Document:

Ex-10.3

 

Exhibit 10.3 Employment agreement with David W. Hinshaw

Employment Agreement

     This Employment Agreement is entered into effective as of this 28th day of
April, 2006, by and among Southern Community Financial Corporation, a North Carolina corporation,
Southern Community Bank and Trust, a North Carolina-chartered bank and wholly owned subsidiary of
Southern Community Financial Corporation (the “Bank”), and David W. Hinshaw, Executive Vice
President and Chief Financial Officer of Southern Community Financial Corporation and the Bank (the
“Executive”). Southern Community Financial Corporation and the Bank are referred to in
this Employment Agreement individually and together as the “Employer.”

     Whereas, the Executive is the Chief Financial Officer of the Employer, possessing
unique skills, knowledge, and experience relating to the Employer’s business, and the Executive has
made and is expected to continue to make major contributions to the profitability, growth, and
financial strength of the Employer and affiliates,

     Whereas, the Employer and the Executive desire to set forth in this Employment
Agreement the terms and conditions of the Executive’s employment,

     Whereas, the Executive and the Bank are parties to a June 1, 2005 Employment
Agreement,

     Whereas, the Employer and the Executive intend that, except as may be otherwise
provided in this Employment Agreement, this Employment Agreement shall supersede and replace in its
entirety the June 1, 2005 Employment Agreement, and that from and after the date of this Employment
Agreement the June 1, 2005 Employment Agreement between the Executive and the Bank shall be of no
further force or effect, and

     Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of the Employer, is
contemplated insofar as the Bank or any affiliates are concerned.

     Now Therefore, in consideration of these premises, the mutual covenants contained
herein, and other good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.

Article 1

Employment

     1.1 Employment. Effective on the date and for the term specified in section 1.4,
the Employer hereby employs the Executive to serve as Chief Financial Officer according to the
terms and conditions of this Employment Agreement. The Executive hereby accepts employment
according to the terms and conditions of this Employment Agreement.

     1.2 Duties. As Chief Financial Officer, the Executive shall serve under the
direction of the Employer’s Chief Executive Officer and in accordance with the Employer’s Articles
of Incorporation and Bylaws, as each may be amended or restated from time to time. The Executive
shall serve the Employer faithfully, diligently, competently, and to the best of his ability, and
he shall exclusively devote his full working time, energy, and attention to the
business of the Employer and to the promotion of the Employer’s interests throughout the term of
this Employment Agreement. Without the written consent of the Chief Executive Officer, during the
term of this Employment Agreement the Executive shall not render services to or for any person,
firm, corporation, or other entity or organization in exchange for compensation, regardless of the
form in which the compensation is paid and regardless of whether it is paid directly or indirectly
to the Executive. Nothing in this Article 2 shall prevent the Executive from managing his personal
investments

 

 

and affairs, provided that doing so does not interfere with the proper performance of
his duties and responsibilities as Chief Financial Officer.

     1.3 Term of Employment. The initial term of employment under this Employment
Agreement shall be for the period commencing upon the April 28, 2006 effective date of this
Employment Agreement and ending three calendar years from the effective date of this Employment
Agreement. On each anniversary of the effective date of this Employment Agreement, the term of
this Employment Agreement shall automatically be extended for one additional year period beyond the
then-effective expiration date unless written notice from the Employer or the Executive is received
90 days prior to an anniversary date advising the other that this Employment Agreement shall not be
further extended. If the board decides not to extend the term of this Employment Agreement, this
Employment Agreement shall nevertheless remain in force until its then-current three-year term
expires. The board’s decision not to extend the term of this Employment Agreement shall not – by
itself – give the Executive any rights under this Employment Agreement to claim an adverse change
in his position, compensation, or circumstances or otherwise to claim entitlement to severance
benefits under Articles 4 or 5 of this Employment Agreement, absent some other reason that entitles
Executive to such benefits pursuant to either or both of such Articles. References herein to the
term of this Employment Agreement shall refer to the initial term, as the same may be extended.
Unless sooner terminated, the Executive’s employment and the term of this Employment Agreement
shall terminate when the Executive attains age 65.

Article 2

Compensation and Other Benefits

     2.1 Base Salary. In consideration of the Executive’s performance of his obligations
under this Employment Agreement, Southern Community Financial Corporation shall pay or cause to be
paid to the Executive a salary at the annual rate of not less than $190,000, payable in equal or
approximately equal monthly installments. The Executive’s salary shall be reviewed annually by the
Employer’s board of directors or by the board committee having jurisdiction over executive
compensation, and may be increased at the discretion of the committee having jurisdiction over
executive compensation. However, the Executive’s salary shall not be reduced. The Executive’s
salary, as the same may be increased from time to time, is referred to in this Employment Agreement
as the “Base Salary.”

     2.2 Benefit Plans and Perquisites. The Executive shall be entitled throughout the
term of this Employment Agreement to participate in any and all officer or employee compensation,
bonus, incentive, and benefit plans in effect from time to time, including without limitation plans
providing pension, retirement, medical, dental, disability, and group life benefits, and to receive
any and all other fringe benefits provided from time to time, provided that the Executive satisfies
the eligibility requirements for the plans or benefits. Without limiting the generality of the
foregoing –

     (a) Participation in Stock Plans. The Executive shall be eligible to participate in any
stock-based compensation, incentive, bonus, or purchase
plans existing on the date of this Employment Agreement or adopted during the term of this
Employment Agreement.

     (b) Club Dues. During the term of this Employment Agreement, the Employer shall pay or cause
to be paid the Executive’s membership assessments and dues in civic clubs. Without limiting the
generality of the foregoing, the Executive shall be reimbursed for assessments, dues, and expenses
associated with his membership in and use of a private country club of his choice in Forsyth
County.

     (c) Disability Insurance. The Employer shall reimburse the Executive for the Executive’s
cost to purchase and maintain disability insurance coverage on himself during the term of this
Employment Agreement. The amount reimbursed by the Employer shall be grossed up to compensate the
Executive for federal and state income taxes imposed as a result of the Employer’s reimbursement of
the Executive’s cost. The disability insurance policy shall be owned by the Executive exclusively.

 

 

     (d) Reimbursement of Business Expenses. Upon submission of appropriate documentation by the
Executive and approval by the board of directors or by a board committee appointed for such
purpose, the Employer agrees to reimburse the Executive for all out-of-pocket expenses incurred
performing his obligations under this Employment Agreement, including but not limited to all
reasonable business travel and entertainment expenses incurred while acting at the request of or in
the service of the Employer and reasonable expenses for attendance at annual and other periodic
meetings of trade associations. Except for club dues under section 2.2(b), to be reimbursable each
expense must be of a nature qualifying it as a proper deduction on the Employer’s income tax
returns as a business expense rather than deductible compensation to the Executive. The records
and other documentary evidence submitted by the Executive to the Employer with each request for
reimbursement shall be in the form required by applicable statutes and regulations issued by
appropriate taxing authorities for the substantiation of expenditures as deductible business
expenses of the Employer rather than deductible compensation to the Executive.

     2.3 Vacation. The Executive shall be entitled to paid annual vacation and sick
leave in accordance with the policies established from time to time by the Employer. The Executive
shall not be entitled to any additional compensation for failure to use allotted vacation or sick
leave, nor shall the Executive be allowed to carry over unused vacation allowance from one calendar
year to the next. The Executive shall be entitled to accumulate unused sick leave from one year to
the next for use solely in the case of actual illness.

     2.4 Taxes. All compensation of the Executive shall be subject to withholding and
other employment taxes imposed by federal, state, and local law.

     2.5 Indemnification and Insurance. (a) Indemnification. The Employer shall
indemnify the Executive or cause the Executive to be indemnified with respect to his activities as
a director, officer, employee, or agent of the Employer or as a person who is serving or has served
at the request of the Employer (a “representative”) as a director, officer, employee,
agent, or trustee of an affiliated corporation, joint venture trust or other enterprise, domestic
or foreign, in which the Employer has a direct or indirect ownership interest against expenses
(including without limitation attorneys’ fees, judgments, fines, and amounts paid in settlement)
actually and reasonably incurred by him (“Expenses”) in connection with any claim against
the Executive that is the subject of any threatened, pending, or completed action, suit, or other
type of proceeding, whether civil, criminal, administrative,
investigative, or otherwise and whether formal or informal (a “Proceeding”), to which the
Executive was, is, or is threatened to be made a party by reason of the Executive being or having
been such a director, officer, employee, agent, or representative.

     The indemnification provided herein shall not be exclusive of any other indemnification or
right to which the Executive may be entitled and shall continue after the Executive has ceased to
occupy a position as an officer, director, employee, agent or representative with respect to
Proceedings relating to or arising out of the Executive’s acts or omissions during his service in
such position. The indemnification provided to the Executive under this Employment Agreement for
the Executive’s service as a representative shall be payable if and only if and only to the extent
that reimbursement to the Executive by the affiliated entity with which the Executive has served as
a representative, whether pursuant to agreement, applicable law, articles of incorporation or
association, by-laws or regulations of the entity, or insurance maintained by such affiliated
entity, is insufficient to compensate the Executive for Expenses actually incurred and otherwise
payable by the Employer under this Employment Agreement. Any payments for such Expenses in fact
made to or on behalf of the Executive directly or indirectly by the affiliated entity with which
the Executive served as a representative shall reduce the obligation of the Employer hereunder.

     (b) Exclusions. Anything herein to the contrary notwithstanding, however, nothing in this
Section 2.5 requires indemnification, reimbursement, or payment by the Employer, and the Executive
shall not be entitled to demand indemnification, reimbursement, or payment –

 

 

     (1) if and to the extent indemnification, reimbursement, or payment
constitutes a “prohibited indemnification payment” within the meaning of Federal
Deposit Insurance Corporation Rule 359.1(l)(1) [12 CFR 359.1(l)(1)], or

     (2) for any claim or any part thereof as to which the Executive shall have
been determined by a court of competent jurisdiction, from which no appeal is or can
be taken, by clear and convincing evidence, to have acted with deliberate intent to
cause injury to the Employer or with reckless disregard for the best interests of
the Employer, or

     (3) for any claim or any part thereof arising under Section 16(b) of the
Securities Exchange Act of 1934 as a result of which the Executive is required to
pay any penalty, fine, settlement, or judgment, or

     (4) for any obligation of the Executive based upon or attributable to the
Executive gaining in fact any personal gain, profit, or advantage to which he was
not entitled, or

     (5) any proceeding initiated by the Executive without the consent or
authorization of the Employer’s board of directors, but this exclusion shall not
apply with respect to any claims brought by the Executive (a) to enforce his rights
under this Employment Agreement, or (b) in any Proceeding initiated by another
person or entity whether or not such claims were brought by the Executive against a
person or entity who was otherwise a party to such proceeding.

     (c) Insurance. The Employer shall maintain or cause to be maintained fidelity and Directors
& Officers’ liability insurance covering the Executive throughout the term of this Employment
Agreement.

Article 3

Termination of Employment

     3.1 Termination by the Employer. (a) Death or Disability. The Executive’s
employment shall terminate automatically on the date of the Executive’s death. If the Executive
dies in active service to the Employer, for twelve months after the Executive’s death the Employer
shall provide the Executive’s family with and pay the premiums for continuing health care coverage
under COBRA substantially identical to that provided for the Executive before his death.

     Subject to the Employer’s obligations and the Executive’s rights under (1) Title I of the
Americans with Disabilities Act, section 504 of the Rehabilitation Act, and the Family and Medical
Leave Act, and to (2) the vacation leave, disability leave, sick leave, and any other leave
policies of the Employer, the Executive’s employment under this Employment Agreement shall
terminate automatically if the Executive becomes disabled during the term of this Employment
Agreement and the Employer determines that the Executive is unable to perform the essential
functions of his job under this Employment Agreement for 60 business days or during any 12-month
period. Upon termination because of disability under this section 3.1(a), the Executive shall be
entitled to receive any compensation the Executive has earned before the date of termination but
that remains unpaid, plus any payments to which he may be entitled under a disability income plan
maintained by the Employer. If there is a dispute between the Employer and the Executive about
whether the Executive suffers from a physical or mental disability entitling the Employer to
terminate the Executive’s employment under this section 3.1(a), the question of the Executive’s
disability shall be submitted for resolution to an impartial physician licensed to practice
medicine in North Carolina. The impartial physician’s decision shall be final and binding on the
Employer and the Executive. The impartial physician shall be selected by mutual agreement of the
Employer and the Executive. If the Employer and the Executive are unable to agree upon an
impartial physician, each of the Employer and the Executive shall select a physician. Those two
physicians shall then determine whether the Executive suffers from a physical or mental disability
rendering him unable to perform the essential functions of his job, and their decision shall be
final and binding on the Employer and the Executive. The Employer

 

 

shall pay the reasonable fees
and expenses of the physician or physicians for making the determination of disability required
under this section 3.1(a).

     (b) Termination Without Cause. With written notice to the Executive 60 days in advance, the
Employer may terminate the Executive’s employment without Cause. Upon such event, the compensation
and benefits after termination provisions of Sections 4.4 and 4.5 shall apply, in addition to any
other applicable post-termination payments or benefits provided for in this Employment Agreement.

     (c) Termination with Cause. The Employer may terminate the Executive’s employment with
Cause. Upon such event, the Executive shall not be entitled to any further compensation or other
benefits beyond his effective termination date in accordance with Section 4.1, except such benefits
which by the terms of their plan document continue after such termination or except as may be
otherwise provided for in this Employment Agreement. The term “Cause” means any of the
following –

     (1) an intentional act of fraud, embezzlement, or theft by the Executive in
the course of his employment. For purposes of
this Employment Agreement, no act or failure to act on the part of the Executive
shall be deemed to have been intentional if it was due primarily to an error in
judgment or negligence. An act or failure to act on the Executive’s part shall be
considered intentional if it is not in good faith and if it is without a reasonable
belief that the action or failure to act is in the best interests of the Employer,
or

     (2) intentional violation of any law or significant policy of the Employer
committed in connection with the Executive’s employment, which in the Employer’s
judgment has a material adverse effect on the Employer, or

     (3) the Executive’s gross negligence or gross neglect of duties in the
performance of his duties to the Employer, or

     (4) intentional wrongful damage by the Executive to the business or property
of the Employer, including without limitation the reputation of the Employer, which
in the Employer’s sole judgment causes material harm to the Employer, or

     (5) a breach by the Executive of his fiduciary duties as an officer or
director of the Employer or misconduct involving dishonesty, in either case whether
in his capacity as an officer or as a director of the Bank or Southern Community
Financial Corporation, or

     (6) a breach by the Executive of this Employment Agreement that, in the sole
judgment of the Employer, is a material breach, which breach is not corrected by the
Executive within 30 days after receiving written notice of the breach which the
Employer shall provide, or

     (7) removal of the Executive from office or permanent prohibition of the
Executive from participating in the Bank’s affairs by an order issued under section
8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or
(g)(1), or

     (8) conviction of the Executive for or plea of nolo contendere to a felony or
conviction of or plea of nolo contendere to a misdemeanor involving moral turpitude,
or the actual incarceration of the Executive.

     3.2 Termination by the Executive. The Executive may terminate his employment with
written notice to the Employer 60 days in advance, whether with or without Good Reason. If the
Executive terminates with Good Reason, the termination will take effect at the conclusion of the
60-day period unless the event or circumstance constituting Good Reason is cured by the Employer or
unless the notice of termination for Good Reason is revoked by the Executive within the 60-day
period. Upon such event, the compensation and benefits

 

 

after termination provisions of Sections
4.4 and 4.5 shall apply, in addition to any other applicable post-termination payments or benefits
provided for in this Employment Agreement. For purposes of this Employment Agreement, “Good
Reason” means any of the following events occur without the Executive’s written consent –

     (a) Reduced Base Salary: reduction of the Executive’s Base Salary,

     (b) Participation in Benefit Plans Reduced or Terminated: reduction of the Executive’s
bonus, incentive, or other compensation award opportunities
under the Employer’s benefit plans, unless a company-wide reduction of all officers’ award
opportunities occurs simultaneously, or termination of the Executive’s participation in any officer
or employee benefit plan maintained by the Employer, unless the plan is terminated because of
changes in law or loss of tax deductibility to the Employer for contributions to the plan, or
unless the plan is terminated as a matter of policy applied equally to all participants in the
plan,

     (c) Reduced Responsibilities or Status: (1) assignment to the Executive of duties that are
materially inconsistent with the Executive’s position as the Employer’s principal financial officer
or that represent a reduction of his authority, or (2) failure to appoint or reappoint the
Executive as Chief Financial Officer of Southern Community Financial Corporation and the Bank,

     (d) Failure to Obtain Assumption Agreement: failure to obtain an assumption of the
Employer’s obligations under this Employment Agreement by any successor to the Employer, regardless
of whether the entity becomes a successor to the Employer as a result of a merger, consolidation,
sale of assets, or other form of purchase, sale or reorganization,

     (e) Material Breach: a material breach of this Employment Agreement by the Employer that is
not corrected within 30 days after receiving written notice of the breach from the Executive, or

     (f) Relocation of the Executive: relocation of the Bank’s principal executive offices, or
requiring the Executive to change his principal work location, to any location that is more than 15
miles from the location of the Bank’s principal executive offices on the date of this Employment
Agreement.

     3.3 Notice. Any purported termination by the Employer or by the Executive shall be
communicated by written notice of termination to the other. The notice must state the specific
termination provision of this Employment Agreement relied upon. The notice must also state the
date on which termination shall become effective, which shall be a date not earlier than the date
of the termination notice. If termination is for Cause or with Good Reason, the notice must state
in reasonable detail the facts and circumstances forming the basis for termination of the
Executive’s employment.

Article 4

Compensation and Benefits After Termination

     4.1 Cause. If the Executive’s employment terminates for Cause, the Executive shall
receive the salary to which he is entitled through the date on which termination becomes effective
and any other benefits to which he may be entitled under the Employer’s benefit plans and policies
in effect on the date of termination.

     4.2 Termination by the Executive Other than for Good Reason. If the Executive
terminates employment other than for Good Reason, the Executive shall receive the salary to which
he is entitled through the date on which his termination becomes effective and any other benefits
to which he may be entitled under the Employer’s benefit plans and policies.

     4.3 Compensation and Benefits After Termination Because of Disability. If the
Executive’s employment terminates because of disability, the Executive shall receive the
compensation and benefits provided under section 3.1(a) of this Employment Agreement.

     4.4 Termination Without Cause and Termination for Good Reason. If the Employer
terminates the Executive’s employment without Cause or if the Executive

 

 

terminates employment for Good Reason, the Executive shall continue to receive his most recent Base
Salary level for the unexpired term of this Employment Agreement, but he shall not be entitled to
continued participation in the Employer’s or a subsidiary’s retirement plans or any stock-based
plans unless the terms of any applicable plan document allow such participation. The Employer and
the Executive acknowledge and agree that the compensation and benefits under this Section 4.4 shall
not be payable if compensation and benefits are payable or shall have been paid previously to the
Executive under Article 5 of this Employment Agreement.

     4.5 Post-Termination Insurance and Medical Coverage. If the Executive’s employment
terminates involuntarily but without Cause or voluntarily but with Good Reason, or if the
Executive’s employment terminates because of disability, the Employer shall continue or cause to be
continued at the Employer’s expense life, health, and disability insurance benefits in effect
during the two years preceding the date of the Executive’s termination. The life, health, and
disability insurance benefits shall continue until the first to occur of (a) the Executive’s return
to employment with the Employer or another employer, (b) the Executive’s attainment of age 65, (c)
the Executive’s death, or (d) the end of the term remaining under this Employment Agreement at the
time of the Executive’s termination.

     4.6 Salary Continuation Agreement. The Bank and the Executive shall use their best
efforts to finalize and enter into a Salary Continuation Agreement and Endorsement Split Dollar
Agreement. The Salary Continuation Agreement shall provide for an annual benefit payable to the
Executive in equal monthly installments for his lifetime, beginning after his termination of
service with the Bank on or after attaining age 65. Unless the Salary Continuation Agreement or
Endorsement Split Dollar Agreement explicitly provides otherwise, whether benefits are properly
payable to the Executive under the Salary Continuation Agreement or the Endorsement Split Dollar
Agreement shall be determined solely by reference to those agreements, except that the Executive
shall forfeit all benefits under the Salary Continuation Agreement and Endorsement Split Dollar
Agreement for violation of the covenant against competition in Section 7.3 of this Employment
Agreement.

Article 5

Change in Control Benefits

     5.1 Change in Control Benefits. (a) If a Change in Control occurs during the term
of this Employment Agreement, the Employer shall make or cause to be made a lump-sum payment to the
Executive in an amount in cash equal to three times the Executive’s annual compensation. For this
purpose, annual compensation means (1) the Executive’s Base Salary when the Change in Control
occurs plus (2) any bonus or incentive compensation earned for the calendar year ended immediately
before the year in which the Change in Control occurred, regardless of when the bonus or incentive
compensation earned for the preceding calendar year is paid and regardless of whether all or part
of the bonus or incentive compensation is subject to elective deferral. Annual compensation shall
be calculated without regard to any deferrals under qualified or nonqualified plans, but annual
compensation shall not include interest or other earnings credited to the Executive under qualified
or nonqualified plans. The amount payable to the Executive hereunder shall not be reduced to
account for the time value of money or discounted to present value. The payment required under
this paragraph (a) is payable no later than five business days after the Change in Control. If the
Executive is removed from office or if his employment terminates before a Change in Control occurs
but after discussions with a third party regarding a Change in Control commence, and if those
discussions ultimately conclude with a Change in Control, then for purposes of this Employment
Agreement the removal of the
Executive or termination of his employment shall be deemed to have occurred after the Change in
Control. The Executive shall be entitled to benefits under this paragraph (a) on no more than one
occasion.

     (b) Benefit Plans: In addition to insurance and medical benefits under Section 4.5 of this
Employment Agreement and any benefits to which the Executive may be entitled under the Salary
Continuation Agreement and Endorsement Split Dollar Agreement referred to in Section 4.6 of this
Employment Agreement, if a Change in Control occurs during the term of this Employment Agreement
the Employer shall (1) cause the Executive to become

 

 

fully vested in any qualified and
non-qualified plans, programs, or arrangements in which the Executive participated if the plan,
program, or arrangement does not address the effect of a change in control, and (2) contribute or
cause to be contributed to the Executive’s 401(k) plan account, if any, the matching and
profit-sharing contributions, if any, that the Executive is entitled to based upon all W-2 income
earned by the Executive for the plan year.

     5.2 Definition of Change in Control. For purposes of this Employment Agreement,
“Change in Control” means any one or more of the following events occurs –

     (a) Merger. Southern Community Financial Corporation merges into or consolidates with
another corporation, or merges another corporation into Southern Community Financial Corporation,
and as a result less than a majority of the combined voting power of the resulting corporation
immediately after the merger or consolidation is held by persons who were holders of Southern
Community Financial Corporation’s voting securities immediately before the merger or consolidation.
For purposes of this Employment Agreement, the term “person” means an individual,
corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization, or other entity,

     (b) Acquisition of Significant Share Ownership. after the date of this Employment Agreement
a report on Schedule 13D, Schedule TO, or another form or schedule (other than Schedule 13G) is
filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of
1934, if the schedule discloses that the filing person or persons acting in concert has or have
become the beneficial owner of 25% or more of the combined voting power of Southern Community
Financial Corporation’s voting securities outstanding (but this paragraph (b) shall not apply to
beneficial ownership of voting shares held by the Employer in a fiduciary capacity or beneficial
ownership of voting shares held by an employee benefit plan of the Employer),

     (c) Change in Board Composition. during any period of two consecutive years, individuals who
constitute Southern Community Financial Corporation’s board of directors at the beginning of the
two-year period cease for any reason to constitute at least a majority thereof; provided, however,
that – for purposes of this paragraph (c) – each director who is first elected by the board (or
first nominated by the board for election by stockholders) by a vote of at least two-thirds
(ƀ) of the directors who were directors at the beginning of the period shall be deemed to
have been a director at the beginning of the two-year period, or

     (d) Sale of Assets. Southern Community Financial Corporation sells to a third party all or
substantially all of Southern Community Financial Corporation’s assets. For this purpose, sale of
all or substantially all of Southern Community Financial Corporation’s assets includes but is not
limited to sale of the Bank alone.

     5.3 No Multiple Severance Payments. If the Executive receives payment under Section
5.1 he shall not be entitled to any benefits under Section 4.4 of this Employment Agreement.

     5.4 Gross-Up for Taxes. (a) Additional Payment to Account for Excise Taxes. If
the Executive receives the lump sum payment under Section 5.1 of this Employment Agreement and
acceleration of benefits under any other benefit, compensation, or incentive plan or arrangement
with the Employer (collectively, the “Total Benefits”), and if any part of the Total
Benefits is subject to the Excise Tax under section 280G and section 4999 of the Internal Revenue
Code (the “Excise Tax”), the Employer shall pay or cause to be paid to the Executive the
following additional amounts, consisting of (x) a payment equal to the Excise Tax payable by the
Executive under section 4999 on the Total Benefits (the “Excise Tax Payment”) and (y) a
payment equal to the amount necessary to provide the Excise Tax Payment net of all income, payroll,
and excise taxes. Together, the additional amounts described in clauses (x) and (y) are referred
to in this Employment Agreement as the “Gross-Up Payment Amount.” Payment of the Gross-Up
Payment Amount shall be made in addition to the amount set forth in Section 5.1.

 

 

     Calculating the Excise Tax. For purposes of determining whether any of the Total
Benefits will be subject to the Excise Tax and for purposes of determining the amount of the Excise
Tax,

	 	(1)	 	Determination of “Parachute Payments” Subject to the Excise Tax: any
other payments or benefits received or to be received by the Executive in
connection with a Change in Control or the Executive’s termination of
employment (whether under the terms of this Employment Agreement or any other
agreement or any other benefit plan or arrangement with the Employer, any
person whose actions result in a Change in Control, or any person affiliated
with the Employer or such person) shall be treated as “parachute
payments” within the meaning of section 280G(b)(2) of the Internal Revenue
Code, and all “excess parachute payments” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of the certified public accounting firm that is retained by Southern Community
Financial Corporation as of the date immediately before the Change in Control
(the “Accounting Firm”) such other payments or benefits do not
constitute (in whole or in part) parachute payments, or such excess parachute
payments represent (in whole or in part) reasonable compensation for services
actually rendered within the meaning of section 280G(b)(4) of the Internal
Revenue Code in excess of the “base amount” (as defined in section 280G(b)(3)
of the Internal Revenue Code), or are otherwise not subject to the Excise Tax,

(2) Calculation of Benefits Subject to Excise Tax: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal
to the lesser of (a) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of the Accounting Firm are
not parachute payments, or (b) the amount of excess parachute payments
within the meaning of section 280G(b)(1) (after applying clause (1), above),
and

(3) Value of Noncash Benefits and Deferred Payments: the value of any
noncash benefits or any deferred payment or benefit shall be determined by
the Accounting Firm in accordance with the principles of sections 280G(d)(3)
and (4) of the Internal Revenue Code.

     Assumed Marginal Income Tax Rate. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of the Change in Control or termination of employment, net
of the reduction in federal income taxes that can be obtained from deduction of such state and
local taxes (calculated by assuming that any reduction under section 68 of the Internal Revenue
Code in the amount of itemized deductions allowable to the Executive applies first to reduce the
amount of such state and local income taxes that would otherwise be deductible by the Executive,
and applicable federal FICA and Medicare withholding taxes).

     Return of Reduced Excise Tax Payment or Payment of Additional Excise Tax. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Change in Control occurred or when the Executive’s employment terminated, the Executive shall repay
to Southern Community Financial Corporation – when the amount of the reduction in Excise Tax is
finally determined – the portion of the Gross-Up Payment Amount attributable to the reduction (plus
that portion of the Gross-Up Payment Amount attributable to the Excise Tax, federal, state and
local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment Amount
being repaid by the Executive to the extent that the repayment results in a reduction in Excise
Tax, FICA and Medicare withholding taxes and/or a federal, state or local income tax deduction).

 

 

     If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Change in Control occurred or when the Executive’s employment terminated (due, for
example, to a payment whose existence or amount cannot be determined at the time of the Gross-Up
Payment Amount), Southern Community Financial Corporation shall make an additional payment to the
Executive for that excess (plus any interest, penalties or additions payable by the Executive for
the excess) when the amount of the excess is finally determined.

     (b) Responsibilities of the Accounting Firm and Southern Community Financial Corporation.
Determinations Shall Be Made by the Accounting Firm. Subject to the provisions of Section
5.4(a), all determinations required to be made under this Section 5.4(b) – including whether and
when a Gross-Up Payment Amount is required, the amount of the Gross-Up Payment Amount and the
assumptions to be used to arrive at the determination (collectively, the “Determination”) –
shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to
Southern Community Financial Corporation and the Executive within 15 business days after receipt of
notice from Southern Community Financial Corporation or the Executive that there has been a
Gross-Up Payment Amount, or such earlier time as is requested by Southern Community Financial
Corporation.

     Fees and Expenses of the Accounting Firm and Agreement with the Accounting Firm. All
fees and expenses of the Accounting Firm shall be borne solely by Southern Community Financial
Corporation. Southern Community Financial Corporation shall enter into any agreement requested by
the Accounting Firm in connection with the performance of its services hereunder.

     Accounting Firm’s Opinion. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect, and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.

     Accounting Firm’s Determination Is Binding; Underpayment and Overpayment. The
Determination by the Accounting Firm shall be binding on Southern Community Financial Corporation
and the Executive. Because of the uncertainty in determining whether any of the Total Benefits
will be subject to the Excise Tax at the time of the Determination, it is possible that a Gross-Up
Payment Amount that should have been made will not have been made by Southern Community Financial
Corporation (“Underpayment”), or that a Gross-Up Payment Amount will be made that should
not have been made by Southern Community Financial Corporation (“Overpayment”). If, after
a Determination by the Accounting Firm, the Executive is required to make a payment of additional
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred.
The Underpayment (together with interest at the rate provided in section 1274(d)(2)(B) of the
Internal Revenue Code) shall be paid promptly by Southern Community Financial Corporation to or for
the benefit of the Executive. If the Gross-Up Payment Amount exceeds the amount necessary to
reimburse the Executive for his Excise Tax according to Section 5.4(a), the Accounting Firm shall
determine the amount of the Overpayment that has been made. The Overpayment (together with
interest at the rate provided in section 1274(d)(2)(B) of the Internal Revenue Code) shall be paid
promptly by the Executive to or for the benefit of Southern Community Financial Corporation.
Provided that his expenses are reimbursed by Southern Community Financial Corporation, the
Executive shall cooperate with any reasonable requests by Southern Community Financial Corporation
in any contests or disputes with the Internal Revenue Service relating to the Excise Tax.

     Accounting Firm Conflict of Interest. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Employment Agreement shall be
deemed to refer to the accounting firm appointed by the Executive under this paragraph).

 

 

Article 6

Confidentiality and Creative Work

     6.1 Non-disclosure. The Executive covenants and agrees that he will not reveal to
any person, firm, or corporation any confidential information of any nature concerning the Employer
or its business, or anything connected therewith. As used in this Article 6, the term
“confidential information” means all of the Employer’s and its affiliates’ confidential and
proprietary information and trade secrets in existence on the date hereof or existing at any time
during the term of this Employment Agreement, including but not limited to –

     (a) the whole or any portion or phase of any business plans, financial information,
purchasing data, supplier data, accounting data, or other financial information,

     (b) the whole or any portion or phase of any research and development information,
design procedures, algorithms or processes, or other technical information,

     (c) the whole or any portion or phase of any marketing or sales information, sales
records, customer lists, prices, sales projections, or other sales information, and

     (d) trade secrets, as defined from time to time by the laws of the State of North
Carolina.

Notwithstanding the foregoing, confidential information excludes information that – as of the date
hereof or at any time after the date hereof – is published or disseminated without obligation of
confidence or that becomes a part of the public domain (1) by or through action of the Employer, or
(2) otherwise than by or at the direction of the Executive. This Section 6.1 does not prohibit
disclosure required by an order of a court having jurisdiction or a subpoena from an appropriate
governmental agency or disclosure made by the Executive in the ordinary course of business and
within the scope of his authority.

     6.2  Return of Materials. The Executive agrees to deliver or return to the Employer
upon termination, upon expiration of this Employment Agreement, or as soon thereafter as possible,
all written information and any other similar items furnished by the Employer or prepared by the
Executive in connection with his services hereunder. The Executive will retain no copies thereof
after termination of this Employment Agreement or termination of the Executive’s employment.

     6.3 Creative Work. The Executive agrees that all creative work and work product,
including but not limited to all technology, business management tools, processes, software,
patents, trademarks, and copyrights developed by the Executive during the term of this Employment
Agreement and in the course and scope of his duties hereunder, regardless of when or where such
work or work product was produced, constitutes work made for hire, all rights of which are owned by
the Employer. The Executive hereby assigns to the Employer all rights, title, and interest,
whether by way of copyrights, trade secret, trademark, patent, or otherwise, in all such work or
work product, regardless of whether the same is subject to protection by patent, trademark, or
copyright laws.

     6.4 Injunctive Relief. The Executive acknowledges that it is impossible to measure
in money the damages that will be suffered by the Employer if the Executive fails to observe the
obligations imposed on him by this Article 6. Accordingly, if the Bank institutes an action to
enforce the provisions hereof, the Executive hereby waives the claim or defense that an adequate
remedy at law is available to the Employer and the Executive agrees not to urge in any such action
the claim or defense that an adequate remedy at law exists.

     6.5 Affiliates’ Confidential Information is Covered; Confidentiality Obligation Survives
Termination. For purposes of this Employment Agreement, the term “affiliate” includes
Southern Community Financial Corporation, the Bank, and any entity that directly or indirectly
through one or more intermediaries controls, is controlled by, or is under common control with
Southern Community

 

 

Financial Corporation or the Bank. The rights and obligations set forth in this
Article 6 shall survive termination of this Employment Agreement.

 

 

Article 7

Competition After Employment Termination

     7.1 Covenant Not to Solicit Employees. The Executive agrees not to solicit the
services of any officer or employee of the Employer for one year after the Executive’s employment
termination.

     7.2 Covenant Not to Compete. (a) The Executive covenants and agrees that he will
not, without advance written consent of the Employer, compete directly or indirectly with the
Employer for two years after termination of his employment, plus any period during which the
Executive is in violation of this covenant not to compete and any period during which the Employer
seeks by litigation to enforce this covenant not to compete. For purposes of this section –

	 	(1)	 	the term “compete” means

     (a) providing financial products or services on behalf of any financial
institution for any person residing in the territory,

     (b) assisting (other than through the performance of ministerial or
clerical duties) any financial institution in providing financial products
or services to any person residing in the territory, or

     (c) inducing or attempting to induce any person who was a customer of
the Employer at the date of the Executive’s termination of employment to
seek financial products or services from another financial institution.

	 	(2)	 	the words “directly or indirectly” means –

     (a) acting as a consultant, officer, director, independent contractor,
or employee of any financial institution in competition with the Employer in
the territory, or

     (b) communicating to such financial institution the names or addresses
or any financial information concerning any person who was a customer of the
Employer at the Executive’s termination of employment.

(3) the term “customer” means any person to whom the Employer is providing financial
products or services on the date of the Executive’s termination of employment.

(4) the term “financial institution” means any bank, savings association, or bank or
savings association holding company, or any other institution, the business of which
is engaging in activities that are financial in nature or incidental to such
financial activities as described in section 4(k) of the Bank Holding Company Act of
1956, other than the Employer or one of its affiliated corporations.

(5) “financial product or service” means any product or service that a financial
institution or a financial holding company could offer by engaging in any activity
that is financial in nature or incidental to such a financial activity under section
4(k) of the Bank Holding Company Act of 1956 and that is offered
by the Employer or an affiliate on the date of the Executive’s employment
termination, including but not limited to banking activities and activities that are
closely related and a proper incident to banking.

(6) the term “person” means any individual or individuals, corporation, partnership,
fiduciary or association.

(7) the term “territory” means the following divisible list of territories: all of
Forsyth, Guilford, Iredell, Rockingham,

 

 

Stokes, Surry, and Yadkin Counties in North
Carolina and the area within a 15-mile radius of any full-service banking office of
the Bank at the date of the Executive’s termination of employment.

     (b) If any provision of this section or any word, phrase, clause, sentence or other portion
thereof (including, without limitation, the geographical and temporal restrictions contained
therein) is held to be unenforceable or invalid for any reason, the unenforceable or invalid
provision or portion shall be modified or deleted so that the provisions hereof, as modified, are
legal and enforceable to the fullest extent permitted under applicable law.

     7.3 Remedies. Because of the unique character of the services to be rendered by the
Executive hereunder, the Executive understands that the Employer would not have an adequate remedy
at law for the material breach or threatened breach by the Executive of any one or more of the
Executive’s covenants set forth in this Article 7. Accordingly, the Executive agrees that the
Employer’s remedies for a material breach or threatened breach of this Article 7 include but are
not limited to (a) forfeiture of any money representing accrued salary, contingent payments, or
other fringe benefits due and payable to the Executive, (b) forfeiture of any severance benefits
under Sections 4.4 and 4.5 of this Employment Agreement, (c) forfeiture of benefits under the
Salary Continuation Agreement and Endorsement Split Dollar Agreement referred to in Section 4.6 of
this Agreement, (d) forfeiture of any stock options granted to the Executive at commencement of his
employment under the June 1, 2005 Employment Agreement that remain unexercised, and (e) a suit in
equity by the Employer to enjoin the Executive from the breach or threatened breach of such
covenants. The Executive hereby waives the claim or defense that an adequate remedy at law is
available to the Employer and the Executive agrees not to urge in any such action the claim or
defense that an adequate remedy at law exists. Nothing herein shall be construed to prohibit the
Employer from pursuing any other remedies for the breach or threatened breach.

     7.4 Article 7 Survives Termination But Is Void After a Change in Control. The rights
and obligations set forth in this Article 7 shall survive termination of this Employment Agreement.
However, Article 7 shall become null and void effective immediately upon a Change in Control.

Article 8

Miscellaneous

     8.1 Successors and Assigns. (a) This Employment Agreement Is Binding on The
Employer’s Successors. This Employment Agreement shall be binding upon the Employer and any
successor to the Employer, including any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Employer by purchase, merger, consolidation,
reorganization, or otherwise. But this Employment Agreement and the Employer’s obligations under
this Employment Agreement are not otherwise assignable, transferable, or delegable by the Employer.
By agreement in form and substance satisfactory to the Executive, the Employer shall require any
successor to all or
substantially all of the business or assets of the Employer to expressly assume and agree to
perform this Employment Agreement in the same manner and to the same extent the Employer would be
required to perform if no such succession had occurred.

     (b) This Employment Agreement Is Enforceable by the Executive and His Heirs. This Employment
Agreement will inure to the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, and legatees.

     (c) This Employment Agreement Is Personal in Nature and Is Not Assignable. This Employment
Agreement is personal in nature. Without written consent of the other parties, no party shall
assign, transfer, or delegate this Employment Agreement or any rights or obligations under this
Employment Agreement except as expressly provided herein. Without limiting the generality or
effect of the foregoing, the Executive’s right to receive payments hereunder is not assignable or
transferable, whether by pledge, creation of a security interest, or otherwise, except for a
transfer by the Executive’s will or by the laws of descent and distribution. If the Executive
attempts an assignment or transfer that is contrary to this Section 8.1, the

 

 

Employer shall have no
liability to pay any amount to the assignee or transferee.

     8.2 Governing Law, Jurisdiction, and Forum. This Employment Agreement shall be
construed under and governed by the internal laws of the State of North Carolina, without giving
effect to any conflict of laws provision or rule (whether of the State of North Carolina or any
other jurisdiction) that would cause the application of the laws of any jurisdiction other than the
State of North Carolina. By entering into this Employment Agreement, the Executive acknowledges
that he is subject to the jurisdiction of both the federal and state courts in the State of North
Carolina. Any actions or proceedings instituted under this Employment Agreement shall be brought
and tried solely in courts located in Forsyth County, North Carolina or in the federal court having
jurisdiction in Winston-Salem, North Carolina. The Executive expressly waives his rights to have
any such actions or proceedings brought or tried elsewhere.

     8.3 Entire Agreement. This Employment Agreement sets forth the entire agreement of
the parties concerning the employment of the Executive. Any oral or written statements,
representations, agreements, or understandings made or entered into prior to or contemporaneously
with the execution of this Employment Agreement are hereby rescinded, revoked, and rendered null
and void by the parties. Except as may be otherwise provided in this Employment Agreement, this
Employment Agreement supersedes in its entirety the June 1, 2005 Employment Agreement between the
Executive and the Bank, and from and after the date of this Employment Agreement the June 1, 2005
Employment Agreement shall be of no further force or effect.

     8.4 Notices. All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed,
certified or registered mail, return receipt requested, with postage prepaid. Unless otherwise
changed by notice, notice shall be properly addressed to the Executive if addressed to the address
of the Executive on the books and records of the Employer at the time of the delivery of notice,
and properly addressed to the Employer if addressed to the Board of Directors, Southern Community
Financial Corporation, 4605 Country Club Road, Winston-Salem, North Carolina 27104.

     8.5 Severability. In the case of conflict between any provision of this Employment
Agreement and any statute, regulation, or judicial precedent, the latter shall prevail, but the
affected provisions of this Employment Agreement
shall be curtailed and limited solely to the extent necessary to bring them within the requirements
of law. If any provision of this Employment Agreement is held by a court of competent jurisdiction
to be indefinite, invalid, void or voidable, or otherwise unenforceable, the remainder of this
Employment Agreement shall continue in full force and effect unless that would clearly be contrary
to the intentions of the parties or would result in an injustice.

     8.6 Captions and Counterparts. The captions in this Employment Agreement are solely
for convenience. The captions in no way define, limit, or describe the scope or intent of this
Employment Agreement. This Employment Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together shall constitute one and the same
instrument.

     8.7 No Duty to Mitigate. The Employer hereby acknowledges that it will be difficult
and could be impossible (a) for the Executive to find reasonably comparable employment after his
employment terminates, and (b) to measure the amount of damages the Executive may suffer as a
result of termination. Additionally, the Employer acknowledges that its general severance pay
plans do not provide for mitigation, offset, or reduction of any severance payment received
thereunder. Accordingly, the Employer further acknowledges that the payment of severance benefits
under this Employment Agreement is reasonable and shall be liquidated damages. The Executive shall
not be required to mitigate the amount of any payment provided for in this Employment Agreement by
seeking other employment. Moreover, the amount of any payment provided for in this Employment
Agreement shall not be reduced by any compensation earned or benefits provided as the result of
employment of the Executive or as a result of the Executive being self-employed after termination
of his employment.

 

 

     8.8 Amendment and Waiver. This Employment Agreement may not be amended, released,
discharged, abandoned, changed, or modified in any manner, except by an instrument in writing
signed by each of the parties hereto. The failure of any party hereto to enforce at any time any
of the provisions of this Employment Agreement shall not be construed to be a waiver of any such
provision, nor affect the validity of this Employment Agreement or any part thereof or the right of
any party thereafter to enforce each and every such provision. No waiver or any breach of this
Employment Agreement shall be held to be a waiver of any other or subsequent breach.

     8.9 Payment of Legal Fees. The Employer is aware that after a Change in Control
management could cause or attempt to cause the Employer to refuse to comply with its obligations
under this Employment Agreement, or could institute or cause or attempt to cause the Employer to
institute litigation seeking to have this Employment Agreement declared unenforceable, or could
take or attempt to take other action to deny Executive the benefits intended under this Employment
Agreement. In these circumstances, the purpose of this Employment Agreement would be frustrated.
It is the Employer’s intention that the Executive not be required to incur the expenses associated
with the enforcement of his rights under this Employment Agreement, whether by litigation or other
legal action, because the cost and expense thereof would substantially detract from the benefits
intended to be granted to the Executive hereunder. It is the Employer’s intention that the
Executive not be forced to negotiate settlement of his rights under this Employment Agreement under
threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the
Executive that (a) the Employer has failed to comply with any of its obligations under this
Employment Agreement, or (b) the Employer or any other person has taken any action to declare this
Employment Agreement void or unenforceable, or instituted any litigation or other legal action
designed to deny, diminish, or to recover from the Executive the
benefits intended to be provided to the Executive hereunder, the Employer irrevocably authorizes
the Executive from time to time to retain counsel of his choice, at the Employer’s expense as
provided in this Section 8.9, to represent the Executive in connection with the initiation or
defense of any litigation or other legal action, whether by or against the Employer or any
director, officer, stockholder, or other person affiliated with the Employer, in any jurisdiction.
Notwithstanding any existing or previous attorney-client relationship between the Employer and any
counsel chosen by the Executive under this Section 8.9, the Employer irrevocably consents to the
Executive entering into an attorney-client relationship with that counsel, and the Employer and the
Executive agree that a confidential relationship shall exist between the Executive and that
counsel. The fees and expenses of counsel selected from time to time by the Executive as provided
in this section shall be paid or reimbursed to the Executive by the Employer on a regular, periodic
basis upon presentation by the Executive of a statement or statements prepared by such counsel in
accordance with such counsel’s customary practices, up to a maximum aggregate amount of $250,000,
whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate
proceedings. The Employer’s obligation to pay the Executive’s legal fees provided by this Section
8.9 operates separately from and in addition to any legal fee reimbursement obligation the Employer
may have with the Executive under any separate severance or other agreement. Anything in this
Section 8.9 to the contrary notwithstanding however, the Employer shall not be required to pay or
reimburse Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12
CFR 359.3].

     8.10 Consultation with Counsel and Interpretation of this Employment Agreement. The
Executive acknowledges and agrees that he has had the assistance of counsel of his choosing in the
negotiation of this Employment Agreement, or he has chosen not to have the assistance of his own
counsel. Both the Employer and the Executive have participated in the negotiation and drafting of
this Employment Agreement, and they hereby agree that there shall not be strict interpretation
against either party in connection with any review of this Employment Agreement in which
interpretation thereof is an issue.

     8.11 Compliance with Internal Revenue Code Section 409A. The Employer and the
Executive intend that their exercise of authority or discretion under this Employment Agreement
shall comply with section 409A of the Internal Revenue Code of 1986. If when the Executive’s
employment terminates the Executive is

 

 

a specified employee, as defined in section 409A of the
Internal Revenue Code of 1986, and if any payments under this Employment Agreement, including
Articles 4 or 5, will result in additional tax or interest to the Executive because of section
409A, then despite any provision of this Employment Agreement to the contrary the Executive will
not be entitled to the payments until the earliest of (a) the date that is at least six months
after termination of the Executive’s employment for reasons other than the Executive’s death, (b)
the date of the Executive’s death, or (c) any earlier date that does not result in additional tax
or interest to the Executive under section 409A. As promptly as possible after the end of the
period during which payments are delayed under this provision, the entire amount of the delayed
payments shall be paid to the Executive in a single lump sum. If any provision of this Employment
Agreement does not satisfy the requirements of section 409A, such provision shall nevertheless be
applied in a manner consistent with those requirements. If any provision of this Employment
Agreement would subject the Executive to additional tax or interest under section 409A, the
Employer shall reform the provision. However, the Employer shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting the Executive to
additional tax or interest, and the Employer shall not be required to incur any additional
compensation expense as a result of the reformed provision. References in this Employment
Agreement to section 409A of the Internal Revenue Code of 1986 include rules, regulations, and
guidance of general application issued by the Department of the Treasury under Internal Revenue
Code section 409A.

[The remainder of this page is left blank intentionally]

 

 

     In Witness Whereof, the parties have executed this Employment Agreement as of the
date first written above.

	 	 	 	 	 	 	 
	Executive	 	Southern Community Bank and Trust	 	 
	 
	 	 	 	 	 	 
	/s/ David W. Hinshaw

	 	By:
	 	/s/ F. Scott Bauer	 	 
	 

David W. Hinshaw

	 	 	 	 

F. Scott Bauer
	 	 
	 

	 	Its:
	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Southern Community Financial Corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ F. Scott Bauer	 	 
	 

	 	 	 	 

F. Scott Bauer
	 	 
	 

	 	Its:
	 	Chief Executive OfficerEX-10.1

 

Exhibit 10.1

MLA No. RX0383

MASTER LOAN AGREEMENT

THIS MASTER LOAN AGREEMENT (this “Agreement”), dated as of April 18, 2006, is between COBANK, ACB
(“CoBank”) and CT COMMUNICATIONS, INC. (“Borrower”).

WHEREAS, from time to time CoBank may make loans to Borrower, and in order to reduce the amount of
paperwork associated therewith, CoBank and Borrower would like to enter into a master loan
agreement;

NOW, THEREFORE, in consideration of the foregoing, intending to be legally bound hereby, and in
consideration of CoBank making one or more loans to Borrower, CoBank and Borrower agree as follows:

Section 1. Supplements. In the event Borrower desires to borrow from CoBank and CoBank is willing
to lend to Borrower, or in the event CoBank and Borrower desires to consolidate any existing loans
hereunder, the parties will enter into a supplement to this Agreement (each supplement, as it may
be amended, modified, supplemented, extended or restated from time to time, a “Supplement” and,
collectively, the “Supplements”). Each Supplement will set forth CoBank’s commitment to make a loan
or loans (each, a “Loan” and, collectively, the “Loans”) to Borrower, the amount of the Loan(s),
the purpose of the Loan(s), the interest rate or rate options applicable to the Loan(s), the
repayment terms of the Loan(s), and any other teens and conditions applicable to the Loan(s). Each
Loan will be governed by the terms and conditions contained in this Agreement and in the Note and
the Supplement relating to that Loan.

Section 2. Availability. Advances under the Loans will be made available on any day on which CoBank
and the Federal Reserve Banks are open for business (a “Business Day”) upon the telephonic or
written request of an authorized employee of Borrower. Requests for advances under the Loans must
be received no later than 1:00 p.m. Eastern time on the date the advance is desired or at such
earlier date and time as may be specified in the relevant Supplement. Advances under the Loans will
be made available by wire transfer of immediately available funds. Wire transfers will be made to
such account or accounts as may be designated in writing by Borrower. In taking actions upon
telephonic requests, CoBank shall be entitled to rely on (and shall incur no liability to Borrower
in acting upon) any request made by a person identifying himself or herself as one of the persons
designated in writing by Borrower to request advances under a Delegation and Wire and Electronic
Transfer Authorization form with CoBank, so long as any funds advanced are wired to an account
previously designated by Borrower.

Section 3. Notes and Payments. Borrower’s obligation to repay the loans made under each Supplement
shall be evidenced by a promissory note in form and content acceptable to

 

 

Master Loan Agreement/CT Communications, Inc,

MLA No. RX 0383

CoBank (such notes, as they may be amended, modified, supplemented, extended, restated or replaced
from time to time, collectively, the “Notes”, and each a “Note”). Borrower is to make each payment
which it is required to make under the terms of this Agreement, each Supplement, each Note, any
Interest Rate Agreement (as hereinafter defined in this Section 3) provided by CoBank and all
security and other instruments and documents relating hereto and thereto (this Agreement, the
Supplements, the Notes, any Interest Rate Agreement provided by CoBank, and all such instruments
and documents, including, without limitation, all security and guarantee documents described in
Section 5 of this Agreement, as they may be amended, modified, supplemented, extended or restated
from time to time, collectively, at any time, the “Loan Documents”) by wire transfer of immediately
available funds, by check, or by automated clearing house (ACH), Wire transfers shall be made to
ABA No. 307088754 for advice to and credit of CoBank (or to such other account as CoBank may direct
by notice). Borrower shall give CoBank telephonic notice no later than 12:00 noon Eastern time of
its intent to pay by wire. Funds received by wire before 3:00 p.m. Eastern time shall be credited
on the day received and funds received by wire after 3:00 p.m. Eastern time shall be credited on
the next Business Day. Cheeks shall be mailed to CoBank, at Department 167, Denver, Colorado
80291-0167 (or to such other place as CoBank may direct by notice). Credit for payment by check
will not be given until the later of: (i) the day on which CoBank receives immediately available
funds; or (ii) the next Business Day after receipt of the check. If any date on which a payment is
due under any Loan Document is not a Business Day, then such payment shall be made on the next
Business Day and such extension of time shall be included in the calculation of interest due.
“Interest Rate Agreement” means any interest rate swap, hedge, cap, collar or similar agreement or
arrangement, in form and content acceptable to CoBank, designed to protect Borrower against
fluctuations in interest rates.

Section 4. Mandatory Repayments; Application.

(A) Insurance Proceeds. If an Event of Default has occurred and is continuing, Borrower shall repay
the Loans in an amount equal to the extent that insurance proceeds in excess of $5,000,000 from any
Asset Disposition are not reinvested in equipment or other assets that are used or useful in the
business of Borrower or its Subsidiaries within 180 days of receipt by Borrower or its Subsidiaries
of such proceeds.

“Asset Disposition” shall mean the disposition, whether by sale, lease, transfer, loss, damage,
destruction, condemnation or otherwise, by Borrower or any Subsidiary, of any of the following: (i)
any of the capital stock or the ownership interest of any Subsidiary (other than to Borrower or
another Subsidiary) or (ii) any or all of Borrower’s or any Subsidiary’s assets, other than (a)
bona fide sales of inventory to customers for fair value in the ordinary course of business, (b)
dispositions of obsolete equipment not used or useful in the business of Borrower or its
Subsidiaries, or (c) sales of Cash Equivalents and other investments permitted under Subsection
9(F)(iii) and set forth on Schedule 9(F) hereto for fair value; but shall not
include dispositions of assets for which all of the following conditions are met: (i) the
aggregate market value of assets sold in any one transaction or series of related transactions
(other than ordinary course dispositions of inventory or obsolete equipment) for any calendar year
does not exceed $1,000,000 for Borrower and its Subsidiaries; (ii) the consideration received is at
least equal to

 

 

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the fair market value of such assets; (iii) 75% or more of the consideration received is cash; (iv)
after giving effect to the sale or other disposition of such assets, Borrower, on a consolidated
basis with its Subsidiaries, is in compliance on a pro forma basis with the covenants set forth in
Subsection 8(I) recomputed for the most recently ended month for which information is available;
and (v) no Default or Event of Default then exists or shall result from such sale or other
disposition.

“Net Proceeds” shall mean the cash proceeds received by Borrower or any Subsidiary from any Asset
Disposition, (including insurance proceeds, awards of condemnation, and payments under notes or
other debt securities received in connection with any Asset Disposition), net of (i) the costs of
such sale, lease, or transfer, (including taxes attributable to such sale, lease, transfer,
issuance or other disposition) and (ii) amounts applied to repayment of Indebtedness (other than
Indebtedness outstanding hereunder) secured by a lien on the asset or property disposed.

“Subsidiary" or “Subsidiaries” shall mean, with respect to any entity, any corporation,
partnership, association, limited liability company, joint venture or other business entity of
which more than 50% of the total voting power of shares of stock (or equivalent ownership or
controlling interests) entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that entity or one or more Subsidiaries of that entity or any
combination thereof.

(B) Repayments from Asset Dispositions. To the extent (i) Net Proceeds (other than insurance
proceeds) in excess of $5,000,000 are not reinvested in equipment or other assets that are used or
useful in the business of Borrower or its Subsidiaries, as applicable, or (ii) Borrower or its
Subsidiaries, as applicable, have not entered into a binding agreement to purchase equipment or
other assets that are used or useful in their business, in each case within 180 days of receipt by
Borrower or any Subsidiary of such Net Proceeds (other than insurance proceeds) from any Asset
Disposition (whether or not such Asset Disposition is permitted under Subsection 9(E) hereof
without the consent of CoBank), Borrower shall repay the Loans in an amount equal to such Net
Proceeds, except Net Proceeds from the sale of (i) Borrower’s or any Subsidiary’s Broadband
Radio Service spectrum licenses and Educational Broadband Service spectrum lease rights to Fixed
Wireless Holdings, LLC for approximately $16,000,000 (the “Spectrum Sale”), or (ii) Borrower’s or
any Subsidiary’s sale, liquidation, or other distribution of interests in PMN, Inc., Palmetto
MobileNet, L.P. or any related RSA partnership (the “PMN Sale”). All such repayments shall be
applied in accordance with Subsection 4(C) hereof.

(C) Application of Repayments; Related Interest and Surcharge Payments. All repayments made
pursuant to this Section 4 will be applied first pro rata to all term Loans, based upon the
principal amount then outstanding, and then pro rata to all revolving Loans, based upon the
principal amount of the Commitments (as defined in the Supplements evidencing the revolving Loans).
All term Loan repayments made pursuant to this Section 4 will be applied to principal installments
in the inverse order of their maturity and to such portions or Portions (as defined in the
Supplements evidencing the term Loans) of the term Loans as Borrower specifies in writing or, in
the absence of such direction, as CoBank specifies, and all repayments on revolving Loans will be
applied to such Portions (as defined in the

 

 

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Supplements evidencing the revolving Loans) of the revolving Loans as Borrower specifies in writing
or, in the absence of such direction, as CoBank specifies. All reductions provided for in this
Section 4 will be in addition to any voluntary reductions and all scheduled reductions and,
accordingly, may result in the termination of the Commitments prior to the Maturity Dates (as such
terms are defined in the Supplements evidencing the revolving Loans). All repayments required under
this Section 4 are to be accompanied by payment of all applicable Surcharges (as defined in
Subsection 4(D) below) and accrued interest on the amount repaid.

(D) Prepayment and Surcharge. Borrower may (i) on one Business Day prior written notice, prepay in
full or in part any Portion of the Loan accruing interest at a variable rate of interest and (ii)
on three Business Days prior written notice, prepay in full or in part any Portion of the Loan
accruing interest at a fixed rate option. Notwithstanding the foregoing, in connection with
Borrower repaying or prepaying any amount accruing interest pursuant to a fixed rate option
(whether such payment is made voluntarily, as a result of an acceleration, or otherwise), Borrower
must also pay a Surcharge as defined and calculated below.

“Surcharge” means an amount equal to the present value of any funding losses incurred by CoBank to
have been incurred as a result of such prepayment for the period such amount was scheduled to have
been outstanding at such fixed rate (which, if less than $0, shall be deemed to be $0), For
purposes of calculating the Surcharge provided for in this Subsection 4(D), early conversion of a
Portion of the Loan accruing interest pursuant to a fixed rate option so that it accrues interest
at a different rate pursuant to the related Supplement shall be deemed a prepayment in full of that
Portion of the Loan. Such Surcharge, including the amount of any funding losses incurred by CoBank,
shall be reasonably determined and reasonably calculated in accordance with methodology established
by CoBank,

Section 5. Security. Borrower’s obligations under the Loan Documents will be secured by a statutory
first lien on all equity which Borrower may now own or hereafter acquire or be allocated in CoBank,
and by such additional collateral as provided in the Supplements.

Section 6. Conditions Precedent.

(A) Conditions to Initial Supplement. CoBank’s obligation to extend credit under the initial
Supplement is subject to the condition precedent that CoBank receives, in form and substance
satisfactory to CoBank, each of the following:

	 	1)	 	This Agreement, Etc. A duly executed original of this Agreement and all instruments and
documents contemplated hereby.
	 
	 	2)	 	Delegation Form. A duly completed and executed original of a CoBank Delegation and Wire
and Electronic Transfer Authorization form.

(B) Conditions to Each Supplement. CoBank’s obligations, if any, to extend credit under each
Supplement, including the initial Supplement, is subject to the

 

 

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conditions precedent that CoBank receive, in form and content satisfactory to CoBank, each of the
following:

(1) Supplement. A duly executed original of such Supplement and all other instruments and documents
contemplated by such Supplement.

(2) Evidence of Authority. Such certified board resolutions, evidence of incumbency, and other
evidence that CoBank may reasonably require that such Supplement and all other instruments and
documents executed in connection therewith, and, in the case of the initial Supplement, this
Agreement and all instruments and documents executed in connection herewith, have been duly
authorized and executed.

(3) Consents and Approvals. Such evidence as CoBank may reasonably require that all required
regulatory and other consents and approvals have been obtained and are in full force and effect.

(4) Fees and Other Charges. All fees and other charges provided for herein or in such Supplement.

(5) Insurance. Such evidence as CoBank may require that Borrower and its Subsidiaries are in
compliance with Subsection 8(D) of this Agreement.

(6) Opinions of Counsel. Opinions of counsel (who shall be acceptable to CoBank) to Borrower and
any guarantor relating to such Supplement acceptable to CoBank.

(C) Conditions to Each Advance. CoBank’s obligation under each Supplement to make any Loan or
advance to Borrower thereunder is subject to the further conditions set forth in such Supplement
and the condition that no Event of Default (as defined in Section 10 of this Agreement) or event
which with the giving of notice and/or the passage of time would become an Event of Default
hereunder (a “Potential Default”) shall have occurred and be continuing.

Section 7. Representations and Warranties. The execution by Borrower of each Supplement and each
request for an advance thereunder constitutes a representation and warranty to CoBank that:

(A) Application. Each representation and warranty and all other information set forth in any
application or other document submitted in connection with, or to induce CoBank to enter into, such
Supplement is correct in all material respects as of the date of the Supplement or request for
advance.

(B) Disclosure. No representation or warranty of Borrower contained in this Agreement, the
financial statements referred to in Subsection 7(F) below, any other document, certificate or
written statement furnished to CoBank by or on behalf of Borrower for use in connection with the
Loan Documents contains any untrue statement of a material fact or omits

 

 

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to state a material fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made.

(C) Organization; Powers; Etc. Borrower and each of its Subsidiaries (i) is duly incorporated,
organized, or formed (as applicable), validly existing, and in good standing under the laws of its
state of incorporation, organization or formation (as applicable); (ii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of its properties or
the nature of its business requires such qualification; (iii) has all requisite legal and
corporate, partnership or limited liability company power (as applicable) to own and operate its
assets and to carry on its business and to enter into and perform its obligations under the Loan
Documents to which it is a party; and (iv) has duly and lawfully obtained and maintained all
licenses, certificates, permits, authorizations, approvals, and the like which are necessary in the
conduct of its business, or which may be otherwise required by law, which if not obtained and
maintained, could have a Material Adverse Effect (as hereinafter defined in this Subsection 7(C))
on Borrower or its Subsidiaries, taken as a whole.

“Material Adverse Effect” when used with reference to any entity means a material adverse effect on
the direct or indirect ability of such entity to perform its obligations under the Loan Documents
to which it is a party.

(D) Due Authorization; No Violations; Etc. The execution and delivery by Borrower and each of its
Subsidiaries of, and the performance by Borrower and each of its Subsidiaries of its obligations
under, the Loan Documents to which it is a party have been duly authorized by all requisite
corporate, partnership or limited liability company action (as applicable) and do not and will not
(i) violate its articles or certificate of incorporation, articles or certificate of organization
or articles or certificate of formation (as applicable), its bylaws, partnership agreement or
operating agreement (as applicable), any provision of any law, rule or regulation, any judgment,
order or ruling of any court or Governmental Authority (as hereinafter defined in this Subsection
7(D)), any agreement or any indenture, mortgage, or other instrument to which Borrower or any
Subsidiary is a party or by which Borrower or any Subsidiary or any of their respective properties
are bound, or (ii) be in conflict with, result in a breach of, or constitute with the giving of
notice or lapse of time, or both, a default under any such agreement, indenture, mortgage, or other
instrument. All actions on the part of the shareholders, partners or members (as applicable) of
Borrower and its Subsidiaries necessary in connection with the execution and delivery by Borrower
or its Subsidiaries of, and the performance by Borrower or its Subsidiaries of their obligations
under, the Loan Documents to which it is a party have been taken and remain in full force and
effect.

“Governmental Authority” means any regulatory body (including the FCC (as defined in Subsection
7(S) below), the PUC (as defined in Subsection 7(S) below) or any other state commission),
administrative agency, court or other forum.

(E) Binding Agreement. Each of the Loan Documents to which Borrower or any Subsidiary is a party
is, or when executed and delivered will be, the legal, valid, and binding obligation of Borrower or
such Subsidiary, enforceable against Borrower or Subsidiary in accordance with its terms, subject
only to limitations on enforceability imposed by such

 

 

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(i) applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
creditors’ rights generally, and (ii) general equitable principles.

(F) Financial Statements, Budgets, Projections, Etc. All financial statements of any entity
submitted to CoBank in connection with, or to induce CoBank to enter into, this Agreement or any
Supplement fairly and fully present the financial condition of such entity in all material respects
and the results of such entity’s operations for the periods covered thereby, and are prepared in
accordance with generally accepted accounting principles (“GAAP”) consistently applied, except, in
the case of any unaudited financial statements, the omission of footnotes and, in the case of any
interim financial statements, normal year-end adjustments. As of the date of such financial
statements, there were no material liabilities of such entity, fixed or contingent, not reflected
in such financial statements or the notes thereto. Since the date of such financial statements,
there has been no material adverse change in the financial condition or operations of such entity.
All budgets, projections, feasibility studies, and other documentation submitted by Borrower to
CoBank in connection with, or to induce CoBank to enter into, any Supplement are based upon
assumptions that are reasonable and realistic, and as of the date of any Supplement or request for
advance, no fact has come to light, and no event or transaction has occurred, which would cause any
such assumption not to be reasonable or realistic.

(G) Consents and Approvals. Except as set forth on Schedule 7(G) attached hereto, no
consent, permission, authorization, order or license of any Governmental Authority or of any party
to any agreement to which Borrower or any Subsidiary is a party or by which they or any of their
respective property may be bound or affected, is necessary in connection with the project,
acquisition or other activity being financed by such Supplement, the execution, delivery,
performance or enforcement of the Loan Documents or the creation and perfection of the liens and
security interests granted thereby, except as such have been obtained and are in full force and
effect or which are required in connection with the enforcement of or exercise of remedies under
any Loan Document.

(H) Compliance. Borrower and each Subsidiary is in compliance with all of the terms of the Loan
Documents to which it is a party and no Event of Default or Potential Default exists.

(I) Compliance with Laws. Except as set forth on Schedule 7(I) attached hereto, Borrower
and its Subsidiaries are in compliance in all material respects with all laws, rules, regulations,
ordinances, codes, orders, and the like (collectively, “Laws”), the failure to comply with which
could have a Material Adverse Effect on Borrower or its Subsidiaries, taken as a whole.

(J) Environmental Compliance. Without limiting the provisions of Subsection 7(1) above, all
property owned or leased by Borrower or any Subsidiary and all operations conducted by them are in
compliance in all material respects with all Laws relating to environmental protection, the failure
to comply with which could have a Material Adverse Effect on Borrower or its Subsidiaries, taken as
a whole.

 

 

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(K) Litigation. Except as set forth on Schedule 7(K) attached hereto, there are no pending
legal, arbitration, or governmental actions or proceedings to which Borrower or its Subsidiaries is
a party or to which any of their respective properties are subject which, if adversely determined,
could have a Material Adverse Effect on Borrower or its Subsidiaries, taken as a whole, and to the
best of Borrower’s knowledge, no such actions or proceedings are threatened or contemplated.

(L) Principal Place of Business; Records. The principal place of business and chief executive
office of Borrower and the place where the records required by Subsection 8(F) of this Agreement
are kept is at the address of Borrower shown in Section 15 of this Agreement.

(M) Employee Labor Matters. Except as set forth on Schedule 7(M) attached hereto, neither
Borrower, its Subsidiaries nor any of their respective employees is subject to any collective
bargaining agreement, (ii) no petition for certification or union election is pending with respect
to the employees of any such entity and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any such entity and (iii) there are
no strikes, slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrower or its Subsidiaries after due inquiry, threatened between any such entity and its
respective employees, other than employee grievances arising in the ordinary course of business
which could not reasonably be expected to have, either individually or in the aggregate, a Material
Adverse Effect.

(N) Employee Benefit Plans. Borrower and each Subsidiary is in compliance in all material respects
with the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), and the regulations and published interpretations thereunder, the failure to comply with
which could have a Material Adverse Effect on Borrower or its Subsidiaries, taken as a whole,

(O) Taxes. Except as set forth on Schedule 7(0) attached hereto, Borrower and its
Subsidiaries have filed or caused to be filed all federal, state and local tax returns that are
required to be filed, and has paid and shall continue to pay when due all taxes as shown on such
returns, and has paid and shall continue to pay when due all other taxes, assessments and
governmental charges or levies upon it and its property, income, profits and assets which are due
and payable, except where the payment of such tax, assessment, government charge or levy is
being contested in good faith and by appropriate proceedings and adequate reserves in compliance
with GAAP have been set aside on Borrower’s or its Subsidiaries’ books therefor.

(P) Investment Company Act; Public Utility Holding Company Act. Neither Borrower nor any Subsidiary
is an “investment company” as that term is defined in, or is otherwise subject to regulation under,
the Investment Company Act of 1940, as amended. No Borrower or any Subsidiary is a “holding
company” as that term is defined in, or is otherwise subject to regulation under, the Public
Utility Holding Company Act of 1935, as amended.

(Q) Use of Proceeds. The funds to be borrowed under this Agreement and each Supplement will be used
only as contemplated thereby. No part of such funds will be used

 

 

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to purchase any “margin securities” or otherwise in violation of the regulations of the Federal
Reserve System.

(R) Subsidiaries. Borrower has no Subsidiaries other than as set forth on Schedule 7(R) to
this Agreement. Borrower or one of its Subsidiaries is the registered and beneficial owner of the
specified percentage of the shares of issued and outstanding capital stock or other equity
interests of each of the Subsidiaries as set forth on Schedule 7(R), which stock and other
equity interests are owned free and clear of all liens, warrants, options, rights to purchase,
rights of first refusal and other interests of any person other than CoBank. The stock or other
equity interests of each such Subsidiary has been duly authorized and validly issued and is fully
paid and non-assessable.

(S) Licenses; Permits; Etc. Borrower and its Subsidiaries are the valid holders of all franchises,
licenses, certificates, permits, authorizations, approvals and the like which are material to the
conduct of their business or which may be required by law, including, without limitation, all
licenses and permits of the Federal Communications Commission (the “FCC”), the North Carolina
Utilities Commission (the “PUC”) and the public utility commission of any other states in which
Borrower or any Subsidiary operates, and all such franchises, licenses, certificates, permits,
authorizations, approvals, and the like are in full force and effect.

(T) Credit Agreements, Etc. Set forth on Schedule 7(T) hereto is a complete and correct
list of all loan agreements, incentives, guarantees, Capital Leases (as defined in Subsection
8(I)(l) of this Agreement), and other credit agreements (including agreements for the issuance of
letters of credit) in effect on the date of this Agreement in respect of which Borrower or its
Subsidiaries are in any manner directly or contingently obligated.

(U) Title to Properties. Borrower and each Subsidiary has such title or leasehold interest in and
to the real property owned or leased by it as is necessary or desirable to the conduct of its
business and valid and legal title or leasehold interest in and to all of its personal property,
including those reflected on the financial statements of Borrower delivered pursuant to Subsection
8(H) of this Agreement, except those which have been disposed of by Borrower subsequent to the date
of such delivered financial statements which dispositions have been in the ordinary course of
business or as otherwise expressly permitted hereunder.

(V) Material Contracts, Borrower and each Subsidiary has performed all of its material obligations
under all Material Contracts and, to the best knowledge of Borrower, each other party thereto is in
compliance with each such Material Contract (as hereafter defined in this Subsection 7(V). Each
such Material Contract is in full force and effect in accordance with the terms thereof. Borrower
has made available a true and complete copy of each such Material Contract for inspection by
CoBank.

“Material Contract” means (a) any written contract or any other agreement of Borrower or any
Subsidiary involving monetary liability of or to any such person in an amount in excess of
$2,000,000 per annum and (b) any other written contract or agreement of Borrower or any Subsidiary
the failure to comply with which could reasonably be expected to have a Material

 

 

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Adverse Effect on Borrower or its Subsidiaries; provided, however, that any
contract or agreement which is terminable by a party other than Borrower or any Subsidiary without
cause upon notice of 95 days or less shall not be considered a Material Contract.

(W) Intellectual Property. Except as would not, individually or in the aggregate, result in a
Material Adverse Effect on Borrower or its Subsidiaries, taken as a whole, Borrower and each
Subsidiary owns, or possesses through valid licensing arrangements, the right to use all patents,
copyrights, trademarks, trade names, service marks, technology knowhow and processes used in or
necessary for the conduct of its business as currently or anticipated to be conducted
(collectively, the “Intellectual Property Rights”) without infringing upon any validly asserted
rights of others. Except as would not, individually or in the aggregate, result in a Material
Adverse Effect on Borrower or its Subsidiaries, taken as a whole, no event has occurred which
permits, or after notice or lapse of time or both would permit, the revocation or termination of
any such rights. Neither Borrower nor any Subsidiary has been threatened with any litigation
regarding Intellectual Property Rights that would present a material impediment to the business of
any such person.

(X) Liens. The property of Borrower and its Subsidiaries is subject to no lien, security interest
or other encumbrance except as permitted pursuant to Subsection 9(B) of this Agreement.

Section 8. Affirmative Covenants. Unless otherwise agreed to in writing by CoBank, while this
Agreement is in effect, Borrower will, and will cause each of its Subsidiaries to:

(A) Existence, Licenses. Etc. (i) Preserve and keep in full force and effect its existence and good
standing in the jurisdiction of its incorporation, organization or formation (as applicable); (ii)
qualify and remain qualified to transact business in all jurisdictions where such qualification is
required by applicable Laws, except where the failure to do so would not, individually or in the
aggregate, result in a Material Adverse Effect on Borrower and its Subsidiaries, taken as a whole;
and (iii) obtain and maintain all licenses, franchises, certificates, permits, authorizations,
approvals and the like, which if not obtained and maintained, could reasonably be expected to have
a Material Adverse Effect on Borrower or its Subsidiaries, taken as a whole.

(B) Compliance with Laws and Agreements. Comply in all material respects with (i) all Laws, the
failure to comply with which could reasonably be expected to have a Material Adverse Effect on
Borrower or any Subsidiaries, taken as a whole, and (ii) all agreements, indentures, mortgages, and
other instruments to which Borrower or any Subsidiary is a party or by which it or any of its
property is bound, the failure to comply with which could reasonably be expected to have a Material
Adverse Effect on Borrower or its Subsidiaries, taken as a whole.

(C) Compliance with Environmental Laws. Without limiting the provisions of Subsection 8(B) above,
comply in all material respects with, and cause all persons occupying or present on any properties
owned or leased by it to so comply with, all Laws

 

 

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relating to environmental protection, the failure to comply with which could reasonably be expected
to have a Material Adverse Effect on Borrower or its Subsidiaries, taken as a whole.

(D) Insurance. Maintain insurance with insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same business and similarly
situated. Such proceeds shall be applied, to the extent applicable, as provided in the Loan
Documents. At CoBank’s request, Borrower agrees to deliver to CoBank such proof of compliance with
this Subsection 8(D) as CoBank may require.

(E) Property Maintenance. Maintain and preserve all of its property that is necessary to or useful
in the proper conduct of its business in good repair, working order, and condition, ordinary wear
and tear excepted, and in compliance in all material respects with all applicable Laws, and make
all alterations, replacements, and improvements thereto as may from time to time be necessary in
order to ensure that its properties remain in good working order and condition and compliance.
Borrower agrees that upon the occurrence and continuing existence of an Event of Default, at
CoBank’s request, Borrower will furnish to CoBank a report on the condition of Borrower’s and its
Subsidiaries’ property prepared by a professional engineer satisfactory to CoBank.

(F) Books and Records. Keep adequate records and books of account in which complete and accurate
entries will be made in accordance with GAAP consistently applied.

(G) Inspection. Permit CoBank or its representatives, upon reasonable notice and during normal
business hours or at such other times as the parties may agree, to examine Borrower’s and its
Subsidiaries’ properties, books, and records, and to discuss Borrower’s or any of its Subsidiaries’
affairs, finances, and accounts, with Borrower’s or any Subsidiary’s officers, directors,
employees, and independent certified public accountants. Such inspection right shall be limited to
one time per year, unless an Event of Default shall have occurred and be continuing.

(H) Reports and Notices. Furnish, or cause to be furnished, to CoBank:

(1) Annual Financial Statements. As soon as available, but in no event later than 90 days after the
end of each fiscal year of Borrower occurring during the term hereof, annual consolidated financial
statements of Borrower, prepared in accordance with GAAP consistently applied and in a format that
demonstrates any accounting or formatting change that may be required by the various jurisdictions
in which the business of Borrower is conducted (to the extent not inconsistent with GAAP). Such
financial statements shall: (i) be audited by Borrower’s independent registered public accounting
firm (ii) be accompanied by a report of such accountants containing an opinion thereon acceptable
to CoBank; (iii) be prepared in reasonable detail, and in comparative form; and (iv) include a
consolidated balance sheet, a consolidated statement of income, a consolidated statement of
stockholders’ equity, a consolidated statement of cash flows, and all notes and schedules relating
thereto.

 

 

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(2) Quarterly Financial Statements. As soon as available but in no event later than 45 days after
the end of each of the first three fiscal quarters of each fiscal year of Borrower occurring during
the term hereof, unaudited quarterly consolidated financial statements of Borrower, in each case
prepared in accordance with GAAP consistently applied (except for the omission of footnotes and for
the effect of normal year-end audit adjustments) and in a format that demonstrates any accounting
or formatting change that may be required by various jurisdictions in which the business of
Borrower is conducted (to the extent not inconsistent with GAAP). Each of such financial statements
shall (i) be prepared in reasonable detail and in comparative form, and (ii) include a consolidated
balance sheet, a consolidated statement of income for such quarter and for the period year-to-date.

(3) Budgets. As soon as reasonably available, but in no event later than 30 days after the first
day of each fiscal year of Borrower occurring during the term hereof, consolidated operating and
capital assets budgets of Borrower and any Subsidiaries for such fiscal year.

(4) Notice of Default. Promptly after becoming aware thereof, notice of (i) the occurrence of any
Potential Default or Event of Default under any of the Loan Documents; and (ii) the occurrence of
any breach, default, event of default, or other event or occurrence of any other condition which
with the giving of notice or lapse of time, or both, could become a breach, default, or event of
default under any Material Contract (other than the Loan Documents) to which it is a party or by
which it or any of its property is bound or affected; provided, however, that the
failure to give such notice shall not affect the right and power of CoBank to exercise any and all
of the remedies specified herein.

(5) Notice of Non-Environmental Litigation. Promptly after the commencement thereof, notice of the
commencement of all actions, suits, or proceedings before any court, arbitrator, or governmental
department, commission, board, bureau, agency, or instrumentality affecting Borrower or any
Subsidiaries which, if determined adversely, could reasonably be expected to have a Material
Adverse Effect on Borrower or its Subsidiaries, taken as a whole.

(6) Notice of Environmental Litigation. Without limiting the provisions of Subsection 8(H)(5)
above, promptly after receipt thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or any other communication alleging a condition that could reasonably be expected to
have a Material Adverse Effect on Borrower or its Subsidiaries, taken as a whole and (i) that may
require Borrower or any Subsidiary to undertake or to contribute to a cleanup or other response
under all Laws relating to environmental protection, or (ii) which seek penalties, damages,
injunctive relief, or criminal sanctions related to alleged violations of such Laws, or which claim
personal injury or property damage to any person as a result of environmental factors or
conditions.

 

 

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(7) Regulatory and Other Notices. Promptly after filing, receipt or becoming aware thereof, copies
of any filings or communications sent to and notices or other communications received by Borrower
or any Subsidiary from any Governmental Authority, including, without limitation, the Securities
and Exchange Commission, the FCC, the PUC, or any other state utility commission relating to any
material noncompliance by Borrower or any of its Subsidiaries with any Laws or with respect to any
matter or proceeding the effect of which, if adversely determined, could reasonably be expected to
have a Material Adverse Effect on Borrower or any Subsidiary, taken as a whole.

(8) Material Adverse Change. Promptly after becoming aware thereof, notice of any matter which has
had or could reasonably be expected to have a Material Adverse Effect on Borrower or its
Subsidiaries, taken as a whole.

(9) Compliance Certificates. Concurrently with each statement required to be furnished pursuant to
Subsection 8(H)(I) or Subsection 8(H)(2) above, a compliance certificate in the form attached
hereto as Exhibit A executed by the chief executive officer or chief financial officer of
Borrower.

(10) ERISA Reportable Events. Within 30 days after it becomes aware of the occurrence of any
Reportable Event (as defined in Section 4043 of ERISA) applicable to Borrower or any Subsidiary, a
statement describing such Reportable Event and the actions it proposes to take in response to such
Reportable Event.

(11) PUC Approval. No later than 30 days after receipt by Borrower or any Subsidiary, such Borrower
or Subsidiary shall provide to CoBank copies of all approvals, authorizations, consents, and
notices of fines or violations or other similar negative communications that could reasonably be
expected to have a Material Adverse Effect on Borrower or any Subsidiary, between such Borrower or
Subsidiary and the PUC with respect to this Agreement, any Supplement and the Loans.

(12) Other Information, Such other information regarding the condition, financial or otherwise, or
operations of Borrower or any Subsidiary as CoBank may, from time to time, reasonably request.

(I) Financial Covenants. All of the following financial covenants shall, except as expressly
provided otherwise, be calculated on the basis of financial statements prepared in accordance with
GAAP consistently applied:

(1) Total Leverage Ratio. Borrower shall maintain at all times during the periods identified below,
measured and reported on a consolidated basis as of the last day of each fiscal quarter of Borrower
(each, a “Quarterly Date”) and maintained through the next measurement date, a Total Leverage Ratio
(as hereinafter defined in this Subsection 8(I)(I) not to exceed 3.0:1.0.

 

 

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“Total Leverage Ratio” means the ratio of Indebtedness (as hereinafter defined in this Subsection
8(I)(l) on the Quarterly Date to EBITDA (as hereinafter defined in this Subsection 8(I)(1)) for the
then most recently completed four fiscal quarters.

“Indebtedness” means without duplication (i) obligations for borrowed money, (ii) obligations
representing the deferred purchase price of property or services other than accounts payable
arising in connection with the purchase of goods or services on terms customary in the trade and
not outstanding more than 90 days unless contested in good faith, (iii) obligations, whether or not
assumed, secured by liens or a pledge of or an encumbrance on the proceeds or production from
property now or hereafter owned or acquired, (iv) obligations which are evidenced by notes, bonds,
debentures, acceptances or other instruments, (v) net termination obligations under Interest Rate
Agreements, calculated as of any date of calculation as if such agreements or arrangements were
terminated as of such date, (vi) that portion of any obligation with respect to leases of real or
personal property which is required to be capitalized under GAAP or which is treated as operating
leases under regulations applicable to them but which otherwise would be required to be capitalized
under GAAP (each a “Capital Lease”), obligations with respect to principal under guarantees and
other contingent obligations with respect to the payment of money, whether or not due and payable,
and

the capital amount appearing on the consolidated balance sheet with respect to any synthetic lease,
tax retention operating lease or similar transaction.

“EBITDA” (i) means the sum of (a) operating revenues minus operating expenses, plus
(b) depreciation and amortization expense, and all other non-cash items, and (ii) will be adjusted
to give effect to any acquisition, sale or other disposition, directly or through a Subsidiary, of
any business (or any portion thereof) during the period of calculation as if such acquisition, sale
or other disposition occurred on the first day of such period of calculation.

(2) Equity to Assets Ratio. Borrower shall maintain at all times, measured and reported on a
consolidated basis as of each Quarterly Date, an Equity to Assets Ratio (as hereinafter defined in
this Subsection 8(I)(2)) of no less than 0.40:1.0.

“Equity to Assets Ratio” means the ratio derived by dividing (i) Equity by (ii) total assets.
“Equity” means (i) total assets minus (ii) total liabilities.

(J) Capital. Acquire non-voting participation certificates in CoBank in such amounts and at such
times as CoBank may from time to time require in accordance with its Bylaws and Capital Plan (as
each may be amended from time to time), except that the maximum amount of non-voting participation
certificates that Borrower may be required to purchase in connection with a Loan may not exceed the
maximum amount permitted by the Bylaws at the time the Supplement relating to such Loan is entered
into or such Loan is renewed or refinanced by CoBank. The rights and obligations of the parties
with respect to such non-voting participation certificates and any patronage or other distributions
made by CoBank shall be governed by COBank’s Bylaws.

 

 

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Section 9. Negative Covenants. Unless otherwise agreed to in writing by CoBank, while this
Agreement is in effect Borrower will not and will cause its Subsidiaries not to:

(A) Borrowings. Create, incur, assume, or allow to exist, directly or indirectly, any Indebtedness
except for (i) obligations to CoBank, (ii) Indebtedness incurred in connection with an Interest
Rate Agreement; (iii) contingent obligations permitted by Subsection 9(C); (iv) Indebtedness under
purchase money security agreements, Capital Leases and unsecured Indebtedness in an amount not to
exceed $10,000,000 in the aggregate at any one time; (v) Indebtedness which is expressly
subordinate in right of payment to the Loans hereunder on terms and conditions satisfactory to
CoBank in its sole discretion; and (vi) Indebtedness described on Schedule 9(A) hereto
(Subsections 9(A)(i) through (vi) collectively, the “Permitted Indebtedness”); provided,
that none of the Permitted Indebtedness shall (X) restrict, limit or otherwise encumber (by
covenant or otherwise) the ability of any Subsidiary of Borrower to make any payment to Borrower or
any Subsidiary (in the form of dividends, intercompany advances or otherwise) for the purpose of
enabling Borrower to pay the Obligations, or (Y) contain any covenants more restrictive than any in
Sections 8 or 9.

(B) Liens. Create, incur, assume, or allow to exist any mortgage, deed of trust, pledge, lien
(including the lien of an attachment, judgment, or execution), security interest, or other
encumbrance of any kind upon any of its property, real or personal. The foregoing restrictions
shall not apply to (i) liens in favor of CoBank; (ii) liens for taxes, assessments or other
governmental charges (excluding any lien imposed pursuant to any provisions of applicable
environmental laws) not yet due and payable or as to which the period of grace (not to exceed
thirty (30) days), if any, related thereto has not expired unless the same are being diligently
contested in good faith and by appropriate proceedings and then only if and to the extent that
adequate reserves therefor are maintained in accordance with GAAP; (iii) statutory liens of
landlords, carriers, depository institutions, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of business for sums not
more than thirty (30) days delinquent or which are being contested in good faith; (iv) liens
incurred or deposits made in the ordinary course of business in connection with workers‘
compensation, unemployment insurance and other types of social security (other than any lien
imposed by the Employee Retirement Income Security Act of 1974 or any rule or regulation
promulgated thereunder), or to secure the performance of tenders, statutory obligations, surety,
stay, customs and appeal bonds, bids, leases, government contracts, trade contracts, performance
and return of money bonds and other similar obligations (exclusive of obligations for the payment
of borrowed money); (v) deposits, in an aggregate amount not to exceed $500,000, made in the
ordinary course of business to secure liability to insurance carriers; (vi) any attachment or
judgment lien not constituting an Event of Default under Subsection 10(H); (vii) easements, rights
of way, restrictions and other similar charges or encumbrances which in the aggregate are not
substantial in amount and which do not, in any case, materially detract from the value of such
property or impair the use thereof in the ordinary conduct of the business of Borrower or any of
its Subsidiaries; (viii) liens securing purchase money security agreements and Capital Leases
permitted under Subsection 9(A)(iv), provided that such liens are created substantially
simultaneously with the acquisition or lease of the related asset, do not encumber any property
other than the items purchased with the proceeds of

 

 

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such Indebtedness or leased pursuant to such Indebtedness and such liens do not secure any amounts
other than amounts necessary to purchase or lease such items; (ix) liens securing subordinated
Indebtedness to the extent permitted under Subsection 9(A)(v), provided that such liens are
expressly subordinate to any lien in favor of CoBank, granted hereunder on terms satisfactory to
CoBank in its sole discretion; and (x) the claims of customers of Borrower on deposits made by such
customers in connection with the purchase of goods or services from Borrower.

(C) Contingent Liabilities. Assume, guarantee, become liable as a surety, endorse, contingently
agree to purchase, or otherwise be or become liable, directly or indirectly (including, but not
limited to, by means of a maintenance agreement, an asset or stock purchase agreement, or any other
agreement designed to ensure any creditor against loss), for or on account of the obligation of any
person or entity greater than $1,000,000, except (i) by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary course of Borrower’s
or any Subsidiary’s business.

(D) Fundamental Changes. Merge or consolidate with any other entity.

(E) Disposal of Assets or Subsidiary Stock. Borrower will not and will not permit any Subsidiary
directly or indirectly to: convey, sell, lease (including, without limitation, a lease and
leaseback transaction), sublease, transfer or otherwise dispose of, or grant any entity an option
to acquire, in one transaction or a series of transactions, any of its property, business or
assets, or the capital stock of or other equity interests in any such Subsidiary whether now owned
or hereafter acquired, except for (i) bona fide sales of inventory to customers for fair value in
the ordinary course of business and dispositions of obsolete equipment not used or useful in the
business, (ii) fair market value sales of Cash Equivalents, (iii) the transfer, sale, lease,
assignment or other disposition of assets to Borrower or any wholly-owned Subsidiary of Borrower,
(iv) the sale or discount without recourse of accounts receivable arising in the ordinary course of
business in connection with the compromise or collection thereof, (v) the lease or sublease of
property in the ordinary course of business, (vi) the Spectrum Sale, (vii) the PMN Sale, and (viii)
all other dispositions of assets if all of the following conditions are met: (a) the aggregate
market value of assets sold in any one transaction or series of related transaction for any
calendar year does not exceed $5,000,000 for Borrower and any Subsidiaries; (b) the consideration
received is at least equal to the fair market value of such assets; (c) the sole consideration
received is cash; (d) after giving effect to the sale or other disposition of such assets,
Borrower, on a consolidated basis with any Subsidiary, is in compliance on a pro forma basis with
the covenants set forth in Subsection 8(1) recomputed for the most recently ended month for which
information is available; and (e) no Default or Event of Default then exists or shall result from
such sale or other disposition.

(F) Investments. Borrower will not and will not permit any Subsidiary directly or indirectly to
make or own any Investment in any entity except: (i) Borrower and any Subsidiary may make and own
Investments in Cash Equivalents; (ii) equities in CoBank; (iii) Investments not otherwise permitted
by this Subsection 9(F) in a Subsidiary of Borrower, and the other existing loans, advances and
Investments not otherwise permitted by this Subsection 9(F) described on Schedule 9(F);
(iv) Permitted Acquisitions (as defined herein); (v) loans,

 

 

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advances and any other investments by any Borrower or any Subsidiary thereof in any other entity in
an aggregate amount not to exceed $5,000,000 during any fiscal year of Borrower; provided,
however, that any portion of such $5,000,000 not used in any such fiscal year of Borrower
may be applied to the next succeeding fiscal year or years on a cumulative basis.

“Investments” means (i) any direct or indirect purchase or other acquisition by Borrower or any
Subsidiary of any beneficial interest in, including stock, partnership interest or other equity
securities of, any other entity, other than trade associations and similar organizations purchased
or acquired in the ordinary course of business; and (ii) any direct or indirect loan, advance,
guarantee, assumption of liability or other obligation of liability, or capital contribution by
Borrower or any Subsidiary to any other entity, including all indebtedness and accounts receivable
from that other entity that are not current assets or did not arise from sales to that other entity
in the ordinary course of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.

“Cash Equivalents” means (i) marketable direct obligations issued or unconditionally guarantied by
the United States Government or issued by any agency thereof and backed by the full faith and
credit of the United States, in each case maturing within one (1) year from the date of acquisition
thereof; (ii) commercial paper maturing no more than one (1) year from the date issued and, at the
time of acquisition, having a rating of at least A-I from Standard & Poor’s Rating Service or at
least P-I from Moody’s Investors Service, Inc.; (iii) certificates of deposit or bankers’
acceptances maturing within one (1) year from the date of issuance thereof issued by, or overnight
reverse repurchase agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having combined capital and
surplus of not less than $500,000,000; and (iv) time deposits maturing no more than thirty (30)
days from the date of creation thereof with commercial banks having membership in the Federal
Deposit Insurance Corporation in amounts at any one such institution not exceeding the lesser of
$100,000 or the maximum amount of insurance applicable to the aggregate amount of Borrower’s
deposits at such institution.

“Permitted Acquisitions” means Investments by Borrower or any Subsidiary thereof in the form of
acquisitions of all or substantially all of the business or a line of business (whether by the
acquisition of capital stock, assets or any combination thereof) which are consummated in
accordance with the following requirements: (i) the acquired entity shall be engaged in and
substantially all of the acquired assets shall be utilized in a similar line of business as
Borrower or any Subsidiary, unless otherwise approved in writing by CoBank, (ii) no Default or
Event of Default shall have occurred and be continuing or be created by the relevant Permitted
Acquisition, (iii) for any single Permitted Acquisition, or series of related Permitted
Acquisitions, having an aggregate consideration equal to or in excess of $ I0,000,000 during any
fiscal year of Borrower, (A) the Borrower shall deliver a certificate to CoBank, in form and
substance reasonably satisfactory to CoBank, demonstrating pro forma compliance with the financial
covenants set forth in Subsection 8(I) and the other terms of the Loan Documents prior to the
closing of such Permitted Acquisition, (B) a description of the relevant Permitted

 

 

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Acquisition in reasonable detail and the corresponding documentation shall be furnished by the
Borrower to CoBank at least ten (10) Business Days prior to the closing date thereof (to be
followed by any changed pages and fully executed copies promptly after the creation thereof) and
(C) the Borrower shall have received the prior written approval of CoBank.

(G) Change in Business. Engage in any business activity or operation that is not similar to or a
logical extension of Borrower’s or any Subsidiary’s present business activities and operations.

(H) Fiscal Year. Change its or their fiscal year from a fiscal year ending on December 31 of each
year.

(I) Disposition of Licenses. Except for the Spectrum Sale, sell, assign, transfer or otherwise
dispose of, or attempt to dispose of, in any way, any franchise, license, certificates, permits,
authorization, approvals and the like which may be required by law or which are material to the
conduct of its business, the disposition of which could reasonably be expected to have a Material
Adverse Effect on Borrower or any Subsidiary, taken as a whole.

(J) Dividends and Other Distributions. Directly or indirectly declare, order, pay, make or set
apart any sum for any dividend or any other distribution of assets to its shareholders or retire,
redeem, purchase or otherwise acquire for value any capital stock or other ownership interest in
Borrower; provided, however, that (i) Borrower or any Subsidiary thereof may pay
dividends in shares of its own capital stock; (ii) any Subsidiary may pay dividends or make
distribution to Borrower; (iii) Borrower may pay cash dividends to its equity holders; provided
that (a) such dividends shall not exceed in any fiscal year 100% of Borrower’s immediately prior
three-year average consolidated net income, determined in accordance with GAAP, and (b) Borrower
shall have delivered to CoBank evidence reasonably satisfactory thereto demonstrating compliance
with Subsection 8(I) hereof both before and after giving effect to such dividend payment; (iv)
Borrower may redeem all or any portion of its preferred stock; and (v) Borrower may purchase its
outstanding shares of common stock.

(K) Transactions with Affiliates. Directly or indirectly to enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property or the rendering of
any service) with any Affiliate, other than Borrower, or with any director, officer or employee of
Borrower or any Affiliate, except (i) as set forth on Schedule 9(K); (ii) transactions in
the ordinary course of and pursuant to the reasonable requirements of the business of Borrower or
such Subsidiary and upon fair and reasonable terms which are fully disclosed to Lenders and are no
less favorable to Borrower or such Subsidiary than would be obtained in a comparable arm’s length
transaction with a entity that is not an Affiliate; or (iii) payment of compensation to directors,
officers and employees in the ordinary course of business for services actually rendered in their
capacities as directors, officers and employees, provided such compensation is reasonable and
comparable with compensation paid by companies of like nature and similarly situated.
Notwithstanding the foregoing, upon the election of CoBank no payments may be made with respect to
any items set forth in clauses (i) and (ii) of the preceding sentence upon the occurrence and
during the continuation of a Default or Event of Default.

 

 

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“Affiliate” means any person or entity: (i) directly or indirectly controlling, controlled by, or
under common control with, Borrower or any Subsidiary; (ii) directly or indirectly owning or
holding five percent (5%) or more of any equity interest in Borrower or any Subsidiary; or (iii)
five percent (5%) or more of whose voting stock or other equity interest is directly or indirectly
owned or held by Borrower or any Subsidiary, provided that the beneficial, and not the
legal, holder of title to any equity interest in Borrower or any Subsidiary shall be deemed an
Affiliate. For purposes of this definition, “control” (including with correlative meanings, the
terms “controlling,” “controlled by” and “under common control with”) means the possession directly
or indirectly of the power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities or by contract or otherwise.

(L) Negative Pledge to Other Entities. Directly or indirectly to enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any lien upon its or
their properties or assets, whether now owned or hereafter acquired or which has any covenant more
restrictive than any in Sections 8 or 9.

(M) Amendments: Payments and Prepayments of Subordinated Debt. Amend or modify (or permit the
modification or amendment of) any of the terms or provisions of any Indebtedness permitted under
Subsection 9(A)(v) other than administrative or immaterial amendments or modifications not
detrimental to CoBank, or cancel or forgive, make any voluntary or optional payment or prepayment
on, or redeem or acquire for value (including without limitation by way of depositing with any
trustee with respect thereto money or securities before due for the purpose of paying when due) any
such Indebtedness.

Section 10. Events of Default. Each of the following shall constitute an “Event of Default” under
this Agreement.

(A) Payment Default. Borrower should (i) fail for 5 days to make any payment to CoBank when due
hereunder, under any Note, any Supplement or under any other Loan Document to which it is a party,
or (ii) should fail to make any investment in CoBank required to be made hereunder when due.

(B) Representations and Warranties. Any opinion, certificate or like document furnished to CoBank
by or on behalf of Borrower or any Subsidiary, or any representation or warranty made herein, in
any Note, any Supplement or in any other Loan Document shall prove to have been false or misleading
in any material respect on or as of the date made or deemed made.

(C) Certain Affirmative Covenants. Borrower should fail to perform or comply with any covenant set
forth in Section 8 of this Agreement (other than Subsection 8(H)(4) through Subsection 8(H)(8) and
Subsection 8(1)) and such failure continues for 30 days after written notice thereof shall have
been delivered by CoBank to Borrower.

(D) Other Covenants and Agreements. Borrower should fail to perform or comply with Subsection
8(H)(4) through Subsection 8(H)(8), Subsection 8(I), or any other

 

 

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covenant or agreement contained in this Agreement or in any other Loan Document or should use the
proceeds of any Loan for an unauthorized purpose.

(E) Cross-Default. (i) The occurrence of a breach, default or event of default under any other Loan
Document, (ii) the failure, after any applicable grace period, on the part of Borrower or any other
entity that is a party to any other Loan Document, other than CoBank, to observe, keep or perform
any covenant or agreement contained in such other Loan Document, or (iii) the failure, after any
applicable grace period, on the part of Borrower or any Subsidiary or any guarantor of Borrower’s
obligations hereunder to observe, keep or perform any covenant or agreement contained in any
agreement (other than the Loan Documents) between such entity and CoBank, including, without
limitation, any guaranty, loan agreement, security agreement, mortgage, deed to secure debt, or
deed of trust.

(F) Other Indebtedness. (i) Borrower or any Subsidiary or any guarantor of Borrower’s obligations
hereunder should fail to pay when due any indebtedness to any other person or entity for borrowed
money or any long-term obligation for the deferred purchase price of property (including any
capitalized lease) or (ii) any other event occurs under any agreement or instrument relating to
such indebtedness or obligation, which in the case of either of the foregoing subsections (i) or
(ii) has the effect of accelerating or permitting the acceleration of such indebtedness or
obligation having an aggregate principal amount for Borrower or any Subsidiary in excess of
$1,000,000, whether or not such indebtedness or obligation is actually accelerated or the right to
accelerate is conditioned on the giving of notice, the passage of time, or otherwise.

(G) Governmental Liens. Any lien, levy or assessment (other than Permitted Encumbrances) is filed
or recorded with respect to or otherwise imposed upon all or any material part of the assets of
Borrower or any Subsidiary by the United States or any department or instrumentality thereof or by
any state, county, municipality or other Governmental Authority, in each case, except where
Borrower or any Subsidiary is not material to the operations of Borrower and its Subsidiaries on a
consolidated basis.

(H) Judgments. A judgment, decree, or order for the payment of money in excess of $1,000,000 should
be rendered against Borrower or any Subsidiary or any guarantor of Borrower’s obligations hereunder
and either: (i) enforcement proceedings should have been commenced; (ii) a lien prohibited under
Subsection 9(B) of this Agreement shall have been obtained; or (iii) such judgment, decree, or
order should continue unsatisfied and in effect for a period of 30 consecutive days without being
vacated, discharged, satisfied, or stayed pending appeal.

(I) Insolvency, Etc. Borrower or any Subsidiary or any guarantor of Borrower’s obligations
hereunder should: (i) become insolvent or should generally not, or should be unable to, or should
admit in writing its inability to, pay its debts as they come due; or (ii) suspend its business
operations or a material part thereof or make an assignment for the benefit of creditors; or (iii)
apply for, consent to, or acquiesce in the appointment of a trustee, receiver, or other custodian
for it or any of its property or, in the absence of such application, consent, or acquiescence, a
trustee, receiver, or other custodian is so appointed; or (iv)

 

 

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commence or have commenced against it any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution, or liquidation Law of any jurisdiction, which, in
the case of a proceeding commenced against Borrower or any Subsidiary or any guarantor of
Borrower’s obligations hereunder, is not dismissed within 45 days.

(J) Material Adverse Change. Any event, change or condition not referred to elsewhere in this
Section 10 should occur which results in a Material Adverse Effect on Borrower or any Subsidiary or
any guarantor of Borrower’s obligations hereunder.

(K) Guarantees, Etc. Any guarantee, suretyship, subordination agreement, maintenance agreement, or
other agreement furnished in connection with Borrower’s obligations hereunder and under any
Supplement and Note shall, at any time, cease to be in full force and effect, or shall be revoked
or declared null and void, or the validity or enforceability thereof shall be contested by the
guarantor, surety or other maker thereof (individually or collectively, the “Guarantor”), or the
Guarantor shall deny any further liability or obligation thereunder, or shall fail to perform its
obligations thereunder, or any representation or warranty set forth therein shall be breached, or
the Guarantor shall breach or be in default under the terms of any other agreement with CoBank
(including any loan agreement or security agreement), or a default set forth in Subsection 10(F)
through Subsection 10(I) hereof shall occur with respect to the Guarantor or the Guarantor shall
die or be determined to be legally incompetent.

(L) Security. Any security agreement or other agreement executed by Borrower or any other entity
(other than CoBank) intended to create a valid and perfected lien, security interest or security
title in property as described herein or in a Supplement shall for any reason (other than upon
payment in full of the obligations secured thereby) fail (i) to create a valid and perfected lien,
security interest, or security title (subject only to such exceptions as are therein permitted) as
contemplated herein or by the Supplement, (ii) to secure thereunder the obligations purported to be
secured thereby, or (iii) to have the intended priority as contemplated by the Loan Documents. Any
guaranty described herein or in a Supplement as guaranteeing the obligations of Borrower hereunder
shall fail for any reason to be the valid and binding obligation of the guarantor (other than upon
payment in full of the obligations guaranteed thereby), or the guarantor should in any way contest
or dispute the validity and binding effect of any such guaranty.

(M) ERISA Pension Plans. (i) Borrower or any Subsidiary or any guarantor of Borrower’s obligations
hereunder fails to make full payment when due of all amounts which, under the provisions of any
employee benefit plans or any applicable provisions of the Internal Revenue Code of 1986, as
amended from time to time and all rules promulgated thereunder, and any successor statute and
regulations (the “IRC”), are required to pay as contributions thereto, and such failure results in
or could reasonably be expected to have a Material Adverse Effect on such entity; or (ii) an
accumulated funding deficiency occurs or exists whether or not waived, with respect to any such
employee benefit plans; or (iii) any employee benefit plan of Borrower or any Subsidiary or any
guarantor of Borrower’s obligations hereunder loses its status as a qualified plan under the IRC
and such loss results in or could reasonably be expected to have a Material Adverse Effect on such
entity.

 

 

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(N) Licenses and Permits. (i) The loss, suspension or revocation of, or failure to renew, any
franchise, license, certificate, permit, authorization, approval or the like now held or hereafter
acquired by Borrower or any of its Subsidiaries, if such loss, suspension, revocation or failure to
renew could reasonably be expected to have a Material Adverse Effect on Borrower, or (ii) any
regulatory or Governmental Authority replaces the management of Borrower or any Subsidiary or
assumes control over Borrower or such Subsidiary.

(O) Material Contracts. Borrower should breach or be in default under a Material Contract in any
material respect, unless the existence of such breach or default is being contested by Borrower in
good faith by appropriate proceedings and Borrower has made adequate reserves on its books as
required by GAAP.

Section 11. Remedies. Upon the occurrence and during the continuance of an Event of Default or any
Potential Default, CoBank shall have no obligation to continue to extend or continue to extend
credit to Borrower under any Note or any Supplement and may discontinue doing so at any time
without prior notice. Upon the occurrence of an Event of Default under Subsection 10(I) of this
Agreement, the entire unpaid principal balance of the Loans, all accrued interest thereon, and all
other amounts payable under this Agreement, all Notes, all Supplements and all other Loan Documents
and all other agreements between CoBank and Borrower shall become immediately due and payable
without protest, presentment, demand or further notice of any kind, all of which are hereby
expressly waived by Borrower. In addition, upon the occurrence and during the continuance of any
Event of Default, CoBank may:

(A) Termination and Acceleration. Terminate any commitment and declare the entire unpaid principal
balance of the Loans, all accrued interest thereon, and all other amounts payable under this
Agreement, all Notes and Supplements, and the other Loan Documents to be immediately due and
payable. Upon such a declaration, the unpaid principal balance of the Loans and all such other
amounts shall become immediately due and payable, without protest, presentment, demand, or further
notice of any kind, all of which are hereby expressly waived by Borrower.

(B) Enforcement. Proceed to protect, exercise, and enforce such rights and remedies as may be
provided by this Agreement, any other Loan Document or under applicable Laws. Each and every one of
such rights and remedies shall be cumulative and may be exercised from time to time, and no failure
on the part of CoBank to exercise, and no delay in exercising, any right or remedy shall operate as
a waiver thereof, and no single or partial exercise of any right or remedy shall preclude any other
or future exercise thereof, or the exercise of any other right. Without limiting the foregoing,
CoBank may hold and/or set off and apply against Borrower’s obligations to CoBank the proceeds of
any equity in CoBank, any cash collateral held by CoBank, or any balances held by CoBank for
Borrower’s account (whether or not such balances are then due).

(C) Application of Funds. Apply all payments received by it to Borrower’s obligations to CoBank in
such order and manner as CoBank may elect in its sole discretion; provided that any
payments received from any guarantor shall only be applied against obligations guaranteed by such
guarantor.

 

 

Master Loan Agreement/CT Communications, Inc. 

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(D) Default Rate of Interest. In addition to the rights and remedies set forth above and
notwithstanding any Supplement: (i) if Borrower fail to make any payment to CoBank when due
(including, without limitation, any purchase of equity of CoBank when required), then at CoBank’s
option in each instance, such obligation or payment shall bear interest from the date due to the
date paid at 2% per annum in excess of the rate of interest that would otherwise be applicable to
such obligation or payment, (ii) upon the occurrence and during the continuance of an Event of
Default, at CoBank‘s option in each instance, the unpaid balances of the Loans shall
bear interest from the date of the Event of Default or such later date as CoBank shall elect at 2%
per annum in excess of the rate(s) of interest that would otherwise be in effect on the Loans under
the terms of the applicable Note and the applicable Supplement and (iii) after the maturity of any
Loan, whether by reason of acceleration or otherwise, the unpaid principal balance of the Loan
(including without limitation, principal, interest, fees and expenses) shall automatically bear
interest at 2% per annum in excess of the rate of interest that would otherwise be in effect on the
Loan under the terms of the applicable Note and the applicable Supplement. All interest provided
for herein shall be payable on demand and shall be calculated from the date any such payment was
due to the date paid on the basis of a year consisting of 360 days.

Once CoBank has commenced the exercising of remedies pursuant to this Section 11 or any other Loan
Documents upon the occurrence of an Event of Default, CoBank may proceed with the exercising of
such remedies notwithstanding any curative action by Borrower.

Section 12. Complete Agreement; Amendments. This Agreement, the Notes, the Supplements and the
other Loan Documents are intended by the parties to be a complete and final expression of their
agreement. No amendment, modification, or waiver of any provision of this Agreement or the other
Loan Documents, and no consent to any departure by Borrower herefrom or therefrom, shall be
effective unless approved by CoBank and contained in a writing signed by or on behalf of CoBank,
and then such waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. In the event this Agreement is amended or restated, each such
amendment or restatement shall be applicable to all Notes and all Supplements hereto. Each Note and
each Supplement shall be deemed to incorporate all of the terms and conditions of this Agreement as
if fully set forth therein. Without limiting the foregoing, any capitalized term utilized in any
Note or any Supplement (or in any amendment to this Agreement or any Note or any Supplement) and
not otherwise defined in the Note or the Supplement (or amendment) shall have the meaning set forth
herein.

Section 13. Other Types of Credit. From time to time, CoBank may issue letters of credit or extend
other types of credit to or for the account of Borrower. In the event the parties desire to do so
under the terms of this Agreement, such extensions of credit may be set forth in a Note or a
Supplement and this Agreement shall be applicable thereto.

Section 14. Applicable Law. Except to the extent governed by applicable federal law, this
Agreement, each Note and each Supplement shall be governed by and construed in accordance with the
laws of the State of Colorado, without reference to choice of law doctrine,

 

 

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Section 15. Notices. All notices hereunder or under any Note or any Supplement shall be in writing
and shall be deemed to be duly given upon delivery if personally delivered or sent by facsimile
transmission (electronic confirmation received), or three days after mailing if sent by express,
certified or registered mail, to the parties at the following addresses (or such other address for
a party as shall be specified by like notice):

	 	 	 
	If to CoBank, as follows:

	 	If to Borrower, as follows:
	 
	 	 
	CoBank, ACB

	 	CT Communications, Inc.
	900 Circle Parkway

	 	1000 Progress Place, NE
	Suite 1400

	 	P.O. Box 227
	Atlanta, Georgia 30339

	 	Concord, North Carolina 28026-0227
	Attn: Communications and Energy

	 	Attn: Chief Financial Officer
	               Banking Group

	 	Fax No.: 704-722-2558
	Fax No.: 770-618-3202
	 	 
	 
	 	 
	With copy to:
	 	 
	 
	 	 
	CoBank
	 	 
	5500 S. Quebec Street
	 	 
	Greenwood Village, Colorado 80111
	 	 
	Attn: Communications and Energy Banking Group
	 	 
	Fax No.: 303-224-2718
	 	 

Section 16. Costs, Expenses and Taxes. To the extent allowed by law, Borrower agrees to pay all
reasonable out-of-pocket costs and expenses (including the fees and expenses of counsel retained or
employed by CoBank) incurred by CoBank in connection with the origination, negotiation,
documentation, administration, amendment, collection, and enforcement of this Agreement and the
other Loan Documents, including, without limitation, all costs and expenses incurred in obtaining,
perfecting, maintaining, determining the priority of, and releasing any security for Borrower’s
obligations to CoBank, and any stamp, intangible, transfer, or like tax payable in connection with
this Agreement or any other Loan Document or the recording hereof or thereof.

Section 17. Effectiveness and Severability. This Agreement shall continue in effect until: (i) all
indebtedness and obligations of Borrower under this Agreement, all Notes, all Supplements and all
other Loan Documents shall have been paid or satisfied; (ii) CoBank has no commitment to extend
credit to or for the account of Borrower under any Note or any Supplement; and (iii) either party
sends written notice to the other terminating this Agreement. Any provision of this Agreement or
any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or thereof.

 

 

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Section 18. Regulatory Approvals. Upon any action by CoBank to commence the exercise of remedies
hereunder, or under the Note, the Supplements or other Loan Documents, Borrower hereby undertakes
and agrees on behalf of itself and its Subsidiaries to cooperate and join with CoBank, and cause
its Subsidiaries to cooperate and join with CoBank, in any application to any Governmental
Authority with respect thereto and to provide such assistance in connection therewith as CoBank may
request, including, without limitation, the preparation of filings and appearances of officers and
employees of Borrower or such Subsidiary before such Governmental Authority, in each case in
support of any such application made by CoBank, and neither Borrower nor any of its Subsidiaries
shall directly or indirectly, oppose any such action by CoBank before any such Governmental
Authority.

Section 19. Successors and Assigns. This Agreement, each Note, each Supplement, and the other Loan
Documents shall be binding upon and inure to the benefit of Borrower and CoBank and their
respective successors and assigns, except that neither party may assign or transfer its rights or
obligations under this Agreement, any Note, any Supplement or any other Loan Document without the
prior written consent of the other party.

Section 20. Consent to Jurisdiction. To the maximum extent permitted by law, Borrower agrees that
any legal action or proceeding with respect to this Agreement or any of the other Loan Documents
may be brought in the courts of the State of Colorado, or of the United States of America for the
District of Colorado, all as CoBank may elect. By execution of this Agreement, Borrower hereby
irrevocably submits to each such jurisdiction, expressly waiving any objection it may have to the
laying of venue by reason of its present or future domicile. Nothing contained herein shall affect
the right of CoBank to commence legal proceedings or otherwise proceed against Borrower in any
other jurisdiction or to serve process in any manner permitted or required by law.

Section 21. Waiver of Jury Trial. BORROWER AND COBANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY NOTE,
ANY SUPPLEMENT, ANY OTHER LOAN DOCUMENT, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THIS AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
BORROWER AND COBANK ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND COBANK
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING

 

 

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MLA No. RX 0383

CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT. BORROWER AND COBANK ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH
BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF COBANK.

Section 22. Counterparts. This Agreement, each Note, each Supplement and any other Loan Document
may be executed in any number of counterparts and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original and shall be binding
upon all parties and their respective permitted successors and assigns, and all of which taken
together shall constitute one and the same agreement.

Section 23. Participations, Etc. From time to time, CoBank may sell to one or more banks, financial
institutions or other lenders a participation in one or more of the loans or other extensions of
credit made pursuant to this Agreement and any Note and any Supplement. However, no such
participation shall relieve CoBank of any commitment made to Borrower hereunder. In connection with
the foregoing, CoBank may disclose information concerning Borrower, any Subsidiary and any
guarantor of Borrower’s obligation hereunder and under such Note and such Supplement, if any, to
any participant or prospective participant, provided that such participant or prospective
participant agrees to keep such information confidential. CoBank agrees that all loans that are
made by CoBank and that are retained for its own account and are not included in a sale of a
participation interest shall be entitled to patronage distributions in accordance with the bylaws
of CoBank and its practices and procedures related to patronage distribution. Accordingly, all
loans that are included in a sale of a participation interest shall not be entitled to patronage
distributions. A sale of a participation interest may include certain voting rights of the
participants regarding the Loan hereunder (including, without limitation, the administration,
servicing and enforcement thereof). CoBank agrees to give written notification to Borrower of any
sale of a participation interest.

Section 24. Confidentiality. CoBank agrees to hold any confidential information that it may receive
from Borrower or any of its Subsidiaries pursuant to this Agreement in confidence, except for
disclosure: (i) on a confidential basis, as necessary or appropriate, to directors, officers,
employees, agents or legal counsel, independent public accountants and other professional advisors
of CoBank; (ii) to regulatory officials having jurisdiction over CoBank; (iii) as required by
applicable Law or legal process or (iv) in connection with any legal proceeding between CoBank and
Borrower or any of its Subsidiaries (provided that, in the event CoBank is so required to disclose
such confidential information pursuant to clauses (iii) or (iv) of this Subsection 24, CoBank shall
promptly notify Borrower so that Borrower or any of its Subsidiaries may seek, at its sole cost and
expense, a protective order or other appropriate remedy); and (v) to another person in connection
with a disposition or proposed disposition to that person of all or part of CoBank’s interests
hereunder or a participation interest in a Loan,

 

 

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provided that such disclosure is made subject to an appropriate confidentiality agreement on terms
substantially similar to this Subsection 24. For purposes of the foregoing, “confidential
information” shall mean all information respecting Borrower or any of its Subsidiaries, other than
(A) information previously filed by Borrower or any of its Subsidiaries with any Governmental
Authority and available to the public, (B) information previously published in any public medium
from a source other than, directly or indirectly, CoBank and (C) information obtained by CoBank
from a source independent of Borrower or its Subsidiaries that is not under any obligation of
confidentiality to Borrower or any of its Subsidiaries.

Section 25. Refinancing of Term Loan. Notwithstanding anything herein, Borrower may at any time
refinance Loan No. RX0383-T2 under the Second Supplement to Master Loan Agreement dated as of even
date herewith, pursuant to a new unsecured term loan from either CoBank or a third party.

[Signatures Follow on Next Page]

 

 

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IN WITNESS WHEREOF, Borrower has caused this Agreement to be executed and delivered, and CoBank has
caused this Agreement to be executed and delivered, each by its respective duly authorized officer
as of the date first shown above.

	 	 	 	 	 	 	 
	[CORPORATE SEAL]	 	CT COMMUNICATIONS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Michael R. Coltrane
	 	 
	 

	 	 	 	 	 	 
	 	 	Michael R. Coltrane	 	 
	 	 	President and Chief Executive Officer	 	 

[Signatures Continue on Next Page]

 

 

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MLA No. RX 0383

[Signatures Continued from Previous Page]

	 	 	 	 	 	 	 
	 	 	COBANK, ACB	 	 
	 
	 

	 	By:
	 	/s/ Kurt Morris
	 	 
	 

	 	 	 	 	 	 
	 	 	Kurt Morris

Vice President	 	 

 

 

Loan No. RXO383-T1

FIRST SUPPLEMENT TO MASTER LOAN AGREEMENT

This FIRST SUPPLEMENT TO MASTER LOAN AGREEMENT (this "First Supplement”), dated as of April 18,
2006, is between COBANK, ACB (“CoBank”) and CT COMMUNICATIONS, INC. (“Borrower”), and supplements
that certain Master Loan Agreement, dated as of even date herewith, by and between CoBank and
Borrower (as the same may be amended, modified, supplemented, extended or restated from time to
time, the (“MLA”)). Capitalized terms used and not otherwise defined in this First Supplement shall
have the meanings assigned to them in the MLA.

SECTION 1. The Revolving Loan Commitment. On the terms and conditions set forth in the MLA and this
First Supplement, CoBank agrees to make a loan to Borrower (the “Loan”), by means of one or more
advances, during the Availability Period (as defined in Section 3 hereof) in an aggregate principal
amount outstanding at any one time not to exceed $40,000,000 (the “Commitment”). The Commitment
shall expire at 12:00 noon Eastern time on the Business Day immediately preceding March 31, 2011
(the “Maturity Date”). Under the Commitment, amounts borrowed and later prepaid may be reborrowed.

SECTION 2. Purpose. The proceeds of the Loan shall be used by Borrower (i) for working capital,
capital expenditures and other general corporate purposes, and (ii) pay fees and other costs and
expenses associated with obtaining the Loan. Borrower agrees that the proceeds of the Loan shall be
used only for the purposes set forth in this Section 2.

SECTION 3. Availability. Subject to Section 2 of the MLA and Section 9 hereof, during the period
commencing on the date on which all conditions precedent to the Loan are satisfied (the “Closing
Date”) and ending on the Business Day immediately preceding the Maturity Date (the “Availability
Period”), advances under the Loan will be made as provided in the MLA; provided,
however, that with respect to any advance to be subject to a “fixed rate option”
(Subsections 4(A)(2) and 4(A)(3) hereof), a request for such advance must be received no later than
12:00 noon Eastern time three Business Days or three Banking Days (as defined in Subsection 4(A)(3)
hereof), as applicable, prior to the day such advance is desired.

SECTION 4. Interest.

(A) Rate Options; Etc. The unpaid principal balance of each advance under the Loan shall accrue
interest at the rate or rates determined or selected by Borrower in accordance with this Subsection
4(A).

(1) Base Rate Option. As to any portion of the unpaid principal balance of the Loan selected by
Borrower (any such portion, and any portion selected pursuant to Subsections 4(A)(2) or 4(A)(3) of
this First Supplement, is hereinafter referred to as a “Portion” of the Loan), interest shall
accrue pursuant to this base rate option (a) at a variable annual interest rate equal, on any day,
to the higher of (i) the Prime Rate (as

 

 

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Loan No. RX0383-T1

hereinafter defined) or (ii) the sum of the Federal Funds Rate (as hereinafter defined)
plus 0.50% (such base rate of interest, the “Base Rate”). The term “Prime Rate” shall mean
a base rate of interest per annum equal, on any day, to the rate of interest published on such day
in the Eastern Edition of The Wall Street Journal as the average prime lending rate for 75% of the
United States’ 30 largest commercial banks, or if the Eastern Edition of The Wall Street Journal or
such rate is not published on such day, such rate as last published in the Eastern Edition of The
Wall Street Journal. In the event the Eastern Edition of The Wall Street Journal ceases to publish
such rate or an equivalent, the term “Prime Rate” shall be determined by reference to such other
regularly published prime rate based upon any averaging of such 30 banks, as CoBank shall
determine, or if no such published average prime rate is available, then the term “Prime Rate”
shall mean a variable rate of interest per annum as determined by CoBank equal to the highest of
the “prime rate,” “reference rate,” “base rate” or other similar rate announced from time to time
by any of Bankers Trust Company and Citibank as selected by CoBank (with the understanding that any
such rate may merely be a reference rate and may not necessarily represent the lowest or best rate
actually charged to any customer by such bank). The “Prime Rate” shall change on a date established
by CoBank as the effective date of any change therein and CoBank agrees to notify Borrower of any
such change. The term “Federal Funds Rate” shall mean, for any day, the rate of interest per annum
(rounded upward, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with partners of the Federal Reserve
System arranged by federal funds brokers, as published by the Federal Reserve Bank of New York on
the Business Day next succeeding such day, provided that (i) if such day is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day and (ii) if no such rate is so published on the next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate quoted to CoBank on such day on
such transactions as determined by CoBank.

(2) Quoted Rate Option. Subject to Subsections 4(A)(4) and (5) below, as to any Portion or Portions
of the Loan selected by Borrower, interest shall accrue pursuant to this quoted rate option at a
fixed annual interest rate (the “Quoted Rate”) to be quoted by CoBank in its sole and absolute
discretion. Under this option, the interest rate on such Portion or Portions of the Loan, may be
fixed for such Interest Periods (as defined in Subsection 4(A)(3) below) as may be agreeable to
CoBank in its sole and absolute discretion in each instance; provided, however,
that (i) such Interest Period shall be for a minimum of one year and shall not extend beyond the
Maturity Date (as defined in Section 6 hereof), (ii) such Interest Period may only expire on a
Business Day, (iii) amounts fixed shall be in increments of $2,000,000 or any whole multiple of
$500,000 in excess thereof, and (iv) the Quoted Rate Option shall not be available with respect to
new advances during the continuance of any Event of Default.

(3) LIBOR Option. Subject to Subsections 4(A)(4) and (5) below, as to any Portion or Portions of
the Loan selected by Borrower, interest shall accrue pursuant to this LIBOR option at a fixed rate
per annum equal to LIBOR (as hereinafter defined) plus

 

 

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Loan No. RX0383-T1

a margin (“LIBOR Margin”) equal to the percentage determined from time to time in accordance with
Subsection 4(B) hereof. Under this option: (i) rates may be fixed on such Portion or Portions of
the Loan in minimum principal amounts of $2,000,000 or any whole multiple of $500,000 in excess
thereof; (ii) rates may be fixed for Interest Periods (as hereinafter defined) of 1, 2, 3, 6, 9 or
12 months, as selected by Borrower; and (iii) rates may only be fixed on a Banking Day (as
hereinafter defined) or, at the option of Borrower, on three Banking Days’ prior notice. “LIBOR”
means the rate (rounded upward to the nearest sixteenth and adjusted for reserved required on
Eurocurrency Liabilities (as hereinafter defined) for banks subject to FRB Regulation D {as
hereinafter defined) or required by any other federal law or regulation) quoted by the British
Bankers Association (the “BSA”) at 11:00 a.m. London time three Banking Days before the
commencement of the Interest Period for the offering of U.S. dollar deposits in the London
interbank market for the Interest Period designated by Borrower, as published by Bloomberg or
another major information vendor listed on BBA’s official website. “Banking Day” shall mean a day
on which CoBank is open for business, dealings in U.S. dollar deposits are being carried out in the
London interbank market, and banks are open for business in New York City and London, England.
“Interest Period” shall mean the time period chosen by Borrower during which the chosen fixed rate
is to apply to a Portion of the Loan, which period commences on the day Borrower elects to fix a
rate under Subsection 4(A)(2) above or this Subsection 4(A)(3) (or, at the option of Borrower,
three Banking Days later), The Interest Period for Portions accruing interest at the LIBOR option
rate shall end on the day in the next calendar month or in the month that is 2, 3, 6, 9 or 12
months thereafter which corresponds numerically with the day the Interest Period commences;
provided, however, that: (a) in the event such ending day is not a Banking Day,
such period shall be extended to the next Banking Day unless such next Banking Day falls in the
next calendar month, in which case it shall end on the preceding Banking Day; and (b) if there is
no numerically corresponding day in the month, then such period shall end on the last Banking Day
in the relevant month. No Interest Period shall extend beyond the Maturity Date. “Eurocurrency
Liabilities” has the meaning as set forth in FRB Regulation D. “FRB Regulation D” means Regulation
D as promulgated by the Board of Governors of the Federal Reserve System, 12 CFR Part 204, as
amended.

Upon the occurrence and during the continuance of an Event of Default, as the Interest Periods for
Portions of the Loan accruing interest at a LIBOR option rate expire, at CoBank’s option, such
Portions of the Loan shall be converted to the Base Rate option and the LIBOR option rate will not
be available to Borrower until all Events of Default are no longer continuing.

(4) Rate Combinations. Notwithstanding the foregoing, at any one time there may be no more than
five Portions of the Loan in the aggregate accruing interest pursuant to any fixed rate option
(Sections 4(A)(2) and 4(A)(3)).

(5) Selection and Changes of Rates. Borrower shall select the rate option or options applicable to
the Loan at the time it requests the Loan. Thereafter, with respect to

 

 

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Loan No. RX0383-T1

Portions of the Loan accruing interest at the Base Rate, Borrower may, on any Business Day, subject
to Subsections 4(A)(2) and 4(A)(3) above, elect to have one of the fixed rate options apply to such
Portion. In addition, with respect to any Portion of the Loan accruing interest pursuant to a fixed
rate option, Borrower may, subject to Subsections 4(A)(2) and 4(A)(3) above, on the last day of the
Interest Period for such Portion, elect to fix the interest rate accruing on such Portion for
another Interest Period pursuant to one of the fixed rate options. From time to time Borrower may
elect, on a Business Day prior to the expiration of the Interest Period for any Portion of the Loan
accruing interest pursuant to a fixed rate option to convert all, but not part, of such Portion of
the Loan so that it accrues interest at the Base Rate or a combination of the Base Rate and a fixed
rate option, for a new Interest Period or Interest Periods selected in accordance with Subsections
4(A)(2) or 4(A)(3) above. Except for the initial selection, all interest rate selections provided
for herein shall be made by telephonic or written request of an authorized employee of Borrower
(designated in writing by Borrower) by 12:00 noon, Eastern time, on the relevant day. In taking
actions upon telephonic requests, CoBank shall be entitled to rely on (and shall incur no liability
to Borrower in acting upon) any request made by a person identifying himself or herself as one of
the persons designated in writing by Borrower to request the Loan or select interest rates
hereunder so long as any funds advanced are wired to an account previously designated in writing by
Borrower. Notwithstanding the foregoing, rates may not be fixed in such a manner as to cause
Borrower to have to break any fixed rate balance in order to pay any installment of principal.

(6) Accrual of Interest. Interest shall accrue pursuant to the fixed rate options from and
including the first day of the applicable Interest Period to but excluding the last day of the
Interest Period. If Borrower elects to refix the interest rate on any Portion of the Loan accruing
interest pursuant to one of the fixed rate options pursuant to Subsection 4(A)(5) above, the first
day of the new Interest Period shall be the last day of the preceding Interest Period. In the
absence of any such election, interest shall accrue on such Portion at the Base Rate from and
including the last day of such Interest Period. If Borrower elects to convert from a fixed rate
option to the Base Rate option pursuant to Subsection 4(A)(5) above, interest at the applicable
fixed rate shall accrue through the day before such conversion and either (i) the first day of any
new Interest Period shall be the date of such conversion, or (ii) interest at the Base Rate shall
accrue on the Portion of the Loan so converted from and including the date of conversion.

(B) Margins. Initially, and continuing through the day immediately preceding the first Adjustment
Date (as defined below) on which Borrower demonstrates that a change in the LIBOR Margin is
warranted and requests such change, the applicable LIBOR Margin shall be 0.625%. Commencing on such
Adjustment Date, the applicable margin shall be determined based on the Total Leverage Ratio,
determined in accordance with Subsection 8(J)(1) of the MLA, as of the last day of each fiscal
quarter of Borrower, as set forth in the following table:

 

 

First Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-T1

	 	 	 	 	 
	Total Leverage Ratio	 	LIBOR Margin
	Greater than or equal to 2.00:1.00
	 	 	1.000	%
	 
	 	 	 	 
	Less than 2.00:1.00 and greater
than or equal to 1.50:1.00
	 	 	0.875	%
	 
	 	 	 	 
	Less than 1.50:1.00
	 	 	0.625	%

The applicable margin shall be (i) increased, if warranted, beginning on the date which is the 5th
Business Day following CoBank’s receipt of the financial statements required pursuant to
Subsections 8(I)(1) and 8(1)(2) of the MLA, and the compliance certificate required pursuant to
Subsection 8(I)(9) of the MLA and (ii) decreased, if warranted, beginning on the date which is the
5th Business Day following CoBank’s receipt of such financial statements and compliance certificate
and Borrower’s written request to decrease such margin (each such date described in (i) and (ii),
an “Adjustment Date”). In the event that CoBank shall not receive when due such financial
statements and compliance certificate, then from such due date and until the 5th Business Day
following CoBank’s receipt of such overdue financial statements and compliance certificate (and in
the event a decrease in the applicable margin is then warranted, receipt of Borrower’s written
request to decrease such margin) or upon the occurrence of any Event of Default, the LIBOR Margin
shall be 0.625%.

(C) Payment and Calculation. Borrower shall pay interest on the Loan monthly in arrears on the last
day of each calendar quarter, upon any prepayment (whether due to acceleration or otherwise) and on
the Maturity Date; provided, however, at the election of CoBank with respect to the
Portions accruing interest under the LIBOR option, interest shall be payable at the maturity of an
Interest Period, or, if such Interest Period exceeds three months, quarterly in arrears on each
three month anniversary of the beginning date of such Interest Period and at the maturity of such
Portion and upon any prepayment (whether due to acceleration or otherwise). Interest shall be
calculated on the actual number of days the Loan, or any part thereof, is outstanding on the basis
of a year consisting of 360 days. In calculating accrued interest, the date the Loan is made shall
be included and the date any principal amount of the Loan is repaid or prepaid shall be excluded as
to such amount.

SECTION 5. Loan Fees.

(A) Origination Fee. In consideration of the Commitment, Borrower shall pay to CoBank a
non-refundable origination fee in the amount of $35,000, which shall be due upon the Closing Date.

(B) Commitment Fee. In consideration of the Commitment, Borrower shall pay to CoBank a commitment
fee on the average daily unused portion of the Commitment as the same may be reduced from time to
time hereunder at the Applicable Commitment Rate (as defined

 

 

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below) per annum (calculated on the basis of the actual number of days elapsed and a year
consisting of 360 days), payable quarterly in arrears on the 20th day of each July, October,
January and April; provided, however, that the last such payment shall be due and payable on the
Maturity Date. Such fee shall be payable for each quarter (or portion thereof) occurring during the
period commencing on the Closing Date and ending on, but not including, the Maturity Date.
“Applicable Commitment Rate” initially, and continuing through the day immediately preceding the
first Adjustment Date on which Borrower demonstrates that a change in the Applicable Commitment
Rate is warranted and requests such change, the Applicable Commitment Rate shall be 0.150%.
Commencing on such Adjustment Date, the Applicable Commitment Rate shall be determined based on the
Total Debt Leverage Ratio, determined in accordance with Subsection 8(J)(1) of the MLA, as of the
last day of each fiscal quarter of Borrower, as set forth in the following table:

	 	 	 	 	 
	 	 	Applicable
	Total Debt Leverage Ratio	 	Commitment Rate
	Greater than or equal to 2.00:1.00
	 	 	0.250	%
	 
	 	 	 	 
	Less than 2,00:1.00 and greater than or equal to 1.50:1.00
	 	 	0.200	%
	 
	 	 	 	 
	Less than 1.50:1.00
	 	 	0.150	%

The Applicable Commitment Rate shall be (i) increased, if warranted, beginning on the date
which is the 5th Business Day following an Adjustment Date and (ii) decreased, if warranted,
beginning on the date which is the 5th Business Day following an Adjustment Date and the after
receipt of Borrower’s written request to decrease the Applicable Commitment Rate. In the event that
CoBank shall not receive when due such financial statements and compliance certificate, then from
such due date and until the 5th Business Day following CoBank’s receipt of such overdue financial
statements and compliance certificate (and in the event a decrease in the Applicable Commitment
Rate is then warranted, receipt of Borrower’s written request to decrease the Applicable Commitment
Rate), the Applicable Commitment Rate shall be 0.150%.

SECTION 6. Repayment of the Loan.

(A) Repayment. On the Maturity Date, the amount of the then unpaid principal balance of the Loan
and any and all other amounts due and owing hereunder or under any other Loan Document relating to
this Loan shall be due and payable.

(B) Application of Repayments; Related Interest. All repayments made pursuant to this Section 6
will be applied to such Portions of the Loan as Borrower direct in writing and, in the absence of
such direction, will first be applied to the Portion of the Loan accruing interest pursuant to the
Base Rate option, then to such Portions of the Loan accruing interest at the LIBOR option and
finally to such Portions of the Loan accruing interest at the Quoted Rate Option. At the time of
each repayment pursuant to this Section 6, Borrower must pay all accrued

 

 

First Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-T1

and unpaid interest on the amount repaid.

SECTION 7. Prepayment. Borrower may, (i) on any Business Day prepay in full or in part any Portion
of the Loan accruing interest at the Base Rate, and (ii) on three Business Days prior written
notice prepay in full or in part any Portion of the Loan accruing interest pursuant to the LIBOR
rate option or the Quoted Rate option. Unless otherwise agreed, all mandatory repayments required
pursuant to Subsections 4(A) and 4(B) of the MLA (whether or not any advances are then outstanding
and available to be repaid) shall be applied to permanently reduce the Commitment (such that the
Commitment may terminate prior to the Maturity Date) and first to Portions of the Loan accruing
interest at the Base Rate and then to such Portions of the Loan accruing interest pursuant to fixed
rate options as the parties shall agree (and if the parties shall fail to agree, to such Portions
of the Loan as CoBank shall specify).

SECTION 8. Security. Borrower’s obligations hereunder and, to the extent related thereto, the MLA,
shall be secured as provided in Section 5 of the MLA.

SECTION 9. Additional Conditions Precedent. In addition to the conditions precedent set forth in
the MLA, CoBank’s obligation to make the initial advance and each additional advance under the Loan
is subject to the satisfaction of each of the following conditions precedent on or before the date
of such advance:

(A) Capital Contribution to CoBank. That Borrower has acquired participation certificates in CoBank
in an initial amount of $1,000.

(B) Closing of Term Loan. That all conditions precedent to the Second Supplement to Master Loan
Agreement have been satisfied;

(C) Intentionally Omitted.

(D) No Material Adverse Change. That from December 31, 2004 to the date of such advance there shall
not have occurred any event which has had or could reasonably be expected to have a Material
Adverse Effect on the business or prospects of Borrower or any of its Subsidiaries, taken as a
whole;

(E) Representations and Warranties. That the representations and warranties of each Borrower
contained in the MLA, this First Supplement and any other Loan Document to which it is a party; be
true and correct in all material respects on and as of the date of each advance, as though made on
and as of such date;

(F) Advance Certificate. That CoBank receive a certificate, in the form of Exhibit A
attached hereto, from the President or Treasurer of each Borrower as to, among other things, the
continuing truth and accuracy of the representations and warranties of each Borrower under the Loan
Documents to which it is a party and the satisfaction of each of the conditions applicable to the
making of the advance;

 

 

First Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-Tl

(G) Opinions of Counsel. That CoBank receives, in form and content reasonably acceptable to CoBank,
opinions of counsel (who shall be acceptable to CoBank) for Borrower; and

(H) Other Information. That CoBank receives such other information regarding the condition,
financial or otherwise, and operations of Borrower as CoBank shall request and such other opinions,
certificates or documents as CoBank shall reasonably request.

[Signatures Follow on Next Page]

 

 

First Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-TI

IN WITNESS WHEREOF, Borrower and CoBank have caused this First Supplement to be executed and
delivered by their respective duly authorized officers as of the date first shown above.

	 	 	 	 	 	 	 
	[CORPORATE SEAL]	 	CT COMMUNICATIONS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Michael R. Coltrane
 

	 	 
	 	 	Michael R. Coltrane	 	 
	 	 	President and Chief Executive Officer	 	 

[Signatures Continue on Next Page]

 

 

First Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-T1

[Signatures Continued from Previous Page]

	 	 	 	 	 	 	 
	 	 	COBANK, ACB	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kurt Morris
 

	 	 
	 	 	Kurt Morris	 	 
	 	 	Vice President	 	 

 

 

Loan No. RX0383-T2

SECOND SUPPLEMENT TO MASTER LOAN AGREEMENT

THIS SECOND SUPPLEMENT (this “Second Supplement”) to Master Loan Agreement dated as of April 18,
2006, is made by and between CoBANK, ACB (“CoBank”) and CT COMMUNICATIONS, INC. (“Borrower”) and
supplements that certain Master Loan Agreement, dated as of even date herewith, by and between
CoBank and Borrower (as the same may be amended, modified, supplemented, extended or restated from
time to time, the “MLA”). Capitalized terms used herein and not otherwise defined in this Second
Supplement shall have the meanings ascribed to them in the MLA.

SECTION 1. The Term Loan. On the terms and conditions set forth in the MLA and this Second
Supplement, CoBank agrees to make a loan to Borrower, by means of a single advance in an aggregate
principal amount of $43,750,000 (the “Loan”). Loan amounts borrowed and later repaid may not be
reborrowed.

SECTION 2. Purpose. The purpose of the Loan is to consolidate Borrower’s existing term loan (under
that certain Credit Agreement dated as of May 4, 2001 by and among Borrower, CoBank as
Administrative Agent and a Lender, and the other Lenders named therein (the “Existing Term Loan”))
to Borrower’s Master Loan Agreement No. 0383 with CoBank. Borrower agrees that the proceeds of the
Loan are to be used only for the purposes set forth in this Section 2.

SECTION 3. Availability. Subject to Sections 2 of the MLA and Section 6 of this Second Supplement,
the Loan will be advanced in a single advance on the date on which all conditions precedent to the
Loan are satisfied (the “Closing Date”).

SECTION 4. Interest; Payment; Prepayment.

(A) Fixed Rate Interest. Borrower agrees to pay interest on the unpaid principal balance of the
Loan at a fixed annual interest rate of 7.32% per annum, calculated on the basis of a 360 day year
for the actual number of days elapsed, together with any accrued but unpaid interest on the
Existing Term Loan from January 1, 2006 through the date immediately preceding the Closing Date.
Interest shall accrue on the unpaid principal balance of the Loan from and including the Closing
Date to but excluding December 31, 2014 (the “Maturity Date”).

(B) Payment and Calculation. Commencing on June 30, 2006 and on each September 30, December 31,
March 31 and June 30 thereafter through and including the Maturity Date, Borrower shall pay
principal and interest on the Loan in equal quarterly payments of $1,250,000. On the Maturity Date,
the amount of the then unpaid principal balance of the Loan and any and all other amounts due and
owing hereunder or under any other Loan Document relating to this Loan shall be due and payable.

 

 

Second Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-T2

(C) Prepayment. Subject to Section 4(D) of the MLA and that certain Forward Fix Letter Agreement
dated March 5, 2001, a copy of which is attached hereto as Exhibit A, Borrower may, on two
Business Day’s prior written notice, prepay the Loan in full or in part.

SECTION 5. Security. Borrower’s obligations hereunder and, to the extent related thereto, the MLA,
shall be secured as provided in Section 5 of the MLA.

SECTION 6. Additional Conditions Precedent. In addition to the conditions precedent set forth in
the MLA, CoBank’s obligation to make the Loan is subject to the satisfaction of each of the
following conditions precedent on or before the date of the Loan:

(A) Closing of Revolver Loan. That all conditions precedent to the First Supplement to Master Loan
Agreement have been satisfied;

(B) Existing Indebtedness. That CoBank shall have received evidence satisfactory to it that,
simultaneously with the initial advance under the Loan, the Existing Term Loan will be deemed
repaid in full under the terms of the related credit agreement; and

(C) No Material Adverse Change. That from December 31, 2004, to the date of such advance there
shall not have occurred any event which has had or could reasonably be expected to have a Material
Adverse Effect on the business or prospects of Borrower or any of their Subsidiaries, taken as a
whole;

(D) Representations and Warranties. That the representations and warranties of each Borrower
contained in the MLA, this Second Supplement and any other Loan Document to which it is a party be
true and correct in all material respects on and as of the date of each advance, as though made on
and as of such date;

(E) Closing Certificate. That CoBank receive a certificate, in the form of Exhibit B
attached hereto, executed by the President or Treasurer of each Borrower, certifying as to, among
other things, the continuing truth and accuracy of the representations and warranties of each
Borrower under the Loan Documents to which it is a party and the satisfaction of each of the
conditions applicable to the making of the Loan;

(F) Opinions of Counsel. That CoBank receives, in form and content reasonably acceptable to CoBank,
opinions of counsel (who shall be acceptable to CoBank) for Borrower;

(G) Other Information. That CoBank receives such other information regarding the condition,
financial or otherwise, and operations of Borrower as CoBank shall request and such other opinions,
certificates or documents as CoBank shall reasonably request.

{Signatures Follow on Next Page]

 

 

Second Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-T2

IN WITNESS WHEREOF, Borrower and CoBank have each caused this Second Supplement to be executed and
delivered by their respective duly authorized officer as of the date first shown above.

	 	 	 
	[CORPORATE SEAL]

	 	CT COMMUNICATIONS, INC.

	 	 	 	 	 
	 	 	 
	 	By:  	                                            /s/ Michael R. Coltrane
 	 
	 	Michael R. Coltrane 	 
	 	President and Chief Executive Officer 	 
	 

[Signatures Continue on Next Page]

 

 

Second Supplement to Master Loan Agreement/CT Communications, Inc.

Loan No. RX0383-T2

[Signatures Continued from Previous Page]

	 	 	 	 	 
	 	COBANK, ACB

 	 
	 	By:  	/s/ Kurt Morris
 	 
	 	Kurt Morris 	 
	 	Vice President

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