Exhibit
10.2


 




 





 


GUARANTEE
AGREEMENT


 


by and
between


 


YADKIN
VALLEY FINANCIAL CORPORATION


 


and


 


WILMINGTON
TRUST COMPANY


 


Dated as
of November 1, 2007


 




 





 

















 


GUARANTEE
AGREEMENT


 


This GUARANTEE AGREEMENT (this “Guarantee”), dated as
of November 1, 2007, is executed and delivered by Yadkin Valley Financial
Corporation, a North Carolina corporation (the “Guarantor”), and Wilmington
Trust Company, a Delaware banking corporation, as trustee (the “Guarantee
Trustee”), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of Yadkin Valley Statutory
Trust I, a Delaware statutory trust (the “Issuer”).


 


WHEREAS, pursuant to an Amended and Restated
Declaration of Trust (the “Declaration”), dated as of the date hereof among
Wilmington Trust Company, not in its individual capacity but solely as
institutional trustee, the administrators of the Issuer named therein, the
Guarantor, as sponsor, and the holders from time to time of undivided
beneficial interests in the assets of the Issuer, the Issuer is issuing on the
date hereof those undivided beneficial interests, having an aggregate
liquidation amount of $25,000,000.00 (the “Capital Securities”); and


 


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


 


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


 


DEFINITIONS AND INTERPRETATION


 


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


 


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


 


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


 


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


 


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


 


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


 


a reference to the singular includes the plural and
vice versa.


 


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


 


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


 

















 


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


 


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


 


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


 


“Covered Person” means any Holder of Capital
Securities.


 


“Debentures” means the debt securities of the
Guarantor designated the Floating Rate Junior Subordinated Deferrable Interest
Debentures due 2037 held by the Institutional Trustee (as defined in the
Declaration) of the Issuer.


 


“Declaration Event of Default” means an “Event
of Default” as defined in the Declaration.


 


“Event of Default” has the meaning set forth in
Section 2.4(a).


 


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


 


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


 


“Guarantor” means Yadkin Valley Financial
Corporation and each of its successors and assigns.


 


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


 


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


 


“Indenture” means the Indenture dated as of the
date hereof between the Guarantor and Wilmington Trust Company, not in its
individual capacity but solely as trustee, and any indenture 


 


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supplemental thereto
pursuant to which the Debentures are to be issued to the institutional trustee
of the Issuer.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


POWERS, DUTIES AND RIGHTS OF

GUARANTEE TRUSTEE


 


Powers and Duties of the Guarantee Trustee.


 


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


 


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


 


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


 


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


 


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


 


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


 


in the absence of
bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Guarantee Trustee and conforming to the requirements of this Guarantee; but in
the case of any such certificates or opinions that by any provision hereof are
specifically required to be 


 


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furnished to the
Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Guarantee;


 


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


 


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


 


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


 


Certain Rights of Guarantee Trustee.


 


Subject to the provisions of Section 2.1:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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Events of Default; Waiver.


 


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


 


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


 


Events of Default; Notice.


 


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


 


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


 


GUARANTEE TRUSTEE


 


Guarantee Trustee; Eligibility.


 


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


 


not be an Affiliate of the Guarantor, and


 


be a corporation organized and doing business under
the laws of the United States of America or any State or Territory thereof or
of the District of Columbia, or Person authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
50 million U.S. dollars ($50,000,000), and subject to supervision or
examination by Federal, State, Territorial or District of Columbia authority. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the supervising or examining authority referred
to above, then, for the purposes of this Section 3.1(a)(ii), the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.


 


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


 


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


 


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Appointment, Removal and Resignation of Guarantee
Trustee.


 


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


 


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


 


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


 


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


 


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


 


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


 


GUARANTEE


 


Guarantee.


 


The Guarantor irrevocably and unconditionally agrees
to pay in full to the Holders the Guarantee Payments (without duplication of
amounts theretofore paid by the Issuer), as and when due, regardless of any
defense (except the defense of payment by the Issuer), right of set-off or
counterclaim that the Issuer may have or assert. The Guarantor’s obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders.


 


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


 


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


 


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Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.


 


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


 


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


 


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


 


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


 


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


 


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


 


the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or


 


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


 


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


 


Rights of Holders.


 


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


 


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


 


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


 


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


 


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


 


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


 


LIMITATION OF TRANSACTIONS; SUBORDINATION


 


Limitation of Transactions. So
long as any Capital Securities remain outstanding, if (a) there shall have
occurred and be continuing an Event of Default or a Declaration Event of
Default or (b) the Guarantor shall have selected an Extension Period as
provided in the Declaration and such period, or any extension thereof, shall
have commenced and be continuing, then the Guarantor shall not and shall not
permit any Affiliate to (x) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect
to, any of the Guarantor’s or such Affiliate’s capital stock (other than
payments of dividends or distributions to the Guarantor or payments of
dividends from direct or indirect subsidiaries of the Guarantor to their parent
corporations, which also shall be direct or indirect subsidiaries of the Guarantor)
or make any guarantee payments with respect to the foregoing or (y) make
any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Guarantor or any Affiliate that
rank pari passu in all respects with or
junior in interest to the Debentures (other than, with respect to clauses (x)
and (y) above, (i) repurchases, redemptions or other acquisitions of
shares of capital stock of the Guarantor in connection with any employment
contract, 


 


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benefit plan or other
similar arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Guarantor (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
prior to the occurrence of the Event of Default, Declaration Event of Default
or Extension Period, as applicable, (ii) as a result of any exchange or
conversion of any class or series of the Guarantor’s capital stock (or any
capital stock of a subsidiary of the Guarantor) for any class or series of the
Guarantor’s capital stock or of any class or series of the Guarantor’s
indebtedness for any class or series of the Guarantor’s capital stock,
(iii) the purchase of fractional interests in shares of the Guarantor’s
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (iv) any declaration
of a dividend in connection with any stockholders’ rights plan, or the issuance
of rights, stock or other property under any stockholders’ rights plan, or the
redemption or repurchase of rights pursuant thereto, (v) any dividend in
the form of stock, warrants, options or other rights where the dividend stock
or the stock issuable upon exercise of such warrants, options or other rights
is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash
payments in lieu of fractional shares issued in connection therewith,
(vi) payments of principal or interest on debt securities or payments of
cash dividends or distributions on any capital stock issued by an Affiliate
that is not, in whole or in part, a subsidiary of the Guarantor (or any
redemptions, repurchases or liquidation payments on such stock or securities),
or (vii) payments under this Guarantee).


 


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


 


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


 


TERMINATION


 


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


 


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INDEMNIFICATION


 


Exculpation.


 


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


 


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


 


Indemnification.


 


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


 


Promptly after receipt by an Indemnified Person under
this Section 7.2 of notice of the commencement of any action, such
Indemnified Person will, if a claim in respect thereof is to be made against
the Guarantor under this Section 7.2, notify the Guarantor in writing of
the commencement thereof; but the failure so to notify the Guarantor
(i) will not relieve the Guarantor from liability under paragraph (a)
above unless and to the extent that the Guarantor did not otherwise learn of
such action and such failure results in the forfeiture by the Guarantor of
substantial rights and defenses and (ii) will not, in any event, relieve
the Guarantor from any obligations to any Indemnified Person other than the
indemnification obligation provided in paragraph (a) above. The Guarantor
shall be entitled to appoint counsel of the Guarantor’s choice at the Guarantor’s
expense to represent the Indemnified Person in any action for which
indemnification is sought (in which case the Guarantor shall not thereafter be
responsible for the fees and expenses of any separate counsel retained by the
Indemnified Person or Persons except as set forth below); provided, however,
that such counsel shall be reasonably satisfactory to the Indemnified Person. Notwithstanding
the Guarantor’s election to appoint counsel to represent the Guarantor in an
action, the Indemnified Person shall have the right to employ separate counsel
(including local counsel), and the Guarantor shall bear the reasonable fees,
costs and expenses of such separate counsel if (i) the use of counsel
chosen by the Guarantor to represent the Indemnified Person would present such
counsel with 


 


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a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the Indemnified Person and the Guarantor and the
Indemnified Person shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Person(s) which are different
from or additional to those available to the Guarantor, (iii) the
Guarantor shall not have employed counsel satisfactory to the Indemnified
Person to represent the Indemnified Person within a reasonable time after
notice of the institution of such action or (iv) the Guarantor shall
authorize the Indemnified Person to employ separate counsel at the expense of
the Guarantor. The Guarantor will not, without the prior written consent of the
Indemnified Persons, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the Indemnified Persons are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each Indemnified Person from all liability
arising out of such claim, action, suit or proceeding.


 


Compensation; Reimbursement of Expenses.
The Guarantor agrees:


 


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


 


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


 


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


 


MISCELLANEOUS


 


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


 


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


 


13

















 


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


 


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


 


Wilmington Trust Company


Rodney Square North


1100 North Market Street


Wilmington, Delaware 
19890-1600


Attention: 
Corporate Trust Administration


Telecopy: 
302-636-4140


 


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


 


Yadkin Valley Financial Corporation


209 North Bridge Street


Elkin, North Carolina 
28621


Attention: 
Edwin E. Laws


Telecopy: 
336-835-8858


 


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


 


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


 


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


 


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


 


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


 


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


 


Signatures appear on the
following page


 


14

















 


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


 


 


	
   

  	
  YADKIN VALLEY FINANCIAL
  

  CORPORATION, as Guarantor

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Edwin E. Laws

  
	
   

  	
   

  	
  Name: Edwin E. Laws

  
	
   

  	
   

  	
  Title: Chief Financial
  Officer

  
	
   

  	
   

  
				



 


	
   

  	
  WILMINGTON TRUST
  COMPANY, as Guarantee 

  Trustee

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ W. Thomas Morris,
  II

  
	
   

  	
   

  	
  Name: W. Thomas Morris,
  II

  
	
   

  	
   

  	
  Title: Assistant Vice
  President

  
				



 


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