Exhibit 10.1



                     ======================================

                        AMENDED AND RESTATED DECLARATION
                                    OF TRUST

                                  by and among

                            WILMINGTON TRUST COMPANY,
                              as Delaware Trustee,

                            WILMINGTON TRUST COMPANY,
                            as Institutional Trustee,

                            FOUR OAKS FINCORP, INC.,
                                   as Sponsor,

                                       and

                      AYDEN R. LEE, JR., NANCY S. WISE and
                                 WANDA J. BLOW,
                               as Administrators,

                           Dated as of March 30, 2006

                     ======================================

<PAGE>


                                TABLE OF CONTENTS
                                -----------------
                                                                            Page
                                                                            ----

ARTICLE I INTERPRETATION AND DEFINITIONS.......................................1

  Section 1.1.  Definitions....................................................1

ARTICLE II ORGANIZATION........................................................8

  Section 2.1.  Name...........................................................8
  Section 2.2.  Office.........................................................8
  Section 2.3.  Purpose........................................................8
  Section 2.4.  Authority......................................................8
  Section 2.5.  Title to Property of the Trust.................................8
  Section 2.6.  Powers and Duties of the Trustees and the Administrators.......9
  Section 2.7.  Prohibition of Actions by the Trust and the Institutional
                 Trustee......................................................12
  Section 2.8.  Powers and Duties of the Institutional Trustee................13
  Section 2.9.  Certain Duties and Responsibilities of the Trustees and
                 Administrators...............................................14
  Section 2.10. Certain Rights of Institutional Trustee.......................14
  Section 2.11. Delaware Trustee..............................................14
  Section 2.12. Execution of Documents........................................14
  Section 2.13. Not Responsible for Recitals or Issuance of Securities........14
  Section 2.14. Duration of Trust.............................................14
  Section 2.15. Mergers.......................................................14

ARTICLE III SPONSOR...........................................................14

  Section 3.1.  Sponsor's Purchase of Common Securities.......................14
  Section 3.2.  Responsibilities of the Sponsor...............................14
  Section 3.3.  Expenses......................................................14
  Section 3.4.  Right to Proceed..............................................14

ARTICLE IV INSTITUTIONAL TRUSTEE AND ADMINISTRATORS...........................14

  Section 4.1.  Number of Trustees............................................14
  Section 4.2.  Delaware Trustee; Eligibility.................................14
  Section 4.3.  Institutional Trustee; Eligibility............................14
  Section 4.4.  Administrators................................................14
  Section 4.5.  Appointment, Removal and Resignation of Trustees and
                 Administrators...............................................14
  Section 4.6.  Vacancies Among Trustees......................................14
  Section 4.7.  Effect of Vacancies...........................................14
  Section 4.8.  Meetings of the Trustees and the Administrators...............14
  Section 4.9.  Delegation of Power...........................................14

  Section 4.10. Conversion, Consolidation or Succession to Business...........14

ARTICLE V DISTRIBUTIONS.......................................................14

  Section 5.1.  Distributions.................................................14

ARTICLE VI ISSUANCE OF SECURITIES.............................................14

  Section 6.1.  General Provisions Regarding Securities.......................14
  Section 6.2.  Paying Agent, Transfer Agent and Registrar....................14


                                       i
<PAGE>


  Section 6.3.  Form and Dating...............................................14
  Section 6.4.  Book-Entry Capital Securities.................................14
  Section 6.5.  Mutilated, Destroyed, Lost or Stolen Certificates.............14
  Section 6.6.  Temporary Securities..........................................14
  Section 6.7.  Cancellation..................................................14
  Section 6.8.  CUSIP Numbers.................................................14
  Section 6.9.  Rights of Holders; Waivers of Past Defaults...................14

ARTICLE VII DISSOLUTION AND TERMINATION OF TRUST..............................14

  Section 7.1.  Dissolution and Termination of Trust..........................14

ARTICLE VIII TRANSFER OF INTERESTS............................................14

  Section 8.1.  General.......................................................14
  Section 8.2.  Transfer Procedures and Restrictions..........................14
  Section 8.3.  Deemed Security Holders.......................................14

ARTICLE IX LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, INSTITUTIONAL
 TRUSTEE OR OTHERS............................................................14

  Section 9.1.  Liability.....................................................14
  Section 9.2.  Exculpation...................................................14
  Section 9.3.  Fiduciary Duty................................................14
  Section 9.4.  Indemnification...............................................14
  Section 9.5.  Outside Businesses............................................14
  Section 9.6.  Compensation; Fee.............................................14

ARTICLE X ACCOUNTING..........................................................14

  Section 10.1. Fiscal Year...................................................14
  Section 10.2. Certain Accounting Matters....................................14
  Section 10.3. Banking.......................................................14
  Section 10.4. Withholding...................................................14

ARTICLE XI AMENDMENTS AND MEETINGS............................................14

  Section 11.1. Amendments....................................................14
  Section 11.2. Meetings of the Holders of Securities; Action by Written
                 Consent......................................................14

ARTICLE XII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND THE DELAWARE
 TRUSTEE......................................................................14

  Section 12.1. Representations and Warranties of Institutional Trustee.......14
  Section 12.2. Representations of the Delaware Trustee.......................14

ARTICLE XIII MISCELLANEOUS....................................................14

  Section 13.1. Notices.......................................................14
  Section 13.2. Governing Law.................................................14
  Section 13.3. Intention of the Parties......................................14
  Section 13.4. Headings......................................................14
  Section 13.5. Successors and Assigns........................................14
  Section 13.6. Partial Enforceability........................................14
  Section 13.7. Counterparts..................................................14


                                       ii
<PAGE>



Annex I....................Terms of Securities
Exhibit A-1................Form of Capital Security Certificate
Exhibit A-2................Form of Common Security Certificate
Exhibit B..................Specimen of Initial Debenture
Exhibit C..................Placement Agreement



                                      iii
<PAGE>


                              AMENDED AND RESTATED

                              DECLARATION OF TRUST

                                       OF

                           FOUR OAKS STATUTORY TRUST I

                                 March 30, 2006

     AMENDED  AND  RESTATED  DECLARATION  OF  TRUST  ("Declaration")  dated  and
effective  as of March 30,  2006,  by the  Trustees  (as  defined  herein),  the
Administrators  (as defined herein),  the Sponsor (as defined herein) and by the
holders,  from time to time, of undivided  beneficial interests in the Trust (as
defined herein) to be issued pursuant to this Declaration;

     WHEREAS, the Trustees,  the Administrators and the Sponsor established Four
Oaks  Statutory  Trust I (the  "Trust"),  a statutory  trust under the Statutory
Trust Act (as defined  herein)  pursuant to a  Declaration  of Trust dated as of
March 22, 2006 (the  "Original  Declaration"),  and a Certificate of Trust filed
with the Secretary of State of the State of Delaware on March 22, 2006,  for the
sole purpose of issuing and selling certain  securities  representing  undivided
beneficial  interests  in the  assets of the Trust and  investing  the  proceeds
thereof in certain debentures of the Debenture Issuer (as defined herein);

     WHEREAS, as of the date hereof, no interests in the Trust have been issued;
and

     WHEREAS,  the  Trustees,  the  Administrators  and  the  Sponsor,  by  this
Declaration, amend and restate each and every term and provision of the Original
Declaration;

     NOW,  THEREFORE,  it being the intention of the parties  hereto to continue
the  Trust as a  statutory  trust  under the  Statutory  Trust Act and that this
Declaration  constitutes the governing  instrument of such statutory  trust, the
Trustees declare that all assets  contributed to the Trust will be held in trust
for  the  benefit  of  the  holders,  from  time  to  time,  of  the  securities
representing  undivided  beneficial  interests in the assets of the Trust issued
hereunder,  subject to the  provisions of this  Declaration.  The parties hereto
hereby agree as follows:

                                   ARTICLE I.

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

     Section 1.1. Definitions.
                  -----------

     Unless the context otherwise requires:

     (a)  Capitalized  terms  used in this  Declaration  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  Declaration  has the  same  meaning
throughout;

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

     (d) all references in this Declaration to Articles and Sections and Annexes
and  Exhibits  are to Articles  and Sections of and Annexes and Exhibits to this
Declaration unless otherwise specified; and

                                       1
<PAGE>


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

     "Acceleration Event of Default" has the meaning set forth in the Indenture.

     "Additional Interest" has the meaning set forth in the Indenture.

     "Administrative  Action"  has the meaning  set forth in  paragraph  4(a) of
Annex I.

     "Administrators"  means each of Ayden R. Lee, Jr.,  Nancy S. Wise and Wanda
J. Blow,  solely in such Person's capacity as Administrator of the Trust created
and continued  hereunder and not in such Person's individual  capacity,  or such
Administrator's  successor  in  interest  in  such  capacity,  or any  successor
appointed as herein provided.

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

     "Applicable  Depositary  Procedures" means, with respect to any transfer or
transaction involving a Book-Entry Capital Security, the rules and procedures of
the Depositary for such Book-Entry Capital Security,  in each case to the extent
applicable to such transaction and as in effect from time to time.

     "Authorized  Officer" of a Person  means any Person that is  authorized  to
bind such Person.

     "Bankruptcy Event" means, with respect to any Person:

     (a) a court having  jurisdiction  in the  premises  shall enter a decree or
order for  relief in  respect of such  Person in an  involuntary  case under any
applicable  bankruptcy,  insolvency  or other  similar law now or  hereafter  in
effect,  or appointing a receiver,  liquidator,  assignee,  custodian,  trustee,
sequestrator (or similar official) of such Person or for any substantial part of
its property,  or ordering the winding-up or liquidation of its affairs and such
decree  or  order  shall  remain  unstayed  and in  effect  for a  period  of 90
consecutive days; or

     (b) such  Person  shall  commence a  voluntary  case  under any  applicable
bankruptcy,  insolvency or other  similar law now or hereafter in effect,  shall
consent  to the entry of an order for  relief in an  involuntary  case under any
such law,  or shall  consent to the  appointment  of or taking  possession  by a
receiver,  liquidator,  assignee,  trustee,  custodian,  sequestrator  (or other
similar  official) of such Person of any  substantial  part of its property,  or
shall make any general  assignment  for the benefit of creditors,  or shall fail
generally to pay its debts as they become due.

     "Book-Entry Capital Securities" means a Capital Security, the ownership and
transfer of which shall be made through book entries by a Depositary.

     "Business Day" means any day other than  Saturday,  Sunday or any other day
on which  banking  institutions  in New York City or  Wilmington,  Delaware  are
permitted or required by any applicable law or executive order to close.

     "Capital  Securities"  has the meaning set forth in paragraph 1(a) of Annex
I.

     "Capital  Security  Certificate"  means a definitive  Certificate  in fully
registered form  representing a Capital  Security  substantially  in the form of
Exhibit A-1.

     "Capital  Treatment  Event" has the meaning set forth in paragraph  4(a) of
Annex I.

     "Certificate" means any certificate evidencing Securities.

                                       2
<PAGE>


     "Closing Date" has the meaning set forth in the Placement Agreement.

     "Code"  means the Internal  Revenue  Code of 1986,  as amended from time to
time, or any successor legislation.

     "Common Securities" has the meaning set forth in paragraph 1(b) of Annex I.

     "Common  Security  Certificate"  means a  definitive  Certificate  in fully
registered  form  representing a Common  Security  substantially  in the form of
Exhibit A-2.

     "Company Indemnified Person" means (a) any Administrator; (b) any Affiliate
of any  Administrator;  (c)  any  officers,  directors,  shareholders,  members,
partners, employees,  representatives or agents of any Administrator; or (d) any
officer, employee or agent of the Trust or its Affiliates.

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

     "Coupon Rate" has the meaning set forth in paragraph 2(a) of Annex I.

     "Covered  Person"  means:  (a)  any   Administrator,   officer,   director,
shareholder, partner, member, representative, employee or agent of (i) the Trust
or (ii) any of the Trust's Affiliates; and (b) any Holder of Securities.

     "Creditor" has the meaning set forth in Section 3.3.

     "Debenture  Issuer"  means  Four  Oaks  Fincorp,  Inc.,  a  North  Carolina
corporation, in its capacity as issuer of the Debentures under the Indenture.

     "Debenture  Trustee" means Wilmington  Trust Company,  as trustee under the
Indenture until a successor is appointed  thereunder,  and thereafter means such
successor trustee.

     "Debentures"  means  the  Floating  Rate  Junior  Subordinated   Deferrable
Interest  Debentures  due 2036 to be issued by the  Debenture  Issuer  under the
Indenture.

     "Defaulted Interest" has the meaning set forth in the Indenture.

     "Definitive  Capital  Securities  Certificates"  means  Capital  Securities
issued  in  certificated,  fully  registered  form that are not  Global  Capital
Securities.

     "Delaware Trustee" has the meaning set forth in Section 4.2.

     "Depositary"  means an  organization  registered as a clearing agency under
the Exchange Act that is designated as Depositary by the  Administrators  or any
successor thereto. DTC will be the initial Depositary.

     "Depositary  Participant"  means a broker,  dealer,  bank,  other financial
institution  or other Person for whom from time to time the  Depositary  effects
book-entry transfers and pledges of securities deposited with the Depositary.

     "Determination  Date" has the meaning set forth in paragraph  4(a) of Annex
I.

                                       3
<PAGE>


     "Direct Action" has the meaning set forth in Section 2.8(d).

     "Distribution"  means a  distribution  payable to Holders of  Securities in
accordance with Section 5.1.

     "Distribution  Payment Date" has the meaning set forth in paragraph 2(b) of
Annex I.

     "Distribution  Period" means (i) with respect to the  Distribution  paid on
the first Distribution Payment Date, the period beginning on (and including) the
date of original issuance and ending on (but excluding) the Distribution Payment
Date in June 2006 and (ii)  thereafter,  with respect to a Distribution  paid on
each  successive  Distribution  Payment  Date,  the  period  beginning  on  (and
including) the preceding Distribution Payment Date and ending on (but excluding)
such current Distribution Payment Date.

     "Distribution  Rate" means, for the  Distribution  Period beginning on (and
including)  the date of  original  issuance  and ending on (but  excluding)  the
Distribution  Payment Date in June 2006, the rate per annum of [RATE]%,  and for
each Distribution Period beginning on or after the Distribution  Payment Date in
June 2006, the Coupon Rate for such Distribution Period.

     "DTC" means The Depository Trust Company or any successor thereto.

     "Event of Default"  means any one of the  following  events  (whatever  the
reason for such event and whether it shall be  voluntary  or  involuntary  or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order,  rule or regulation of any  administrative  or  governmental
body):

     (a) the occurrence of an Indenture Event of Default; or

     (b) default by the Trust in the payment of any Redemption  Price or Special
Redemption Price of any Security when it becomes due and payable; or

     (c) default in the performance,  or breach, in any material respect, of any
covenant or warranty of the  Institutional  Trustee in this  Declaration  (other
than  those  specified  in clause (a) or (b)  above)  and  continuation  of such
default  or  breach  for a period of 60 days  after  there  has been  given,  by
registered or certified mail to the Institutional  Trustee and to the Sponsor by
the Holders of at least 25% in aggregate  liquidation  amount of the outstanding
Capital  Securities,  a written  notice  specifying  such  default or breach and
requiring  it to be  remedied  and  stating  that such  notice  is a "Notice  of
Default" hereunder; or

     (d) the occurrence of a Bankruptcy Event with respect to the  Institutional
Trustee if a successor  Institutional  Trustee has not been appointed  within 90
days thereof.

     "Exchange Act" means the  Securities  Exchange Act of 1934, as amended from
time to time, or any successor  legislation.

     "Extension Period" has the meaning set forth in paragraph 2(b) of Annex I.

     "Federal Reserve" has the meaning set forth in paragraph 3 of Annex I.

     "Fiduciary Indemnified Person" shall mean each of the Institutional Trustee
(including in its individual  capacity),  the Delaware Trustee (including in its
individual  capacity),  any Affiliate of the  Institutional  Trustee or Delaware
Trustee and any officers, directors, shareholders, members, partners, employees,
representatives,  custodians, nominees or agents of the Institutional Trustee or
Delaware Trustee.

                                       4
<PAGE>


     "Fiscal Year" has the meaning set forth in Section 10.1.

     "Global Capital Security" means a Capital Securities Certificate evidencing
ownership of Book-Entry Capital Securities.

     "Guarantee"  means the  guarantee  agreement  to be dated as of the Closing
Date, of the Sponsor in respect of the Capital Securities.

     "Holder" means a Person in whose name a Certificate representing a Security
is  registered,  such Person being a beneficial  owner within the meaning of the
Statutory Trust Act.

     "Indemnified  Person"  means a Company  Indemnified  Person or a  Fiduciary
Indemnified Person.

     "Indenture"  means the Indenture dated as of the Closing Date,  between the
Debenture  Issuer and the  Debenture  Trustee,  and any  indenture  supplemental
thereto pursuant to which the Debentures are to be issued, as such Indenture and
any supplemental  indenture may be amended,  supplemented or otherwise  modified
from time to time.

     "Indenture  Event of Default" means an "Event of Default" as defined in the
Indenture.

     "Institutional   Trustee"  means  the  Trustee   meeting  the   eligibility
requirements set forth in Section 4.3.

     "Interest"  means  any  interest  due  on  the  Debentures   including  any
Additional Interest and Defaulted Interest.

     "Investment  Company"  means  an  investment  company  as  defined  in  the
Investment Company Act.

     "Investment  Company  Act" means the  Investment  Company  Act of 1940,  as
amended from time to time, or any successor legislation.

     "Investment  Company  Event" has the meaning set forth in paragraph 4(a) of
Annex I.

     "Liquidation" has the meaning set forth in paragraph 3 of Annex I.

     "Liquidation  Distribution"  has the  meaning  set forth in  paragraph 3 of
Annex I.

     "Majority  in  liquidation  amount of the  Securities"  means  Holder(s) of
outstanding  Securities voting together as a single class or, as the context may
require,  Holders of  outstanding  Capital  Securities or Holders of outstanding
Common  Securities  voting  separately as a class,  who are the record owners 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 outstanding Securities of the relevant class.

     "Maturity Date" has the meaning set forth in paragraph 4(a) of Annex I.

     "Officers'  Certificates"  means, with respect to any Person, a certificate
signed by two  Authorized  Officers of such Person.  Any  Officers'  Certificate
delivered with respect to compliance with a condition or covenant  providing for
it in this Declaration shall include:

                                       5
<PAGE>


     (a) a statement  that each  officer  signing the  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 each officer in rendering the Certificate;

     (c) a  statement  that  each such  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 each such  officer,  such
condition or covenant has been complied with.

     "OTS" has the meaning set forth in paragraph 3 of Annex I.

     "Owner" means each Person who is the beneficial owner of Book-Entry Capital
Securities  as  reflected in the records of the  Depositary  or, if a Depositary
Participant is not the beneficial  owner, then the beneficial owner as reflected
in the records of the Depositary Participant.

     "Paying Agent" has the meaning specified in Section 6.2.

     "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.

     "Placement  Agreement"  means  the  Placement  Agreement  relating  to  the
offering and sale of Capital Securities in the form of Exhibit C.

     "Property Account" has the meaning set forth in Section 2.8(c).

     "Pro Rata" has the meaning set forth in paragraph 8 of Annex I.

     "QIB" means a "qualified institutional buyer" as defined in Rule 144A under
the Securities Act.

     "Quorum" means a majority of the  Administrators  or, if there are only two
Administrators, both of them.

     "Redemption Date" has the meaning set forth in paragraph 4(a) of Annex I.

     "Redemption/Distribution  Notice" has the  meaning  set forth in  paragraph
4(e) of Annex I.

     "Redemption Price" has the meaning set forth in paragraph 4(a) of Annex I.

     "Registrar" has the meaning set forth in Section 6.2.

     "Relevant Trustee" has the meaning set forth in Section 4.5(a).

     "Responsible Officer" means, with respect to the Institutional Trustee, any
officer  within  the  Corporate  Trust  Office  of  the  Institutional  Trustee,
including  any  vice-president,  any  assistant  vice-president,  any  assistant
secretary,  the treasurer,  any assistant treasurer,  any trust officer or other
officer of the Corporate Trust Office of the Institutional  Trustee  customarily
performing  functions  similar to those performed by any of the above designated
officers and also means,  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.

                                       6
<PAGE>


     "Restricted Securities Legend" has the meaning set forth in Section 8.2(b).

     "Rule 3a-5" means Rule 3a-5 under the Investment Company Act.

     "Rule 3a-7" means Rule 3a-7 under the Investment Company Act.

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

     "Securities  Act" means the Securities Act of 1933, as amended from time to
time, or any successor legislation.

     "Special Event" has the meaning set forth in paragraph 4(a) of Annex I.

     "Special  Redemption  Date" has the meaning set forth in paragraph  4(a) of
Annex I.

     "Special  Redemption  Price" has the meaning set forth in paragraph 4(a) of
Annex I.

     "Sponsor" means Four Oaks Fincorp,  Inc., a North Carolina corporation,  or
any successor entity in a merger, consolidation or amalgamation, in its capacity
as sponsor of the Trust.

     "Statutory Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. C. ss.ss. 3801, et seq. as may be amended from time to time.

     "Successor Entity" has the meaning set forth in Section 2.15(b).

     "Successor Delaware Trustee" has the meaning set forth in Section 4.5(e).

     "Successor  Institutional  Trustee"  has the  meaning  set forth in Section
4.5(b).

     "Successor Securities" has the meaning set forth in Section 2.15(b).

     "Super Majority" has the meaning set forth in paragraph 5(b) of Annex I.

     "Tax Event" has the meaning set forth in paragraph 4(a) of Annex I.

     "10%  in  liquidation   amount  of  the  Securities"   means  Holder(s)  of
outstanding  Securities voting together as a single class or, as the context may
require,  Holders of  outstanding  Capital  Securities or Holders of outstanding
Common Securities voting separately as a class, who are the record owners of 10%
or more 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 outstanding Securities of the relevant class.

     "3-Month LIBOR" has the meaning set forth in paragraph 4(a) of Annex I.

     "Transfer Agent" has the meaning set forth in Section 6.2.

     "Treasury   Regulations"  means  the  income  tax  regulations,   including
temporary  and proposed  regulations,  promulgated  under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

                                       7
<PAGE>


     "Trust  Property" means (a) the Debentures,  (b) any cash on deposit in, or
owing to, the Property Account and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Institutional Trustee pursuant to the trusts of this Declaration.

     "Trustee" or "Trustees"  means each Person who has signed this  Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the  terms  hereof,  and all  other  Persons  who may from  time to time be duly
appointed,  qualified and serving as Trustees in accordance  with the provisions
hereof,  and references  herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.

     "U.S.   Person"  means  a  United  States  Person  as  defined  in  Section
7701(a)(30) of the Code.

                                   ARTICLE II.

                                  ORGANIZATION
                                  ------------

     Section 2.1.  Name.  The Trust is named "Four Oaks  Statutory  Trust I," as
such  name may be  modified  from time to time by the  Administrators  following
written notice to the Holders of the Securities.  The Trust's  activities may be
conducted under the name of the Trust or any other name deemed  advisable by the
Administrators.

     Section 2.2.  Office.  The address of the principal  office of the Trust is
c/o  Wilmington  Trust Company,  Rodney Square North,  1100 North Market Street,
Wilmington,  Delaware 19890-1600. On at least 10 Business Days written notice to
the  Holders  of  the  Securities,  the  Administrators  may  designate  another
principal  office,  which  shall be in a state of the  United  States  or in the
District of Columbia.

     Section 2.3. Purpose. The exclusive purposes and functions of the Trust are
(a) to issue and sell the Securities representing undivided beneficial interests
in the assets of the Trust,  (b) to invest the gross  proceeds from such sale to
acquire the Debentures, (c) to facilitate direct investment in the assets of the
Trust through issuance of the Common  Securities and the Capital  Securities and
(d) except as otherwise limited herein, to engage in only those other activities
necessary or incidental thereto. The Trust shall not borrow money, issue debt or
reinvest  proceeds  derived  from  investments,  pledge  any of its  assets,  or
otherwise  undertake (or permit to be undertaken)  any activity that would cause
the Trust not to be classified  for United States federal income tax purposes as
a grantor trust.

     Section  2.4.   Authority.   Except  as   specifically   provided  in  this
Declaration,  the  Institutional  Trustee  shall  have  exclusive  and  complete
authority to carry out the  purposes of the Trust.  An action taken by a Trustee
in accordance with its powers shall  constitute the act of and serve to bind the
Trust.  In dealing  with the Trustees  acting on behalf of the Trust,  no Person
shall be  required to inquire  into the  authority  of the  Trustees to bind the
Trust.  Persons dealing with the Trust are entitled to rely  conclusively on the
power  and  authority  of the  Trustees  as set forth in this  Declaration.  The
Administrators  shall have only those  ministerial  duties set forth herein with
respect to  accomplishing  the  purposes of the Trust and are not intended to be
trustees  or  fiduciaries  with  respect  to  the  Trust  or  the  Holders.  The
Institutional Trustee shall have the right, but shall not be obligated except as
provided in Section 2.6, to perform those duties assigned to the Administrators.

     Section 2.5. Title to Property of the Trust.  Except as provided in Section
2.8 with  respect to the  Debentures  and the  Property  Account or as otherwise
provided  in this  Declaration,  legal title to all assets of the Trust shall be
vested in the Trust.  The Holders  shall not have legal title to any part of the
assets of the Trust,  but shall have an  undivided  beneficial  interest  in the
assets of the Trust.

                                       8
<PAGE>


     Section 2.6. Powers and Duties of the Trustees and the Administrators.
                  ---------------------------------------------------------

     (a) The Trustees and the  Administrators  shall  conduct the affairs of the
Trust  in  accordance  with  the  terms  of  this  Declaration.  Subject  to the
limitations  set forth in paragraph (b) of this Section,  and in accordance with
the following provisions (i) and (ii), the Trustees and the Administrators shall
have the authority to enter into all transactions  and agreements  determined by
the Institutional Trustee to be appropriate in exercising the authority, express
or implied, otherwise granted to the Trustees or the Administrators, as the case
may be, under this Declaration,  and to perform all acts in furtherance thereof,
including without limitation, the following:

          (1) Each  Administrator  shall have the power and  authority to act on
     behalf of the Trust with respect to the following matters:

               (A) the issuance and sale of the Securities;

               (B) to cause the Trust to enter into,  and to execute and deliver
          on  behalf  of the  Trust,  such  agreements  as may be  necessary  or
          desirable in  connection  with the purposes and function of the Trust,
          including agreements with the Paying Agent;

               (C) ensuring compliance with the Securities Act, applicable state
          securities or blue sky laws;

               (D) the sending of notices  (other than notices of default),  and
          other  information  regarding the Securities and the Debentures to the
          Holders in accordance with this Declaration;

               (E) the consent to the  appointment  of a Paying Agent,  Transfer
          Agent and Registrar in accordance with this Declaration, which consent
          shall not be unreasonably withheld or delayed;

               (F) execution and delivery of the  Securities in accordance  with
          this Declaration;

               (G)  execution and delivery of closing  certificates  pursuant to
          the   Placement   Agreement  and  the   application   for  a  taxpayer
          identification number;

               (H) unless  otherwise  determined by the Holders of a Majority in
          liquidation  amount of the Securities or as otherwise  required by the
          Statutory  Trust Act, to execute on behalf of the Trust (either acting
          alone or together with any or all of the Administrators) any documents
          that the  Administrators  have the power to execute  pursuant  to this
          Declaration;

               (I) the taking of any action  incidental  to the foregoing as the
          Institutional  Trustee may from time to time determine is necessary or
          advisable  to give  effect  to the terms of this  Declaration  for the
          benefit of the  Holders  (without  consideration  of the effect of any
          such action on any particular Holder);

               (J) to  establish a record date with respect to all actions to be
          taken hereunder that require a record date be  established,  including
          Distributions,  voting rights, redemptions and exchanges, and to issue
          relevant  notices to the Holders of Capital  Securities and Holders of
          Common Securities as to such actions and applicable record dates; and

                                       9
<PAGE>


               (K) to duly prepare and file all  applicable  tax returns and tax
          information  reports that are required to be filed with respect to the
          Trust on behalf of the Trust.

          (2) As among the Trustees and the  Administrators,  the  Institutional
     Trustee  shall have the power,  duty and  authority to act on behalf of the
     Trust with respect to the following matters:

               (A) the establishment of the Property Account;

               (B) the receipt of the Debentures;

               (C) the collection of interest,  principal and any other payments
          made in respect of the Debentures in the Property Account;

               (D) the distribution  through the Paying Agent of amounts owed to
          the Holders in respect of the Securities;

               (E) the exercise of all of the rights, powers and privileges of a
          holder of the Debentures;

               (F) the  sending  of notices  of  default  and other  information
          regarding  the  Securities  and  the  Debentures  to  the  Holders  in
          accordance with this Declaration;

               (G) the distribution of the Trust Property in accordance with the
          terms of this Declaration;

               (H) to the extent provided in this Declaration, the winding up of
          the  affairs  of and  liquidation  of the Trust  and the  preparation,
          execution  and  filing of the  certificate  of  cancellation  with the
          Secretary of State of the State of Delaware;

               (I) after  any  Event of  Default  (provided  that such  Event of
          Default is not by or with  respect to the  Institutional  Trustee) the
          taking of any action  incidental to the foregoing as the Institutional
          Trustee may from time to time  determine  is necessary or advisable to
          give effect to the terms of this  Declaration and protect and conserve
          the  Trust   Property   for  the  benefit  of  the  Holders   (without
          consideration  of the  effect  of any such  action  on any  particular
          Holder); and

               (J) to take all action that may be necessary for the preservation
          and  the  continuation  of  the  Trust's  valid   existence,   rights,
          franchises and  privileges as a statutory  trust under the laws of the
          State of Delaware.

          (3) The  Institutional  Trustee  shall have the power and authority to
     act on behalf of the Trust with respect to any of the duties,  liabilities,
     powers  or the  authority  of  the  Administrators  set  forth  in  Section
     2.6(a)(i)(D),  (E) and (F)  herein but shall not have a duty to do any such
     act unless specifically  requested to do so in writing by the Sponsor,  and
     shall then be fully protected in acting  pursuant to such written  request;
     and in the event of a conflict between the action of the Administrators and
     the action of the  Institutional  Trustee,  the action of the Institutional
     Trustee shall prevail.

     (b) So long as this  Declaration  remains  in  effect,  the  Trust  (or the
Trustees or  Administrators  acting on behalf of the Trust) shall not  undertake
any business,  activities or transaction  except as expressly provided herein or
contemplated hereby. In particular,  neither the Trustees nor the Administrators
may cause the Trust to (i) acquire any  investments  or engage in any activities
not  authorized by this  Declaration,  (ii) sell,  assign,  transfer,  exchange,
mortgage,  pledge,  set-off or otherwise dispose of any of the Trust Property or
interests  therein,  including to Holders,  except as expressly provided herein,
(iii) take any action that would  reasonably  be expected (x) to cause the Trust
to fail or cease to  qualify as a "grantor  trust"  for  United  States  federal
income tax  purposes or (y) to require  the trust to  register as an  Investment
Company  under the  Investment  Company  Act,  (iv) incur any  indebtedness  for
borrowed money or issue any other debt or (v) take or consent to any action that
would  result  in the  placement  of a lien on any of the  Trust  Property.  The
Institutional  Trustee shall, at the sole cost and expense of the Trust,  defend
all claims and  demands of all Persons at any time  claiming  any lien on any of
the Trust Property  adverse to the interest of the Trust or the Holders in their
capacity as Holders.

                                       10
<PAGE>


     (c) In connection with the issuance and sale of the Capital Securities, the
Sponsor shall have the right and responsibility to assist the Trust with respect
to, or effect on behalf of the Trust,  the  following  (and any actions taken by
the  Sponsor  in  furtherance  of the  following  prior  to  the  date  of  this
Declaration are hereby ratified and confirmed in all respects):

          (1) the taking of any action necessary to obtain an exemption from the
     Securities Act;

          (2) the  determination  of the  States  in which  to take  appropriate
     action  to  qualify  or  register  for  sale  all or  part  of the  Capital
     Securities  and the  determination  of any and all such  acts,  other  than
     actions which must be taken by or on behalf of the Trust, and the advice to
     the  Administrators  of actions they must take on behalf of the Trust,  and
     the  preparation  for  execution and filing of any documents to be executed
     and  filed by the Trust or on behalf of the  Trust,  as the  Sponsor  deems
     necessary or advisable in order to comply with the  applicable  laws of any
     such States in connection with the sale of the Capital Securities;

          (3) the  negotiation  of the terms of, and the  execution and delivery
     of,  the  Placement  Agreement  providing  for  the  sale  of  the  Capital
     Securities; and

          (4) the taking of any other  actions  necessary  or desirable to carry
     out any of the foregoing activities.

     (d) Notwithstanding anything herein to the contrary, the Administrators and
the Holders of a Majority in  liquidation  amount of the Common  Securities  are
authorized  and  directed to conduct the affairs of the Trust and to operate the
Trust so that the  Trust  will not (i) be  deemed  to be an  Investment  Company
required to be registered under the Investment  Company Act, and (ii) fail to be
classified as a "grantor  trust" for United States  federal income tax purposes.
The  Administrators  and the Holders of a Majority in liquidation  amount of the
Common  Securities shall not take any action  inconsistent with the treatment of
the Debentures as indebtedness of the Debenture Issuer for United States federal
income tax purposes. In this connection, the Administrators and the Holders of a
Majority in liquidation  amount of the Common  Securities are authorized to take
any action,  not inconsistent  with applicable laws, the Certificate of Trust or
this Declaration,  as amended from time to time, that each of the Administrators
and the Holders of a Majority  in  liquidation  amount of the Common  Securities
determines in their discretion to be necessary or desirable for such purposes.

     (e) All expenses incurred by the Administrators or the Trustees pursuant to
this Section 2.6 shall be  reimbursed  by the Sponsor,  and the Trustees and the
Administrators  shall have no  obligations  with respect to such  expenses  (for
purposes of clarification,  this Section 2.6(e) does not contemplate the payment
by the Sponsor of acceptance or annual administration fees owing to the Trustees
under this  Declaration  or the fees and  expenses of the  Trustees'  counsel in
connection   with  the  closing  of  the   transactions   contemplated  by  this
Declaration).

                                       11
<PAGE>


     (f) The assets of the Trust shall consist of the Trust Property.

     (g) Legal title to all Trust  Property  shall be vested at all times in the
Institutional  Trustee  (in  its  capacity  as  such)  and  shall  be  held  and
administered by the Institutional Trustee and the Administrators for the benefit
of the Trust in accordance with this Declaration.

     (h)  If  the  Institutional  Trustee  or  any  Holder  has  instituted  any
proceeding  to  enforce  any right or remedy  under  this  Declaration  and such
proceeding  has been  discontinued  or  abandoned  for any  reason,  or has been
determined adversely to the Institutional Trustee or to such Holder, then and in
every such case the Sponsor,  the  Institutional  Trustee and the Holders shall,
subject to any  determination  in such  proceeding,  be restored  severally  and
respectively to their former positions hereunder,  and thereafter all rights and
remedies of the  Institutional  Trustee and the Holders shall continue as though
no such proceeding had been instituted.

     Section  2.7.  Prohibition  of Actions  by the Trust and the  Institutional
                    ------------------------------------------------------------
Trustee.
--------

     (a) The Trust  shall not,  and the  Institutional  Trustee  shall cause the
Trust not to,  engage in any activity  other than as required or  authorized  by
this  Declaration.  In  particular,  the Trust  shall not and the  Institutional
Trustee shall cause the Trust not to:

          (1)  invest  any  proceeds  received  by the Trust  from  holding  the
     Debentures,  but shall  distribute  all such  proceeds  to  Holders  of the
     Securities pursuant to the terms of this Declaration and of the Securities;

          (2) acquire any assets other than as expressly provided herein;

          (3) possess Trust Property for other than a Trust purpose;

          (4)  make any  loans  or  incur  any  indebtedness  other  than  loans
     represented by the Debentures;

          (5)  possess any power or  otherwise  act in such a way as to vary the
     Trust assets or the terms of the  Securities  in any way  whatsoever  other
     than as expressly provided herein;

          (6) issue any  securities or other  evidences of beneficial  ownership
     of, or beneficial interest in, the Trust other than the Securities;

          (7) carry on any  "trade or  business"  as that  phrase is used in the
     Code; or

          (8) other than as provided in this  Declaration  (including  Annex I),
     (A) direct  the time,  method  and place of  exercising  any trust or power
     conferred upon the Debenture  Trustee with respect to the  Debentures,  (B)
     waive any past default that is waivable under the  Indenture,  (C) exercise
     any right to rescind or annul any declaration that the principal of all the
     Debentures  shall be due and  payable,  or (D)  consent  to any  amendment,
     modification  or termination of the Indenture or the Debentures  where such
     consent  shall be required  unless the Trust shall have  received a written
     opinion of counsel to the effect that such  modification will not cause the
     Trust to cease to be  classified  as a "grantor  trust"  for United  States
     federal income tax purposes.

                                       12
<PAGE>


     Section 2.8. Powers and Duties of the Institutional Trustee.
                  -----------------------------------------------

     (a) The legal title to the Debentures  shall be owned by and held of record
in the name of the  Institutional  Trustee in trust for the benefit of the Trust
and the  Holders  of the  Securities.  The  right,  title  and  interest  of the
Institutional  Trustee to the Debentures shall vest automatically in each Person
who may  hereafter be  appointed as  Institutional  Trustee in  accordance  with
Section 4.5. Such vesting and  cessation of title shall be effective  whether or
not conveyancing  documents with regard to the Debentures have been executed and
delivered.

     (b) The  Institutional  Trustee  shall not  transfer  its right,  title and
interest in the Debentures to the Administrators or to the Delaware Trustee.

     (c) The Institutional Trustee shall:

          (1)  establish  and maintain a segregated  non-interest  bearing trust
     account (the  "Property  Account")  in the name of and under the  exclusive
     control of the Institutional  Trustee,  and maintained in the Institutional
     Trustee's trust department, on behalf of the Holders of the Securities and,
     upon the  receipt of  payments  of funds made in respect of the  Debentures
     held by the  Institutional  Trustee,  deposit  such funds into the Property
     Account and make payments,  or cause the Paying Agent to make payments,  to
     the Holders of the Capital  Securities and Holders of the Common Securities
     from the Property  Account in  accordance  with  Section 5.1.  Funds in the
     Property  Account shall be held  uninvested  until  disbursed in accordance
     with this Declaration;

          (2) engage in such  ministerial  activities  as shall be  necessary or
     appropriate  to effect the  redemption  of the Capital  Securities  and the
     Common Securities to the extent the Debentures are redeemed or mature; and

          (3) upon written notice of distribution  issued by the  Administrators
     in accordance with the terms of the Securities,  engage in such ministerial
     activities as shall be necessary or appropriate to effect the  distribution
     of the  Debentures to Holders of Securities  upon the occurrence of certain
     circumstances pursuant to the terms of the Securities.

     (d)  The  Institutional   Trustee  may  bring  or  defend,   pay,  collect,
compromise,  arbitrate,  resort to legal  action with  respect to, or  otherwise
adjust  claims or demands of or  against,  the Trust  which  arises out of or in
connection  with an  Event of  Default  of which a  Responsible  Officer  of the
Institutional  Trustee has actual  knowledge or arises out of the  Institutional
Trustee's duties and obligations under this Declaration; provided, however, that
if an Event  of  Default  has  occurred  and is  continuing  and  such  event is
attributable to the failure of the Debenture Issuer to pay interest or principal
on the  Debentures on the date such  interest or principal is otherwise  payable
(or in the case of  redemption,  on the redemption  date),  then a Holder of the
Capital  Securities  may directly  institute a  proceeding  for  enforcement  of
payment to such Holder of the principal of or interest on the Debentures  having
a principal  amount  equal to the  aggregate  liquidation  amount of the Capital
Securities  of such Holder (a "Direct  Action") on or after the  respective  due
date specified in the  Debentures.  In connection  with such Direct Action,  the
rights of the Holders of the Common  Securities will be subrogated to the rights
of such Holder of the Capital  Securities  to the extent of any payment  made by
the  Debenture  Issuer to such Holder of the Capital  Securities  in such Direct
Action; provided,  however, that no Holder of the Common Securities may exercise
such right of  subrogation  so long as an Event of Default  with  respect to the
Capital Securities has occurred and is continuing.

     (e) The  Institutional  Trustee shall  continue to serve as a Trustee until
either:

                                       13
<PAGE>


          (1) the Trust has been  completely  liquidated and the proceeds of the
     liquidation  distributed to the Holders of the  Securities  pursuant to the
     terms of the Securities and this Declaration; or

          (2) a  Successor  Institutional  Trustee  has been  appointed  and has
     accepted that appointment in accordance with Section 4.5.

     (f) The Institutional Trustee shall have the legal power to exercise all of
the  rights,  powers  and  privileges  of a Holder of the  Debentures  under the
Indenture  and,  if  an  Event  of  Default   occurs  and  is  continuing,   the
Institutional Trustee may, for the benefit of Holders of the Securities, enforce
its rights as holder of the  Debentures  subject  to the  rights of the  Holders
pursuant  to  this  Declaration  (including  Annex  I)  and  the  terms  of  the
Securities.

     The  Institutional  Trustee  must  exercise  the  powers  set forth in this
Section 2.8 in a manner that is  consistent  with the purposes and  functions of
the Trust set out in Section 2.3, and the  Institutional  Trustee shall not take
any action that is inconsistent with the purposes and functions of the Trust set
out in Section 2.3.

     Section  2.9.  Certain  Duties and  Responsibilities  of the  Trustees  and
                    ------------------------------------------------------------
Administrators.
---------------

     (a) The  Institutional  Trustee,  before  the  occurrence  of any  Event of
Default and after the curing or waiving of all such  Events of Default  that may
have occurred,  shall undertake to perform only such duties as are  specifically
set forth in this  Declaration and no implied  covenants shall be read into this
Declaration  against the Institutional  Trustee. In case an Event of Default has
occurred  (that has not been  cured or waived  pursuant  to  Section  6.8),  the
Institutional  Trustee shall exercise such of the rights and powers vested in it
by this  Declaration,  and use the  same  degree  of care  and  skill  in  their
exercise,  as a prudent person would exercise or use under the  circumstances in
the conduct of his or her own affairs.

     (b) The duties and  responsibilities of the Trustees and the Administrators
shall be as provided by this  Declaration.  Notwithstanding  the  foregoing,  no
provision of this  Declaration  shall  require any Trustee or  Administrator  to
expend or risk their own funds or otherwise incur any financial liability in the
performance of any of their duties hereunder, or in the exercise of any of their
rights or powers if it shall have  reasonable  grounds to believe that repayment
of such funds or  adequate  protection  against  such risk of  liability  is not
reasonably  assured to it. Whether or not therein  expressly so provided,  every
provision of this Declaration relating to the conduct or affecting the liability
of or affording protection to the Trustees or Administrators shall be subject to
the provisions of this Article.  Nothing in this Declaration  shall be construed
to relieve an  Administrator  or a Trustee from  liability for its own negligent
act, its own  negligent  failure to act, or its own willful  misconduct.  To the
extent that, at law or in equity, a Trustee or an  Administrator  has duties and
liabilities  relating  to the  Trust or to the  Holders,  such  Trustee  or such
Administrator  shall  not be  liable  to the  Trust  or to any  Holder  for such
Trustee's or such  Administrator's good faith reliance on the provisions of this
Declaration.  The  provisions  of this  Declaration,  to the  extent  that  they
restrict  the  duties  and  liabilities  of the  Administrators  or the  Trustee
otherwise  existing  at law or in  equity,  are  agreed by the  Sponsor  and the
Holders to replace such other duties and  liabilities of the  Administrators  or
the Trustees.

     (c) All  payments  made by the  Institutional  Trustee or a Paying Agent in
respect of the Securities  shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds  from the Trust  Property to enable the  Institutional  Trustee or a
Paying Agent to make payments in accordance with the terms hereof.  Each Holder,
by its acceptance of a Security,  agrees that it will look solely to the revenue
and  proceeds  from the Trust  Property  to the  extent  legally  available  for
distribution   to  it  as  herein   provided  and  that  the  Trustees  and  the
Administrators  are not personally liable to it for any amount  distributable in
respect of any Security or for any other  liability in respect of any  Security.
This Section  2.9(c) does not limit the liability of the Trustees  expressly set
forth elsewhere in this Declaration.

                                       14
<PAGE>


     (d) The  Institutional  Trustee  shall  not be  liable  for its own acts or
omissions  hereunder  except as a result of its own  negligent  action,  its own
negligent failure to act, or its own willful misconduct, except that:

          (1) the  Institutional  Trustee  shall not be liable  for any error of
     judgment made in good faith by an Authorized  Officer of the  Institutional
     Trustee,  unless  it shall be proved  that the  Institutional  Trustee  was
     negligent in ascertaining the pertinent facts;

          (2) the Institutional  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  direction  of the Holders of not less than a Majority  in  liquidation
     amount of the Capital Securities or the Common  Securities,  as applicable,
     relating to the time, method and place of conducting any proceeding for any
     remedy available to the Institutional  Trustee,  or exercising any trust or
     power conferred upon the Institutional Trustee under this Declaration;

          (3) the Institutional Trustee's sole duty with respect to the custody,
     safekeeping  and physical  preservation  of the Debentures and the Property
     Account  shall be to deal with  such  property  in a similar  manner as the
     Institutional  Trustee  deals  with  similar  property  for  its  fiduciary
     accounts generally, subject to the protections and limitations on liability
     afforded to the Institutional Trustee under this Declaration;

          (4) the Institutional  Trustee shall not be liable for any interest on
     any money  received by it except as it may otherwise  agree in writing with
     the  Sponsor;  and  money  held by the  Institutional  Trustee  need not be
     segregated  from other funds held by it except in relation to the  Property
     Account  maintained  by  the  Institutional  Trustee  pursuant  to  Section
     2.8(c)(1) and except to the extent otherwise required by law; and

          (5) the Institutional  Trustee shall not be responsible for monitoring
     the compliance by the  Administrators  or the Sponsor with their respective
     duties  under  this  Declaration,  nor shall the  Institutional  Trustee be
     liable for any default or misconduct of the Administrators or the Sponsor.

     Section  2.10.  Certain  Rights of  Institutional  Trustee.  Subject to the
                     -------------------------------------------
provisions of Section 2.9:

     (a) the  Institutional  Trustee  may  conclusively  rely and shall fully be
protected in acting or refraining from acting in good faith upon any resolution,
opinion  of  counsel,  certificate,   written  representation  of  a  Holder  or
transferee,  certificate  of  auditors  or  any  other  certificate,  statement,
instrument,   opinion,  report,  notice,  request,  direction,  consent,  order,
appraisal,  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;

     (b)  if  (i)  in  performing  its  duties  under  this   Declaration,   the
Institutional  Trustee is  required  to decide  between  alternative  courses of
action,  (ii) in  construing  any of the  provisions  of this  Declaration,  the
Institutional  Trustee finds the same ambiguous or  inconsistent  with any other
provisions contained herein, or (iii) the Institutional Trustee is unsure of the
application of any provision of this Declaration,  then, except as to any matter
as to which the  Holders of Capital  Securities  are  entitled to vote under the
terms of this Declaration, the Institutional Trustee may deliver a notice to the
Sponsor requesting the Sponsor's written instructions as to the course of action
to be taken and the  Institutional  Trustee  shall take such action,  or refrain
from taking such action,  as the  Institutional  Trustee  shall be instructed in
writing, in which event the Institutional Trustee shall have no liability except
for its own negligence or willful misconduct;

                                       15
<PAGE>


     (c) any direction or act of the Sponsor or the Administrators  contemplated
by this Declaration shall be sufficiently evidenced by an Officers' Certificate;

     (d) whenever in the  administration of this Declaration,  the Institutional
Trustee shall deem it desirable  that a matter be proved or  established  before
undertaking,  suffering  or omitting  any action  hereunder,  the  Institutional
Trustee  (unless other evidence is herein  specifically  prescribed) may request
and conclusively rely upon an Officers' Certificate as to factual matters which,
upon receipt of such request,  shall be promptly delivered by the Sponsor or the
Administrators;

     (e) the  Institutional  Trustee shall have no duty to see to any recording,
filing  or   registration   of  any  instrument   (including  any  financing  or
continuation  statement  or any  filing  under  tax or  securities  laws) or any
rerecording, refiling or reregistration thereof;

     (f) the  Institutional  Trustee may consult with  counsel of its  selection
(which counsel may be counsel to the Sponsor or any of its  Affiliates)  and the
advice of such counsel 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  reliance  thereon  and  in  accordance  with  such  advice;  the
Institutional  Trustee  shall  have the  right at any time to seek  instructions
concerning the  administration  of this  Declaration from any court of competent
jurisdiction;

     (g) the Institutional  Trustee shall be under no obligation to exercise any
of the  rights or powers  vested in it by this  Declaration  at the  request  or
direction  of any of the  Holders  pursuant  to this  Declaration,  unless  such
Holders shall have offered to the  Institutional  Trustee  security or indemnity
reasonably  satisfactory to it against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction;  provided,
that nothing  contained in this  Section  2.10(g)  shall be taken to relieve the
Institutional  Trustee,  subject to Section  2.9(b),  upon the  occurrence of an
Event of Default (that has not been cured or waived pursuant to Section 6.9), to
exercise such of the rights and powers vested in it by this Declaration, and use
the same degree of care and skill in their  exercise,  as a prudent person would
exercise  or use  under  the  circumstances  in the  conduct  of his or her  own
affairs;

     (h) the Institutional  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,  consent, order, approval, bond,
debenture,  note or other evidence of  indebtedness  or other paper or document,
unless  requested  in  writing  to  do  so by  one  or  more  Holders,  but  the
Institutional  Trustee may make such further inquiry or investigation  into such
facts or matters as it may see fit;

     (i) the  Institutional  Trustee  may  execute  any of the  trusts or powers
hereunder or perform any duties  hereunder  either directly or by or through its
agents or attorneys and the  Institutional  Trustee shall not be responsible for
any misconduct or negligence on the part of or for the  supervision of, any such
agent or attorney appointed with due care by it hereunder;

     (j) whenever in the  administration  of this Declaration the  Institutional
Trustee  shall  deem it  desirable  to  receive  instructions  with  respect  to
enforcing  any  remedy  or  right or  taking  any  other  action  hereunder  the
Institutional  Trustee  (i) may  request  instructions  from the  Holders of the
Capital  Securities  which  instructions may only be given by the Holders of the
same  proportion  in  liquidation  amount of the Capital  Securities as would be
entitled  to direct the  Institutional  Trustee  under the terms of the  Capital
Securities  in respect of such  remedy,  right or action,  (ii) may refrain from
enforcing  such  remedy  or  right  or  taking  such  other  action  until  such
instructions  are  received,  and (iii)  shall be fully  protected  in acting in
accordance with such instructions;

                                       16
<PAGE>


     (k)  except  as  otherwise  expressly  provided  in this  Declaration,  the
Institutional  Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Declaration;

     (l) when the  Institutional  Trustee incurs expenses or renders services in
connection  with a  Bankruptcy  Event,  such  expenses  (including  the fees and
expenses of its counsel) and the  compensation for such services are intended to
constitute  expenses of administration  under any bankruptcy law or law relating
to creditors rights generally;

     (m) the  Institutional  Trustee  shall not be charged with  knowledge of an
Event of  Default  unless a  Responsible  Officer of the  Institutional  Trustee
obtains actual  knowledge of such event or the  Institutional  Trustee  receives
written  notice of such  event from any  Holder,  the  Sponsor or the  Debenture
Trustee;

     (n) any action taken by the  Institutional  Trustee or its agents hereunder
shall bind the Trust and the Holders of the Securities, and the signature of the
Institutional  Trustee or its agents alone shall be sufficient  and effective to
perform  any such  action and no third  party shall be required to inquire as to
the  authority of the  Institutional  Trustee to so act or as to its  compliance
with any of the terms and provisions of this Declaration, both of which shall be
conclusively evidenced by the Institutional Trustee's or its agent's taking such
action; and

     (o) no provision of this Declaration  shall be deemed to impose any duty or
obligation on the  Institutional  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 Institutional 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  Institutional
Trustee shall be construed to be a duty.

     Section 2.11. Delaware Trustee. Notwithstanding any other provision of this
Declaration  other than Section 4.1, the Delaware  Trustee shall not be entitled
to exercise any powers,  nor shall the  Delaware  Trustee have any of the duties
and  responsibilities of any of the Trustees or the Administrators  described in
this  Declaration  (except as may be required  under the  Statutory  Trust Act).
Except as set forth in Section 4.1, the Delaware  Trustee shall be a Trustee for
the sole and limited  purpose of fulfilling the  requirements of ss. 3807 of the
Statutory Trust Act.

     Section  2.12.  Execution of  Documents.  Unless  otherwise  determined  in
writing by the Institutional  Trustee,  and except as otherwise  required by the
Statutory  Trust  Act,  the  Institutional  Trustee,  or any  one or more of the
Administrators,  as the case may be, is  authorized  to execute on behalf of the
Trust any documents that the Trustees or the Administrators, as the case may be,
have the power and authority to execute pursuant to Section 2.6.

     Section 2.13. Not Responsible  for Recitals or Issuance of Securities.  The
recitals  contained in this Declaration and the Securities shall be taken as the
statements of the Sponsor, and the Trustees do not assume any responsibility for
their  correctness.  The  Trustees  make no  representations  as to the value or
condition of the property of the Trust or any part thereof. The Trustees make no
representations  as to the  validity or  sufficiency  of this  Declaration,  the
Debentures or the Securities.

     Section  2.14.  Duration  of Trust.  The Trust,  unless  earlier  dissolved
pursuant to the  provisions of Article VII hereof,  shall be in existence for 35
years from the Closing Date.

                                       17
<PAGE>


     Section 2.15. Mergers.

     (a) The Trust may not  consolidate,  amalgamate,  merge with or into, or be
replaced  by,  or  convey,   transfer  or  lease  its   properties   and  assets
substantially  as an  entirety  to any  corporation  or other  body,  except  as
described  in  Section  2.15(b)  and (c)  and  except  in  connection  with  the
liquidation  of the Trust and the  distribution  of the Debentures to Holders of
Securities  pursuant to Section  7.1(a)(iv) of the  Declaration  or Section 4 of
Annex I.

     (b) The Trust  may,  with the  consent  of the  Institutional  Trustee  and
without  the  consent of the  Holders of the  Capital  Securities,  consolidate,
amalgamate,  merge with or into,  or be  replaced by a trust  organized  as such
under the laws of any state; provided that:

          (1) if the Trust is not the surviving  entity,  such successor  entity
     (the "Successor Entity") either:

               (A) expressly  assumes all of the  obligations of the Trust under
          the Securities; or

               (B)  substitutes  for  the  Securities  other  securities  having
          substantially  the  same  terms  as  the  Securities  (the  "Successor
          Securities")  so that the  Successor  Securities  rank the same as the
          Securities  rank with  respect  to  Distributions  and  payments  upon
          Liquidation, redemption and otherwise;

          (2) the Sponsor  expressly  appoints a trustee of the Successor Entity
     that   possesses   substantially   the  same   powers  and  duties  as  the
     Institutional Trustee as the Holder of the Debentures;

          (3) such merger,  consolidation,  amalgamation or replacement does not
     adversely  affect the rights,  preferences and privileges of the Holders of
     the  Securities  (including  any  Successor  Securities)  in  any  material
     respect;

          (4) the  Institutional  Trustee  receives  written  confirmation  from
     Moody's  Investor  Services,  Inc.  and  any  other  nationally  recognized
     statistical rating organization that rates securities issued by the initial
     purchaser of the Capital Securities that it will not reduce or withdraw the
     rating  of  any  such  securities  because  of  such  merger,   conversion,
     consolidation, amalgamation or replacement;

          (5) such  Successor  Entity has a purpose  substantially  identical to
     that of the Trust;

          (6) prior to such merger, consolidation,  amalgamation or replacement,
     the Trust has  received an opinion of a nationally  recognized  independent
     counsel to the Trust experienced in such matters to the effect that:

               (A) such merger, consolidation,  amalgamation or replacement does
          not adversely  affect the rights,  preferences  and  privileges of the
          Holders of the Securities  (including any Successor Securities) in any
          material respect;

               (B)  following  such  merger,   consolidation,   amalgamation  or
          replacement,  neither  the  Trust  nor the  Successor  Entity  will be
          required to register as an Investment Company; and

                                       18
<PAGE>


               (C)  following  such  merger,   consolidation,   amalgamation  or
          replacement,  the Trust (or the Successor  Entity) will continue to be
          classified as a "grantor  trust" for United States  federal income tax
          purposes;

          (7) the Sponsor  guarantees the  obligations of such Successor  Entity
     under the  Successor  Securities  at least to the  extent  provided  by the
     Guarantee;

          (8) the Sponsor owns 100% of the common  securities  of any  Successor
     Entity; and

          (9) prior to such merger, consolidation,  amalgamation or replacement,
     the Institutional  Trustee shall have received an Officers'  Certificate of
     the Administrators  and an opinion of counsel,  each to the effect that all
     conditions  precedent under this Section 2.15(b) to such  transaction  have
     been satisfied.

     (c) Notwithstanding  Section 2.15(b),  the Trust shall not, except with the
consent of Holders of 100% in aggregate  liquidation  amount of the  Securities,
consolidate,  amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to  consolidate,  amalgamate,  merge with or into, or
replace it if such  consolidation,  amalgamation,  merger or  replacement  would
cause the Trust or  Successor  Entity to be  classified  as other than a grantor
trust for United States federal income tax purposes.

                                  ARTICLE III.

                                     SPONSOR
                                     -------

     Section 3.1. Sponsor's Purchase of Common Securities.  On the Closing Date,
the Sponsor will purchase all of the Common Securities issued by the Trust in an
amount at least equal to 3% of the capital of the Trust, at the same time as the
Capital Securities are sold.

     Section 3.2.  Responsibilities of the Sponsor. In connection with the issue
and sale of the Capital  Securities,  the Sponsor shall have the exclusive right
and  responsibility to engage in, or direct the Administrators to engage in, the
following activities:

     (a) to determine the States in which to take appropriate  action to qualify
the  Trust  or to  qualify  or  register  for  sale  all or part of the  Capital
Securities  and to do any and all such acts,  other than  actions  which must be
taken by the Trust,  and advise the Trust of actions it must take,  and  prepare
for execution and filing any documents to be executed and filed by the Trust, as
the Sponsor deems  necessary or advisable in order to comply with the applicable
laws of any such States,  to protect the limited liability of the Holders of the
Capital  Securities  or to enable the Trust to effect the  purposes for which it
was created; and

     (b) to negotiate  the terms of and/or  execute on behalf of the Trust,  the
Placement  Agreement and other related agreements  providing for the sale of the
Capital Securities.

     Section 3.3. Expenses.  In connection with the offering,  sale and issuance
of the Debentures to the Trust and in connection with the sale of the Securities
by the Trust, the Sponsor, in its capacity as Debenture Issuer, shall:

     (a) pay all reasonable  costs and expenses  owing to the Debenture  Trustee
pursuant to Section 6.6 of the Indenture;

                                       19
<PAGE>


     (b) be responsible for and shall pay all debts and obligations  (other than
with respect to the  Securities)  and all costs and  expenses of the Trust,  the
offering,  sale and issuance of the Securities  (including fees to the placement
agents in connection  therewith),  the costs and expenses (including  reasonable
counsel fees and expenses) of the Institutional  Trustee and the Administrators,
the costs and  expenses  relating  to the  operation  of the  Trust,  including,
without limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping  services,  expenses  for printing and  engraving  and  computing or
accounting equipment,  Paying Agents, Registrars,  Transfer Agents, duplicating,
travel  and  telephone  and  other  telecommunications  expenses  and  costs and
expenses incurred in connection with the acquisition, financing, and disposition
of Trust assets and the enforcement by the  Institutional  Trustee of the rights
of the Holders (for  purposes of  clarification,  this  Section  3.3(b) does not
contemplate  the payment by the Sponsor of acceptance  or annual  administration
fees owing to the  Trustees  pursuant  to the  services  to be  provided  by the
Trustees  under  this  Declaration  or the fees and  expenses  of the  Trustees'
counsel in connection with the closing of the transactions  contemplated by this
Declaration); and

     (c) pay any and all taxes  (other  than  United  States  withholding  taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.

     The Sponsor's  obligations  under this Section 3.3 shall be for the benefit
of, and shall be  enforceable  by, any Person to whom such  debts,  obligations,
costs,  expenses and taxes are owed (a "Creditor")  whether or not such Creditor
has  received  notice  hereof.  Any such  Creditor  may  enforce  the  Sponsor's
obligations  under this Section 3.3 directly against the Sponsor and the Sponsor
irrevocably  waives any right or remedy to require that any such  Creditor  take
any action against the Trust or any other Person before  proceeding  against the
Sponsor.  The Sponsor  agrees to execute such  additional  agreements  as may be
necessary or desirable  in order to give full effect to the  provisions  of this
Section 3.3.

     Section  3.4.  Right to  Proceed.  The Sponsor  acknowledges  the rights of
Holders to institute a Direct Action as set forth in Section 2.8(d) hereto.

                                  ARTICLE IV.

                    INSTITUTIONAL TRUSTEE AND ADMINISTRATORS
                    ----------------------------------------

     Section 4.1. Number of Trustees.  The number of Trustees shall initially be
two, and;

     (a) at any time before the issuance of any Securities,  the Sponsor may, by
written instrument, increase or decrease the number of Trustees; and

     (b) after the  issuance of any  Securities,  the number of Trustees  may be
increased or decreased by vote of the Holder of a Majority in liquidation amount
of the  Common  Securities  voting as a class at a meeting  of the Holder of the
Common Securities;  provided, however, that there shall be a Delaware Trustee if
required by Section  4.2; and there shall always be one Trustee who shall be the
Institutional Trustee, and such Trustee may also serve as Delaware Trustee if it
meets the  applicable  requirements,  in which case  Section  2.11 shall have no
application to such entity in its capacity as Institutional Trustee.

     Section 4.2. Delaware Trustee; Eligibility.
                  ------------------------------

     (a) If required by the  Statutory  Trust Act,  one Trustee  (the  "Delaware
Trustee") shall be:

          (1) a natural person at least 21 years of age who is a resident of the
     State of Delaware; or

                                       20
<PAGE>


          (2) if not a natural  person,  an entity which is organized  under the
     laws of the United States or any state thereof or the District of Columbia,
     has its principal place of business in the State of Delaware, and otherwise
     meets  the  requirements  of  applicable  law,  including  ss.  3807 of the
     Statutory Trust Act.

     (b) The initial Delaware Trustee shall be Wilmington Trust Company.

     Section 4.3. Institutional Trustee; Eligibility.
                  -----------------------------------

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

          (1) not be an Affiliate of the Sponsor;

          (2) not offer or provide  credit or credit  enhancement  to the Trust;
     and

          (3) be a banking  corporation  or trust  company  organized  and doing
     business  under  the laws of the  United  States  of  America  or any state
     thereof or the District of Columbia, authorized under such laws to exercise
     corporate trust powers,  having a combined  capital and surplus of at least
     50 million U.S.  dollars  ($50,000,000.00),  and subject to  supervision or
     examination by Federal,  state, 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  4.3(a)(3),  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 Institutional  Trustee shall cease to be eligible to
so act under Section 4.3(a), the Institutional  Trustee shall immediately resign
in the manner and with the effect set forth in Section 4.5.

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

     (d) The initial Institutional Trustee shall be Wilmington Trust Company.

     Section 4.4. Administrators.  Each Administrator shall be a U.S. Person, 21
years  of age  or  older  and  authorized  to  bind  the  Sponsor.  The  initial
Administrators  shall be Ayden R. Lee,  Jr.,  Nancy S.  Wise and Wanda J.  Blow.
There  shall  at all  times  be at  least  one  Administrator.  Except  where  a
requirement for action by a specific number of  Administrators  is expressly set
forth in this  Declaration  and except with  respect to any action the taking of
which is the subject of a meeting of the Administrators,  any action required or
permitted  to be taken by the  Administrators  may be taken by, and any power of
the  Administrators  may be  exercised  by, or with the consent of, any one such
Administrator.

     Section  4.5.   Appointment,   Removal  and  Resignation  of  Trustees  and
                     -----------------------------------------------------------
Administrators.
---------------

     (a) No resignation  or removal of any Trustee (the "Relevant  Trustee") and
no  appointment  of a successor  Trustee  pursuant to this Article  shall become
effective  until the  acceptance  of  appointment  by the  successor  Trustee in
accordance with the applicable requirements of this Section 4.5.

     (b) Subject to Section 4.5(a), a Relevant Trustee may resign at any time by
giving written notice thereof to the Holders of the Securities and by appointing
a successor Relevant Trustee. Upon the resignation of the Institutional Trustee,
the Institutional  Trustee shall appoint a successor by requesting from at least
three Persons meeting the eligibility requirements their expenses and charges to
serve  as  the  successor  Institutional  Trustee  on a  form  provided  by  the
Administrators,  and selecting  the Person who agrees to the lowest  expense and
charges (the "Successor Institutional Trustee"). If the instrument of acceptance
by the successor  Relevant  Trustee  required by this Section 4.5 shall not have
been  delivered to the Relevant  Trustee within 60 days after the giving of such
notice of  resignation  or delivery of the  instrument of removal,  the Relevant
Trustee  may  petition,  at the  expense of the  Trust,  any  federal,  state or
District of Columbia court of competent  jurisdiction  for the  appointment of a
successor  Relevant  Trustee.  Such court may thereupon,  after prescribing such
notice,  if  any,  as it may  deem  proper,  appoint  a  Relevant  Trustee.  The
Institutional  Trustee  shall  have  no  liability  for  the  selection  of such
successor pursuant to this Section 4.5.

                                       21
<PAGE>


     (c) Unless an Event of Default shall have occurred and be  continuing,  any
Trustee  may be  removed at any time by an act of the  Holders of a Majority  in
liquidation amount of the Common Securities. If any Trustee shall be so removed,
the  Holders of the Common  Securities,  by act of the  Holders of a Majority in
liquidation  amount of the Common Securities  delivered to the Relevant Trustee,
shall promptly appoint a successor Relevant Trustee,  and such successor Trustee
shall comply with the applicable  requirements  of this Section 4.5. If an Event
of Default shall have occurred and be continuing,  the Institutional  Trustee or
the Delaware Trustee,  or both of them, may be removed by the act of the Holders
of a Majority in liquidation amount of the Capital Securities,  delivered to the
Relevant Trustee (in its individual capacity and on behalf of the Trust). If any
Trustee shall be so removed,  the Holders of Capital  Securities,  by act of the
Holders of a Majority  in  liquidation  amount of the  Capital  Securities  then
outstanding  delivered  to  the  Relevant  Trustee,  shall  promptly  appoint  a
successor Relevant Trustee or Trustees,  and such successor Trustee shall comply
with the applicable  requirements of this Section 4.5. If no successor  Relevant
Trustee shall have been so appointed by the Holders of a Majority in liquidation
amount of the Capital Securities and accepted appointment in the manner required
by this Section 4.5 within 30 days after  delivery of an  instrument of removal,
the Relevant  Trustee or any Holder who has been a Holder of the  Securities for
at least six months may, on behalf of himself and all others similarly situated,
petition  any  federal,  state  or  District  of  Columbia  court  of  competent
jurisdiction for the appointment of a successor Relevant Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper, appoint
a successor Relevant Trustee or Trustees.

     (d) The  Institutional  Trustee shall give notice of each  resignation  and
each  removal of a Trustee and each  appointment  of a successor  Trustee to all
Holders and to the Sponsor.  Each notice shall include the name of the successor
Relevant  Trustee and the  address of its  Corporate  Trust  Office if it is the
Institutional Trustee.

     (e)   Notwithstanding   the  foregoing  or  any  other  provision  of  this
Declaration,  in the event a Delaware Trustee who is a natural person dies or is
adjudged by a court to have become  incompetent  or  incapacitated,  the vacancy
created  by  such  death,  incompetence  or  incapacity  may  be  filled  by the
Institutional  Trustee  following  the  procedures in this Section 4.5 (with the
successor  being a  Person  who  satisfies  the  eligibility  requirement  for a
Delaware  Trustee  set  forth  in this  Declaration)  (the  "Successor  Delaware
Trustee").

     (f) In case of the appointment  hereunder of a successor  Relevant Trustee,
the retiring  Relevant Trustee and each successor  Relevant Trustee with respect
to the  Securities  shall execute and deliver an amendment  hereto  wherein each
successor  Relevant  Trustee shall accept such  appointment  and which (a) shall
contain  such  provisions  as shall be  necessary  or  desirable to transfer and
confirm  to, and to vest in,  each  successor  Relevant  Trustee all the rights,
powers,  trusts and duties of the retiring  Relevant Trustee with respect to the
Securities and the Trust and (b) shall add to or change any of the provisions of
this  Declaration  as  shall be  necessary  to  provide  for or  facilitate  the
administration  of the  Trust  by more  than  one  Relevant  Trustee,  it  being
understood  that  nothing  herein or in such  amendment  shall  constitute  such
Relevant  Trustees  co-trustees  and upon the  execution  and  delivery  of such
amendment  the  resignation  or removal of the retiring  Relevant  Trustee shall
become effective to the extent provided therein and each such successor Relevant
Trustee,  without any further act, deed or conveyance,  shall become vested with
all the rights, powers, trusts and duties of the retiring Relevant Trustee; but,
on  request  of the  Trust or any  successor  Relevant  Trustee,  such  retiring
Relevant  Trustee  shall duly  assign,  transfer  and deliver to such  successor
Relevant Trustee all Trust Property, all proceeds thereof and money held by such
retiring Relevant Trustee hereunder with respect to the Securities and the Trust
subject to the payment of all unpaid  fees,  expenses  and  indemnities  of such
retiring Relevant Trustee.

                                       22
<PAGE>


     (g) No  Institutional  Trustee or Delaware  Trustee shall be liable for the
acts or omissions  to act of any  Successor  Institutional  Trustee or Successor
Delaware Trustee, as the case may be.

     (h) The  Holders of the  Capital  Securities  will have no right to vote to
appoint,  remove or replace the  Administrators,  which voting rights are vested
exclusively in the Holders of the Common Securities.

     (i)  Any  successor  Delaware  Trustee  shall  file  an  amendment  to  the
Certificate  of Trust  with the  Secretary  of  State of the  State of  Delaware
identifying the name and principal place of business of such Delaware Trustee in
the State of Delaware.

     Section 4.6.  Vacancies Among Trustees.  If a Trustee ceases to hold office
for any reason and the number of  Trustees  is not  reduced  pursuant to Section
4.1, a vacancy  shall  occur.  A  resolution  certifying  the  existence of such
vacancy  by the  Trustees  or, if there are more than  two,  a  majority  of the
Trustees,  shall be conclusive  evidence of the  existence of such vacancy.  The
vacancy shall be filled with a Trustee appointed in accordance with Section 4.5.

     Section  4.7.  Effect of  Vacancies.  The death,  resignation,  retirement,
removal,  bankruptcy,  dissolution,  liquidation,  incompetence or incapacity to
perform the duties of a Trustee  shall not  operate to  dissolve,  terminate  or
annul the Trust or terminate this Declaration.  Whenever a vacancy in the number
of Trustees  shall occur,  until such vacancy is filled by the  appointment of a
Trustee in accordance with Section 4.5, the Institutional Trustee shall have all
the powers  granted to the Trustees and shall  discharge all the duties  imposed
upon the Trustees by this Declaration.

     Section 4.8. Meetings of the Trustees and the  Administrators.  Meetings of
the  Administrators  shall  be  held  from  time  to time  upon  the  call of an
Administrator.  Regular meetings of the  Administrators may be held in person in
the United States or by telephone,  at a place (if applicable) and time fixed by
resolution  of the  Administrators.  Notice  of any  in-person  meetings  of the
Trustees with the Administrators or meetings of the Administrators shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 48 hours before such meeting. Notice of
any telephonic  meetings of the Trustees with the  Administrators or meetings of
the Administrators or any committee thereof shall be hand delivered or otherwise
delivered  in writing  (including  by  facsimile,  with a hard copy by overnight
courier) not less than 24 hours before a meeting.  Notices shall contain a brief
statement  of the time,  place and  anticipated  purposes  of the  meeting.  The
presence  (whether in person or by telephone) of a Trustee or an  Administrator,
as the case may be, at a  meeting  shall  constitute  a waiver of notice of such
meeting  except  where  the  Trustee  or an  Administrator,  as the case may be,
attends a meeting for the express purpose of objecting to the transaction of any
activity  on the  grounds  that the  meeting  has not been  lawfully  called  or
convened.  Unless  provided  otherwise  in this  Declaration,  any action of the
Trustees or the Administrators, as the case may be, may be taken at a meeting by
vote of a majority of the  Trustees or the  Administrators  present  (whether in
person or by  telephone)  and  eligible  to vote with  respect  to such  matter,
provided that a Quorum is present, or without a meeting by the unanimous written
consent of the Trustees or the Administrators.  Meetings of the Trustees and the
Administrators  together  shall be held  from  time to time upon the call of any
Trustee or an Administrator.

                                       23
<PAGE>


     Section 4.9. Delegation of Power.
                  --------------------

     (a) Any Administrator may, by power of attorney  consistent with applicable
law,  delegate  to any other  natural  person  over the age of 21 that is a U.S.
Person his or her power for the purpose of executing any documents  contemplated
in Section 2.6; and

     (b) the  Administrators  shall have power to delegate  from time to time to
such of  their  number  the  doing  of such  things  and the  execution  of such
instruments  either in the name of the Trust or the names of the  Administrators
or  otherwise  as the  Administrators  may deem  expedient,  to the extent  such
delegation is not  prohibited by applicable law or contrary to the provisions of
the Trust, as set forth herein.

     Section 4.10.  Conversion,  Consolidation  or  Succession to Business.  Any
Person  into which the  Institutional  Trustee or the  Delaware  Trustee  may be
merged  or  converted  or  with  which  it may be  consolidated,  or any  Person
resulting   from  any  merger,   conversion  or   consolidation   to  which  the
Institutional  Trustee or the Delaware  Trustee shall be a party,  or any Person
succeeding  to all or  substantially  all the  corporate  trust  business of the
Institutional  Trustee or the  Delaware  Trustee  shall be the  successor of the
Institutional  Trustee or the Delaware Trustee  hereunder,  provided such Person
shall be  otherwise  qualified  and eligible  under this Article and,  provided,
further,  that such Person shall file an amendment to the  Certificate  of Trust
with the Secretary of State of the State of Delaware as  contemplated in Section
4.5(i).

                                   ARTICLE V.

                                  DISTRIBUTIONS
                                  -------------

     Section  5.1.   Distributions.   Holders  shall  receive  Distributions  in
accordance  with the  applicable  terms  of the  relevant  Holder's  Securities.
Distributions  shall be made on the Capital Securities and the Common Securities
in accordance with the preferences set forth in their  respective  terms. If and
to the extent  that the  Debenture  Issuer  makes a payment of  Interest  or any
principal on the Debentures held by the Institutional Trustee, the Institutional
Trustee  shall and is  directed,  to the  extent  funds are  available  for that
purpose, to make a distribution (a "Distribution") of such amounts to Holders.

                                   ARTICLE VI.

                             ISSUANCE OF SECURITIES
                             ----------------------

     Section 6.1. General Provisions Regarding Securities.
                  ----------------------------------------

     (a) The  Administrators  shall, on behalf of the Trust, issue one series of
capital  securities  substantially  in the  form  of  Exhibit  A-1  representing
undivided  beneficial  interests in the assets of the Trust having such terms as
are set  forth in  Annex I and one  series  of  common  securities  representing
undivided  beneficial  interests in the assets of the Trust having such terms as
are set forth in Annex I. The Trust shall issue no securities or other interests
in the assets of the Trust  other  than the  Capital  Securities  and the Common
Securities. The Capital Securities rank pari passu to, and payment thereon shall
be made Pro Rata with,  the Common  Securities  except  that,  where an Event of
Default  has  occurred  and is  continuing,  the rights of Holders of the Common
Securities to payment in respect of Distributions and payments upon liquidation,
redemption  and  otherwise  are  subordinated  to the  rights to  payment of the
Holders of the Capital Securities as set forth in Annex I.

                                       24
<PAGE>


     (b) The Certificates  shall be signed on behalf of the Trust by one or more
Administrators. Such signature shall be the facsimile or manual signature of any
Administrator.  In case any Administrator of the Trust who shall have signed any
of the Securities shall cease to be such  Administrator  before the Certificates
so signed shall be delivered by the Trust, such Certificates nevertheless may be
delivered as though the person who signed such Certificates had not ceased to be
such Administrator,  and any Certificate may be signed on behalf of the Trust by
such persons who, at the actual date of execution of such Security,  shall be an
Administrator  of the Trust,  although at the date of the execution and delivery
of the  Declaration  any such  person was not such an  Administrator.  A Capital
Security  shall not be valid  until  authenticated  by the  facsimile  or manual
signature of an Authorized Officer of the Institutional  Trustee. Such signature
shall be conclusive  evidence that the Capital  Security has been  authenticated
under  this  Declaration.  Upon  written  order  of  the  Trust  signed  by  one
Administrator,   the  Institutional   Trustee  shall  authenticate  the  Capital
Securities  for  original  issue.  The  Institutional  Trustee  may  appoint  an
authenticating  agent  that  is  a  U.S.  Person  acceptable  to  the  Trust  to
authenticate  the  Capital  Securities.   A  Common  Security  need  not  be  so
authenticated.

     (c) The Capital  Securities  issued to QIBs shall be, except as provided in
Section 6.4,  Book-Entry  Capital  Securities  issued in the form of one or more
Global  Capital  Securities  registered  in the  name of the  Depositary  or its
nominee and deposited  with the Depositary or a custodian for the Depositary for
credit  by  the  Depositary  to  the  respective   accounts  of  the  Depositary
Participants  thereof (or such other  accounts as they may direct).  The Capital
Securities  issued to a Person other than a QIB shall be issued in the form of a
Definitive Capital Securities Certificate.

     (d)  The  consideration  received  by the  Trust  for the  issuance  of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.

     (e) Upon issuance of the  Securities as provided in this  Declaration,  the
Securities  so issued  shall be deemed to be  validly  issued,  fully  paid and,
except as provided  in Section  9.1(b)  with  respect to the Common  Securities,
non-assessable.

     (f) Every Person,  by virtue of having  become a Holder in accordance  with
the terms of this  Declaration,  shall be deemed to have expressly  assented and
agreed  to the  terms  of,  and  shall be bound  by,  this  Declaration  and the
Guarantee.

     Section 6.2.  Paying Agent,  Transfer Agent and Registrar.  The Trust shall
maintain  in  Wilmington,  Delaware,  an  office or  agency  where  the  Capital
Securities  may be  presented  for payment  ("Paying  Agent"),  and an office or
agency  where  Securities  may be  presented  for  registration  of  transfer or
exchange  (the  "Transfer  Agent").  The Trust shall keep or cause to be kept at
such  office or agency a register  for the  purpose of  registering  Securities,
transfers and exchanges of  Securities,  such register to be held by a registrar
(the  "Registrar").  The  Administrators  may  appoint  the  Paying  Agent,  the
Registrar and the Transfer Agent and may appoint one or more  additional  Paying
Agents or one or more  co-Registrars,  or one or more co-Transfer Agents in such
other  locations as it shall  determine.  The term "Paying  Agent"  includes any
additional paying agent, the term "Registrar"  includes any additional registrar
or co-Registrar and the term "Transfer  Agent" includes any additional  transfer
agent.  The  Administrators  may  change  any Paying  Agent,  Transfer  Agent or
Registrar at any time without  prior  notice to any Holder.  The  Administrators
shall  notify the  Institutional  Trustee of the name and  address of any Paying
Agent,  Transfer  Agent  and  Registrar  not a party  to this  Declaration.  The
Administrators  hereby  initially  appoint the  Institutional  Trustee to act as
Paying Agent,  Transfer  Agent and Registrar for the Capital  Securities and the
Common  Securities.  The  Institutional  Trustee or any of its Affiliates in the
United States may act as Paying Agent, Transfer Agent or Registrar.

     Section 6.3. Form and Dating.  The Capital Securities and the Institutional
Trustee's  certificate of  authentication  thereon shall be substantially in the
form of Exhibit A-1, and the Common  Securities  shall be  substantially  in the
form of Exhibit A-2, each of which is hereby  incorporated in and expressly made
a part of this Declaration.  Certificates may be typed, printed, lithographed or
engraved or may be produced in any other manner as is  reasonably  acceptable to
the Administrators,  as conclusively  evidenced by their execution thereof.  The
Securities may have letters, numbers, notations or other marks of identification
or designation and such legends or endorsements  required by law, stock exchange
rule,  agreements to which the Trust is subject if any, or usage  (provided that
any  such  notation,  legend  or  endorsement  is in a  form  acceptable  to the
Sponsor).  The Trust at the  direction  of the  Sponsor  shall  furnish any such
legend not  contained  in Exhibit A-1 to the  Institutional  Trustee in writing.
Each   Capital   Security   shall  be  dated  on  or  before  the  date  of  its
authentication.  The terms and provisions of the Securities set forth in Annex I
and the forms of  Securities  set forth in Exhibits  A-1 and A-2 are part of the
terms  of this  Declaration  and to the  extent  applicable,  the  Institutional
Trustee,  the Delaware Trustee,  the  Administrators  and the Sponsor,  by their
execution and delivery of this  Declaration,  expressly  agree to such terms and
provisions and to be bound thereby.  Capital  Securities  will be issued only in
blocks having a stated  liquidation  amount of not less than $100,000.00 and any
multiple of $1,000.00 in excess thereof.

                                       25
<PAGE>


     The Capital  Securities are being offered and sold by the Trust pursuant to
the Placement Agreement in definitive,  registered form without coupons and with
the Restricted Securities Legend.

     Section 6.4. Book-Entry Capital Securities.
                  ------------------------------

     (a) A Global  Capital  Security may be exchanged,  in whole or in part, for
Definitive  Capital  Securities  Certificates  registered in the names of Owners
only if such exchange complies with Article VIII and (i) the Depositary  advises
the Administrators and the Institutional  Trustee in writing that the Depositary
is no longer  willing or able to properly  discharge its  responsibilities  with
respect to the Global Capital Security,  and no qualified successor is appointed
by the  Administrators  within ninety (90) days of receipt of such notice,  (ii)
the Depositary  ceases to be a clearing agency registered under the Exchange Act
and the Administrators  fail to appoint a qualified successor within ninety (90)
days of obtaining  knowledge of such event,  (iii) the  Administrators  at their
option  advise the  Institutional  Trustee in writing  that the Trust  elects to
terminate the  book-entry  system through the  Depositary,  or (iv) an Indenture
Event of Default has  occurred and is  continuing.  Upon the  occurrence  of any
event  specified in clause (i), (ii),  (iii) or (iv) above,  the  Administrators
shall notify the  Depositary and instruct the Depositary to notify all Owners of
Book-Entry Capital Securities and the Institutional Trustee of the occurrence of
such event and of the availability of Definitive Capital Securities Certificates
to Owners of the Capital  Securities  requesting the same.  Upon the issuance of
Definitive   Capital  Securities   Certificates,   the  Administrators  and  the
Institutional  Trustee  shall  recognize the Holders of the  Definitive  Capital
Securities  Certificates as Holders.  Notwithstanding the foregoing, if an Owner
of a  beneficial  interest in a Global  Capital  Security  wishes at any time to
transfer an interest in such Global  Capital  Security to a Person  other than a
QIB,  such  transfer  shall be effected,  subject to the  Applicable  Depositary
Procedures,  in accordance  with the  provisions of this Section 6.4 and Article
VIII,  and  the  transferee  shall  receive  a  Definitive   Capital  Securities
Certificate in connection with such transfer.  A holder of a Definitive  Capital
Securities  Certificate  that is a QIB may upon request,  and in accordance with
the  provisions of this Section 6.4 and Article VIII,  exchange such  Definitive
Capital  Securities  Certificate  for a beneficial  interest in a Global Capital
Security.

     (b) If any  Global  Capital  Security  is to be  exchanged  for  Definitive
Capital  Securities  Certificates  or  canceled  in part,  or if any  Definitive
Capital  Securities  Certificate  is to be exchanged in whole or in part for any
Global Capital  Security,  then either (i) such Global Capital Security shall be
so surrendered  for exchange or cancellation as provided in this Section 6.4 and
Article VIII or (ii) the aggregate liquidation amount represented by such Global
Capital  Security  shall be reduced,  subject to Section 6.3, or increased by an
amount equal to the liquidation amount represented by that portion of the Global
Capital  Security to be so exchanged or  canceled,  or equal to the  liquidation
amount represented by such Definitive  Capital Securities  Certificates to be so
exchanged for any Global  Capital  Security,  as the case may be, by means of an
appropriate  adjustment  made on the  records of the  Registrar,  whereupon  the
Institutional  Trustee, in accordance with the Applicable Depositary Procedures,
shall  instruct  the  Depositary  or its  authorized  representative  to  make a
corresponding  adjustment  to  its  records.  Upon  any  such  surrender  to the
Administrators  or the Registrar of any Global Capital Security or Securities by
the Depositary, accompanied by registration instructions, the Administrators, or
any one of them, shall execute the Definitive Capital Securities Certificates in
accordance  with the  instructions  of the  Depositary.  None of the  Registrar,
Administrators,  or the  Institutional  Trustee shall be liable for any delay in
delivery of such  instructions and may conclusively  rely on, and shall be fully
protected in relying on, such instructions.

                                       26
<PAGE>


     (c) Every Definitive Capital Securities  Certificate executed and delivered
upon  registration  or transfer  of, or in exchange  for or in lieu of, a Global
Capital  Security or any portion  thereof shall be executed and delivered in the
form of, and shall be, a Global Capital Security, unless such Definitive Capital
Securities  Certificate  is  registered  in the name of a Person  other than the
Depositary for such Global Capital Security or a nominee thereof.

     (d) The Depositary or its nominee,  as registered owner of a Global Capital
Security,  shall be the Holder of such Global Capital  Security for all purposes
under this Declaration and the Global Capital Security,  and Owners with respect
to a  Global  Capital  Security  shall  hold  such  interests  pursuant  to  the
Applicable  Depositary  Procedures.  The Registrar,  the  Administrators and the
Institutional  Trustee  shall be  entitled to deal with the  Depositary  for all
purposes  of  this  Declaration   relating  to  the  Global  Capital  Securities
(including the payment of the  liquidation  amount of and  Distributions  on the
Book-Entry Capital Securities represented thereby and the giving of instructions
or directions by Owners of Book-Entry Capital Securities represented thereby and
the giving of notices) as the sole Holder of the Book-Entry  Capital  Securities
represented thereby and shall have no obligations to the Owners thereof. None of
the Administrators,  the Institutional  Trustee nor the Registrar shall have any
liability in respect of any transfers effected by the Depositary.

     (e) The rights of the Owners of the Book-Entry  Capital Securities shall be
exercised only through the Depositary and shall be limited to those  established
by law, the Applicable  Depositary Procedures and agreements between such Owners
and the Depositary and/or the Depositary Participants; provided, however, solely
for the purpose of  determining  whether the Holders of the requisite  amount of
Capital Securities have voted on any matter provided for in this Declaration, to
the extent that Capital Securities are represented by a Global Capital Security,
the Administrators  and the Institutional  Trustee may conclusively rely on, and
shall be fully  protected  in relying on, any written  instrument  (including  a
proxy) delivered to the  Institutional  Trustee by the Depositary  setting forth
the  Owners'  votes or  assigning  the right to vote on any  matter to any other
Persons  either in whole or in part. To the extent that Capital  Securities  are
represented  by a Global  Capital  Security,  the initial  Depositary  will make
book-entry transfers among the Depositary  Participants and receive and transmit
payments on the Capital  Securities  that are  represented  by a Global  Capital
Security  to  such  Depositary  Participants,  and  none  of  the  Sponsor,  the
Administrators  or the  Institutional  Trustee shall have any  responsibility or
obligation with respect thereto.

     (f) To the extent  that a notice or other  communication  to the Holders is
required  under  this  Declaration,  for  so  long  as  Capital  Securities  are
represented  by  a  Global  Capital   Security,   the   Administrator   and  the
Institutional  Trustee  shall give all such  notices and  communications  to the
Depositary, and shall have no obligations to the Owners.

     Section 6.5. Mutilated, Destroyed, Lost or Stolen Certificates.
                  --------------------------------------------------

                                       27
<PAGE>


     If:

     (a) any mutilated  Certificates should be surrendered to the Registrar,  or
if the Registrar shall receive  evidence to its satisfaction of the destruction,
loss or theft of any Certificate; and

     (b) there shall be delivered to the Registrar,  the  Administrators and the
Institutional  Trustee such  security or indemnity as may be required by them to
keep each of them harmless;

then, in the absence of notice that such Certificate shall have been acquired by
a protected  purchaser,  an  Administrator  on behalf of the Trust shall execute
(and in the case of a Capital Security  Certificate,  the Institutional  Trustee
shall  authenticate)  and  deliver,  in  exchange  for or in  lieu  of any  such
mutilated,  destroyed,  lost or stolen  Certificate,  a new  Certificate of like
denomination.  In connection with the issuance of any new Certificate under this
Section 6.5, the  Registrar or the  Administrators  may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection  therewith.  Any  duplicate  Certificate  issued  pursuant to this
Section shall  constitute  conclusive  evidence of an ownership  interest in the
relevant Securities, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.

     Section 6.6. Temporary  Securities.  Until definitive  Securities are ready
for  delivery,  the  Administrators  may prepare and, in the case of the Capital
Securities, the Institutional Trustee shall authenticate,  temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may  have  variations  that  the  Administrators  consider  appropriate  for
temporary  Securities.  Without  unreasonable  delay, the  Administrators  shall
prepare and, in the case of the Capital  Securities,  the Institutional  Trustee
shall authenticate, definitive Securities in exchange for temporary Securities.

     Section  6.7.  Cancellation.  The  Administrators  at any time may  deliver
Securities to the Institutional  Trustee for  cancellation.  The Registrar shall
forward  to the  Institutional  Trustee  any  Securities  surrendered  to it for
registration of transfer, redemption or payment. The Institutional Trustee shall
promptly  cancel  all  Securities  surrendered  for  registration  of  transfer,
payment,  replacement  or  cancellation  and  shall  dispose  of  such  canceled
Securities as the  Administrators  direct.  The Administrators may not issue new
Securities to replace Securities that have been paid or that have been delivered
to the Institutional Trustee for cancellation.

     Section 6.8.  CUSIP  Numbers.  The Trust in issuing the  Securities may use
"CUSIP"  numbers  (if then  generally  in use),  and,  if so, the  Institutional
Trustee shall use CUSIP  numbers in notice of  redemption  as a  convenience  to
Holders;   provided,   however,   that  any  such   notice  may  state  that  no
representation  is made as to the  correctness of such numbers either as printed
on the  Securities  or as  contained  in  any  notice  of  redemption  and  that
identification  numbers printed on the Securities and any such redemption  shall
not be affected by any defect in or  omission of such  numbers.  The Trust shall
promptly notify the Institutional  Trustee in writing of any change in the CUSIP
numbers.

     Section 6.9. Rights of Holders; Waivers of Past Defaults.

     (a) The legal  title to the Trust  Property  is vested  exclusively  in the
Institutional  Trustee (in its capacity as such) in accordance with Section 2.5,
and the  Holders  shall  not have any  right or  title  therein  other  than the
undivided  beneficial  interest  in the assets of the Trust  conferred  by their
Securities and they shall have no right to call for any partition or division of
property,  profits  or rights  of the  Trust  except  as  described  below.  The
Securities  shall be personal  property giving only the rights  specifically set
forth therein and in this  Declaration.  The Securities shall have no preemptive
or similar rights.

     (b) For so long as any Capital  Securities remain  outstanding,  if upon an
Acceleration Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding  Debentures fail to declare
the principal of all of the  Debentures to be immediately  due and payable,  the
Holders of a Majority  in  liquidation  amount of the  Capital  Securities  then
outstanding shall have the right to make such declaration by a notice in writing
to the Institutional Trustee, the Sponsor and the Debenture Trustee.

                                       28
<PAGE>


     At any  time  after a  declaration  of  acceleration  with  respect  to the
Debentures  has been made and  before a judgment  or decree  for  payment of the
money  due has  been  obtained  by the  Debenture  Trustee  as  provided  in the
Indenture, if the Institutional Trustee, subject to the provisions hereof, fails
to annul any such declaration and waive such default,  the Holders of a Majority
in  liquidation  amount of the  Capital  Securities,  by  written  notice to the
Institutional  Trustee,  the Sponsor and the Debenture Trustee,  may rescind and
annul such declaration and its consequences if:

     (1) the Debenture Issuer has paid or deposited with the Debenture Trustee a
sum sufficient to pay

          (A) all overdue installments of interest on all of the Debentures,

          (B) any accrued Additional Interest on all of the Debentures,

          (C) the principal of (and  premium,  if any, on) any  Debentures  that
     have become due otherwise  than by such  declaration  of  acceleration  and
     interest  and  Additional  Interest  thereon  at  the  rate  borne  by  the
     Debentures, and

          (D) all sums  paid or  advanced  by the  Debenture  Trustee  under the
     Indenture and the  reasonable  compensation,  expenses,  disbursements  and
     advances of the  Debenture  Trustee and the  Institutional  Trustee,  their
     agents and counsel; and

     (2) all Events of Default  with respect to the  Debentures,  other than the
non-payment  of the  principal of the  Debentures  that has become due solely by
such  acceleration,  have been cured or waived as provided in Section 5.7 of the
Indenture.

     The  Holders of at least a Majority  in  liquidation  amount of the Capital
Securities  may, on behalf of the Holders of all the Capital  Securities,  waive
any past default under the Indenture or any Indenture Event of Default, except a
default or Indenture Event of Default in the payment of principal or interest on
the Debentures (unless such default or Indenture Event of Default has been cured
and a sum sufficient to pay all matured  installments  of interest and principal
due  otherwise  than by  acceleration  has been  deposited  with  the  Debenture
Trustee) or a default  under the  Indenture or an Indenture  Event of Default in
respect of a covenant or provision  that under the Indenture  cannot be modified
or amended without the consent of the holder of each outstanding  Debenture.  No
such  rescission  shall  affect  any  subsequent  default  or  impair  any right
consequent thereon.

     Upon receipt by the Institutional  Trustee of written notice declaring such
an acceleration,  or rescission and annulment thereof, by Holders of any part of
the Capital  Securities,  a record  date shall be  established  for  determining
Holders of outstanding Capital Securities entitled to join in such notice, which
record  date  shall be at the  close of  business  on the day the  Institutional
Trustee  receives  such notice.  The Holders on such record date,  or their duly
designated  proxies,  and only such  Persons,  shall be entitled to join in such
notice,  whether or not such  Holders  remain  Holders  after such record  date;
provided,  that unless such  declaration  of  acceleration,  or  rescission  and
annulment,  as the case may be,  shall have  become  effective  by virtue of the
requisite  percentage  having  joined in such notice prior to the day that is 90
days after such record date,  such notice of  declaration  of  acceleration,  or
rescission and annulment,  as the case may be, shall  automatically  and without
further  action by any Holder be canceled and of no further  effect.  Nothing in
this  paragraph  shall  prevent a Holder,  or a proxy of a Holder,  from giving,
after  expiration of such 90-day period,  a new written notice of declaration of
acceleration,  or rescission and annulment thereof,  as the case may be, that is
identical to a written notice that has been canceled  pursuant to the proviso to
the preceding  sentence,  in which event a new record date shall be  established
pursuant to the provisions of this Section 6.8.

                                       29
<PAGE>


     (c) Except as otherwise  provided in paragraphs (a) and (b) of this Section
6.8,  the  Holders of at least a Majority in  liquidation  amount of the Capital
Securities  may, on behalf of the Holders of all the Capital  Securities,  waive
any past default or Event of Default and its consequences. Upon such waiver, any
such default or Event of Default shall cease to exist,  and any default or Event
of  Default  arising  therefrom  shall be deemed to have been  cured,  for every
purpose of this  Declaration,  but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right consequent thereon.

                                  ARTICLE VII.

                      DISSOLUTION AND TERMINATION OF TRUST
                      ------------------------------------

     Section 7.1. Dissolution and Termination of Trust.
                  -------------------------------------

     (a) The Trust shall dissolve on the first to occur of:

          (1) unless earlier dissolved,  on June 15, 2041, the expiration of the
     term of the Trust;

          (2) upon a Bankruptcy Event with respect to the Sponsor,  the Trust or
     the Debenture Issuer;

          (3) upon the filing of a certificate  of dissolution or its equivalent
     with  respect  to the  Sponsor  (other  than in  connection  with a merger,
     consolidation or similar transaction not prohibited by the Indenture,  this
     Declaration or the Guarantee, as the case may be) or upon the revocation of
     the charter of the Sponsor and the  expiration of 90 days after the date of
     revocation without a reinstatement thereof;

          (4) upon the  distribution  of the  Debentures  to the  Holders of the
     Securities,  upon  exercise  of  the  right  of  the  Holder  of all of the
     outstanding  Common Securities to dissolve the Trust as provided in Annex I
     hereto;

          (5) upon the entry of a decree of judicial  dissolution  of the Holder
     of the Common Securities, the Sponsor, the Trust or the Debenture Issuer;

          (6) when all of the  Securities  shall have been called for redemption
     and the amounts  necessary for  redemption  thereof shall have been paid to
     the Holders in accordance with the terms of the Securities; or

          (7) before the issuance of any Securities,  with the consent of all of
     the Trustees and the Sponsor.

     (b) As soon as is practicable  after the occurrence of an event referred to
in Section  7.1(a),  and after  satisfaction  of liabilities to creditors of the
Trust as required by applicable  law,  including of the Statutory Trust Act, and
subject  to the  terms  set forth in Annex I, the  Institutional  Trustee  shall
terminate the Trust by filing a certificate of  cancellation  with the Secretary
of State of the State of Delaware.

                                       30
<PAGE>


     (c) The  provisions  of  Section  2.9 and  Article  IX  shall  survive  the
termination of the Trust.

                                  ARTICLE VIII.

                              TRANSFER OF INTERESTS
                              ---------------------

     Section 8.1. General.

     (a) Subject to Section  8.1(c),  where Capital  Securities are presented to
the  Registrar  or a  co-registrar  with a request to  register a transfer or to
exchange them for an equal number of Capital Securities represented by different
certificates,  the Registrar shall register the transfer or make the exchange if
its  requirements  for such  transactions  are met. To permit  registrations  of
transfer  and  exchanges,  the Trust shall issue and the  Institutional  Trustee
shall authenticate Capital Securities at the Registrar's request.

     (b) Upon issuance of the Common  Securities,  the Sponsor shall acquire and
retain  beneficial and record ownership of the Common Securities and for so long
as the Securities  remain  outstanding,  and to the fullest extent  permitted by
applicable  law,  the  Sponsor  shall  maintain  100%  ownership  of the  Common
Securities;  provided,  however, that any permitted successor of the Sponsor, in
its capacity as Debenture Issuer,  under the Indenture that is a U.S. Person may
succeed to the Sponsor's ownership of the Common Securities.

     (c) Capital  Securities  may only be  transferred,  in whole or in part, in
accordance  with the terms and conditions set forth in this  Declaration  and in
the terms of the Securities.  To the fullest extent permitted by applicable law,
any transfer or purported  transfer of any Security not made in accordance  with
this  Declaration  shall be null and void and will be  deemed  to be of no legal
effect  whatsoever and any such transferee  shall be deemed not to be the holder
of such Capital  Securities  for any purpose,  including  but not limited to the
receipt of Distributions on such Capital  Securities,  and such transferee shall
be deemed to have no interest whatsoever in such Capital Securities.

     (d) The Registrar  shall provide for the  registration of Securities and of
transfers of  Securities,  which will be effected  without  charge but only upon
payment (with such indemnity as the Registrar may require) in respect of any tax
or other  governmental  charges  that may be imposed  in  relation  to it.  Upon
surrender for  registration of transfer of any  Securities,  the Registrar shall
cause one or more new  Securities  of the same tenor to be issued in the name of
the  designated  transferee  or  transferees.  Every  Security  surrendered  for
registration  of  transfer  shall be  accompanied  by a  written  instrument  of
transfer in form  satisfactory  to the Registrar  duly executed by the Holder or
such Holder's attorney duly authorized in writing. Each Security surrendered for
registration of transfer shall be canceled by the Institutional Trustee pursuant
to Section 6.7. A transferee  of a Security  shall be entitled to the rights and
subject  to the  obligations  of a Holder  hereunder  upon the  receipt  by such
transferee of a Security. By acceptance of a Security,  each transferee shall be
deemed to have agreed to be bound by this Declaration.

     (e) The Trust shall not be required (i) to issue, register the transfer of,
or exchange any Securities  during a period beginning at the opening of business
fifteen days before the day of any selection of Securities  for  redemption  and
ending at the  close of  business  on the  earliest  date on which the  relevant
notice  of  redemption  is  deemed  to have  been  given to all  Holders  of the
Securities  to be redeemed,  or (ii) to register the transfer or exchange of any
Security so selected for  redemption in whole or in part,  except the unredeemed
portion of any Security being redeemed in part.

                                       31
<PAGE>


     Section 8.2. Transfer Procedures and Restrictions.
                  -------------------------------------

     (a) The Capital  Securities  shall bear the Restricted  Securities  Legend,
which  shall  not be  removed  unless  there  is  delivered  to the  Trust  such
satisfactory  evidence,  which may include an opinion of counsel satisfactory to
the  Institutional  Trustee,  as may be reasonably  required by the Trust,  that
neither  the legend nor the  restrictions  on  transfer  set forth  therein  are
required to ensure that  transfers  thereof  comply with the  provisions  of the
Securities Act. Upon provision of such satisfactory  evidence, the Institutional
Trustee,  at the written direction of the Trust,  shall authenticate and deliver
Capital Securities that do not bear the legend.

     (b) Except as permitted by Section 8.2(a), each Capital Security shall bear
a legend (the "Restricted  Securities  Legend") in  substantially  the following
form and a Capital  Security shall not be transferred  except in compliance with
such legend,  unless  otherwise  determined  by the Sponsor,  upon the advice of
counsel expert in securities law, in accordance with applicable law:

          [If the  Capital  Security  is to be  Global  Capital  Security-  THIS
     CAPITAL SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE DECLARATION
     HEREINAFTER  REFERRED TO AND IS  REGISTERED  IN THE NAME OF THE  DEPOSITORY
     TRUST  COMPANY  ("DTC")  OR A NOMINEE  OF DTC.  THIS  CAPITAL  SECURITY  IS
     EXCHANGEABLE  FOR  CAPITAL  SECURITIES  REGISTERED  IN THE NAME OF A PERSON
     OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED  CIRCUMSTANCES  DESCRIBED
     IN THE DECLARATION,  AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A
     TRANSFER OF THIS CAPITAL  SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR
     BY A NOMINEE  OF DTC TO DTC OR ANOTHER  NOMINEE  OF DTC) MAY BE  REGISTERED
     EXCEPT IN LIMITED CIRCUMSTANCES.

          UNLESS  THIS  CAPITAL   SECURITY  IS   PRESENTED   BY  AN   AUTHORIZED
     REPRESENTATIVE  OF DTC TO FOUR  OAKS  STATUTORY  TRUST I OR ITS  AGENT  FOR
     REGISTRATION  OF TRANSFER,  EXCHANGE OR PAYMENT,  AND ANY CAPITAL  SECURITY
     ISSUED IS  REGISTERED  IN THE NAME OF CEDE & CO. OR IN SUCH  OTHER  NAME AS
     REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS
     MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
     REPRESENTATIVE OF DTC), ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE
     OR  OTHERWISE  BY OR TO ANY PERSON IS WRONGFUL  INASMUCH AS THE  REGISTERED
     OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

          THIS  SECURITY HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF
     1933, AS AMENDED (THE  "SECURITIES  ACT"), ANY STATE SECURITIES LAWS OR ANY
     OTHER APPLICABLE  SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
     PARTICIPATION  HEREIN  MAY  BE  REOFFERED,  SOLD,  ASSIGNED,   TRANSFERRED,
     PLEDGED,  ENCUMBERED  OR  OTHERWISE  DISPOSED  OF IN THE  ABSENCE  OF  SUCH
     REGISTRATION OR UNLESS SUCH  TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
     THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT AND ANY APPLICABLE
     STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
     AGREES TO OFFER,  SELL OR OTHERWISE  TRANSFER THIS SECURITY ONLY (A) TO THE
     SPONSOR OR THE TRUST,  (B) PURSUANT TO A  REGISTRATION  STATEMENT  THAT HAS
     BEEN DECLARED  EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE
     SELLER  REASONABLY  BELIEVES  IS  A  QUALIFIED  INSTITUTIONAL  BUYER  IN  A
     TRANSACTION  MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY
     IS ELIGIBLE FOR RESALE  PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A,
     (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE
     903 OR RULE 904 (AS  APPLICABLE) OF REGULATION S UNDER THE SECURITIES  ACT,
     (E)  TO AN  INSTITUTIONAL  "ACCREDITED  INVESTOR"  WITHIN  THE  MEANING  OF
     SUBPARAGRAPH  (A) OF RULE 501 UNDER THE  SECURITIES  ACT THAT IS  ACQUIRING
     THIS CAPITAL  SECURITY  FOR ITS OWN ACCOUNT,  OR FOR THE ACCOUNT OF SUCH AN
     INSTITUTIONAL  ACCREDITED INVESTOR,  FOR INVESTMENT PURPOSES AND NOT WITH A
     VIEW TO, OR FOR  OFFER OR SALE IN  CONNECTION  WITH,  ANY  DISTRIBUTION  IN
     VIOLATION OF THE  SECURITIES  ACT, OR (F)  PURSUANT TO ANY OTHER  AVAILABLE
     EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT
     TO THE  SPONSOR'S  AND THE TRUST'S  RIGHT PRIOR TO ANY SUCH OFFER,  SALE OR
     TRANSFER  TO REQUIRE THE  DELIVERY OF AN OPINION OF COUNSEL,  CERTIFICATION
     AND/OR OTHER  INFORMATION  SATISFACTORY  TO EACH OF THEM IN ACCORDANCE WITH
     THE  DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE SPONSOR
     OR THE TRUST.  HEDGING  TRANSACTIONS  INVOLVING  THIS  SECURITY  MAY NOT BE
     CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

                                       32
<PAGE>


          THE HOLDER OF THIS  SECURITY BY ITS  ACCEPTANCE  HEREOF  ALSO  AGREES,
     REPRESENTS  AND  WARRANTS  THAT IT IS NOT AN EMPLOYEE  BENEFIT,  INDIVIDUAL
     RETIREMENT  ACCOUNT OR OTHER PLAN OR ARRANGEMENT  SUBJECT TO TITLE I OF THE
     EMPLOYEE  RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"),  OR
     SECTION 4975 OF THE INTERNAL  REVENUE CODE OF 1986, AS AMENDED (THE "CODE")
     (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS"
     BY REASON OF ANY PLAN'S  INVESTMENT IN THE ENTITY,  AND NO PERSON INVESTING
     "PLAN  ASSETS"  OF ANY  PLAN MAY  ACQUIRE  OR HOLD  THE  SECURITIES  OR ANY
     INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE
     RELIEF  AVAILABLE  UNDER U.S.  DEPARTMENT OF LABOR  PROHIBITED  TRANSACTION
     CLASS EXEMPTION 96-23,  95-60,  91-38, 90-1 OR 84-14 OR ANOTHER  APPLICABLE
     EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY
     SECTION  406 OF ERISA OR  SECTION  4975 OF THE CODE  WITH  RESPECT  TO SUCH
     PURCHASE OR  HOLDING.  ANY  PURCHASER  OR HOLDER OF THE  SECURITIES  OR ANY
     INTEREST  THEREIN  WILL BE DEEMED TO HAVE  REPRESENTED  BY ITS PURCHASE AND
     HOLDING  THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE  BENEFIT PLAN WITHIN
     THE MEANING OF SECTION  3(3) OF ERISA,  OR A PLAN TO WHICH  SECTION 4975 OF
     THE CODE IS  APPLICABLE,  A TRUSTEE OR OTHER PERSON  ACTING ON BEHALF OF AN
     EMPLOYEE  BENEFIT  PLAN OR PLAN,  OR ANY OTHER  PERSON OR ENTITY  USING THE
     ASSETS OF ANY EMPLOYEE  BENEFIT PLAN OR PLAN TO FINANCE SUCH  PURCHASE,  OR
     (ii) SUCH  PURCHASE  WILL NOT  RESULT  IN A  PROHIBITED  TRANSACTION  UNDER
     SECTION  406 OF ERISA OR  SECTION  4975 OF THE CODE FOR  WHICH  THERE IS NO
     APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

                                       33
<PAGE>


          THIS  SECURITY  WILL BE ISSUED AND MAY BE  TRANSFERRED  ONLY IN BLOCKS
     HAVING A LIQUIDATION  AMOUNT OF NOT LESS THAN  $100,000.00 (100 SECURITIES)
     AND MULTIPLES OF $1,000.00 IN EXCESS  THEREOF.  ANY  ATTEMPTED  TRANSFER OF
     SECURITIES IN A BLOCK HAVING A LIQUIDATION  AMOUNT OF LESS THAN $100,000.00
     SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

          THE  HOLDER  OF THIS  SECURITY  AGREES  THAT IT WILL  COMPLY  WITH THE
     FOREGOING RESTRICTIONS.

     (c) To permit  registrations  of transfers and  exchanges,  the Trust shall
execute and the Institutional  Trustee shall authenticate  Capital Securities at
the Registrar's request.

     (d)  Registrations  of  transfers  or  exchanges  will be effected  without
charge,  but only upon  payment  (with such  indemnity  as the  Registrar or the
Sponsor may require) in respect of any tax or other governmental charge that may
be imposed in relation to it.

     (e) All  Capital  Securities  issued upon any  registration  of transfer or
exchange  pursuant  to the terms of this  Declaration  shall  evidence  the same
security and shall be entitled to the same benefits  under this  Declaration  as
the  Capital  Securities  surrendered  upon such  registration  of  transfer  or
exchange.

     Section 8.3. Deemed Security Holders.  The Trust, the  Administrators,  the
Trustees,  the Paying Agent,  the Transfer  Agent or the Registrar may treat the
Person  in whose  name any  Certificate  shall be  registered  on the  books and
records  of  the  Trust  as the  sole  holder  of  such  Certificate  and of the
Securities   represented   by  such   Certificate   for  purposes  of  receiving
Distributions and for all other purposes whatsoever and, accordingly,  shall not
be bound to  recognize  any  equitable  or other  claim to or  interest  in such
Certificate or in the Securities  represented by such Certificate on the part of
any Person,  whether or not the Trust,  the  Administrators,  the Trustees,  the
Paying Agent,  the Transfer  Agent or the  Registrar  shall have actual or other
notice thereof.

                                  ARTICLE IX.

                           LIMITATION OF LIABILITY OF
                           --------------------------
             HOLDERS OF SECURITIES, INSTITUTIONAL TRUSTEE OR OTHERS
             ------------------------------------------------------

     Section 9.1. Liability.
                  ----------

     (a) Except as expressly  set forth in this  Declaration,  the Guarantee and
the terms of the Securities, the Sponsor shall not be:

          (1)  personally  liable for the return of any  portion of the  capital
     contributions  (or any return  thereon)  of the  Holders of the  Securities
     which shall be made solely from assets of the Trust; or

          (2)  required  to pay to the Trust or to any Holder of the  Securities
     any deficit upon dissolution of the Trust or otherwise.

                                       34
<PAGE>


     (b) The  Holder of the  Common  Securities  shall be liable  for all of the
debts and  obligations of the Trust (other than with respect to the  Securities)
to the extent not satisfied out of the Trust's assets.

     (c)  Pursuant  to the  Statutory  Trust Act,  the  Holders  of the  Capital
Securities  shall be  entitled  to the same  limitation  of  personal  liability
extended to stockholders of private  corporations for profit organized under the
General Corporation Law of the State of Delaware.

     Section 9.2. Exculpation.
                  ------------

     (a) No  Indemnified  Person shall be liable,  responsible or accountable in
damages or otherwise to the Trust 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 on  behalf of the Trust and in a manner  such
Indemnified  Person reasonably  believed to be within the scope of the authority
conferred on such Indemnified  Person by this Declaration 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 Trust and upon such  information,  opinions,  reports or
statements  presented  to the Trust by any Person as to matters the  Indemnified
Person reasonably believes are within such other Person's professional or expert
competence  and, if selected by such  Indemnified  Person,  has been selected by
such  Indemnified  Person  with  reasonable  care by or on behalf of the  Trust,
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
Securities might properly be paid.

     Section 9.3. Fiduciary Duty.
                  ---------------

     (a) To the extent  that,  at law or in equity,  an  Indemnified  Person has
duties  (including  fiduciary  duties) and liabilities  relating  thereto to the
Trust or to any other Covered  Person,  an Indemnified  Person acting under this
Declaration  shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified  Person otherwise existing at law or in equity, are agreed by the
parties hereto to replace such other duties and  liabilities of the  Indemnified
Person.

     (b)  Whenever in this  Declaration  an  Indemnified  Person is permitted or
required to make a decision:

          (1) in its  "discretion"  or under a grant of similar  authority,  the
     Indemnified Person shall be entitled to consider such interests and factors
     as it  desires,  including  its own  interests,  and shall  have no duty or
     obligation  to  give  any  consideration  to  any  interest  of or  factors
     affecting the Trust or any other Person; or

          (2) in its  "good  faith"  or  under  another  express  standard,  the
     Indemnified  Person shall act under such express  standard and shall not be
     subject to any other or different  standard  imposed by this Declaration or
     by applicable law.

     Section 9.4. Indemnification.
                  ----------------

     (a) The Sponsor shall  indemnify,  to the full extent permitted by law, any
Indemnified  Person who was or is a party or is threatened to be made a party to
any threatened,  pending or completed action, suit or proceeding, whether civil,
criminal,  administrative  or  investigative  (other than an action by or in the
right of the Trust)  arising  out of or in  connection  with the  acceptance  or
administration  of this  Declaration  by reason of the fact that he is or was an
Indemnified Person against expenses  (including  reasonable  attorneys' fees and
expenses),  judgments,  fines  and  amounts  paid  in  settlement  actually  and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he  reasonably  believed  to be in or not
opposed to the best  interests of the Trust,  and,  with respect to any criminal
action or  proceeding,  had no  reasonable  cause to  believe  his  conduct  was
unlawful. The termination of any action, suit or proceeding by judgment,  order,
settlement,  conviction,  or upon a plea of nolo  contendere or its  equivalent,
shall not, of itself,  create a presumption that the Indemnified  Person did not
act in good faith and in a manner which he  reasonably  believed to be in or not
opposed to the best  interests of the Trust,  and,  with respect to any criminal
action or  proceeding,  had  reasonable  cause to believe  that his  conduct was
unlawful.

                                       35
<PAGE>


     (b) The Sponsor shall  indemnify,  to the full extent permitted by law, any
Indemnified  Person who was or is a party or is threatened to be made a party to
any  threatened,  pending or completed  action or suit by or in the right of the
Trust to procure a judgment in its favor  arising out of or in  connection  with
the acceptance or  administration of this Declaration by reason of the fact that
he is or  was an  Indemnified  Person  against  expenses  (including  reasonable
attorneys'  fees  and  expenses)  actually  and  reasonably  incurred  by him in
connection  with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Trust;  provided,  however,  that no such  indemnification
shall be made in  respect  of any  claim,  issue  or  matter  as to  which  such
Indemnified Person shall have been adjudged to be liable to the Trust unless and
only to the extent that the court in which such action or suit was brought shall
determine upon  application  that,  despite the adjudication of liability but in
view of all the  circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.

     (c) To the extent that an  Indemnified  Person shall be  successful  on the
merits or otherwise  (including  dismissal of an action without prejudice or the
settlement  of an action  without  admission  of  liability)  in  defense of any
action, suit or proceeding referred to in paragraphs (a) and (b) of this Section
9.4,  or in  defense  of any  claim,  issue  or  matter  therein,  he  shall  be
indemnified,  to the full extent permitted by law,  against expenses  (including
attorneys'  fees  and  expenses)  actually  and  reasonably  incurred  by him in
connection therewith.

     (d) Any indemnification of an Administrator under paragraphs (a) and (b) of
this  Section 9.4 (unless  ordered by a court) shall be made by the Sponsor only
as authorized in the specific case upon a determination that  indemnification of
the  Indemnified  Person is proper in the  circumstances  because he has met the
applicable  standard  of  conduct  set  forth in  paragraphs  (a) and (b).  Such
determination  shall be made (i) by the  Administrators  by a majority vote of a
Quorum  consisting of such  Administrators  who were not parties to such action,
suit or  proceeding,  (ii) if  such a  Quorum  is not  obtainable,  or,  even if
obtainable,  if  a  Quorum  of  disinterested   Administrators  so  directs,  by
independent legal counsel in a written opinion,  or (iii) by the Common Security
Holder of the Trust.

     (e) To the fullest extent permitted by law, expenses (including  reasonable
attorneys' fees and expenses)  incurred by an Indemnified  Person in defending a
civil,  criminal,  administrative  or investigative  action,  suit or proceeding
referred to in  paragraphs  (a) and (b) of this Section 9.4 shall be paid by the
Sponsor in advance of the final  disposition of such action,  suit or proceeding
upon receipt of an  undertaking  by or on behalf of such  Indemnified  Person to
repay such amount if it shall  ultimately be determined  that he is not entitled
to  be   indemnified   by  the  Sponsor  as  authorized  in  this  Section  9.4.
Notwithstanding  the  foregoing,  no advance  shall be made by the  Sponsor if a
determination  is reasonably  and promptly made (i) by the  Administrators  by a
majority vote of a Quorum of disinterested Administrators, (ii) if such a Quorum
is not  obtainable,  or,  even  if  obtainable,  if a  quorum  of  disinterested
Administrators so directs,  by independent legal counsel in a written opinion or
(iii) by the Common  Security  Holder of the Trust,  that,  based upon the facts
known to the  Administrators,  counsel or the Common Security Holder at the time
such  determination is made, such Indemnified  Person acted in bad faith or in a
manner that such Indemnified  Person did not believe to be in the best interests
of the Trust, or, with respect to any criminal proceeding, that such Indemnified
Person believed or had reasonable cause to believe his conduct was unlawful.  In
no event  shall any  advance  be made in  instances  where  the  Administrators,
independent  legal counsel or the Common  Security Holder  reasonably  determine
that such Indemnified Person deliberately  breached his duty to the Trust or its
Common or Capital Security Holders.

                                       36
<PAGE>


     (f) The Trustees,  at the sole cost and expense of the Sponsor,  retain the
right to representation by counsel of their own choosing in any action,  suit or
any other proceeding for which they are indemnified under paragraphs (a) and (b)
of this Section 9.4, without affecting their right to indemnification  hereunder
or waiving any rights afforded to it under this Declaration or applicable law.

     (g) The indemnification and advancement of expenses provided by, or granted
pursuant  to,  the  other  paragraphs  of this  Section  9.4 shall not be deemed
exclusive  of any  other  rights  to which  those  seeking  indemnification  and
advancement  of  expenses  may  be  entitled   under  any  agreement,   vote  of
stockholders  or  disinterested  directors  of the  Sponsor or Capital  Security
Holders of the Trust or  otherwise,  both as to action in his official  capacity
and as to action in another  capacity  while holding such office.  All rights to
indemnification  under  this  Section  9.4 shall be deemed to be  provided  by a
contract  between  the Sponsor  and each  Indemnified  Person who serves in such
capacity  at any time  while  this  Section  9.4 is in  effect.  Any  repeal  or
modification of this Section 9.4 shall not affect any rights or obligations then
existing.

     (h) The Sponsor or the Trust may purchase and maintain  insurance on behalf
of any Person who is or was an Indemnified Person against any liability asserted
against  him and  incurred  by him in any such  capacity,  or arising out of his
status as such, whether or not the Sponsor would have the power to indemnify him
against such liability under the provisions of this Section 9.4.

     (i) For  purposes of this  Section  9.4,  references  to "the Trust"  shall
include,  in addition to the  resulting or  surviving  entity,  any  constituent
entity (including any constituent of a constituent)  absorbed in a consolidation
or  merger,  so that any Person who is or was a  director,  trustee,  officer or
employee of such constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent of another
entity,  shall stand in the same position  under the  provisions of this Section
9.4 with  respect to the  resulting  or  surviving  entity as he would have with
respect to such constituent entity if its separate existence had continued.

     (j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section 9.4 shall,  unless otherwise  provided when authorized
or  ratified,  (i)  continue as to a Person who has ceased to be an  Indemnified
Person and shall inure to the benefit of the heirs, executors and administrators
of such a  Person;  and (ii)  survive  the  termination  or  expiration  of this
Declaration or the earlier removal or resignation of an Indemnified Person.

     Section 9.5.  Outside  Businesses.  Any Covered  Person,  the Sponsor,  the
Delaware  Trustee  and the  Institutional  Trustee  may  engage in or possess an
interest in other business ventures of any nature or description,  independently
or with others,  similar or  dissimilar  to the  business of the Trust,  and the
Trust  and the  Holders  of  Securities  shall  have no rights by virtue of this
Declaration in and to such independent ventures or the income or profits derived
therefrom,  and the pursuit of any such venture,  even if  competitive  with the
business of the Trust,  shall not be deemed  wrongful or  improper.  None of any
Covered Person, the Sponsor,  the Delaware Trustee or the Institutional  Trustee
shall be obligated to present any particular  investment or other opportunity to
the Trust even if such  opportunity is of a character  that, if presented to the
Trust,  could be taken by the Trust,  and any Covered Person,  the Sponsor,  the
Delaware Trustee and the Institutional  Trustee shall have the right to take for
its own account  (individually  or as a partner or fiduciary) or to recommend to
others any such particular investment or other opportunity.  Any Covered Person,
the Delaware Trustee and the  Institutional  Trustee may engage or be interested
in any financial or other  transaction  with the Sponsor or any Affiliate of the
Sponsor,  or may act as  depositary  for,  trustee or agent  for,  or act on any
committee or body of holders of,  securities or other obligations of the Sponsor
or its Affiliates.

                                       37
<PAGE>


     Section 9.6. Compensation; Fee. The Sponsor agrees:
                  ------------------

     (a) to pay to the  Trustees  from  time to time such  compensation  for all
services rendered by them hereunder as the parties shall agree 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
Trustees upon request for all reasonable  expenses,  disbursements  and advances
incurred  or made by the  Trustees  in  accordance  with any  provision  of this
Declaration  (including  the  reasonable   compensation  and  the  expenses  and
disbursements of their respective agents and counsel),  except any such expense,
disbursement or advance as may be  attributable to its negligence,  bad faith or
willful misconduct.

     For purposes of  clarification,  this Section 9.6 does not  contemplate the
payment by the Sponsor of acceptance or annual  administration fees owing to the
Trustees  under  this  Declaration  or the fees and  expenses  of the  Trustees'
counsel in connection with the closing of the transactions  contemplated by this
Declaration.

     The  provisions  of this Section 9.6 shall survive the  dissolution  of the
Trust and the termination of this  Declaration and the removal or resignation of
any Trustee.

     No Trustee  may claim any lien or charge on any  property of the Trust as a
result of any amount due pursuant to this Section 9.6.

                                   ARTICLE X.

                                   ACCOUNTING
                                   ----------

     Section 10.1.  Fiscal Year.  The fiscal year  ("Fiscal  Year") of the Trust
shall be the calendar year, or such other year as is required by the Code.

     Section 10.2. Certain Accounting Matters.

     (a) At all times  during the  existence  of the Trust,  the  Administrators
shall  keep,  or cause to be kept at the  principal  office  of the Trust in the
United  States,  as  defined  for  purposes  of  Treasury   Regulations  section
301.7701-7, full books of account, records and supporting documents, which shall
reflect in reasonable detail each transaction of the Trust. The books of account
shall be  maintained,  at the Sponsor's  expense,  in accordance  with generally
accepted accounting  principles,  consistently applied. The books of account and
the  records  of the  Trust  shall be  examined  by and  reported  upon  (either
separately or as part of the Sponsor's regularly prepared consolidated financial
report) as of the end of each Fiscal Year of the Trust by a firm of  independent
certified public accountants selected by the Administrators.

     (b) The  Administrators  shall cause to be duly  prepared and  delivered to
each of the Holders of  Securities  Form 1099 or such other annual United States
federal income tax information  statement required by the Code,  containing such
information  with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations.  Notwithstanding any right under the Code
to deliver any such statement at a later date, the Administrators shall endeavor
to deliver all such statements  within 30 days after the end of each Fiscal Year
of the Trust.

                                       38
<PAGE>


     (c) The  Administrators,  at the Sponsor's expense,  shall cause to be duly
prepared at the principal office of the Sponsor in the United States, as `United
States' is defined in Section 7701(a)(9) of the Code (or at the principal office
of the Trust if the Sponsor has no such principal  office in the United States),
and filed an annual  United States  federal  income tax return on a Form 1041 or
such other form required by United States  federal income tax law, and any other
annual income tax returns required to be filed by the  Administrators  on behalf
of the Trust with any state or local taxing authority.

     Section 10.3.  Banking.  The Trust shall maintain in the United States,  as
defined for purposes of Treasury  Regulations  section  301.7701-7,  one or more
bank  accounts  in the name and for the sole  benefit  of the  Trust;  provided,
however,  that all  payments of funds in respect of the  Debentures  held by the
Institutional  Trustee  shall be made  directly to the  Property  Account and no
other funds of the Trust shall be deposited in the  Property  Account.  The sole
signatories  for  such  accounts  (including  the  Property  Account)  shall  be
designated by the Institutional Trustee.

     Section 10.4.  Withholding.  The Institutional  Trustee or any Paying Agent
and the  Administrators  shall comply with all  withholding  requirements  under
United States  federal,  state and local law. The  Institutional  Trustee or any
Paying Agent shall request,  and each Holder shall provide to the  Institutional
Trustee or any Paying  Agent,  such forms or  certificates  as are  necessary to
establish  an exemption  from  withholding  with respect to the Holder,  and any
representations  and forms as shall reasonably be requested by the Institutional
Trustee or any Paying  Agent to assist it in  determining  the extent of, and in
fulfilling, its withholding obligations.  The Administrators shall file required
forms with applicable jurisdictions and, unless an exemption from withholding is
properly  established by a Holder,  shall remit amounts withheld with respect to
the Holder to  applicable  jurisdictions.  To the extent that the  Institutional
Trustee or any Paying  Agent is required to withhold and pay over any amounts to
any authority with respect to  distributions  or allocations to any Holder,  the
amount  withheld  shall be  deemed  to be a  Distribution  in the  amount of the
withholding to the Holder. In the event of any claimed overwithholding,  Holders
shall be limited to an action against the applicable jurisdiction. If the amount
required to be withheld was not withheld  from actual  Distributions  made,  the
Institutional Trustee or any Paying Agent may reduce subsequent Distributions by
the amount of such withholding.

                                  ARTICLE XI.

                             AMENDMENTS AND MEETINGS
                             -----------------------

     Section 11.1. Amendments.
                   -----------

     (a) Except as otherwise  provided in this  Declaration or by any applicable
terms of the  Securities,  this  Declaration  may only be  amended  by a written
instrument  approved and executed (i) by the Institutional  Trustee,  or (ii) if
the amendment affects the rights, powers,  duties,  obligations or immunities of
the Delaware Trustee, by the Delaware Trustee.

     (b)  Notwithstanding  any other  provision of this Article XI, an amendment
may be made, and any such purported  amendment shall be valid and effective only
if:

          (1) the Institutional Trustee shall have first received

                                       39
<PAGE>


               (A) an  Officers'  Certificate  from  each of the  Trust  and the
          Sponsor  that such  amendment  is  permitted  by, and conforms to, the
          terms of this Declaration (including the terms of the Securities); and

               (B) an opinion of counsel  (who may be counsel to the  Sponsor or
          the Trust) that such  amendment is permitted  by, and conforms to, the
          terms of this Declaration (including the terms of the Securities); and

          (2) the result of such amendment would not be to

               (A) cause the Trust to cease to be  classified  for  purposes  of
          United States federal income taxation as a grantor trust; or

               (B) cause the  Trust to be  deemed  to be an  Investment  Company
          required to be registered under the Investment Company Act.

     (c) Except as provided in Section  11.1(d),  (e) or (h), no amendment shall
be made, and any such purported amendment shall be void and ineffective,  unless
the Holders of a Majority in liquidation  amount of the Capital Securities shall
have consented to such amendment.

     (d)  In  addition  to and  notwithstanding  any  other  provision  in  this
Declaration,  without the consent of each affected Holder,  this Declaration may
not be amended to (i)  change  the amount or timing of any  Distribution  on the
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the  Securities  as of a  specified  date or change any
conversion  or exchange  provisions  or (ii)  restrict  the right of a Holder to
institute suit for the enforcement of any such payment on or after such date.

     (e)  Sections  9.1(b) and 9.1(c) and this Section 11.1 shall not be amended
without the consent of all of the Holders of the Securities.

     (f) Article III shall not be amended  without the consent of the Holders of
a Majority in liquidation amount of the Common Securities.

     (g) The rights of the Holders of the Capital Securities under Article IV to
appoint  and remove  Trustees  shall not be amended  without  the consent of the
Holders of a Majority in liquidation amount of the Capital Securities.

     (h) This  Declaration may be amended by the  Institutional  Trustee and the
Holders of a Majority in liquidation amount of the Common Securities without the
consent of the Holders of the Capital Securities to:

          (1) cure any ambiguity;

          (2) correct or supplement any provision in this  Declaration  that may
     be defective or inconsistent with any other provision of this Declaration;

          (3) add to the covenants,  restrictions or obligations of the Sponsor;
     or

          (4) modify,  eliminate or add to any provision of this  Declaration to
     such extent as may be necessary to ensure that the Trust will be classified
     for United  States  federal  income tax  purposes at all times as a grantor
     trust  and  will not be  required  to  register  as an  Investment  Company
     (including  without  limitation to conform to any change in Rule 3a-5, Rule
     3a-7 or any other  applicable  rule  under the  Investment  Company  Act or
     written change in interpretation or application  thereof by any legislative
     body,  court,  government  agency or regulatory  authority) which amendment
     does not have a  material  adverse  effect on the  rights,  preferences  or
     privileges of the Holders of Securities;

                                       40
<PAGE>

     provided,  however,  that no such  modification,  elimination  or  addition
referred to in clauses (i), (ii),  (iii) or (iv) shall  adversely  affect in any
material respect the powers, preferences or special rights of Holders of Capital
Securities.

     Section  11.2.  Meetings  of the Holders of  Securities;  Action by Written
                     -----------------------------------------------------------
Consent.
--------

     (a) Meetings of the Holders of any class of Securities may be called at any
time by the  Administrators  (or as provided in the terms of the  Securities) to
consider and act on any matter on which Holders of such class of Securities  are
entitled  to act  under  the  terms  of this  Declaration  or the  terms  of the
Securities. The Administrators shall call a meeting of the Holders of such class
if  directed to do so by the  Holders of at least 10% in  liquidation  amount of
such class of  Securities.  Such  direction  shall be given by delivering to the
Administrators  one or more calls in a writing  stating that the signing Holders
of the Securities  wish to call a meeting and indicating the general or specific
purpose  for which the meeting is to be called.  Any  Holders of the  Securities
calling a meeting shall specify in writing the Certificates  held by the Holders
of the  Securities  exercising  the  right  to call a  meeting  and  only  those
Securities  represented  by such  Certificates  shall be counted for purposes of
determining  whether the required percentage set forth in the second sentence of
this paragraph has been met.

     (b) Except to the extent otherwise provided in the terms of the Securities,
the following provisions shall apply to meetings of Holders of the Securities:

          (1) notice of any such  meeting  shall be given to all the  Holders of
     the Securities  having a right to vote thereat at least 7 days and not more
     than 60 days before the date of such meeting.  Whenever a vote,  consent or
     approval of the Holders of the  Securities  is permitted or required  under
     this Declaration,  such vote, consent or approval may be given at a meeting
     of the Holders of the Securities. Any action that may be taken at a meeting
     of the  Holders  of the  Securities  may be taken  without a  meeting  if a
     consent  in  writing  setting  forth  the  action so taken is signed by the
     Holders  of the  Securities  owning  not less  than the  minimum  amount of
     Securities  in  liquidation  amount that would be necessary to authorize or
     take such action at a meeting at which all Holders of the Securities having
     a right to vote  thereon  were  present  and voting.  Prompt  notice of the
     taking of action  without a meeting  shall be given to the  Holders  of the
     Securities  entitled  to vote  who  have  not  consented  in  writing.  The
     Administrators may specify that any written ballot submitted to the Holders
     of the  Securities  for the purpose of taking any action  without a meeting
     shall  be  returned  to  the  Trust  within  the  time   specified  by  the
     Administrators;

          (2) each Holder of a Security may  authorize  any Person to act for it
     by proxy on all  matters in which a Holder of  Securities  is  entitled  to
     participate,  including  waiving  notice  of  any  meeting,  or  voting  or
     participating at a meeting. No proxy shall be valid after the expiration of
     11 months from the date  thereof  unless  otherwise  provided in the proxy.
     Every  proxy  shall be  revocable  at the  pleasure  of the  Holder  of the
     Securities  executing it. Except as otherwise  provided herein, all matters
     relating to the giving,  voting or validity of proxies shall be governed by
     the General  Corporation Law of the State of Delaware  relating to proxies,
     and judicial  interpretations  thereunder,  as if the Trust were a Delaware
     corporation  and the  Holders  of the  Securities  were  stockholders  of a
     Delaware  corporation;  each meeting of the Holders of the Securities shall
     be  conducted  by the  Administrators  or by such  other  Person  that  the
     Administrators may designate; and

                                       41
<PAGE>


          (3) unless the Statutory Trust Act, this Declaration,  or the terms of
     the  Securities  otherwise  provides,  the  Administrators,  in their  sole
     discretion,  shall establish all other  provisions  relating to meetings of
     Holders of Securities,  including  notice of the time,  place or purpose of
     any  meeting  at which any  matter is to be voted on by any  Holders of the
     Securities, waiver of any such notice, action by consent without a meeting,
     the establishment of a record date, quorum  requirements,  voting in person
     or by proxy or any other  matter with  respect to the  exercise of any such
     right to vote; provided,  however,  that each meeting shall be conducted in
     the United States (as that term is defined in Treasury  Regulations section
     301.7701-7).

                                  ARTICLE XII.

        REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND THE DELAWARE TRUSTEE
        -----------------------------------------------------------------

     Section 12.1.  Representations and Warranties of Institutional Trustee. The
initial  Institutional  Trustee  represents and warrants to the Trust and to the
Sponsor  at the  date of this  Declaration,  and  each  Successor  Institutional
Trustee  represents and warrants to the Trust and the Sponsor at the time of the
Successor Institutional Trustee's acceptance of its appointment as Institutional
Trustee, that:

     (a) the Institutional  Trustee is a Delaware banking corporation with trust
powers,  duly  organized  and  validly  existing  under the laws of the State of
Delaware with trust power and authority to execute and deliver, and to carry out
and perform its obligations under the terms of, this Declaration;

     (b) the execution, delivery and performance by the Institutional Trustee of
this  Declaration has been duly authorized by all necessary  corporate action on
the part of the Institutional  Trustee.  This Declaration has been duly executed
and delivered by the Institutional  Trustee,  and it constitutes a legal,  valid
and binding obligation of the Institutional  Trustee,  enforceable against it in
accordance  with its terms,  subject to applicable  bankruptcy,  reorganization,
moratorium,  insolvency,  and other  similar laws  affecting  creditors'  rights
generally and to general  principles of equity (regardless of whether considered
in a proceeding in equity or at law);

     (c) the  execution,  delivery and  performance  of this  Declaration by the
Institutional  Trustee  does not  conflict  with or  constitute  a breach of the
charter or by-laws of the Institutional Trustee; and

     (d) no  consent,  approval or  authorization  of, or  registration  with or
notice to, any state or federal banking authority is required for the execution,
delivery or performance by the Institutional Trustee of this Declaration.

     Section 12.2.  Representations  of the Delaware  Trustee.  The Trustee that
acts as initial Delaware Trustee represents and warrants to the Trust and to the
Sponsor at the date of this  Declaration,  and each Successor  Delaware  Trustee
represents  and  warrants  to the  Trust  and  the  Sponsor  at the  time of the
Successor Delaware  Trustee's  acceptance of its appointment as Delaware Trustee
that:

     (a) if it is not a natural person,  the Delaware Trustee is duly organized,
validly existing and in good standing under the laws of the State of Delaware;

     (b) if it is not a natural person, the execution,  delivery and performance
by the Delaware  Trustee of this  Declaration  has been duly  authorized  by all
necessary corporate action on the part of the Delaware Trustee. This Declaration
has been duly executed and delivered by the Delaware Trustee, and under Delaware
law  (excluding  any  securities  laws)  constitutes a legal,  valid and binding
obligation of the Delaware  Trustee,  enforceable  against it in accordance with
its  terms,  subject  to  applicable  bankruptcy,  reorganization,   moratorium,
insolvency and other similar laws affecting  creditors'  rights generally and to
general  principles  of equity and the  discretion of the court  (regardless  of
whether considered in a proceeding in equity or at law);

                                       42
<PAGE>


     (c) if it is not a natural person, the execution,  delivery and performance
of this Declaration by the Delaware Trustee does not conflict with or constitute
a breach of the charter or by-laws of the Delaware Trustee;

     (d) it has trust power and  authority to execute and deliver,  and to carry
out and perform its obligations under the terms of, this Declaration;

     (e) no  consent,  approval or  authorization  of, or  registration  with or
notice to, any state or federal banking authority  governing the trust powers of
the Delaware  Trustee is required for the execution,  delivery or performance by
the Delaware Trustee of this Declaration; and

     (f) the Delaware Trustee is a natural person who is a resident of the State
of Delaware or, if not a natural person, it is an entity which has its principal
place of business in the State of Delaware  and, in either  case,  a Person that
satisfies for the Trust the  requirements of Section 3807 of the Statutory Trust
Act.

                                  ARTICLE XIII.

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

     Section 13.1.  Notices.  All notices provided for in this Declaration shall
be in  writing,  duly  signed  by the party  giving  such  notice,  and shall be
delivered,  telecopied  (which telecopy shall be followed by notice delivered or
mailed by first class mail) or mailed by first class mail, as follows:

     (a) if given to the Trust,  in care of the  Administrators  at the  Trust's
mailing  address  set forth  below (or such other  address as the Trust may give
notice of to the Holders of the Securities):

         Four Oaks Statutory Trust I
         c/o Four Oaks Fincorp, Inc.
         6144 U.S. 301 South
         Four Oaks, North Carolina  27524
         Attention:  Nancy S. Wise
         Telecopy:  919-963-2278

     (b) if given to the Delaware  Trustee,  at the Delaware  Trustee's  mailing
address set forth below (or such other address as the Delaware  Trustee may give
notice of to the Holders of the Securities):

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

     (c) if given to the Institutional  Trustee, at the Institutional  Trustee's
mailing  address  set forth  below (or such other  address as the  Institutional
Trustee may give notice of to the Holders of the Securities):

                                       43
<PAGE>


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

     (d) if given to the Holder of the Common Securities, at the mailing address
of the  Sponsor  set forth  below (or such  other  address  as the Holder of the
Common Securities may give notice of to the Trust):

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

     (e) if given to any other Holder, at the address set forth on the books and
records of the Trust.

     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 13.2. Governing Law. This Declaration and the rights of the parties
hereunder shall be governed by and interpreted in accordance with the law of the
State of  Delaware  and all rights and  remedies  shall be governed by such laws
without regard to the principles of conflict of laws of the State of Delaware or
any other  jurisdiction  that would call for the  application  of the law of any
jurisdiction  other than the State of Delaware;  provided,  however,  that there
shall not be  applicable  to the Trust,  the  Trustees or this  Declaration  any
provision of the laws (statutory or common) of the State of Delaware  pertaining
to trusts that relate to or regulate,  in a manner  inconsistent  with the terms
hereof (a) the filing with any court or  governmental  body or agency of trustee
accounts or schedules of trustee fees and charges, (b) affirmative  requirements
to post bonds for trustees,  officers,  agents or employees of a trust,  (c) the
necessity for obtaining  court or other  governmental  approval  concerning  the
acquisition,  holding or disposition of real or personal  property,  (d) fees or
other sums payable to trustees,  officers,  agents or employees of a trust,  (e)
the  allocation  of receipts and  expenditures  to income or  principal,  or (f)
restrictions or limitations on the permissible  nature,  amount or concentration
of trust investments or requirements  relating to the titling,  storage or other
manner of holding or investing trust assets.

     Section 13.3.  Intention of the Parties. It is the intention of the parties
hereto  that the Trust be  classified  for  United  States  federal  income  tax
purposes  as a  grantor  trust.  The  provisions  of this  Declaration  shall be
interpreted to further this intention of the parties.

     Section 13.4. Headings. Headings contained in this Declaration are inserted
for convenience of reference only and do not affect the  interpretation  of this
Declaration or any provision hereof.

     Section 13.5.  Successors and Assigns.  Whenever in this Declaration any of
the parties  hereto is named or referred to, the  successors and assigns of such
party shall be deemed to be included,  and all covenants and  agreements in this
Declaration  by the Sponsor and the Trustees shall bind and inure to the benefit
of their respective successors and assigns, whether or not so expressed.

                                       44
<PAGE>


     Section 13.6. Partial Enforceability. If any provision of this Declaration,
or the  application  of such provision to any Person or  circumstance,  shall be
held invalid,  the remainder of this  Declaration,  or the  application  of such
provision  to  persons  or  circumstances  other  than those to which it is held
invalid, shall not be affected thereby.

     Section  13.7.  Counterparts.  This  Declaration  may contain more than one
counterpart  of the signature page and this  Declaration  may be executed by the
affixing of the signature of each of the Trustees and  Administrators  to any of
such counterpart  signature pages. All of such counterpart signature pages shall
be read as though  one,  and they shall have the same force and effect as though
all of the signers had signed a single signature page.

                     Signatures appear on the following page


                                       45
<PAGE>


     IN WITNESS  WHEREOF,  the  undersigned  have  caused  these  presents to be
executed as of the day and year first above written.

                                   WILMINGTON TRUST COMPANY,
                                   as Delaware Trustee


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


                                   WILMINGTON TRUST COMPANY,
                                   as Institutional Trustee


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


                                   FOUR OAKS FINCORP, INC., as Sponsor


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

                                   ADMINISTRATORS OF FOUR OAKS STATUTORY TRUST I


                                   By: /s/ Ayden R. Lee
                                       -----------------------------------------
                                       Ayden R. Lee


                                   By: /s/ Nancy S. Wise
                                       -----------------------------------------
                                       Nancy S. Wise


                                   By: /s/ Wanda J. Blow
                                       -----------------------------------------
                                       Wanda J. Blow

                                       46
<PAGE>


                                     ANNEX I

                               TERMS OF SECURITIES

     Pursuant to Section 6.1 of the Amended and Restated  Declaration  of Trust,
dated as of March 30, 2006 (as amended  from time to time,  the  "Declaration"),
the designation, rights, privileges,  restrictions,  preferences and other terms
and provisions of the Capital  Securities and the Common  Securities are set out
below (each  capitalized  term used but not  defined  herein has the meaning set
forth in the Declaration):

     1. Designation and Number.
        ----------------------

     (a) 12,000 Floating Rate Capital  Securities of Four Oaks Statutory Trust I
(the "Trust"),  with an aggregate stated  liquidation amount with respect to the
assets of the  Trust of twelve  million  dollars  ($12,000,000.00)  and a stated
liquidation  amount  with  respect to the assets of the Trust of  $1,000.00  per
Capital Security,  are hereby designated for the purposes of identification only
as the "Capital Securities".  The Capital Security  Certificates  evidencing the
Capital  Securities  shall be  substantially  in the form of Exhibit  A-1 to the
Declaration,  with such changes and additions thereto or deletions  therefrom as
may be required by ordinary usage, custom or practice.

     (b)  372  Floating  Rate  Common  Securities  of  the  Trust  (the  "Common
Securities") will be evidenced by Common Security Certificates  substantially in
the form of Exhibit A-2 to the  Declaration,  with such  changes  and  additions
thereto or deletions  therefrom as may be required by ordinary usage,  custom or
practice.

     2. Distributions.
        --------------

     (a)  Distributions  will be payable on each  Security for the  Distribution
Period beginning on (and including) the date of original  issuance and ending on
(but excluding) the  Distribution  Payment Date in June 2006 at a rate per annum
of [RATE]%  and shall bear  interest  for each  successive  Distribution  Period
beginning on (and  including)  the  Distribution  Payment Date in June 2006, and
each  succeeding  Distribution  Payment Date, and ending on (but  excluding) the
next  succeeding  Distribution  Payment  Date at a rate per  annum  equal to the
3-Month LIBOR,  determined as described  below,  plus 1.35% (the "Coupon Rate"),
applied to the stated  liquidation  amount thereof,  such rate being the rate of
interest  payable on the  Debentures  to be held by the  Institutional  Trustee.
Distributions in arrears will bear interest thereon compounded  quarterly at the
applicable Distribution Rate (to the extent permitted by law). Distributions, as
used herein,  include cash  distributions and any such compounded  distributions
unless  otherwise  noted.  A  Distribution  is payable  only to the extent  that
payments are made in respect of the Debentures held by the Institutional Trustee
and to the extent the Institutional  Trustee has funds available  therefor.  The
amount  of  the  Distribution  payable  for  any  Distribution  Period  will  be
calculated by applying the Distribution  Rate to the stated  liquidation  amount
outstanding at the commencement of the  Distribution  Period on the basis of the
actual number of days in the Distribution  Period concerned  divided by 360. All
percentages  resulting from any  calculations on the Capital  Securities will be
rounded,  if necessary,  to the nearest one  hundred-thousandth  of a percentage
point,  with five  one-millionths  of a percentage  point rounded  upward (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar
amounts  used in or  resulting  from such  calculation  will be  rounded  to the
nearest cent (with one-half cent being rounded upward)).

     (b)  Distributions  on the Securities will be cumulative,  will accrue from
the date of original  issuance,  and will be payable,  subject to  extension  of
distribution payment periods as described herein,  quarterly in arrears on March
15, June 15,  September 15 and December 15 of each year, or if such day is not a
Business  Day,  then the next  succeeding  Business  Day  (each a  "Distribution
Payment  Date")  (it  being  understood  that  interest  accrues  for  any  such


                                      I-1
<PAGE>


non-Business  Day),  commencing  on the  Distribution  Payment Date in June 2006
when, as and if available for payment.  The Debenture Issuer has the right under
the  Indenture to defer  payments of interest on the  Debentures,  so long as no
Acceleration  Event of Default has occurred and is continuing,  by deferring the
payment of interest on the Debentures for up to 20 consecutive quarterly periods
(each an "Extension  Period") at any time and from time to time,  subject to the
conditions  described below,  during which Extension Period no interest shall be
due and payable.  During any Extension Period,  interest will continue to accrue
on the  Debentures,  and  interest on such  accrued  interest  will accrue at an
annual  rate equal to the  Distribution  Rate in effect for each such  Extension
Period, compounded quarterly from the date such interest would have been payable
were it not for the  Extension  Period,  to the  extent  permitted  by law (such
interest referred to herein as "Additional  Interest").  No Extension Period may
end on a date other than a  Distribution  Payment  Date.  At the end of any such
Extension  Period,  the Debenture Issuer shall pay all interest then accrued and
unpaid on the Debentures (together with Additional Interest thereon);  provided,
however,  that no  Extension  Period may extend  beyond  the  Maturity  Date and
provided further,  however, that during any such Extension Period, the Debenture
Issuer  and its  Affiliates  shall  not (i)  declare  or pay  any  dividends  or
distributions on, or redeem,  purchase,  acquire,  or make a liquidation payment
with respect to, any of the Debenture Issuer's or its Affiliates'  capital stock
(other than payments of dividends or distributions  to the Debenture  Issuer) or
make any  guarantee  payments  with respect to the  foregoing,  or (ii) make any
payment of principal of or interest or premium, if any, on or repay,  repurchase
or redeem any debt securities of the Debenture Issuer or any Affiliate that rank
pari passu in all respects with or junior in interest to the  Debentures  (other
than, with respect to clauses (i) and (ii) above, (a)  repurchases,  redemptions
or other  acquisitions  of shares of capital  stock of the  Debenture  Issuer 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 Debenture Issuer (or securities convertible into or exercisable for
such capital stock) as consideration in an acquisition  transaction entered into
prior to the  applicable  Extension  Period,  (b) as a result of any exchange or
conversion  of any class or series of the Debenture  Issuer's  capital stock (or
any capital  stock of a  subsidiary  of the  Debenture  Issuer) for any class or
series of the Debenture  Issuer's capital stock or of any class or series of the
Debenture  Issuer's  indebtedness  for any  class  or  series  of the  Debenture
Issuer's  capital stock,  (c) the purchase of fractional  interests in shares of
the  Debenture  Issuer's  capital stock  pursuant to the  conversion or exchange
provisions of such capital stock or the security  being  converted or exchanged,
(d) 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, (e) 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 (f) payments  under the
Capital Securities Guarantee). Prior to the termination of any Extension Period,
the Debenture  Issuer may further extend such period,  provided that such period
together with all such previous and further consecutive extensions thereof shall
not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date.
Upon the termination of any Extension Period and upon the payment of all accrued
and unpaid interest and Additional Interest, the Debenture Issuer may commence a
new  Extension  Period,  subject to the foregoing  requirements.  No interest or
Additional Interest shall be due and payable during an Extension Period,  except
at the end thereof,  but each  installment of interest that would otherwise have
been  due and  payable  during  such  Extension  Period  shall  bear  Additional
Interest. During any Extension Period,  Distributions on the Securities shall be
deferred  for a period  equal to the  Extension  Period.  If  Distributions  are
deferred,  the  Distributions  due  shall be paid on the date  that the  related
Extension  Period  terminates to Holders of the Securities as they appear on the
books and records of the Trust on the record  date  immediately  preceding  such
date.  Distributions  on the Securities must be paid on the dates payable (after
giving  effect to any  Extension  Period) to the extent that the Trust has funds
available for the payment of such  distributions  in the Property Account of the
Trust.  The  Trust's  funds  available  for  Distribution  to the Holders of the
Securities will be limited to payments received from the Debenture  Issuer.  The
payment of  Distributions  out of moneys held by the Trust is  guaranteed by the
Guarantor pursuant to the Guarantee.


                                      I-2
<PAGE>


     (c)  Distributions on the Securities will be payable to the Holders thereof
as they  appear on the books and  records  of the Trust on the  relevant  record
dates.  The  relevant  record  dates shall be fifteen  days before the  relevant
Distribution Payment Date.  Distributions payable on any Securities that are not
punctually paid on any  Distribution  Payment Date, as a result of the Debenture
Issuer having failed to make a payment under the Debentures, as the case may be,
when due (taking into account any Extension Period), will cease to be payable to
the Person in whose name such  Securities are registered on the relevant  record
date, and such defaulted  Distribution  will instead be payable to the Person in
whose name such  Securities  are  registered on the special record date or other
specified date determined in accordance with the Indenture.

     (d) In the event that there is any money or other  property  held by or for
the  Trust  that  is  not  accounted  for  hereunder,  such  property  shall  be
distributed Pro Rata (as defined herein) among the Holders of the Securities.

     3. Liquidation Distribution Upon Dissolution. In the event of the voluntary
or involuntary liquidation,  dissolution, winding-up or termination of the Trust
(each  a  "Liquidation")  other  than in  connection  with a  redemption  of the
Debentures, the Holders of the Securities will be entitled to receive out of the
assets of the Trust  available for  distribution  to Holders of the  Securities,
after  satisfaction  of liabilities to creditors of the Trust (to the extent not
satisfied by the Debenture Issuer),  distributions equal to the aggregate of the
stated  liquidation  amount of $1,000.00  per  Security  plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"), unless in connection with such Liquidation, the Debentures in an
aggregate  stated  principal  amount equal to the aggregate  stated  liquidation
amount of such Securities,  with an interest rate equal to the Distribution Rate
of, and bearing  accrued and unpaid  interest in an amount  equal to the accrued
and  unpaid  Distributions  on,  and  having  the  same  record  date  as,  such
Securities,  after paying or making  reasonable  provision to pay all claims and
obligations  of the Trust in accordance  with the Statutory  Trust Act, shall be
distributed on a Pro Rata basis to the Holders of the Securities in exchange for
such Securities.

     The Sponsor,  as the Holder of all of the Common Securities,  has the right
at any time to  dissolve  the Trust  (including,  without  limitation,  upon the
occurrence of a Special Event),  subject to the receipt by the Debenture  Issuer
of prior approval from the Board of Governors of the Federal Reserve System,  or
its designated  district bank, as applicable,  and any successor  federal agency
that is primarily  responsible for regulating the activities of the Sponsor (the
"Federal Reserve"), if the Sponsor is a bank holding company, or from the Office
of  Thrift  Supervision  and any  successor  federal  agency  that is  primarily
responsible for regulating the activities of Sponsor, (the "OTS") if the Sponsor
is a savings and loan holding  company,  in either case if then  required  under
applicable  capital  guidelines  or policies  of the Federal  Reserve or OTS, as
applicable,  and, after  satisfaction  of liabilities to creditors of the Trust,
cause the Debentures to be distributed to the Holders of the Securities on a Pro
Rata basis in accordance with the aggregate stated liquidation amount thereof.

     If a  Liquidation  of the Trust occurs as  described  in clause (i),  (ii),
(iii) or (v) in Section 7.1(a) of the Declaration, the Trust shall be liquidated
by the Institutional Trustee as expeditiously as it determines to be possible by
distributing,  after  satisfaction  of liabilities to creditors of the Trust, to
the Holders of the Securities,  the Debentures on a Pro Rata basis to the extent
not satisfied by the Debenture Issuer, unless such distribution is determined by
the Institutional Trustee not to be practical,  in which event such Holders will
be entitled to receive out of the assets of the Trust available for distribution
to the Holders,  after  satisfaction of liabilities of creditors of the Trust to
the  extent  not  satisfied  by the  Debenture  Issuer,  an amount  equal to the
Liquidation  Distribution.  An early Liquidation of the Trust pursuant to clause
(iv) of  Section  7.1(a) of the  Declaration  shall  occur if the  Institutional
Trustee  determines  that such  Liquidation is possible by  distributing,  after
satisfaction  of  liabilities  to creditors of the Trust,  to the Holders of the
Securities on a Pro Rata basis, the Debentures, and such distribution occurs.


                                      I-3
<PAGE>


     If, upon any such Liquidation the Liquidation Distribution can be paid only
in part because the Trust has  insufficient  assets available to pay in full the
aggregate  Liquidation  Distribution,  then the amounts payable  directly by the
Trust on such  Capital  Securities  shall be paid to the  Holders  of the  Trust
Securities on a Pro Rata basis,  except that if an Event of Default has occurred
and is  continuing,  the Capital  Securities  shall have a  preference  over the
Common Securities with regard to such distributions.

     After the date for any  distribution of the Debentures upon  dissolution of
the  Trust  (i) the  Securities  of the  Trust  will be  deemed  to be no longer
outstanding,  (ii) upon  surrender of a Holder's  Securities  certificate,  such
Holder of the Securities will receive a certificate  representing the Debentures
to be delivered upon such distribution,  (iii) any certificates representing the
Securities still  outstanding will be deemed to represent  undivided  beneficial
interests in such of the Debentures as have an aggregate  principal amount equal
to the aggregate  stated  liquidation  amount with an interest rate identical to
the  Distribution  Rate of, and  bearing  accrued and unpaid  interest  equal to
accrued and unpaid  distributions on, the Securities until such certificates are
presented to the Debenture  Issuer or its agent for transfer or reissuance  (and
until such certificates are so surrendered, no payments of interest or principal
shall be made to  Holders of  Securities  in  respect  of any  payments  due and
payable under the Debentures;  provided,  however that such failure to pay shall
not be deemed to be an Event of Default  and shall not entitle the Holder to the
benefits of the Guarantee),  and (iv) all rights of Holders of Securities  under
the  Declaration  shall  cease,  except  the right of such  Holders  to  receive
Debentures upon surrender of certificates representing such Securities.

     4. Redemption and Distribution.

     (a) The  Debentures  will mature on June 15, 2036.  The  Debentures  may be
redeemed  by the  Debenture  Issuer,  in whole or in part,  at any  Distribution
Payment  Date on or after the  Distribution  Payment  Date in June 2011,  at the
Redemption  Price. In addition,  the Debentures may be redeemed by the Debenture
Issuer  at the  Special  Redemption  Price,  in whole  but not in  part,  at any
Distribution  Payment Date,  upon the occurrence and  continuation  of a Special
Event within 120 days  following  the  occurrence  of such Special  Event at the
Special Redemption Price, upon not less than 30 nor more than 60 days' notice to
holders of such Debentures so long as such Special Event is continuing.  In each
case,  the right of the Debenture  Issuer to redeem the Debentures is subject to
the Debenture Issuer having received prior approval from the Federal Reserve (if
the Debenture  Issuer is a bank holding  company) or prior approval from the OTS
(if the Debenture Issuer is a savings and loan holding company), in each case if
then required under applicable  capital guidelines or policies of the applicable
federal agency.

     "3-Month  LIBOR"  means the  London  interbank  offered  interest  rate for
three-month,  U.S.  dollar deposits  determined by the Debenture  Trustee in the
following order of priority:

          (1) the rate  (expressed  as a percentage  per annum) for U.S.  dollar
     deposits  having a three-month  maturity that appears on Telerate Page 3750
     as of 11:00  a.m.  (London  time)  on the  related  Determination  Date (as
     defined below).  "Telerate Page 3750" means the display designated as "Page
     3750" on the Moneyline  Telerate  Service or such other page as may replace
     Page 3750 on that  service or such  other  service  or  services  as may be
     nominated by the British Bankers' Association as the information vendor for
     the purpose of displaying  London  interbank  offered rates for U.S. dollar
     deposits;


                                      I-4
<PAGE>


          (2) if such rate cannot be  identified  on the  related  Determination
     Date,  the Debenture  Trustee will request the principal  London offices of
     four leading  banks in the London  interbank  market to provide such banks'
     offered  quotations  (expressed as percentages per annum) to prime banks in
     the London  interbank  market for U.S. dollar deposits having a three-month
     maturity as of 11:00 a.m. (London time) on such  Determination  Date. If at
     least two  quotations  are provided,  3-Month LIBOR will be the  arithmetic
     mean of such quotations;

          (3) if fewer than two such  quotations  are  provided as  requested in
     clause (2) above,  the  Debenture  Trustee will request four major New York
     City  banks  to  provide  such  banks'  offered  quotations  (expressed  as
     percentages per annum) to leading  European banks for loans in U.S. dollars
     as of 11:00 a.m. (London time) on such Determination  Date. If at least two
     such quotations are provided,  3-Month LIBOR will be the arithmetic mean of
     such quotations; and

          (4) if fewer than two such  quotations  are  provided as  requested in
     clause (3) above,  3-Month  LIBOR will be a 3-Month LIBOR  determined  with
     respect to the  Distribution  Period  immediately  preceding  such  current
     Distribution Period.

     If the rate for U.S.  dollar  deposits  having a three-month  maturity that
initially  appears on Telerate  Page 3750 as of 11:00 a.m.  (London time) on the
related  Determination  Date  is  superseded  on the  Telerate  Page  3750  by a
corrected rate by 12:00 noon (London time) on such Determination  Date, then the
corrected rate as so  substituted on the applicable  page will be the applicable
3-Month LIBOR for such Determination Date.

     The Distribution Rate for any Distribution Period will at no time be higher
than the maximum rate then permitted by New York law as the same may be modified
by United States law.

     "Capital Treatment Event" means the receipt by the Debenture Issuer and the
Trust of an opinion of counsel  experienced  in such matters to the effect that,
as a result of the  occurrence  of any amendment  to, or change  (including  any
announced  prospective  change) in, the laws, rules or regulations of the United
States or any political  subdivision thereof or therein, or as the result of any
official or administrative  pronouncement or action or decision  interpreting or
applying such laws, rules or regulations, which amendment or change is effective
or which pronouncement,  action or decision is announced on or after the date of
original  issuance of the Debentures,  there is more than an insubstantial  risk
that the  Sponsor  will  not,  within  90 days of the date of such  opinion,  be
entitled to treat an amount  equal to the  aggregate  liquidation  amount of the
Capital  Securities as "Tier 1 Capital" (or its then equivalent) for purposes of
the capital adequacy  guidelines of the Federal  Reserve,  as then in effect and
applicable  to the Sponsor (or if the Sponsor is not a bank  holding  company or
otherwise is not subject to the Federal  Reserve's  risk-based  capital adequacy
guidelines,  such  guidelines  applied  to the  Sponsor as if the  Sponsor  were
subject  to such  guidelines);  provided,  however,  that the  inability  of the
Sponsor to treat all or any  portion of the  liquidation  amount of the  Capital
Securities  as Tier l  Capital  shall  not  constitute  the  basis for a Capital
Treatment  Event, if such inability  results from the Sponsor having  cumulative
preferred stock, minority interests in consolidated  subsidiaries,  or any other
class of security or interest  which the Federal  Reserve or OTS, as applicable,
may now or  hereafter  accord Tier 1 Capital  treatment  in excess of the amount
which  may now or  hereafter  qualify  for  treatment  as Tier 1  Capital  under
applicable  capital adequacy  guidelines;  provided further,  however,  that the
distribution of Debentures in connection with the Liquidation of the Trust shall
not  in  and  of  itself  constitute  a  Capital  Treatment  Event  unless  such
Liquidation  shall have occurred in connection with a Tax Event or an Investment
Company Event.

     "Determination  Date" means the date that is two London Banking Days (i.e.,
a business day in which  dealings in deposits in U.S.  dollars are transacted in
the London interbank  market) preceding the particular  Distribution  Period for
which a Coupon Rate is being determined.


                                      I-5
<PAGE>


     "Investment  Company  Event" means the receipt by the Debenture  Issuer and
the Trust of an  opinion of counsel  experienced  in such  matters to the effect
that, as a result of the  occurrence of a change in law or regulation or written
change  (including  any  announced  prospective  change)  in  interpretation  or
application of law or regulation by any legislative  body,  court,  governmental
agency or regulatory  authority,  there is more than an insubstantial  risk that
the Trust is or, within 90 days of the date of such opinion,  will be considered
an  Investment  Company that is required to be registered  under the  Investment
Company Act which change or prospective change becomes effective or would become
effective,  as the case  may be,  on or after  the date of the  issuance  of the
Debentures.

     "Maturity Date" means June 15, 2036.

     "Redemption  Date" shall mean the date fixed for the  redemption of Capital
Securities,  which  shall  be any  Distribution  Payment  Date on or  after  the
Distribution Payment Date in June 2011.

     "Redemption  Price" means 100% of the  principal  amount of the  Debentures
being  redeemed,  plus  accrued and unpaid  Interest on such  Debentures  to the
Redemption Date.

     "Special Event" means a Tax Event, an Investment Company Event or a Capital
Treatment Event.

     "Special  Redemption Date" means a date on which a Special Event redemption
occurs, which shall be a Distribution Payment Date.

     "Special Redemption Price" means the price set forth in the following table
for any Special  Redemption  Date that occurs on the date indicated below (or if
such  day is not a  Business  Day,  then  the  next  succeeding  Business  Day),
expressed as the  percentage of the  principal  amount of the  Debentures  being
redeemed:

--------------------------------------------------------------------------------
         Month in which Special                Special Redemption Price
         ----------------------                ------------------------
         Redemption Date Occurs
         ----------------------
--------------------------------------------------------------------------------
               June 2006                                 104.625%
--------------------------------------------------------------------------------
             September 2006                              104.300%
--------------------------------------------------------------------------------
             December 2006                               104.000%
--------------------------------------------------------------------------------
               March 2007                                103.650%
--------------------------------------------------------------------------------
               June 2007                                 103.350%
--------------------------------------------------------------------------------
             September 2007                              103.000%
--------------------------------------------------------------------------------
             December 2007                               102.700%
--------------------------------------------------------------------------------
               March 2008                                102.350%
--------------------------------------------------------------------------------
               June 2008                                 102.050%
--------------------------------------------------------------------------------
             September 2008                              101.700%
--------------------------------------------------------------------------------
             December 2008                               101.400%
--------------------------------------------------------------------------------


                                      I-6
<PAGE>


--------------------------------------------------------------------------------
               March 2009                                101.050%
--------------------------------------------------------------------------------
               June 2009                                 100.750%
--------------------------------------------------------------------------------
             September 2009                              100.450%
--------------------------------------------------------------------------------
             December 2009                               100.200%
--------------------------------------------------------------------------------
       March 2010 and thereafter                         100.000%
--------------------------------------------------------------------------------


     plus, in each case,  accrued and unpaid  Interest on such Debentures to the
Special Redemption Date.

     "Tax Event" means the receipt by the  Debenture  Issuer and the Trust of an
opinion of counsel  experienced  in such matters to the effect that, as a result
of any amendment to or change  (including any announced  prospective  change) in
the laws or any  regulations  thereunder  of the United  States or any political
subdivision  or  taxing  authority  thereof  or  therein,  or as a result of any
official  administrative  pronouncement  (including  any private  letter ruling,
technical advice memorandum,  field service advice, regulatory procedure, notice
or  announcement  including any notice or  announcement  of intent to adopt such
procedures or regulations)  (an  "Administrative  Action") or judicial  decision
interpreting  or applying such laws or  regulations,  regardless of whether such
Administrative  Action or judicial decision is issued to or in connection with a
proceeding  involving  the  Debenture  Issuer or the Trust  and  whether  or not
subject  to  review  or  appeal,   which   amendment,   clarification,   change,
Administrative Action or decision is enacted,  promulgated or announced, in each
case on or after the date of original issuance of the Debentures,  there is more
than an insubstantial  risk that: (i) the Trust is, or will be within 90 days of
the date of such  opinion,  subject  to United  States  federal  income tax with
respect to income received or accrued on the Debentures;  (ii) interest  payable
by the Debenture  Issuer on the Debentures is not, or within 90 days of the date
of such opinion, will not be, deductible by the Debenture Issuer, in whole or in
part, for United States  federal income tax purposes;  or (iii) the Trust is, or
will be within 90 days of the date of such  opinion,  subject  to more than a de
minimis amount of other taxes, duties or other governmental charges.

     (b) Upon the  repayment  in full at maturity or  redemption  in whole or in
part of the Debentures  (other than following the distribution of the Debentures
to the Holders of the  Securities),  the proceeds from such repayment or payment
shall  concurrently  be applied to redeem Pro Rata at the applicable  Redemption
Price or Special Redemption Price, as applicable, Securities having an aggregate
liquidation amount equal to the aggregate  principal amount of the Debentures so
repaid or redeemed;  provided, however, that holders of such Securities shall be
given not less than 30 nor more than 60 days' notice of such  redemption  (other
than at the scheduled maturity of the Debentures).

     (c) If fewer than all the outstanding Securities are to be so redeemed, the
Common  Securities and the Capital  Securities will be redeemed Pro Rata and the
Capital  Securities to be redeemed will be redeemed Pro Rata from each Holder of
Capital Securities.

     (d) The  Trust  may not  redeem  fewer  than  all the  outstanding  Capital
Securities  unless all  accrued and unpaid  Distributions  have been paid on all
Capital  Securities  for all quarterly  Distribution  periods  terminating on or
before the date of redemption.


                                      I-7
<PAGE>


     (e)  Redemption or Distribution Procedures.
          --------------------------------------

        (i)  Notice of any  redemption  of, or  notice  of  distribution  of the
Debentures in exchange for, the Securities (a "Redemption/Distribution  Notice")
will be given by the Trust by mail to each Holder of  Securities  to be redeemed
or  exchanged  not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange  thereof which, in the case of a redemption,  will be the
date fixed for redemption of the Debentures.  For purposes of the calculation of
the date of  redemption  or  exchange  and the dates on which  notices are given
pursuant to this paragraph  4(e)(i), a  Redemption/Distribution  Notice shall be
deemed to be given on the day such notice is first mailed by  first-class  mail,
postage  prepaid,  to Holders of such Securities.  Each  Redemption/Distribution
Notice shall be addressed  to the Holders of such  Securities  at the address of
each such Holder  appearing on the books and records of the Trust.  No defect in
the Redemption/Distribution Notice or in the mailing thereof with respect to any
Holder shall affect the validity of the redemption or exchange  proceedings with
respect to any other Holder.

        (ii)  If the  Securities  are to be  redeemed  and  the  Trust  gives  a
Redemption/  Distribution  Notice,  which  notice  may  only  be  issued  if the
Debentures  are  redeemed as set out in this  paragraph 4 (which  notice will be
irrevocable),  then,  provided that the  Institutional  Trustee has a sufficient
amount of cash in  connection  with the  related  redemption  or maturity of the
Debentures,  the Institutional Trustee will pay the relevant Redemption Price or
Special  Redemption  Price, as applicable,  to the Holders of such Securities by
check  mailed to the  address  of each such  Holder  appearing  on the books and
records of the Trust on the Redemption Date. If a Redemption/Distribution Notice
shall have been given and funds deposited as required then immediately  prior to
the close of business on the date of such  deposit  Distributions  will cease to
accrue on the  Securities so called for  redemption and all rights of Holders of
such  Securities so called for  redemption  will cease,  except the right of the
Holders of such Securities to receive the applicable Redemption Price or Special
Redemption  Price  specified in  paragraph  4(a),  but without  interest on such
Redemption Price or Special Redemption Price. If payment of the Redemption Price
or Special Redemption Price in respect of any Securities is improperly  withheld
or  refused  and not paid  either  by the  Trust or by the  Debenture  Issuer as
guarantor  pursuant to the  Guarantee,  Distributions  on such  Securities  will
continue to accrue at the Distribution Rate from the original Redemption Date to
the  actual  date of  payment,  in which case the  actual  payment  date will be
considered  the date  fixed for  redemption  for  purposes  of  calculating  the
Redemption Price or Special  Redemption Price. In the event of any redemption of
the  Capital  Securities  issued  by the Trust in part,  the Trust  shall not be
required to (i) issue,  register the transfer of or exchange any Security during
a period  beginning at the opening of business fifteen days before any selection
for redemption of the Capital  Securities and ending at the close of business on
the earliest  date on which the relevant  notice of redemption is deemed to have
been given to all  Holders of the Capital  Securities  to be so redeemed or (ii)
register  the  transfer of or exchange  any Capital  Securities  so selected for
redemption,  in whole or in  part,  except  for the  unredeemed  portion  of any
Capital Securities being redeemed in part.

        (iii)   Redemption/Distribution   Notices   shall   be   sent   by   the
Administrators  on  behalf  of  the  Trust  to  (A) in  respect  of the  Capital
Securities, the Holders thereof and (B) in respect of the Common Securities, the
Holder thereof.

        (iv) Subject to the foregoing and  applicable  law  (including,  without
limitation,  United  States  federal  securities  laws),  and provided  that the
acquiror is not the Holder of the Common  Securities  or the  obligor  under the
Indenture,  the Sponsor or any of its subsidiaries may at any time and from time
to time purchase outstanding Capital Securities by tender, in the open market or
by private agreement.


                                      I-8
<PAGE>


     5. Voting Rights - Capital Securities.
        ----------------------------------

        (a) Except as  provided  under  paragraphs  5(b) and 7 and as  otherwise
required by law and the Declaration,  the Holders of the Capital Securities will
have no voting rights.  The Administrators are required to call a meeting of the
Holders of the  Capital  Securities  if directed to do so by Holders of at least
10% in liquidation amount of the Capital Securities.

        (b)  Subject  to the  requirements  of  obtaining  a tax  opinion by the
Institutional Trustee in certain circumstances set forth in the last sentence of
this paragraph,  the Holders of a Majority in liquidation  amount of the Capital
Securities,  voting  separately  as a class,  have the right to direct the time,
method,  and place of conducting any proceeding for any remedy  available to the
Institutional  Trustee,  or  exercising  any trust or power  conferred  upon the
Institutional  Trustee under the Declaration,  including the right to direct the
Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies
available  under the Indenture as the holder of the  Debentures,  (ii) waive any
past default that is waivable under the  Indenture,  (iii) exercise any right to
rescind or annul a declaration that the principal of all the Debentures shall be
due and  payable  or (iv)  consent on behalf of all the  Holders of the  Capital
Securities to any amendment, modification or termination of the Indenture or the
Debentures where such consent shall be required;  provided, however, that, where
a consent or action under the Indenture  would require the consent or act of the
holders of greater  than a simple  majority  in  aggregate  principal  amount of
Debentures (a "Super Majority") affected thereby, the Institutional  Trustee may
only give such  consent  or take such  action at the  written  direction  of the
Holders  of at  least  the  proportion  in  liquidation  amount  of the  Capital
Securities  outstanding  which the relevant  Super  Majority  represents  of the
aggregate principal amount of the Debentures  outstanding.  If the Institutional
Trustee fails to enforce its rights under the Debentures  after the Holders of a
Majority in liquidation  amount of such Capital  Securities have so directed the
Institutional  Trustee,  to the fullest extent permitted by law, a Holder of the
Capital  Securities  may  institute  a legal  proceeding  directly  against  the
Debenture  Issuer  to  enforce  the  Institutional  Trustee's  rights  under the
Debentures   without  first   instituting  any  legal  proceeding   against  the
Institutional  Trustee  or any  other  person  or  entity.  Notwithstanding  the
foregoing,  if an Event of Default has occurred and is continuing and such event
is  attributable  to the  failure of the  Debenture  Issuer to pay  interest  or
principal on the Debentures on the date the interest or principal is payable (or
in the case of redemption,  the Redemption Date or the Special  Redemption Date,
as applicable),  then a Holder of record of the Capital  Securities may directly
institute a proceeding for  enforcement  of payment,  on or after the respective
due dates specified in the Debentures,  to such Holder directly of the principal
of or interest on the Debentures  having an aggregate  principal amount equal to
the aggregate  liquidation  amount of the Capital Securities of such Holder. The
Institutional  Trustee shall notify all Holders of the Capital Securities of any
default  actually  known  to  the  Institutional  Trustee  with  respect  to the
Debentures  unless (x) such  default  has been cured prior to the giving of such
notice  or (y) the  Institutional  Trustee  determines  in good  faith  that the
withholding  of such notice is in the  interest  of the Holders of such  Capital
Securities,  except where the default  relates to the payment of principal of or
interest on any of the  Debentures.  Such notice shall state that such Indenture
Event of Default also  constitutes  an Event of Default  hereunder.  Except with
respect to directing the time, method and place of conducting a proceeding for a
remedy, the Institutional Trustee shall not take any of the actions described in
clauses (i), (ii) or (iii) above unless the  Institutional  Trustee has obtained
an opinion of tax counsel to the effect that,  as a result of such  action,  the
Trust will not be  classified  as other than a grantor  trust for United  States
federal income tax purposes.

     In the event the consent of the Institutional Trustee, as the holder of the
Debentures,  is required  under the  Indenture  with  respect to any  amendment,
modification or termination of the Indenture,  the  Institutional  Trustee shall
request the  direction  of the Holders of the  Securities  with  respect to such
amendment,  modification  or  termination  and shall  vote with  respect to such
amendment,  modification or termination as directed by a Majority in liquidation
amount of the Securities voting together as a single class;  provided,  however,
that  where a  consent  under the  Indenture  would  require  the  consent  of a
Super-Majority,  the  Institutional  Trustee  may only give such  consent at the
direction of the Holders of at least the proportion in liquidation amount of the
Securities  outstanding  which the  relevant  Super-Majority  represents  of the
aggregate  principal  amount of the Debentures  outstanding.  The  Institutional
Trustee shall not take any such action in accordance  with the directions of the
Holders of the  Securities  unless the  Institutional  Trustee  has  obtained an
opinion of tax counsel to the effect that, as a result of such action, the Trust
will not be classified  as other than a grantor trust for United States  federal
income tax purposes.


                                      I-9
<PAGE>


     A waiver of an Indenture  Event of Default will  constitute a waiver of the
corresponding Event of Default hereunder.  Any required approval or direction of
Holders of the Capital  Securities may be given at a separate meeting of Holders
of the Capital Securities  convened for such purpose, at a meeting of all of the
Holders of the  Securities  in the Trust or  pursuant  to written  consent.  The
Institutional Trustee will cause a notice of any meeting at which Holders of the
Capital  Securities  are entitled to vote, or of any matter upon which action by
written  consent of such Holders is to be taken,  to be mailed to each Holder of
record of the Capital  Securities.  Each such  notice  will  include a statement
setting forth the following information (i) the date of such meeting or the date
by which  such  action  is to be taken,  (ii) a  description  of any  resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which  written  consent is sought and (iii)  instructions
for the  delivery of proxies or  consents.  No vote or consent of the Holders of
the  Capital  Securities  will be  required  for the Trust to redeem  and cancel
Capital  Securities or to  distribute  the  Debentures  in  accordance  with the
Declaration and the terms of the Securities.

     Notwithstanding that Holders of the Capital Securities are entitled to vote
or consent under any of the  circumstances  described  above, any of the Capital
Securities  that are owned by the Sponsor or any  Affiliate of the Sponsor shall
not entitle the Holder  thereof to vote or consent  and shall,  for  purposes of
such  vote or  consent,  be  treated  as if such  Capital  Securities  were  not
outstanding.

     In no event will Holders of the Capital  Securities  have the right to vote
to appoint, remove or replace the Administrators, which voting rights are vested
exclusively in the Sponsor as the Holder of all of the Common  Securities of the
Trust.  Under certain  circumstances as more fully described in the Declaration,
Holders  of  Capital  Securities  have the right to vote to  appoint,  remove or
replace the Institutional Trustee and the Delaware Trustee.

     6. Voting Rights - Common Securities.
        ----------------------------------

        (a)  Except  as  provided  under  paragraphs  6(b),  6(c)  and 7 and  as
otherwise  required by law and the Declaration,  the Common Securities will have
no voting rights.

        (b) The Holders of the Common  Securities  are  entitled,  in accordance
with Article IV of the  Declaration,  to vote to appoint,  remove or replace any
Administrators.

        (c) Subject to Section 6.8 of the  Declaration and only after each Event
of Default  (if any) with  respect to the  Capital  Securities  has been  cured,
waived, or otherwise eliminated and subject to the requirements of the second to
last sentence of this paragraph, the Holders of a Majority in liquidation amount
of the Common  Securities,  voting  separately as a class,  may direct the time,
method,  and place of conducting any proceeding for any remedy  available to the
Institutional  Trustee,  or  exercising  any trust or power  conferred  upon the
Institutional  Trustee under the Declaration,  including (i) directing the time,
method,  place of  conducting  any  proceeding  for any remedy  available to the
Debenture  Trustee,  or exercising any trust or power conferred on the Debenture
Trustee  with respect to the  Debentures,  (ii) waiving any past default and its
consequences that is waivable under the Indenture, or (iii) exercising any right
to rescind or annul a declaration that the principal of all the Debentures shall
be due and payable; provided, however, that, where a consent or action under the
Indenture would require a Super  Majority,  the  Institutional  Trustee may only
give such consent or take such action at the written direction of the Holders of
at least the proportion in liquidation amount of the Common Securities which the
relevant  Super  Majority  represents of the aggregate  principal  amount of the
Debentures  outstanding.  Notwithstanding this paragraph 6(c), the Institutional
Trustee shall not revoke any action previously  authorized or approved by a vote
or consent of the Holders of the Capital Securities.  Other than with respect to
directing the time, method and place of conducting any proceeding for any remedy
available to the  Institutional  Trustee or the  Debenture  Trustee as set forth
above,  the  Institutional  Trustee shall not take any action  described in (i),
(ii) or (iii) above, unless the Institutional Trustee has obtained an opinion of
tax counsel to the effect that for the purposes of United States  federal income
tax the Trust will not be classified as other than a grantor trust on account of
such action.  If the  Institutional  Trustee fails to enforce its rights, to the
fullest extent permitted by law, under the Declaration, any Holder of the Common
Securities  may  institute  a legal  proceeding  directly  against any Person to
enforce the Institutional Trustee's rights under the Declaration,  without first
instituting a legal proceeding  against the  Institutional  Trustee or any other
Person.


                                      I-10
<PAGE>


     Any approval or direction of Holders of the Common  Securities may be given
at a separate  meeting of Holders  of the Common  Securities  convened  for such
purpose,  at a meeting of all of the Holders of the  Securities  in the Trust or
pursuant  to  written  consent.  The  Administrators  will cause a notice of any
meeting at which  Holders of the Common  Securities  are entitled to vote, or of
any matter upon which action by written  consent of such Holders is to be taken,
to be mailed to each  Holder of the Common  Securities.  Each such  notice  will
include a statement  setting  forth (i) the date of such  meeting or the date by
which such action is to be taken, (ii) a description of any resolution  proposed
for  adoption at such  meeting on which such  Holders are entitled to vote or of
such matter upon which written consent is sought and (iii)  instructions for the
delivery of proxies or consents.

     No vote or consent of the Holders of the Common Securities will be required
for the Trust to redeem  and  cancel  Common  Securities  or to  distribute  the
Debentures in accordance with the Declaration and the terms of the Securities.

     7. Amendments to Declaration and Indenture.
        ---------------------------------------

        (a)  In  addition  to  any  requirements   under  Section  11.1  of  the
Declaration,  if any proposed amendment to the Declaration  provides for, or the
Trustees,  Sponsor or Administrators otherwise propose to effect, (i) any action
that would  adversely  affect the powers,  preferences  or special rights of the
Securities, whether by way of amendment to the Declaration or otherwise, or (ii)
the  Liquidation  of the Trust,  other than as  described  in Section 7.1 of the
Declaration,  then the Holders of outstanding  Securities,  voting together as a
single  class,  will be entitled to vote on such  amendment or proposal and such
amendment  or proposal  shall not be  effective  except with the approval of the
Holders of at least a Majority in liquidation amount of the Securities, affected
thereby;  provided,  however, if any amendment or proposal referred to in clause
(i) above would adversely affect only the Capital  Securities or only the Common
Securities,  then  only the  affected  class  will be  entitled  to vote on such
amendment  or proposal  and such  amendment  or proposal  shall not be effective
except with the  approval of a Majority in  liquidation  amount of such class of
Securities.

        (b) In the event the consent of the Institutional  Trustee as the holder
of the Debentures is required under the Indenture with respect to any amendment,
modification   or   termination  of  the  Indenture  or  the   Debentures,   the
Institutional  Trustee shall request the written direction of the Holders of the
Securities with respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification, or termination as directed by
a Majority in liquidation  amount of the Securities  voting together as a single
class; provided, however, that where a consent under the Indenture would require
a Super Majority,  the  Institutional  Trustee may only give such consent at the
direction of the Holders of at least the proportion in liquidation amount of the
Securities  which  the  relevant  Super  Majority  represents  of the  aggregate
principal amount of the Debentures outstanding.


                                      I-11
<PAGE>


        (c) Notwithstanding  the foregoing,  no amendment or modification may be
made to the  Declaration if such amendment or  modification  would (i) cause the
Trust to be classified for purposes of United States federal income  taxation as
other than a grantor trust, (ii) reduce or otherwise adversely affect the powers
of the Institutional Trustee or (iii) cause the Trust to be deemed an Investment
Company which is required to be registered under the Investment Company Act.

        (d) Notwithstanding  any provision of the Declaration,  the right of any
Holder of the Capital  Securities to receive payment of distributions  and other
payments upon redemption or otherwise,  on or after their  respective due dates,
or to institute a suit for the  enforcement of any such payment on or after such
respective dates,  shall not be impaired or affected without the consent of such
Holder. For the protection and enforcement of the foregoing provision,  each and
every Holder of the Capital  Securities  shall be entitled to such relief as can
be given either at law or equity.

     8. Pro Rata. A reference in these terms of the  Securities  to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of  the  Securities  according  to  the  aggregate  liquidation  amount  of  the
Securities held by the relevant Holder in relation to the aggregate  liquidation
amount of all Securities then outstanding  unless, in relation to a payment,  an
Event of  Default  has  occurred  and is  continuing,  in which  case any  funds
available to make such payment shall be paid first to each Holder of the Capital
Securities Pro Rata according to the aggregate liquidation amount of the Capital
Securities  held by the relevant  Holder  relative to the aggregate  liquidation
amount of all Capital Securities outstanding, and only after satisfaction of all
amounts  owed to the  Holders of the Capital  Securities,  to each Holder of the
Common Securities Pro Rata according to the aggregate  liquidation amount of the
Common  Securities  held  by the  relevant  Holder  relative  to  the  aggregate
liquidation amount of all Common Securities outstanding.

     9. Ranking. The Capital Securities rank pari passu with and payment thereon
shall be made Pro Rata with the Common Securities except that, where an Event of
Default  has  occurred  and is  continuing,  the rights of Holders of the Common
Securities to receive payment of  Distributions  and payments upon  liquidation,
redemption  and otherwise are  subordinated  to the rights of the Holders of the
Capital  Securities with the result that no payment of any  Distribution  on, or
Redemption Price (or Special  Redemption Price) of, any Common Security,  and no
other payment on account of  redemption,  liquidation  or other  acquisition  of
Common  Securities,  shall  be  made  unless  payment  in  full  in  cash of all
accumulated and unpaid  Distributions on all outstanding  Capital Securities for
all  distribution  periods  terminating on or prior  thereto,  or in the case of
payment of the Redemption Price (or Special Redemption Price) the full amount of
such Redemption Price (or Special  Redemption Price) on all outstanding  Capital
Securities then called for redemption, shall have been made or provided for, and
all funds  immediately  available to the  Institutional  Trustee  shall first be
applied  to the  payment  in  full  in  cash  of all  Distributions  on,  or the
Redemption Price (or Special  Redemption Price) of, the Capital  Securities then
due and payable.

     10.  Acceptance  of  Guarantee  and  Indenture.  Each Holder of the Capital
Securities  and the Common  Securities,  by the  acceptance of such  Securities,
agrees  to  the  provisions  of  the  Guarantee,   including  the  subordination
provisions therein and to the provisions of the Indenture.

     11. No  Preemptive  Rights.  The  Holders of the  Securities  shall have no
preemptive or similar rights to subscribe for any additional securities.


                                      I-12
<PAGE>


     12.  Miscellaneous.  These terms constitute a part of the Declaration.  The
Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture
to a Holder  without  charge on written  request to the Sponsor at its principal
place of business.


                                      I-13
<PAGE>


                                   EXHIBIT A-1

                      FORM OF CAPITAL SECURITY CERTIFICATE

                           [FORM OF FACE OF SECURITY]

     THIS  CAPITAL  SECURITY  IS A GLOBAL  SECURITY  WITHIN  THE  MEANING OF THE
DECLARATION  HEREINAFTER  REFERRED  TO AND IS  REGISTERED  IN  THE  NAME  OF THE
DEPOSITORY  TRUST COMPANY ("DTC") OR A NOMINEE OF DTC. THIS CAPITAL  SECURITY IS
EXCHANGEABLE  FOR CAPITAL  SECURITIES  REGISTERED  IN THE NAME OF A PERSON OTHER
THAN DTC OR ITS  NOMINEE  ONLY IN THE  LIMITED  CIRCUMSTANCES  DESCRIBED  IN THE
DECLARATION,  AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF
THIS  CAPITAL  SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF
DTC TO DTC OR  ANOTHER  NOMINEE  OF DTC) MAY BE  REGISTERED  EXCEPT  IN  LIMITED
CIRCUMSTANCES.

     UNLESS THIS CAPITAL  SECURITY IS PRESENTED BY AN AUTHORIZED  REPRESENTATIVE
OF DTC TO FOUR OAKS STATUTORY TRUST I OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT,  AND ANY CAPITAL  SECURITY ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT  HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED  REPRESENTATIVE  OF DTC), ANY TRANSFER,  PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

     THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED  (THE  "SECURITIES  ACT"),  ANY  STATE  SECURITIES  LAWS  OR  ANY  OTHER
APPLICABLE   SECURITIES   LAW.   NEITHER  THIS  SECURITY  NOR  ANY  INTEREST  OR
PARTICIPATION  HEREIN MAY BE REOFFERED,  SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED,
ENCUMBERED  OR  OTHERWISE  DISPOSED  OF IN THE ABSENCE OF SUCH  REGISTRATION  OR
UNLESS SUCH  TRANSACTION  IS EXEMPT  FROM,  OR NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE
HOLDER OF THIS  SECURITY  BY ITS  ACCEPTANCE  HEREOF  AGREES  TO OFFER,  SELL OR
OTHERWISE  TRANSFER  THIS  SECURITY  ONLY (A) TO THE  SPONSOR OR THE TRUST,  (B)
PURSUANT TO A REGISTRATION  STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES  ACT,  (C) TO A  PERSON  WHOM THE  SELLER  REASONABLY  BELIEVES  IS A
QUALIFIED  INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A SO LONG AS THIS  SECURITY IS ELIGIBLE  FOR RESALE  PURSUANT TO RULE 144A IN
ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S.  PERSON IN AN OFFSHORE  TRANSACTION
IN ACCORDANCE  WITH RULE 903 OR RULE 904 (AS  APPLICABLE)  OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN  INSTITUTIONAL  "ACCREDITED  INVESTOR"  WITHIN THE
MEANING  OF  SUBPARAGRAPH  (A) OF RULE  501  UNDER  THE  SECURITIES  ACT THAT IS
ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT,  OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL  ACCREDITED  INVESTOR,  FOR INVESTMENT  PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION  WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES  ACT,  SUBJECT TO THE SPONSOR'S AND
THE  TRUST'S  RIGHT  PRIOR TO ANY SUCH  OFFER,  SALE OR  TRANSFER TO REQUIRE THE
DELIVERY  OF AN OPINION  OF  COUNSEL,  CERTIFICATION  AND/OR  OTHER  INFORMATION
SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE DECLARATION OF TRUST, A COPY
OF WHICH MAY BE  OBTAINED  FROM THE SPONSOR OR THE TRUST.  HEDGING  TRANSACTIONS
INVOLVING  THIS  SECURITY MAY NOT BE  CONDUCTED  UNLESS IN  COMPLIANCE  WITH THE
SECURITIES ACT.


                                     A-1-1
<PAGE>


     THE  HOLDER  OF  THIS  SECURITY  BY  ITS  ACCEPTANCE  HEREOF  ALSO  AGREES,
REPRESENTS  AND  WARRANTS  THAT  IT  IS  NOT  AN  EMPLOYEE  BENEFIT,  INDIVIDUAL
RETIREMENT  ACCOUNT  OR  OTHER  PLAN OR  ARRANGEMENT  SUBJECT  TO TITLE I OF THE
EMPLOYEE  RETIREMENT  INCOME  SECURITY  ACT OF 1974,  AS AMENDED  ("ERISA"),  OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH
A "PLAN"),  OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON
OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF
ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH
PURCHASER  OR HOLDER IS  ELIGIBLE  FOR  EXEMPTIVE  RELIEF  AVAILABLE  UNDER U.S.
DEPARTMENT OF LABOR PROHIBITED  TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38,
90-1 OR 84-14 OR ANOTHER  APPLICABLE  EXEMPTION  OR ITS  PURCHASE AND HOLDING OF
THIS  SECURITY IS NOT  PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE WITH RESPECT TO SUCH  PURCHASE OR HOLDING.  ANY  PURCHASER OR HOLDER OF THE
SECURITIES  OR ANY INTEREST  THEREIN WILL BE DEEMED TO HAVE  REPRESENTED  BY ITS
PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE  BENEFIT PLAN
WITHIN THE MEANING OF SECTION 3(3) OF ERISA,  OR A PLAN TO WHICH SECTION 4975 OF
THE CODE IS  APPLICABLE,  A  TRUSTEE  OR OTHER  PERSON  ACTING  ON  BEHALF OF AN
EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF
ANY  EMPLOYEE  BENEFIT  PLAN OR PLAN TO  FINANCE  SUCH  PURCHASE,  OR (ii)  SUCH
PURCHASE WILL NOT RESULT IN A PROHIBITED  TRANSACTION UNDER SECTION 406 OF ERISA
OR  SECTION  4975 OF THE CODE FOR  WHICH  THERE IS NO  APPLICABLE  STATUTORY  OR
ADMINISTRATIVE EXEMPTION.

     THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A
LIQUIDATION  AMOUNT OF NOT LESS THAN  $100,000.00 (100 SECURITIES) AND MULTIPLES
OF $1,000.00 IN EXCESS THEREOF.  ANY ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK
HAVING A LIQUIDATION  AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED TO BE VOID
AND OF NO LEGAL EFFECT WHATSOEVER.

     THE HOLDER OF THIS  SECURITY  AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.

     IN CONNECTION  WITH ANY TRANSFER,  THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY
THE  DECLARATION  TO  CONFIRM  THAT THE  TRANSFER  COMPLIES  WITH THE  FOREGOING
RESTRICTIONS.

     Certificate Number P-1                            12,000 Capital Securities
     [CUSIP NO. [_______] ]

                                 March 30, 2006

             Certificate Evidencing Floating Rate Capital Securities

                                       of

                           Four Oaks Statutory Trust I

               (liquidation amount $1,000.00 per Capital Security)


                                     A-1-2
<PAGE>


     Four Oaks  Statutory  Trust I, a statutory  trust created under the laws of
the State of  Delaware  (the  "Trust"),  hereby  certifies  that Cede & Co. (the
"Holder")  is  the  registered   owner  of  capital   securities  of  the  Trust
representing  undivided  beneficial  interests  in  the  assets  of  the  Trust,
(liquidation amount $1,000.00 per capital security) (the "Capital  Securities").
Subject to the  Declaration  (as  defined  below),  the Capital  Securities  are
transferable  on the  books  and  records  of the  Trust in  person or by a duly
authorized  attorney,  upon surrender of this  Certificate  duly endorsed and in
proper form for transfer.  The Capital Securities  represented hereby are issued
pursuant to, and the designation, rights, privileges, restrictions,  preferences
and other terms and provisions of the Capital  Securities  shall in all respects
be subject to, the  provisions of the Amended and Restated  Declaration of Trust
of the Trust dated as of March 30, 2006,  among Ayden R. Lee, Jr., Nancy S. Wise
and Wanda J. Blow, as  Administrators,  Wilmington  Trust  Company,  as Delaware
Trustee,  Wilmington Trust Company, as Institutional Trustee, Four Oaks Fincorp,
Inc.,  as Sponsor,  and the holders  from time to time of  undivided  beneficial
interests in the assets of the Trust,  including the designation of the terms of
the Capital  Securities  as set forth in Annex I to such  amended  and  restated
declaration  as the same may be amended  from time to time (the  "Declaration").
Capitalized  terms used herein but not defined shall have the meaning given them
in the  Declaration.  The Holder is entitled to the benefits of the Guarantee to
the extent provided therein. The Sponsor will provide a copy of the Declaration,
the  Guarantee,  and the  Indenture  to the Holder  without  charge upon written
request to the Sponsor at its principal place of business.

     Upon receipt of this Security,  the Holder is bound by the  Declaration and
is entitled to the benefits thereunder.

     By acceptance  of this  Security,  the Holder  agrees to treat,  for United
States  federal  income tax purposes,  the  Debentures as  indebtedness  and the
Capital Securities as evidence of beneficial ownership in the Debentures.

     This Capital Security is governed by, and construed in accordance with, the
laws of the State of Delaware, without regard to principles of conflict of laws.

                       Signatures appear on following page


                                     A-1-3
<PAGE>


     IN WITNESS WHEREOF, the Trust has duly executed this certificate.

                                                    FOUR OAKS STATUTORY TRUST I


                                                    By:
                                                       -------------------------
                                                       Name:
                                                       Title: Administrator


                          CERTIFICATE OF AUTHENTICATION

     This is one of the Capital Securities  referred to in the  within-mentioned
Declaration.


                                                    WILMINGTON TRUST COMPANY,
                                                    as the Institutional Trustee


                                                    By:
                                                       -------------------------
                                                           Authorized Officer


                                     A-1-4
<PAGE>


                      [FORM OF REVERSE OF CAPITAL SECURITY]

     Distributions payable on each Capital Security will be payable at an annual
rate equal to [RATE]% beginning on (and including) the date of original issuance
and ending on (but excluding) the Distribution  Payment Date in June 2006 and at
an annual rate for each  successive  period  beginning  on (and  including)  the
Distribution Payment Date in June 2006, and each succeeding Distribution Payment
Date, and ending on (but  excluding) the next  succeeding  Distribution  Payment
Date (each a  "Distribution  Period"),  equal to 3-Month  LIBOR,  determined  as
described  below,  plus  1.35%  (the  "Coupon  Rate"),  applied  to  the  stated
liquidation  amount of $1,000.00 per Capital Security,  such rate being the rate
of interest payable on the Debentures to be held by the  Institutional  Trustee.
Distributions in arrears will bear interest thereon compounded  quarterly at the
Distribution  Rate  (to the  extent  permitted  by  applicable  law).  The  term
"Distributions"  as  used  herein  includes  cash  distributions  and  any  such
compounded  distributions unless otherwise noted. A Distribution is payable only
to the extent that  payments are made in respect of the  Debentures  held by the
Institutional  Trustee  and to the extent the  Institutional  Trustee  has funds
available therefor. As used herein,  "Determination Date" means the date that is
two London  Banking Days (i.e.,  a business day in which dealings in deposits in
U.S.  dollars are  transacted  in the London  interbank  market)  preceding  the
commencement of the relevant Distribution Period. The amount of the Distribution
payable  for  any  Distribution  Period  will  be  calculated  by  applying  the
Distribution  Rate  to  the  stated   liquidation   amount  outstanding  at  the
commencement  of the  Distribution  Period on the basis of the actual  number of
days in the Distribution Period concerned divided by 360.

     "3-Month LIBOR" as used herein, means the London interbank offered interest
rate for three-month U.S. dollar deposits determined by the Debenture Trustee in
the following  order of priority:  (i) the rate  (expressed as a percentage  per
annum) for U.S. dollar  deposits  having a three-month  maturity that appears on
Telerate Page 3750 as of 11:00 a.m.  (London time) on the related  Determination
Date  ("Telerate  Page 3750" means the display  designated as "Page 3750" on the
Moneyline  Telerate  Service or such other page as may replace Page 3750 on that
service or such other  service or  services as may be  nominated  by the British
Bankers'  Association  as the  information  vendor for the purpose of displaying
London  interbank  offered rates for U.S.  dollar  deposits);  (ii) if such rate
cannot be identified on the related  Determination  Date, the Debenture  Trustee
will request the  principal  London  offices of four leading banks in the London
interbank  market to  provide  such  banks'  offered  quotations  (expressed  as
percentages  per annum) to prime banks in the London  interbank  market for U.S.
dollar deposits having a three-month  maturity as of 11:00 a.m. (London time) on
such Determination Date. If at least two quotations are provided,  3-Month LIBOR
will be the  arithmetic  mean of such  quotations;  (iii) if fewer than two such
quotations are provided as requested in clause (ii) above, the Debenture Trustee
will  request  four  major New York City banks to provide  such  banks'  offered
quotations  (expressed as percentages  per annum) to leading  European banks for
loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date.
If at  least  two  such  quotations  are  provided,  3-Month  LIBOR  will be the
arithmetic mean of such  quotations;  and (iv) if fewer than two such quotations
are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month
LIBOR determined with respect to the Distribution  Period immediately  preceding
such current  Distribution Period. If the rate for U.S. dollar deposits having a
three-month  maturity that  initially  appears on Telerate Page 3750 as of 11:00
a.m.  (London  time) on the  related  Determination  Date is  superseded  on the
Telerate  Page 3750 by a  corrected  rate by 12:00  noon  (London  time) on such
Determination  Date, then the corrected rate as so substituted on the applicable
page will be the applicable 3-Month LIBOR for such Determination Date.

     The Distribution Rate for any Distribution Period will at no time be higher
than the maximum rate then permitted by New York law as the same may be modified
by United States law.

     All percentages  resulting from any calculations on the Capital  Securities
will be  rounded,  if  necessary,  to the nearest  one  hundred-thousandth  of a
percentage point, with five  one-millionths of a percentage point rounded upward
(e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all
dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent (with one-half cent being rounded upward)).


                                     A-1-5
<PAGE>


     Except  as  otherwise   described  below,   Distributions  on  the  Capital
Securities  will be cumulative,  will accrue from the date of original  issuance
and will be payable  quarterly in arrears on March 15, June 15, September 15 and
December 15 of each year or if any such day is not a Business Day, then the next
succeeding Business Day (each such day, a "Distribution Payment Date") (it being
understood that interest accrues for any such non-Business  Day),  commencing on
the  Distribution  Payment Date in June 2006. The Debenture Issuer has the right
under the Indenture to defer payments of interest on the Debentures,  so long as
no  Acceleration  Event of Default has occurred and is continuing,  by extending
the interest payment period for up to 20 consecutive  quarterly periods (each an
"Extension Period") at any time and from time to time on the Debentures, subject
to the conditions  described  below,  during which Extension  Period no interest
shall be due and payable. During any Extension Period, interest will continue to
accrue on the Debentures,  and interest on such accrued  interest will accrue at
an annual rate equal to the Distribution  Rate in effect for each such Extension
Period, compounded quarterly from the date such interest would have been payable
were it not for the  Extension  Period,  to the  extent  permitted  by law (such
interest referred to herein as "Additional  Interest").  No Extension Period may
end on a date other than a  Distribution  Payment  Date.  At the end of any such
Extension  Period,  the Debenture Issuer shall pay all interest then accrued and
unpaid on the Debentures (together with Additional Interest thereon);  provided,
however,  that no Extension Period may extend beyond the Maturity Date. Prior to
the termination of any Extension Period, the Debenture Issuer may further extend
such  period,  provided  that such period  together  with all such  previous and
further consecutive extensions thereof shall not exceed 20 consecutive quarterly
periods,  or extend  beyond  the  Maturity  Date.  Upon the  termination  of any
Extension  Period and upon the payment of all accrued  and unpaid  interest  and
Additional  Interest,  the Debenture Issuer may commence a new Extension Period,
subject to the foregoing requirements.  No interest or Additional Interest shall
be due and payable during an Extension  Period,  except at the end thereof,  but
each  installment  of interest  that would  otherwise  have been due and payable
during  such  Extension  Period  shall  bear  Additional  Interest.  During  any
Extension Period,  Distributions on the Capital Securities shall be deferred for
a period equal to the Extension  Period.  If  Distributions  are  deferred,  the
Distributions  due shall be paid on the date that the related  Extension  Period
terminates, to Holders of the Securities as they appear on the books and records
of the Trust on the record date immediately  preceding such date.  Distributions
on the Securities  must be paid on the dates payable (after giving effect to any
Extension  Period)  to the  extent  that the Trust has funds  available  for the
payment of such  distributions in the Property Account of the Trust. The Trust's
funds  available  for  Distribution  to the  Holders of the  Securities  will be
limited  to  payments  received  from  the  Debenture  Issuer.  The  payment  of
Distributions  out of moneys held by the Trust is  guaranteed  by the  Guarantor
pursuant to the Guarantee.

     The Capital Securities shall be redeemable as provided in the Declaration.


                                     A-1-6
<PAGE>


                                   ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital
Security Certificate to:

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

     (Insert assignee's social security or tax identification number)
                                                                     ------

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

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


     (Insert address and zip code of assignee) and irrevocably appoints

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


     agent to transfer this Capital Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.

     Date:
          --------------------------------------

     Signature:
               ---------------------------------

     (Sign exactly as your name appears on the other side of this Capital
Security Certificate)

     Signature Guarantee:(1)

_____________________________
(1) Signature must be guaranteed by an "eligible guarantor  institution" that is
a bank,  stockbroker,  savings and loan  association or credit union meeting the
requirements of the Security registrar, which requirements include membership or
participation in the Securities  Transfer Agents Medallion  Program ("STAMP") or
such other  "signature  guarantee  program" as may be determined by the Security
registrar in addition to, or in substitution  for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.


                                     A-1-7
<PAGE>


                                   EXHIBIT A-2

                       FORM OF COMMON SECURITY CERTIFICATE

     THIS COMMON  SECURITY HAS NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION.

     THIS CERTIFICATE IS NOT TRANSFERABLE  EXCEPT IN COMPLIANCE WITH SECTION 8.1
OF THE DECLARATION.

     Certificate Number C-1 372                          Common Securities

                                 March 30, 2006

             Certificate Evidencing Floating Rate Common Securities

                                       of

                           Four Oaks Statutory Trust I

     Four Oaks  Statutory  Trust I, a statutory  trust created under the laws of
the State of Delaware (the  "Trust"),  hereby  certifies that Four Oaks Fincorp,
Inc. (the  "Holder") is the registered  owner of common  securities of the Trust
representing  undivided  beneficial  interests  in the  assets of the Trust (the
"Common  Securities").  The  Common  Securities  represented  hereby  are issued
pursuant to, and the designation, rights, privileges, restrictions,  preferences
and other terms and provisions of the Common Securities shall in all respects be
subject to, the  provisions of the Amended and Restated  Declaration of Trust of
the Trust dated as of March 30, 2006, among Ayden R. Lee, Jr., Nancy S. Wise and
Wanda J. Blow, as Administrators, Wilmington Trust Company, as Delaware Trustee,
Wilmington Trust Company, as Institutional  Trustee, Four Oaks Fincorp, Inc., as
Sponsor,  and the holders from time to time of undivided  beneficial interest in
the assets of the Trust  including  the  designation  of the terms of the Common
Securities as set forth in Annex I to such amended and restated declaration,  as
the same may be amended from time to time (the "Declaration"). Capitalized terms
used  herein  but  not  defined  shall  have  the  meaning  given  them  in  the
Declaration.  The Holder is entitled to the  benefits  of the  Guarantee  to the
extent provided therein. The Sponsor will provide a copy of the Declaration, the
Guarantee and the Indenture to the Holder without charge upon written request to
the Sponsor at its principal place of business.

     As set forth in the Declaration,  when an Event of Default has occurred and
is continuing,  the rights of Holders of Common Securities to payment in respect
of  Distributions  and payments  upon  Liquidation,  redemption or otherwise are
subordinated to the rights of payment of Holders of the Capital Securities.

     Upon receipt of this  Certificate,  the Holder is bound by the  Declaration
and is entitled to the benefits thereunder.

     By acceptance of this  Certificate,  the Holder agrees to treat, for United
States  federal  income tax purposes,  the  Debentures as  indebtedness  and the
Common  Securities  as  evidence  of  undivided   beneficial  ownership  in  the
Debentures.

     This Common Security is governed by, and construed in accordance  with, the
laws of the State of Delaware, without regard to principles of conflict of laws.


                                     A-2-1
<PAGE>


     IN WITNESS WHEREOF, the Trust has duly executed this certificate.

                                                     FOUR OAKS STATUTORY TRUST I


                                                     By:
                                                        ------------------------
                                                        Name:
                                                        Title: Administrator


                                     A-2-2
<PAGE>


                      [FORM OF REVERSE OF COMMON SECURITY]

     Distributions  payable on each Common Security will be payable at an annual
rate equal to [RATE]% beginning on (and including) the date of original issuance
and ending on (but excluding) the Distribution  Payment Date in June 2006 and at
an annual rate for each  successive  period  beginning  on (and  including)  the
Distribution Payment Date in June 2006, and each succeeding Distribution Payment
Date, and ending on (but  excluding) the next  succeeding  Distribution  Payment
Date (each a  "Distribution  Period"),  equal to 3-Month  LIBOR,  determined  as
described  below,  plus  1.35%  (the  "Coupon  Rate"),  applied  to  the  stated
liquidation amount of $1,000.00 per Common Security, such rate being the rate of
interest  payable on the  Debentures  to be held by the  Institutional  Trustee.
Distributions in arrears will bear interest thereon compounded  quarterly at the
Distribution  Rate  (to the  extent  permitted  by  applicable  law).  The  term
"Distributions"  as  used  herein  includes  cash  distributions  and  any  such
compounded  distributions unless otherwise noted. A Distribution is payable only
to the extent that  payments are made in respect of the  Debentures  held by the
Institutional  Trustee  and to the extent the  Institutional  Trustee  has funds
available therefor. As used herein,  "Determination Date" means the date that is
two London  Banking Days (i.e.,  a business day in which dealings in deposits in
U.S.  dollars are  transacted  in the London  interbank  market)  preceding  the
commencement of the relevant Distribution Period. The amount of the Distribution
payable  for  any  Distribution  Period  will  be  calculated  by  applying  the
Distribution  Rate  to  the  stated   liquidation   amount  outstanding  at  the
commencement  of the  Distribution  Period on the basis of the actual  number of
days in the Distribution Period concerned divided by 360.

     "3-Month LIBOR" as used herein, means the London interbank offered interest
rate for three-month U.S. dollar deposits determined by the Debenture Trustee in
the following  order of priority:  (i) the rate  (expressed as a percentage  per
annum) for U.S. dollar  deposits  having a three-month  maturity that appears on
Telerate Page 3750 as of 11:00 a.m.  (London time) on the related  Determination
Date  ("Telerate  Page 3750" means the display  designated as "Page 3750" on the
Moneyline  Telerate  Service or such other page as may replace Page 3750 on that
service or such other  service or  services as may be  nominated  by the British
Bankers'  Association  as the  information  vendor for the purpose of displaying
London  interbank  offered rates for U.S.  dollar  deposits);  (ii) if such rate
cannot be identified on the related  Determination  Date, the Debenture  Trustee
will request the  principal  London  offices of four leading banks in the London
interbank  market to  provide  such  banks'  offered  quotations  (expressed  as
percentages  per annum) to prime banks in the London  interbank  market for U.S.
dollar deposits having a three-month  maturity as of 11:00 a.m. (London time) on
such Determination Date. If at least two quotations are provided,  3-Month LIBOR
will be the  arithmetic  mean of such  quotations;  (iii) if fewer than two such
quotations are provided as requested in clause (ii) above, the Debenture Trustee
will  request  four  major New York City banks to provide  such  banks'  offered
quotations  (expressed as percentages  per annum) to leading  European banks for
loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date.
If at  least  two  such  quotations  are  provided,  3-Month  LIBOR  will be the
arithmetic mean of such  quotations;  and (iv) if fewer than two such quotations
are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month
LIBOR determined with respect to the Distribution  Period immediately  preceding
such current  Distribution Period. If the rate for U.S. dollar deposits having a
three-month  maturity that  initially  appears on Telerate Page 3750 as of 11:00
a.m.  (London  time) on the  related  Determination  Date is  superseded  on the
Telerate  Page 3750 by a  corrected  rate by 12:00  noon  (London  time) on such
Determination  Date, then the corrected rate as so substituted on the applicable
page will be the applicable 3-Month LIBOR for such Determination Date.

     The Distribution Rate for any Distribution Period will at no time be higher
than the maximum rate then permitted by New York law as the same may be modified
by United States law.

     All percentages  resulting from any  calculations on the Common  Securities
will be  rounded,  if  necessary,  to the nearest  one  hundred-thousandth  of a
percentage point, with five  one-millionths of a percentage point rounded upward
(e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all
dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent (with one-half cent being rounded upward)).


                                     A-2-3
<PAGE>


     Except as otherwise described below, Distributions on the Common Securities
will be cumulative,  will accrue from the date of original  issuance and will be
payable  quarterly in arrears on March 15, June 15, September 15 and December 15
of each year or if any such day is not a Business Day, then the next  succeeding
Business Day (each such day, a "Distribution Payment Date") (it being understood
that  interest  accrues  for  any  such  non-Business  Day),  commencing  on the
Distribution Payment Date in June 2006. The Debenture Issuer has the right under
the  Indenture to defer  payments of interest on the  Debentures,  so long as no
Acceleration  Event of Default has occurred and is continuing,  by extending the
interest  payment  period for up to 20  consecutive  quarterly  periods (each an
"Extension Period") at any time and from time to time on the Debentures, subject
to the conditions  described  below,  during which Extension  Period no interest
shall be due and payable. During any Extension Period, interest will continue to
accrue on the Debentures,  and interest on such accrued  interest will accrue at
an annual rate equal to the Distribution  Rate in effect for each such Extension
Period, compounded quarterly from the date such interest would have been payable
were it not for the  Extension  Period,  to the  extent  permitted  by law (such
interest referred to herein as "Additional  Interest").  No Extension Period may
end on a date other than a  Distribution  Payment  Date.  At the end of any such
Extension  Period,  the Debenture Issuer shall pay all interest then accrued and
unpaid on the Debentures (together with Additional Interest thereon);  provided,
however,  that no Extension Period may extend beyond the Maturity Date. Prior to
the termination of any Extension Period, the Debenture Issuer may further extend
such  period,  provided  that such period  together  with all such  previous and
further consecutive extensions thereof shall not exceed 20 consecutive quarterly
periods,  or extend  beyond  the  Maturity  Date.  Upon the  termination  of any
Extension  Period and upon the payment of all accrued  and unpaid  interest  and
Additional  Interest,  the Debenture Issuer may commence a new Extension Period,
subject to the foregoing requirements.  No interest or Additional Interest shall
be due and payable during an Extension  Period,  except at the end thereof,  but
each  installment  of interest  that would  otherwise  have been due and payable
during  such  Extension  Period  shall  bear  Additional  Interest.  During  any
Extension Period, Distributions on the Common Securities shall be deferred for a
period  equal to the  Extension  Period.  If  Distributions  are  deferred,  the
Distributions  due shall be paid on the date that the related  Extension  Period
terminates, to Holders of the Securities as they appear on the books and records
of the Trust on the record date immediately  preceding such date.  Distributions
on the Securities  must be paid on the dates payable (after giving effect to any
Extension  Period)  to the  extent  that the Trust has funds  available  for the
payment of such  distributions in the Property Account of the Trust. The Trust's
funds  available  for  Distribution  to the  Holders of the  Securities  will be
limited to payments received from the Debenture Issuer.

     The Common Securities shall be redeemable as provided in the Declaration.


                                     A-2-4
<PAGE>


                                   ASSIGNMENT

     FOR VALUE  RECEIVED,  the  undersigned  assigns and  transfers  this Common
Security Certificate to:

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

     (Insert assignee's social security or tax identification number)
                                                                     ------

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

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

     (Insert address and zip code of assignee) and irrevocably appoints

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


     ______________________________________________________________________agent
     to transfer this Common Security Certificate on the books of the Trust. The
     agent may substitute another to act for him or her.

     Date:
          ---------------------------------------

     Signature:
               ----------------------------------

     (Sign exactly as your name appears on the other side of this Common
     Security Certificate)

     Signature:
               ----------------------------------

     (Sign exactly as your name appears on the other side of this Common
     Security Certificate)

     Signature Guarantee(2)



_________________________________
(2) Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union, meeting the
requirements of the Security registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Security
registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.


                                     A-2-5
<PAGE>


                                    EXHIBIT B

                          SPECIMEN OF INITIAL DEBENTURE

         FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE

     THIS SECURITY IS NOT A SAVINGS  ACCOUNT OR DEPOSIT AND IT IS NOT INSURED BY
THE  UNITED  STATES OR ANY AGENCY OR FUND OF THE UNITED  STATES,  INCLUDING  THE
FEDERAL DEPOSIT INSURANCE CORPORATION.

     THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED  (THE  "SECURITIES  ACT"),  ANY  STATE  SECURITIES  LAWS  OR  ANY  OTHER
APPLICABLE   SECURITIES   LAW.   NEITHER  THIS  SECURITY  NOR  ANY  INTEREST  OR
PARTICIPATION  HEREIN MAY BE REOFFERED,  SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED,
ENCUMBERED  OR  OTHERWISE  DISPOSED  OF IN THE ABSENCE OF SUCH  REGISTRATION  OR
UNLESS SUCH  TRANSACTION  IS EXEMPT  FROM,  OR NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE
HOLDER OF THIS  SECURITY  BY ITS  ACCEPTANCE  HEREOF  AGREES  TO OFFER,  SELL OR
OTHERWISE  TRANSFER  THIS  SECURITY  ONLY (A) TO THE COMPANY,  (B) PURSUANT TO A
REGISTRATION  STATEMENT  THAT HAS BEEN DECLARED  EFFECTIVE  UNDER THE SECURITIES
ACT,  (C) TO A  PERSON  WHOM  THE  SELLER  REASONABLY  BELIEVES  IS A  QUALIFIED
INSTITUTIONAL  BUYER IN A TRANSACTION  MEETING THE  REQUIREMENTS OF RULE 144A SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE
WITH  RULE  144A,  (D)  TO A  NON-U.S.  PERSON  IN AN  OFFSHORE  TRANSACTION  IN
ACCORDANCE  WITH RULE 903 OR RULE 904 (AS  APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH  (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
SECURITY  FOR  ITS OWN  ACCOUNT,  OR FOR THE  ACCOUNT  OF SUCH AN  INSTITUTIONAL
ACCREDITED  INVESTOR,  FOR  INVESTMENT  PURPOSES  AND NOT WITH A VIEW TO, OR FOR
OFFER  OR  SALE  IN  CONNECTION  WITH,  ANY  DISTRIBUTION  IN  VIOLATION  OF THE
SECURITIES  ACT,  OR (F)  PURSUANT  TO ANY OTHER  AVAILABLE  EXEMPTION  FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT
PRIOR TO ANY SUCH OFFER,  SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION
OF  COUNSEL,  CERTIFICATION  AND/OR  OTHER  INFORMATION  SATISFACTORY  TO  IT IN
ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.

     THE  HOLDER  OF  THIS  SECURITY  BY  ITS  ACCEPTANCE  HEREOF  ALSO  AGREES,
REPRESENTS  AND  WARRANTS  THAT  IT  IS  NOT  AN  EMPLOYEE  BENEFIT,  INDIVIDUAL
RETIREMENT  ACCOUNT  OR  OTHER  PLAN OR  ARRANGEMENT  SUBJECT  TO TITLE I OF THE
EMPLOYEE  RETIREMENT  INCOME  SECURITY  ACT OF 1974,  AS AMENDED  ("ERISA"),  OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH
A "PLAN"),  OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON
OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF
ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH
PURCHASER  OR HOLDER IS  ELIGIBLE  FOR  EXEMPTIVE  RELIEF  AVAILABLE  UNDER U.S.
DEPARTMENT OF LABOR PROHIBITED  TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38,
90-1 OR 84-14 OR ANOTHER  APPLICABLE  EXEMPTION  OR ITS  PURCHASE AND HOLDING OF
THIS  SECURITY IS NOT  PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE WITH RESPECT TO SUCH  PURCHASE OR HOLDING.  ANY  PURCHASER OR HOLDER OF THE
SECURITIES  OR ANY INTEREST  THEREIN WILL BE DEEMED TO HAVE  REPRESENTED  BY ITS
PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE  BENEFIT PLAN
WITHIN THE MEANING OF SECTION 3(3) OF ERISA,  OR A PLAN TO WHICH SECTION 4975 OF
THE CODE IS  APPLICABLE,  A  TRUSTEE  OR OTHER  PERSON  ACTING  ON  BEHALF OF AN
EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF
ANY  EMPLOYEE  BENEFIT  PLAN OR PLAN TO  FINANCE  SUCH  PURCHASE,  OR (ii)  SUCH
PURCHASE WILL NOT RESULT IN A PROHIBITED  TRANSACTION UNDER SECTION 406 OF ERISA
OR  SECTION  4975 OF THE CODE FOR  WHICH  THERE IS NO  APPLICABLE  STATUTORY  OR
ADMINISTRATIVE EXEMPTION.


                                      B-1
<PAGE>


     THIS SECURITY WILL BE ISSUED AND MAY BE  TRANSFERRED  ONLY IN BLOCKS HAVING
AN AGGREGATE  PRINCIPAL  AMOUNT OF NOT LESS THAN  $100,000.00  AND  MULTIPLES OF
$1,000.00 IN EXCESS THEREOF.  ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK
HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED TO
BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

     THE HOLDER OF THIS  SECURITY  AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.

     IN CONNECTION  WITH ANY TRANSFER,  THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY
THE  INDENTURE  TO  CONFIRM  THAT  THE  TRANSFER  COMPLIES  WITH  THE  FOREGOING
RESTRICTIONS.

         Floating Rate Junior Subordinated Deferrable Interest Debenture

                                       of

                             Four Oaks Fincorp, Inc.

                                 March 30, 2006

     Four Oaks Fincorp,  Inc., a North Carolina corporation (the "Company" which
term includes any successor Person under the Indenture hereinafter referred to),
for value  received  promises to pay to  Wilmington  Trust  Company,  not in its
individual capacity but solely as Institutional  Trustee for Four Oaks Statutory
Trust I (the  "Holder")  or  registered  assigns,  the  principal  sum of twelve
million three hundred seventy-two thousand dollars  ($12,372,000.00) on June 15,
2036, and to pay interest on said principal sum from March 30, 2006, or from the
most recent Interest  Payment Date (as defined below) to which interest has been
paid or duly provided for,  quarterly  (subject to deferral as set forth herein)
in arrears on March 15, June 15, September 15 and December 15 of each year or if
such day is not a Business Day, then the next succeeding Business Day (each such
date, an "Interest Payment Date") (it being understood that interest accrues for
any such  non-Business  Day),  commencing  on the Interest  Payment Date in June
2006, at an annual rate equal to [RATE]%  beginning on (and  including) the date
of original  issuance and ending on (but excluding) the Interest Payment Date in
June 2006 and at an annual rate for each  successive  period  beginning  on (and
including) the Interest Payment Date in June 2006, and each succeeding  Interest
Payment Date, and ending on (but excluding) the next succeeding Interest Payment
Date (each a  "Distribution  Period"),  equal to 3-Month  LIBOR,  determined  as
described below, plus 1.35% (the "Coupon Rate"), applied to the principal amount
hereof,  until  the  principal  hereof  is  paid or  duly  provided  for or made
available for payment, and on any overdue principal and (without duplication and
to the extent that payment of such interest is enforceable under applicable law)
on any overdue  installment of interest (including  Additional  Interest) at the
Interest Rate in effect for each applicable period,  compounded quarterly,  from
the  dates  such  amounts  are due  until  they are paid or made  available  for
payment.  The amount of interest  payable for any period will be computed on the
basis of the actual number of days in the Distribution  Period concerned divided
by 360.  The  interest  installment  so  payable,  and  punctually  paid or duly
provided for, on any Interest  Payment Date will, as provided in the  Indenture,
be paid to the Person in whose name this  Debenture (or one or more  Predecessor
Securities)  is registered  at the close of business on the regular  record date
for such interest installment, which shall be fifteen Business Days prior to the
day on which the  relevant  Interest  Payment  Date  occurs.  Any such  interest
installment not so punctually paid or duly provided for shall forthwith cease to
be  payable  to the Holder on such  regular  record  date and may be paid to the
Person in whose name this Debenture (or one or more  Predecessor  Securities) is
registered at the close of business on a special record date.


                                      B-2
<PAGE>


     "3-Month LIBOR" as used herein, means the London interbank offered interest
rate for  three-month  U.S.  dollar  deposits  determined  by the Trustee in the
following order of priority:  (i) the rate (expressed as a percentage per annum)
for U.S. dollar deposits having a three-month  maturity that appears on Telerate
Page 3750 as of 11:00  a.m.  (London  time) on the  related  Determination  Date
("Telerate  Page  3750"  means  the  display  designated  as "Page  3750" on the
Moneyline  Telerate  Service or such other page as may replace Page 3750 on that
service or such other  service or  services as may be  nominated  by the British
Bankers'  Association  as the  information  vendor for the purpose of displaying
London  interbank  offered rates for U.S.  dollar  deposits);  (ii) if such rate
cannot be identified on the related Determination Date, the Trustee will request
the  principal  London  offices of four  leading  banks in the London  interbank
market to provide such banks' offered  quotations  (expressed as percentages per
annum) to prime banks in the London  interbank  market for U.S.  dollar deposits
having  a  three-month   maturity  as  of  11:00  a.m.  (London  time)  on  such
Determination Date. If at least two quotations are provided,  3-Month LIBOR will
be the  arithmetic  mean of such  quotations;  (iii)  if  fewer  than  two  such
quotations  are  provided as  requested  in clause (ii) above,  the Trustee will
request four major New York City banks to provide such banks' offered quotations
(expressed as percentages per annum) to leading European banks for loans in U.S.
dollars as of 11:00 a.m. (London time) on such  Determination  Date. If at least
two such  quotations are provided,  3-Month LIBOR will be the arithmetic mean of
such  quotations;  and (iv) if fewer than two such  quotations  are  provided as
requested  in  clause  (iii)  above,  3-Month  LIBOR  will  be a  3-Month  LIBOR
determined with respect to the Distribution  Period  immediately  preceding such
current  Distribution  Period.  If the rate for U.S.  dollar  deposits  having a
three-month  maturity that  initially  appears on Telerate Page 3750 as of 11:00
a.m.  (London  time) on the  related  Determination  Date is  superseded  on the
Telerate  Page 3750 by a  corrected  rate by 12:00  noon  (London  time) on such
Determination  Date, then the corrected rate as so substituted on the applicable
page will be the applicable 3-Month LIBOR for such  Determination  Date. As used
herein,  "Determination  Date"  means the date that is two London  Banking  Days
(i.e.,  a  business  day in which  dealings  in  deposits  in U.S.  dollars  are
transacted in the London  interbank  market)  preceding the  commencement of the
relevant Distribution Period.

     The  Interest  Rate for any  Distribution  Period will at no time be higher
than the maximum rate then permitted by New York law as the same may be modified
by United States law.

     All percentages  resulting from any  calculations on the Debentures will be
rounded,  if necessary,  to the nearest one  hundred-thousandth  of a percentage
point,  with five  one-millionths  of a percentage  point rounded  upward (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar
amounts  used in or  resulting  from such  calculation  will be  rounded  to the
nearest cent (with one-half cent being rounded upward)).

     The  principal  of and interest on this  Debenture  shall be payable at the
office or agency of the Trustee (or other paying agent appointed by the Company)
maintained  for that  purpose in any coin or  currency  of the United  States of
America  that at the time of payment is legal  tender for  payment of public and
private debts; provided,  however, that payment of interest may be made by check
mailed to the registered holder at such address as shall appear in the Debenture
Register if a request for a wire  transfer by such holder has not been  received
by the Company or by wire transfer to an account appropriately designated by the
holder  hereof.  Notwithstanding  the  foregoing,  so long as the holder of this
Debenture  is the  Institutional  Trustee,  the payment of the  principal of and
interest on this Debenture will be made in immediately  available  funds at such
place and to such account as may be designated by the Trustee.


                                      B-3
<PAGE>


     So long as no Acceleration Event of Default has occurred and is continuing,
the Company  shall have the right,  from time to time,  and  without  causing an
Event of Default,  to defer  payments of interest on the Debentures by extending
the interest  payment period on the Debentures at any time and from time to time
during the term of the Debentures,  for up to 20 consecutive  quarterly  periods
(each such extended  interest  payment period,  an "Extension  Period"),  during
which Extension Period no interest (including  Additional Interest) shall be due
and  payable  (except  any  Additional  Sums  that may be due and  payable).  No
Extension Period may end on a date other than an Interest  Payment Date.  During
an Extension  Period,  interest will continue to accrue on the  Debentures,  and
interest  on such  accrued  interest  will accrue at an annual rate equal to the
Interest Rate in effect for such Extension Period, compounded quarterly from the
date such interest would have been payable were it not for the Extension Period,
to the extent permitted by law (such interest  referred to herein as "Additional
Interest").  At the end of any such  Extension  Period the Company shall pay all
interest then accrued and unpaid on the  Debentures  (together  with  Additional
Interest thereon); provided, however, that no Extension Period may extend beyond
the Maturity Date;  provided  further,  however,  that during any such Extension
Period,  the Company  shall not and shall not permit any  Affiliate to engage in
any of the activities or  transactions  described on the reverse side hereof and
in the Indenture.  Prior to the termination of any Extension Period, the Company
may further extend such period, provided that such period together with all such
previous  and  further  consecutive  extensions  thereof  shall  not  exceed  20
consecutive  quarterly  periods,  or extend beyond the Maturity  Date.  Upon the
termination  of any  Extension  Period and upon the  payment of all  accrued and
unpaid  interest  and  Additional  Interest,  the  Company  may  commence  a new
Extension  Period,  subject  to  the  foregoing  requirements.  No  interest  or
Additional Interest shall be due and payable during an Extension Period,  except
at the end thereof,  but each  installment of interest that would otherwise have
been  due and  payable  during  such  Extension  Period  shall  bear  Additional
Interest.  The Company must give the Trustee  notice of its election to begin or
extend an  Extension  Period by the close of business at least 15 Business  Days
prior to the  Interest  Payment  Date  with  respect  to which  interest  on the
Debentures  would have been  payable  except for the election to begin or extend
such Extension Period.

     The indebtedness  evidenced by this Debenture is, to the extent provided in
the Indenture,  subordinate  and junior in right of payment to the prior payment
in full of all Senior Indebtedness,  and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions,  (b)
authorizes  and  directs the Trustee on his or her behalf to take such action as
may be necessary or appropriate  to acknowledge or effectuate the  subordination
so provided and (c) appoints the Trustee his or her attorney-in-fact for any and
all such purposes.  Each holder hereof, by his or her acceptance hereof,  hereby
waives all notice of the acceptance of the  subordination  provisions  contained
herein and in the Indenture by each holder of Senior  Indebtedness,  whether now
outstanding or hereafter incurred,  and waives reliance by each such holder upon
said provisions.

     This  Debenture  shall not be entitled to any benefit  under the  Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
certificate of  authentication  hereon shall have been signed by or on behalf of
the Trustee.

     The  provisions of this  Debenture are continued on the reverse side hereof
and such provisions  shall for all purposes have the same effect as though fully
set forth at this place.


                                      B-4
<PAGE>


     IN WITNESS WHEREOF, the Company has duly executed this certificate.

                                                    FOUR OAKS FINCORP, INC.


                                                    By
                                                      --------------------------
                                                       Name:
                                                       Title:


                                      B-5
<PAGE>


                          CERTIFICATE OF AUTHENTICATION
                          -----------------------------

     This is one of the Debentures referred to in the within-mentioned
Indenture.

                                            WILMINGTON TRUST COMPANY, as Trustee


                                            By:
                                               ---------------------------------
                                               Authorized Officer


                                      B-6
<PAGE>


                              REVERSE OF DEBENTURE

     This Debenture is one of the floating rate junior  subordinated  deferrable
interest  debentures  of the  Company,  all  issued  or to be  issued  under and
pursuant to the  Indenture  dated as of March 30, 2006 (the  "Indenture"),  duly
executed and delivered  between the Company and the Trustee,  to which Indenture
reference is hereby made for a description of the rights, limitations of rights,
obligations,  duties and immunities  thereunder of the Trustee,  the Company and
the holders of the Debentures. The Debentures are limited in aggregate principal
amount as specified in the Indenture.

     Upon the  occurrence  and  continuation  of a  Special  Event  prior to the
Interest  Payment Date in June 2011,  the Company shall have the right to redeem
the Debentures in whole, but not in part, at any Interest  Payment Date,  within
120  days  following  the  occurrence  of such  Special  Event,  at the  Special
Redemption Price.

     In addition, the Company shall have the right to redeem the Debentures,  in
whole or in part, but in all cases in a principal amount with integral multiples
of $1,000.00, on any Interest Payment Date on or after the Interest Payment Date
in June 2011, at the Redemption Price.

     Prior to 10:00 a.m.  New York City time on the  Redemption  Date or Special
Redemption  Date,  as  applicable,  the Company will deposit with the Trustee or
with one or more paying  agents an amount of money  sufficient  to redeem on the
Redemption  Date  or  the  Special  Redemption  Date,  as  applicable,  all  the
Debentures  so called for  redemption  at the  appropriate  Redemption  Price or
Special Redemption Price.

     If all, or less than all, the  Debentures  are to be redeemed,  the Company
will  give  the  Trustee  notice  not  less  than  45 nor  more  than  60  days,
respectively,  prior to the  Redemption  Date or  Special  Redemption  Date,  as
applicable,  as to the aggregate  principal  amount of Debentures to be redeemed
and the Trustee shall select,  in such manner as in its sole discretion it shall
deem  appropriate  and fair,  the  Debentures  or portions  thereof (in integral
multiples of $1,000.00) to be redeemed.

     Notwithstanding the foregoing,  any redemption of Debentures by the Company
shall be subject to the receipt of any and all required regulatory approvals.

     In case an  Acceleration  Event  of  Default  shall  have  occurred  and be
continuing,  upon demand of the Trustee,  the principal of all of the Debentures
shall  become due and payable in the manner,  with the effect and subject to the
conditions provided in the Indenture.

     The Indenture contains  provisions  permitting the Company and the Trustee,
with the  consent  of the  holders  of not less  than a  majority  in  aggregate
principal  amount  of  the  Debentures  at  the  time  outstanding,  to  execute
supplemental  indentures for the purpose of adding any provisions to or changing
in any manner or  eliminating  any of the provisions of this Indenture or of any
supplemental  indenture  or of modifying in any manner the rights of the holders
of the Debentures;  provided, however, that no such supplemental indenture shall
without  the  consent of the  holders of each  Debenture  then  outstanding  and
affected  thereby (i) change the fixed maturity of any Debenture,  or reduce the
principal  amount thereof or any premium  thereon,  or reduce the rate or extend
the time of  payment  of  interest  thereon,  or reduce  any  amount  payable on
redemption  thereof or make the  principal  thereof or any  interest  or premium
thereon  payable  in any  coin or  currency  other  than  that  provided  in the
Debentures,  or impair or affect the right of any  Securityholder  to  institute
suit for payment thereof or impair the right of repayment, if any, at the option
of the holder, or (ii) reduce the aforesaid percentage of Debentures the holders
of which are required to consent to any such supplemental indenture.

     The Indenture also contains provisions permitting the holders of a majority
in aggregate  principal  amount of the  Debentures  at the time  outstanding  on
behalf  of the  holders  of all  of the  Debentures  to  waive  (or  modify  any
previously  granted  waiver of) any past  default or Event of  Default,  and its
consequences,  except a default (a) in the payment of principal of, premium,  if
any,  or  interest  on any of the  Debentures,  (b) in respect of  covenants  or
provisions  hereof or of the  Indenture  which  cannot be  modified  or  amended
without the consent of the holder of each Debenture affected,  or (c) in respect
of the covenants contained in Section 3.9 of the Indenture;  provided,  however,
that if the  Debentures  are held by the Trust or a trustee of such trust,  such
waiver or  modification  to such waiver shall not be effective until the holders
of a majority in Liquidation  Amount of Trust Securities of the Trust shall have
consented to such waiver or modification to such waiver, provided, further, that
if the consent of the holder of each  outstanding  Debenture is  required,  such
waiver shall not be effective  until each holder of the Trust  Securities of the
Trust shall have  consented  to such waiver.  Upon any such waiver,  the default
covered  thereby  shall be deemed to be cured for all purposes of the  Indenture
and the Company, the Trustee and the holders of the Debentures shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any  subsequent  or other  default or Event of Default or impair
any right consequent thereon. Whenever any default or Event of Default hereunder
shall have been waived as permitted by the  Indenture,  said default or Event of
Default shall for all purposes of the  Debentures and the Indenture be deemed to
have been cured and to be not continuing.

     No reference  herein to the Indenture and no provision of this Debenture or
of the Indenture  shall alter or impair the obligation of the Company,  which is
absolute and  unconditional,  to pay the  principal of and premium,  if any, and
interest, including Additional Interest, on this Debenture at the time and place
and at the rate and in the money herein prescribed.

     The Company has agreed that if Debentures are initially issued to the Trust
or a trustee of such Trust in connection  with the issuance of Trust  Securities
by the Trust  (regardless  of  whether  Debentures  continue  to be held by such
Trust) and (i) there shall have  occurred and be continuing an Event of Default,
(ii)  the  Company  shall be in  default  with  respect  to its  payment  of any
obligations under the Capital Securities  Guarantee,  or (iii) the Company shall
have  given  notice  of its  election  to  defer  payments  of  interest  on the
Debentures by extending the interest  payment period as provided herein and such
Extension  Period,  or any  extension  thereof,  shall be  continuing,  then the
Company  shall not,  and shall not allow any  Affiliate  of the  Company 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  Company's  capital
stock or its  Affiliates'  capital  stock  (other than  payments of dividends or
distributions to the Company) 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 Company 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,  (1)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company  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 Company (or securities  convertible  into or  exercisable  for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable  Extension  Period, if any, (2) as a result of any exchange or
conversion of any class or series of the Company's capital stock (or any capital
stock of a subsidiary  of the Company) for any class or series of the  Company's
capital  stock or of any class or series of the Company's  indebtedness  for any
class or series of the Company's  capital stock,  (3) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange  provisions  of such capital stock or the security  being  converted or
exchanged,   (4)  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,  (5) 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
(6) payments under the Capital Securities Guarantee).


                                      B-7
<PAGE>


     The Debentures are issuable only in registered,  certificated  form without
coupons  and in  minimum  denominations  of  $100,000.00  and  any  multiple  of
$1,000.00 in excess  thereof.  As provided in the  Indenture  and subject to the
transfer  restrictions  and  limitations as may be contained  herein and therein
from time to time,  this Debenture is  transferable  by the holder hereof on the
Debenture  Register of the Company.  Upon due  presentment  for  registration of
transfer  of any  Debenture  at the  Principal  Office of the  Trustee or at any
office or agency of the  Company  maintained  for such  purpose as  provided  in
Section 3.2 of the  Indenture,  the Company  shall  execute,  the Company or the
Trustee  shall  register  and the  Trustee  or the  Authenticating  Agent  shall
authenticate  and make  available for delivery in the name of the  transferee or
transferees  a  new  Debenture  for  a  like  aggregate  principal  amount.  All
Debentures  presented  for  registration  of transfer or for exchange or payment
shall (if so required by the Company or the Trustee or the Authenticating Agent)
be duly endorsed by, or be accompanied by a written instrument or instruments of
transfer  in  form   satisfactory  to,  the  Company  and  the  Trustee  or  the
Authenticating Agent duly executed by the holder or his attorney duly authorized
in writing.  No service charge shall be made for any exchange or registration of
transfer of Debentures,  but the Company or the Trustee may require payment of a
sum  sufficient to cover any tax, fee or other  governmental  charge that may be
imposed in connection therewith.

     Prior to due presentment for registration of transfer of any Debenture, the
Company, the Trustee,  any Authenticating  Agent, any paying agent, any transfer
agent  and any  Debenture  registrar  may deem the  Person  in whose  name  such
Debenture shall be registered  upon the Debenture  Register to be, and may treat
him as, the  absolute  owner of such  Debenture  (whether or not such  Debenture
shall be overdue) for the purpose of  receiving  payment of or on account of the
principal of, premium,  if any, and interest on such Debenture and for all other
purposes;  and neither the Company nor the Trustee nor any Authenticating  Agent
nor any paying agent nor any transfer agent nor any Debenture registrar shall be
affected by any notice to the contrary.  All such payments so made to any holder
for the time being or upon his order  shall be valid,  and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for moneys
payable upon any such Debenture.

     No recourse  for the  payment of the  principal  of or premium,  if any, or
interest  on any  Debenture,  or for any claim  based  thereon or  otherwise  in
respect  thereof,  and no  recourse  under or upon any  obligation,  covenant or
agreement of the Company in the Indenture or in any supplemental  indenture,  or
in  any  such  Debenture,  or  because  of  the  creation  of  any  indebtedness
represented  thereby,  shall  be  had  against  any  incorporator,  stockholder,
employee,  officer or director, as such, past, present or future, of the Company
or of any  successor  Person of the  Company,  either  directly  or through  the
Company  or any  successor  Person  of the  Company,  whether  by  virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise,  it being expressly  understood that all such liability is
hereby  expressly  waived and released as a condition of, and as a consideration
for, the execution of the Indenture and the issue of the Debentures.

     Capitalized  terms used and not  defined in this  Debenture  shall have the
meanings  assigned in the Indenture dated as of the date of original issuance of
this Debenture between the Trustee and the Company.

     THE  INDENTURE  AND THE  DEBENTURES  SHALL BE GOVERNED BY AND  CONSTRUED IN
ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PRINCIPLES THEREOF.


                                      B-8
<PAGE>


                                    EXHIBIT C

                           FORM OF PLACEMENT AGREEMENT

                             FOUR OAKS FINCORP, INC.

                            12,000 Capital Securities


                        Floating Rate Capital Securities
               (Liquidation Amount $1,000.00 per Capital Security)


                               PLACEMENT AGREEMENT

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

                                                                  March 29, 2006


FTN Financial Capital Markets
845 Crossover Lane, Suite 150
Memphis, Tennessee  38117

Keefe, Bruyette & Woods, Inc.
787 7th Avenue
4th Floor
New York, New York  10019

Ladies and Gentlemen:

     Four Oaks Fincorp, Inc., a North Carolina corporation (the "Company"),  and
its financing  subsidiary,  Four Oaks  Statutory  Trust I, a Delaware  statutory
trust (the "Trust," and hereinafter  together with the Company, the "Offerors"),
hereby confirm their agreement (this  "Agreement")  with you as placement agents
(the "Placement Agents"), as follows:

Section 1. Issuance and Sale of Securities.
           --------------------------------

     1.1. Introduction.
          -------------

     The  Offerors  propose  to issue and sell at the  Closing  (as  defined  in
Section 2.3.1 hereof)  12,000 of the Trust's  Floating Rate Capital  Securities,
with a  liquidation  amount of  $1,000.00  per capital  security  (the  "Capital
Securities"),  to  KBW,  Inc.  (the  "Purchaser")  pursuant  to the  terms  of a
Subscription  Agreement  entered  into, or to be entered into on or prior to the
Closing Date (as defined in Section 2.3.1 hereof),  between the Offerors and the
Purchaser (the "Subscription  Agreement"),  the form of which is attached hereto
as Exhibit A and incorporated herein by this reference.

     1.2. Operative Agreements.
           --------------------

     The Capital Securities shall be fully and  unconditionally  guaranteed on a
subordinated  basis by the Company  with  respect to  distributions  and amounts
payable upon liquidation, redemption or repayment (the "Guarantee") pursuant and
subject to the Guarantee Agreement (the "Guarantee  Agreement"),  to be dated as
of the Closing  Date and executed  and  delivered by the Company and  Wilmington
Trust Company  ("WTC"),  as trustee (the "Guarantee  Trustee"),  for the benefit
from time to time of the holders of the Capital Securities.  The entire proceeds
from the sale by the Trust to the  holders of the  Capital  Securities  shall be
combined  with the entire  proceeds from the sale by the Trust to the Company of
its common securities (the "Common Securities"),  and shall be used by the Trust
to purchase  $12,372,000.00  in  principal  amount of the  Floating  Rate Junior
Subordinated  Deferrable  Interest Debentures (the "Debentures") of the Company.
The Capital  Securities and the Common  Securities for the Trust shall be issued
pursuant to an Amended and Restated  Declaration of Trust among WTC, as Delaware
trustee  (the  "Delaware   Trustee"),   WTC,  as   institutional   trustee  (the
"Institutional  Trustee"), the Administrators named therein, and the Company, to
be  dated  as of the  Closing  Date and in  substantially  the  form  heretofore
delivered to the Placement Agents (the "Trust Agreement").  The Debentures shall
be issued  pursuant to an  Indenture  (the  "Indenture"),  to be dated as of the
Closing Date,  between the Company and WTC, as indenture trustee (the "Indenture
Trustee").  The documents  identified in this Section 1.2 and in Section 1.1 are
referred to herein as the "Operative Documents."

<PAGE>


     1.3. Rights of Purchaser.
          --------------------

     The Capital  Securities  shall be offered and sold by the Trust directly to
the  Purchaser  without  registration  of  any of the  Capital  Securities,  the
Debentures or the Guarantee  under the  Securities  Act of 1933, as amended (the
"Securities  Act"),  or any other  applicable  securities  laws in reliance upon
exemptions  from the  registration  requirements of the Securities Act and other
applicable  securities  laws. The Offerors  agree that this  Agreement  shall be
incorporated  by reference  into the  Subscription  Agreement  and the Purchaser
shall be  entitled  to each of the  benefits  of the  Placement  Agents  and the
Purchaser  under this Agreement and shall be entitled to enforce  obligations of
the Offerors  under this  Agreement as fully as if the Purchaser were a party to
this  Agreement.  The Offerors and the  Placement  Agents have entered into this
Agreement to set forth their  understanding  as to their  relationship and their
respective rights, duties and obligations.

     1.4. Legends.
          --------

     Upon  original  issuance  thereof,  and  until  such time as the same is no
longer  required under the applicable  requirements  of the Securities  Act, the
Capital  Securities and Debentures  certificates  shall each contain a legend as
required pursuant to any of the Operative Documents.

Section 2. Purchase of Capital Securities.
           -------------------------------

     2.1. Exclusive Rights; Purchase Price.
          ---------------------------------

     From the date hereof  until the Closing Date (which date may be extended by
mutual agreement of the Offerors and the Placement Agents),  the Offerors hereby
grant to the Placement Agents the exclusive right to arrange for the sale of the
Capital Securities to the Purchaser at a purchase price of $1,000.00 per Capital
Security.

     2.2. Subscription Agreement.
          -----------------------

     The Offerors hereby agree to evidence their  acceptance of the subscription
by countersigning a copy of the Subscription Agreement and returning the same to
the Placement Agents.

     2.3. Closing and Delivery of Payment.
          --------------------------------

     2.3.1. Closing; Closing Date.
            ----------------------


                                       2
<PAGE>


     The sale and  purchase of the  Capital  Securities  by the  Offerors to the
Purchaser shall take place at a closing (the "Closing") at the offices of Lewis,
Rice & Fingersh, L.C., at 10:00 a.m. (St. Louis time) on March 30, 2006, or such
other  business  day as may be agreed  upon by the  Offerors  and the  Placement
Agents  (the  "Closing  Date");  provided,  however,  that in no event shall the
Closing  Date  occur  later  than  March 31,  2006  unless  consented  to by the
Purchaser.  Payment by the Purchaser shall be payable in the manner set forth in
the Subscription Agreement and shall be made prior to or on the Closing Date.

     2.3.2. Delivery.
            ---------

     The certificate  for the Capital  Securities  shall be in definitive  form,
registered in the name of the Purchaser, or the Purchaser's designee, and in the
aggregate amount of the Capital Securities purchased by the Purchaser.

     2.3.3. Transfer Agent.
            ---------------

     Not less than two full  business  days prior to the Closing  Date, a global
Capital Securities  certificate in definitive form shall be made available by or
on behalf of the Offerors to the Placement Agents and the Institutional  Trustee
for  inspection  and delivery to the  Depository  Trust  Company  ("DTC") or its
custodian.

     2.4. Costs and Expenses.
          -------------------

     Whether or not this  Agreement  is  terminated  or the sale of the  Capital
Securities is consummated, the Company hereby covenants and agrees that it shall
pay or cause to be paid (directly or by reimbursement)  all reasonable costs and
expenses  incident to the  performance of the  obligations of the Offerors under
this Agreement,  including all fees,  expenses and  disbursements of counsel and
accountants for the Offerors;  all reasonable  expenses incurred by the Offerors
incident to the preparation,  execution and delivery of the Trust Agreement, the
Indenture,  and the  Guarantee;  and all other  reasonable  costs  and  expenses
incident to the  performance  of the  obligations  of the Company  hereunder and
under the Trust Agreement.

     2.5. Failure to Close.
          -----------------

     If any of the conditions to the Closing  specified in this Agreement  shall
not have been fulfilled to the  satisfaction  of the Placement  Agents or if the
Closing  shall not have  occurred on or before  10:00 a.m.  (St.  Louis time) on
March 31, 2006, then each party hereto, notwithstanding anything to the contrary
in this  Agreement,  shall be  relieved of all  further  obligations  under this
Agreement  without  thereby  waiving  any  rights  it may have by reason of such
nonfulfillment  or  failure;  provided,  however,  that the  obligations  of the
parties  under  Sections  2.4,  7.5 and 9 shall  not be so  relieved  and  shall
continue in full force and effect.

Section 3. Closing Conditions.
           -------------------

     The  obligations  of the Purchaser and the Placement  Agents on the Closing
Date shall be subject to the  accuracy,  at and as of the Closing  Date,  of the
representations  and warranties of the Offerors contained in this Agreement,  to
the accuracy,  at and as of the Closing Date, of the  statements of the Offerors
made in any certificates  pursuant to this Agreement,  to the performance by the
Offerors of their respective obligations under this Agreement, to compliance, at
and as of the Closing  Date, by the Offerors  with their  respective  agreements
herein contained, and to the following further conditions:

     3.1. Opinions of Counsel.
          --------------------

                                       3
<PAGE>


     On the Closing Date, the Placement Agents shall have received the following
favorable opinions, each dated as of the Closing Date: (a) from Smith, Anderson,
Blount,  Dorsett,  Mitchell & Jernigan,  L.L.P.,  counsel for the  Offerors  and
addressed to the Purchaser,  the Placement Agents and WTC in  substantially  the
form set forth on Exhibit B-1 attached  hereto and  incorporated  herein by this
reference, (b) from Richards, Layton & Finger, P.A., special Delaware counsel to
the  Offerors and  addressed  to the  Purchaser,  the  Placement  Agents and the
Offerors, in substantially the form set forth on Exhibit B-2 attached hereto and
incorporated herein by this reference and (c) from Lewis, Rice & Fingersh, L.C.,
special tax counsel to the Offerors,  and addressed to the Placement  Agents and
the Offerors,  addressing the items set forth on Exhibit B-3 attached hereto and
incorporated  herein by this reference,  subject to the receipt by Lewis, Rice &
Fingersh, L.C. of a representation letter from the Company in the form set forth
in Exhibit B-3 completed in a manner  reasonably  satisfactory to Lewis,  Rice &
Fingersh,  L.C. (collectively,  the "Offerors' Counsel Opinions").  In rendering
the Offerors' Counsel  Opinions,  counsel to the Offerors may rely as to factual
matters upon  certificates or other documents  furnished by officers,  directors
and  trustees  of the  Offerors  (copies  of  which  shall be  delivered  to the
Placement Agents and the Purchaser) and by government  officials,  and upon such
other  documents as counsel to the Offerors  may, in their  reasonable  opinion,
deem appropriate as a basis for the Offerors' Counsel  Opinions.  Counsel to the
Offerors  may specify the  jurisdictions  in which they are admitted to practice
and that they are not admitted to practice in any other jurisdiction and are not
experts in the law of any other  jurisdiction.  If the Offerors'  counsel is not
admitted to practice in the State of New York, the opinion of Offerors'  counsel
may assume, for purposes of the opinion,  that the laws of the State of New York
are substantively  identical,  in all respects  material to the opinion,  to the
internal  laws of the state in which such counsel is admitted to practice.  Such
Offerors'  Counsel  Opinions  shall not state  that they are to be  governed  or
qualified  by, or that they are  otherwise  subject  to, any  treatise,  written
policy  or  other  document  relating  to  legal  opinions,  including,  without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).

     3.2. Officer's Certificate.
          ----------------------

     At the Closing Date,  the  Purchaser  and the  Placement  Agents shall have
received certificates from an authorized officer of the Company, dated as of the
Closing  Date,  stating  that  (i) the  representations  and  warranties  of the
Offerors  set forth in Section 5 hereof are true and  correct as of the  Closing
Date and that the Offerors have complied with all  agreements  and satisfied all
conditions on their part to be performed or satisfied at or prior to the Closing
Date,  (ii) since the date of this  Agreement the Offerors have not incurred any
liability  or  obligation,  direct or  contingent,  or entered into any material
transactions,  other than in the ordinary course of business,  which is material
to the Offerors,  and (iii) covering such other matters as the Placement  Agents
may reasonably request.

     3.3. Administrator's Certificate.
          ----------------------------

     At the Closing Date,  the  Purchaser  and the  Placement  Agents shall have
received a certificate of one or more  Administrators of the Trust,  dated as of
the Closing Date, stating that the  representations  and warranties of the Trust
set forth in Section 5 are true and correct as of the Closing  Date and that the
Trust has complied with all  agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Date.

     3.4. Purchase Permitted by Applicable Laws; Legal Investment.
          --------------------------------------------------------

     The purchase of and payment for the Capital Securities as described in this
Agreement and pursuant to the Subscription Agreement shall (a) not be prohibited
by any applicable law or governmental regulation,  (b) not subject the Purchaser
or the  Placement  Agents to any penalty or, in the  reasonable  judgment of the
Purchaser and the Placement Agents,  other onerous  conditions under or pursuant
to any applicable law or  governmental  regulation,  and (c) be permitted by the
laws and  regulations  of the  jurisdictions  to  which  the  Purchaser  and the
Placement Agents are subject.

                                       4
<PAGE>


     3.5. Consents and Permits.
          ---------------------

     The Company and the Trust shall have  received  all  consents,  permits and
other  authorizations,  and made all such  filings and  declarations,  as may be
required from any person or entity pursuant to any law,  statute,  regulation or
rule (federal, state, local and foreign), or pursuant to any agreement, order or
decree  to which  the  Company  or the  Trust is a party or to which  either  is
subject, in connection with the transactions contemplated by this Agreement.

     3.6. Information.
          ------------

     Prior to or on the Closing Date,  the Offerors  shall have furnished to the
Placement Agents such further information,  certificates, opinions and documents
addressed to the Purchaser and the Placement Agents,  which the Placement Agents
may reasonably request,  including,  without  limitation,  a complete set of the
Operative  Documents  or any other  documents or  certificates  required by this
Section 3; and all  proceedings  taken by the  Offerors in  connection  with the
issuance,  offer and sale of the Capital Securities as herein contemplated shall
be reasonably satisfactory in form and substance to the Placement Agents.

     If any condition  specified in this Section 3 shall not have been fulfilled
when  and  as  required  in  this  Agreement,  or if  any  of  the  opinions  or
certificates  mentioned  above  or  elsewhere  in this  Agreement  shall  not be
reasonably  satisfactory  in form and  substance to the Placement  Agents,  this
Agreement may be terminated by the Placement Agents by notice to the Offerors at
any time at or prior to the Closing Date.  Notice of such  termination  shall be
given to the  Offerors in writing or by  telephone  or  facsimile  confirmed  in
writing.

Section 4. Conditions to the Offerors' Obligations.
           ----------------------------------------

     The  obligations  of the  Offerors  to sell the Capital  Securities  to the
Purchaser and consummate the  transactions  contemplated by this Agreement shall
be  subject  to  the   accuracy,   at  and  as  of  the  Closing  Date,  of  the
representations  and  warranties  of the  Placement  Agents  contained  in  this
Agreement and to the following further conditions:

     4.1. Executed Agreement.
          -------------------

     The Offerors shall have received from the Placement Agents an executed copy
of this Agreement.

     4.2. Fulfillment of Other Obligations.
          ---------------------------------

     The Placement  Agents shall have  fulfilled all of their other  obligations
and duties  required to be  fulfilled  under this  Agreement  prior to or at the
Closing.

Section 5. Representations and Warranties of the Offerors.

     Except as set forth on the Disclosure Schedule (as defined in Section 11.1)
attached  hereto,  if any,  the Offerors  jointly and  severally  represent  and
warrant to the  Placement  Agents and the Purchaser as of the date hereof and as
of the Closing Date as follows:

     5.1. Securities Law Matters.
          -----------------------

          (a)

                                       5
<PAGE>


     Neither  the  Company  nor the  Trust,  nor any of their  "Affiliates"  (as
defined in Rule 501(b) of  Regulation D under the  Securities  Act  ("Regulation
D")), nor any person acting on any of their behalf has,  directly or indirectly,
made offers or sales of any security,  or solicited  offers to buy any security,
under circumstances that would require the registration under the Securities Act
of any of the Capital Securities, the Guarantee or the Debentures (collectively,
the  "Securities") or any other securities to be issued, or which may be issued,
by the Purchaser.

          (b)

         Neither the Company nor the Trust, nor any of their Affiliates, nor any
person acting on its or their behalf has (i) other than the Placement Agents,
offered for sale or solicited offers to purchase the Securities, or (ii) engaged
in any form of offering, general solicitation or general advertising (within the
meaning of Regulation D) in connection with any offer or sale of any of the
Securities.

          (c)

     The Securities  satisfy the  eligibility  requirements  of Rule  144A(d)(3)
under the Securities Act.

          (d)

     Neither  the  Company  nor the  Trust is or,  after  giving  effect  to the
offering  and  sale  of the  Capital  Securities  and  the  consummation  of the
transactions described in this Agreement,  will be an "investment company" or an
entity "controlled" by an "investment  company," in each case within the meaning
of  Section  3(a)  of the  Investment  Company  Act of  1940,  as  amended  (the
"Investment  Company  Act"),  without  regard to Section 3(c) of the  Investment
Company Act.

          (e)

     Neither  the  Company nor the Trust has paid or agreed to pay to any person
or entity  (other than the Placement  Agents) any  compensation  for  soliciting
another to purchase any of the Securities.

     5.2. Organization, Standing and Qualification of the Trust.
          ------------------------------------------------------

     The Trust has been duly created and is validly existing in good standing as
a statutory trust under the Delaware  Statutory Trust Act (the "Statutory  Trust
Act") with the power and  authority  to own property and to conduct the business
it  transacts  and  proposes  to  transact  and to enter  into and  perform  its
obligations  under  the  Operative  Documents.  The Trust is duly  qualified  to
transact  business  as a  foreign  entity  and  is  in  good  standing  in  each
jurisdiction in which such qualification is necessary,  except where the failure
to so qualify or be in good standing would not have a material adverse effect on
the Trust. The Trust is not a party to or otherwise bound by any agreement other
than the  Operative  Documents.  The Trust is and will,  under  current  law, be
classified  for federal  income tax  purposes  as a grantor  trust and not as an
association taxable as a corporation.

     5.3. Trust Agreement.
          ----------------

     The Trust  Agreement  has been duly  authorized  by the Company and, on the
Closing Date,  will have been duly executed and delivered by the Company and the
Administrators  of the Trust,  and,  assuming due  authorization,  execution and
delivery by the Delaware Trustee and the Institutional  Trustee, will be a valid
and  binding  obligation  of the Company  and such  Administrators,  enforceable
against them in accordance with its terms, subject to (a) applicable bankruptcy,
insolvency, moratorium, receivership, reorganization, liquidation and other laws
relating to or affecting creditors' rights generally, and (b) general principles
of equity  (regardless  of whether  considered  and applied in a  proceeding  in
equity or at law) ("Bankruptcy and Equity").  Each of the  Administrators of the
Trust is an employee or a director of the Company or of a financial  institution
subsidiary of the Company and has been duly authorized by the Company to execute
and deliver the Trust Agreement.

                                       6
<PAGE>


     5.4. Guarantee Agreement and the Indenture.
          --------------------------------------

     Each of the Guarantee  and the  Indenture  has been duly  authorized by the
Company and, on the Closing Date will have been duly  executed and  delivered by
the Company,  and,  assuming due  authorization,  execution  and delivery by the
Guarantee Trustee,  in the case of the Guarantee,  and by the Indenture Trustee,
in the case of the  Indenture,  will be a valid and  binding  obligation  of the
Company  enforceable  against  it in  accordance  with  its  terms,  subject  to
Bankruptcy and Equity.

     5.5. Capital Securities and Common Securities.
          -----------------------------------------

     The Capital  Securities and the Common Securities have been duly authorized
by the Trust Agreement and, when issued and delivered  against payment  therefor
on the Closing Date to the Purchaser, in the case of the Capital Securities, and
to the Company, in the case of the Common Securities, will be validly issued and
represent undivided beneficial interests in the assets of the Trust. None of the
Capital  Securities  or the Common  Securities is subject to preemptive or other
similar rights.  On the Closing Date, all of the issued and  outstanding  Common
Securities  will be directly  owned by the Company free and clear of any pledge,
security interest, claim, lien or other encumbrance.

     5.6. Debentures.
          -----------

     The Debentures have been duly authorized by the Company and, at the Closing
Date,  will have been duly executed and  delivered to the Indenture  Trustee for
authentication in accordance with the Indenture,  and, when authenticated in the
manner provided for in the Indenture and delivered  against payment  therefor by
the Trust, will constitute valid and binding obligations of the Company entitled
to the benefits of the Indenture  enforceable  against the Company in accordance
with their terms, subject to Bankruptcy and Equity.

     5.7. Power and Authority.
          --------------------

     This  Agreement  has been duly  authorized,  executed and  delivered by the
Company and the Trust and  constitutes  the valid and binding  obligation of the
Company  and the  Trust,  enforceable  against  the  Company  and the  Trust  in
accordance with its terms, subject to Bankruptcy and Equity.

     5.8. No Defaults.
          ------------

     The Trust is not in violation of the Trust  Agreement  or, to the knowledge
of the Administrators,  any provision of the Statutory Trust Act. The execution,
delivery and  performance  by the Company or the Trust of this  Agreement or the
Operative  Documents  to  which  it is a  party,  and  the  consummation  of the
transactions  contemplated  herein  or  therein  and  the  use of  the  proceeds
therefrom, will not conflict with or constitute a breach of, or a default under,
or result in the creation or imposition of any lien, charge or other encumbrance
upon any  property or assets of the Trust,  the Company or any of the  Company's
Subsidiaries  (as defined in Section  5.11  hereof)  pursuant  to any  contract,
indenture,  mortgage,  loan agreement,  note, lease or other instrument to which
the Trust,  the Company or any of its  Subsidiaries is a party or by which it or
any of them may be bound,  or to which any of the  property  or assets of any of
them is  subject,  except  for a  conflict,  breach,  default,  lien,  charge or
encumbrance which could not, singly or in the aggregate,  reasonably be expected
to have a Material  Adverse  Effect nor will such action result in any violation
of the Trust  Agreement  or the  Statutory  Trust Act or  require  the  consent,
approval, authorization or order of any court or governmental agency or body. As
used herein,  the term "Material  Adverse  Effect" means any one or more effects
that  individually or in the aggregate are material and adverse to the Offerors'
ability to consummate the transactions  contemplated  herein or in the Operative
Documents or any one or more effects that  individually  or in the aggregate are
material  and  adverse to the  condition  (financial  or  otherwise),  earnings,
affairs,  business,  prospects or results of  operations  of the Company and its
Subsidiaries taken as whole,  whether or not occurring in the ordinary course of
business.

                                       7
<PAGE>


     5.9. Organization, Standing and Qualification of the Company.
          --------------------------------------------------------

     The  Company  has been  duly  incorporated  and is  validly  existing  as a
corporation  in good  standing  under  the  laws of  North  Carolina,  with  all
requisite  corporate  power and authority to own its  properties and conduct the
business  it  transacts  and  proposes to  transact,  and is duly  qualified  to
transact  business  and is in good  standing  as a foreign  corporation  in each
jurisdiction  where the nature of its  activities  requires such  qualification,
except where the failure of the Company to be so qualified  would not, singly or
in the aggregate, have a Material Adverse Effect.

     5.10. Subsidiaries of the Company.
           ----------------------------

     Each of the  Company's  significant  subsidiaries  (as  defined  in Section
1-02(w)   of   Regulation   S-X  to  the   Securities   Act  (the   "Significant
Subsidiaries"))  is listed in Exhibit C attached hereto and incorporated  herein
by this reference.  Each  Significant  Subsidiary has been duly organized and is
validly  existing and in good  standing  under the laws of the  jurisdiction  in
which it is chartered or organized,  with all  requisite  power and authority to
own its  properties  and  conduct  the  business it  transacts  and  proposes to
transact,  and is duly qualified to transact business and is in good standing as
a  foreign  entity in each  jurisdiction  where  the  nature  of its  activities
requires such  qualification,  except where the failure of any such  Significant
Subsidiary  to be so qualified  would not,  singly or in the  aggregate,  have a
Material  Adverse Effect.  All of the issued and  outstanding  shares of capital
stock of the  Significant  Subsidiaries  (a) have been duly  authorized  and are
validly issued, (b) are fully paid and nonassessable,  and (c) are wholly owned,
directly or indirectly,  by the Company free and clear of any security interest,
mortgage,  pledge,  lien,  encumbrance,  restriction  upon  voting or  transfer,
preemptive rights, claim, equity or other defect.

     5.11. Permits.
           --------

     The Company and each of its  subsidiaries (as defined in Section 1-02(x) of
Regulation S-X to the Securities  Act) (the  "Subsidiaries")  have all requisite
power  and  authority,  and all  necessary  authorizations,  approvals,  orders,
licenses,  certificates  and  permits  of and from  regulatory  or  governmental
officials, bodies and tribunals, to own or lease their respective properties and
to conduct  their  respective  businesses  as now being  conducted,  except such
authorizations,  approvals, orders, licenses, certificates and permits which, if
not obtained  and  maintained,  would not,  singly or in the  aggregate,  have a
Material Adverse Effect, and neither the Company nor any of its Subsidiaries has
received any notice of proceedings relating to the revocation or modification of
any such authorizations,  approvals,  orders, licenses,  certificates or permits
which, singly or in the aggregate,  if the failure to be so licensed or approved
is the subject of an unfavorable decision,  ruling or finding,  would, singly or
in the  aggregate,  have a Material  Adverse  Effect;  and the  Company  and its
Subsidiaries are in compliance with all applicable laws, rules,  regulations and
orders and consents,  the violation of which would,  singly or in the aggregate,
have a Material Adverse Effect.

     5.12. Conflicts, Authorizations and Approvals.
           ----------------------------------------

     Neither the  Company nor any of its  Subsidiaries  is in  violation  of its
respective  articles  or  certificate  of  incorporation,  charter or by-laws or
similar organizational  documents or in default in the performance or observance
of any obligation,  agreement,  covenant or condition contained in any contract,
indenture,   mortgage,  loan  agreement,  note,  lease  or  other  agreement  or
instrument to which either the Company or any of its Subsidiaries is a party, or
by which it or any of them may be  bound  or to  which  any of the  property  or
assets of the Company or any of its Subsidiaries is subject, the effect of which
violation or default in performance or observance  would have,  singly or in the
aggregate, a Material Adverse Effect.

                                       8
<PAGE>


     5.13. Holding Company Registration and Deposit Insurance.
           ---------------------------------------------------

     The Company is duly  registered (i) as a bank holding  company or financial
holding company under the Bank Holding Company Act of 1956, as amended,  and the
regulations  of the  Board of  Governors  of the  Federal  Reserve  System  (the
"Federal  Reserve") or (ii) as a savings and loan holding company under the Home
Owners'  Loan Act of 1933,  as  amended,  and the  regulations  of the Office of
Thrift  Supervision  (the  "OTS"),  and the deposit  accounts  of the  Company's
Subsidiary depository  institutions are insured by the Federal Deposit Insurance
Corporation  ("FDIC") to the fullest  extent  permitted by law and the rules and
regulations  of the  FDIC,  and no  proceedings  for  the  termination  of  such
insurance are pending or threatened.

     5.14. Financial Statements.
           ---------------------

          (a)

     The consolidated  balance sheets of the Company and all of its Subsidiaries
as of December 31, 2005 and December  31, 2004 and related  consolidated  income
statements and statements of changes in shareholders' equity for the three years
ended December 31, 2005 together with the notes thereto, copies of each of which
have  been  provided  to  the  Placement   Agents   (together,   the  "Financial
Statements"),   have  been  prepared  in  accordance  with  generally   accepted
accounting  principles applied on a consistent basis (except as may be disclosed
therein) and fairly present in all material respects the financial  position and
the results of operations and changes in shareholders' equity of the Company and
all of its Subsidiaries as of the dates and for the periods indicated. The books
and records of the Company and all of its Subsidiaries have been, and are being,
maintained  in all  material  respects in  accordance  with  generally  accepted
accounting principles and any other applicable legal and accounting requirements
and reflect only actual transactions.

          (b)

     The information in the Company's most recently filed (i) FR Y-9C filed with
the Federal  Reserve if the  Company is a bank  holding  company,  (ii) FR Y-9SP
filed with the Federal Reserve if the Company is a small bank holding company or
(iii)  H-(b)11  filed with the OTS if the Company is a savings and loan  holding
company (the "Regulatory  Report"),  previously provided to the Placement Agents
fairly presents in all material  respects the financial  position of the Company
and,  where  applicable,  all of its  Subsidiaries  as of the end of the  period
represented by such Regulatory Report.

          (c)

     Since the respective  dates of the Financial  Statements and the Regulatory
Report, there has been no material adverse change or development with respect to
the financial  condition or earnings of the Company and all of its Subsidiaries,
taken as a whole.

          (d)

                                       9
<PAGE>


     The  accountants of the Company who certified the Financial  Statements are
independent  public  accountants of the Company and its Subsidiaries  within the
meaning of the Securities Act and the rules and regulations thereunder.

     5.15. Exchange Act Reporting.
           -----------------------

     The  reports  filed  with  the  Securities  and  Exchange  Commission  (the
"Commission")  by the Company  under the  Securities  Exchange  Act of 1934,  as
amended (the "1934 Act") and the  regulations  thereunder  at the time they were
filed with the Commission  complied as to form in all material respects with the
requirements  of the  1934  Act and  such  reports  did not  contain  an  untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated  therein or necessary  to make the  statements  therein,  in light of the
circumstances in which they were made, not misleading.

     5.16. Regulatory Enforcement Matters.
           -------------------------------

     Neither the Company nor any of its  Subsidiaries is subject or is party to,
or has  received  any notice or advice  that any of them may  become  subject or
party to,  any  investigation  with  respect  to,  any  cease-and-desist  order,
agreement,  consent  agreement,  memorandum of understanding or other regulatory
enforcement  action,  proceeding  or  order  with or by,  or is a  party  to any
commitment letter or similar  undertaking to, or is subject to any directive by,
or has been since January 1, 2003, a recipient of any  supervisory  letter from,
or since January 1, 2003,  has adopted any board  resolutions at the request of,
any  Regulatory  Agency (as  defined  below)  that  currently  restricts  in any
material  respect the conduct of their  business or that in any material  manner
relates to their  capital  adequacy,  their credit  policies,  their  ability or
authority to pay dividends or make  distributions to their  shareholders or make
payments of principal or interest on their debt obligations, their management or
their business (each, a "Regulatory  Agreement"),  nor has the Company or any of
its  Subsidiaries  been advised since January 1, 2003, by any Regulatory  Agency
that it is  considering  issuing or requesting  any such  Regulatory  Agreement.
There  is no  material  unresolved  violation,  criticism  or  exception  by any
Regulatory  Agency  with  respect to any  report or  statement  relating  to any
examinations of the Company or any of its Subsidiaries. As used herein, the term
"Regulatory  Agency"  means  any  federal  or  state  agency  charged  with  the
supervision or regulation of depository institutions, bank, financial or savings
and  loan  holding  companies,   or  engaged  in  the  insurance  of  depository
institution deposits, or any court, administrative agency or commission or other
governmental  agency,   authority  or  instrumentality   having  supervisory  or
regulatory  authority  with  respect to the Company or any of its  Subsidiaries.
Neither the  Company  nor any of the  Subsidiaries  is  currently  unable to pay
dividends or make distributions to its shareholders with respect to any class of
its equity  securities,  or prohibited from paying  principal or interest on its
debt  obligations,  due to a  restriction  or  limitation,  whether by  statute,
contract  or  otherwise,  and,  in the  reasonable  judgment  of  the  Company's
management,  neither the Company nor any of the  Subsidiaries  will be unable in
the foreseeable  future to pay dividends or make  distributions  with respect to
any class of equity  securities,  or be  prohibited  from  paying  principal  or
interest on its debt obligations, due to a restriction or limitation, whether by
statute, contract or otherwise.

     5.17. No Material Change.
           -------------------

     Since  December  31,  2005,  there has been no material  adverse  change or
development  with respect to the condition  (financial or otherwise),  earnings,
affairs,  business,  prospects  or results of  operations  of the Company or its
Subsidiaries  on a  consolidated  basis,  whether or not arising in the ordinary
course of business.

     5.18. No Undisclosed Liabilities.
           ---------------------------

                                       10
<PAGE>


     Neither the Company nor any of its Subsidiaries has any material liability,
whether known or unknown,  whether  asserted or unasserted,  whether absolute or
contingent,  whether accrued or unaccrued,  whether  liquidated or unliquidated,
and whether due or to become due,  including  any liability for taxes (and there
is no past or present fact,  situation,  circumstance,  condition or other basis
for any present or future action, suit, proceeding,  hearing, charge, complaint,
claim or demand against the Company or its Subsidiaries  giving rise to any such
liability), except (i) for liabilities set forth in the Financial Statements and
(ii) normal  fluctuation in the amount of the liabilities  referred to in clause
(i) above occurring in the ordinary course of business of the Company and all of
its Subsidiaries since the date of the most recent balance sheet included in the
Financial Statements.

     5.19. Litigation.
           -----------

     No charge, investigation,  action, suit or proceeding is pending or, to the
knowledge of the  Offerors,  threatened  against or affecting the Company or its
Subsidiaries or any of their  respective  properties  before or by any courts or
any regulatory,  administrative  or governmental  official,  commission,  board,
agency or other  authority or body, or any  arbitrator,  wherein an  unfavorable
decision,  ruling or finding could have, singly or in the aggregate,  a Material
Adverse Effect.

     5.20. Deferral of Interest Payments on Debentures.
           --------------------------------------------

     The  Company  has no  present  intention  to  exercise  its option to defer
payments of interest on the Debentures as provided in the Indenture. The Company
believes that the likelihood  that it would exercise its right to defer payments
of interest on the  Debentures  as provided in the  Indenture at any time during
which the Debentures are outstanding is remote because of the restrictions  that
would be  imposed on the  Company's  ability  to  declare  or pay  dividends  or
distributions on, or to redeem, purchase,  acquire or make a liquidation payment
with respect to, any of the Company's capital stock and on the Company's ability
to make any payments of principal,  interest or premium on, or repay, repurchase
or redeem, any of its debt securities that rank pari passu in all respects with,
or junior in interest to, the Debentures.

Section 6. Representations and Warranties of the Placement Agents.

     Each Placement  Agent  represents and warrants to the Offerors as to itself
(but not as to the other Placement Agent) as follows:

     6.1. Organization, Standing and Qualification.
          -----------------------------------------

          (a)

     FTN  Financial  Capital  Markets  is a  division  of First  Tennessee  Bank
National  Association,  a national banking  association duly organized,  validly
existing and in good  standing  under the laws of the United  States,  with full
power and  authority to own,  lease and operate its  properties  and conduct its
business as currently  being  conducted.  FTN Financial  Capital Markets is duly
qualified to transact business as a foreign  corporation and is in good standing
in each other  jurisdiction  in which it owns or leases property or conducts its
business  so as to require  such  qualification  and in which the  failure to so
qualify would,  individually or in the aggregate, have a material adverse effect
on the condition  (financial or  otherwise),  earnings,  business,  prospects or
results of operations of FTN Financial Capital Markets.

          (b)

     Keefe,  Bruyette & Woods,  Inc. is a corporation  duly  organized,  validly
existing and in good standing under the laws of the State of New York, with full
power and  authority to own,  lease and operate its  properties  and conduct its
business as currently being  conducted.  Keefe,  Bruyette & Woods,  Inc. is duly
qualified to transact business as a foreign  corporation and is in good standing
in each other  jurisdiction  in which it owns or leases property or conducts its
business  so as to require  such  qualification  and in which the  failure to so
qualify would,  individually or in the aggregate, have a material adverse effect
on the condition  (financial or  otherwise),  earnings,  business,  prospects or
results of operations of Keefe, Bruyette & Woods, Inc.

                                       11
<PAGE>


     6.2. Power and Authority.
          --------------------

     The  Placement  Agent has all  requisite  power and authority to enter into
this  Agreement,  and this  Agreement  has been  duly  and  validly  authorized,
executed and delivered by the Placement Agent and  constitutes the legal,  valid
and binding agreement of the Placement Agent,  enforceable against the Placement
Agent in accordance with its terms,  subject to Bankruptcy and Equity and except
as any  indemnification or contribution  provisions thereof may be limited under
applicable securities laws.

     6.3. General Solicitation.
          ---------------------

     In the case of the offer  and sale of the  Capital  Securities,  no form of
general  solicitation or general  advertising was used by the Placement Agent or
its representatives  including,  but not limited to,  advertisements,  articles,
notices or other communications published in any newspaper,  magazine or similar
medium or broadcast  over  television  or radio or any seminar or meeting  whose
attendees have been invited by any general solicitation or general advertising.

     6.4. Purchaser.
          ----------

     The  Placement  Agent has made such  reasonable  inquiry as is necessary to
determine  that the  Purchaser is acquiring the Capital  Securities  for its own
account,  except as contemplated  in Section 7.8 hereto,  and that the Purchaser
does not intend to distribute  the Capital  Securities in  contravention  of the
Securities Act or any other applicable securities laws.

     6.5. Qualified Purchasers.
          ---------------------

     The  Placement  Agent has not  offered or sold and will not arrange for the
offer or sale of the Capital  Securities except (i) to those the Placement Agent
reasonably  believes  are  "accredited  investors"  (as  defined  in Rule 501 of
Regulation D), or (ii) in any other manner that does not require registration of
the Capital  Securities  under the Securities  Act. In connection with each such
sale, the Placement Agent has taken or will take reasonable steps to ensure that
the  Purchaser  is aware  that (a) such  sale is being  made in  reliance  on an
exemption  under the  Securities  Act and (b) future  transfers  of the  Capital
Securities  will not be made except in  compliance  with  applicable  securities
laws.

     6.6. Offering Circulars.
          -------------------

     Neither  the  Placement  Agent nor its  representatives  will  include  any
non-public  information about the Company,  the Trust or any of their Affiliates
in  any  registration  statement,   prospectus,  offering  circular  or  private
placement  memorandum used in connection with any purchase of Capital Securities
without  the prior  written  consent  of the Trust and the  Company.  Section 7.
Covenants of the Offerors.

     The Offerors covenant and agree with the Placement Agents and the Purchaser
as follows:

     7.1. Compliance with Representations and Warranties.
          -----------------------------------------------

                                       12
<PAGE>


     During the period from the date of this  Agreement to the Closing Date, the
Offerors  shall  use  their  best  efforts  and take  all  action  necessary  or
appropriate to cause their representations and warranties contained in Section 5
hereof  to  be  true  as of  the  Closing  Date,  after  giving  effect  to  the
transactions contemplated by this Agreement, as if made on and as of the Closing
Date.

     7.2. Sale and Registration of Securities.
          ------------------------------------

     The  Offerors and their  Affiliates  shall not nor shall any of them permit
any person acting on their behalf (other than the Placement Agents), to directly
or  indirectly  (i) sell,  offer for sale or solicit  offers to buy or otherwise
negotiate  in respect of any security  (as defined in the  Securities  Act) that
would or could be integrated with the sale of the Capital Securities in a manner
that would require the  registration  under the Securities Act of the Securities
or (ii) make offers or sales of any such Security,  or solicit offers to buy any
such Security, under circumstances that would require the registration of any of
such Securities under the Securities Act.

     7.3. Use of Proceeds.
          ----------------

     The Trust shall use the  proceeds  from the sale of the Capital  Securities
and the Common Securities to purchase the Debentures from the Company.

     7.4. Investment Company.
          -------------------

     The Offerors shall not engage,  or permit any Subsidiary to engage,  in any
activity which would cause it or any  Subsidiary to be an  "investment  company"
under the provisions of the Investment Company Act.

     7.5. Reimbursement of Expenses.
          --------------------------

     If  the  sale  of  the  Capital  Securities  provided  for  herein  is  not
consummated  (i)  because  any  condition  set forth in  Section 3 hereof is not
satisfied,  or (ii) because of any refusal,  inability or failure on the part of
the  Company or the Trust to perform  any  agreement  herein or comply  with any
provision hereof other than by reason of a breach by the Placement  Agents,  the
Company shall  reimburse  the Placement  Agents upon demand for all of their pro
rata  share  of   out-of-pocket   expenses   (including   reasonable   fees  and
disbursements of counsel) in an amount not to exceed  $50,000.00 that shall have
been incurred by them in connection  with the proposed  purchase and sale of the
Capital  Securities.  Notwithstanding  the foregoing,  the Company shall have no
obligation to reimburse the Placement Agents for their out-of-pocket expenses if
the sale of the Capital  Securities  fails to occur because the Placement Agents
fail to fulfill a condition set forth in Section 4.

     7.6. Solicitation and Advertising.
          -----------------------------

     In connection with any offer or sale of any of the Securities, the Offerors
shall not, nor shall either of them permit any of their Affiliates or any person
acting on their behalf,  other than the Placement  Agents, to engage in any form
of general solicitation or general advertising (as defined in Regulation D).

     7.7. Compliance with Rule 144A(d)(4) under the Securities Act.
          ---------------------------------------------------------

     So long  as any of the  Securities  are  outstanding  and  are  "restricted
securities"  within the meaning of Rule 144(a)(3)  under the Securities Act, the
Offerors  will,  during  any  period  in which  they are not  subject  to and in
compliance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934, as
amended (the "Exchange Act"), or the Offerors are not exempt from such reporting
requirements  pursuant  to and in  compliance  with  Rule  12g3-2(b)  under  the
Exchange Act,  provide to each holder of such restricted  securities and to each
prospective  purchaser  (as  designated  by  such  holder)  of  such  restricted
securities,  upon  the  request  of such  holder  or  prospective  purchaser  in
connection with any proposed transfer,  any information  required to be provided
by Rule  144A(d)(4)  under the Securities  Act, if applicable.  This covenant is
intended to be for the benefit of the holders,  and the  prospective  purchasers
designated by such holders, from time to time of such restricted securities. The
information  provided by the Offerors  pursuant to this Section 7.7 will not, at
the date  thereof,  contain any untrue  statement of a material  fact or omit to
state any material fact  necessary to make the statements  therein,  in light of
the circumstances under which they were made, not misleading.

                                       13
<PAGE>


     7.8. Quarterly Reports.
          ------------------

     Within 50 days of the end of each calendar year quarter and within 100 days
of the end of each  calendar  year during  which the  Debentures  are issued and
outstanding  and  Purchaser  holds any of the Capital  Securities,  the Offerors
shall  submit to  Purchaser a completed  quarterly  report in the form  attached
hereto as Exhibit D as well as a copy of the  applicable  Regulatory  Report for
the Company.

     7.9. Book-Entry Registration.
          ------------------------

     Each  Offeror  will  cooperate  with  the  Placement  Agents  and  use  all
commercially reasonable efforts to make the Capital Securities, and in the event
the Debentures are distributed to holders of the Capital Securities, to make the
Debentures,  eligible for  clearance and  settlement  as  book-entry  securities
through the  facilities  of DTC, and will  execute,  deliver and comply with all
representations made to, and agreements with, DTC and Nasdaq's PORTAL system.

Section 8. Covenants of the Placement Agents.
           ----------------------------------

     The Placement Agents covenant and agree with the Offerors that,  during the
period from the date of this Agreement to the Closing Date, the Placement Agents
shall use their best  efforts and take all action  necessary or  appropriate  to
cause their  representations and warranties contained in Section 6 to be true as
of the Closing Date,  after giving effect to the  transactions  contemplated  by
this Agreement,  as if made on and as of the Closing Date. The Placement  Agents
further covenant and agree not to engage in hedging transactions with respect to
the Capital Securities unless such transactions are conducted in compliance with
the Securities Act.

Section 9. Indemnification.
           ----------------

     9.1. Indemnification Obligation.
          ---------------------------

     The Offerors  shall jointly and  severally  indemnify and hold harmless the
Placement  Agents  and the  Purchaser  and  each  of  their  respective  agents,
employees,  officers and directors  and each person that controls  either of the
Placement  Agents or the  Purchaser  within  the  meaning  of  Section 15 of the
Securities  Act or  Section  20 of the  Exchange  Act,  and  agents,  employees,
officers and directors or any such controlling person of either of the Placement
Agents or the Purchaser  (each such person or entity,  an  "Indemnified  Party")
from and against any and all losses, claims, damages, judgments,  liabilities or
expenses,  joint or several,  to which such Indemnified Party may become subject
under the Securities  Act, the Exchange Act or other federal or state  statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation,  if such  settlement  is effected  with the  written  consent of the
Offerors),  insofar as such losses, claims, damages,  judgments,  liabilities or
expenses  (or actions in respect  thereof)  arise out of, or are based upon,  or
relate to, in whole or in part,  (a) any  untrue  statement  or  alleged  untrue
statement of a material fact contained in any  information  (whether  written or
oral) or  documents  executed in favor of,  furnished  or made  available to the
Placement  Agents or the  Purchaser  by the  Offerors,  or (b) any  omission  or
alleged  omission  to  state in any  information  (whether  written  or oral) or
documents  executed in favor of,  furnished or made  available to the  Placement
Agents or the  Purchaser by the Offerors a material  fact  required to be stated
therein or necessary to make the statements  therein not  misleading,  and shall
reimburse  each  Indemnified  Party for any legal  and  other  expenses  as such
expenses are reasonably  incurred by such  Indemnified  Party in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, judgments,  liability,  expense or action described in this Section 9.1.
In addition to their other obligations under this Section 9, the Offerors hereby
agree that,  as an interim  measure  during the  pendency of any claim,  action,
investigation,  inquiry or other  proceeding  arising out of, or based upon,  or
related to the matters described above in this Section 9.1, they shall reimburse
each  Indemnified  Party on a quarterly basis for all reasonable  legal or other
expenses incurred in connection with  investigating or defending any such claim,
action, investigation, inquiry or other proceeding,  notwithstanding the absence
of a  judicial  determination  as to the  propriety  and  enforceability  of the
possibility  that such  payments  might later be held to have been improper by a
court  of  competent   jurisdiction.   To  the  extent  that  any  such  interim
reimbursement  payment is so held to have been improper,  each Indemnified Party
shall  promptly  return such amounts to the  Offerors  together  with  interest,
determined on the basis of the prime rate (or other commercial  lending rate for
borrowers of the highest credit  standing)  announced from time to time by First
Tennessee  Bank  National  Association  (the  "Prime  Rate").  Any such  interim
reimbursement payments which are not made to an Indemnified Party within 30 days
of a request for  reimbursement  shall bear  interest at the Prime Rate from the
date of such request.

                                       14
<PAGE>


     9.2. Conduct of Indemnification Proceedings.
          ---------------------------------------

     Promptly  after  receipt by an  Indemnified  Party under this  Section 9 of
notice of the  commencement of any action,  such  Indemnified  Party shall, if a
claim in respect  thereof is to be made against the Offerors  under this Section
9, notify the Offerors in writing of the commencement  thereof;  but, subject to
Section 9.4, the omission to so notify the Offerors  shall not relieve them from
any  liability  pursuant  to  Section  9.1  which the  Offerors  may have to any
Indemnified  Party unless and to the extent that the Offerors did not  otherwise
learn of such action and such failure by the  Indemnified  Party  results in the
forfeiture by the Offerors of substantial rights and defenses.  In case any such
action is brought against any Indemnified Party and such Indemnified Party seeks
or intends to seek indemnity  from the Offerors,  the Offerors shall be entitled
to participate  in, and, to the extent that they may wish, to assume the defense
thereof  with  counsel  reasonably   satisfactory  to  such  Indemnified  Party;
provided,  however,  if the  defendants  in any  such  action  include  both the
Indemnified  Party  and  the  Offerors  and the  Indemnified  Party  shall  have
reasonably  concluded that there may be a conflict  between the positions of the
Offerors and the Indemnified  Party in conducting the defense of any such action
or that there may be legal  defenses  available to it and/or  other  Indemnified
Parties  which  are  different  from or  additional  to those  available  to the
Offerors,  the Indemnified Party shall have the right to select separate counsel
to assume such legal  defenses  and to otherwise  participate  in the defense of
such action on behalf of such Indemnified Party. Upon receipt of notice from the
Offerors to such Indemnified Party of their election to so assume the defense of
such action and approval by the Indemnified Party of counsel, the Offerors shall
not be liable to such  Indemnified  Party under this  Section 9 for any legal or
other expenses  subsequently  incurred by such  Indemnified  Party in connection
with the defense  thereof unless (i) the  Indemnified  Party shall have employed
such counsel in connection  with the  assumption of legal defenses in accordance
with the proviso in the preceding sentence (it being understood,  however,  that
the  Offerors  shall not be liable for the  expenses  of more than one  separate
counsel representing the Indemnified Parties who are parties to such action), or
(ii) the Offerors shall not have employed counsel reasonably satisfactory to the
Indemnified  Party to represent the  Indemnified  Party within a reasonable time
after notice of commencement of the action,  in each of which cases the fees and
expenses  of counsel of such  Indemnified  Party  shall be at the expense of the
Offerors.

     9.3. Contribution.
          -------------

                                       15
<PAGE>


     If the  indemnification  provided  for in this Section 9 is required by its
terms, but is for any reason held to be unavailable to or otherwise insufficient
to hold  harmless  an  Indemnified  Party  under  Section  9.1 in respect of any
losses, claims, damages,  liabilities or expenses referred to herein or therein,
then the  Offerors  shall  contribute  to the  amount  paid or  payable  by such
Indemnified  Party  as a  result  of any  losses,  claims,  damages,  judgments,
liabilities  or  expenses  referred  to  herein  (i) in  such  proportion  as is
appropriate to reflect the relative  benefits  received by the Offerors,  on the
one hand, and the  Indemnified  Party,  on the other hand,  from the offering of
such Capital Securities,  or (ii) if the allocation provided by clause (i) above
is not permitted by applicable  law, in such  proportion  as is  appropriate  to
reflect not only the relative  benefits referred to in clause (i) above but also
the relative fault of the Offerors,  on the one hand, and the Placement  Agents,
on  the  other  hand,  in  connection   with  the  statements  or  omissions  or
inaccuracies  in the  representations  and  warranties  herein or other breaches
which  resulted in such  losses,  claims,  damages,  judgments,  liabilities  or
expenses, as well as any other relevant equitable considerations. The respective
relative benefits  received by the Offerors,  on the one hand, and the Placement
Agents, on the other hand, shall be deemed to be in the same proportion,  in the
case of the  Offerors,  as the total price paid to the  Offerors for the Capital
Securities sold by the Offerors to the Purchaser (net of the  compensation  paid
to the Placement Agents hereunder,  but before deducting  expenses),  and in the
case of the Placement Agents, as the compensation received by them, bears to the
total of such amounts paid to the Offerors and received by the Placement  Agents
as  compensation.  The relative  fault of the Offerors and the Placement  Agents
shall be  determined  by reference  to, among other  things,  whether the untrue
statement  or alleged  untrue  statement  of a material  fact or the omission or
alleged omission of a material fact or the inaccurate or the alleged  inaccurate
representation  and/or warranty relates to information  supplied by the Offerors
or the Placement Agents and the parties' relative intent,  knowledge,  access to
information  and  opportunity  to correct or prevent such statement or omission.
The provisions  set forth in Section 9.2 with respect to notice of  commencement
of any action shall apply if a claim for contribution is made under this Section
9.3; provided, however, that no additional notice shall be required with respect
to any action for which notice has been given under  Section 9.2 for purposes of
indemnification.  The Offerors and the Placement  Agents agree that it would not
be just  and  equitable  if  contribution  pursuant  to this  Section  9.3  were
determined by pro rata allocation or by any other method of allocation that does
not take  account of the  equitable  considerations  referred to in this Section
9.3.  The  amount  paid or payable  by an  Indemnified  Party as a result of the
losses, claims, damages, judgments,  liabilities or expenses referred to in this
Section 9.3 shall be deemed to  include,  subject to the  limitations  set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection  with  investigating  or defending any such action or claim. In no
event shall the liability of the Placement Agents hereunder be greater in amount
than the dollar  amount of the  compensation  (net of  payment of all  expenses)
received by the Placement Agents upon the sale of the Capital  Securities giving
rise to such obligation. No person found guilty of fraudulent  misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution  from  any  person  who was not  found  guilty  of such  fraudulent
misrepresentation.

     9.4. Additional Remedies.
          --------------------

     The indemnity and contribution  agreements  contained in this Section 9 are
in  addition  to any  liability  that the  Offerors  may  otherwise  have to any
Indemnified Party.

     9.5. Additional Indemnification.
          ---------------------------

     The Company  shall  indemnify and hold harmless the Trust against all loss,
liability,  claim,  damage and expense  whatsoever,  as due from the Trust under
Sections  9.1 through 9.4 hereof.

Section 10. Rights and Responsibilities of Placement Agents.
            ------------------------------------------------

     10.1. Reliance.
           ---------

                                       16
<PAGE>


     In performing their duties under this Agreement, the Placement Agents shall
be entitled to rely upon any notice,  signature  or writing  which they shall in
good faith believe to be genuine and to be signed or presented by a proper party
or parties.  The Placement  Agents may rely upon any opinions or certificates or
other  documents  delivered  by the  Offerors or their  counsel or  designees to
either the Placement Agents or the Purchaser.

     10.2. Rights of Placement Agents.
           ---------------------------

     In connection  with the  performance of their duties under this  Agreement,
the Placement Agents shall not be liable for any error of judgment or any action
taken or omitted to be taken unless the Placement Agents were grossly  negligent
or  engaged  in  willful  misconduct  in  connection  with such  performance  or
non-performance.  No provision of this  Agreement  shall  require the  Placement
Agents to  expend or risk  their  own  funds or  otherwise  incur any  financial
liability on behalf of the Purchaser in connection  with the  performance of any
of their duties hereunder.  The Placement Agents shall be under no obligation to
exercise any of the rights or powers vested in them by this Agreement.

Section 11. Miscellaneous.
            --------------

     11.1. Disclosure Schedule.
           --------------------

     The term "Disclosure Schedule," as used herein, means the schedule, if any,
attached  to this  Agreement  that sets forth items the  disclosure  of which is
necessary  or  appropriate  as an exception  to one or more  representations  or
warranties contained in Section 5 hereof;  provided,  that any item set forth in
the Disclosure Schedule as an exception to a representation or warranty shall be
deemed an admission  by the Offerors  that such item  represents  an  exception,
fact,  event or circumstance  that is reasonably  likely to result in a Material
Adverse  Effect.  The  Disclosure  Schedule  shall  be  arranged  in  paragraphs
corresponding  to the section  numbers  contained  in Section 5.  Nothing in the
Disclosure  Schedule  shall be deemed  adequate to disclose  an  exception  to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with reasonable  particularity and describes the relevant facts in
reasonable detail.  Without limiting the generality of the immediately preceding
sentence,  the mere listing (or inclusion of a copy) of a document or other item
in the Disclosure Schedule shall not be deemed adequate to disclose an exception
to a  representation  or  warranty  made  herein  unless the  representation  or
warranty  has to do with the  existence  of the  document or other item  itself.
Information   provided  by  the  Company  in  response  to  any  due   diligence
questionnaire  shall not be deemed part of the Disclosure Schedule and shall not
be  deemed  to be an  exception  to one or more  representations  or  warranties
contained in Section 5 hereof unless such  information is specifically  included
on the  Disclosure  Schedule in accordance  with the  provisions of this Section
11.1.

     11.2. Legal Expenses.
           ---------------

     At Closing,  the Placement  Agents shall provide a credit for the Offerors'
transaction-related legal expenses in the amount of $10,000.00.

     11.3. Non-Disclosure.

     Except  as  required  by  applicable  law,   including  without  limitation
securities laws and regulations promulgated  thereunder,  (i) the Offerors shall
not, and will cause their advisors and  representatives  not to, issue any press
release or other public  statement  regarding the  transactions  contemplated by
this  Agreement or the Operative  Documents  prior to or on the Closing Date and
(ii)  following  the Closing Date,  the Offerors  shall not include in any press
release,   other  public   statement  or  other   communication   regarding  the
transactions  contemplated  by this  Agreement or the Operative  Documents,  any
reference to the Placement Agents,  WTC, the Purchaser,  the term "PreTS" or any
derivations  thereof,  or the  terms and  conditions  of this  Agreement  or the
Operative Documents.  Notwithstanding anything to the contrary, the Offerors may
(1) consult any tax advisor  regarding U.S.  federal income tax treatment or tax
structure of the transaction contemplated under this Agreement and the Operative
Documents  and (2) disclose to any and all persons,  without  limitation  of any
kind, the U.S. Federal income tax structure (in each case, within the meaning of
Treasury  Regulation ss.  1.6011-4) of the transaction  contemplated  under this
Agreement and the Operative  Documents and all materials of any kind  (including
opinions or other tax  analyses)  that are  provided to you relating to such tax
treatment and tax structure. For this purpose, "tax structure" is limited to any
facts relevant to the U.S.  federal income tax treatment of the  transaction and
does not include information relating to identity of the parties.

                                       17
<PAGE>


     11.4. Notices.
           --------

     Prior to the Closing,  and thereafter with respect to matters pertaining to
this  Agreement  only,  all notices  and other  communications  provided  for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier or overnight air courier guaranteeing next day delivery:

     if to the Placement Agents, to:

                   FTN Financial Capital Markets
                   845 Crossover Lane, Suite 150
                   Memphis, Tennessee  38117
                   Telecopier: 901-435-4706
                   Telephone:  800-456-5460
                   Attention:  James D. Wingett

                           and

                   Keefe, Bruyette & Woods, Inc.
                   787 7th Avenue
                   4th Floor
                   New York, New York  10019
                   Telecopier: 212-403-2000
                   Telephone:  212-403-1004
                   Attention:  Mitchell Kleinman, General Counsel

     with a copy to:

                   Lewis, Rice & Fingersh, L.C.
                   500 North Broadway, Suite 2000
                   St. Louis, Missouri  63102
                   Telecopier: 314-241-6056
                   Telephone:  314-444-7600
                   Attention:  Thomas C. Erb, Esq.

                           and

                   Sidley Austin LLP
                   787 7th Avenue
                   New York, New York  10019
                   Telecopier: 212-839-5599
                   Telephone:  212-839-5300
                   Attention:  Renwick Martin, Esq.


                                       18
<PAGE>


     if to the Offerors, to:

                   Four Oaks Fincorp, Inc.
                   6144 U.S. 301 South
                   Four Oaks, North Carolina  27524
                   Telecopier: 919-963-2278
                   Telephone:  919-963-1130
                   Attention:  Nancy S. Wise

     with a copy to:

                   Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
                   2500 Wachovia Capitol Center
                   Raleigh, North Carolina  27602
                   Telecopier: 919-821-6800
                   Telephone:  919-821-6772
                   Attention:  Michael P. Saber, Esq.

     All such notices and communications shall be deemed to have been duly given
(i) at the time delivered by hand, if personally  delivered,  (ii) five business
days after being deposited in the mail, postage prepaid,  if mailed,  (iii) when
answered back, if telexed, (iv) the next business day after being telecopied, or
(v) the next  business  day  after  timely  delivery  to a  courier,  if sent by
overnight  air  courier  guaranteeing  next day  delivery.  From and  after  the
Closing,  the  foregoing  notice  provisions  shall be  superseded by any notice
provisions of the Operative Documents under which notice is given. The Placement
Agents, the Offerors,  and their respective counsel, may change their respective
notice  addresses  from time to time by written  notice to all of the  foregoing
persons.

     11.5. Parties in Interest, Successors and Assigns.
           --------------------------------------------

         Except as expressly set forth herein, this Agreement is made solely for
the benefit of the Placement Agents, the Purchaser and the Offerors and any
person controlling the Placement Agents, the Purchaser or the Offerors and their
respective successors and assigns; and no other person shall acquire or have any
right under or by virtue of this Agreement. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.

     11.6. Counterparts.
           -------------

     This   Agreement  may  be  executed  by  the  parties  hereto  in  separate
counterparts,  each of which when so executed  shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

     11.7. Headings.
           ---------

     The headings in this  Agreement are for  convenience  of reference only and
shall not limit or otherwise affect the meaning hereof.

     11.8. Governing Law.
           --------------

     THIS  AGREEMENT  SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH THE
INTERNAL LAWS (AND NOT THE LAWS PERTAINING TO CONFLICTS OF LAWS) OF THE STATE OF
NEW YORK.

                                       19
<PAGE>


     11.9. Entire Agreement.
           -----------------

     This  Agreement,  together  with  the  Operative  Documents  and the  other
documents  delivered in connection  with the  transactions  contemplated by this
Agreement,  is intended by the parties as a final  expression of their agreement
and  intended to be a complete and  exclusive  statement  of the  agreement  and
understanding  of the parties hereto in respect of the subject matter  contained
herein  and  therein.  There  are  no  restrictions,   promises,  warranties  or
undertakings, other than those set forth or referred to herein and therein. This
Agreement,  together  with  the  Operative  Documents  and the  other  documents
delivered in connection  with the  transaction  contemplated  by this Agreement,
supersedes  all prior  agreements  and  understandings  between the parties with
respect to such subject matter.

     11.10. Severability.
            -------------

     In the event that any one or more of the provisions  contained  herein,  or
the  application  thereof  in any  circumstances,  is held  invalid,  illegal or
unenforceable  in any  respect  for  any  reason,  the  validity,  legality  and
enforceability of any such provision in every other respect and of the remaining
provisions  hereof  shall  not be in any way  impaired  or  affected,  it  being
intended  that all of the  Placement  Agents'  and the  Purchaser's  rights  and
privileges shall be enforceable to the fullest extent permitted by law.

     11.11. Survival.
            ---------

     The  Placement  Agents  and the  Offerors,  respectively,  agree  that  the
representations,  warranties  and  agreements  made  by  each  of  them  in this
Agreement and in any certificate or other instrument  delivered  pursuant hereto
shall  remain in full force and effect and shall  survive the  delivery  of, and
payment for, the Capital Securities.

                     Signatures appear on the following page




                                       20
<PAGE>


     If this Agreement is satisfactory to you, please so indicate by signing the
acceptance  of this  Agreement  and deliver  such  counterpart  to the  Offerors
whereupon this Agreement will become binding  between us in accordance  with its
terms.

                                                     Very truly yours,

                                                     FOUR OAKS FINCORP, INC.


                                                     By:
                                                        ------------------------
                                                     Name:
                                                          ----------------------
                                                     Title:
                                                           ---------------------


                                                     FOUR OAKS STATUTORY TRUST I


                                                     By:
                                                        ------------------------
                                                     Name:
                                                          ----------------------
                                                     Title: Administrator


CONFIRMED AND ACCEPTED,
as of the date first set forth above

FTN FINANCIAL CAPITAL MARKETS,
a division of First Tennessee Bank National Association,
as a Placement Agent


By:
   -----------------------------------------------------
Name:
     ---------------------------------------------------
Title:
      --------------------------------------------------


KEEFE, BRUYETTE & WOODS, INC.,
a New York corporation, as a Placement Agent


By:
   -----------------------------------------------------
Name:
     ---------------------------------------------------
Title:
      --------------------------------------------------


                                       21
<PAGE>


                                    EXHIBIT A
                                    ---------

                         FORM OF SUBSCRIPTION AGREEMENT
                         ------------------------------

                           FOUR OAKS STATUTORY TRUST I
                             FOUR OAKS FINCORP, INC.

                             SUBSCRIPTION AGREEMENT

                                 March 30, 2006

     THIS  SUBSCRIPTION  AGREEMENT  (this  "Agreement")  made  among  Four  Oaks
Statutory  Trust I (the "Trust"),  a statutory  trust created under the Delaware
Statutory  Trust Act  (Chapter 38 of Title 12 of the Delaware  Code,  12 Del. C.
ss.ss.  3801, et seq.), Four Oaks Fincorp,  Inc., a North Carolina  corporation,
with its  principal  offices  located at 6144 U.S. 301 South,  Four Oaks,  North
Carolina 27524 (the "Company" and, collectively with the Trust, the "Offerors"),
and KBW, Inc. (the "Purchaser").

                                    RECITALS:

     A.  The  Trust  desires  to  issue  12,000  of its  Floating  Rate  Capital
Securities (the "Capital Securities"),  liquidation amount $1,000.00 per Capital
Security,  representing  an undivided  beneficial  interest in the assets of the
Trust  (the  "Offering"),  to be issued  pursuant  to an  Amended  and  Restated
Declaration of Trust (the  "Declaration")  by and among the Company,  Wilmington
Trust Company ("WTC"),  the  administrators  named therein,  and the holders (as
defined therein),  which Capital  Securities are to be guaranteed by the Company
with respect to  distributions  and payments upon  liquidation,  redemption  and
otherwise pursuant to the terms of a Guarantee Agreement between the Company and
WTC, as trustee (the "Guarantee"); and

     B. The proceeds  from the sale of the Capital  Securities  will be combined
with the  proceeds  from the sale by the  Trust  to the  Company  of its  common
securities,  and will be used by the Trust to purchase an  equivalent  amount of
Floating Rate Junior Subordinated  Deferrable Interest Debentures of the Company
(the  "Debentures")  to be issued by the Company  pursuant to an indenture to be
executed by the Company and WTC, as trustee (the "Indenture"); and

     C. In  consideration  of the  premises and the mutual  representations  and
covenants hereinafter set forth, the parties hereto agree as follows:

                                    ARTICLE I

                     PURCHASE AND SALE OF CAPITAL SECURITIES

     1.1 Upon the execution of this  Agreement,  the Purchaser  hereby agrees to
purchase from the Trust 12,000 Capital  Securities at a price equal to $1,000.00
per Capital  Security (the  "Purchase  Price") and the Trust agrees to sell such
Capital  Securities to the Purchaser  for said  Purchase  Price.  The rights and
preferences  of the Capital  Securities  are set forth in the  Declaration.  The
Purchase Price is payable in immediately  available  funds on March 30, 2006, or
such other business day as may be designated by the  Purchaser,  but in no event
later than March 31, 2006 (the "Closing  Date").  The Offerors shall provide the
Purchaser  wire  transfer  instructions  no later than 1 day  following the date
hereof.

     1.2  The  Placement  Agreement,   dated  March  29,  2006  (the  "Placement
Agreement"), among the Offerors and the placement agents identified therein (the
"Placement Agents") includes certain  representations and warranties,  covenants
and conditions to closing and certain other matters governing the Offering.  The
Placement  Agreement is hereby incorporated by reference into this Agreement and
the Purchaser shall be entitled to each of the benefits of the Placement  Agents
and the Purchaser under the Placement Agreement and shall be entitled to enforce
the  obligations of the Offerors  under such Placement  Agreement as fully as if
the Purchaser were a party to such Placement Agreement.


                                      A-1
<PAGE>


     1.3 Anything  herein or in the  Placement  Agreement  notwithstanding,  the
Offerors  acknowledge  and agree that, so long as Purchaser holds some or all of
the Capital  Securities,  the Purchaser may in its discretion  from time to time
transfer or sell,  or sell or grant  participation  interests in, some or all of
such  Capital  Securities  to  one or  more  parties,  provided  that  any  such
transaction complies, as applicable,  with the registration  requirements of the
Securities  Act of  1933,  as  amended  (the  "Securities  Act")  and any  other
applicable  securities  laws,  is  pursuant  to an  exemption  therefrom,  or is
otherwise not subject thereto.

                                   ARTICLE II

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

     2.1. The Purchaser  understands and  acknowledges  that none of the Capital
Securities,  the  Debentures or the  Guarantee  have been  registered  under the
Securities  Act or any other  applicable  securities  law, are being offered for
sale  by  the  Trust  in  transactions  not  requiring  registration  under  the
Securities Act, and may not be offered,  sold, pledged or otherwise  transferred
by the Purchaser except in compliance with the registration  requirements of the
Securities Act or any other applicable securities laws, pursuant to an exemption
therefrom or in a transaction not subject thereto.

     2.2. The Purchaser  represents  and warrants that,  except as  contemplated
under Section 1.3 hereof,  it is purchasing  the Capital  Securities for its own
account,  for  investment,  and not  with a view  to,  or for  offer  or sale in
connection with, any distribution  thereof in violation of the Securities Act or
other  applicable  securities  laws,  subject to any requirement of law that the
disposition  of its  property be at all times  within its control and subject to
its  ability  to  resell  such  Capital  Securities  pursuant  to  an  effective
registration  statement under the Securities Act or under Rule 144A or any other
exemption  from  registration  available  under the  Securities Act or any other
applicable securities law.

     2.3. The  Purchaser  represents  and warrants that neither the Offerors nor
the  Placement  Agents are acting as a  fiduciary  or  financial  or  investment
adviser for the Purchaser.

     2.4. The  Purchaser  represents  and  warrants  that it is not relying (for
purposes  of making any  investment  decision  or  otherwise)  upon any  advice,
counsel or  representations  (whether written or oral) of the Offerors or of the
Placement Agents.

     2.5. The Purchaser  represents  and warrants that (a) it has consulted with
its own legal, regulatory, tax, business,  investment,  financial and accounting
advisers in connection  herewith to the extent it has deemed  necessary,  (b) it
has had a reasonable  opportunity  to ask questions of and receive  answers from
officers  and  representatives  of  the  Offerors  concerning  their  respective
financial  condition and results of  operations  and the purchase of the Capital
Securities,  and any such questions have been answered to its satisfaction,  (c)
it has had the opportunity to review all publicly  available records and filings
concerning  the Offerors and it has carefully  reviewed such records and filings
that it considers relevant to making an investment decision, and (d) it has made
its own  investment  decisions  based upon its own  judgment,  due diligence and
advice  from such  advisers  as it has  deemed  necessary  and not upon any view
expressed by the Offerors or the Placement Agents.

     2.6.  The  Purchaser  represents  and  warrants  that  it  is a  "qualified
institutional buyer" as defined under Rule 144A under the Securities Act. If the
Purchaser is a dealer of the type described in paragraph (a)(1)(ii) of Rule 144A
under the Securities Act, it owns and invests on a discretionary  basis not less
than U.S.  $25,000,000.00  in securities of issuers that are not affiliated with
it. The Purchaser is not a participant-directed  employee plan, such as a 401(k)
plan,  or any  other  type of plan  referred  to in  paragraph  (a)(1)(i)(D)  or
(a)(1)(i)(E) of Rule 144A, or a trust fund referred to in paragraph (a)(1)(i)(F)
of Rule 144A that holds the assets of such a plan, unless  investment  decisions
with respect to the plan are made solely by the fiduciary, trustee or sponsor of
such plan.


                                      A-2
<PAGE>


     2.7. The Purchaser  represents  and warrants that on each day from the date
on which it acquires the Capital  Securities  through and  including the date on
which it disposes of its interests in the Capital  Securities,  either (i) it is
not (a) an  "employee  benefit  plan" (as defined in Section  3(3) of the United
States Employee  Retirement  Income Security Act of 1974, as amended  ("ERISA"))
which is subject to the  provisions of Part 4 of Subtitle B of Title I of ERISA,
or any entity whose  underlying  assets  include the assets of any such plan (an
"ERISA  Plan"),  (b) any other "plan" (as defined in Section  4975(e)(1)  of the
United States  Internal  Revenue Code of 1986, as amended (the "Code")) which is
subject  to the  provisions  of  Section  4975 of the Code or any  entity  whose
underlying assets include the assets of any such plan (a "Plan"),  (c) an entity
whose underlying  assets include the assets of any such ERISA Plan or other Plan
by reason of Department of Labor regulation section 2510.3-101 or otherwise,  or
(d) a governmental or church plan that is subject to any federal, state or local
law which is substantially  similar to the provisions of Section 406 of ERISA or
Section 4975 of the Code (a "Similar  Law");  or (ii) the purchase,  holding and
disposition of the Capital  Securities by it will satisfy the  requirements  for
exemptive relief under Prohibited  Transaction  Class Exemption  ("PTCE") 84-14,
PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 or a similar exemption, or, in the
case of a plan  subject  to a  Similar  Law,  will not  result  in a  non-exempt
violation of such Similar Law.

     2.8. The Purchaser represents and warrants that it is acquiring the Capital
Securities  as  principal  for its own account  for  investment  and,  except as
contemplated  under  Section 1.3  hereof,  not for sale in  connection  with any
distribution  thereof.  It was not formed solely for the purpose of investing in
the Capital Securities, and additional capital or similar contributions were not
specifically  solicited  from any person owning a beneficial  interest in it for
the purpose of enabling it to purchase any Capital Securities.  The Purchaser is
not a (i) partnership,  (ii) common trust fund or (iii) special trust,  pension,
profit  sharing or other  retirement  trust fund or plan in which the  partners,
beneficiaries  or  participants,  as  applicable,  may designate the  particular
investments to be made or the allocation of any investment  among such partners,
beneficiaries  or  participants,  and except as  contemplated  under Section 1.3
hereof, it agrees that it shall not hold the Capital  Securities for the benefit
of any other  person  and shall be the sole  beneficial  owner  thereof  for all
purposes  and that it shall  not sell  participation  interests  in the  Capital
Securities  or enter  into any  other  arrangement  pursuant  to which any other
person shall be entitled to a  beneficial  interest in the  distribution  on the
Capital Securities.  The Capital Securities  purchased directly or indirectly by
the Purchaser  constitute  an investment of no more than 40% of its assets.  The
Purchaser  understands  and agrees  that any  purported  transfer of the Capital
Securities to a purchaser which would cause the  representations  and warranties
of Section 2.6 and this Section 2.8 to be  inaccurate  shall be null and void ab
initio and the Offerors  retain the right to resell any Capital  Securities sold
to non-permitted transferees.

     2.9.  The  Purchaser  represents  and  warrants  that it has full power and
authority to execute and deliver this Agreement, to make the representations and
warranties  specified  herein,  and to consummate the transactions  contemplated
herein and it has full right and power to subscribe for Capital  Securities  and
perform its obligations pursuant to this Agreement.

     2.10.  The  Purchaser  represents  and  warrants  that no filing  with,  or
authorization, approval, consent, license, order, registration, qualification or
decree of, any governmental  body, agency or court having  jurisdiction over the
Purchaser,  other than those that have been made or  obtained,  is  necessary or
required for the  performance  by the  Purchaser of its  obligations  under this
Agreement or to consummate the transactions contemplated herein.


                                      A-3
<PAGE>


     2.11.  The Purchaser  represents  and warrants that this Agreement has been
duly authorized, executed and delivered by the Purchaser.

     2.12. The Purchaser understands and acknowledges that the Company will rely
upon the truth and accuracy of the foregoing  acknowledgments,  representations,
warranties  and  agreements  and  agrees  that,  if any of the  acknowledgments,
representations,  warranties or agreements deemed to have been made by it by its
purchase of the Capital  Securities  are no longer  accurate,  it shall promptly
notify the Company.

     2.13. The Purchaser understands that no public market exists for any of the
Capital Securities, and that it is unlikely that a public market will ever exist
for the Capital Securities.

                                   ARTICLE II

                                  MISCELLANEOUS

     3.1.  Any notice or other  communication  given  hereunder  shall be deemed
sufficient  if in writing  and sent by  registered  or  certified  mail,  return
receipt  requested,  international  courier or delivered by hand against written
receipt therefor,  or by facsimile  transmission and confirmed by telephone,  to
the following addresses,  or such other address as may be furnished to the other
parties as herein provided:

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

           To the Purchaser:     KBW, Inc.
                                 787 7th Avenue, 4th Floor
                                 New York, New York 10019
                                 Attention: Mitchell Kleinman, General Counsel
                                 Fax: 212-403-2000

     Unless otherwise expressly provided herein, notices shall be deemed to have
been given on the date of mailing,  except  notice of change of  address,  which
shall be deemed to have been given when received.

     3.2. This Agreement  shall not be changed,  modified or amended except by a
writing  signed by the  parties to be  charged,  and this  Agreement  may not be
discharged  except by performance  in accordance  with its terms or by a writing
signed by the party to be charged.

     3.3. Upon the execution  and delivery of this  Agreement by the  Purchaser,
this Agreement  shall become a binding  obligation of the Purchaser with respect
to the purchase of Capital Securities as herein provided.

     3.4.  NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
OF THE  PARTIES  HERETO,  THE  PARTIES  EXPRESSLY  AGREE  THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.


                                      A-4
<PAGE>


     3.5. The parties  agree to execute and deliver all such further  documents,
agreements  and  instruments  and take such other and  further  action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.

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

     3.7. In the event that any one or more of the provisions  contained herein,
or the application  thereof in any  circumstances,  is held invalid,  illegal or
unenforceable  in any  respect  for  any  reason,  the  validity,  legality  and
enforceability of any such provision in every other respect and of the remaining
provisions  hereof  shall  not be in any way  impaired  or  affected,  it  being
intended  that all of the Offerors' and the  Purchaser's  rights and  privileges
shall be enforceable to the fullest extent permitted by law.

                     Signatures appear on the following page


                                      A-5
<PAGE>


     IN WITNESS WHEREOF,  this Agreement is agreed to and accepted as of the day
and year first written above.


KBW, INC.


By:
   -------------------------------------------------
Print Name:
           -----------------------------------------
Title:
      ----------------------------------------------

                                                    FOUR OAKS FINCORP, INC.


                                                    By:
                                                      --------------------------

                                                    Name:
                                                        ------------------------

                                                    Title:
                                                         -----------------------

                                                    FOUR OAKS STATUTORY TRUST I


                                                    By:
                                                      --------------------------

                                                    Name:
                                                        ------------------------

                                                    Title:  Administrator


                                      A-6
<PAGE>


                                   EXHIBIT B-1
                         FORM OF COMPANY COUNSEL OPINION
                                 March 30, 2006

KBW, Inc.                                          FTN Financial Capital Markets
787 7th Avenue, 4th Floor                          845 Crossover Lane, Suite 150
New York, New York  10019                          Memphis, Tennessee  38117

Wilmington Trust Company                           Keefe, Bruyette & Woods, Inc.
Rodney Square North                                787 7th Avenue, 4th Floor
1100 North Market Street                           New York, New York  10019
Wilmington, Delaware  19890-1600

Ladies and Gentlemen:

     We have acted as counsel to Four Oaks  Fincorp,  Inc.  (the  "Company"),  a
North Carolina  corporation in connection  with a certain  Placement  Agreement,
dated March 29, 2006, (the "Placement Agreement"),  between the Company and Four
Oaks  Statutory  Trust I (the "Trust"),  on one hand, and FTN Financial  Capital
Markets and Keefe, Bruyette & Woods, Inc. (the "Placement Agents"), on the other
hand.  Pursuant  to the  Placement  Agreement,  and  subject  to the  terms  and
conditions  stated  therein,  the Trust  will issue and sell to KBW,  Inc.  (the
"Purchaser"), $12,000,000.00 aggregate principal amount of Floating Rate Capital
Securities  (liquidation  amount  $1,000.00 per capital  security) (the "Capital
Securities").

     Capitalized terms used herein and not otherwise defined shall have the same
meanings ascribed to them in the Placement Agreement.

     The law covered by the opinions  expressed  herein is limited to the law of
the United States of America and of the State of North Carolina.

     We have made such investigations of law as, in our judgment, were necessary
to render  the  following  opinions.  We have also  reviewed  (a) the  Company's
Articles of Incorporation, as amended, and its By-Laws, as amended; and (b) such
corporate  documents,  records,  information and certificates of the Company and
the Subsidiaries, certificates of public officials or government authorities and
other  documents as we have deemed  necessary or  appropriate as a basis for the
opinions hereinafter expressed. As to certain facts material to our opinions, we
have  relied,   with  your   permission,   upon   statements,   certificates  or
representations,  including  those  delivered  or made in  connection  with  the
above-referenced  transaction,  of  officers  and other  representatives  of the
Company and the Subsidiaries and the Trust.

     As used herein, the phrases "to the best of our knowledge" or "known to us"
or other similar phrases mean the actual knowledge of the attorneys who have had
active  involvement in the transactions  described above or who have prepared or
signed this opinion letter, or who otherwise have devoted substantial  attention
to legal matters for the Company.

     Based upon and subject to the foregoing and the further  qualifications set
forth below, we are of the opinion as of the date hereof that:

<PAGE>


     1. The Company is validly  existing and in good standing  under the laws of
the State of North  Carolina and is duly  registered  as a bank holding  company
under the Bank Holding Company Act of 1956, as amended.  Each of the Significant
Subsidiaries  is validly  existing  and in good  standing  under the laws of its
jurisdiction  of   organization.   Each  of  the  Company  and  the  Significant
Subsidiaries  has  full  corporate  power  and  authority  to own or  lease  its
properties  and to conduct its business as such business is currently  conducted
in all material respects.  To the best of our knowledge,  all outstanding shares
of capital stock of the Significant  Subsidiaries  have been duly authorized and
validly issued,  and are fully paid and nonassessable  except to the extent such
shares  may be  deemed  assessable  under 12 U.S.C.  Section  1831o or 12 U.S.C.
Section 55, and are owned of record and beneficially, directly or indirectly, by
the Company.

     2. The issuance, sale and delivery of the Debentures in accordance with the
terms and conditions of the Placement Agreement and the Operative Documents have
been duly authorized by all necessary actions of the Company. The issuance, sale
and  delivery  of the  Debentures  by the  Company  and the  issuance,  sale and
delivery of the Capital Securities and the Common Securities by the Trust do not
give rise to any  preemptive or other rights to subscribe for or to purchase any
shares of capital stock or equity  securities of the Company or the  Significant
Subsidiaries  pursuant to the corporate  Articles of  Incorporation  or Charter,
By-Laws  or  other  governing  documents  of  the  Company  or  the  Significant
Subsidiaries,  or,  to the  best  of  our  knowledge,  any  agreement  or  other
instrument  to which  either the  Company or the  Subsidiaries  is a party or by
which the Company or the Significant Subsidiaries may be bound.

     3. The Company has all requisite  corporate power to enter into and perform
its obligations  under the Placement  Agreement and the Subscription  Agreement,
and the Placement  Agreement and the  Subscription  Agreement have been duly and
validly  authorized,  executed and delivered by the Company and  constitute  the
legal,  valid and binding  obligations of the Company  enforceable in accordance
with their terms,  except as the  enforcement  thereof may be limited by general
principles of equity and by bankruptcy or other laws affecting creditors' rights
generally, and except as the indemnification and contribution provisions thereof
may be limited under  applicable laws and certain  remedies may not be available
in the case of a non-material breach.

     4. Each of the Indenture,  the Trust Agreement and the Guarantee  Agreement
has been duly authorized,  executed and delivered by the Company, and is a valid
and legally binding obligation of the Company enforceable in accordance with its
terms,  subject  to  the  effect  of  bankruptcy,  insolvency,   reorganization,
receivership,  moratorium  and other laws  affecting  the rights and remedies of
creditors generally and of general principles of equity.

     5. The Debentures have been duly authorized,  executed and delivered by the
Company,  are entitled to the benefits of the Indenture and are legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with  their   terms,   subject  to  the   effect  of   bankruptcy,   insolvency,
reorganization, receivership, moratorium and other laws affecting the rights and
remedies of creditors generally and of general principles of equity.

     6. To the best of our knowledge, neither the Company, the Trust, nor any of
the Subsidiaries is in breach or violation of, or default under, with or without
notice or lapse of time or both,  its  Articles  of  Incorporation  or  Charter,
By-Laws or other governing documents  (including without  limitation,  the Trust
Agreement).  The execution,  delivery and performance of the Placement Agreement
and  the  Operative   Documents  and  the   consummation  of  the   transactions
contemplated by the Placement  Agreement and the Operative  Documents do not and
will not (i) result in the creation or imposition of any material  lien,  claim,
charge, encumbrance or restriction upon any property or assets of the Company or
the  Subsidiaries,  or (ii)  conflict  with,  constitute  a  material  breach or
violation of, or constitute a material default under,  with or without notice or
lapse of time or both,  any of the terms,  provisions  or  conditions of (A) the
Articles of  Incorporation or Charter,  By-Laws or other governing  documents of
the  Company  or the  Subsidiaries,  or (B) to the  best of our  knowledge,  any
material contract, indenture, mortgage, deed of trust, loan or credit agreement,
note,  lease,  franchise,  license or any other agreement or instrument to which
the  Company  or the  Subsidiaries  is a party or by which any of them or any of
their  respective  properties may be bound or (C) any order,  decree,  judgment,
franchise,  license,  permit,  rule  or  regulation  of any  court,  arbitrator,
government,  or  governmental  agency or  instrumentality,  domestic or foreign,
known to us having  jurisdiction  over the Company or the Subsidiaries or any of
their respective  properties which, in the case of each of (i) or (ii) above, is
material to the Company and the Subsidiaries on a consolidated basis.


                                      A-8
<PAGE>


     7. Except for filings, registrations or qualifications that may be required
by applicable securities laws, no authorization,  approval, consent or order of,
or filing,  registration or qualification  with, any person (including,  without
limitation,  any court,  governmental  body or authority) is required  under the
laws of the  State  of  North  Carolina  in  connection  with  the  transactions
contemplated  by  the  Placement   Agreement  and  the  Operative  Documents  in
connection with the offer and sale of the Capital  Securities as contemplated by
the Placement Agreement and the Operative Documents.

     8. To the best of our knowledge (i) no action, suit or proceeding at law or
in equity is  pending  or  threatened  to which  the  Company,  the Trust or the
Subsidiaries  are or may be a party,  and (ii) no action,  suit or proceeding is
pending  or  threatened  against  or  affecting  the  Company,  the Trust or the
Subsidiaries or any of their properties,  before or by any court or governmental
official,  commission,  board or other administrative agency, authority or body,
or any  arbitrator,  wherein an  unfavorable  decision,  ruling or finding could
reasonably be expected to have a material  adverse effect on the consummation of
the  transactions  contemplated  by the  Placement  Agreement  and the Operative
Documents  or the issuance and sale of the Capital  Securities  as  contemplated
therein or the condition (financial or otherwise),  earnings, affairs, business,
or results of operations  of the Company,  the Trust and the  Subsidiaries  on a
consolidated basis.

     9. Assuming the truth and accuracy of the representations and warranties of
the  Placement  Agents  in the  Placement  Agreement  and the  Purchaser  in the
Subscription  Agreement,  it is not necessary in  connection  with the offering,
sale and delivery of the Capital  Securities,  the  Debentures and the Guarantee
Agreement (or the  Guarantee) to register the same under the  Securities  Act of
1933,  as  amended,  under  the  circumstances  contemplated  in  the  Placement
Agreement and the Subscription Agreement.

     10.  Neither  the Company  nor the Trust is or after  giving  effect to the
offering  and  sale  of the  Capital  Securities  and  the  consummation  of the
transactions  described  in the  Placement  Agreement  will be,  an  "investment
company" or an entity  "controlled"  by an  "investment  company,"  in each case
within the meaning of the  Investment  Company Act of 1940, as amended,  without
regard to Section 3(c) of such Act.

     The opinion expressed in the first two sentences of numbered paragraph 1 of
this opinion is based solely upon certain  certificates and confirmations issued
by the applicable  governmental officer or authority with respect to each of the
Company and the Significant Subsidiaries.

     With  respect to the  foregoing  opinions,  since no member of this firm is
actively  engaged in the  practice of law in the States of Delaware or New York,
we do not  express  any  opinions  as to the  laws of such  states  and have (i)
relied, with your approval, upon the opinion of Richards,  Layton & Finger, P.A.
with respect to matters of Delaware law and (ii) assumed, with your approval and
without rendering any opinion to such effect,  that the laws of the State of New
York, in all respects material to this opinion,  are substantively  identical to
the laws of the  State of North  Carolina,  without  regard to  conflict  of law
provisions.


                                      A-9
<PAGE>


     The  opinions  expressed  herein are  rendered  to you solely  pursuant  to
Section 3.1(a) of the Placement  Agreement.  As such, they may be relied upon by
you only and may not be used or relied upon by any other  person for any purpose
whatsoever without our prior written consent.


                                      A-10
<PAGE>


                                   EXHIBIT B-2
                                   -----------

                        FORM OF DELAWARE COUNSEL OPINION
                        --------------------------------

To Each of the Persons
Listed on Schedule A Hereto

     Re: Four Oaks Statutory Trust I
         ---------------------------

Ladies and Gentlemen:

     We have acted as special  Delaware counsel for Four Oaks Statutory Trust I,
a Delaware  statutory  trust (the "Trust"),  in connection  with the matters set
forth herein. At your request, this opinion is being furnished to you.

     For purposes of giving the opinions  hereinafter set forth, our examination
of documents has been limited to the  examination  of originals or copies of the
following:

     (a) The Certificate of Trust of the Trust (the "Certificate of Trust"),  as
filed in the  office of the  Secretary  of State of the State of  Delaware  (the
"Secretary of State") on March 22, 2006;

     (b) The Declaration of Trust,  dated as of March 22, 2006,  among Four Oaks
Fincorp,  Inc., a North Carolina  corporation (the "Company"),  Wilmington Trust
Company,   a  Delaware  banking   corporation   ("WTC"),   as  trustee  and  the
administrators named therein (the "Administrators");

     (c) The Amended and Restated Declaration of Trust of the Trust, dated as of
March 30, 2006 (including the form of Capital  Securities  Certificate  attached
thereto as Exhibit A-1 and the terms of the Capital Securities attached as Annex
I) (the "Declaration of Trust"), among the Company, as sponsor, WTC, as Delaware
trustee (the "Delaware  Trustee") and institutional  trustee (the "Institutional
Trustee"),  the Administrators and the holders,  from time to time, of undivided
beneficial interests in the assets of the Trust;

     (d)  The  Placement  Agreement,   dated  March  29,  2006  (the  "Placement
Agreement"), among the Company, the Trust, and FTN Financial Capital Markets and
Keefe, Bruyette & Woods, Inc., as placement agents;

     (e) The  Subscription  Agreement,  dated March 30, 2006 (the  "Subscription
Agreement"),  among  the  Trust,  the  Company  and  KBW,  Inc.  (the  documents
identified  in items (c)  through  (e)  being  collectively  referred  to as the
"Operative Documents");

     (f) The Capital  Securities  being issued on the date hereof (the  "Capital
Securities");

     (g) The Common  Securities  being  issued on the date hereof  (the  "Common
Securities") (the documents  identified in items (f) and (g) being  collectively
referred to as the "Trust Securities"); and

     (h) A  Certificate  of Good  Standing for the Trust,  dated March 29, 2006,
obtained from the Secretary of State.


                                      A-11
<PAGE>


     Capitalized terms used herein and not otherwise defined are used as defined
in the Declaration of Trust,  except that reference herein to any document shall
mean such  document  as in  effect on the date  hereof.  This  opinion  is being
delivered pursuant to Section 3.1 of the Placement Agreement.

     For purposes of this opinion, we have not reviewed any documents other than
the documents listed in paragraphs (a) through (h) above. In particular, we have
not reviewed any document  (other than the documents  listed in  paragraphs  (a)
through (h) above) that is referred to in or  incorporated by reference into the
documents  reviewed by us. We have assumed that there exists no provision in any
document that we have not reviewed that is inconsistent with the opinions stated
herein.  We have conducted no independent  factual  investigation of our own but
rather have relied  solely upon the  foregoing  documents,  the  statements  and
information  set forth  therein and the  additional  matters  recited or assumed
herein,  all of which we have  assumed to be true,  complete and accurate in all
material respects.

     With  respect to all  documents  examined  by us, we have  assumed  (i) the
authenticity of all documents submitted to us as authentic  originals,  (ii) the
conformity  with the  originals  of all  documents  submitted to us as copies or
forms, and (iii) the genuineness of all signatures.

     For purposes of this opinion,  we have assumed (i) that the  Declaration of
Trust constitutes the entire agreement among the parties thereto with respect to
the subject matter thereof,  including with respect to the creation,  operation,
and  termination  of the  Trust,  and that  the  Declaration  of  Trust  and the
Certificate  of Trust are in full  force and  effect  and have not been  amended
further,  (ii) that there are no proceedings  pending or  contemplated,  for the
merger,  consolidation,  liquidation,  dissolution  or termination of the Trust,
(iii) except to the extent provided in paragraph 1 below, the due creation,  due
formation or due  organization,  as the case may be, and valid existence in good
standing  of each party to the  documents  examined  by us under the laws of the
jurisdiction governing its creation,  formation or organization,  (iv) that each
party to the  documents  examined  by us is  qualified  to do  business  in each
jurisdiction  where such  qualification  is required  generally  or necessary in
order for such party to enforce its rights under the  documents  examined by us,
(v) the legal  capacity of each natural  person who is a party to the  documents
examined by us, (vi) except to the extent set forth in  paragraph 2 below,  that
each of the parties to the documents  examined by us has the power and authority
to execute and deliver,  and to perform its obligations  under,  such documents,
(vii)  except to the extent  provided  in  paragraph  3 below,  that each of the
parties  to the  documents  examined  by us has duly  authorized,  executed  and
delivered  such  documents,  (viii) the receipt by each Person to whom a Capital
Security  is to be issued by the Trust (the  "Capital  Security  Holders")  of a
Capital  Security  Certificate for the Capital  Security and the payment for the
Capital  Securities  acquired by it, in accordance with the Declaration of Trust
and the Subscription Agreement,  (ix) that the Capital Securities are issued and
sold to the Holders of the Capital Securities in accordance with the Declaration
of Trust and the  Subscription  Agreement,  (x) the  receipt by the Person  (the
"Common Securityholder") to whom the common securities of the Trust representing
common  undivided  beneficial  interests in the assets of the Trust (the "Common
Securities" and, together with the Capital  Securities,  the "Trust Securities")
are to be issued by the Trust of a Common  Security  Certificate  for the Common
Securities  and the  payment  for  the  Common  Securities  acquired  by it,  in
accordance  with the Declaration of Trust,  (xi) that the Common  Securities are
issued and sold to the Common  Securityholder in accordance with the Declaration
of Trust,  (xii) that each of the  parties to the  documents  reviewed by us has
agreed to and  received  the  stated  consideration  for the  incurrence  of its
obligations under such documents,  (xiii) that each of the documents reviewed by
us  (other  than the  Declaration  of  Trust)  is a legal,  valid,  binding  and
enforceable  obligation  of the  parties  thereto in  accordance  with the terms
thereof  and (xiv)  that the Trust  derives  no income  from or  connected  with
sources within the State of Delaware and has no assets,  activities  (other than
having a trustee and the filing of  documents  with the  Secretary  of State) or
employees in the State of Delaware.  We have not participated in the preparation
of any offering  materials  with respect to the Trust  Securities  and assume no
responsibility for its contents.


                                      A-12
<PAGE>


     This opinion is limited to the laws of the State of Delaware (excluding the
securities  laws of the  State  of  Delaware),  and we have not  considered  and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations  relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules,  regulations and orders  thereunder that are
currently in effect.

     We  express no opinion  as to (i) the  effect of  suretyship  defenses,  or
defenses  in  the  nature  thereof,  with  respect  to  the  obligations  of any
applicable  guarantor,  joint obligor,  surety,  accommodation  party,  or other
secondary  obligor or any provisions of the Declaration of Trust with respect to
indemnification  or  contribution  and (ii) the accuracy or  completeness of any
exhibits or schedules to the Operative Documents.  No opinion is given herein as
to the  choice  of law or  internal  substantive  rules of law that any court or
other  tribunal  may apply to the  transactions  contemplated  by the  Operative
Documents.

     We express no opinion as to the enforceability of any particular  provision
of the  Declaration  of Trust  or the  other  Operative  Documents  relating  to
remedies after default.

     We express no opinion as to the enforceability of any particular  provision
of any of the Operative Documents relating to (i) waivers of rights to object to
jurisdiction or venue,  or consents to  jurisdiction  or venue,  (ii) waivers of
rights to (or methods of)  service of  process,  or rights to trial by jury,  or
other  rights or benefits  bestowed by operation  of law,  (iii)  waivers of any
applicable defenses,  setoffs,  recoupments,  or counterclaims,  (iv) waivers or
variations of provisions  which are not capable of waiver or variation under the
Uniform  Commercial  Code  ("UCC")  of the  State,  (v) the  grant of  powers of
attorney to any person or entity,  or (vi)  exculpation or exoneration  clauses,
indemnity  clauses,  and clauses  relating  to releases or waivers of  unmatured
claims or rights.

     We have made no  examination  of, and no opinion is given  herein as to the
Trustee's or the Trust's title to or other ownership rights in, or the existence
of any liens,  charges or encumbrances on, or adverse claims against,  any asset
or  property  held by the  Institutional  Trustee  or the  Trust.  We express no
opinion as to the creation, validity, attachment,  perfection or priority of any
mortgage,  security  interest  or  lien in any  asset  or  property  held by the
Institutional Trustee or the Trust.

     We express no opinion as to the effect of events  occurring,  circumstances
arising,  or changes of law  becoming  effective  or  occurring,  after the date
hereof  on the  matters  addressed  in this  opinion  letter,  and we  assume no
responsibility  to inform you of additional or changed facts, or changes in law,
of which we may become aware.

     We express no opinion as to any requirement that any party to the Operative
Documents (or any other persons or entities purportedly entitled to the benefits
thereof)  qualify or register to do business in any  jurisdiction in order to be
able to enforce its rights thereunder or obtain the benefits thereof.

     Based upon the foregoing, and upon our examination of such questions of law
and  statutes  of the  State of  Delaware  as we have  considered  necessary  or
appropriate,  and subject to the  assumptions,  qualifications,  limitations and
exceptions set forth herein, we are of the opinion that:


     1. The Trust has been duly created and is validly existing in good standing
as a statutory  trust  under the  Delaware  Statutory  Trust Act (12 Del. C. ss.
3801, et seq.) (the "Act").  All filings required under the laws of the State of
Delaware  with  respect to the  creation  and valid  existence of the Trust as a
statutory trust have been made.


                                      A-13
<PAGE>


     2.  Under the  Declaration  of Trust  and the Act,  the Trust has the trust
power and  authority  to (A) execute and deliver the  Operative  Documents,  (B)
perform its obligations  under such Operative  Documents and (C) issue the Trust
Securities.

     3. The execution and delivery by the Trust of the Operative Documents,  and
the  performance  by the  Trust of its  obligations  thereunder,  have been duly
authorized by all necessary trust action on the part of the Trust.

     4.  The  Declaration  of  Trust  constitutes  a legal,  valid  and  binding
obligation  of  the  Company,  the  Trustees  and  the  Administrators,  and  is
enforceable  against  the  Company,  the  Trustees  and the  Administrators,  in
accordance with its terms.

     5. Each of the Operative  Documents  constitutes a legal, valid and binding
obligation of the Trust,  enforceable  against the Trust, in accordance with its
terms.

     6. The Capital  Securities  have been duly  authorized  for issuance by the
Declaration  of Trust,  and, when duly executed and delivered to and paid for by
the  purchasers  thereof  in  accordance  with the  Declaration  of  Trust,  the
Subscription Agreement and the Placement Agreement,  the Capital Securities will
be validly issued,  fully paid and, subject to the  qualifications  set forth in
paragraph 8 below, nonassessable undivided beneficial interests in the assets of
the Trust and will entitle the Capital Securities Holders to the benefits of the
Declaration of Trust.  The issuance of the Capital  Securities is not subject to
preemptive or other similar rights under the Act or the Declaration of Trust.

     7. The Common  Securities  have been duly  authorized  for  issuance by the
Declaration  of Trust and,  when duly  executed and  delivered to the Company as
Common  Security  Holder in accordance  with the  Declaration of Trust,  will be
validly issued,  fully paid and, subject to paragraph 8 below and Section 9.1(b)
of the  Declaration  of Trust  (which  provides  that the  Holder of the  Common
Securities  are  liable  for  debts and  obligations  of  Trust),  nonassessable
undivided  beneficial  interests in the assets of the Trust and will entitle the
Common Security Holder to the benefits of the Declaration of Trust. The issuance
of the Common  Securities is not subject to  preemptive or other similar  rights
under the Act or the Declaration of Trust.

     8. Under the  Declaration  of Trust and the Act, the Holders of the Capital
Securities,  as  beneficial  owners of the Trust,  will be  entitled to the same
limitation  of  personal   liability   extended  to   stockholders   of  private
corporations for profit organized under the General Corporation Law of the State
of Delaware.  We note that the Holders of the Capital  Securities and the Holder
of the Common Securities may be obligated, pursuant to the Declaration of Trust,
(A) to provide  indemnity  and/or  security in connection  with and pay taxes or
governmental  charges  arising from  transfers or exchanges of Capital  Security
Certificates and the issuance of replacement Capital Security Certificates,  and
(B)  to  provide  security  or  indemnity  in  connection  with  requests  of or
directions to the Institutional  Trustee to exercise its rights and powers under
the Declaration of Trust.

     9.  Neither the  execution,  delivery and  performance  by the Trust of the
Operative  Documents,   nor  the  consummation  by  the  Trust  of  any  of  the
transactions  contemplated  thereby,  requires  the consent or approval  of, the
authorization  of, the  withholding  of  objection on the part of, the giving of
notice to, the filing,  registration or qualification with, or the taking of any
other action in respect of, any governmental authority or agency of the State of
Delaware,  other than the filing of the  Certificate of Trust with the Secretary
of State (which Certificate of Trust has been duly filed).


                                      A-14
<PAGE>


     10.  Neither the  execution,  delivery and  performance by the Trust of the
Trust  Documents,  nor  the  consummation  by  the  Trust  of  the  transactions
contemplated  thereby, (i) is in violation of the Declaration of Trust or of any
law, rule or regulation of the State of Delaware applicable to the Trust or (ii)
to the  best of our  knowledge,  without  independent  investigation,  violates,
contravenes or constitutes a default under,  or results in a breach of or in the
creation of any lien (other than as permitted by the Operative  Documents)  upon
any property of the Trust under any indenture,  mortgage, chattel mortgage, deed
of trust, conditional sales contract, bank loan or credit agreement,  license or
other  agreement or  instrument  to which the Trust is a party or by which it is
bound.

     11.  Assuming  that the Trust  will not be  taxable  as a  corporation  for
federal income tax purposes,  but rather will be classified for such purposes as
a grantor trust under Subpart E, Part I of Subchapter J of the Internal  Revenue
Code of 1986,  as  amended,  the Trust will not be  subject  to any tax,  fee or
governmental charge under the laws of the State of Delaware.

     The opinions expressed in paragraph 4, 5, 6, 7 and 8 above are subject,  as
to  enforcement,  to the effect upon the Declaration of Trust of (i) bankruptcy,
insolvency, moratorium,  receivership,  reorganization,  liquidation, fraudulent
conveyance  and  transfer,  and other  similar laws relating to or affecting the
rights and remedies of creditors generally, (ii) principles of equity, including
applicable law relating to fiduciary  duties  (regardless of whether  considered
and  applied  in a  proceeding  in  equity or at law),  and (iii) the  effect of
applicable  public  policy  on the  enforceability  of  provisions  relating  to
indemnification or contribution.

     Circular  230  Notice.  Any advice  contained  in this  communication  with
respect to any federal tax matter was not intended or written to be used, and it
cannot be used by any taxpayer,  for the purpose of avoiding  penalties that the
Internal Revenue Service may impose on the taxpayer.  If any such advice is made
to any person  other than to our  client for whom the advice was  prepared,  the
advice  expressed above is being delivered to support the promotion or marketing
(by a person other than Richards,  Layton & Finger) of the transaction or matter
discussed  or  referenced,  and such  taxpayer  should seek advice  based on the
taxpayer's particular circumstances from an independent tax advisor.

     In basing the opinions set forth herein on "our  knowledge," the words "our
knowledge"  signify  that  no  information  has  come  to the  attention  of the
attorneys in the firm who are  directly  involved in the  representation  of the
Trust in this  transaction  that  would give us actual  knowledge  that any such
opinions are not accurate. Except as otherwise stated herein, we have undertaken
no independent investigation or verification of such matters.

     We consent to your  relying as to matters of Delaware law upon this opinion
in connection  with the Placement  Agreement.  We also consent to Lewis,  Rice &
Fingersh,  L.C.'s and Smith,  Anderson,  Blount,  Dorsett,  Mitchell & Jernigan,
L.L.P.'s  relying as to matters of Delaware law upon this opinion in  connection
with  opinions  to be  rendered  by  them on the  date  hereof  pursuant  to the
Placement Agreement.  Except as stated above, without our prior written consent,
this  opinion  may not be  furnished  or quoted to, or relied upon by, any other
Person for any purpose.

                                            Very truly yours,


                                      A-15
<PAGE>


                                   SCHEDULE A
                                   ----------

Wilmington Trust Company

FTN Financial Capital Markets

Keefe, Bruyette & Woods, Inc.

KBW, Inc.

Four Oaks Fincorp, Inc.



                                      A-16
<PAGE>


                                   EXHIBIT B-3
                                   -----------

                            TAX COUNSEL OPINION ITEMS
                            -------------------------

1.   The Debentures  will be classified as  indebtedness of the Company for U.S.
     federal income tax purposes.

2.   The  Trust  will  be  characterized  as a  grantor  trust  and  not  as  an
     association taxable as a corporation for U.S. federal income tax purposes.

<PAGE>


Lewis, Rice & Fingersh, L.C.
500 N. Broadway, Suite 2000
St. Louis, Missouri  63102


     Re:  Representations   Concerning  the  Issuance  of  Junior   Subordinated
          Deferrable   Interest  Debentures  (the  "Debentures")  to  Four  Oaks
          Statutory  Trust I (the  "Trust")  and Sale of Trust  Securities  (the
          "Trust Securities") of the Trust

Ladies and Gentlemen:

     In accordance  with your request,  Four Oaks Fincorp,  Inc. (the "Company")
hereby makes the following representations in connection with the preparation of
your opinion letter as to the United States federal income tax  consequences  of
the issuance by the Company of the  Debentures  to the Trust and the sale of the
Trust Securities.

     Company hereby represents that:


     1. The sole assets of the Trust will be the  Debentures,  any interest paid
on the Debentures to the extent not distributed,  proceeds of the Debentures, or
any of the foregoing.

     2.  The  Company  intends  to use the net  proceeds  from  the  sale of the
Debentures for general corporate purposes.

     3. The Trust was not formed to  conduct  any trade or  business  and is not
authorized to conduct any trade or business.  The Trust exists for the exclusive
purposes  of (i)  issuing  and  selling  the Trust  Securities,  (ii)  using the
proceeds from the sale of Trust Securities to acquire the Debentures,  and (iii)
engaging only in activities necessary or incidental thereto.

     4. The Company has not entered into an agency  agreement  with the Trust or
authorized  the trustee to act as its agent in dealing  with third  parties.  To
Company's knowledge,  after due inquiry, the Trust has not acted as the agent of
the Company or of anyone else in dealing with third parties.

     5. The Trust was formed to  facilitate  direct  investment in the assets of
the Trust,  and the existence of multiple  classes of ownership is incidental to
that  purpose.  There is no intent to provide  holders of such  interests in the
Trust with diverse interests in the assets of the Trust.

     6. The Company intends to create a debtor-creditor relationship between the
Company, as debtor, and the Trust, as a creditor,  upon the issuance and sale of
the  Debentures to the Trust by the Company.  The Company will (i) record and at
all times  continue to reflect the  Debentures as  indebtedness  on its separate
books  and  records  for  financial  accounting  purposes,  and (ii)  treat  the
Debentures as indebtedness for all United States tax purposes.

     7. During each year,  the Trust's  income will  consist  solely of payments
made by the Company with respect to the  Debentures.  Such  payments will not be
derived from the active conduct of a financial  business by the Trust.  Both the
Company's  obligation to make such payments and the  measurement  of the amounts
payable by the Company are defined by the terms of the  Debentures.  Neither the
Company's  obligation to make such payments nor the  measurement  of the amounts
payable  by the  Company  is  dependent  on income or  profits of Company or any
affiliate of the Company.


                                     B-3-2
<PAGE>


     8. The Company expects that it will be able to make, and will make,  timely
payment of amounts  identified  by the  Debentures  as principal and interest in
accordance  with  the  terms  of  the  Debentures  with  available   capital  or
accumulated earnings.

     9. The Company presently has no intention to defer interest payments on the
Debentures,  and it  considers  the  likelihood  of such a deferral to be remote
because,  if it were to exercise  its right to defer  payments of interest  with
respect  to the  Debentures,  it would not be  permitted  to  declare or pay any
dividends  or  distributions  on,  or  redeem,  purchase,  acquire,  or  make  a
liquidation  payment  with  respect to, any capital  stock of the Company or any
affiliate of the Company (other than payments of dividends or  distributions  to
the Company or payments of dividends from direct or indirect subsidiaries of the
Company to their  parent  corporations,  which also shall be direct or  indirect
subsidiaries  of the Company) or make any payment of principal of or interest or
premium, if any, on or repay,  repurchase,  or redeem any debt securities of the
Company or any  affiliate  of the Company  that rank pari passu in all  respects
with or junior in interest to the  Debentures,  in each case  subject to limited
exceptions  stated  in  Section  2.11 of the  Indenture  to be  entered  into in
connection with the issuance of the Debentures.

     10. The Company has no present  intention  (a) to take the position  that a
deferral of interest payments on the Debentures is not a remote contingency,  or
(b) to make an explicit  disclosure on the Company's tax return,  under Reg. ss.
1.1275-2(h)(5)   that  its  determination  as  holder  with  respect  to  remote
contingency status is different from its determination as issuer.

     11.  Immediately after the issuance of the Debentures,  the  debt-to-equity
ratio of the Company (as  determined  for  financial  accounting  purposes,  but
excluding  deposit  liabilities from the Company's debt) will be within standard
depository  institution industry norms and, in any event, will be no higher than
four to one (4 : 1).

     12. To the best of our  knowledge,  the Company is currently in  compliance
with all federal,  state, and local capital  requirements,  except to the extent
that  failure  to comply  with any such  requirements  would not have a material
adverse effect on the Company and its affiliates.

     13. The Company will not issue any class of common stock or preferred stock
senior to the Debentures during their term.

     14. The Internal Revenue Service has not challenged the interest  deduction
on any class of the  Company's  subordinated  debt in the last ten (10) years on
the basis that such debt constitutes equity for federal income tax purposes.

     The  above  representations  are  accurate  as of the date  below  and will
continue to be accurate through the issuance of the Trust Securities, unless you
are otherwise  notified by us in writing.  The undersigned  understands that you
will rely on the foregoing in connection with rendering  certain legal opinions,
and possesses the authority to make the representations set forth in this letter
on behalf of the Company.

                                                   Very truly yours,

                                                   FOUR OAKS FINCORP, INC.


Date: March 29, 2006                               By:    ______________________

                                                   Title: ______________________


                                     B-3-3
<PAGE>


                                    EXHIBIT C
                                    ---------

                            SIGNIFICANT SUBSIDIARIES
                            ------------------------

Four Oaks Bank & Trust Company




                                     C-3-4
<PAGE>


                                    EXHIBIT D
                                    ---------

                            FORM OF QUARTERLY REPORT
                            ------------------------

KBW, Inc.
787 7th Avenue, 4th Floor
New York, New York  10019
Attention:  Mitchell Kleinman, General Counsel

BANK HOLDING COMPANY
As of [March 31, June 30, September 30 or December 31], 20__

Tier 1 to Risk Weighted Assets                                    __________%

Ratio of Double Leverage                                          __________%

Non-Performing Assets to Loans and OREO                           __________%

Ratio of Reserves to Non-Performing Loans                         __________%

Ratio of Net Charge-Offs to Loans                                 __________%

Return on Average Assets (annualized)**                           __________%

Net Interest Margin (annualized)**                                __________%

Efficiency Ratio                                                  __________%

Ratio of Loans to Assets                                          __________%

Ratio of Loans to Deposits                                        __________%

Total Assets                                                      $__________

Year to Date Income                                               $__________

-------------------
*A table describing the quarterly report calculation procedures is provided on
page D-2

** To annualize Return on Average Assets and Net Interest Margin do the
following:
1st Quarter-multiply income statement item by 4, then divide by balance sheet
item(s)
2nd Quarter-multiply income statement item by 2,then divide by balance sheet
item(s)
3rd Quarter-divide income statement item by 3, then multiply by 4, then divide
by balance sheet item(s)
4th Quarter-should already be an annual number
NO ADJUSTMENT SHOULD BE MADE TO BALANCE SHEET ITEMS


                                     C-3-5
<PAGE>

<TABLE>
<CAPTION>
<S> <C>             <C>                                  <C>
-------------------------------------------------------------------------------------------------------
Report Item          Corresponding FRY-9C or LP Line      Description of Calculation
                     Items with Line Item corresponding
                     Schedules
-------------------------------------------------------------------------------------------------------
"Tier 1 Capital"     BHCK7206                             Tier 1 Risk Ratio: Core Capital (Tier 1)/
to Risk Weighted     Schedule HC-R                        Risk-Adjusted Assets
Assets
-------------------------------------------------------------------------------------------------------
Ratio of Double      (BHCP0365)/(BHCP3210)                Total equity investments in subsidiaries
Leverage             Schedule PC in the LP                divided by the total equity capital. This
                                                          field is calculated at the parent company
                                                          level. "Subsidiaries" include bank, bank
                                                          holding company, and nonbank subsidiaries.
-------------------------------------------------------------------------------------------------------
Non-Performing       (BHCK5525-BHCK3506+BHCK5526-         Total Nonperforming Assets (NPLs+Foreclosed
Assets to Loans      BHCK3507+BHCK2744)/(BHCK2122+BHCK    Real Estate+Other Nonaccrual & Repossessed
and OREO             2744) Schedules HC-C, HC-M & HC-N    Assets)/ Total Loans + Foreclosed Real Estate
-------------------------------------------------------------------------------------------------------
Ratio of Reserves    (BHCK3123+BHCK3128)/(BHCK5525-       Total Loan Loss and Allocated Transfer Risk
to Non-Performing    BHCK3506+BHCK5526-BHCK3507)          Reserves/ Total Nonperforming Loans
Loans                Schedules HC & HC-N                  (Nonaccrual + Restructured)
-------------------------------------------------------------------------------------------------------
Ratio of Net         (BHCK4635-BHCK4605)/(BHCK3516)       Net charge offs for the period as a
Charge-Offs to       Schedules HI-B & HC-K                percentage of average loans.
Loans
-------------------------------------------------------------------------------------------------------
Return on Assets     (BHCK4340/BHCK3368)                  Net Income as a percentage of Assets.
                     Schedules HI & HC-K
-------------------------------------------------------------------------------------------------------
Net Interest         (BHCK4519)/(BHCK3515+BHCK3365+       (Net Interest Income Fully Taxable
 Margin              BHCK3516+BHCK3401+BHCKB985)          Equivalent, if available / Average Earning
                     Schedules HI Memorandum and HC-K     Assets)
-------------------------------------------------------------------------------------------------------
Efficiency Ratio     (BHCK4093)/(BHCK4519+BHCK4079)       (Noninterest Expense)/ (Net Interest Income
                     Schedule HI                          Fully Taxable Equivalent, if available, plus
                                                          Noninterest Income)
-------------------------------------------------------------------------------------------------------
Ratio of Loans to    (BHCKB528+BHCK5369)/BHCK2170)        Total Loans & Leases (Net of Unearned Income
 Assets              Schedule HC                          & Gross of Reserve)/ Total Assets
-------------------------------------------------------------------------------------------------------
Ratio of Loans to    (BHCKB528+BHCK5369)/(BHDM6631+BHD    Total Loans & Leases (Net of Unearned Income
 Deposits            M6636+BHFN6631+BHFN6636)             & Gross of Reserve)/ Total Deposits (Includes
                     Schedule HC                          Domestic and Foreign Deposits)
-------------------------------------------------------------------------------------------------------
Total Assets         (BHCK2170)                           The sum of total assets. Includes cash and
                     Schedule HC                          balances due from depository institutions;
                                                          securities; federal funds sold and securities
                                                          purchased under agreements to resell; loans
                                                          and lease financing receivables; trading
                                                          assets; premises and fixed assets; other real
                                                          estate owned; investments in unconsolidated
                                                          subsidiaries and associated companies;
                                                          customer's liability on acceptances
                                                          outstanding; intangible assets; and other
                                                          assets.
-------------------------------------------------------------------------------------------------------
Net Income           (BHCK4300)                           The sum of income (loss) before extraordinary
                                                          items and other adjustments and extraordinary
                                                          items; and other adjustments, net of income
                                                          taxes.
-------------------------------------------------------------------------------------------------------
</TABLE>


                                     C-3-6