Exhibit 10.2
                -------------------------------------------------


                               GUARANTEE AGREEMENT

                                 by and between

                             FOUR OAKS FINCORP, INC.

                                       and

                            WILMINGTON TRUST COMPANY

                           Dated as of March 30, 2006


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


<PAGE>


                               GUARANTEE AGREEMENT
                               -------------------

       This GUARANTEE AGREEMENT (this "Guarantee"),  dated as of March 30, 2006,
is  executed  and  delivered  by Four  Oaks  Fincorp,  Inc.,  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 Four Oaks 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  $12,000,000.00  (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.

                                  ARTICLE XIV.

                         DEFINITIONS AND INTERPRETATION
                         ------------------------------

       Section 14.1. Definitions and Interpretation.  In this Guarantee,  unless
the context otherwise requires:

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

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

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

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

       (e)    terms  defined in the  Declaration  as 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

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

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

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


<PAGE>


       "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 2036 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 Four Oaks Fincorp,  Inc. and each of its successors and
assigns.

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

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

       "Indenture"  means the Indenture  dated as of the date hereof between the
Guarantor and  Wilmington  Trust  Company,  not in its  individual  capacity but
solely as trustee, and any indenture  supplemental thereto pursuant to which the


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<PAGE>


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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<PAGE>


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

       "Trust   Securities"   means  the  Common   Securities  and  the  Capital
Securities.

                                  ARTICLE XV.

                          POWERS, DUTIES AND RIGHTS OF
                          ----------------------------
                                GUARANTEE TRUSTEE
                                -----------------

       Section 15.1. Powers and Duties of the Guarantee Trustee.

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

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

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

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

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

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

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


              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;

              (2)    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;

              (3)    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

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

       Section 15.2. Certain Rights of Guarantee Trustee.

       (a)    Subject to the provisions of Section 2.1:

              (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.

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

              (3)    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.

              (4)    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).

              (5)    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


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<PAGE>


       seek  instructions  concerning the  administration of this Guarantee from
       any court of competent jurisdiction.

              (6)    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.

              (7)    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.

              (8)    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.

              (9)    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.

              (10)   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.

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

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

       Section 15.3. Not Responsible for Recitals or Issuance of Guarantee.  The
recitals  contained in this  Guarantee  shall be taken as the  statements of the
Guarantor,  and the  Guarantee  Trustee does not assume any  responsibility  for


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<PAGE>


their  correctness.  The  Guarantee  Trustee makes no  representation  as to the
validity or sufficiency of this Guarantee.

       Section 15.4. Events of Default; Waiver.

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

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

       Section 15.5. Events of Default; Notice.

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

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

                                  ARTICLE XVI.

                                GUARANTEE TRUSTEE
                                -----------------

       Section 16.1. Guarantee Trustee; Eligibility.

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

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

              (2)    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.

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


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<PAGE>

       (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.

       Section 16.2. Appointment, Removal and Resignation of Guarantee Trustee.

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

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

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

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

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

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

                                 ARTICLE XVII.

                                    GUARANTEE
                                    ---------

       Section 17.1. Guarantee.

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


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<PAGE>


Guarantee  Payment may be satisfied by direct payment of the required amounts by
the Guarantor to the Holders or by causing the Issuer to pay such amounts to the
Holders.

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

       Section 17.2.  Waiver of Notice and Demand.  The Guarantor  hereby waives
notice of acceptance of this  Guarantee and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a proceeding
first  against  the Issuer or any other  Person  before  proceeding  against the
Guarantor,  protest,  notice  of  nonpayment,  notice  of  dishonor,  notice  of
redemption and all other notices and demands.

       Section 17.3.  Obligations  Not  Affected.  The  obligations,  covenants,
agreements and duties of the Guarantor  under this Guarantee  shall in no way be
affected or impaired by reason of the happening  from time to time of any of the
following:

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

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

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

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

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

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

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

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

       Section 17.4. Rights of Holders.

       (a)    The  Holders of a Majority  in  liquidation  amount of the Capital
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee  Trustee in respect of this
Guarantee  or to direct the  exercise of any trust or power  conferred  upon the
Guarantee  Trustee under this  Guarantee;  provided,  however,  that (subject to
Section 2.1) the Guarantee Trustee shall have the right to decline to follow any
such direction if the Guarantee Trustee being advised by counsel determines that


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<PAGE>


the  action  or  proceeding  so  directed  may not  lawfully  be taken or if the
Guarantee Trustee in good faith by its board of directors or trustees, executive
committees  or a trust  committee of directors  or trustees  and/or  Responsible
Officers  shall  determine  that the action or  proceedings  so  directed  would
involve the Guarantee Trustee in personal liability.

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

       Section 17.5. Guarantee of Payment. This Guarantee creates a guarantee of
payment and not of collection.

       Section 17.6.  Subrogation.  The Guarantor shall be subrogated to all (if
any) rights of the Holders of Capital  Securities  against the Issuer in respect
of any  amounts  paid to such  Holders by the  Guarantor  under this  Guarantee;
provided,  however,  that the Guarantor shall not (except to the extent required
by  mandatory  provisions  of law) be entitled to enforce or exercise  any right
that it may acquire by way of  subrogation or any  indemnity,  reimbursement  or
other agreement,  in all cases as a result of payment under this Guarantee,  if,
after giving  effect to any such  payment,  any amounts are due and unpaid under
this Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding  sentence,  the Guarantor  agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.

       Section 17.7.  Independent  Obligations.  The Guarantor acknowledges that
its obligations  hereunder are independent of the obligations of the Issuer with
respect to the  Capital  Securities  and that the  Guarantor  shall be liable as
principal and as debtor  hereunder to make  Guarantee  Payments  pursuant to the
terms of this Guarantee  notwithstanding the occurrence of any event referred to
in subsections (a) through (g), inclusive, of Section 4.3 hereof.

       Section 17.8. Enforcement by a Beneficiary. A Beneficiary may enforce the
obligations of the Guarantor  contained in Section 4.1(b)  directly  against the
Guarantor  and the  Guarantor  waives  any right or remedy to  require  that any
action be  brought  against  the  Issuer or any  other  person or entity  before
proceeding  against the  Guarantor.  The  Guarantor  shall be  subrogated to all
rights (if any) of any Beneficiary  against the Issuer in respect of any amounts
paid to the  Beneficiaries  by the  Guarantor  under this  Guarantee;  provided,
however,  that the  Guarantor  shall  not  (except  to the  extent  required  by
mandatory  provisions of law) be entitled to enforce or exercise any rights that
it may acquire by way of subrogation or any  indemnity,  reimbursement  or other
agreement,  in all cases as a result of payment under this Guarantee,  if at the
time of any such payment,  and after giving effect to such payment,  any amounts
are due and unpaid under this Guarantee.

                                 ARTICLE XVIII.

                    LIMITATION OF TRANSACTIONS; SUBORDINATION
                    -----------------------------------------

       Section  18.1.  Limitation  of  Transactions.  So  long  as  any  Capital
Securities  remain  outstanding,  if  (a)  there  shall  have  occurred  and  be
continuing  an Event of  Default  or a  Declaration  Event of Default or (b) the
Guarantor shall have selected an Extension Period as provided in the Declaration
and  such  period,  or  any  extension  thereof,  shall  have  commenced  and be
continuing,  then the Guarantor  shall not and shall not permit any Affiliate to
(x)  declare or pay any  dividends  or  distributions  on, or redeem,  purchase,
acquire,  or make a liquidation  payment with respect to, any of the Guarantor's
or  such  Affiliate's  capital  stock  (other  than  payments  of  dividends  or
distributions  to the Guarantor) or make any guarantee  payments with respect to


                                       10

<PAGE>


the foregoing or (y) make any payment of principal of or interest or premium, if
any, on or repay,  repurchase or redeem any debt  securities of the Guarantor or
any Affiliate that rank pari passu in all respects with or junior in interest to
the  Debentures  (other  than,  with  respect to clauses (x) and (y) above,  (i)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Guarantor in  connection  with any  employment  contract,  benefit plan or other
similar arrangement with or for the benefit of one or more employees,  officers,
directors  or  consultants,  in  connection  with  a  dividend  reinvestment  or
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, or (vi) payments under this Guarantee).

       Section  18.2.  Ranking.  This  Guarantee  will  constitute  an unsecured
obligation  of the Guarantor  and will rank  subordinate  and junior in right of
payment  to all  present  and  future  Senior  Indebtedness  (as  defined in the
Indenture) of the Guarantor. By their acceptance thereof, each Holder of Capital
Securities  agrees to the foregoing  provisions of this  Guarantee and the other
terms set forth herein.

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

                                  ARTICLE XIX.

                                   TERMINATION
                                   -----------

       Section  19.1.  Termination.  This  Guarantee  shall  terminate as to the
Capital  Securities  (i) upon full  payment of the  Redemption  Price or Special
Redemption  Price of all  Capital  Securities  then  outstanding,  (ii) upon the
distribution  of all of the  Debentures  to the  Holders  of all of the  Capital
Securities or (iii) upon full payment of the amounts  payable in accordance with
the Declaration upon dissolution of the Issuer.  This Guarantee will continue to
be  effective  or will be  reinstated,  as the case  may be,  if at any time any
Holder of Capital  Securities  must  restore  payment of any sums paid under the
Capital Securities or under this Guarantee.


                                       11

<PAGE>


                                  ARTICLE XX.

                                 INDEMNIFICATION
                                 ---------------

       Section 20.1. Exculpation.

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

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

       Section 20.2. 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 a conflict of interest,  (ii) the actual
or  potential  defendants  in, or targets of, any such action  include  both the


                                       12

<PAGE>


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

       Section  20.3.  Compensation;  Reimbursement  of Expenses.  The Guarantor
agrees:

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

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

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

                                  ARTICLE XXI.

                                  MISCELLANEOUS
                                  -------------

       Section 21.1.  Successors  and Assigns.  All  guarantees  and  agreements
contained  in this  Guarantee  shall bind the  successors,  assigns,  receivers,
trustees and  representatives of the Guarantor and shall inure to the benefit of
the Holders of the Capital  Securities  then  outstanding.  Except in connection
with any merger or consolidation of the Guarantor with or into another entity or
any sale, transfer or lease of the Guarantor's assets to another entity, in each
case, to the extent permitted under the Indenture,  the Guarantor may not assign
its rights or delegate its  obligations  under this Guarantee  without the prior
approval  of the  Holders of at least a Majority  in  liquidation  amount of the
Capital Securities.

       Section 21.2. Amendments.  Except with respect to any changes that do not
adversely affect the rights of Holders of the Capital Securities in any material
respect (in which case no consent of Holders will be required),  this  Guarantee
may be amended  only with the prior  approval  of the Holders of not less than a
Majority in liquidation amount of the Capital Securities.  The provisions of the
Declaration  with  respect  to  amendments  thereof  apply to the giving of such
approval.


                                       13

<PAGE>


       Section 21.3.  Notices.  All notices provided for in this Guarantee shall
be in  writing,  duly  signed  by the party  giving  such  notice,  and shall be
delivered, telecopied or mailed by first class mail, as follows:

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

       Wilmington Trust Company
       Rodney Square North
       1100 North Market Street
       Wilmington, Delaware  19890-1600
       Attention:  Corporate Trust Administration
       Telecopy:  302-636-4140

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

       Four Oaks Fincorp, Inc.
       6144 U.S. 301 South
       Four Oaks, North Carolina  27524
       Attention:  Nancy S. Wise
       Telecopy:  919-963-2278

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

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

       Section 21.4.  Benefit.  This  Guarantee is solely for the benefit of the
Beneficiaries  and,  subject to Section 2.1(a),  is not separately  transferable
from the Capital Securities.

       Section 21.5.  Governing  Law. THIS  GUARANTEE  SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE  WITH, THE LAW OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAW).

       Section 21.6. Counterparts. This Guarantee may be executed in one or more
counterparts,  each of  which  shall  be an  original,  but all of  which  taken
together shall constitute one and the same instrument.

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

                     Signatures appear on the following page


                                       14

<PAGE>


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



                             FOUR OAKS FINCORP, INC., as Guarantor

                             By:   /s/ Nancy S. Wise
                                  ----------------------------------------------
                                     Name:  Nancy S. Wise
                                     Title: Executive Vice President/Chief
                                            Financial Officer



                             WILMINGTON TRUST COMPANY, as Guarantee Trustee

                             By:   /s/ Christopher J. Claybaugh
                                  ----------------------------------------------
                                     Name:  Christopher J. Claybaugh
                                     Title: Senior Financial Services Officer


                                       15