as follows with the
Bank:

 

  1. Each Affiliate hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, such Affiliate shall be deemed to be a party to the
Advances and Security Agreement and an “Obligor” as provided therein and shall
have all of the obligations of an Obligor thereunder as if it had executed the
Advances and Security Agreement originally; provided, however, no Affiliate may
apply to the Bank for direct Advances, Credit Products, Derivative Transactions
or Other Products. Each Affiliate hereby ratifies, as of the date hereof, and
agrees to be bound by, all of the terms, provisions and conditions contained in
the Advances and Security Agreement, including, all of the representations,
warranties and affirmative and negative covenants of an Obligor set forth
therein.

 

  2. Without limiting the generality of the foregoing terms of paragraph 1, each
Affiliate hereby jointly and severally, together with all other Obligors,
guarantees to the Bank the prompt payment and performance of the Liabilities in
full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration or otherwise) strictly in accordance with the terms thereof and
agrees that if any of such Liabilities are not paid or performed in full when
due (whether at stated maturity, as a mandatory prepayment, by acceleration or
otherwise), such Affiliate shall, jointly and severally together with all other
Obligors, promptly pay and perform the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Liabilities, the same shall be promptly paid in full when due
(whether at extended maturity, as a mandatory prepayment, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.

 

  3. As security for all Liabilities, each Affiliate hereby assigns, transfers
and pledges to the Bank, and grants to the Bank a security interest in, the
following Collateral:

 

(i) All property heretofore assigned, transferred or pledged by such Affiliate
to the Bank as collateral securing Liabilities and other obligations of the

 

--------------------------------------------------------------------------------

Obligors prior to the date hereof, (ii) all of the Residential First Mortgage
Collateral, Commercial Mortgage Collateral, Multifamily Mortgage Collateral,
HELOC and Second Mortgage Collateral, Government and Agency Securities
Collateral, Other Securities Collateral, and Other Collateral, now or hereafter
owned by the Affiliate, specifically identified by such Affiliate to the Bank as
Qualifying Collateral and accepted by the Bank, and all proceeds and products of
any items of the Collateral described in clauses (i) and (ii) above.

 

  4. Each Affiliate shall furnish the following to the Bank:

 

(i) Within 90 days after the end of each fiscal year of the Cooperative
Bankshares, Inc., a North Carolina corporation having its principal place of
business at 201 Market Street, Wilmington, NC 28401 (“Cooperative”),
Cooperative’s audited consolidated and consolidating balance sheet and related
statement of operations, shareholders’ equity and cash flows as of the end of
and for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by nationally-recognized
independent accountants (without qualification or exception) that such financial
statements present fairly in all material respects the financial condition and
results of operations of Cooperative in accordance with GAAP.

 

(ii) Within 45 days after the end of each fiscal quarter of an Affiliate
pledging collateral to the Bank pursuant to this Agreement, such Affiliate’s
consolidated and consolidating balance sheet and related statement of
operations, as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods (or, in the case of the balance
sheet, as of the end) of the previous fiscal year, all certified by such
Affiliate’s chief financial officer as presenting fairly in all material
respects the financial condition and results of operations of such Affiliate in
accordance with GAAP, subject to normal year-end audit adjustments and the
absence of footnotes.

 

(iii) Together with the audited annual financial statements delivered pursuant
to clause (i) above, and together with the quarterly financial statements
delivered pursuant to clause (ii) above, the Affiliate shall deliver to the Bank
a certificate of its chief financial officer, in form and substance satisfactory
to the Bank, (a) stating that such officer has reviewed the relevant terms of
the Borrowing Documents, and has made (or caused to be made under such officer’s
supervision) a review of the transactions and conditions of the Affiliate from
the beginning of the accounting period covered by the income statements being
delivered to the date of the certificate, and that such review has not disclosed
the existence during such period of any fact, event or circumstance that
constitutes an Event of Default or that is then, or with the passage of time or
giving of notice or both, could become an Event of Default, and if any such
condition or event existed during such period or now exists, specifying the
nature and period of existence thereof and what action the Affiliate has taken
or proposes to take with respect thereto; and (b) certifying and demonstrating
that the Affiliate remains solvent as of the date of such certificate.

 

-2-

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(iv) Promptly thereafter, copies of all notices, reports, correspondence and
other materials filed by the Affiliate with any governmental authority, and any
other information known to the Affiliate which could reasonably be expected to
have a Material Adverse Effect on the operations, business, or financial
condition of the Affiliate.

 

  5. Notwithstanding any provision to the contrary contained herein or in the
Advances and Security Agreement, to the extent the obligations of any Affiliate
shall be adjudicated to be invalid or unenforceable for any reason (including,
because of any applicable state of federal law relating to fraudulent
conveyances or transfers) then the obligations of such Affiliate hereunder shall
be limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, the United States Bankruptcy Code).

 

  6. Each Affiliate agrees that to the extent that any Obligor shall make a
payment or a transfer of an interest in any property to the Bank, which payment
or transfer or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, or otherwise is avoided, and/or required to be
repaid to any Obligor, the estate of any Obligor, a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such avoidance or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.

 

  7. The liability of each Affiliate hereunder is exclusive and independent of
any other security for the Liabilities; a separate action or actions may be
brought and prosecuted against each Affiliate whether or not action is brought
against any other guarantor or Obligor and whether or not any other guarantor or
Obligor is joined in any such action or actions; and each Affiliate’s liability
hereunder shall not be affected or impaired by (a) any direction as to
application of payment by any Obligor or by any other party, or (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor or
of any other party as to the Liabilities, or (c) any payment on or reduction of
any such other guaranty or undertaking, or (d) any dissolution, termination or
increase, decrease or change in personnel by any Obligor, or (e) any payment
made to the Bank on the Liabilities which the Bank repays to any Obligor
pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and each Affiliate waives any
right to the deferral or modification of its obligations hereunder by reason of
any such proceeding.

 

  8.

Each Affiliate authorizes the Bank without consent of such Affiliate or notice
or demand (except as shall be required by applicable statute and cannot be
waived), and without affecting or impairing its liability hereunder, from time
to time to (a) make additional Advances to the Borrower, and enter into
agreements for Credit Products and Other Products and Derivative Transactions
with the Borrower, (b) change the terms of the Liabilities or any part thereof,
solely with the consent of the Borrower, (c) take and hold security from any
other guarantor or any other party for the payment of this guaranty or the
Liabilities and exchange, enforce waive and release any such security, and apply
such security and direct the order or manner of sale

 

-3-

--------------------------------------------------------------------------------

 

thereof as the Bank in its discretion may determine and (d) release or
substitute any one or more endorsers, guarantors or Obligors.

 

  9. It is not necessary for the Bank to inquire into the capacity or powers of
any Obligor or Affiliate or the officers, directors, members, partners or agents
acting or purporting to act on its behalf, and any Liabilities made or created
in reliance upon the professed exercise of such powers shall be guaranteed
hereunder.

 

  10. Each Affiliate waives any right (except as shall be required by applicable
statute and cannot be waived) to require the Bank to (i) proceed against any
Obligor, any other guarantor or any other party, (ii) proceed against or exhaust
any security held from any Obligor, any other guarantor or any other party, or
(iii) pursue any other remedy in the Bank’s power whatsoever. Each Affiliate
waives any defense based on or arising out of any defense of any Obligor, any
other guarantor or any other party other than payment in full of the
Liabilities, including, any defense based on or arising out of the disability of
any Obligor, any other guarantor or any other party, or the unenforceability of
the Liabilities or any part thereof from any cause, or the cessation from any
cause of the liability of any Obligor other than payment in full of the
Liabilities. The Bank may, at its election, foreclose on any security held by
the Bank by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the Bank may
have against any Obligor or any other party, or any security, without affecting
or impairing in any way the liability of any Affiliate hereunder except to the
extent the Liabilities have been paid. Each Affiliate waives any defense arising
out of any such election by the Bank, even though such election operates to
impair or extinguish any right of reimbursement or subrogation or other right or
remedy of such Affiliate against any Obligor or any other party or any security.

 

Each Affiliate waives all presentments, demands for performance, protests and
notices, including, notices of nonperformance, notice of protest, notices of
dishonor, notices of acceptance of this guaranty, and notices of the existence,
creation or incurring of new or additional Liabilities. Each Affiliate assumes
all responsibility for being and keeping itself informed of the other Obligors’
financial condition and assets, and of all other circumstances bearing upon the
risk of nonpayment of the Liabilities and the nature, scope and extent of the
risks which such Affiliate assumes and incurs hereunder, and agrees that the
Bank shall not have any duty to advise the Affiliate of information known to it
regarding such circumstances or risks.

 

EACH AFFILIATE HEREBY EXPRESSLY WAIVES AND SURRENDERS ANY DEFENSE TO ITS
LIABILITY UNDER THIS AGREEMENT BASED UPON ANY OF THE FOREGOING ACTS, OMISSIONS,
AGREEMENTS, WAIVERS OR MATTERS AND EXPRESSLY WAIVES THE BENEFITS OF O.C.G.A.
§§10-7-2, 10-7-21, 10-7-22, 10-7-23 AND 10-7-24. IT IS THE PURPOSE AND INTENT OF
THIS AGREEMENT THAT THE OBLIGATIONS OF EACH AFFILIATE HEREUNDER SHALL BE
ABSOLUTE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES.

 

-4-

--------------------------------------------------------------------------------

Each Affiliate hereby agrees it shall not exercise, and irrevocably waives, any
lights of subrogation which it may at any time otherwise have as a result of
this guaranty (whether contractual, under Section 509 of the United States
Bankruptcy Code, or otherwise) to the claims of the Bank against the Obligors or
any other guarantor of the Liabilities (collectively, the “Other Parties”) and
all contractual, statutory or common law rights of reimbursement, contribution
or indemnity from any Other Party which it may at any time otherwise have as a
result of this guaranty. Each Affiliate hereby further agrees not to exercise
any right to enforce any other remedy which the Bank now has or may hereafter
have against any Other Party, any endorser or any other guarantor of all or any
part of the Liabilities and any benefit of, and any right to participate in, any
security or collateral given to or for the benefit of the Bank to secure payment
of the Liabilities.

 

  11. Each Affiliate hereby grants to the Bank a continuing security interest
in, and a right of set off against any and all right, title and interest of such
Affiliate in and to its Collateral.

 

  12. Each Affiliate acknowledges and confirms that it has received a copy of
the Advances and Security Agreement and has reviewed and understands such
Advances and Security Agreement.

 

  13. The Borrower and each Affiliate hereby agree that the Liabilities shall
have priority in right and remedy over any indebtedness or other obligations,
whenever made and however evidenced, by such Borrower or Affiliate to the
Borrower or any other affiliate (“Intercompany Indebtedness”). The Borrower
hereby subordinates the lien securing any Intercompany Indebtedness and any
security arrangements with respect to Intercompany Indebtedness to the lien of
this Agreement securing the Liabilities.

 

  14. Each Obligor hereby represents and warrants that, as of the date hereof,
the date of each Advance, Credit Product, Derivative Transaction or Other
Product, and the date of delivery of each collateral report required under
Section 3.06(A) of the Advances and Security Agreement:

 

(i) (a) Each Affiliate has received valuable consideration, fair value, fair
consideration or reasonably equivalent value for entering into this Agreement
and (b) the performance by such Affiliate of its obligations hereunder shall not
render such Affiliate insolvent, reduce such Affiliate’s capital to an
unreasonably small amount or reduce such Affiliate’s assets to an amount less
than that necessary to conduct its business, or cause such Affiliate to have
incurred debts (or to have intended to have incurred debts) beyond its ability
to pay such debts as they mature.

 

(ii) The Borrower owns directly or indirectly 100% of the voting and other
equity interests in each Affiliate (provided, however, that any such Affiliate
which is a real estate investment trust (a “REIT”) may issue preferred equity to
the greater of (x) up to 120 shares of preferred equity to up to 120 employees
of the Borrower or such Affiliate and (y) in an amount not to exceed that which
is necessary to qualify as a REIT under the Internal Revenue Code of 1986, as

 

-5-

--------------------------------------------------------------------------------

amended). With respect to holders of certificates evidencing preferred equity
interests in each Affiliate that have been issued prior to the date of this
Agreement (the “Previously-Issued Preferred Certificates”), each Affiliate has
provided written notice to such holders that certain of the Affiliate’s assets
have been and may from time to time in the future be pledged to the Bank
pursuant to this Agreement. Each certificate evidencing such voting, preferred
and other equity interests in each Affiliate (other than the Previously-Issued
Preferred Certificates) contains, and will continue to contain, a legend as set
forth below prohibiting the transfer thereof in violation of this provision.

 

Form of Legend:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, CONVEYED,
PLEDGED OR OTHERWISE TRANSFERRED IN VIOLATION OF SECTION 14(ii) OF THAT CERTAIN
JOINDER AGREEMENT WITH THE FEDERAL HOME LOAN BANK OF ATLANTA, AS THE SAME MAY BE
AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME. ANY
PURPORTED SALE, ASSIGNMENT, CONVEYANCE, PLEDGE OR OTHER TRANSFER OF SHARES IN
VIOLATION OF SAID AGREEMENT SHALL BE VOID AB INITIO AND OF NO FORCE OR EFFECT.

 

(iii) No Affiliate is liable for Borrowed Money to any Person, except the Bank
and the Borrower.

 

(iv) The Collateral pledged by each Affiliate hereunder was previously owned by
the Borrower and was transferred to such Affiliate subject to the preexisting
security interest of the Bank. Each Affiliate acknowledges that the consent of
the Bank was required prior to such transfer and that in consideration of such
consent and in exchange therefor, such Affiliate hereby agrees and confirms that
the security and collateral interest of the Bank in the Collateral shall secure
all existing and future Liabilities, however and whenever arising.

 

  15. Until the termination of this Agreement and the indefeasible satisfaction
in full of all of the Liabilities:

 

(i) No Affiliate will incur or permit to exist any liability for Borrowed Money
to any Person, except the Bank and the Borrower.

 

(ii) No Affiliate will directly or indirectly: (a) amend, modify or waive any
term or provision of its organizational documents, including its articles of
incorporation, certificates of designations pertaining to preferred stock,
by-laws, partnership agreement or operating agreement unless required by law;
(b) enter into any transaction of merger or consolidation; (c) liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution); or (d)
acquire by purchase or otherwise all or any substantial part of the business or
assets of any other Person.

 

-6-

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(iii) No Affiliate will directly or indirectly enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property or
the rendering of any management, consulting, investment banking, advisory or
other similar services) with any affiliate of such Affiliate (other than the
Borrower) or with any director, officer or employee of any Obligor, except (a)
transactions in the ordinary course of and pursuant to the reasonable
requirements of the business of such Affiliate and upon fair and reasonable
terms which are no less favorable to such Affiliate than would be obtained in a
comparable arm’s length transaction with a Person that is not an affiliate of
such Affiliate, and (b) payment of reasonable compensation to directors,
officers and employees for services actually rendered to such Affiliate.

 

  16. The Borrower confirms that all of its obligations under the Advances and
Security Agreement are, and upon each Affiliate becoming a party to such
Advances and Security Agreement, shall continue to be, in full force and effect.
The parties hereto confirm and agree that immediately upon each Affiliate
becoming a party to the Advances and Security Agreement the term “Liabilities,”
as used in the Advances and Security Agreement, shall include all obligations of
each Affiliate from time to time under the Advances and Security Agreement.

 

  17. Each Affiliate agrees that at any time and from time to time, upon the
written request of the Bank, it will execute and deliver such further documents
and do such further acts and things as the Bank may reasonably request in order
to effect the purposes of this Agreement.

 

  18. This Agreement may be executed in two or more counterparts, each of which
shall constitute an original but all of which when taken together shall
constitute one contract.

 

  19. This Agreement shall be governed by and construed and interpreted in
accordance with the laws (exclusive of the choice of law provisions) of the
State of Georgia.

 

[Signatures appear on following page.]

 

-7-

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed by its authorized officers, as of the day and year first above
written.

 

COOPERATIVE BANK

By:

 

/s/ Frederick Willetts, III

Name:

 

Fredrick Willetts, III

Title:

 

President

By:

 

/s/ Todd Sammons

Name:

 

Todd Sammons

Title:

 

Treasurer

CS&L REAL ESTATE TRUST, INC.

By:

 

/s/ Frederick Willetts, III

Name:

 

Fredrick Willetts, III

Title:

 

President

By:

 

/s/ Todd Sammons

Name:

 

Todd Sammons

Title:

 

Treasurer

CS&L HOLDINGS, INC.

By:

 

/s/ Frederick Willetts, III

Name:

 

Fredrick Willetts, III

Title:

 

President

By:

 

/s/ Todd Sammons

Name:

 

Todd Sammons

Title:

 

Treasurer

FEDERAL HOME LOAN BANK OF ATLANTA

By:

 

/s/ Charles I. Abbitt

Name:

 

Charles I. Abbitt

Title:

 

Senior Vice President

By:

 

/s/ Randy B. Gonzalez

Name:

 

Randy B. Gonzalez

Title:

 

First Vice President

 

-8-