Carolina Trust BancShares, Inc. 8-K 


Exhibit 10.1


SUBORDINATED NOTE PURCHASE AGREEMENT


This SUBORDINATED
NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of October 13, 2016, and is made by and among Carolina
Trust BancShares, Inc., a North Carolina corporation (“Company”), and the several purchasers of the Subordinated
Notes identified on the signature pages hereto (each a “Purchaser” and collectively, the “Purchasers”).


RECITALS


WHEREAS, Company
has requested that the Purchasers purchase from Company up to Ten Million Dollars ($10,000,000) in aggregate principal amount of
Subordinated Notes (as defined herein), which aggregate amount is intended to qualify as Tier 2 Capital (as defined herein).


WHEREAS, Company
has engaged Sandler O’Neill + Partners, L.P., as its exclusive placement agent (“Placement Agent”) for
the offering of the Subordinated Notes.


WHEREAS, each
of the Purchasers is an institutional accredited investor as such term is contemplated by Rule 501 of Regulation D (“Regulation
D”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).


WHEREAS, the
sale of the Subordinated Notes by Company is being made pursuant to Rule 506(b) of Regulation D.


WHEREAS, each
Purchaser is willing to purchase from Company a Subordinated Note in the principal amount set forth on each Purchaser’s signature
page (the “Subordinated Note Amount”) in accordance with the terms, subject to the conditions and in reliance
on, the recitals, representations, warranties, covenants and agreements set forth herein and in the Subordinated Notes.


NOW, THEREFORE,
in consideration of the mutual covenants, conditions and agreements herein contained and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:


AGREEMENT


1. 


DEFINITIONS.


1.1 


Defined Terms.
The following capitalized terms generally used in this Agreement and in the Subordinated Notes have the meanings defined or referenced
below. Certain other capitalized terms used only in specific sections of this Agreement may be defined in such sections.


“Affiliate(s)”
means, with respect to any Person, such Person’s immediate family members, partners, members or parent and subsidiary corporations,
and any other Person directly or indirectly controlling, controlled by, or under common control with said Person and their respective
Affiliates.




    	  



    	 



    

 


“Agreement” has the
meaning set forth in the preamble hereto.


“Bank”
means Carolina Trust Bank, a North Carolina-chartered commercial bank and wholly owned subsidiary of Company.


“Business
Day” means any day other than a Saturday, Sunday or any other day on which banking institutions in the State of North
Carolina are permitted or required by any applicable law or executive order to close.


“Closing”
has the meaning set forth in Section 2.5.


“Closing
Date” means October 13, 2016.


“Company”
has the meaning set forth in the preamble hereto and shall include any successors to Company.


“Company’s
Liabilities” means Company’s obligations under the Transaction Documents.


“Company’s
Reports” means (i) audited financial statements of Company and Bank, as applicable, for the year ended December 31,
2015; (ii) the unaudited financial statements of Company and Bank, as applicable, for the quarter ended June 30, 2016 and (iii)
Company’s reports and Bank’s reports, as applicable, for the year ended December 31, 2015 and the quarter ended June
30, 2016 as filed with the FRB and the FDIC.


“Disbursement”
has the meaning set forth in Section 3.1.


“Equity
Interest” means any and all shares, interests, participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in a Person which is not a corporation, and any and all warrants,
options or other rights to purchase any of the foregoing.


“Event
of Default” has the meaning set forth in the Subordinated Notes.


“Exchange
Act” means the Securities and Exchange Act of 1934, as amended.


“FDIC”
means the Federal Deposit Insurance Corporation.


“FRB”
means the Board of Governors of the Federal Reserve System.


“GAAP”
means generally accepted accounting principles in effect from time to time in the United States of America.


“Governmental
Agency(ies)” means, individually or collectively, any federal, state, county or local governmental department, commission,
board, regulatory authority or agency (including, without limitation, each applicable Regulatory Agency) with jurisdiction over
Company.


“Governmental
Licenses” has the meaning set forth in Section 4.3.




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“Hazardous
Materials” means flammable explosives, asbestos, urea formaldehyde insulation, polychlorinated biphenyls, radioactive
materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances
which are “hazardous substances,” “hazardous wastes,” “hazardous materials” or “toxic
substances” under the Hazardous Materials Laws and/or other applicable environmental laws, ordinances or regulations.


“Hazardous
Materials Laws” mean any laws, regulations, permits, licenses or requirements pertaining to the protection,
preservation, conservation or regulation of the environment which relates to real property, including: the Clean Air Act, as amended,
42 U.S.C. Section 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (including the Superfund Amendments and Reauthorization Act of 1986), 42 U.S.C. Section 9601
et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act,
as amended, 29 U.S.C. Section 651, the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.;
the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f et seq.; and all comparable state and local laws, laws of other jurisdictions or orders and regulations.


“Indebtedness”
means and includes: (i) all items arising from the borrowing of money that, according to GAAP as in effect from time to time, would
be included in determining total liabilities as shown on the consolidated balance sheet of Company or any Subsidiary of Company;
and (ii) all obligations secured by any lien on property owned by Company or any Subsidiary whether or not such obligations shall
have been assumed; provided, however, Indebtedness shall not include deposits or other Indebtedness created, incurred
or maintained in the ordinary course of Company’s or Bank’s business (including, without limitation, federal funds
purchased, advances from any Federal Home Loan Bank, secured deposits of municipalities, letters of credit issued by Company or
Bank and repurchase arrangements) and consistent with customary banking practices and applicable laws and regulations.


“Leases”
means all leases, licenses or other documents providing for the use or occupancy of any portion of any Property, including all
amendments, extensions, renewals, supplements, modifications, sublets and assignments thereof and all separate letters or separate
agreements relating thereto.


“Material
Adverse Effect” means, with respect to any Person, any change or effect that (i) is or would be reasonably likely to
be material and adverse to the financial position, results of operations or business of such Person, or (ii) would materially impair
the ability of any Person to perform its respective obligations under any of the Transaction Documents, or otherwise materially
impede the consummation of the transactions contemplated hereby; provided, however, that “Material Adverse
Effect” shall not be deemed to include the impact of (1) changes in banking and similar laws, rules or regulations of general
applicability or interpretations thereof by Governmental Agencies, (2) changes in GAAP or regulatory accounting requirements applicable
to financial institutions and their holding companies generally, (3) changes after the date of this Agreement in general economic
or capital market conditions affecting financial institutions or their market prices generally and not specifically related to
Company, Bank, or Purchasers, (4) direct effects of compliance with this Agreement on the operating performance of Company, Bank,
or Purchasers, including expenses incurred by Company, Bank, or Purchasers in consummating the transactions contemplated by this
Agreement, and (5) the effects of any action or omission taken by Company or Bank with the prior written consent of Purchasers,
and vice versa, or as otherwise contemplated by this Agreement and the Subordinated Notes.




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“Maturity
Date” means October 15, 2026.


“Person”
means an individual, a corporation (whether or not for profit), a partnership, a limited liability company, a joint venture, an
association, a trust, an unincorporated organization, a government or any department or agency thereof (including a Governmental
Agency) or any other entity or organization.


“Placement
Agent” has the meaning set forth in the Recitals.


“Property”
means any real property owned or leased by Company or any Affiliate or Subsidiary of Company.


“Purchaser”
or “Purchasers” has the meaning set forth in the preamble hereto.


“Regulation
D” has the meaning set forth in the Recitals.


“Regulatory
Agencies” means any federal or state agency charged with the supervision or regulation of depository institutions or
holding companies of depository institutions, or engaged in the insurance of depository institution deposits, or any court, administrative
agency or commission or other authority, body or agency having supervisory or regulatory authority with respect to Company, Bank
or any of their Subsidiaries.


“Secondary
Market Transaction” has the meaning set forth in Section 5.5.


“Securities
Act” has the meaning set forth in the Recitals.


“Subordinated
Note” means the Subordinated Note (or collectively, the “Subordinated Notes”) in the form attached
as Exhibit A hereto, as amended, restated, supplemented or modified from time to time, and each Subordinated Note delivered
in substitution or exchange for such Subordinated Note.


“Subordinated
Note Amount” has the meaning set forth in the Recitals.


“Subsidiary”
means with respect to any Person, any corporation or entity in which a majority of the outstanding Equity Interest is directly
or indirectly owned by such Person.


“Tier 2
Capital” has the meaning given to the term “Tier 2 capital” in 12 C.F.R. Part 225 and 12 C.F.R. Part 250,
as amended, modified and supplemented and in effect from time to time or any replacement thereof.




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“Transaction
Documents” has the meaning set forth in Section 3.2.1.1.


1.2 


Interpretations.
The foregoing definitions are equally applicable to both the singular and plural forms of the terms defined. The words “hereof”,
“herein” and “hereunder” and words of like import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement. The word “including” when used in this Agreement
without the phrase “without limitation,” shall mean “including, without limitation.” All references to
time of day herein are references to Eastern Time unless otherwise specifically provided. All references to this Agreement and
the Subordinated Notes shall be deemed to be to such documents as amended, modified or restated from time to time. With respect
to any reference in this Agreement to any defined term, (i) if such defined term refers to a Person, then it shall also mean all
heirs, legal representatives and permitted successors and assigns of such Person, and (ii) if such defined term refers to a document,
instrument or agreement, then it shall also include any replacement, extension or other modification thereof.


1.3 


Exhibits Incorporated.
All Exhibits attached are hereby incorporated into this Agreement.


2. 


SUBORDINATED
DEBT.


2.1 


Certain Terms.
Subject to the terms and conditions herein contained, Company proposes to issue and sell to the Purchasers, severally and not jointly,
Subordinated Notes in an amount equal to the aggregate of the Subordinated Note Amounts. Purchasers, severally and not jointly,
each agree to purchase the Subordinated Notes from Company on the Closing Date in accordance with the terms of, and subject to
the conditions and provisions set forth in, this Agreement and the Subordinated Notes. The Subordinated Note Amounts shall be disbursed
in accordance with Section 3.1. The Subordinated Notes shall bear interest per annum as set forth in the Subordinated Notes.
The unpaid principal balance of the Subordinated Notes plus all accrued but unpaid interest thereon shall be due and payable on
the Maturity Date, or such earlier date on which such amount shall become due and payable on account of (i) acceleration by Purchasers
in accordance with the terms of the Subordinated Notes and this Agreement or (ii) Company’s delivery of a notice of redemption
or repayment in accordance with the terms of the Subordinated Notes.


2.2 


Subordination. The Subordinated
Notes shall be subordinated in accordance with the subordination provisions set forth therein.


2.3 


Maturity Date.
On the Maturity Date, all sums due and owing under this Agreement and the Subordinated Notes shall be repaid in full. Company acknowledges
and agrees that Purchasers have not made any commitments, either express or implied, to extend the terms of the Subordinated Notes
past their Maturity Date, and shall not extend such terms beyond the Maturity Date unless Company and Purchasers hereafter specifically
otherwise agree in writing.


2.4 


Unsecured Obligations.
The obligations of Company to Purchasers under the Subordinated Notes shall be unsecured.




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2.5 


The Closing.
The execution and delivery of the Transaction Documents (the “Closing”) shall occur at the offices of Company
at 10:00 a.m. (local time) on the Closing Date, or at such other place or time or on such other date as the parties hereto may
agree.


2.6 


Payments.
Company agrees that matters concerning payments and application of payments shall be as set forth in this Agreement and in the
Subordinated Notes.


2.7 


Right of Offset.
Each Purchaser hereby expressly waives any right of offset it may have against Company.


2.8 


Use of Proceeds.
Company shall use the net proceeds from the sale of Subordinated Notes for general corporate purposes, investment in Bank, and
to redeem and retire outstanding preferred securities of Bank.


3. 


DISBURSEMENT.


3.1 


Disbursement.
On the Closing Date, assuming all of the terms and conditions set forth in Section 3.2 have been satisfied by Company and
Company has executed and delivered to each of the Purchasers this Agreement and such Purchaser’s Subordinated Note and any
other related documents in form and substance reasonably satisfactory to Purchasers, each Purchaser shall disburse the Subordinated
Note Amount in immediately available funds set forth on such Purchaser’s signature page to Company in exchange for a Subordinated
Note with a principal amount equal to such Subordinated Note Amount (the “Disbursement”). The Company will deliver
to the respective Purchaser one or more certificates representing the Subordinated Notes in definitive form (or provide evidence
of the same with the original to be delivered by the Company by overnight delivery on the next calendar day in accordance with
the delivery instructions of Purchaser), registered in such names and denominations as such Purchasers may request.


3.2 


Conditions Precedent
to Disbursement.


3.2.1 


Conditions
to the Purchasers’ Obligation. The obligation of each Purchaser to consummate the purchase of the Subordinated Notes
to be purchased by them at Closing and to effect the Disbursement is subject to the fulfillment of or delivery by or at the direction
of the Company to such Purchaser, on or prior to the applicable Closing Date, of each of the following (or written waiver by such
Purchaser prior to the Closing of such delivery):


3.2.1.1 


Transaction
Documents. This Agreement and the Subordinated Notes (collectively, the “Transaction Documents”), each
duly authorized and executed by Company.


3.2.1.2 


Authority Documents.


(a) 


A copy, certified
by the Secretary or Assistant Secretary of Company, of the Articles of Incorporation of Company and all amendments thereto;




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(b) 


A certificate
of existence of Company issued by the Secretary of State of the State of North Carolina;


(c) 


A copy, certified
by the Secretary or Assistant Secretary, of the Bylaws of Company and all amendments thereto;


(d) 


A copy, certified
by the Secretary or Assistant Secretary of Company, of the resolutions of the board of directors of Company, and any committee
thereof, authorizing the execution, delivery and performance of the Transaction Documents;


(e) 


An incumbency
certificate of the Secretary or Assistant Secretary of Company certifying the names of the officer or officers of Company authorized
to sign the Transaction Documents and the other documents provided for in this Agreement; and


(f) 


The opinion
of Wyrick Robbins Yates & Ponton LLP, counsel to the Company, dated as of the Closing Date, substantially in the form set forth
at Exhibit B attached hereto addressed to the Purchasers and Placement Agent.


3.2.1.3 


Other Requirements.
Such other additional information regarding Company, Bank and any other Subsidiary of Company and their respective assets, liabilities
(including any liabilities arising from, or relating to, legal proceedings) and contracts as a Purchaser may reasonably require.


3.2.1.4 


Aggregate Investments.
Each Purchaser shall have actually subscribed for the Subordinated Note Amount set forth on such Purchaser’s signature page.


3.2.1.5 


Representations
and Warranties. The representations and warranties made by Company in Section 4 hereof shall have been true and correct
when made, and shall be true and correct on the Closing Date.


3.2.1.6 


Covenants.
All covenants, agreements and conditions contained in this Agreement to be performed by Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.




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3.2.2 


Conditions
to Company’s Obligation.


3.2.2.1 


Since the date of
this Agreement, there shall not have been any action taken, or any law, rule or regulation enacted, entered, enforced or deemed
applicable to Company or its Subsidiaries or the transactions contemplated by this Agreement by any Governmental Agency which imposes
any restriction or condition that Company determines, in its reasonable good faith judgment, is materially and unreasonably burdensome
on Company’s business or would materially reduce the economic benefits of the transactions contemplated by this Agreement
to Company to such a degree that Company would not have entered into this Agreement had such condition or restriction been known
to it on the date hereof.


3.2.2.2 


With respect to a
given Purchaser, the obligation of Company to consummate the sale of the Subordinated Notes and to effect the Closing is subject
to delivery by or at the direction of such Purchaser to Company of this Agreement, duly authorized and executed by such Purchaser.


4. 


REPRESENTATIONS
AND WARRANTIES OF COMPANY.


Company hereby represents
and warrants to each Purchaser as follows:


4.1 


Organization
and Authority.


4.1.1 


Organization
Matters of Company and Its Subsidiaries.


4.1.1.1 


Company is a bank
holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act and is
registered with the North Carolina Office of the Commissioner of Banks under the North Carolina Bank Holding Company Act. Company
is a business corporation validly existing and in good standing under the laws of the State of North Carolina and has all requisite
corporate power and authority to conduct its business and activities as presently conducted, to own its properties, and to perform
its obligations under the Transaction Documents. Company is duly qualified as a foreign corporation to transact business and is
in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.


4.1.1.2 


Each Subsidiary of
Company either has been duly organized and is validly existing as a corporation or limited liability company, or has been duly
chartered and is validly existing as a North Carolina chartered bank, in each case in good standing under the laws of the jurisdiction
of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business and
is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse Effect. All of the issued and outstanding shares of
capital stock or other equity interests in each Subsidiary of the Company have been duly authorized and validly issued, are fully
paid and non-assessable and, with the exception of Bank’s Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A,
are owned by Company, directly or through Subsidiaries of the Company, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or claim; none of the outstanding shares of capital stock of, or other equity interests in, any Subsidiary of
the Company were issued in violation of the preemptive or similar rights of any security holder of such Subsidiary of the Company
or any other entity.




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4.1.1.3 


Bank is a North Carolina
chartered bank. The deposit accounts of Bank are insured by the FDIC up to applicable limits. Bank has not received any notice
or other information indicating that Bank is not an “insured depository institution” as defined in 12 U.S.C. Section
1813, nor has any event occurred which could reasonably be expected to adversely affect the status of Bank as an FDIC-insured institution.


4.1.2 


Capital Stock
and Related Matters. The Articles of Incorporation of Company authorize Company to issue 10,000,000 shares of common stock
and 1,000,000 shares of preferred stock. As of the date of this Agreement, there are 4,650,558 shares of the Company’s common
stock issued and outstanding and no shares of Company’s preferred stock have been issued and outstanding. All of the outstanding
capital stock of Company has been duly authorized and validly issued and is fully paid and non-assessable. There are, as of the
date hereof, no outstanding options, rights, warrants or other agreements or instruments obligating Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the capital stock of Company or obligating Company to grant,
extend or enter into any such agreement or commitment to any Person other than Company except pursuant to Company’s equity
incentive plans duly adopted by Company’s Board of Directors.


4.2 


No Impediment
to Transactions.


4.2.1 


Transaction
is Legal and Authorized. The issuance of the Subordinated Notes, the borrowing of the aggregate of the Subordinated Note
Amounts, the execution of the Transaction Documents and compliance by Company with all of the provisions of the Transaction Documents
are within the corporate and other powers of Company.


4.2.2 


Agreement.
This Agreement has been duly authorized, executed and delivered, and, assuming due authorization, execution and delivery by the
other parties hereto, constitutes the legal, valid and binding obligations of Company, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating
to or affecting creditors’ rights generally or by general equitable principles.


4.2.3 


Subordinated
Notes. The Subordinated Notes have been duly authorized by the Company and when executed by the Company and issued, delivered
to and paid for by the Purchasers in accordance with the terms of the Agreement, will have been duly executed, issued and
delivered, and will constitute legal, valid and binding obligations of Company, enforceable in accordance with their terms, except
as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors’ rights generally or by general equitable principles.




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4.2.4 


No Defaults
or Restrictions. Neither the execution and delivery of the Transaction Documents nor compliance with their respective terms
and conditions will (whether with or without the giving of notice or lapse of time or both) (i) violate, conflict with or result
in a breach of, or constitute a default under: (1) the Articles of Incorporation or Bylaws of Company; (2) any of the terms, obligations,
covenants, conditions or provisions of any corporate restriction or of any contract, agreement, indenture, mortgage, deed of trust,
pledge, bank loan or credit agreement, or any other agreement or instrument to which Company or Bank, as applicable, is now a party
or by which it or any of its properties may be bound or affected; (3) any judgment, order, writ, injunction, decree or demand of
any court, arbitrator, grand jury, or Governmental Agency; or (4) any statute, rule or regulation applicable to Company, except,
in the case of items (2), (3) or (4), for such violations and conflicts that would not reasonably be expected to have, singularly
or in the aggregate, a Material Adverse Effect on Company, or (ii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any property or asset of Company. Neither the Company nor the Bank is in default in the
performance, observance or fulfillment of any of the terms, obligations, covenants, conditions or provisions contained in any indenture
or other agreement creating, evidencing or securing Indebtedness of any kind or pursuant to which any such Indebtedness is issued,
or any other agreement or instrument to which Company or Bank, as applicable, is a party or by which Company or Bank, as applicable,
or any of its properties may be bound or affected, except, in each case, only such defaults that would not reasonably be expected
to have, singularly or in the aggregate, a Material Adverse Effect on Company.


4.2.5 


Governmental
Consent. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained by Company
that have not been obtained, and no registrations or declarations are required to be filed by Company that have not been filed
in connection with, or, in contemplation of, the execution and delivery of, and performance under, the Transaction Documents, except
for applicable requirements, if any, of the Securities Act, the Exchange Act or state securities laws or “blue sky”
laws of the various states and any applicable federal or state banking laws and regulations.


4.3 


Possession of
Licenses and Permits. Each of Company and its Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, “Governmental Licenses”) issued by the appropriate Governmental Agencies necessary
to conduct the business now operated by it except where the failure to possess such Governmental Licenses would not, singularly
or in the aggregate, have a Material Adverse Effect on Company or such applicable Subsidiary; Company and each Subsidiary of Company
is in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect on Company or such applicable Subsidiary of Company; all of the
Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect on Company or such
applicable Subsidiary of Company; and neither Company nor any Subsidiary of Company has received any notice of proceedings relating
to the revocation or modification of any such Governmental Licenses.




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4.4 


Financial Condition.


4.4.1 


Company Financial
Statements. The financial statements of Company included in Company’s Reports (including the related notes, where
applicable), which have been provided to Purchasers (i) have been prepared from, and are in accordance with, the books and records
of Company; (ii) fairly present in all material respects the results of operations, cash flows, changes in stockholders’
equity and financial position of Company and its consolidated Subsidiaries, for the respective fiscal periods or as of the respective
dates therein set forth (subject in the case of unaudited statements to recurring year-end audit adjustments normal in nature and
amount), as applicable; (iii) complied as to form, as of their respective dates of filing in all material respects with applicable
accounting and banking requirements as applicable, with respect thereto; and (iv) have been prepared in accordance with GAAP consistently
applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and
records of Company have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable
legal and accounting requirements. Company does not have any material liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due), except for those liabilities that are reflected or reserved against
on the consolidated balance sheet of Company contained in Company’s Reports for Company’s most recently completed quarterly
or annual fiscal period, as applicable, and for liabilities incurred in the ordinary course of business consistent with past practice
or in connection with this Agreement and the transactions contemplated hereby.


4.4.2 


Absence of
Default. Since the date of the latest audited financial statements, no event has occurred which either of itself or with
the lapse of time or the giving of notice or both, would give any creditor of Company the right to accelerate the maturity of any
material Indebtedness of Company. Company is not in default under any other Lease, agreement or instrument, or any law, rule, regulation,
order, writ, injunction, decree, determination or award, non-compliance with which could reasonably be expected to result in a
Material Adverse Effect on Company.


4.4.3 


Solvency.
After giving effect to the consummation of the transactions contemplated by this Agreement, Company has capital sufficient to carry
on its business and transactions and is solvent and able to pay its debts as they mature. No transfer of property is being made
and no Indebtedness is being incurred in connection with the transactions contemplated by this Agreement with the intent to hinder,
delay or defraud either present or future creditors of Company or any Subsidiary of Company.


4.4.4 


Ownership of
Property. Company and each of its Subsidiaries has good and marketable title as to all real property owned by it and good
title to all assets and properties owned by Company and such Subsidiary in the conduct of its businesses, whether such assets and
properties are real or personal, tangible or intangible, including assets and property reflected in the most recent balance sheet
contained in Company’s Reports or acquired subsequent thereto (except to the extent that such assets and properties have
been disposed of in the ordinary course of business, since the date of such balance sheet), subject to no encumbrances, liens,
mortgages, security interests or pledges, except (i) those items which secure liabilities for public deposits or statutory obligations
or any discount with, borrowing from or other obligations to the Federal Home Loan Bank, inter-bank credit facilities, reverse
repurchase agreements or any transaction by Bank acting in a fiduciary capacity, (ii) statutory liens for amounts not yet due or
delinquent or which are being contested in good faith and (iii) such as do not, individually or in the aggregate, materially affect
the value of such property and do not materially interfere with the use made and proposed to be made of such property by Company
or any of its Subsidiaries. Company and each of its Subsidiaries, as lessee, has the right under valid and existing Leases of real
and personal properties that are material to Company or such Subsidiary, as applicable, in the conduct of its business to occupy
or use all such properties as presently occupied and used by it. With the exception of the lease for the Bank’s main
office located at 901 E. Main St., Lincolnton, North Carolina 28092, such existing Leases and commitments to Lease constitute
or will constitute operating Leases for both tax and financial accounting purposes and the Lease expense and minimum rental commitments
with respect to such Leases and Lease commitments are as disclosed in all material respects in Company’s Reports.




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4.5 


No Material Adverse
Change. Since the date of the latest audited financial statements included in Company’s Reports, there has been no
development or event which has had or could reasonably be expected to have a Material Adverse Effect on Company or any of its Subsidiaries.


4.6 


Legal Matters.


4.6.1 


Compliance
with Law. Company and each of its Subsidiaries (i) has complied with and (ii) is not under investigation with respect to,
and, to the Company’s knowledge, has not been threatened to be charged with or given any notice of any material violation
of any applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government, or any instrumentality
or agency thereof, having jurisdiction over the conduct of its business or the ownership of its properties, except where any such
failure to comply or violation would not reasonably be expected to have a Material Adverse Effect on Company or any of its Subsidiaries.
Company and each of its Subsidiaries (x) is, and at all times prior to the date hereof has been, compliant with all applicable
statutes, rules, regulations, orders and restrictions of any domestic or foreign government, or any Governmental Agency, and their
own privacy policies and written commitments to their respective customers, consumers and employees, concerning data protection
and the privacy and security of personal data and the nonpublic personal information of their respective customers, consumers and
employees, in each case the failure to comply with which would not result, individually or in the aggregate, in a Material Adverse
Effect, and (y) at no time during the two years prior to the date hereof has received any written notice asserting any violations
of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government, or any Governmental Agency,
or their own privacy policy and written commitment to their respective customers, consumers or employees, concerning data protection
or the privacy and security of personal data or the nonpublic personal information of their respective customers, consumers or
employees, in each case the failure to comply with which would not result, individually or in the aggregate, in a Material Adverse
Effect.


4.6.2 


Regulatory
Enforcement Actions. Company, Bank and its other Subsidiaries are in compliance in all material respects with all laws
administered by and regulations of any Governmental Agency applicable to it or to them, the failure to comply with which would
have a Material Adverse Effect. None of Company, Bank, Company’s Subsidiaries nor any of their officers or directors is now
operating under any restrictions, agreements, memoranda, commitment letter, supervisory letter or similar regulatory correspondence,
or other commitments (other than restrictions of general application) imposed by any Governmental Agency, nor are, to Company’s
knowledge, (a) any such restrictions threatened, (b) any agreements, memoranda or commitments being sought by any Governmental
Agency, or (c) any material legal or regulatory violations previously identified by, or penalties or other remedial action previously
imposed by, any Governmental Agency remains unresolved.




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4.6.3 


Pending Litigation.
There are no actions, suits, proceedings or written agreements pending, or, to Company’s knowledge, threatened or proposed,
against Company or any of its Subsidiaries at law or in equity or before or by any federal, state, municipal, or other governmental
department, commission, board, or other administrative agency, domestic or foreign, that, either separately or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on Company or any of its Subsidiaries or affect issuance or payment
of the Subordinated Notes; and neither Company nor any of its Subsidiaries is a party to or named as subject to the provisions
of any order, writ, injunction, or decree of, or any written agreement with, any court, commission, board or agency, domestic or
foreign, that either separately or in the aggregate, will have a Material Adverse Effect on Company or any of its Subsidiaries.


4.6.4 


Environmental.
No Property is or, to Company’s knowledge, has been a site for the use, generation, manufacture, storage, treatment, release,
threatened release, discharge, disposal, transportation or presence of any Hazardous Materials and neither Company nor any of its
Subsidiaries has engaged in such activities. There are no claims or actions pending or, to Company’s knowledge, threatened
against Company or any of its Subsidiaries by any Governmental Agency or by any other Person relating to any Hazardous Materials
or pursuant to any Hazardous Materials Law.


4.6.5 


Brokerage Commissions.
Except for commissions paid to the Placement Agent, neither Company nor any Affiliate of Company is obligated to pay any brokerage
commission or finder’s fee to any Person in connection with the transactions contemplated by this Agreement.


4.6.6 


Investment
Company Act. Neither Company nor any of its Subsidiaries is an “investment company” or a company “controlled”
by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.


4.7 


No Misstatement.
No information, exhibit, report, schedule or document, when viewed together as a whole, furnished by Company to Purchasers in connection
with the negotiation, execution or performance of this Agreement contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements contained therein not misleading in light of the circumstances when made
or furnished to Purchasers and as of the Closing Date.




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4.8 


Internal Accounting
Controls. Company, Bank and each other applicable Subsidiary of the Company has established and maintains a system of internal
control over financial reporting that pertains to the maintenance of records that accurately and fairly reflect the transactions
and dispositions of the Company’s assets (on a consolidated basis), provides reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with GAAP and that Company’s and Bank’s receipts
and expenditures are being made only in accordance with authorizations of Company management and Board of Directors, and provides
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the
Company on a consolidated basis that could have a material effect on the financial statements. Such internal control over financial
reporting is effective to provide reasonable assurance regarding the reliability of the Company’s financial reporting and
the preparation of the Company’s financial statements for external purposes in accordance with GAAP. Since the conclusion
of the Company’s last completed fiscal year there has not been and there currently is not (i) any significant deficiency
or material weakness in the design or operation of its internal control over financial reporting which are reasonably likely to
adversely affect its ability to record, process, summarize and report financial information, or (ii) any fraud, whether or
not material, that involves management or other employees who have a role in the Company’s or Bank’s internal control
over financial reporting. The Company (A) has implemented and maintains disclosure controls and procedures reasonably designed
and maintained to ensure that material information relating to the Company is made known to the Chief Executive Officer and the
Chief Financial Officer of the Company by others within the Company and (B) has disclosed, based on its most recent evaluation
prior to the date hereof, to the Company’s outside auditors and the audit committee of the Company’s Board of Directors
(x) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the Company’s internal controls over financial reporting. Such disclosure
controls and procedures are effective for the purposes for which they were established.


4.9 


Representations
and Warranties Generally. The representations and warranties of the Company set forth in this Agreement in any certificate
or other document delivered to Purchasers by or on behalf of Company pursuant to or in connection with this Agreement are true
and correct as of the date hereof and will be true and correct as of the Closing Date and as otherwise specifically provided herein
or therein. None of the representations, warranties, covenants and agreements made in this Agreement or in any certificate or other
document delivered to Purchasers by or on behalf of Company pursuant to or in connection with this Agreement contains any untrue
statement of a material fact or omits to state a material fact or any fact necessary to make the statements contained therein not
misleading in light of the circumstances when made and as of the Closing Date. 


5. 


GENERAL COVENANTS,
CONDITIONS AND AGREEMENTS.


Company hereby further
covenants and agrees with each Purchaser as follows:


5.1 


Compliance with
Transaction Documents. Company shall comply with, observe and timely perform each and every one of the covenants, agreements
and obligations under the Transaction Documents.


5.2 


Affiliate Transactions.
Company shall not itself, nor shall it cause, permit or allow any of its Subsidiaries to enter into any transaction, including,
the purchase, sale or exchange of property or the rendering of any service, with any Affiliate of Company except in the ordinary
course of business and pursuant to the reasonable requirements of Company’s or such Affiliate’s business and upon terms
consistent with applicable laws and regulations and reasonably found by the appropriate board(s) of directors to be fair and reasonable
and no less favorable to Company or such Affiliate than would be obtained in a comparable arm’s length transaction with a
Person not an Affiliate.




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5.3 


Compliance with
Laws.


5.3.1 


Generally.
Company shall comply and cause Bank and each of its other Subsidiaries to comply in all material respects with all applicable statutes,
rules, regulations, orders and restrictions in respect of the conduct of its business and the ownership of its properties, except,
in each case, where such noncompliance would not reasonably be expected to have a Material Adverse Effect on Company.


5.3.2 


Regulated Activities.
Company shall not itself, nor shall it cause, permit or allow Bank or any other of its Subsidiaries to (i) engage in any business
or activity not permitted by all applicable laws and regulations, except where such business or activity would not reasonably be
expected to have a Material Adverse Effect on Company, Bank and/or such of its Subsidiaries or (ii) make any loan or advance secured
by the capital stock of another bank or depository institution, or acquire the capital stock, assets or obligations of or any interest
in another bank or depository institution, in each case other than in accordance with applicable laws and regulations and safe
and sound banking practices.


5.3.3 


Taxes.
Company shall and shall cause Bank and any other of its Subsidiaries to promptly pay and discharge all taxes, assessments and other
governmental charges imposed upon Company, Bank or any other of its Subsidiaries or upon the income, profits, or property of Company
or any Subsidiary and all claims for labor, material or supplies which, if unpaid, might by law become a lien or charge upon the
property of Company, Bank or any other of its Subsidiaries. Notwithstanding the foregoing, none of Company, Bank or any other of
its Subsidiaries shall be required to pay any such tax, assessment, charge or claim, so long as the validity thereof shall be contested
in good faith by appropriate proceedings, and appropriate reserves therefor shall be maintained on the books of Company, Bank and
such other Subsidiary.


5.3.4 


Corporate Existence.
Company shall do or cause to be done all things reasonably necessary to maintain, preserve and renew its corporate existence and
that of Bank and the other Subsidiaries and its and their rights and franchises, and comply in all material respects with all related
laws applicable to Company, Bank or the other Subsidiaries.


5.3.5 


Dividends,
Payments, and Guarantees During Event of Default. Upon the occurrence of a failure by Company to make any required payment
of principal or interest on the Subordinated Notes or of an Event of Default (as defined under the Subordinated Notes) until such
failure or Event of Default is cured, except as required by any federal or state Governmental Agency, Company shall not (a) declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its
capital stock; (b) make any payment of principal of, or interest or premium, if any, on, or repay, repurchase or redeem any of
Company’s Indebtedness that ranks equal with or junior to the Subordinated Notes; or (c) make any payments under any guarantee
that ranks equal with or junior to the Subordinated Notes, other than (i) any dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, any class of Company’s common stock; (ii) any declaration of a
non-cash dividend in connection with the implementation of a shareholders’ rights plan, or the issuance of stock under any
such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (iii) as a result of a reclassification
of Company’s capital stock or the exchange or conversion of one class or series of Company’s capital stock for another
class or series of Company’s capital stock; (iv) the purchase of fractional interests in shares of Company’s capital
stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or
(v) purchases of any class of Company’s common stock related to the issuance of common stock or rights under any benefit
plans for Company’s directors, officers or employees or any of Company’s dividend reinvestment plans.




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5.3.6 


Tier 2 Capital.
If all or any portion of the Subordinated Notes ceases to be deemed to be Tier 2 Capital, other than due to the limitation imposed
on the capital treatment of subordinated debt during the five (5) years immediately preceding the Maturity Date of the Subordinated
Notes, Company will immediately notify the Noteholder (as defined in the Subordinated Note), and thereafter Company and the Noteholder
(as defined in the Subordinated Note) will work together in good faith to execute and deliver all agreements as reasonably necessary
in order to restructure the applicable portions of the obligations evidenced by the Subordinated Notes to qualify as Tier 2 Capital.


5.4 


Absence of Control.
It is the intent of the parties to this Agreement that in no event shall Purchasers, by reason of any of the Transaction Documents,
be deemed to control, directly or indirectly, Company, and Purchasers shall not exercise, or be deemed to exercise, directly or
indirectly, a controlling influence over the management or policies of Company 


5.5 


Secondary Market
Transactions. Each Purchaser shall have the right at any time and from time to time to securitize its Subordinated Notes
or any portion thereof in a single asset securitization or a pooled loan securitization of rated single or multi-class securities
secured by or evidencing ownership interests in the Subordinated Notes (each such securitization is referred to herein as a “Secondary
Market Transaction”). In connection with any such Secondary Market Transaction, Company shall, at Company’s expense,
cooperate with Purchasers and otherwise reasonably assist Purchasers in satisfying the market standards to which Purchasers customarily
adhere or which may be reasonably required in the marketplace or by applicable rating agencies in connection with any such Secondary
Market Transaction. Subject to any written confidentiality obligation, all information regarding Company may be furnished, without
liability except in the case of gross negligence or willful misconduct, to any Purchaser and to any Person reasonably deemed necessary
by Purchaser in connection with participation in such Secondary Market Transaction. All documents, financial statements, appraisals
and other data relevant to Company or the Subordinated Notes may be retained by any such Person.


5.6 


Bloomberg and
DTC. Company shall use commercially reasonable efforts to cause the Subordinated Notes to be quoted on Bloomberg and to
be registered in the name of The Depository Trust Company.


5.7 


Rule 144A Information.
While any Subordinated Notes remain “restricted securities” within the meaning of the Securities Act, the Company will
make available, upon request, to any seller of such Subordinated Notes the information specified in Rule 144A(d)(4) under the Securities
Act, unless the Company is then subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.




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5.8 


DTC Registration.
The Company shall use commercially reasonable efforts to cause the Subordinated Notes held by Qualified Institutional Buyers as
defined in Rule 144A of the Securities Act to be registered in the name of Cede & Co. as nominee of The Depository Trust Company
(“DTC”) or a nominee of DTC.


6. 


REPRESENTATIONS,
WARRANTIES AND COVENANTS OF PURCHASERS.


Each Purchaser hereby
represents and warrants to Company, and covenants with Company, severally and not jointly, as follows:


6.1 


Legal Power and
Authority. It has all necessary power and authority to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. It is an entity duly organized, validly existing and in good standing under
the laws its jurisdiction of organization.


6.2 


Authorization
and Execution. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action
on the part of such Purchaser, and this Agreement has been duly authorized, executed and delivered, and, assuming due authorization,
execution and delivery by the other parties hereto, is a legal, valid and binding obligation of such Purchaser, enforceable against
such Purchaser in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles.


6.3 


No Conflicts.
Neither the execution, delivery or performance of the Transaction Documents nor the consummation of any of the transactions contemplated
thereby will conflict with, violate, constitute a breach of or a default (whether with or without the giving of notice or lapse
of time or both) under (i) its organizational documents, (ii) any agreement to which it is party, (iii) any law applicable to it
or (iv) any order, writ, judgment, injunction, decree, determination or award binding upon or affecting it.


6.4 


Purchase for
Investment. It is purchasing the Subordinated Note for its own account and not with a view to distribution and with no
present intention of reselling, distributing or otherwise disposing of the same. It has no present or contemplated agreement, undertaking,
arrangement, obligation, Indebtedness or commitment providing for, or which is likely to compel, a disposition of the Subordinated
Notes in any manner.


6.5 


Institutional
Accredited Investor. It is and will be on the Closing Date an institutional “accredited investor” as such term
is defined in Rule 501(a) of Regulation D and as contemplated by subsections (1), (2), (3) and (7) of Rule 501(a) of Regulation
D, and has no less than $5,000,000 in total assets.


6.6 


Financial and
Business Sophistication. It has such knowledge and experience in financial and business matters that it is capable of evaluating
the merits and risks of the prospective investment in the Subordinated Notes. It has relied solely upon its own knowledge of, and/or
the advice of its own legal, financial or other advisors with regard to, the legal, financial, tax and other considerations involved
in deciding to invest in the Subordinated Notes.




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6.7 


Ability to Bear
Economic Risk of Investment. It recognizes that an investment in the Subordinated Notes involves substantial risk. It has
the ability to bear the economic risk of the prospective investment in the Subordinated Notes, including the ability to hold the
Subordinated Notes indefinitely, and further including the ability to bear a complete loss of all of its investment in Company.


6.8 


Information.
It acknowledges that: (i) it is not being provided with the disclosures that would be required if the offer and sale of the Subordinated
Notes were registered under the Securities Act, nor is it being provided with any offering circular or prospectus prepared in connection
with the offer and sale of the Subordinated Notes; (ii) it has conducted its own examination of Company and the terms of the Subordinated
Notes to the extent it deems necessary to make its decision to invest in the Subordinated Notes; and (iii) it has availed itself
of publicly available financial and other information concerning Company to the extent it deems necessary to make its decision
to purchase the Subordinated Notes. It has reviewed the information set forth in Company’s Reports and the exhibits and schedules
hereto and contained in the data room established by Company on September 19, 2016.


6.9 


Access to Information.
It acknowledges that it and its advisors have been furnished with all materials relating to the business, finances and operations
of Company that have been requested by it or its advisors and have been given the opportunity to ask questions of, and to receive
answers from, persons acting on behalf of Company concerning terms and conditions of the transactions contemplated by this Agreement
in order to make an informed and voluntary decision to enter into this Agreement.


6.10 


Investment Decision.
It has made its own investment decision based upon its own judgment, due diligence and advice from such advisors as it has deemed
necessary and not upon any view expressed by any other person or entity, including the Placement Agent. Neither such inquiries
nor any other due diligence investigations conducted by it or its advisors or representatives, if any, shall modify, amend or affect
its right to rely on Company’s representations and warranties contained herein. It is not relying upon, and has not relied
upon, any advice, statement, representation or warranty made by any Person by or on behalf of Company, including, without limitation,
the Placement Agent, except for the express statements, representations and warranties of Company made or contained in this Agreement.
Furthermore, it acknowledges that (i) the Placement Agent has not performed any due diligence review on behalf of it and (ii) nothing
in this Agreement or any other materials presented by or on behalf of Company to it in connection with the purchase of the Subordinated
Notes constitutes legal, tax or investment advice.


6.11 


Private Placement;
No Registration; Restricted Legends. It understands and acknowledges that the Subordinated Notes are being sold by Company
without registration under the Securities Act in reliance on the exemption from federal and state registration set forth in, respectively,
Rule 506(b) of Regulation D under Section 4(a)(2) of the Securities Act and Section 18 of the Securities Act, or any state securities
laws, and accordingly, may be resold, pledged or otherwise transferred only if exemptions from the Securities Act and applicable
state securities laws are available to it. It is not subscribing for the Subordinated Notes as a result of or subsequent to any
advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television
or radio, or presented at any seminar or meeting. It further acknowledges and agrees that all certificates or other instruments
representing the Subordinated Notes will bear the restrictive legend set forth in the form of Subordinated Note. It further acknowledges
its primary responsibilities under the Securities Act and, accordingly, will not sell or otherwise transfer the Subordinated Notes
or any interest therein without complying with the requirements of the Securities Act and the rules and regulations promulgated
thereunder and the requirements set forth in this Agreement.




    	18 



    	 



    

 


6.12 


Placement Agent.
It will purchase the Subordinated Note(s) directly from Company and not from the Placement Agent and understands that neither the
Placement Agent nor any other broker or dealer has any obligation to make a market in the Subordinated Notes.


6.13 


Tier 2 Capital.
If all or any portion of the Subordinated Notes ceases to be deemed to be Tier 2 Capital, other than due to the limitation imposed
on the capital treatment of subordinated debt during the five (5) years immediately preceding the Maturity Date of the Subordinated
Notes, Company will immediately notify the Purchasers, and thereafter Company and the Purchasers will work together in good faith
to execute and deliver all agreements as reasonably necessary in order to restructure the applicable portions of the obligations
evidenced by the Subordinated Notes to qualify as Tier 2 Capital.


6.14 


Accuracy of Representations.
It understands that each of the Placement Agent and Company will rely upon the truth and accuracy of the foregoing representations,
acknowledgements and agreements in connection with the transactions contemplated by this Agreement, and agrees that if any of the
representations or acknowledgements made by it are no longer accurate as of the Closing Date, or if any of the agreements made
by it are breached on or prior to the Closing Date, it shall promptly notify the Placement Agent and Company.


6.15 


Representations
and Warranties Generally. The representations and warranties of Purchaser set forth in this Agreement are true and correct
as of the date hereof and will be true and correct as of the Closing Date and as otherwise specifically provided herein. Any certificate
signed by a duly authorized representative of Purchaser and delivered to the Company or to counsel for Company shall be deemed
to be a representation and warranty by Purchaser to Company as to the matters set forth therein.


7. 


Intentionally
omitted.


8. 


MISCELLANEOUS.


8.1 


Prohibition on
Assignment by Company. Except as described in Section 8(b) (Merger or Sale of Assets) of the Subordinated Notes, Company
may not assign, transfer or delegate any of its rights or obligations under this Agreement or the Subordinated Notes without the
prior written consent of Purchasers. In addition, in accordance with the terms of the Subordinated Notes, any transfer of such
Subordinated Notes must be made in accordance with the Assignment Form attached thereto and the requirements and restrictions thereof.


8.2 


Time of the Essence.
Time is of the essence of this Agreement.




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8.3 


Waiver or Amendment.
No waiver or amendment of any term, provision, condition, covenant or agreement herein or in the Subordinated Notes shall be effective
except with the consent of the holders of not less than more than fifty percent (50%) in aggregate principal amount (excluding
any Subordinated Notes held by Company or any of its Affiliates) of the Subordinated Notes at the time outstanding; provided,
however, that without the consent of each holder of an affected Subordinated Note, no such amendment or waiver may: (i)
reduce the principal amount of the Subordinated Note; (ii) reduce the rate of or change the time for payment of interest on any
Subordinated Note; (iii) extend the maturity of any Subordinated Note, (iv) change the currency in which payment of the obligations
of Company under this Agreement and the Subordinated Notes are to be made; or (v) lower the percentage of aggregate principal amount
of outstanding Subordinated Notes required to approve any amendment of this Agreement or the Subordinated Notes, (vi) make any
changes to Section 6 (Failure to Make a Payments) of the Subordinated Notes that adversely affects the rights of any holder of
a Subordinated Note; or (vii) disproportionately affect any of the holders of the then outstanding Subordinated Notes. Notwithstanding
the foregoing, Company may amend or supplement the Subordinated Notes without the consent of the holders of the Subordinated Notes
to cure any ambiguity, defect or inconsistency or to provide for uncertificated Subordinated Notes in addition to or in place of
certificated Subordinated Notes, or to make any change that does not adversely affect the rights of any holder of any of the Subordinated
Notes. No failure to exercise or delay in exercising, by a Purchaser or any holder of the Subordinated Notes, of any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege
preclude any other or further exercise thereof, or the exercise of any other right or remedy provided by law. The rights and remedies
provided in this Agreement are cumulative and not exclusive of any right or remedy provided by law or equity. No notice or demand
on Company in any case shall, in itself, entitle Company to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of Purchasers to any other or further action in any circumstances without notice or demand.
No consent or waiver, expressed or implied, by Purchasers to or of any breach or default by Company in the performance of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the
same or any other obligations of Company hereunder. Failure on the part of Purchasers to complain of any acts or failure to act
or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by Purchasers
of their rights hereunder or impair any rights, powers or remedies on account of any breach or default by Company.


8.4 


Severability.
Any provision of this Agreement which is unenforceable or invalid or contrary to law, or the inclusion of which would adversely
affect the validity, legality or enforcement of this Agreement, shall be of no effect and, in such case, all the remaining terms
and provisions of this Agreement shall subsist and be fully effective according to the tenor of this Agreement the same as though
any such invalid portion had never been included herein. Notwithstanding any of the foregoing to the contrary, if any provisions
of this Agreement or the application thereof are held invalid or unenforceable only as to particular persons or situations, the
remainder of this Agreement, and the application of such provision to persons or situations other than those to which it shall
have been held invalid or unenforceable, shall not be affected thereby, but shall continue valid and enforceable to the fullest
extent permitted by law.


8.5 


Notices.
Any notice which any party hereto may be required or may desire to give hereunder shall be deemed to have been given if in writing
and if delivered personally, or if mailed, postage prepaid, by United States registered or certified mail, return receipt requested,
or if delivered by a responsible overnight commercial courier promising next business day delivery, addressed:




    	20 



    	 



    

 


	if to Company:	
        Carolina Trust BancShares, Inc.

        901 East Main Street

        Lincolnton, North Carolina 28092

        Attention: Jerry L. Ocheltree, President

	 	 
	with a copy to:	
        Wyrick Robbins Yates & Ponton LLP

        4101 Lake Boone Trail, Suite 300

        Raleigh, North Carolina 27607

        Attention: Todd H. Eveson

	 	 
	if to Purchasers:	To the address indicated on such Purchaser’s signature page.


or to such other address or addresses as
the party to be given notice may have furnished in writing to the party seeking or desiring to give notice, as a place for the
giving of notice; provided that no change in address shall be effective until five (5) Business Days after being given to the other
party in the manner provided for above. Any notice given in accordance with the foregoing shall be deemed given when delivered
personally or, if mailed, three (3) Business Days after it shall have been deposited in the United States mails as aforesaid or,
if sent by overnight courier, the Business Day following the date of delivery to such courier (provided next business day delivery
was requested).


8.6 


Successors and
Assigns. This Agreement shall inure to the benefit of the parties and their respective heirs, legal representatives, successors
and assigns; except that, unless a Purchaser consents in writing, no assignment made by Company in violation of this Agreement
shall be effective or confer any rights on any purported assignee of Company. The term “successors and assigns” will
not include a purchaser of any of the Subordinated Notes from any Purchaser merely because of such purchase.


8.7 


No Joint Venture.
Nothing contained herein or in any document executed pursuant hereto and no action or inaction whatsoever on the part of a Purchaser,
shall be deemed to make a Purchaser a partner or joint venturer with Company.


8.8 


Documentation.
All documents and other matters required by any of the provisions of this Agreement to be submitted or furnished to a Purchaser
shall be in form and substance satisfactory to such Purchaser.


8.9 


Entire Agreement.
This Agreement and the Subordinated Notes along with the Exhibits thereto constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and may not be modified or amended in any manner other than by supplemental written agreement
executed by the parties hereto. No party, in entering into this Agreement, has relied upon any representation, warranty, covenant,
condition or other term that is not set forth in this Agreement or in the Subordinated Notes.




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8.10 


Choice of Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to
its laws or principles of conflict of laws (except Sections 5-1401 and 5-1402 of the New York General Obligations Law). Nothing
herein shall be deemed to limit any rights, powers or privileges which a Purchaser may have pursuant to any law of the United States
of America or any rule, regulation or order of any department or agency thereof and nothing herein shall be deemed to make unlawful
any transaction or conduct by a Purchaser which is lawful pursuant to, or which is permitted by, any of the foregoing.


8.11 


No Third Party
Beneficiary. This Agreement is made for the sole benefit of Company and the Purchasers, and no other person shall be deemed
to have any privity of contract hereunder nor any right to rely hereon to any extent or for any purpose whatsoever, nor shall any
other person have any right of action of any kind hereon or be deemed to be a third party beneficiary hereunder; provided,
that the Placement Agent may rely on the representations and warranties contained herein to the same extent as if it were a party
to this Agreement.


8.12 


Legal Tender
of United States. All payments hereunder shall be made in coin or currency which at the time of payment is legal tender
in the United States of America for public and private debts.


8.13 


Captions; Counterparts.
Captions contained in this Agreement in no way define, limit or extend the scope or intent of their respective provisions. This
Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the
same instrument. In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a “.pdf”
format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature
is executed) with the same force and effect as if such facsimile signature page were an original thereof.


8.14 


Knowledge; Discretion.
All references herein to Purchaser’s or Company’s knowledge shall be deemed to mean the knowledge of such party based
on the actual knowledge of such party’s Chief Executive Officer and Chief Financial Officer or such other persons holding
equivalent offices. Unless specified to the contrary herein, all references herein to an exercise of discretion or judgment by
a Purchaser, to the making of a determination or designation by a Purchaser, to the application of a Purchaser’s discretion
or opinion, to the granting or withholding of a Purchaser’s consent or approval, to the consideration of whether a matter
or thing is satisfactory or acceptable to a Purchaser, or otherwise involving the decision making of a Purchaser, shall be deemed
to mean that such Purchaser shall decide using the reasonable discretion or judgment of a prudent lender.


8.15 


Waiver Of Right
To Jury Trial. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH ANY OF THE TRANSACTION
DOCUMENTS, OR ANY OTHER STATEMENTS OR ACTIONS OF COMPANY OR PURCHASERS. THE PARTIES ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED
IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF THEIR OWN FREE WILL.
THE PARTIES FURTHER ACKNOWLEDGE THAT (I) THEY HAVE READ AND UNDERSTAND THE MEANING AND RAMIFICATIONS OF THIS WAIVER, (II) THIS
WAIVER HAS BEEN REVIEWED BY THE PARTIES AND THEIR COUNSEL AND IS A MATERIAL INDUCEMENT FOR ENTRY INTO THIS AGREEMENT AND (III)
THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF SUCH TRANSACTION DOCUMENTS AS IF FULLY INCORPORATED THEREIN.




    	22 



    	 



    

 


8.16 


Expenses.
Except as otherwise provided in this Agreement, each of the parties will bear and pay all other costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated pursuant to this Agreement.


8.17 


Survival.
Each of the representations and warranties set forth in this Agreement shall survive the consummation of the transactions contemplated
hereby for a period of one year after the date hereof. Except as otherwise provided herein, all covenants and agreements contained
herein shall survive until, by their respective terms, they are no longer operative.


[Signature Pages Follow]




    	23 



    	 



    

 


IN WITNESS WHEREOF,
Company has caused this Subordinated Note Purchase Agreement to be executed by its duly authorized representative as of the date
first above written.


	 	
        COMPANY:

         

        CAROLINA TRUST BANCSHARES, INC.

         

	 	 	 
	 	By:	 
	 	 	
        Name:  Jerry L. Ocheltree

        Title:    President &
        Chief Executive Officer



 




    	[Company Signature Page to Subordinated Note Purchase Agreement]



    	 



    

 


IN WITNESS WHEREOF,
the Purchaser has caused this Subordinated Note Purchase Agreement to be executed by its duly authorized representative as of the
date first above written.


	 	
        PURCHASER:

        [NAME OF PURCHASER]

         

	 	By:	 
	 	 	
        Name:  [●]

        Title:    [●]

	 	 	 
	 	
        Address of Purchaser:

        [●]

	 	 	 
	 	
        Principal Amount of Purchased Subordinated
        Note:

        $[●]



 


 


    	[Purchaser Signature Page to Subordinated Note Purchase Agreement]