Document:

Exhibit 10.2

                               GUARANTEE AGREEMENT

                            GRANDSOUTH BANCORPORATION

                            Dated as of May 10, 2006

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                               GUARANTEE AGREEMENT

         This GUARANTEE  AGREEMENT (the "Guarantee"),  dated as of May 10, 2006,
is executed and delivered by GrandSouth  Bancorporation,  a bank holding company
incorporated in South Carolina (the "Guarantor"),  and Wilmington Trust Company,
a Delaware banking corporation,  as trustee (the "Guarantee  Trustee"),  for the
benefit of the  Holders  (as  defined  herein)  from time to time of the Capital
Securities  (as  defined  herein)  of  GrandSouth  Capital  Trust I, a  Delaware
statutory trust (the "Issuer").

         WHEREAS,  pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"),  dated as of May 10, 2006,  among the trustees  named therein of
the Issuer, GrandSouth Bancorporation,  as sponsor, and the Holders from time to
time of undivided  beneficial  interests in the assets of the Issuer, the Issuer
is issuing on the date hereof securities, having an aggregate liquidation amount
of  up  to  $8,000,000,   designated  the  Capital   Securities   (the  "Capital
Securities"); and

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

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

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

         Section 1.1. Definitions and Interpretation.

         In this Guarantee, unless the context otherwise requires:

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

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

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

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

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

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

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

         "Corporate  Trust Office" means the office of the Guarantee  Trustee at
which the  corporate  trust  business of the  Guarantee  Trustee  shall,  at any
particular  time,  be  principally  administered,  which  office  at the date of
execution of this Guarantee is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001.

         "Covered Person" means any Holder of Capital Securities.

         "Debentures"  means the junior  subordinated  debentures  of GrandSouth
Bancorporation, designated the Floating Rate Junior Subordinated Debt Securities
due 2036, held by the  Institutional  Trustee (as defined in the Declaration) of
the Issuer.

         "Event of Default" has the meaning set forth in Section 2.4.

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

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

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

         "Indemnified  Person"  means the  Guarantee  Trustee  (including in its
individual  capacity),  any Affiliate of the Guarantee Trustee, or any officers,
directors,   shareholders,   members,  partners,   employees,   representatives,
nominees, custodians or agents of the Guarantee Trustee.

         "Indenture" means the Indenture,  dated as of May 10, 2006, between the
Guarantor and  Wilmington  Trust  Company,  not in its  individual  capacity but
solely as trustee, and any indenture  supplemental thereto pursuant to which the
Debentures are to be issued to the Institutional Trustee of the Issuer.

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

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

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

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

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

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

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

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

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

         "Responsible Officer" means, with respect to the Guarantee Trustee, any
officer within the Corporate  Trust Office of the Guarantee  Trustee with direct
responsibility for the administration of any matters relating to this Guarantee,

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including any vice president,  any assistant vice president,  any secretary, any
assistant secretary,  the treasurer,  any assistant treasurer, any trust officer
or  other  officer  of the  Corporate  Trust  Office  of the  Guarantee  Trustee
customarily  performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter,  any other  officer  to whom such  matter is  referred  because  of that
officer's knowledge of and familiarity with the particular subject.

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

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

                                   ARTICLE II

               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

         Section 2.1. Powers and Duties of the Guarantee Trustee.

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

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

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

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

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

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

                    (B) in the absence of bad faith on the part of the Guarantee
               Trustee,  the Guarantee Trustee may conclusively  rely, as to the
               truth  of the  statements  and the  correctness  of the  opinions
               expressed therein, upon any certificates or opinions furnished to
               the Guarantee  Trustee and conforming to the requirements of this
               Guarantee;  but in the case of any such  certificates or opinions
               furnished to the Guarantee  Trustee,  the Guarantee Trustee shall
               be under a duty to examine the same to  determine  whether or not
               on their face they conform to the requirements of this Guarantee;

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

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

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

         Section 2.2. Certain Rights of the Guarantee Trustee.

         (a) Subject to the provisions of Section 2.1:

               (i) The Guarantee  Trustee may  conclusively  rely,  and shall be
          fully  protected  in  acting  or  refraining  from  acting  upon,  any
          resolution,   certificate,  statement,  instrument,  opinion,  report,
          notice, request,  direction,  consent,  order, bond, debenture,  note,

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          other evidence of indebtedness or other paper or document  believed by
          it to be genuine and to have been  signed,  sent or  presented  by the
          proper party or parties.

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

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

               (iv)  The  Guarantee  Trustee  shall  have  no duty to see to any
          recording,  filing or  registration of any instrument or other writing
          (or any rerecording, refiling or reregistration thereof).

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

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

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

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

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

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

               (xi) The  Guarantee  Trustee  shall not be liable  for any action
          taken,  suffered,  or  omitted  to be  taken by it in good  faith  and
          reasonably believed by it to be authorized or within the discretion or
          rights or powers conferred upon it by this Guarantee.

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

         Section 2.3. Not Responsible for Recitals or Issuance of Guarantee.

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

         Section 2.4. Events of Default; Waiver.

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

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

         Section 2.5. Events of Default; Notice.

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

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

                                  ARTICLE III

                              THE GUARANTEE TRUSTEE

         Section 3.1. The Guarantee Trustee; Eligibility.

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

               (i) not be an Affiliate of the Guarantor; and

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

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

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

         Section 3.2.  Appointment,  Removal and  Resignation  of the  Guarantee
Trustee.

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

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

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

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

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

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

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                                   ARTICLE IV

                                    GUARANTEE

         Section 4.1. Guarantee.

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

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

         Section 4.2. Waiver of Notice and Demand.

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

         Section 4.3. Obligations Not Affected.

         The  obligations,  covenants,  agreements  and duties of the  Guarantor
under this  Guarantee  shall in no way be  affected or impaired by reason of the
happening from time to time of any of the following:

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

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

                                       10
<PAGE>

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

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

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

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

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

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

         Section 4.4. Rights of Holders.

          (a) The  Holders of a Majority  in  liquidation  amount of the Capital
     Securities  have  the  right  to  direct  the  time,  method  and  place of
     conducting any proceeding for any remedy available to the Guarantee Trustee
     in respect of this  Guarantee  or to direct  the  exercise  of any trust or
     power conferred upon the Guarantee Trustee under this Guarantee;  provided,
     however, that (subject to Sections 2.1 and 2.2) the Guarantee Trustee shall
     have the right to  decline to follow any such  direction  if the  Guarantee
     Trustee  shall  determine  that the actions so  directed  would be unjustly
     prejudicial  to the  Holders not taking  part in such  direction  or if the
     Guarantee  Trustee being advised by counsel  determines  that the action or
     proceeding  so  directed  may not  lawfully  be taken  or if the  Guarantee
     Trustee  in good faith by its board of  directors  or  trustees,  executive
     committee or a trust committee of directors or trustees and/or  Responsible
     Officers  shall  determine  that the action or proceeding so directed would
     involve the Guarantee Trustee in personal liability.

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

                                       11
<PAGE>

         Section 4.5. Guarantee of Payment.

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

         Section 4.6. Subrogation.

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

         Section 4.7. Independent Obligations.

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

         Section 4.8. Enforcement.

         A Beneficiary may enforce the Obligations of the Guarantor contained in
Section  4.1(b)  directly  against the Guarantor,  and the Guarantor  waives any
right or remedy to require that any action be brought  against the Issuer or any
other person or entity before proceeding against the Guarantor.

         The  Guarantor  shall  be  subrogated  to all  rights  (if  any) of any
Beneficiary   against  the  Issuer  in  respect  of  any  amounts  paid  to  the
Beneficiaries by the Guarantor under this Guarantee; provided, however, that the
Guarantor shall not (except to the extent  required by applicable  provisions of
law) be entitled to enforce or exercise any rights that it may acquire by way of
subrogation or any indemnity,  reimbursement or other agreement, in all cases as
a result of payment  under  this  Guarantee,  if,  after  giving  effect to such
payment, any amounts are due and unpaid under this Guarantee.

                                   ARTICLE V

                    LIMITATION OF TRANSACTIONS; SUBORDINATION

         Section 5.1. Limitation of Transactions.

         So long as any  Capital  Securities  remain  outstanding,  if (a) there
shall have  occurred and be  continuing an Event of Default or (b) the Guarantor
shall have selected an Extension  Period as provided in the Declaration and such
period, or any extension thereof,  shall have commenced and be continuing,  then
the Guarantor may not (x) declare or pay any dividends or  distributions  on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of

                                       12
<PAGE>

the  Guarantor's  capital  stock or (y)  make any  payment  of  principal  of or
interest  or  premium,  if any,  on or  repay,  repurchase  or  redeem  any debt
securities of the Guarantor  that rank pari passu in all respects with or junior
in interest to the  Debentures  (other than (i) payments  under this  Guarantee,
(ii) repurchases,  redemptions or other  acquisitions of shares of capital stock
of the Guarantor (A) in connection with any employment contract, benefit plan or
other  similar  arrangement  with or for the  benefit of one or more  employees,
officers,   directors,  or  consultants,  (B)  in  connection  with  a  dividend
reinvestment  or stockholder  stock purchase plan or (C) in connection  with the
issuance of capital stock of the Guarantor (or  securities  convertible  into or
exercisable  for  such  capital  stock),  as  consideration  in  an  acquisition
transaction  entered into prior to the occurrence of the Event of Default or the
applicable  Extension Period, (iii) as a result of any exchange or conversion of
any class or series of the Guarantor's  capital stock (or any capital stock of a
subsidiary of the Guarantor) for any class or series of the Guarantor's  capital
stock or of any class or series of the Guarantor's indebtedness for any class or
series  of the  Guarantor's  capital  stock,  (iv) the  purchase  of  fractional
interests in shares of the Guarantor's  capital stock pursuant to the conversion
or exchange  provisions of such capital stock or the security being converted or
exchanged,   (v)  any   declaration  of  a  dividend  in  connection   with  any
stockholder's  rights plan, or the issuance of rights,  stock or other  property
under any  stockholder's  rights plan, or the redemption or repurchase of rights
pursuant thereto, or (vi) any dividend in the form of stock,  warrants,  options
or other rights where the dividend  stock or the stock issuable upon exercise of
such  warrants,  options or other  rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock).

         Section 5.2. Ranking.

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

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

                                       13
<PAGE>

                                   ARTICLE VI

                                   TERMINATION

         Section 6.1. Termination.

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

                                  ARTICLE VII

                                 INDEMNIFICATION

         Section 7.1. Exculpation.

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

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

         Section 7.2. Indemnification.

          (a) The Guarantor agrees to indemnify each Indemnified Person for, and
     to hold  each  Indemnified  Person  harmless  against,  any  and all  loss,
     liability,  damage, claim or expense incurred without negligence or willful
     misconduct  on the part of the  Indemnified  Person,  arising  out of or in
     connection  with the  acceptance or  administration  of the trust or trusts
     hereunder,  including but not limited to the costs and expenses  (including
     reasonable  legal fees and expenses) of the  Indemnified  Person  defending
     itself against, or investigating, any claim or liability in connection with
     the exercise or performance of any of the  Indemnified  Person's  powers or

                                       14
<PAGE>

     duties hereunder.  The obligation to indemnify as set forth in this Section
     7.2 shall survive the  resignation or removal of the Guarantee  Trustee and
     the termination of this Guarantee.

          (b) Promptly after receipt by an Indemnified Person under this Section
     7.2 of notice of the commencement of any action,  such  Indemnified  Person
     will,  if a claim in respect  thereof is to be made  against the  Guarantor
     under this Section 7.2, notify the Guarantor in writing of the commencement
     thereof;  but the failure so to notify the  Guarantor  (i) will not relieve
     the Guarantor  from liability  under  paragraph (a) above unless and to the
     extent that the Guarantor  did not otherwise  learn of such action and such
     failure  results in the forfeiture by the Guarantor of  substantial  rights
     and defenses and (ii) will not, in any event,  relieve the  Guarantor  from
     any  obligations to any Indemnified  Person other than the  indemnification
     obligation provided in paragraph (a) above. The Guarantor shall be entitled
     to appoint counsel of the Guarantor's choice at the Guarantor's  expense to
     represent the Indemnified Person in any action for which indemnification is
     sought (in which case the Guarantor shall not thereafter be responsible for
     the fees and expenses of any separate  counsel  retained by the Indemnified
     Person or Persons except as set forth below); provided,  however, that such
     counsel shall be satisfactory to the  Indemnified  Person.  Notwithstanding
     the  Guarantor's  election to appoint  counsel to represent the Indemnified
     Person in any action, the Indemnified Person shall have the right to employ
     separate counsel  (including  local counsel),  and the Guarantor shall bear
     the reasonable  fees, costs and expenses of such separate  counsel,  if (i)
     the use of counsel  chosen by the  Guarantor to represent  the  Indemnified
     Person would  present  such  counsel with a conflict of interest,  (ii) the
     actual or potential  defendants  in, or targets of, any such action include
     both the Indemnified  Person and the Guarantor and the  Indemnified  Person
     shall have reasonably  concluded that there may be legal defenses available
     to it  and/or  other  Indemnified  Persons  which  are  different  from  or
     additional to those  available to the Guarantor,  (iii) the Guarantor shall
     not  have  employed  counsel  satisfactory  to the  Indemnified  Person  to
     represent the  Indemnified  Person within a reasonable time after notice of
     the  institution of such action or (iv) the Guarantor  shall  authorize the
     Indemnified  Person  to  employ  separate  counsel  at the  expense  of the
     Guarantor. The Guarantor will not, without the prior written consent of the
     Indemnified  Persons,  settle or  compromise or consent to the entry of any
     judgment with respect to any pending or threatened claim,  action,  suit or
     proceeding  in  respect of which  indemnification  or  contribution  may be
     sought  hereunder  (whether  or not the  Indemnified  Persons are actual or
     potential  parties  to  such  claim  or  action)  unless  such  settlement,
     compromise or consent includes an unconditional release of each Indemnified
     Person  from all  liability  arising  out of such  claim,  action,  suit or
     proceeding.

         Section 7.3. Compensation; Reimbursement of Expenses.

         The Guarantor agrees:

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

                                       15
<PAGE>

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

         The  provisions  of this Section 7.3 shall survive the  resignation  or
removal of the Guarantee Trustee and the termination of this Guarantee.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         Section 8.1. Successors and Assigns.

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

         Section 8.2. Amendments.

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

         Section 8.3. Notices.

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

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

                           Wilmington Trust Company
                           Rodney Square North
                           1100 North Market Street
                           Wilmington, Delaware 19890-0001
                           Attention:  Corporate Capital Markets
                           Telecopy:   302-636-4140
                           Telephone:  302-651-1000

                                       16
<PAGE>

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

                           GrandSouth Bancorporation
                           381 Halton Road
                           Greenville, South Carolina 29606
                           Attention:John Butler Garrett
                           Telecopy: (864) 770-1081
                           Telephone: (864) 770-1000

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

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

         Section 8.4. Benefit.

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

         Section 8.5. Governing Law.

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

         Section 8.6. Counterparts.

         This  Guarantee may contain more than one  counterpart of the signature
page and this  Guarantee may be executed by the affixing of the signature of the
Guarantor and the Guarantee Trustee to any of such counterpart  signature pages.
All of such  counterpart  signature  pages shall be read as though one, and they
shall have the same force and effect as though all of the  signers  had signed a
single signature page.

                                       17
<PAGE>

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

                              [SIGNATURES OMITTED]

                                       18
<PAGE>

                                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             Page

<S>                                                                                                             <C>
ARTICLE I             DEFINITIONS AND INTERPRETATION.............................................................1

         Section 1.1.          Definitions and Interpretation....................................................1

ARTICLE II            POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE.........................................4

         Section 2.1.          Powers and Duties of the Guarantee Trustee........................................4

         Section 2.2.          Certain Rights of the Guarantee Trustee...........................................5

         Section 2.3.          Not Responsible for Recitals or Issuance of Guarantee.............................7

         Section 2.4.          Events of Default; Waiver.........................................................7

         Section 2.5.          Events of Default; Notice.........................................................8

ARTICLE III           THE GUARANTEE TRUSTEE......................................................................8

         Section 3.1.          The Guarantee Trustee; Eligibility................................................8

         Section 3.2.          Appointment, Removal and Resignation of the Guarantee Trustee.....................9

ARTICLE IV            GUARANTEE.................................................................................10

         Section 4.1.          Guarantee........................................................................10

         Section 4.2.          Waiver of Notice and Demand......................................................10

         Section 4.3.          Obligations Not Affected.........................................................10

         Section 4.4.          Rights of Holders................................................................11

         Section 4.5.          Guarantee of Payment.............................................................11

         Section 4.6.          Subrogation......................................................................12

         Section 4.7.          Independent Obligations..........................................................12

         Section 4.8.          Enforcement......................................................................12

ARTICLE V             LIMITATION OF TRANSACTIONS; SUBORDINATION.................................................12

         Section 5.1.          Limitation of Transactions.......................................................12

         Section 5.2.          Ranking..........................................................................13

ARTICLE VI            TERMINATION...............................................................................14

         Section 6.1.          Termination......................................................................14

ARTICLE VII           INDEMNIFICATION...........................................................................14

         Section 7.1.          Exculpation......................................................................14

         Section 7.2.          Indemnification..................................................................14

         Section 7.3.          Compensation; Reimbursement of Expenses..........................................15

                                       i
<PAGE>

                                                 TABLE OF CONTENTS
                                                    (continued)
                                                                                                             Page

ARTICLE VIII          MISCELLANEOUS.............................................................................16

         Section 8.1.          Successors and Assigns...........................................................16

         Section 8.2.          Amendments.......................................................................16

         Section 8.3.          Notices..........................................................................16

         Section 8.4.          Benefit..........................................................................17

         Section 8.5.          Governing Law....................................................................17

         Section 8.6.          Counterparts.....................................................................17
</TABLE>

                                       iiExhibit 10.3

                            GRANDSOUTH BANCORPORATION
                                    as Issuer

                                    INDENTURE

                            Dated as of May 10, 2006

                            WILMINGTON TRUST COMPANY
                                   as Trustee

           FLOATING RATE JUNIOR SUBORDINATED DEBT SECURITIES DUE 2036

<PAGE>

<TABLE>
<CAPTION>
                                                 TABLE OF CONTENTS

<S>                                                                                                             <C>
ARTICLE I             DEFINITIONS................................................................................1

         Section 1.01.         Definitions.......................................................................1

ARTICLE II            DEBT SECURITIES............................................................................9

         Section 2.01.         Authentication and Dating.........................................................9

         Section 2.02.         Form of Trustee's Certificate of Authentication...................................9

         Section 2.03.         Form and Denomination of Debt Securities..........................................9

         Section 2.04.         Execution of Debt Securities.....................................................10

         Section 2.05.         Exchange and Registration of Transfer of Debt Securities.........................10

         Section 2.06.         Mutilated, Destroyed, Lost or Stolen Debt Securities.............................13

         Section 2.07.         Temporary Debt Securities........................................................14

         Section 2.08.         Payment of Interest..............................................................14

         Section 2.09.         Cancellation of Debt Securities Paid, etc........................................16

         Section 2.10.         Computation of Interest..........................................................16

         Section 2.11.         Extension of Interest Payment Period.............................................18

         Section 2.12.         CUSIP Numbers....................................................................18

ARTICLE III           PARTICULAR COVENANTS OF THE COMPANY.......................................................19

         Section 3.01.         Payment of Principal, Premium and Interest; Agreed Treatment of the Debt
                               Securities.......................................................................19

         Section 3.02.         Offices for Notices and Payments, etc............................................19

         Section 3.03.         Appointments to Fill Vacancies in Trustee's Office...............................20

         Section 3.04.         Provision as to Paying Agent.....................................................20

         Section 3.05.         Certificate to Trustee...........................................................21

         Section 3.06.         Additional Interest..............................................................21

         Section 3.07.         Compliance with Consolidation Provisions.........................................22

         Section 3.08.         Limitation on Dividends..........................................................22

         Section 3.09.         Covenants as to the Trust........................................................22

ARTICLE IV            LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE..........................................23

         Section 4.01.         Securityholders' Lists...........................................................23

         Section 4.02.         Preservation and Disclosure of Lists.............................................23

         Section 4.03.         Financial and Other Information..................................................24

                                        i
<PAGE>

                                                 TABLE OF CONTENTS
                                                    (continued)
                                                                                                             Page

ARTICLE V             REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS UPON AN EVENT OF DEFAULT......................25

         Section 5.01.         Events of Default................................................................25

         Section 5.02.         Payment of Debt Securities on Default; Suit Therefor.............................27

         Section 5.03.         Application of Moneys Collected by Trustee.......................................28

         Section 5.04.         Proceedings by Securityholders...................................................28

         Section 5.05.         Proceedings by Trustee...........................................................29

         Section 5.06.         Remedies Cumulative and Continuing...............................................29

         Section 5.07.         Direction of Proceedings and Waiver of Defaults by Majority of
                               Securityholders..................................................................29

         Section 5.08.         Notice of Defaults...............................................................30

         Section 5.09.         Undertaking to Pay Costs.........................................................30

ARTICLE VI            CONCERNING THE TRUSTEE....................................................................31

         Section 6.01.         Duties and Responsibilities of Trustee...........................................31

         Section 6.02.         Reliance on Documents, Opinions, etc.............................................32

         Section 6.03.         No Responsibility for Recitals, etc..............................................33

         Section 6.04.         Trustee, Authenticating Agent, Paying Agents, Transfer Agents or
                               Registrar May Own Debt Securities................................................33

         Section 6.05.         Moneys to be Held in Trust.......................................................33

         Section 6.06.         Compensation and Expenses of Trustee.............................................34

         Section 6.07.         Officers' Certificate as Evidence................................................34

         Section 6.08.         Eligibility of Trustee...........................................................35

         Section 6.09.         Resignation or Removal of Trustee................................................35

         Section 6.10.         Acceptance by Successor Trustee..................................................36

         Section 6.11.         Succession by Merger, etc........................................................37

         Section 6.12.         Authenticating Agents............................................................38

ARTICLE VII           CONCERNING THE SECURITYHOLDERS............................................................39

         Section 7.01.         Action by Securityholders........................................................39

         Section 7.02.         Proof of Execution by Securityholders............................................40

         Section 7.03.         Who Are Deemed Absolute Owners...................................................40

         Section 7.04.         Debt Securities Owned by Company Deemed Not Outstanding..........................40

         Section 7.05.         Revocation of Consents; Future Holders Bound.....................................40

                                       ii
<PAGE>

                                                 TABLE OF CONTENTS
                                                    (continued)
                                                                                                             Page

ARTICLE VIII          SECURITYHOLDERS' MEETINGS.................................................................41

         Section 8.01.         Purposes of Meetings.............................................................41

         Section 8.02.         Call of Meetings by Trustee......................................................41

         Section 8.03.         Call of Meetings by Company or Securityholders...................................42

         Section 8.04.         Qualifications for Voting........................................................42

         Section 8.05.         Regulations......................................................................42

         Section 8.06.         Voting...........................................................................43

         Section 8.07.         Quorum; Actions..................................................................43

ARTICLE IX            SUPPLEMENTAL INDENTURES...................................................................44

         Section 9.01.         Supplemental Indentures without Consent of Securityholders.......................44

         Section 9.02.         Supplemental Indentures with Consent of Securityholders..........................45

         Section 9.03.         Effect of Supplemental Indentures................................................46

         Section 9.04.         Notation on Debt Securities......................................................47

         Section 9.05.         Evidence of Compliance of Supplemental Indenture to be Furnished to
                               Trustee..........................................................................47

ARTICLE X             REDEMPTION OF SECURITIES..................................................................47

         Section 10.01.        Optional Redemption..............................................................47

         Section 10.02.        Special Event Redemption.........................................................47

         Section 10.03.        Notice of Redemption; Selection of Debt Securities...............................47

         Section 10.04.        Payment of Debt Securities Called for Redemption.................................48

ARTICLE XI            CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.........................................49

         Section 11.01.        Company May Consolidate, etc., on Certain Terms..................................49

         Section 11.02.        Successor Entity to be Substituted...............................................49

         Section 11.03.        Opinion of Counsel to be Given to Trustee........................................50

ARTICLE XII           SATISFACTION AND DISCHARGE OF INDENTURE...................................................50

         Section 12.01.        Discharge of Indenture...........................................................50

         Section 12.02.        Deposited Moneys to be Held in Trust by Trustee..................................51

         Section 12.03.        Paying Agent to Repay Moneys Held................................................51

         Section 12.04.        Return of Unclaimed Moneys.......................................................51

                                       iii
<PAGE>

                                                 TABLE OF CONTENTS
                                                    (continued)
                                                                                                             Page

ARTICLE XIII          IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS...........................51

         Section 13.01.        Indenture and Debt Securities Solely Corporate Obligations.......................51

ARTICLE XIV           MISCELLANEOUS PROVISIONS..................................................................52

         Section 14.01.        Successors.......................................................................52

         Section 14.02.        Official Acts by Successor Entity................................................52

         Section 14.03.        Surrender of Company Powers......................................................52

         Section 14.04.        Addresses for Notices, etc.......................................................52

         Section 14.05.        Governing Law....................................................................52

         Section 14.06.        Evidence of Compliance with Conditions Precedent.................................53

         Section 14.07.        Business Day Convention..........................................................53

         Section 14.08.        Table of Contents, Headings, etc.................................................53

         Section 14.09.        Execution in Counterparts........................................................53

         Section 14.10.        Separability.....................................................................54

         Section 14.11.        Assignment.......................................................................54

         Section 14.12.        Acknowledgment of Rights.........................................................54

ARTICLE XV            SUBORDINATION OF DEBT SECURITIES..........................................................54

         Section 15.01         Agreement to Subordinate.........................................................54

         Section 15.02.        Default on Senior Indebtedness...................................................55

         Section 15.03.        Liquidation; Dissolution; Bankruptcy.............................................55

         Section 15.04.        Subrogation......................................................................56

         Section 15.05.        Trustee to Effectuate Subordination..............................................57

         Section 15.06.        Notice by the Company............................................................57

         Section 15.07.        Rights of the Trustee; Holders of Senior Indebtedness............................58

         Section 15.08.        Subordination May Not Be Impaired................................................59

EXHIBIT A             FORM OF FLOATING RATE JUNIOR SUBORDINATED DEBT SECURITY DUE 2036.........................A-1

EXHIBIT B             FORM OF CERTIFICATE OF OFFICER OF THE COMPANY............................................B-1
</TABLE>

                                       iv
<PAGE>

         THIS  INDENTURE,   dated  as  of  May  10,  2006,   between  GrandSouth
Bancorporation,   a  bank  holding   company   incorporated  in  South  Carolina
(hereinafter  sometimes called the "Company"),  and Wilmington Trust Company,  a
Delaware  banking  corporation,  as trustee  (hereinafter  sometimes  called the
"Trustee").

                              W I T N E S S E T H :

         WHEREAS,  for its  lawful  corporate  purposes,  the  Company  has duly
authorized the issuance of its Floating Rate Junior Subordinated Debt Securities
due 2036 (the "Debt  Securities")  under this  Indenture  and to provide,  among
other things, for the execution and authentication,  delivery and administration
thereof, the Company has duly authorized the execution of this Indenture.

         NOW, THEREFORE,  in consideration of the premises,  and the purchase of
the Debt  Securities by the holders  thereof,  the Company  covenants and agrees
with the  Trustee  for the equal and  proportionate  benefit  of the  respective
holders from time to time of the Debt Securities as follows:

                                   ARTICLE I

                                   DEFINITIONS

         Section 1.01 Definitions.

         The terms  defined in this  Section  1.01  (except as herein  otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this  Indenture  and  of  any  indenture  supplemental  hereto  shall  have  the
respective  meanings  specified in this Section 1.01. All accounting  terms used
herein and not expressly  defined shall have the meanings assigned to such terms
in  accordance  with  generally  accepted  accounting  principles  and the  term
"generally accepted accounting  principles" means such accounting  principles as
are generally accepted in the United States at the time of any computation.  The
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision.

         "Additional Interest" shall have the meaning set forth in Section 3.06.

         "Additional  Provisions"  shall have the  meaning  set forth in Section
15.01.

         "Authenticating  Agent" means any agent or agents of the Trustee  which
at the time shall be appointed and acting pursuant to Section 6.12.

         "Bankruptcy  Law" means Title 11, U.S. Code, or any similar  federal or
state law for the relief of debtors.

         "Board of  Directors"  means the board of  directors  or the  executive
committee or any other duly authorized designated officers of the Company.

<PAGE>

         "Board  Resolution"  means  a copy  of a  resolution  certified  by the
Secretary or an Assistant  Secretary of the Company to have been duly adopted by
the Board of  Directors  and to be in full  force and effect on the date of such
certification and delivered to the Trustee.

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

         "Calculation  Agent"  means the Person  identified  as "Trustee" in the
first paragraph hereof with respect to the Debt Securities and the Institutional
Trustee with respect to the Trust Securities.

         "Capital Securities" means undivided beneficial interests in the assets
of the Trust which are  designated as "Capital  Securities"  and rank pari passu
with Common Securities issued by the Trust; provided,  however, that if an Event
of Default (as defined in the Declaration)  has occurred and is continuing,  the
rights  of  holders  of  such  Common   Securities  to  payment  in  respect  of
distributions  and payments  upon  liquidation,  redemption  and  otherwise  are
subordinated to the rights of holders of such Capital Securities.

         "Capital  Securities  Guarantee" means the guarantee agreement that the
Company  will enter into with  Wilmington  Trust  Company or other  Persons that
operates directly or indirectly for the benefit of holders of Capital Securities
of the Trust.

         "Capital  Treatment  Event"  means the  receipt by the  Company and the
Trust of an Opinion of Counsel  experienced  in such matters to the effect that,
as a result of any amendment to, or change in, the laws, rules or regulations of
the United States or any  political  subdivision  thereof or therein,  or as the
result of any  official or  administrative  pronouncement  or action or decision
interpreting  or applying such laws,  rules or  regulations,  which amendment or
change is effective or which  pronouncement,  action or decision is announced on
or after the date of  original  issuance of the Debt  Securities,  there is more
than an insubstantial risk that the Company will not, within 90 days of the date
of such  opinion,  be  entitled  to  treat  an  amount  equal  to the  aggregate
Liquidation  Amount of the Capital  Securities  as "Tier 1 Capital" (or the then
equivalent  thereof)  for  purposes of the capital  adequacy  guidelines  of the
Federal Reserve (or any successor  regulatory  authority with  jurisdiction over
bank  holding  companies),  as then in effect  and  applicable  to the  Company,
provided,  however,  that the  distribution of the Debt Securities in connection
with the  liquidation  of the  Trust by the  Company  shall not in and of itself
constitute a Capital Treatment Event unless such liquidation shall have occurred
in connection with a Tax Event or an Investment Company Event.

         "Certificate"  means a  certificate  signed by any one of the principal
executive officer,  the principal financial officer or the principal  accounting
officer of the Company.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Common Securities" means undivided  beneficial interests in the assets
of the Trust which are  designated  as "Common  Securities"  and rank pari passu
with Capital Securities issued by the Trust; provided, however, that if an Event
of Default (as defined in the Declaration)  has occurred and is continuing,  the
rights  of  holders  of  such  Common   Securities  to  payment  in  respect  of

                                       2
<PAGE>

distributions  and payments  upon  liquidation,  redemption  and  otherwise  are
subordinated to the rights of holders of such Capital Securities.

         "Company"  means  GrandSouth  Bancorporation,  a bank  holding  company
incorporated  in South Carolina,  and,  subject to the provisions of Article XI,
shall include its successors and assigns.

         "Debt  Security"  or "Debt  Securities"  has the meaning  stated in the
first recital of this Indenture.

         "Debt Security Register" has the meaning specified in Section 2.05.

         "Declaration"  means the Amended and Restated  Declaration  of Trust of
the Trust  dated as of May 10,  2006,  as amended or  supplemented  from time to
time.

         "Default"  means any event,  act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.

         "Defaulted Interest" has the meaning set forth in Section 2.08.

         "Deferred Interest" has the meaning set forth in Section 2.11.

         "Event of Default" means any event specified in Section 5.01, which has
continued for the period of time, if any, and after the giving of the notice, if
any, therein designated.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Extension Period" has the meaning set forth in Section 2.11.

         "Federal  Reserve" means the Board of Governors of the Federal  Reserve
System.

         "Indenture" means this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented, or both.

         "Institutional Trustee" has the meaning set forth in the Declaration.

         "Interest  Payment  Date  means  March 23,  June 23,  September  23 and
December 23 of each year,  commencing on June 23, 2006,  during the term of this
Indenture.

         "Interest Period" has the meaning set forth in Section 2.08.

         "Interest Rate" means, with respect to any Interest Period, a per annum
rate of interest equal to LIBOR, as determined on the LIBOR  Determination  Date
for such Interest Period, plus 1.85%.

         "Investment  Company  Event"  means the  receipt by the Company and the
Trust of an Opinion of Counsel  experienced  in such matters to the effect that,
as a result of a change in law or regulation or written change in interpretation

                                       3
<PAGE>

or application of law or regulation by any legislative body, court, governmental
agency or regulatory  authority,  there is more than an insubstantial  risk that
the Trust is or, within 90 days of the date of such opinion will be,  considered
an "investment  company" that is required to be registered  under the Investment
Company Act of 1940, as amended,  which change becomes effective on or after the
date of the original issuance of the Debt Securities.

         "LIBOR" means the London Interbank Offered Rate for
three-month  U.S.  Dollar  deposits in Europe as determined  by the  Calculation
Agent according to Section 2.10(b).

         "LIBOR Banking Day" has the meaning set forth in Section 2.10(b)(1).

         "LIBOR Business Day" has the meaning set forth in Section 2.10(b)(1).

         "LIBOR  Determination  Date"  has the  meaning  set  forth  in  Section
2.10(b).

         "Liquidation  Amount"  means the  stated  amount  of  $1,000  per Trust
Security.

         "Maturity Date" means June 23, 2036.

         "Officers'  Certificate"  means a certificate signed by the Chairman of
the Board,  the Vice Chairman,  the President or any Vice President,  and by the
Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Comptroller,
an  Assistant  Comptroller,  the  Secretary  or an  Assistant  Secretary  of the
Company,  and delivered to the Trustee.  Each such certificate shall include the
statements  provided for in Section  14.06 if and to the extent  required by the
provisions of such Section.

         "Opinion  of  Counsel"  means an  opinion  in  writing  signed by legal
counsel,  who may be an employee of or counsel to the  Company,  or may be other
counsel reasonably  satisfactory to the Trustee. Each such opinion shall include
the  statements  provided for in Section 14.06 if and to the extent  required by
the provisions of such Section.

         The term  "outstanding,"  when used with reference to Debt  Securities,
subject to the provisions of Section 7.04, means, as of any particular time, all
Debt Securities authenticated and delivered by the Trustee or the Authenticating
Agent under this Indenture, except

          (a)  Debt  Securities  theretofore  canceled  by  the  Trustee  or the
     Authenticating Agent or delivered to the Trustee for cancellation;

          (b)  Debt  Securities,   or  portions  thereof,  for  the  payment  or
     redemption  of  which  moneys  in the  necessary  amount  shall  have  been
     deposited  in trust with the Trustee or with any Paying  Agent  (other than
     the  Company) or shall have been set aside and  segregated  in trust by the
     Company (if the Company shall act as its own Paying Agent); provided, that,
     if such Debt Securities,  or portions thereof,  are to be redeemed prior to
     maturity  thereof,  notice of such  redemption  shall  have  been  given as
     provided in  Articles X and XIV or  provision  satisfactory  to the Trustee
     shall have been made for giving such notice; and

                                       4
<PAGE>

          (c) Debt  Securities paid pursuant to Section 2.06 or in lieu of or in
     substitution for which other Debt Securities shall have been  authenticated
     and  delivered   pursuant  to  the  terms  of  Section  2.06  unless  proof
     satisfactory to the Company and the Trustee is presented that any such Debt
     Securities are held by bona fide holders in due course.

         "Paying Agent" means any paying agent for the Debt Securities appointed
pursuant to Section 3.04.

         "Person" means any individual,  corporation, limited liability company,
partnership,   joint   venture,   association,   joint-stock   company,   trust,
unincorporated organization or government or any agency or political subdivision
thereof.

         "Placement  Agreement" means the Placement Agreement dated May 10, 2006
among the Company, the Trust and ABN AMRO Capital Markets, LLC.

         "Predecessor  Security" of any  particular  Debt  Security  means every
previous  Debt  Security  evidencing  all or a portion  of the same debt as that
evidenced  by such  particular  Debt  Security;  and,  for the  purposes of this
definition,  any Debt Security authenticated and delivered under Section 2.06 in
lieu of a lost,  destroyed or stolen Debt  Security  shall be deemed to evidence
the same debt as the lost, destroyed or stolen Debt Security.

         "Principal  Office of the Trustee" means the office of the Trustee,  at
which at any particular  time its corporate  trust business shall be principally
administered,  which at all times shall be located  within the United States and
at the time of the  execution of this  Indenture  shall be Rodney  Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001.

         "Redemption Date" has the meaning set forth in Section 10.01.

         "Redemption  Price"  means  100% of the  principal  amount  of the Debt
Securities  being  redeemed  plus  accrued  and  unpaid  interest  on such  Debt
Securities to the Redemption Date or, in the case of redemption at maturity, the
Maturity  Date,  or,  in the case of a  redemption  due to the  occurrence  of a
Special Event, to the Special Redemption Date if such Special Redemption Date is
on or after June 23, 2011.

         "Responsible  Officer" means, with respect to the Trustee,  any officer
within the Principal  Office of the Trustee with direct  responsibility  for the
administration  of the Indenture,  including any  vice-president,  any assistant
vice-president,  any secretary,  any assistant  secretary,  the  treasurer,  any
assistant treasurer,  any trust officer or other officer of the Principal Office
of the Trustee  customarily  performing  functions similar to those performed by
any of  the  above  designated  officers  and  also  means,  with  respect  to a
particular  corporate  trust  matter,  any other  officer to whom such matter is
referred  because  of that  officer's  knowledge  of and  familiarity  with  the
particular subject.

         "Securities Act" means the Securities Act of 1933, as amended.

                                       5
<PAGE>

         "Securityholder,"  "holder of Debt  Securities" or other similar terms,
means  any  Person  in whose  name at the time a  particular  Debt  Security  is
registered on the Debt Security Register.

         "Senior  Indebtedness"  means,  with  respect to the  Company,  (i) the
principal,  premium,  if any, and interest in respect of (A) indebtedness of the
Company for money borrowed,  similar  obligations arising from off-balance sheet
guarantees  and direct  credit  substitutes  and (B)  indebtedness  evidenced by
securities,  debentures, notes, bonds or other similar instruments issued by the
Company;  (ii)  all  capital  lease  obligations  of  the  Company;   (iii)  all
obligations of the Company  issued or assumed as the deferred  purchase price of
property, all conditional sale obligations of the Company and all obligations of
the Company under any title  retention  agreement (but excluding  trade accounts
payable arising in the ordinary course of business); (iv) all obligations of the
Company for the reimbursement of any letter of credit, any banker's  acceptance,
any security purchase facility, any repurchase agreement or similar arrangement,
all obligations  associated  with derivative  products such as interest rate and
foreign exchange contracts and commodity contracts,  any interest rate swap, any
other hedging arrangement, any obligation under options or any similar credit or
other  transaction;  (v) all  obligations of the type referred to in clauses (i)
through  (iv) above of other  Persons  for the  payment of which the  Company is
responsible  or  liable  as  obligor,  guarantor  or  otherwise;  and  (vi)  all
obligations  of the type  referred  to in clauses (i) through (v) above of other
Persons secured by any lien on any property or asset of the Company  (whether or
not such obligation is assumed by the Company),  whether incurred on or prior to
the date of this  Indenture  or  thereafter  incurred,  unless,  with the  prior
approval of the  Federal  Reserve if not  otherwise  generally  approved,  it is
provided in the instrument  creating or evidencing the same or pursuant to which
the same is  outstanding,  that such  obligations  are not  superior or are pari
passu in right of payment  to the Debt  Securities  ;  provided,  however,  that
Senior  Indebtedness  shall not  include (A) any debt  securities  issued to any
trust  other than the Trust (or a trustee  of such  trust)  that is a  financing
vehicle of the Company (a "financing  entity"),  in connection with the issuance
by  such  financing  entity  of  equity  or  other  securities  in  transactions
substantially  similar in structure to the transactions  contemplated  hereunder
and in the  Declaration  or (B) any  guarantees of the Company in respect of the
equity or other  securities  of any financing  entity  referred to in clause (A)
above.

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

         "Special Redemption Date" has the meaning set forth in Section 10.02.

         "Special Redemption Price" means, with respect to the redemption of any
Debt  Security  following  a  Special  Event,  an  amount  in cash  equal to the
percentage  for the principal  amount of the Debt  Securities  that is specified
below for the Special  Redemption Date plus unpaid  interest  accrued thereon to
the Special Redemption Date:

                                       6
<PAGE>

         Special Event Redemption During
               Period Beginning On               Percentage of Principal Amount
               -------------------               ------------------------------

                   May 10, 2006                           104.40
                  June 23, 2007                           103.52
                  June 23, 2008                           102.64
                  June 23, 2009                           101.76
                  June 23, 2010                           100.88
                  June 23, 2011                           100.00

         "Subsidiary" means, with respect to any Person, (i) any corporation, at
least a majority of the outstanding voting stock of which is owned,  directly or
indirectly,  by such  Person or by one or more of its  Subsidiaries,  or by such
Person and one or more of its Subsidiaries,  (ii) any general partnership, joint
venture or similar entity, at least a majority of the outstanding partnership or
similar  interests of which shall at the time be owned by such Person, or by one
or  more  of  its  Subsidiaries,  or by  such  Person  and  one or  more  of its
Subsidiaries,  and (iii) any limited  partnership of which such Person or any of
its  Subsidiaries  is a general  partner.  For the purposes of this  definition,
"voting stock" means shares,  interests,  participations or other equivalents in
the equity interest  (however  designated) in such Person having ordinary voting
power for the election of a majority of the  directors  (or the  equivalent)  of
such Person, other than shares,  interests,  participations or other equivalents
having such power only by reason of the occurrence of a contingency.

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

         "Trust" means GrandSouth  Capital Trust I, a Delaware  statutory trust,
or any other similar trust created for the purpose of issuing Capital Securities
in connection  with the issuance of Debt  Securities  under this  Indenture,  of
which the Company is the sponsor.

         "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time-to-time, or any successor legislation.

                                       7
<PAGE>

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

         "Trustee"  means  the  Person  identified  as  "Trustee"  in the  first
paragraph  hereof,  and,  subject to the provisions of Article VI hereof,  shall
also include its successors and assigns as Trustee hereunder.

         "United  States" means the United States of America and the District of
Columbia.

         "U.S.  Person" has the  meaning  given to United  States  Person as set
forth in Section 7701(a)(30) of the Code.

                                       8
<PAGE>

                                   ARTICLE II

                                 DEBT SECURITIES

         Section 2.01 Authentication and Dating.

         Upon the execution and delivery of this Indenture, or from time to time
thereafter,  Debt Securities in an aggregate  principal  amount not in excess of
$8,248,000  may be  executed  and  delivered  by the  Company to the Trustee for
authentication,  and the Trustee shall thereupon authenticate and make available
for delivery  said Debt  Securities to or upon the written order of the Company,
signed by its Chairman of the Board of Directors,  Vice  Chairman,  President or
Chief  Financial  Officer or one of its Vice  Presidents,  without  any  further
action by the Company  hereunder.  In authenticating  such Debt Securities,  and
accepting the  additional  responsibilities  under this Indenture in relation to
such Debt Securities,  the Trustee shall be entitled to receive, and (subject to
Section  6.01)  shall be fully  protected  in  relying  upon a copy of any Board
Resolution  or  Board  Resolutions  relating  thereto  and,  if  applicable,  an
appropriate record of any action taken pursuant to such resolution, in each case
certified  by the  Secretary or an  Assistant  Secretary  or other  officer with
appropriate delegated authority of the Company as the case may be.

         The Trustee shall have the right to decline to authenticate and deliver
any Debt Securities under this Section if the Trustee, being advised by counsel,
determines  that  such  action  may not  lawfully  be taken or if a  Responsible
Officer of the Trustee in good faith  shall  determine  that such  action  would
expose the Trustee to personal liability to existing securityholders.

         The definitive Debt Securities shall be typed, printed, lithographed or
engraved on steel engraved  borders or may be produced in any other manner,  all
as determined by the officers  executing such Debt  Securities,  as evidenced by
their execution of such Debt Securities.

         Section 2.02 Form of Trustee's Certificate of Authentication.

         The Trustee's  certificate  of  authentication  on all Debt  Securities
shall be in substantially the following form:

         This  certificate   represents  Debt  Securities  referred  to  in  the
within-mentioned Indenture.

         WILMINGTON TRUST COMPANY,  not in its individual capacity but solely as
trustee

                  By_________________________
                      Authorized Officer

         Section 2.03 Form and Denomination of Debt Securities.

         The Debt  Securities  shall be  substantially  in the form of Exhibit A
hereto.  The Debt Securities shall be in registered,  certificated  form without
coupons and in minimum  denominations  of $100,000 and any multiple of $1,000 in
excess thereof.  The Debt Securities shall be numbered,  lettered,  or otherwise

                                       9
<PAGE>

distinguished  in such manner or in  accordance  with such plans as the officers
executing the same may  determine  with the approval of the Trustee as evidenced
by the execution and authentication thereof.

         Section 2.04 Execution of Debt Securities.

         The Debt  Securities  shall be  signed in the name and on behalf of the
Company by the manual or  facsimile  signature  of its  Chairman of the Board of
Directors,  Vice Chairman,  President or Chief  Financial  Officer or one of its
Executive Vice Presidents,  Senior Vice Presidents, Vice Presidents or any other
officer  authorized by the Board of Directors to sign  documents in the name and
on behalf of the Company,  under its corporate  seal (if then legally  required)
which may be affixed  thereto  or  printed,  engraved  or  otherwise  reproduced
thereon,  by facsimile or otherwise,  and which need not be attested.  Only such
Debt   Securities  as  shall  bear  thereon  a  certificate  of   authentication
substantially in the form herein before recited,  executed by the Trustee or the
Authenticating Agent by the manual signature of an authorized officer,  shall be
entitled to the  benefits of this  Indenture or be valid or  obligatory  for any
purpose.  Such certificate by the Trustee or the  Authenticating  Agent upon any
Debt Security executed by the Company shall be conclusive evidence that the Debt
Security so authenticated has been duly  authenticated  and delivered  hereunder
and that the holder is entitled to the benefits of this Indenture.

         In case any  officer of the  Company  who shall have  signed any of the
Debt  Securities  shall cease to be such officer  before the Debt  Securities so
signed  shall  have been  authenticated  and  delivered  by the  Trustee  or the
Authenticating  Agent,  or  disposed  of by the  Company,  such Debt  Securities
nevertheless  may be  authenticated  and  delivered or disposed of as though the
Person who signed such Debt  Securities had not ceased to be such officer of the
Company;  and any Debt  Security  may be signed on behalf of the Company by such
Persons as, at the actual date of the execution of such Debt Security,  shall be
the proper  officers of the  Company,  although at the date of the  execution of
this Indenture any such person was not such an officer.

         Every Debt Security shall be dated the date of its authentication.

         Section 2.05 Exchange and Registration of Transfer of Debt Securities.

         The Company shall cause to be kept, at the office or agency  maintained
for the  purpose of  registration  of transfer  and for  exchange as provided in
Section 3.02, a register (the "Debt Security  Register") for the Debt Securities
issued  hereunder in which,  subject to such  reasonable  regulations  as it may
prescribe,  the Company shall provide for the  registration  and transfer of all
Debt  Securities  as provided in this  Article  II.  Such  register  shall be in
written form or in any other form capable of being  converted  into written form
within a reasonable time.

         Debt  Securities  to be exchanged may be  surrendered  at the Principal
Office of the Trustee or at any office or agency to be maintained by the Company
for such purpose as provided in Section 3.02, and the Company shall execute, the
Company or the Trustee  shall  register  and the  Trustee or the  Authenticating
Agent shall  authenticate  and make available for delivery in exchange  therefor
the Debt  Security  or Debt  Securities  which  the  Securityholder  making  the

                                       10
<PAGE>

exchange shall be entitled to receive.  Upon due presentment for registration of
transfer of any Debt Security at the  Principal  Office of the Trustee or at any
office or agency of the  Company  maintained  for such  purpose as  provided  in
Section  3.02,  the Company  shall  execute,  the  Company or the Trustee  shall
register and the Trustee or the Authenticating Agent shall authenticate and make
available for delivery in the name of the  transferee or  transferees a new Debt
Security for a like aggregate principal amount.  Registration or registration of
transfer  of any Debt  Security  by the  Trustee or by any agent of the  Company
appointed pursuant to Section 3.02, and delivery of such Debt Security, shall be
deemed to complete the  registration  or  registration  of transfer of such Debt
Security.

         All Debt  Securities  presented  for  registration  of  transfer or for
exchange  or payment  shall (if so required by the Company or the Trustee or the
Authenticating  Agent)  be duly  endorsed  by, or be  accompanied  by, a written
instrument or  instruments of transfer in form  satisfactory  to the Company and
either the Trustee or the  Authenticating  Agent duly executed by, the holder or
such holder's attorney duly authorized in writing.

         No service  charge  shall be made for any exchange or  registration  of
transfer of Debt Securities,  but the Company or the Trustee may require payment
of a sum sufficient to cover any tax, fee or other governmental  charge that may
be imposed in connection therewith.

         The  Company  or the  Trustee  shall not be  required  to  exchange  or
register a transfer  of any Debt  Security  for a period of 15 days  immediately
preceding the date of selection of Debt Securities for redemption.

         Notwithstanding  the foregoing,  Debt Securities may not be transferred
except in  compliance  with the  restricted  securities  legend set forth below,
unless  otherwise  determined by the Company in accordance  with applicable law,
which legend shall be placed on each Debt Security:

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE  "SECURITIES  ACT"),  OR ANY STATE  SECURITIES LAWS OR ANY OTHER
APPLICABLE   SECURITIES  LAWS.   NEITHER  THIS  SECURITY  NOR  ANY  INTEREST  OR
PARTICIPATION  HEREIN MAY BE REOFFERED,  SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED,
ENCUMBERED  OR  OTHERWISE  DISPOSED  OF IN THE ABSENCE OF SUCH  REGISTRATION  OR
UNLESS SUCH  TRANSACTION  IS EXEMPT  FROM,  OR NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF  THE  SECURITIES  ACT.  THE  HOLDER  OF  THIS  SECURITY  BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY
(A) TO THE COMPANY,  (B) PURSUANT TO RULE 144A UNDER THE  SECURITIES  ACT ("RULE
144A"), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL

                                       11
<PAGE>

BUYER" AS DEFINED  IN RULE 144A THAT  PURCHASES  FOR ITS OWN  ACCOUNT OR FOR THE
ACCOUNT  OF A  QUALIFIED  INSTITUTIONAL  BUYER TO WHOM  NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,  (C)  PURSUANT TO AN  EXEMPTION
FROM THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT TO AN  "ACCREDITED
INVESTOR"  WITHIN THE MEANING OF  SUBPARAGRAPH  (a) (1), (2), (3) OR (7) OF RULE
501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF AN "ACCREDITED  INVESTOR," FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION  WITH,  ANY  DISTRIBUTION  IN
VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE  EXEMPTION
FROM  THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT,  SUBJECT  TO THE
COMPANY'S  RIGHT PRIOR TO ANY SUCH OFFER,  SALE OR TRANSFER  PURSUANT TO CLAUSES
(C) OR (D) TO REQUIRE  THE  DELIVERY  OF AN OPINION  OF  COUNSEL,  CERTIFICATION
AND/OR OTHER INFORMATION  SATISFACTORY TO IT IN ACCORDANCE WITH THE INDENTURE, A
COPY OF WHICH MAY BE OBTAINED  FROM THE COMPANY.  THE HOLDER OF THIS SECURITY BY
ITS   ACCEPTANCE   HEREOF   AGREES  THAT  IT  WILL  COMPLY  WITH  THE  FOREGOING
RESTRICTIONS.

         THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS
AND  WARRANTS  THAT IT WILL NOT ENGAGE IN HEDGING  TRANSACTIONS  INVOLVING  THIS
SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT.

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

         IN  CONNECTION  WITH ANY  TRANSFER,  THE HOLDER OF THIS  SECURITY  WILL
DELIVER  TO THE  REGISTRAR  AND  TRANSFER  AGENT  SUCH  CERTIFICATES  AND  OTHER

                                       12
<PAGE>

INFORMATION  AS MAY BE REQUIRED BY THE  INDENTURE  TO CONFIRM  THAT THE TRANSFER
COMPLIES WITH THE FOREGOING RESTRICTIONS.

         THIS  SECURITY  WILL BE ISSUED  AND MAY BE  TRANSFERRED  ONLY IN BLOCKS
HAVING A PRINCIPAL  AMOUNT OF NOT LESS THAN  $100,000 AND MULTIPLES OF $1,000 IN
EXCESS  THEREOF.  ANY  ATTEMPTED  TRANSFER OF THIS  SECURITY IN A BLOCK HAVING A
PRINCIPAL  AMOUNT  OF LESS  THAN  $100,000  SHALL BE DEEMED TO BE VOID AND OF NO
LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE
THE HOLDER OF THIS SECURITY FOR ANY PURPOSE,  INCLUDING, BUT NOT LIMITED TO, THE
RECEIPT OF DISTRIBUTIONS ON THIS SECURITY,  AND SUCH PURPORTED  TRANSFEREE SHALL
BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY.

         THIS  OBLIGATION  IS NOT A DEPOSIT  AND IS NOT  INSURED  BY THE  UNITED
STATES OR ANY AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT
INSURANCE  CORPORATION.  THIS  OBLIGATION  IS  SUBORDINATED  TO  THE  CLAIMS  OF
DEPOSITORS  AND THE CLAIMS OF GENERAL AND SECURED  CREDITORS OF THE COMPANY,  IS
INELIGIBLE  AS COLLATERAL  FOR A LOAN BY THE COMPANY OR ANY OF ITS  SUBSIDIARIES
AND IS NOT SECURED.

         Section 2.06 Mutilated, Destroyed, Lost or Stolen Debt Securities.

         In case any Debt Security shall become mutilated or be destroyed,  lost
or stolen,  the Company shall execute,  and upon its written request the Trustee
shall  authenticate  and  deliver,  a new Debt  Security  bearing  a number  not
contemporaneously  outstanding,  in exchange and  substitution for the mutilated
Debt  Security,  or in lieu of and in  substitution  for the  Debt  Security  so
destroyed,  lost or stolen.  In every case the applicant for a substituted  Debt
Security shall furnish to the Company and the Trustee such security or indemnity
as may be required by them to save each of them harmless,  and, in every case of
destruction,  loss or theft, the applicant shall also furnish to the Company and
the Trustee evidence to their satisfaction of the destruction,  loss or theft of
such Debt Security and of the ownership thereof.

         The Trustee may  authenticate  any such  substituted  Debt Security and
deliver the same upon the written request or authorization of any officer of the
Company.  Upon the issuance of any  substituted  Debt Security,  the Company may
require the payment of a sum  sufficient to cover any tax or other  governmental
charge that may be imposed in relation thereto and any other expenses  connected
therewith.  In case any Debt Security which has matured or is about to mature or
has been called for  redemption in full shall become  mutilated or be destroyed,
lost or stolen,  the Company may, instead of issuing a substitute Debt Security,
pay or authorize the payment of the same (without  surrender  thereof  except in
the case of a mutilated  Debt  Security) if the applicant for such payment shall
furnish to the Company  and the Trustee  such  security or  indemnity  as may be
required by them to save each of them harmless and, in case of destruction, loss
or  theft,  evidence  satisfactory  to the  Company  and to the  Trustee  of the
destruction, loss or theft of such Security and of the ownership thereof.

                                       13
<PAGE>

         Every  substituted  Debt Security  issued pursuant to the provisions of
this  Section  2.06 by  virtue  of the  fact  that  any such  Debt  Security  is
destroyed,  lost or stolen shall constitute an additional contractual obligation
of the Company, whether or not the destroyed, lost or stolen Debt Security shall
be  found at any  time,  and  shall  be  entitled  to all the  benefits  of this
Indenture  equally and  proportionately  with any and all other Debt  Securities
duly  issued  hereunder.  All Debt  Securities  shall be held and owned upon the
express condition that, to the extent permitted by applicable law, the foregoing
provisions  are  exclusive  with  respect  to  the  replacement  or  payment  of
mutilated,  destroyed, lost or stolen Debt Securities and shall preclude any and
all other  rights or  remedies  notwithstanding  any law or statute  existing or
hereafter  enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.

         Section 2.07 Temporary Debt Securities.

         Pending the preparation of definitive Debt Securities,  the Company may
execute and the Trustee  shall  authenticate  and make  available  for  delivery
temporary Debt Securities  that are typed,  printed or  lithographed.  Temporary
Debt  Securities  shall  be  issuable  in  any  authorized   denomination,   and
substantially  in the form of the  definitive  Debt  Securities  but  with  such
omissions,  insertions and  variations as may be appropriate  for temporary Debt
Securities,  all as may be determined by the Company.  Every such temporary Debt
Security  shall be executed by the Company and be  authenticated  by the Trustee
upon the same conditions and in substantially the same manner, and with the same
effect,  as the definitive Debt  Securities.  Without  unreasonable  delay,  the
Company  will  execute and deliver to the  Trustee or the  Authenticating  Agent
definitive  Debt  Securities and thereupon any or all temporary Debt  Securities
may be surrendered in exchange therefor,  at the Principal Office of the Trustee
or at any  office  or agency  maintained  by the  Company  for such  purpose  as
provided  in Section  3.02,  and the Trustee or the  Authenticating  Agent shall
authenticate and make available for delivery in exchange for such temporary Debt
Securities a like aggregate principal amount of such definitive Debt Securities.
Such  exchange  shall be made by the  Company at its own expense and without any
charge  therefor  except  that  in  case  of  any  such  exchange   involving  a
registration  of transfer the Company may require payment of a sum sufficient to
cover any tax, fee or other governmental  charge that may be imposed in relation
thereto. Until so exchanged, the temporary Debt Securities shall in all respects
be  entitled  to the same  benefits  under this  Indenture  as  definitive  Debt
Securities authenticated and delivered hereunder.

         Section 2.08 Payment of Interest.

         Each Debt Security will bear interest at the then  applicable  Interest
Rate from and including each Interest  Payment Date or, in the case of the first
interest  period,  the original  date of issuance of such Debt  Security to, but
excluding, the next succeeding Interest Payment Date or, in the case of the last
interest period,  the Redemption Date, Special Redemption Date or Maturity Date,
as  applicable  (each such  period,  an  "Interest  Period"),  on the  principal
thereof,  on any  overdue  principal  and (to the  extent  that  payment of such
interest is enforceable  under  applicable law) on Deferred  Interest and on any
overdue installment of interest (including Defaulted Interest), payable (subject
to the  provisions of Article XII) on each Interest  Payment Date  commencing on
June 23, 2006, and on the Redemption  Date, the Special  Redemption  Date or the

                                       14
<PAGE>

Maturity  Date,  as the case may be.  Interest and any Deferred  Interest on any
Debt Security that is payable,  and is punctually  paid or duly provided for, on
any  Interest  Payment  Date shall be paid to the Person in whose name such Debt
Security (or one or more  Predecessor  Securities) is registered at the close of
business on the regular record date for such interest  installment,  except that
interest and any Deferred  Interest payable on the Maturity Date, the Redemption
Date or the Special  Redemption  Date,  as the case may be, shall be paid to the
Person to whom principal is paid. In the event that any Debt Security or portion
thereof is called for  redemption  and the  redemption  date is  subsequent to a
regular record date with respect to any Interest  Payment Date and prior to such
Interest  Payment  Date,  interest  on such  Debt  Security  will  be paid  upon
presentation and surrender of such Debt Security.

         Any interest on any Debt Security,  other than Deferred Interest,  that
is payable,  but is not  punctually  paid or duly  provided for, on any Interest
Payment Date (herein called  "Defaulted  Interest")  shall forthwith cease to be
payable to the registered  holder on the relevant  regular record date by virtue
of having been such holder,  and such  Defaulted  Interest  shall be paid by the
Company to the Persons in whose names such Debt Securities (or their  respective
Predecessor  Securities)  are  registered  at the close of business on a special
record date for the payment of such Defaulted Interest,  which shall be fixed in
the  following  manner:  the Company  shall notify the Trustee in writing of the
amount of Defaulted  Interest proposed to be paid on each such Debt Security and
the date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid  in  respect  of  such  Defaulted   Interest  or  shall  make  arrangements
satisfactory  to the Trustee for such deposit  prior to the date of the proposed
payment,  such money when  deposited  to be held in trust for the benefit of the
Persons  entitled  to  such  Defaulted  Interest  as in  this  clause  provided.
Thereupon  the Trustee  shall fix a special  record date for the payment of such
Defaulted  Interest  which shall not be more than fifteen nor less than ten days
prior to the date of the  proposed  payment and not less than ten days after the
receipt by the Trustee of the notice of the proposed payment.  The Trustee shall
promptly  notify the Company of such special record date and, in the name and at
the expense of the Company,  shall cause notice of the proposed  payment of such
Defaulted  Interest  and the special  record date  therefor to be mailed,  first
class  postage  prepaid,  to each  Securityholder  at his or her  address  as it
appears  in the Debt  Security  Register,  not less than ten days  prior to such
special record date.  Notice of the proposed payment of such Defaulted  Interest
and the special  record date  therefor  having  been mailed as  aforesaid,  such
Defaulted  Interest  shall be paid to the  Persons  in  whose  names  such  Debt
Securities (or their respective  Predecessor  Securities) are registered on such
special  record date and  thereafter  the Company shall have no further  payment
obligation in respect of the Defaulted Interest.

         Any interest  scheduled to become  payable on an Interest  Payment Date
occurring during an Extension  Period shall not be Defaulted  Interest and shall
be  payable on such  other  date as may be  specified  in the terms of such Debt
Securities.

         The term  "regular  record date" as used in this Section shall mean the
fifteenth day prior to the applicable  Interest Payment Date whether or not such
date is a Business Day.

         Subject to the foregoing provisions of this Section, each Debt Security
delivered  under this Indenture upon  registration of transfer of or in exchange
for or in lieu of any other Debt  Security  shall  carry the rights to  interest

                                       15
<PAGE>

accrued  and  unpaid,  and to  accrue,  that were  carried  by such  other  Debt
Security.

         Section 2.09 Cancellation of Debt Securities Paid, etc.

         All Debt Securities surrendered for the purpose of payment, redemption,
exchange or  registration  of transfer,  shall, if surrendered to the Company or
any Paying Agent, be surrendered to the Trustee and promptly canceled by it, or,
if surrendered  to the Trustee or any  Authenticating  Agent,  shall be promptly
canceled by it, and no Debt Securities shall be issued in lieu thereof except as
expressly  permitted  by any of the  provisions  of  this  Indenture.  All  Debt
Securities  canceled  by any  Authenticating  Agent  shall be  delivered  to the
Trustee.  The Trustee  shall  destroy all canceled  Debt  Securities  unless the
Company  otherwise  directs the  Trustee in  writing,  in which case the Trustee
shall dispose of such Debt Securities as directed by the Company. If the Company
shall acquire any of the Debt Securities,  however,  such acquisition  shall not
operate as a redemption or satisfaction of the indebtedness  represented by such
Debt  Securities  unless and until the same are  surrendered  to the Trustee for
cancellation.

         Section 2.10 Computation of Interest.

          (a) The amount of  interest  payable for any  Interest  Period will be
     computed  on the  basis of a  360-day  year and the  actual  number of days
     elapsed  in  such  Interest  Period;  provided,   however,  that  upon  the
     occurrence  of a Special  Event  redemption  pursuant to Section  10.02 the
     amounts payable pursuant to this Indenture shall be calculated as set forth
     in the definition of Special Redemption Price.

          (b)  LIBOR  shall be  determined  by the  Calculation  Agent  for each
     Interest Period in accordance with the following provisions:

               (1) On the second LIBOR Business Day (provided,  that on such day
          commercial banks are open for business  (including dealings in foreign
          currency  deposits) in London (a "LIBOR Banking  Day"),  and otherwise
          the next  preceding  LIBOR  Business Day that is also a LIBOR  Banking
          Day) prior to March 23, June 23,  September 23 and December 23, as the
          case may be,  immediately  preceding the commencement of such Interest
          Period (or, in the case of the first Interest Period, prior to May 10,
          2006),  (each such day, a "LIBOR  Determination  Date"),  LIBOR  shall
          equal the rate, as obtained by the  Calculation  Agent for three-month
          U.S. Dollar deposits in Europe,  which appears on Telerate (as defined
          in the  International  Swaps and  Derivatives  Association,  Inc. 2000
          Interest  Rate and Currency  Exchange  Definitions)  Page 3750 or such
          other page as may replace such  Telerate  Page 3750,  as of 11:00 a.m.
          (London  time)  on such  LIBOR  Determination  Date,  as  reported  by
          Bloomberg   Financial  Markets  Commodities  News  (or  any  successor
          service).  "LIBOR  Business Day" means any day that is not a Saturday,
          Sunday or other day on which  commercial  banking  institutions in New
          York, New York or Wilmington,  Delaware are authorized or obligated by
          law or executive  order to be closed.  If such rate is  superseded  on
          Telerate Page 3750 by a corrected rate before 12:00 noon (London time)

                                       16
<PAGE>

          on the  same  LIBOR  Determination  Date,  the  corrected  rate  as so
          substituted will be the applicable LIBOR for that LIBOR  Determination
          Date.

               (2) If,  on any  LIBOR  Determination  Date,  such  rate does not
          appear  on  Telerate  Page 3750 as  reported  by  Bloomberg  Financial
          Markets  Commodities  News or such  other  page  as may  replace  such
          Telerate  Page  3750,  the  Calculation   Agent  shall  determine  the
          arithmetic  mean of the offered  quotations of the Reference Banks (as
          defined  below) to leading  banks in the London  interbank  market for
          three-month U.S. Dollar deposits in Europe (in an amount determined by
          the  Calculation  Agent) by reference to requests for quotations as of
          approximately 11:00 a.m. (London time) on the LIBOR Determination Date
          made by the Calculation Agent to the Reference Banks. If, on any LIBOR
          Determination  Date, at least two of the Reference  Banks provide such
          quotations,  LIBOR shall equal the arithmetic mean of such quotations.
          If, on any LIBOR Determination Date, only one or none of the Reference
          Banks  provide  such a  quotation,  LIBOR  shall be  deemed  to be the
          arithmetic  mean of the offered  quotations  that at least two leading
          banks in the City of New York (as selected by the  Calculation  Agent)
          are quoting on the relevant LIBOR  Determination  Date for three-month
          U.S. Dollar  deposits in Europe at  approximately  11:00 a.m.  (London
          time) (in an amount  determined  by the  Calculation  Agent).  As used
          herein,  "Reference  Banks"  means  four  major  banks  in the  London
          interbank market selected by the Calculation Agent.

               (3) If the  Calculation  Agent  is  required  but  is  unable  to
          determine  a rate in  accordance  with at least one of the  procedures
          provided  above,  LIBOR shall be LIBOR in effect on the previous LIBOR
          Determination  Date  (whether or not LIBOR for such period was in fact
          determined on such LIBOR Determination Date).

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

          (d) On each LIBOR  Determination  Date,  the  Calculation  Agent shall
     notify,  in writing,  the Company  and the Paying  Agent of the  applicable
     Interest Rate in effect for the related  Interest  Period.  The Calculation
     Agent shall, upon the request of the holder of any Debt Securities, provide
     the Interest Rate then in effect.  All calculations made by the Calculation
     Agent in the absence of manifest error shall be conclusive for all purposes
     and  binding on the Company  and the  holders of the Debt  Securities.  The
     Paying  Agent shall be entitled to rely on  information  received  from the
     Calculation  Agent or the  Company as to the  Interest  Rate.  The  Company
     shall, from time to time,  provide any necessary  information to the Paying
     Agent  relating to any  original  issue  discount  and interest on the Debt
     Securities  that is  included in any  payment  and  reportable  for taxable
     income calculation purposes.

                                       17
<PAGE>

         Section 2.11 Extension of Interest Payment Period.

         So long as no Event of Default pursuant to Sections 5.01(b), (e) or (f)
of this  Indenture  has occurred and is  continuing,  the Company shall have the
right,  from time to time and  without  causing  an Event of  Default,  to defer
payments of interest on the Debt  Securities by extending  the interest  payment
period on the Debt  Securities at any time and from time to time during the term
of the Debt Securities,  for up to twenty  consecutive  quarterly  periods (each
such extended  interest  payment period,  an "Extension  Period").  No Extension
Period  may end on a date  other  than an  Interest  Payment  Date.  During  any
Extension Period,  interest will continue to accrue on the Debt Securities,  and
interest on such accrued  interest (such accrued  interest and interest  thereon
referred to herein as "Deferred  Interest")  will accrue,  at the Interest Rate,
compounded  quarterly  from the date  such  Deferred  Interest  would  have been
payable were it not for the Extension  Period,  both to the extent  permitted by
law. No interest or Deferred  Interest (except any Additional  Interest that may
be due and payable) shall be due and payable during an Extension Period,  except
at the end thereof.  At the end of any such  Extension  Period the Company shall
pay all  Deferred  Interest  then  accrued  and  unpaid on the Debt  Securities;
provided, however, that no Extension Period may extend beyond the Maturity Date,
Redemption Date or Special Redemption Date; and provided further,  however, that
during  any  such  Extension  Period,  the  Company  shall  be  subject  to  the
restrictions  set  forth  in  Section  3.08  of  this  Indenture.  Prior  to the
termination of any Extension Period, the Company may further extend such period,
provided,  that  such  period  together  with  all  such  previous  and  further
consecutive  extensions  thereof shall not exceed twenty  consecutive  quarterly
periods.  Upon the  termination of any Extension  Period and upon the payment of
all Deferred Interest,  the Company may commence a new Extension Period, subject
to the foregoing  requirements.  The Company must give the Trustee notice of its
election to begin such  Extension  Period at least one Business Day prior to the
date such  interest  is  payable,  but in any event not later  than the  related
regular record date. The Trustee shall give notice of the Company's  election to
begin a new Extension Period to the Securityholders.

         Section 2.12 CUSIP Numbers.

         The Company in issuing the Debt  Securities may use "CUSIP" numbers (if
then  generally in use),  and, if so, the Trustee  shall use "CUSIP"  numbers in
notices of redemption as a convenience to  Securityholders;  provided,  that any
such notice may state that no  representation  is made as to the  correctness of
such  numbers  either as printed on the Debt  Securities  or as contained in any
notice  of a  redemption  and that  reliance  may be  placed  only on the  other
identification  numbers printed on the Debt Securities,  and any such redemption
shall not be affected by any defect in or omission of such numbers.  The Company
will promptly notify the Trustee in writing of any change in the CUSIP numbers.

                                       18
<PAGE>

                                  ARTICLE III

                       PARTICULAR COVENANTS OF THE COMPANY

         Section  3.01  Payment  of  Principal,  Premium  and  Interest;  Agreed
Treatment of the Debt Securities.

          (a) The Company  covenants and agrees that it will duly and punctually
     pay or cause  to be paid all  payments  due on the Debt  Securities  at the
     place, at the respective times and in the manner provided in this Indenture
     and the Debt Securities.  At the option of the Company, each installment of
     interest on the Debt  Securities may be paid (i) by mailing checks for such
     interest  payable to the order of the holders of Debt  Securities  entitled
     thereto  as they  appear  on the  Debt  Security  Register  or (ii) by wire
     transfer to any account  with a banking  institution  located in the United
     States  designated  by such  Person to the  Paying  Agent no later than the
     related record date.

          (b) The Company will treat the Debt  Securities as  indebtedness,  and
     the interest  payable in respect of such Debt  Securities as interest,  for
     all U.S. federal income tax purposes.  All payments in respect of such Debt
     Securities  will be made  free  and  clear of U.S.  withholding  tax to any
     beneficial owner thereof that has provided an Internal Revenue Service Form
     W-8BEN (or any  substitute  or successor  form)  establishing  its non-U.S.
     status for U.S. federal income tax purposes.

          (c) As of the date of this Indenture,  the Company has no intention to
     exercise its right under Section 2.11 to defer  payments of interest on the
     Debt Securities by commencing an Extension Period.

          (d) As of the date of this Indenture,  the Company represents that the
     likelihood  that it would  exercise  its right under  Section 2.11 to defer
     payments of interest on the Debt  Securities  by  commencing  an  Extension
     Period at any time during  which the Debt  Securities  are  outstanding  is
     remote because of the  restrictions  that would be imposed on the Company's
     ability to  declare or pay  dividends  or  distributions  on, or to redeem,
     purchase  or  make  a  liquidation  payment  with  respect  to,  any of its
     outstanding  equity and on the  Company's  ability to make any  payments of
     principal of or premium,  if any, or interest on, or  repurchase or redeem,
     any of its debt  securities  that rank pari passu in all respects  with (or
     junior in interest to) the Debt Securities.

         Section 3.02 Offices for Notices and Payments, etc.

         So long as any of the Debt Securities remain  outstanding,  the Company
will maintain in Wilmington, Delaware or in Greenville, South Carolina an office
or agency where the Debt  Securities may be presented for payment,  an office or
agency where the Debt  Securities may be presented for  registration of transfer
and for  exchange as provided in this  Indenture  and an office or agency  where
notices and demands to or upon the Company in respect of the Debt  Securities or
of this  Indenture may be served.  The Company will give to the Trustee  written
notice  of the  location  of any such  office  or  agency  and of any  change of

                                       19
<PAGE>

location thereof. Until otherwise designated from time to time by the Company in
a notice to the Trustee,  or specified as  contemplated  by Section  2.05,  such
office or agency for all of the above purposes shall be the Principal  Office of
the  Trustee.  In case the  Company  shall fail to  maintain  any such office or
agency in Wilmington, Delaware or in Greenville, South Carolina or shall fail to
give such  notice of the  location  or of any  change in the  location  thereof,
presentations and demands may be made and notices may be served at the Principal
Office of the Trustee.

         In addition to any such office or agency,  the Company may from time to
time designate one or more offices or agencies outside  Wilmington,  Delaware or
Greenville,  South  Carolina  where the Debt  Securities  may be  presented  for
registration  of  transfer  and for  exchange  in the  manner  provided  in this
Indenture,  and the Company may from time to time rescind such  designation,  as
the Company may deem  desirable or expedient;  provided,  however,  that no such
designation  or  rescission  shall in any  manner  relieve  the  Company  of its
obligation to maintain any such office or agency in  Wilmington,  Delaware or in
Greenville,  South Carolina for the purposes above  mentioned.  The Company will
give to the Trustee prompt written notice of any such  designation or rescission
thereof.

         Section 3.03 Appointments to Fill Vacancies in Trustee's Office.

         The  Company,  whenever  necessary  to avoid or fill a  vacancy  in the
office of Trustee,  will  appoint,  in the manner  provided in Section  6.09,  a
Trustee, so that there shall at all times be a Trustee hereunder.

         Section 3.04 Provision as to Paying Agent.

          (a) If the  Company  shall  appoint  a  Paying  Agent  other  than the
     Trustee,  it will cause such  Paying  Agent to execute  and  deliver to the
     Trustee an  instrument  in which such agent shall  agree with the  Trustee,
     subject to the provision of this Section 3.04,

               (1) that it will hold all sums  held by it as such  agent for the
          payment of all payments due on the Debt Securities  (whether such sums
          have been paid to it by the  Company  or by any other  obligor  on the
          Debt  Securities)  in trust for the benefit of the holders of the Debt
          Securities;

               (2) that it will give the Trustee  prompt  written  notice of any
          failure  by  the  Company  (or  by  any  other  obligor  on  the  Debt
          Securities) to make any payment on the Debt  Securities  when the same
          shall be due and payable; and

               (3) that it will, at any time during the continuance of any Event
          of Default, upon the written request of the Trustee,  forthwith pay to
          the Trustee all sums so held in trust by such Paying Agent.

          (b) If the Company shall act as its own Paying  Agent,  it will, on or
     before each due date of the payments due on the Debt Securities, set aside,
     segregate  and hold in trust for the  benefit  of the  holders  of the Debt
     Securities a sum sufficient to pay such  principal,  premium or interest so
     becoming  due and will notify the Trustee in writing of any failure to take
     such  action and of any  failure by the  Company  (or by any other  obligor
     under the Debt  Securities) to make any payment on the Debt Securities when
     the same shall become due and payable.

                                       20
<PAGE>

         Whenever the Company  shall have one or more Paying Agents for the Debt
Securities,  it will,  on or prior to each due date of the  payments on the Debt
Securities,  deposit with a Paying Agent a sum sufficient to pay all payments so
becoming  due,  such  sum to be held in trust  for the  benefit  of the  Persons
entitled thereto and (unless such Paying Agent is the Trustee) the Company shall
promptly notify the Trustee in writing of its action or failure to act.

         (c) Anything in this Section 3.04 to the contrary notwithstanding,  the
Company  may, at any time,  for the  purpose of  obtaining  a  satisfaction  and
discharge with respect to the Debt Securities,  or for any other reason, pay, or
direct  any  Paying  Agent to pay to the  Trustee  all sums held in trust by the
Company or any such Paying  Agent,  such sums to be held by the Trustee upon the
same terms and conditions herein contained.

         (d) Anything in this Section 3.04 to the contrary notwithstanding,  the
agreement  to hold sums in trust as provided in this  Section 3.04 is subject to
Sections 12.03 and 12.04.

         (e) The Company hereby initially  appoints the Trustee to act as Paying
Agent.

         Section 3.05 Certificate to Trustee.

         The Company will deliver to the Trustee on or before 120 days after the
end of each fiscal year, so long as Debt Securities are outstanding hereunder, a
Certificate,  substantially  in the form of Exhibit B attached  hereto,  stating
that in the course of the performance by the signers of their duties as officers
of the Company they would  normally have knowledge of any default by the Company
in the  performance of any covenants  contained  herein,  stating whether or not
they have knowledge of any such default and, if so, specifying each such default
of which the signers have knowledge and the nature thereof.

         Section 3.06 Additional Interest.

         If and for so long as the Trust is the  holder  of all Debt  Securities
and is subject to, or otherwise required to pay, or is required to withhold from
distributions  to holders of Trust  Securities,  any additional taxes (including
withholding  taxes),  duties,  assessments  or other  governmental  charges as a
result  of a Tax  Event,  the  Company  will pay such  additional  amounts  (the
"Additional  Interest") on the Debt  Securities as shall be required so that the
net amounts  received  and  retained by the Trust after  paying  taxes,  duties,
assessments or other governmental charges will be equal to the amounts the Trust
would have received if no such taxes, duties,  assessments or other governmental
charges had been  imposed.  Whenever in this  Indenture  or the Debt  Securities
there is a reference  in any context to the payment of  principal of or premium,
if any, or  interest on the Debt  Securities,  such  mention  shall be deemed to
include  mention of payments of the  Additional  Interest  provided  for in this
paragraph to the extent that,  in such context,  Additional  Interest is, was or
would be payable in respect thereof pursuant to the provisions of this paragraph
and express mention of the payment of Additional Interest (if applicable) in any
provisions  hereof shall not be construed  as excluding  Additional  Interest in
those  provisions  hereof  where such  express  mention  is not made,  provided,
however, that the deferral of the payment of interest during an Extension Period
pursuant to Section 2.11 shall not defer the payment of any Additional  Interest
that may be due and payable.

                                       21
<PAGE>

         Section 3.07 Compliance with Consolidation Provisions.

         The  Company  will  not,  while  any  of  the  Debt  Securities  remain
outstanding,  consolidate  with, or merge into any other  Person,  or merge into
itself,  or sell or convey all or substantially all of its property to any other
Person unless the provisions of Article XI hereof are complied with.

         Section 3.08 Limitation on Dividends.

         If (i) there  shall have  occurred  and be  continuing  a Default or an
Event of  Default,  (ii) the  Company  shall be in default  with  respect to its
payment of any obligations under the Capital  Securities  Guarantee or (iii) the
Company shall have given notice of its election to defer payments of interest on
the Debt Securities by extending the interest  payment period as provided herein
and  such  period,  or  any  extension  thereof,  shall  have  commenced  and be
continuing,  then  the  Company  may not (A)  declare  or pay any  dividends  or
distributions on, or redeem,  purchase,  acquire,  or make a liquidation payment
with respect to, any of the  Company's  capital  stock,  (B) make any payment of
principal of or interest or premium,  if any, on or repay,  repurchase or redeem
any debt  securities of the Company that rank pari passu in all respects with or
junior in interest  to the Debt  Securities  or (C) make any  payment  under any
guarantees of the Company that rank pari passu in all respects with or junior in
interest  to the  Capital  Securities  Guarantee  (other  than (a)  repurchases,
redemptions or other  acquisitions of shares of capital stock of the Company (I)
in  connection  with any  employment  contract,  benefit  plan or other  similar
arrangement  with  or  for  the  benefit  of one or  more  employees,  officers,
directors or  consultants,  (II) in connection  with a dividend  reinvestment or
stockholder  stock  purchase  plan or (III) in  connection  with the issuance of
capital stock of the Company (or securities  convertible into or exercisable for
such capital stock) as consideration in an acquisition  transaction entered into
prior to the  occurrence  of (i),  (ii) or (iii)  above,  (b) as a result of any
exchange or conversion of any class or series of the Company's capital stock (or
any capital stock of a subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's  indebtedness
for any class or series of the  Company's  capital  stock,  (c) the  purchase of
fractional  interests in shares of the Company's  capital stock  pursuant to the
conversion or exchange  provisions  of such capital stock or the security  being
converted or exchanged, (d) any declaration of a dividend in connection with any
stockholder's  rights plan, or the issuance of rights,  stock or other  property
under any  stockholder's  rights plan, or the redemption or repurchase of rights
pursuant thereto or (e) any dividend in the form of stock, warrants,  options or
other rights where the dividend  stock or the stock  issuable  upon  exercise of
such  warrants,  options or other  rights is the same stock as that on which the
dividend  is being paid or ranks pari passu with or junior in  interest  to such
stock).

         Section 3.09 Covenants as to the Trust.

         For so long as such Trust Securities  remain  outstanding,  the Company
shall maintain 100% ownership of the Common Securities;  provided, however, that
any  permitted  successor  of the Company  under this  Indenture  that is a U.S.
Person may succeed to the  Company's  ownership of such Common  Securities.  The
Company,  as owner of the Common Securities,  shall use commercially  reasonable
efforts to cause the Trust (a) to remain a statutory trust, except in connection

                                       22
<PAGE>

with a  distribution  of Debt  Securities to the holders of Trust  Securities in
liquidation  of the Trust,  the  redemption  of all of the Trust  Securities  or
certain  mergers,  consolidations  or  amalgamations,  each as  permitted by the
Declaration,  (b) to otherwise  continue to be classified as a grantor trust for
United States  federal income tax purposes and (c) to cause each holder of Trust
Securities to be treated as owning an undivided  beneficial interest in the Debt
Securities.

                                   ARTICLE IV

                LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

         Section 4.01 Securityholders' Lists.

         The Company  covenants  and agrees that it will  furnish or cause to be
furnished to the Trustee:

          (a) on each regular record date for an Interest  Payment Date, a list,
     in such  form as the  Trustee  may  reasonably  require,  of the  names and
     addresses of the  Securityholders  of the Debt Securities as of such record
     date; and

          (b) at such other times as the Trustee may request in writing,  within
     30 days after the  receipt by the  Company of any such  request,  a list of
     similar  form and  content  as of a date not more than 15 days prior to the
     time such list is furnished;

except that no such lists need be  furnished  under this Section 4.01 so long as
the Trustee is in  possession  thereof by reason of its acting as Debt  Security
registrar.

         Section 4.02 Preservation and Disclosure of Lists.

          (a) The Trustee shall preserve,  in as current a form as is reasonably
     practicable,  all  information as to the names and addresses of the holders
     of Debt Securities (1) contained in the most recent list furnished to it as
     provided  in Section  4.01 or (2)  received  by it in the  capacity of Debt
     Securities registrar (if so acting) hereunder.  The Trustee may destroy any
     list furnished to it as provided in Section 4.01 upon receipt of a new list
     so furnished.

          (b) In case  three or more  holders  of Debt  Securities  (hereinafter
     referred to as "applicants") apply in writing to the Trustee and furnish to
     the  Trustee  reasonable  proof that each such  applicant  has owned a Debt
     Security  for a period of at least six  months  preceding  the date of such
     application,  and such  application  states that the  applicants  desire to
     communicate  with other  holders of Debt  Securities  with respect to their
     rights  under  this  Indenture  or  under  such  Debt   Securities  and  is
     accompanied  by a copy of the form of proxy  or other  communication  which
     such  applicants  propose to transmit,  then the Trustee  shall within five
     Business  Days after the  receipt  of such  application,  at its  election,
     either:

               (1) afford such applicants access to the information preserved at
          the  time  by  the  Trustee  in  accordance  with  the  provisions  of
          subsection (a) of this Section 4.02, or

                                       23
<PAGE>

               (2)  inform  such  applicants  as to the  approximate  number  of
          holders of Debt  Securities  whose names and  addresses  appear in the
          information  preserved at the time by the Trustee in  accordance  with
          the  provisions of subsection  (a) of this Section 4.02, and as to the
          approximate cost of mailing to such  Securityholders the form of proxy
          or other communication, if any, specified in such application.

         If the Trustee shall elect not to afford such applicants access to such
information,  the Trustee shall,  upon the written  request of such  applicants,
mail to each  Securityholder of Debt Securities whose name and address appear in
the  information  preserved  at the time by the Trustee in  accordance  with the
provisions of subsection (a) of this Section 4.02 a copy of the form of proxy or
other   communication  which  is  specified  in  such  request  with  reasonable
promptness  after a tender to the  Trustee of the  material  to be mailed and of
payment,  or provision for the payment,  of the reasonable  expenses of mailing,
unless  within  five days  after such  tender,  the  Trustee  shall mail to such
applicants and file with the Securities and Exchange Commission, if permitted or
required by applicable law, together with a copy of the material to be mailed, a
written  statement  to the effect  that,  in the  opinion of the  Trustee,  such
mailing  would be  contrary  to the best  interests  of the  holders of all Debt
Securities, as the case may be, or would be in violation of applicable law. Such
written  statement shall specify the basis of such opinion.  If said Commission,
as permitted or required by applicable law, after opportunity for a hearing upon
the objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such  objections  or if,  after the entry of an order
sustaining one or more of such  objections,  said Commission  shall find,  after
notice and  opportunity  for hearing,  that all the objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all such Securityholders  with reasonable  promptness after the
entry of such order and the renewal of such tender;  otherwise the Trustee shall
be  relieved  of any  obligation  or duty to such  applicants  respecting  their
application.

          (c) Each and every holder of Debt Securities, by receiving and holding
     the same,  agrees with the Company and the Trustee that neither the Company
     nor the Trustee nor any Paying Agent shall be held accountable by reason of
     the disclosure of any such information as to the names and addresses of the
     holders of Debt  Securities in accordance with the provisions of subsection
     (b) of  this  Section  4.02,  regardless  of the  source  from  which  such
     information was derived, and that the Trustee shall not be held accountable
     by reason of mailing any  material  pursuant  to a request  made under said
     subsection (b).

         Section 4.03 Financial and Other Information.

          (a) The Company  shall  deliver to each holder of the Debt  Securities
     and the Capital Securities (1) if the Company or any of its Subsidiaries is
     not then (x)  subject  to Section  13 or 15(d) of the  Exchange  Act or (y)
     exempt  from  reporting   pursuant  to  Rule  12g3-2(b)   thereunder,   the
     information  required by Rule  144A(d)(4)  under the Securities Act, (2) if
     the Company is not then required to file Form FR Y-9C,  the audited  annual
     financial  statements (or, if no audited financial statements are prepared,
     the unaudited  financial  statements)  of the Company and any  Subsidiaries
     within 90 days  after the end of the  fiscal  year,  and (3) within 30 days
     after the end of the fiscal  year of the  Company,  Form 1099 or such other
     annual U.S. federal income tax information  statement required by the Code,
     containing such information with regard to the Debt Securities held by such

                                       24
<PAGE>

     holder as is  required  by the Code and the income tax  regulations  of the
     U.S. Treasury thereunder.

          (b) If and so long  as the  holder  of the  Capital  Securities  is an
     entity that holds a pool of trust  preferred  securities,  debt  securities
     and/or  similar  securities  or a trustee  thereof,  the Company will cause
     copies of its  reports  on Forms FR Y-9LP,  FR Y-6 and FR Y-9C,  each to be
     delivered to the holder  promptly  following  their filing with the Federal
     Reserve.

                                   ARTICLE V

      REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS UPON AN EVENT OF DEFAULT

         Section 5.01 Events of Default.

         The following  events shall be "Events of Default" with respect to Debt
Securities:

          (a) the Company  defaults in the payment of any interest upon any Debt
     Security when it becomes due and payable,  and  continuance of such default
     for a period of 30 days;  for the  avoidance of doubt,  an extension of any
     interest  payment period by the Company in accordance  with Section 2.11 of
     this Indenture shall not constitute a default under this clause 5.01(a); or

          (b) the Company  defaults in the payment of any interest upon any Debt
     Security,  including any Additional Interest in respect thereof,  following
     the  nonpayment  of any such  interest for twenty (20) or more  consecutive
     quarterly interest payment periods; or

          (c) the  Company  defaults  in the  payment  of all or any part of the
     principal of (or premium,  if any, on) any Debt  Securities as and when the
     same shall become due and payable either at maturity,  upon redemption,  by
     declaration of acceleration or otherwise; or

          (d) the Company  defaults in the performance  of, or breaches,  any of
     its covenants or agreements in Sections  3.06,  3.07,  3.08 or 3.09 of this
     Indenture   (other  than  a  covenant  or  agreement  a  default  in  whose
     performance or whose breach is elsewhere in this Section specifically dealt
     with),  and  continuance  of such default or breach for a period of 90 days
     after there has been given, by registered or certified mail, to the Company
     by the Trustee or to the Company and the Trustee by the holders of not less
     than 25% in aggregate  principal amount of the outstanding Debt Securities,
     a written notice  specifying  such default or breach and requiring it to be
     remedied and stating  that such notice is a "Notice of Default"  hereunder;
     or

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

                                       25
<PAGE>

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

          (g) the Trust  shall have  voluntarily  or  involuntarily  liquidated,
     dissolved,  wound-up  its business or otherwise  terminated  its  existence
     except in connection  with (1) the  distribution  of the Debt Securities to
     holders of the Trust  Securities in liquidation  of their  interests in the
     Trust, (2) the redemption of all of the outstanding Trust Securities or (3)
     certain mergers, consolidations or amalgamations,  each as permitted by the
     Declaration.

         If an Event of Default  specified under clause (b) of this Section 5.01
occurs and is continuing with respect to the Debt Securities,  then, in each and
every such  case,  either  the  Trustee  or the  holders of not less than 25% in
aggregate principal amount of the Debt Securities then outstanding hereunder, by
notice  in  writing   to  the   Company   (and  to  the   Trustee  if  given  by
Securityholders),  may declare the entire  principal of the Debt  Securities and
any  premium and  interest  accrued,  but unpaid,  thereon to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable.  If an Event of Default  specified  under clause (e) or (f) of this
Section 5.01 occurs,  then,  in each and every such case,  the entire  principal
amount of the Debt Securities and any premium and interest accrued,  but unpaid,
thereon  shall ipso facto become  immediately  due and payable  without  further
action.

         The foregoing  provisions,  however,  are subject to the condition that
if, at any time after the principal of the Debt Securities shall have become due
by acceleration, and before any judgment or decree for the payment of the moneys
due shall have been obtained or entered as hereinafter provided, (i) the Company
shall pay or shall deposit with the Trustee a sum  sufficient to pay all matured
installments  of interest upon all the Debt  Securities  and all payments on the
Debt Securities which shall have become due otherwise than by acceleration (with
interest upon all such payments and Deferred  Interest,  to the extent permitted
by law) and such amount as shall be sufficient to cover reasonable  compensation
to the Trustee and each predecessor Trustee, their respective agents,  attorneys
and counsel,  and all other amounts due to the Trustee pursuant to Section 6.06,
if any,  and (ii) all Events of Default  under  this  Indenture,  other than the
non-payment  of the payments on Debt  Securities  which shall have become due by
acceleration,  shall have been cured,  waived or otherwise  remedied as provided
herein,  then and in every  such case the  holders of a  majority  in  aggregate
principal amount of the Debt Securities then  outstanding,  by written notice to
the Company and to the  Trustee,  may waive all  defaults  and rescind and annul
such  acceleration  and its  consequences,  but no such waiver or rescission and
annulment shall extend to or shall affect any subsequent default or shall impair
any right consequent thereon.

         In case the  Trustee  shall have  proceeded  to enforce any right under
this Indenture and such  proceedings  shall have been  discontinued or abandoned
because of such  rescission  or  annulment or for any other reason or shall have
been  determined  adversely  to the  Trustee,  then and in every  such  case the
Company,  the Trustee and the holders of the Debt  Securities  shall be restored

                                       26
<PAGE>

respectively to their several  positions and rights  hereunder,  and all rights,
remedies  and powers of the  Company,  the  Trustee  and the holders of the Debt
Securities shall continue as though no such proceeding had been taken.

         Section 5.02 Payment of Debt Securities on Default; Suit Therefor.

         The Company  covenants  that upon the occurrence of an Event of Default
pursuant  to clause  (b) of Section  5.01 and upon  demand of the  Trustee,  the
Company  will pay to the  Trustee,  for the  benefit of the  holders of the Debt
Securities,  the whole amount that then shall have become due and payable on all
Debt  Securities,  including  Deferred  Interest accrued on the Debt Securities;
and, in addition  thereto,  such further  amount as shall be sufficient to cover
the costs and expenses of collection, including a reasonable compensation to the
Trustee,  its agents,  attorneys  and counsel,  and any other amounts due to the
Trustee under Section 6.06. In case the Company shall fail forthwith to pay such
amounts  upon such  demand,  the  Trustee,  in its own name and as trustee of an
express  trust,  shall be entitled and  empowered  to  institute  any actions or
proceedings  at law or in  equity  for  the  collection  of the  sums so due and
unpaid,  and may  prosecute  any such action or  proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Company or
any other obligor on such Debt  Securities and collect in the manner provided by
law out of the  property  of the  Company  or any  other  obligor  on such  Debt
Securities wherever situated the moneys adjudged or decreed to be payable.

         In case there shall be pending  proceedings  for the  bankruptcy or for
the  reorganization  of the Company or any other obligor on the Debt  Securities
under Bankruptcy Law, or in case a receiver or trustee shall have been appointed
for the  property  of the Company or such other  obligor,  or in the case of any
other similar judicial proceedings relative to the Company or other obligor upon
the Debt  Securities,  or to the  creditors  or  property of the Company or such
other obligor,  the Trustee,  irrespective  of whether the principal of the Debt
Securities shall then be due and payable as therein expressed or by acceleration
or otherwise and  irrespective of whether the Trustee shall have made any demand
pursuant  to the  provisions  of  this  Section  5.02,  shall  be  entitled  and
empowered, by intervention in such proceedings or otherwise, to file and prove a
claim or claims for the whole amount of principal and interest  owing and unpaid
in respect of the Debt Securities and, in case of any judicial  proceedings,  to
file such proofs of claim and other  papers or  documents as may be necessary or
advisable  in order to have the claims of the Trustee  (including  any claim for
reasonable  compensation to the Trustee and each predecessor  Trustee, and their
respective  agents,  attorneys and counsel,  and for  reimbursement of all other
amounts  due to the  Trustee  under  Section  6.06)  and of the  Securityholders
allowed  in such  judicial  proceedings  relative  to the  Company  or any other
obligor on the Debt  Securities,  or to the creditors or property of the Company
or such other obligor,  unless prohibited by applicable law and regulations,  to
vote on  behalf of the  holders  of the Debt  Securities  in any  election  of a
trustee or a standby  trustee in  arrangement,  reorganization,  liquidation  or
other  bankruptcy  or  insolvency   proceedings  or  Person  performing  similar
functions in  comparable  proceedings,  and to collect and receive any moneys or
other property payable or deliverable on any such claims,  and to distribute the
same after the deduction of its charges and expenses; and any receiver, assignee
or trustee in bankruptcy or  reorganization  is hereby authorized by each of the
Securityholders to make such payments to the Trustee, and, in the event that the
Trustee  shall  consent  to  the  making  of  such  payments   directly  to  the
Securityholders,  to pay to the Trustee such amounts as shall be  sufficient  to
cover reasonable compensation to the Trustee, each predecessor Trustee and their

                                       27
<PAGE>

respective  agents,  attorneys  and  counsel,  and all other  amounts due to the
Trustee under Section 6.06.

         Nothing herein contained shall be construed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any  Securityholder  any
plan of  reorganization,  arrangement,  adjustment or composition  affecting the
Debt  Securities or the rights of any holder thereof or to authorize the Trustee
to vote in respect of the claim of any Securityholder in any such proceeding.

         All rights of action and of asserting  claims under this Indenture,  or
under any of the Debt  Securities,  may be enforced  by the Trustee  without the
possession of any of the Debt Securities, or the production thereof at any trial
or other proceeding relative thereto, and any such suit or proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express  trust,
and any recovery of judgment shall be for the ratable  benefit of the holders of
the Debt Securities.

         In any  proceedings  brought by the Trustee  (and also any  proceedings
involving the  interpretation  of any  provision of this  Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Debt Securities, and it shall not be necessary to make any holders of the
Debt Securities parties to any such proceedings.

         Section 5.03 Application of Moneys Collected by Trustee.

         Any moneys  collected by the Trustee  shall be applied in the following
order,  at the date or dates fixed by the Trustee for the  distribution  of such
moneys,  upon  presentation  of the several Debt  Securities in respect of which
moneys have been collected,  and stamping thereon the payment, if only partially
paid, and upon surrender thereof if fully paid:

         First: To the payment of costs and expenses incurred by, and reasonable
fees of, the  Trustee,  its  agents,  attorneys  and  counsel,  and of all other
amounts due to the Trustee under Section 6.06;

         Second: To the payment of all Senior Indebtedness of the Company if and
to the extent required by Article XV;

         Third:  To the  payment of the  amounts  then due and unpaid  upon Debt
Securities,  in  respect  of which or for the  benefit  of which  money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due on such Debt Securities; and

         Fourth: The balance, if any, to the Company.

         Section 5.04 Proceedings by Securityholders.

         No holder of any Debt  Security  shall have any right to institute  any
suit,  action  or  proceeding  for any  remedy  hereunder,  unless  such  holder
previously shall have given to the Trustee written notice of an Event of Default
with respect to the Debt  Securities and unless the holders of not less than 25%
in aggregate principal amount of the Debt Securities then outstanding shall have
given the Trustee a written request to institute such action, suit or proceeding
and shall have  offered  to the  Trustee  such  reasonable  indemnity  as it may

                                       28
<PAGE>

require against the costs,  expenses and liabilities to be incurred thereby, and
the Trustee for 60 days after its receipt of such  notice,  request and offer of
indemnity  shall have failed to institute any such action,  suit or  proceeding;
provided,  that no holder of Debt  Securities  shall have any right to prejudice
the rights of any other holder of Debt Securities, obtain priority or preference
over any other such holder or enforce any right under this  Indenture  except in
the manner herein provided and for the equal,  ratable and common benefit of all
holders of Debt Securities.

         Notwithstanding  any other provisions in this Indenture,  however,  the
right of any holder of any Debt Security to receive payment of the principal of,
premium,  if any, and interest on such Debt  Security  when due, or to institute
suit for the enforcement of any such payment,  shall not be impaired or affected
without the consent of such holder.  For the protection  and  enforcement of the
provisions of this Section,  each and every Securityholder and the Trustee shall
be entitled to such relief as can be given either at law or in equity.

         Section 5.05 Proceedings by Trustee.

         In case  of an  Event  of  Default  hereunder  the  Trustee  may in its
discretion  proceed  to protect  and  enforce  the  rights  vested in it by this
Indenture by such  appropriate  judicial  proceedings  as the Trustee shall deem
most  effectual  to protect and enforce  any of such  rights,  either by suit in
equity or by action at law or by proceeding in bankruptcy or otherwise,  whether
for the specific  enforcement  of any  covenant or  agreement  contained in this
Indenture or in aid of the exercise of any power granted in this  Indenture,  or
to enforce  any other  legal or  equitable  right  vested in the Trustee by this
Indenture or by law.

         Section 5.06 Remedies Cumulative and Continuing.

         Except as otherwise  provided in Section 2.06,  all powers and remedies
given by this Article V to the Trustee or to the  Securityholders  shall, to the
extent  permitted by law, be deemed  cumulative  and not  exclusive of any other
powers  and  remedies  available  to the  Trustee  or the  holders  of the  Debt
Securities,  by judicial proceedings or otherwise, to enforce the performance or
observance  of the  covenants  and  agreements  contained  in this  Indenture or
otherwise  established  with  respect  to the Debt  Securities,  and no delay or
omission  of the  Trustee  or of any  holder  of any of the Debt  Securities  to
exercise any right or power  accruing  upon any Event of Default  occurring  and
continuing  as  aforesaid  shall  impair  any such  right or power,  or shall be
construed to be a waiver of any such default or an  acquiescence  therein;  and,
subject to the provisions of Section 5.04,  every power and remedy given by this
Article V or by law to the Trustee or to the  Securityholders  may be  exercised
from time to time, and as often as shall be deemed expedient,  by the Trustee or
by the Securityholders.

         Section  5.07  Direction  of  Proceedings  and  Waiver of  Defaults  by
Majority of Securityholders.

         The holders of a majority  in  aggregate  principal  amount of the Debt
Securities affected (voting as one class) at the time outstanding shall have the
right to direct the time,  method and place of conducting any proceeding for any
remedy  available to the Trustee,  or exercising any trust or power conferred on
the  Trustee  with  respect to such Debt  Securities;  provided,  however,  that

                                       29
<PAGE>

(subject to the  provisions of Section 6.01) the Trustee shall have the right to
decline to follow any such  direction if the Trustee  shall  determine  that the
action so directed would be unjustly  prejudicial to the holders not taking part
in such direction or if the Trustee being advised by counsel determines that the
action or  proceeding  so directed may not lawfully be taken or if a Responsible
Officer  of the  Trustee  shall  determine  that the  action or  proceedings  so
directed  would  involve  the  Trustee  in  personal  liability.  Prior  to  any
declaration of acceleration,  or ipso facto acceleration, of the maturity of the
Debt Securities,  the holders of a majority in aggregate principal amount of the
Debt  Securities at the time  outstanding may on behalf of the holders of all of
the Debt Securities waive (or modify any previously  granted waiver of) any past
Default or Event of Default  and its  consequences,  except a default (a) in the
payment  of  principal  of,  premium,  if any,  or  interest  on any of the Debt
Securities,  (b) in respect of  covenants or  provisions  hereof which cannot be
modified  or amended  without  the  consent of the holder of each Debt  Security
affected,  or (c) in  respect  of  the  covenants  contained  in  Section  3.09;
provided,  however,  that if the  Debt  Securities  are  held by the  Trust or a
trustee of the Trust,  such waiver or  modification  to such waiver shall not be
effective until the holders of a majority in liquidation preference of the Trust
Securities of the Trust shall have consented to such waiver or  modification  to
such  waiver;  provided,  further,  that if the  consent  of the  holder of each
outstanding Debt Security is required,  such waiver shall not be effective until
each holder of the Trust  Securities  of the Trust shall have  consented to such
waiver.  Upon any such waiver,  the Default or Event of Default  covered thereby
shall be deemed to be cured for all purposes of this  Indenture and the Company,
the Trustee and the  holders of the Debt  Securities  shall be restored to their
former positions and rights  hereunder,  respectively;  but no such waiver shall
extend to any  subsequent  or other  Default  or Event of  Default or impair any
right  consequent  thereon.  Whenever any Default or Event of Default  hereunder
shall have been waived as permitted by this Section 5.07,  said Default or Event
of Default shall for all purposes of the Debt  Securities  and this Indenture be
deemed to have been cured and to be not continuing.

         Section 5.08 Notice of Defaults.

         The Trustee  shall,  within 90 days after a Responsible  Officer of the
Trustee shall have actual knowledge or received written notice of the occurrence
of a default with respect to the Debt Securities,  mail to all  Securityholders,
as the  names  and  addresses  of such  holders  appear  upon the Debt  Security
Register,  notice of all defaults with respect to the Debt  Securities  known to
the  Trustee,  unless such  defaults  shall have been cured before the giving of
such notice (the term  "defaults"  for the  purpose of this  Section  5.08 being
hereby defined to be any event specified in Section 5.01, not including  periods
of grace, if any, provided for therein);  provided,  that, except in the case of
default in the payment of the principal of, premium,  if any, or interest on any
of the Debt  Securities,  the Trustee  shall be  protected in  withholding  such
notice if and so long as a  Responsible  Officer  of the  Trustee  in good faith
determines  that the  withholding  of such  notice  is in the  interests  of the
Securityholders.

         Section 5.09 Undertaking to Pay Costs.

         All  parties  to this  Indenture  agree,  and each  holder  of any Debt
Security by such  holder's  acceptance  thereof  shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the enforcement of
any right or remedy under this Indenture, or in any suit against the Trustee for
any action taken or omitted by it as Trustee,  the filing by any party  litigant

                                       30
<PAGE>

in such  suit of an  undertaking  to pay the costs of such  suit,  and that such
court  may in its  discretion  assess  reasonable  costs,  including  reasonable
attorneys'  fees and expenses,  against any party litigant in such suit,  having
due regard to the merits and good faith of the claims or  defenses  made by such
party  litigant;  but the provisions of this Section 5.09 shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Securityholder, or
group of  Securityholders,  holding in the aggregate  more than 10% in principal
amount of the Debt  Securities  outstanding,  or to any suit  instituted  by any
Securityholder  for the  enforcement  of the  payment  of the  principal  of (or
premium,  if any) or  interest  on any Debt  Security  against the Company on or
after the same shall have become due and payable.

                                   ARTICLE VI

                             CONCERNING THE TRUSTEE

         Section 6.01 Duties and Responsibilities of Trustee.

         With respect to the holders of Debt Securities  issued  hereunder,  the
Trustee, prior to the occurrence of an Event of Default with respect to the Debt
Securities  and after the curing or  waiving of all Events of Default  which may
have occurred,  with respect to the Debt Securities,  undertakes to perform such
duties and only such duties as are specifically set forth in this Indenture.  In
case an Event of Default with respect to the Debt Securities has occurred (which
has not been cured or waived) the Trustee shall  exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in  their  exercise,  as a  prudent  person  would  exercise  or use  under  the
circumstances in the conduct of such person's own affairs.

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

          (a) prior to the occurrence of an Event of Default with respect to the
     Debt  Securities  and after the  curing or waiving of all Events of Default
     which may have occurred

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

               (2) in the absence of bad faith on the part of the  Trustee,  the
          Trustee may  conclusively  rely, as to the truth of the statements and
          the  correctness  of  the  opinions   expressed   therein,   upon  any
          certificates  or opinions  furnished to the Trustee and  conforming to
          the  requirements  of this  Indenture;  but,  in the  case of any such
          certificates   or  opinions   which  by  any   provision   hereof  are
          specifically  required to be  furnished  to the  Trustee,  the Trustee
          shall be under a duty to examine the same to determine  whether or not
          they conform on their face to the requirements of this Indenture;

                                       31
<PAGE>

          (b) the Trustee  shall not be liable for any error of judgment made in
     good faith by a Responsible  Officer or Officers of the Trustee,  unless it
     shall  be  proved  that the  Trustee  was  negligent  in  ascertaining  the
     pertinent facts;

          (c) the Trustee  shall not be liable with  respect to any action taken
     or  omitted  to be  taken  by it in good  faith,  in  accordance  with  the
     direction of the Securityholders  pursuant to Section 5.07, relating to the
     time,  method  and  place  of  conducting  any  proceeding  for any  remedy
     available to the Trustee,  or exercising any trust or power  conferred upon
     the Trustee, under this Indenture; and

          (d) the Trustee shall not be charged with  knowledge of any Default or
     Event of Default with respect to the Debt  Securities  unless  either (1) a
     Responsible Officer shall have actual knowledge of such Default or Event of
     Default or (2)  written  notice of such  Default or Event of Default  shall
     have been given to the Trustee by the  Company or any other  obligor on the
     Debt  Securities  or by any  holder  of the Debt  Securities,  except  with
     respect to an Event of Default  pursuant  to Sections  5.01(a),  5.01(b) or
     5.01(c)  hereof (other than an Event of Default  resulting from the default
     in the payment of  Additional  Interest or premium,  if any, if the Trustee
     does not have actual  knowledge or written  notice that such payment is due
     and payable), of which the Trustee shall be deemed to have knowledge.

         None of the provisions  contained in this  Indenture  shall require the
Trustee to expend or risk its own funds or otherwise  incur  personal  financial
liability in the  performance  of any of its duties or in the exercise of any of
its rights or powers.

         Section 6.02 Reliance on Documents, Opinions, etc.

         Except as otherwise provided in Section 6.01:

          (a) the Trustee may conclusively  rely and shall be fully protected in
     acting  or  refraining  from  acting  upon  any  resolution,   certificate,
     statement,  instrument,  opinion, report, notice, request,  consent, order,
     bond,  note,  debenture  or other paper or document  believed by it in good
     faith to be  genuine  and to have been  signed or  presented  by the proper
     party or parties;

          (b) any request,  direction,  order or demand of the Company mentioned
     herein shall be sufficiently  evidenced by an Officers' Certificate (unless
     other evidence in respect thereof be herein specifically  prescribed);  and
     any Board  Resolution  may be  evidenced  to the Trustee by a copy  thereof
     certified by the Secretary or an Assistant Secretary of the Company;

          (c) the Trustee  may consult  with  counsel of its  selection  and any
     advice or Opinion of Counsel shall be full and complete  authorization  and
     protection  in  respect  of any  action  taken,  suffered  or omitted by it
     hereunder  in good faith and in  accordance  with such advice or Opinion of
     Counsel;

          (d) the Trustee  shall be under no  obligation  to exercise any of the
     rights or powers  vested in it by this  Indenture at the request,  order or
     direction of any of the Securityholders, pursuant to the provisions of this
     Indenture,  unless such  Securityholders  shall have offered to the Trustee
     reasonable   security  or  indemnity   against  the  costs,   expenses  and
     liabilities which may be incurred therein or thereby;

                                       32
<PAGE>

          (e) the Trustee shall not be liable for any action taken or omitted by
     it in  good  faith  and  believed  by it to be  authorized  or  within  the
     discretion or rights or powers conferred upon it by this Indenture; nothing
     contained  herein shall,  however,  relieve the Trustee of the  obligation,
     upon the  occurrence  of an  Event  of  Default  with  respect  to the Debt
     Securities  (that has not been cured or waived) to exercise with respect to
     the Debt  Securities  such of the rights  and  powers  vested in it by this
     Indenture,  and to use the same degree of care and skill in their exercise,
     as a prudent  person would exercise or use under the  circumstances  in the
     conduct of such person's own affairs;

          (f) the Trustee shall not be bound to make any investigation  into the
     facts  or  matters  stated  in  any  resolution,   certificate,  statement,
     instrument,  opinion,  report, notice,  request,  consent, order, approval,
     bond,  debenture,  coupon or other paper or document,  unless  requested in
     writing to do so by the  holders of not less than a majority  in  principal
     amount of the  outstanding  Debt  Securities  affected  thereby;  provided,
     however, that if the payment within a reasonable time to the Trustee of the
     costs, expenses or liabilities likely to be incurred by it in the making of
     such  investigation  is, in the  opinion  of the  Trustee,  not  reasonably
     assured to the Trustee by the security  afforded to it by the terms of this
     Indenture,  the Trustee  may  require  reasonable  indemnity  against  such
     expense or liability as a condition to so proceeding; and

          (g) the Trustee may execute any of the trusts or powers  hereunder  or
     perform  any duties  hereunder  either  directly  or by or  through  agents
     (including any  Authenticating  Agent) or attorneys,  and the Trustee shall
     not be responsible for any misconduct or negligence on the part of any such
     agent or attorney appointed by it with due care.

         Section 6.03 No Responsibility for Recitals, etc.

         The recitals contained herein and in the Debt Securities (except in the
certificate of authentication of the Trustee or the Authenticating  Agent) shall
be taken as the statements of the Company and the Trustee and the Authenticating
Agent assume no responsibility  for the correctness of the same. The Trustee and
the  Authenticating  Agent  make  no  representations  as  to  the  validity  or
sufficiency  of this  Indenture or of the Debt  Securities.  The Trustee and the
Authenticating  Agent shall not be accountable for the use or application by the
Company  of  any  Debt  Securities  or  the  proceeds  of  any  Debt  Securities
authenticated  and  delivered  by the  Trustee  or the  Authenticating  Agent in
conformity with the provisions of this Indenture.

         Section 6.04 Trustee,  Authenticating  Agent,  Paying Agents,  Transfer
Agents or Registrar May Own Debt Securities.

         The  Trustee or any  Authenticating  Agent or any  Paying  Agent or any
transfer  agent or any Debt Security  registrar,  in its individual or any other
capacity,  may  become the owner or  pledgee  of Debt  Securities  with the same
rights it would have if it were not Trustee, Authenticating Agent, Paying Agent,
transfer agent or Debt Security registrar.

         Section 6.05 Moneys to be Held in Trust.

         Subject to the provisions of Section 12.04,  all moneys received by the
Trustee or any paying agent shall, until used or applied as herein provided,  be
held in trust for the  purpose  for which  they were  received,  but need not be
segregated  from other funds  except to the extent  required by law. The Trustee

                                       33
<PAGE>

and any Paying  Agent  shall be under no  liability  for  interest  on any money
received by it hereunder except as otherwise agreed in writing with the Company.
So long as no Event of  Default  shall  have  occurred  and be  continuing,  all
interest allowed on any such moneys,  if any, shall be paid from time to time to
the Company upon the written order of the Company, signed by the Chairman of the
Board  of  Directors,  the  President,  the  Chief  Operating  Officer,  a  Vice
President, the Treasurer or an Assistant Treasurer of the Company.

         Section 6.06 Compensation and Expenses of Trustee.

         The Company  covenants  and agrees to pay to the  Trustee  from time to
time, and the Trustee shall be entitled to, such compensation as shall be agreed
to in writing between the Company and the Trustee (which shall not be limited by
any  provision of law in regard to the  compensation  of a trustee of an express
trust),  and the Company  will pay or  reimburse  the  Trustee  upon its written
request for all  documented  reasonable  expenses,  disbursements  and  advances
incurred or made by the Trustee in accordance with any of the provisions of this
Indenture (including the reasonable compensation and the reasonable expenses and
disbursements  of its counsel and of all  Persons not  regularly  in its employ)
except any such expense, disbursement or advance that arises from its negligence
or bad faith.  The  Company  also  covenants  to  indemnify  each of the Trustee
(including  in its  individual  capacity) and any  predecessor  Trustee (and its
officers, agents, directors and employees) for, and to hold it harmless against,
any and all loss,  damage,  claim,  liability or expense  including taxes (other
than taxes based on the income of the Trustee),  except to the extent such loss,
damage, claim,  liability or expense results from the negligence or bad faith of
such  indemnitee,  arising  out  of or in  connection  with  the  acceptance  or
administration  of this trust,  including  the costs and  expenses of  defending
itself  against any claim or liability in the premises.  The  obligations of the
Company under this Section 6.06 to  compensate  and indemnify the Trustee and to
pay or reimburse the Trustee for documented expenses, disbursements and advances
shall constitute additional indebtedness hereunder. Such additional indebtedness
shall  be  secured  by a lien  prior  to that of the  Debt  Securities  upon all
property and funds held or  collected by the Trustee as such,  except funds held
in trust for the benefit of the holders of particular Debt Securities.

         Without  prejudice to any other rights  available to the Trustee  under
applicable  law,  when the  Trustee  incurs  expenses  or  renders  services  in
connection with an Event of Default  specified in subsections (e), (f) or (g) of
Section 5.01, the expenses (including the reasonable charges and expenses of its
counsel)  and the  compensation  for the  services  are  intended to  constitute
expenses of  administration  under any applicable  federal or state  bankruptcy,
insolvency or other similar law.

         The provisions of this Section shall survive the resignation or removal
of the Trustee and the defeasance or other termination of this Indenture.

         Notwithstanding  anything in this Indenture or any Debt Security to the
contrary,  the Trustee shall have no  obligation  whatsoever to advance funds to
pay any  principal  of or interest on or other  amounts with respect to the Debt
Securities or otherwise advance funds to or on behalf of the Company.

                                       34
<PAGE>

         Section 6.07 Officers' Certificate as Evidence.

         Except as otherwise provided in Sections 6.01 and 6.02, whenever in the
administration  of the  provisions  of this  Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
omitting any action  hereunder,  such matter  (unless other  evidence in respect
thereof be herein specifically  prescribed) may, in the absence of negligence or
bad faith on the part of the Trustee,  be deemed to be  conclusively  proved and
established  by an Officers'  Certificate  delivered  to the  Trustee,  and such
certificate,  in the  absence  of  negligence  or bad  faith  on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or omitted by
it under the provisions of this Indenture upon the faith thereof.

         Section 6.08 Eligibility of Trustee.

         The  Trustee  hereunder  shall at all times be a U.S.  Person that is a
banking corporation or national  association  organized and doing business under
the laws of the United States of America or any state thereof or of the District
of Columbia and authorized  under such laws to exercise  corporate trust powers,
having a combined  capital and surplus of at least fifty  million  U.S.  dollars
($50,000,000)  and subject to supervision or examination by federal,  state,  or
District of Columbia  authority.  If such  corporation  or national  association
publishes  reports of  condition  at least  annually,  pursuant to law or to the
requirements of the aforesaid  supervising or examining authority,  then for the
purposes  of  this  Section  6.08  the  combined  capital  and  surplus  of such
corporation or national  association  shall be deemed to be its combined capital
and surplus as set forth in its most recent records of condition so published.

         The  Company  may  not,  nor  may any  Person  directly  or  indirectly
controlling,  controlled by, or under common control with the Company,  serve as
Trustee,  notwithstanding that such corporation or national association shall be
otherwise eligible and qualified under this Article.

         In  case  at any  time  the  Trustee  shall  cease  to be  eligible  in
accordance  with the  provisions of this Section 6.08,  the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.09.

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

         Section 6.09 Resignation or Removal of Trustee.

          (a) The Trustee, or any trustee or trustees hereafter  appointed,  may
     at any time  resign by giving  written  notice of such  resignation  to the
     Company and by mailing notice  thereof,  at the Company's  expense,  to the
     holders of the Debt  Securities at their  addresses as they shall appear on
     the Debt Security Register. Upon receiving such notice of resignation,  the
     Company shall promptly  appoint a successor  trustee or trustees by written
     instrument, in duplicate,  executed by order of its Board of Directors, one
     copy of which  instrument  shall be delivered to the resigning  Trustee and
     one copy to the successor Trustee.  If no successor Trustee shall have been
     so appointed and have accepted appointment within 30 days after the mailing
     of  such  notice  of  resignation  to  the  affected  Securityholders,  the
     resigning Trustee may petition any court of competent  jurisdiction for the
     appointment of a successor  Trustee,  or any  Securityholder who has been a
     bona fide  holder of a Debt  Security or Debt  Securities  for at least six

                                       35
<PAGE>

     months may, subject to the provisions of Section 5.09, on behalf of himself
     or herself and all others similarly  situated,  petition any such court for
     the  appointment of a successor  Trustee.  Such court may thereupon,  after
     such  notice,  if any,  as it may deem  proper  and  prescribe,  appoint  a
     successor Trustee.

          (b) In case at any time any of the following shall occur --

               (1) the Trustee  shall fail to comply with the  provisions of the
          last paragraph of Section 6.08 after written  request  therefor by the
          Company or by any  Securityholder who has been a bona fide holder of a
          Debt Security or Debt Securities for at least six months,

               (2) the Trustee shall cease to be eligible in accordance with the
          provisions  of  Section  6.08 and shall fail to resign  after  written
          request therefor by the Company or by any such Securityholder, or

               (3) the Trustee  shall become  incapable  of acting,  or shall be
          adjudged bankrupt or insolvent, or a receiver of the Trustee or of its
          property  shall be appointed,  or any public officer shall take charge
          or  control  of the  Trustee or of its  property  or  affairs  for the
          purpose of rehabilitation, conservation or liquidation,

then,  in any such  case,  the  Company  may remove the  Trustee  and  appoint a
successor Trustee by written instrument, in duplicate,  executed by order of the
Board of  Directors,  one copy of which  instrument  shall be  delivered  to the
Trustee so removed and one copy to the  successor  Trustee,  or,  subject to the
provisions of Section 5.09, if no successor Trustee shall have been so appointed
and have accepted appointment within 30 days of the occurrence of any of (1),(2)
or (3)  above,  any  Securityholder  who has been a bona  fide  holder of a Debt
Security or Debt Securities for at least six months may, on behalf of himself or
herself  and all others  similarly  situated,  petition  any court of  competent
jurisdiction  for the removal of the Trustee and the  appointment of a successor
Trustee.  Such court may  thereupon,  after such notice,  if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor Trustee.

          (c) Upon prior  written  notice to the  Company and the  Trustee,  the
     holders of a majority in aggregate  principal amount of the Debt Securities
     at the time  outstanding  may at any time remove the Trustee and nominate a
     successor  Trustee,  which shall be deemed  appointed as successor  Trustee
     unless within ten Business Days after such  nomination the Company  objects
     thereto,  in which  case or in the case of a  failure  by such  holders  to
     nominate a successor Trustee, the Trustee so removed or any Securityholder,
     upon the terms and  conditions  and otherwise as in subsection  (a) of this
     Section 6.09 provided, may petition any court of competent jurisdiction for
     an appointment of a successor.

          (d) Any  resignation  or removal of the Trustee and  appointment  of a
     successor  Trustee  pursuant to any of the  provisions of this Section 6.09
     shall become  effective  upon  acceptance of  appointment  by the successor
     Trustee as provided in Section 6.10.

                                       36
<PAGE>

         Section 6.10 Acceptance by Successor Trustee.

         Any  successor  Trustee  appointed  as provided  in Section  6.09 shall
execute,  acknowledge and deliver to the Company and to its predecessor  Trustee
an  instrument   accepting  such  appointment   hereunder,   and  thereupon  the
resignation or removal of the retiring  Trustee shall become  effective and such
successor  Trustee,  without any further act, deed or  conveyance,  shall become
vested with all the rights,  powers,  duties and obligations with respect to the
Debt Securities of its predecessor hereunder,  with like effect as if originally
named as  Trustee  herein;  but,  nevertheless,  on the  written  request of the
Company or of the  successor  Trustee,  the Trustee  ceasing to act shall,  upon
payment of the amounts then due it pursuant to the  provisions  of Section 6.06,
execute and deliver an instrument transferring to such successor Trustee all the
rights  and powers of the  Trustee  so  ceasing  to act and shall  duly  assign,
transfer  and deliver to such  successor  Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company  shall  execute  any and all  instruments  in writing for more fully and
certainly  vesting in and confirming to such  successor  Trustee all such rights
and powers. Any Trustee ceasing to act shall,  nevertheless,  retain a lien upon
all  property or funds held or  collected  by such Trustee to secure any amounts
then due it pursuant to the provisions of Section 6.06.

         If a successor Trustee is appointed,  the Company, the retiring Trustee
and the successor  Trustee  shall execute and deliver an indenture  supplemental
hereto  which shall  contain  such  provisions  as shall be deemed  necessary or
desirable  to  confirm  that all the  rights,  powers,  trusts and duties of the
retiring Trustee with respect to the Debt Securities as to which the predecessor
Trustee is not retiring shall continue to be vested in the predecessor  Trustee,
and shall add to or change any of the  provisions of this  Indenture as shall be
necessary to provide for or facilitate the administration of the Trust hereunder
by more than one Trustee,  it being  understood  that nothing  herein or in such
supplemental  indenture shall  constitute such Trustees  co-trustees of the same
trust and that each such Trustee shall be Trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder  administered by any other
such Trustee.

         No  successor  Trustee  shall  accept  appointment  as provided in this
Section 6.10 unless at the time of such acceptance such successor  Trustee shall
be eligible under the provisions of Section 6.08.

         In no  event  shall a  retiring  Trustee  be  liable  for  the  acts or
omissions of any successor Trustee hereunder.

         Upon  acceptance of appointment  by a successor  Trustee as provided in
this  Section  6.10,  the Company  shall mail notice of the  succession  of such
Trustee  hereunder to the holders of Debt  Securities at their addresses as they
shall appear on the Debt  Security  Register.  If the Company fails to mail such
notice  within ten Business  Days after the  acceptance  of  appointment  by the
successor Trustee, the successor Trustee shall cause such notice to be mailed at
the expense of the Company.

         Section 6.11 Succession by Merger, etc.

         Any  corporation  into which the Trustee may be merged or  converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion  or  consolidation  to which  the  Trustee  shall be a party,  or any

                                       37
<PAGE>

corporation  succeeding  to all or  substantially  all  of the  corporate  trust
business of the Trustee, shall be the successor of the Trustee hereunder without
the  execution  or filing of any paper or any  further act on the part of any of
the parties hereto;  provided, that such corporation shall be otherwise eligible
and qualified under this Article.

         In case at the time such  successor to the Trustee shall succeed to the
trusts  created by this  Indenture  any of the Debt  Securities  shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor  Trustee, and deliver such Debt
Securities so authenticated; and in case at that time any of the Debt Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Debt Securities  either in the name of any predecessor  hereunder or in the
name of the successor  Trustee;  and in all such cases such  certificates  shall
have the full  force  which it is  anywhere  in the Debt  Securities  or in this
Indenture  provided that the  certificate  of the Trustee shall have;  provided,
however,  that the  right to adopt  the  certificate  of  authentication  of any
predecessor  Trustee  or  authenticate  Debt  Securities  in  the  name  of  any
predecessor  Trustee  shall apply only to its successor or successors by merger,
conversion or consolidation.

         Section 6.12 Authenticating Agents.

         There may be one or more Authenticating Agents appointed by the Trustee
upon the request of the  Company  with power to act on its behalf and subject to
its direction in the  authentication and delivery of Debt Securities issued upon
exchange  or  registration  of  transfer  thereof  as fully to all  intents  and
purposes as though any such Authenticating  Agent had been expressly  authorized
to authenticate  and deliver Debt Securities;  provided,  that the Trustee shall
have no liability to the Company for any acts or omissions of the Authenticating
Agent with respect to the  authentication  and delivery of Debt Securities.  Any
such  Authenticating  Agent  shall at all  times  be a  banking  corporation  or
national  association  organized and doing business under the laws of the United
States or of any state or  territory  thereof  or of the  District  of  Columbia
authorized  under such laws to act as  Authenticating  Agent,  having a combined
capital and surplus of at least  $50,000,000 and being subject to supervision or
examination by federal, state, territorial or District of Columbia authority. If
such banking corporation or national association  publishes reports of condition
at least annually  pursuant to law or the  requirements of such authority,  then
for the purposes of this  Section 6.12 the combined  capital and surplus of such
corporation  shall be deemed to be its combined capital and surplus as set forth
in its  most  recent  report  of  condition  so  published.  If at any  time  an
Authenticating  Agent  shall  cease  to  be  eligible  in  accordance  with  the
provisions of this Section,  it shall resign  immediately in the manner and with
the effect herein specified in this Section.

         Any corporation  into which any  Authenticating  Agent may be merged or
converted or with which it may be  consolidated,  or any  corporation  resulting
from any merger,  consolidation or conversion to which any Authenticating  Agent
shall be a party, or any corporation  succeeding to all or substantially  all of
the corporate trust business of any Authenticating Agent, shall be the successor
of such  Authenticating  Agent  hereunder,  if  such  successor  corporation  is
otherwise  eligible  under this Section 6.12 without the  execution or filing of
any  paper  or any  further  act on the  part  of the  parties  hereto  or  such
Authenticating Agent.

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<PAGE>

         Any  Authenticating  Agent may at any time  resign  by  giving  written
notice of resignation to the Trustee and to the Company.  The Trustee may at any
time terminate the agency of any  Authenticating  Agent with respect to the Debt
Securities by giving written notice of termination to such Authenticating  Agent
and to the Company.  Upon  receiving such a notice of resignation or upon such a
termination,  or in case at any time any Authenticating  Agent shall cease to be
eligible  under this Section 6.12,  the Trustee may, and upon the request of the
Company shall, promptly appoint a successor  Authenticating Agent eligible under
this Section 6.12,  shall give written notice of such appointment to the Company
and shall mail notice of such  appointment to all holders of Debt  Securities as
the names and addresses of such holders  appear on the Debt  Security  Register.
Any successor  Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all rights,  powers,  duties and responsibilities  with
respect to the Debt Securities of its predecessor hereunder, with like effect as
if originally named as Authenticating Agent herein.

         The Company agrees to pay to any Authenticating Agent from time to time
reasonable compensation for its services. Any Authenticating Agent shall have no
responsibility  or liability  for any action  taken by it as such in  accordance
with the directions of the Trustee.

                                  ARTICLE VII

                         CONCERNING THE SECURITYHOLDERS

         Section 7.01 Action by Securityholders.

         Whenever  in this  Indenture  it is  provided  that  the  holders  of a
specified  percentage in aggregate  principal  amount of the Debt Securities may
take any action  (including  the making of any demand or request,  the giving of
any notice,  consent or waiver or the taking of any other action), the fact that
at the time of taking any such action the holders of such  specified  percentage
have joined  therein may be  evidenced  (a) by any  instrument  or any number of
instruments  of similar tenor executed by such  Securityholders  in person or by
agent or proxy  appointed  in writing,  or (b) by the record of such  holders of
Debt Securities  voting in favor thereof at any meeting of such  Securityholders
duly called and held in accordance  with the  provisions of Article VIII, or (c)
by a combination of such instrument or instruments and any such record of such a
meeting of such  Securityholders  or (d) by any other  method the Trustee  deems
satisfactory.

         If the Company  shall  solicit  from the  Securityholders  any request,
demand,  authorization,  direction,  notice,  consent, waiver or other action or
revocation  of the same,  the Company  may, at its option,  as  evidenced  by an
Officers' Certificate, fix in advance a record date for such Debt Securities for
the  determination  of  Securityholders  entitled to give such request,  demand,
authorization,  direction, notice, consent, waiver or other action or revocation
of the same, but the Company shall have no obligation to do so. If such a record
date is fixed, such request, demand, authorization,  direction, notice, consent,
waiver or other  action or  revocation  of the same may be given before or after
the record date, but only the Securityholders of record at the close of business
on the record  date shall be deemed to be  Securityholders  for the  purposes of
determining whether  Securityholders of the requisite  proportion of outstanding
Debt Securities have authorized or agreed or consented to such request,  demand,
authorization,  direction, notice, consent, waiver or other action or revocation

                                       39
<PAGE>

of the same,  and for that  purpose the  outstanding  Debt  Securities  shall be
computed as of the record date; provided,  however,  that no such authorization,
agreement or consent by such  Securityholders on the record date shall be deemed
effective  unless it shall become  effective  pursuant to the provisions of this
Indenture not later than six months after the record date.

         Section 7.02 Proof of Execution by Securityholders.

         Subject to the provisions of Sections 6.01, 6.02 and 8.05, proof of the
execution of any instrument by a Securityholder or such  Securityholder's  agent
or proxy shall be sufficient if made in accordance  with such  reasonable  rules
and  regulations  as may be prescribed by the Trustee or in such manner as shall
be satisfactory to the Trustee. The ownership of Debt Securities shall be proved
by  the  Debt  Security  Register  or by a  certificate  of  the  Debt  Security
registrar.  The Trustee may require such additional proof of any matter referred
to in this Section as it shall deem necessary.

         The  record  of any  Securityholders'  meeting  shall be  proved in the
manner provided in Section 8.06.

         Section 7.03 Who Are Deemed Absolute Owners.

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

         Section 7.04 Debt Securities Owned by Company Deemed Not Outstanding.

         In determining whether the holders of the requisite aggregate principal
amount of Debt  Securities  have concurred in any  direction,  consent or waiver
under this  Indenture,  Debt  Securities  which are owned by the  Company or any
other  obligor on the Debt  Securities  or by any Person  directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company (other than the Trust) or any other obligor on the Debt Securities shall
be  disregarded  and deemed not to be  outstanding  for the  purpose of any such
determination;  provided,  that for the  purposes  of  determining  whether  the
Trustee shall be protected in relying on any such direction,  consent or waiver,
only Debt Securities  which a Responsible  Officer of the Trustee actually knows
are so owned shall be so  disregarded.  Debt Securities so owned which have been
pledged in good faith may be regarded as  outstanding  for the  purposes of this
Section 7.04 if the pledgee shall  establish to the  satisfaction of the Trustee
the pledgee's right to vote such Debt Securities and that the pledgee is not the

                                       40
<PAGE>

Company or any such other obligor or Person  directly or indirectly  controlling
or controlled by or under direct or indirect  common control with the Company or
any such other obligor.  In the case of a dispute as to such right, any decision
by the Trustee taken upon the advice of counsel shall be full  protection to the
Trustee.

         Section 7.05 Revocation of Consents; Future Holders Bound.

         At any time prior to (but not after) the evidencing to the Trustee,  as
provided  in Section  7.01,  of the  taking of any action by the  holders of the
percentage in aggregate  principal  amount of the Debt  Securities  specified in
this  Indenture in  connection  with such action,  any holder (in cases where no
record  date has been set  pursuant  to  Section  7.01) or any  holder  as of an
applicable  record date (in cases  where a record date has been set  pursuant to
Section  7.01) of a Debt  Security (or any Debt  Security  issued in whole or in
part in exchange or  substitution  therefor) the serial number of which is shown
by the evidence to be included in the Debt  Securities the holders of which have
consented to such action may, by filing  written  notice with the Trustee at the
Principal Office of the Trustee and upon proof of holding as provided in Section
7.02,  revoke such action so far as concerns  such Debt  Security  (or so far as
concerns the principal  amount  represented by any exchanged or substituted Debt
Security).  Except as aforesaid  any such action taken by the holder of any Debt
Security  shall be  conclusive  and binding upon such holder and upon all future
holders and owners of such Debt  Security,  and of any Debt  Security  issued in
exchange or  substitution  therefor  or on  registration  of  transfer  thereof,
irrespective  of whether or not any notation in regard thereto is made upon such
Debt Security or any Debt Security issued in exchange or substitution therefor.

                                  ARTICLE VIII

                            SECURITYHOLDERS' MEETINGS

         Section 8.01 Purposes of Meetings.

         A meeting of Securityholders may be called at any time and from time to
time  pursuant to the  provisions  of this Article VIII for any of the following
purposes:

          (a) to give any notice to the  Company or to the  Trustee,  or to give
     any directions to the Trustee,  or to consent to the waiving of any default
     hereunder and its  consequences,  or to take any other action authorized to
     be taken by Securityholders pursuant to any of the provisions of Article V;

          (b) to remove the Trustee and nominate a successor trustee pursuant to
     the provisions of Article VI;

          (c)  to  consent  to  the  execution  of an  indenture  or  indentures
     supplemental hereto pursuant to the provisions of Section 9.02; or

          (d) to take any other action authorized to be taken by or on behalf of
     the  holders  of any  specified  aggregate  principal  amount  of such Debt
     Securities  under any other provision of this Indenture or under applicable
     law.

                                       41
<PAGE>

         Section 8.02 Call of Meetings by Trustee.

         The Trustee may at any time call a meeting of  Securityholders  to take
any action  specified in Section 8.01, to be held at such time and at such place
in New York or Wilmington,  Delaware, as the Trustee shall determine.  Notice of
every  meeting of the  Securityholders,  setting forth the time and the place of
such  meeting  and in  general  terms the  action  proposed  to be taken at such
meeting,  shall be  mailed  to  holders  of Debt  Securities  affected  at their
addresses  as they shall  appear on the Debt  Securities  Register.  Such notice
shall be mailed  not less than 20 nor more than 180 days prior to the date fixed
for the meeting.

         Section 8.03 Call of Meetings by Company or Securityholders.

         In case at any time the Company pursuant to a Board Resolution,  or the
holders of at least 10% in aggregate principal amount of the Debt Securities, as
the case may be, then  outstanding,  shall have  requested the Trustee to call a
meeting of  Securityholders,  by written  request  setting  forth in  reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have  mailed the  notice of such  meeting  within 20 days after  receipt of such
request, then the Company or such Securityholders may determine the time and the
place in  Greenville,  South Carolina for such meeting and may call such meeting
to take any action  authorized  in Section 8.01,  by mailing  notice  thereof as
provided in Section 8.02.

         Section 8.04 Qualifications for Voting.

         To be entitled to vote at any meeting of Securityholders a Person shall
be (a) a holder of one or more Debt Securities with respect to which the meeting
is being held or (b) a Person  appointed by an instrument in writing as proxy by
a holder of one or more  such Debt  Securities.  The only  Persons  who shall be
entitled  to be present or to speak at any meeting of  Securityholders  shall be
the  Persons  entitled  to  vote at  such  meeting  and  their  counsel  and any
representatives  of the Trustee and its counsel and any  representatives  of the
Company and its counsel.

         Section 8.05 Regulations.

         Notwithstanding any other provisions of this Indenture, the Trustee may
make such  reasonable  regulations  as it may deem  advisable for any meeting of
Securityholders, in regard to proof of the holding of Debt Securities and of the
appointment  of  proxies,  and  in  regard  to the  appointment  and  duties  of
inspectors of votes, the submission and examination of proxies, certificates and
other  evidence  of the right to vote,  and such other  matters  concerning  the
conduct of the meeting as it shall deem appropriate.

         The Trustee  shall,  by an instrument  in writing,  appoint a temporary
chairman  of the  meeting,  unless the  meeting  shall  have been  called by the
Company or by  Securityholders  as provided in Section  8.03,  in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary  chairman.  A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote at the meeting.

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<PAGE>

         Subject to the  provisions  of Section 7.04, at any meeting each holder
of Debt  Securities  with  respect to which such  meeting is being held or proxy
therefor shall be entitled to one vote for each $1,000  principal amount of Debt
Securities held or represented by such holder;  provided,  however, that no vote
shall  be cast or  counted  at any  meeting  in  respect  of any  Debt  Security
challenged as not outstanding and ruled by the chairman of the meeting to be not
outstanding.  The chairman of the meeting shall have no right to vote other than
by virtue of Debt  Securities held by such chairman or instruments in writing as
aforesaid  duly  designating  such  chairman  as the Person to vote on behalf of
other  Securityholders.  Any meeting of Securityholders  duly called pursuant to
the  provisions of Section 8.02 or 8.03 may be adjourned  from time to time by a
majority of those present, whether or not constituting a quorum, and the meeting
may be held as so adjourned without further notice.

         Section 8.06 Voting.

         The vote upon any  resolution  submitted  to any  meeting of holders of
Debt  Securities  with  respect to which such  meeting is being held shall be by
written  ballots on which shall be subscribed  the signatures of such holders or
of their  representatives  by proxy and the serial number or numbers of the Debt
Securities  held or represented  by them. The permanent  chairman of the meeting
shall  appoint  two  inspectors  of votes who shall  count all votes cast at the
meeting  for or  against  any  resolution  and who shall  make and file with the
secretary of the meeting  their  verified  written  reports in triplicate of all
votes cast at the  meeting.  A record in duplicate  of the  proceedings  of each
meeting of Securityholders shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and  affidavits by one or more Persons
having  knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was mailed as provided in Section 8.02.  The record
shall  show the  serial  numbers  of the Debt  Securities  voting in favor of or
against  any  resolution.  The  record  shall  be  signed  and  verified  by the
affidavits of the permanent chairman and secretary of the meeting and one of the
duplicates  shall be delivered to the Company and the other to the Trustee to be
preserved by the Trustee,  the latter to have attached thereto the ballots voted
at the meeting.

         Any record so signed and verified  shall be conclusive  evidence of the
matters therein stated.

         Section 8.07 Quorum; Actions.

         The Persons entitled to vote a majority in outstanding principal amount
of  the  Debt   Securities   shall   constitute   a  quorum  for  a  meeting  of
Securityholders;  provided,  however,  that if any action is to be taken at such
meeting  with  respect  to  a  consent,   waiver,   request,   demand,   notice,
authorization,  direction  or other  action which may be given by the holders of
not less than a specified percentage in outstanding principal amount of the Debt
Securities,  the Persons  holding or representing  such specified  percentage in
outstanding principal amount of the Debt Securities will constitute a quorum. In
the  absence of a quorum  within 30 minutes of the time  appointed  for any such
meeting,  the meeting shall, if convened at the request of  Securityholders,  be
dissolved.  In any other case the meeting may be  adjourned  for a period of not
less than 10 days as determined  by the permanent  chairman of the meeting prior
to the  adjournment  of such  meeting.  In the  absence  of a quorum at any such
adjourned meeting,  such adjourned meeting may be further adjourned for a period
of not less than 10 days as determined by the permanent  chairman of the meeting

                                       43
<PAGE>

prior to the adjournment of such adjourned meeting. Notice of the reconvening of
any adjourned  meeting  shall be given as provided in Section 8.02,  except that
such notice need be given only once not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of an
adjourned  meeting shall state expressly the  percentage,  as provided above, of
the outstanding principal amount of the Debt Securities which shall constitute a
quorum.

         Except as limited  by the  proviso  in the first  paragraph  of Section
9.02, any resolution presented to a meeting or adjourned meeting duly reconvened
at which a quorum is present as aforesaid may be adopted by the affirmative vote
of the holders of not less than a majority in  outstanding  principal  amount of
the Debt Securities;  provided,  however, that, except as limited by the proviso
in the first  paragraph  of Section  9.02,  any  resolution  with respect to any
consent,  waiver,  request,  demand, notice,  authorization,  direction or other
action that this Indenture expressly provides may be given by the holders of not
less than a specified  percentage in  outstanding  principal  amount of the Debt
Securities may be adopted at a meeting or an adjourned  meeting duly  reconvened
and at which a quorum is present as aforesaid  only by the  affirmative  vote of
the holders of not less than such specified percentage in outstanding  principal
amount of the Debt Securities.

         Any  resolution  passed or decision  taken at any meeting of holders of
Debt  Securities  duly held in accordance  with this Section shall be binding on
all the Securityholders, whether or not present or represented at the meeting.

                                   ARTICLE IX

                             SUPPLEMENTAL INDENTURES

         Section   9.01    Supplemental    Indentures    without    Consent   of
Securityholders.

         The Company, when authorized by a Board Resolution, and the Trustee may
from  time  to time  and at any  time  enter  into an  indenture  or  indentures
supplemental hereto, without the consent of the Securityholders, for one or more
of the following purposes:

          (a) to evidence the succession of another  corporation to the Company,
     or successive successions,  and the assumption by the successor corporation
     of the covenants,  agreements and  obligations of the Company,  pursuant to
     Article XI hereof;

          (b) to add to the  covenants of the Company  such  further  covenants,
     restrictions  or  conditions  for the  protection  of the  holders  of Debt
     Securities  as  the  Board  of  Directors  shall  consider  to be  for  the
     protection  of the  holders  of  such  Debt  Securities,  and to  make  the
     occurrence, or the occurrence and continuance,  of a Default in any of such
     additional  covenants,  restrictions or conditions a Default or an Event of
     Default  permitting the  enforcement of all or any of the several  remedies
     provided in this Indenture as herein set forth; provided,  however, that in
     respect of any such  additional  covenant,  restriction  or condition  such
     supplemental  indenture may provide for a particular  period of grace after
     Default  (which  period may be shorter or longer  than that  allowed in the

                                       44
<PAGE>

     case of other  Defaults) or may provide for an immediate  enforcement  upon
     such Default or may limit the  remedies  available to the Trustee upon such
     default;

          (c) to cure any  ambiguity or to correct or  supplement  any provision
     contained herein or in any supplemental indenture which may be defective or
     inconsistent   with  any  other  provision   contained  herein  or  in  any
     supplemental  indenture,  or to make  such  other  provisions  in regard to
     matters or questions arising under this Indenture;  provided, that any such
     action shall not adversely  affect the interests of the holders of the Debt
     Securities;

          (d) to add to,  delete from,  or revise the terms of Debt  Securities,
     including,   without  limitation,  any  terms  relating  to  the  issuance,
     exchange, registration or transfer of Debt Securities, including to provide
     for transfer  procedures and  restrictions  substantially  similar to those
     applicable  to the Capital  Securities,  as  required by Section  2.05 (for
     purposes of assuring that no  registration  of Debt  Securities is required
     under  the  Securities  Act;  provided,  that any  such  action  shall  not
     adversely  affect the interests of the holders of the Debt  Securities then
     outstanding  (it being  understood,  for  purposes  of this  proviso,  that
     transfer  restrictions  on Debt Securities  substantially  similar to those
     applicable to Capital  Securities  shall not be deemed to adversely  affect
     the holders of the Debt Securities);

          (e)  to  evidence  and  provide  for  the  acceptance  of  appointment
     hereunder by a successor Trustee with respect to the Debt Securities and to
     add to or  change  any of the  provisions  of this  Indenture  as  shall be
     necessary to provide for or  facilitate  the  administration  of the trusts
     hereunder by more than one Trustee, pursuant to the requirements of Section
     6.10;

          (f) to make any  change  (other  than as  elsewhere  provided  in this
     paragraph) that does not adversely affect the rights of any  Securityholder
     in any material respect; or

          (g) to provide for the  issuance of and  establish  the form and terms
     and  conditions  of the  Debt  Securities,  to  establish  the  form of any
     certifications  required  to be  furnished  pursuant  to the  terms of this
     Indenture or the Debt Securities, or to add to the rights of the holders of
     Debt Securities.

         The  Trustee  is  hereby  authorized  to join with the  Company  in the
execution of any such supplemental  indenture,  to make any further  appropriate
agreements  and  stipulations  which may be therein  contained and to accept the
conveyance,  transfer and assignment of any property thereunder, but the Trustee
shall  not be  obligated  to,  but may in its  discretion,  enter  into any such
supplemental  indenture  which  affects  the  Trustee's  own  rights,  duties or
immunities under this Indenture or otherwise.

         Any supplemental indenture authorized by the provisions of this Section
9.01 may be executed  by the Company and the Trustee  without the consent of the
holders of any of the Debt Securities at the time  outstanding,  notwithstanding
any of the provisions of Section 9.02.

         Section 9.02 Supplemental Indentures with Consent of Securityholders.

         With the consent (evidenced as provided in Section 7.01) of the holders
of not less than a majority in aggregate principal amount of the Debt Securities
at the time outstanding  affected by such  supplemental  indenture  (voting as a

                                       45
<PAGE>

class), the Company, when authorized by a Board Resolution,  and the Trustee may
from  time  to time  and at any  time  enter  into an  indenture  or  indentures
supplemental  hereto  (which  shall  conform  to the  provisions  of  the  Trust
Indenture Act, then in effect,  applicable to indentures  qualified  thereunder)
for the  purpose  of adding  any  provisions  to or  changing  in any  manner or
eliminating  any of the  provisions  of this  Indenture  or of any  supplemental
indenture  or of  modifying  in any manner the rights of the holders of the Debt
Securities; provided, however, that no such supplemental indenture shall without
such consent of the holders of each Debt Security then  outstanding and affected
thereby  (i)  extend  the fixed  maturity  of any Debt  Security,  or reduce the
principal  amount thereof or any premium  thereon,  or reduce the rate or extend
the time of  payment  of  interest  thereon,  or reduce  any  amount  payable on
redemption  thereof or make the  principal  thereof or any  interest  or premium
thereon  payable in any coin or  currency  other than that  provided in the Debt
Securities,  or impair or affect the right of any  Securityholder  to  institute
suit for payment thereof or impair the right of repayment, if any, at the option
of the holder,  or (ii) reduce the aforesaid  percentage of Debt  Securities the
holders of which are required to consent to any such supplemental indenture; and
provided,  further,  that if the  Debt  Securities  are  held by the  Trust or a
trustee of such trust, such supplemental  indenture shall not be effective until
the  holders of a majority in  liquidation  preference  of the Trust  Securities
shall have consented to such supplemental indenture;  provided, further, that if
the consent of the Securityholder of each outstanding Debt Security is required,
such  supplemental  indenture  shall not be  effective  until each holder of the
Trust Securities shall have consented to such supplemental indenture.

         Upon the  request  of the  Company  accompanied  by a Board  Resolution
authorizing  the  execution  of any such  supplemental  indenture,  and upon the
filing  with the  Trustee  of  evidence  of the  consent of  Securityholders  as
aforesaid,  the  Trustee  shall join with the Company in the  execution  of such
supplemental  indenture unless such supplemental indenture affects the Trustee's
own rights,  duties or immunities  under this  Indenture or otherwise,  in which
case the Trustee may in its  discretion,  but shall not be  obligated  to, enter
into such supplemental indenture.

         Promptly  after the  execution  by the  Company  and the Trustee of any
supplemental  indenture pursuant to the provisions of this Section,  the Trustee
shall transmit by mail, first class postage prepaid,  a notice,  prepared by the
Company,  setting  forth in general  terms the  substance  of such  supplemental
indenture,  to the  Securityholders as their names and addresses appear upon the
Debt Security  Register.  Any failure of the Trustee to mail such notice, or any
defect therein,  shall not, however, in any way impair or affect the validity of
any such supplemental indenture.

         It shall not be necessary for the consent of the Securityholders  under
this Section 9.02 to approve the  particular  form of any proposed  supplemental
indenture,  but it  shall  be  sufficient  if such  consent  shall  approve  the
substance thereof.

         Section 9.03 Effect of Supplemental Indentures.

         Upon  the  execution  of any  supplemental  indenture  pursuant  to the
provisions  of this  Article  IX,  this  Indenture  shall be and be deemed to be
modified  and  amended  in  accordance  therewith  and  the  respective  rights,
limitations of rights,  obligations,  duties and immunities under this Indenture
of the Trustee,  the Company and the holders of Debt Securities shall thereafter

                                       46
<PAGE>

be determined,  exercised and enforced hereunder subject in all respects to such
modifications  and  amendments  and all the  terms  and  conditions  of any such
supplemental  indenture  shall  be and be  deemed  to be part of the  terms  and
conditions of this Indenture for any and all purposes.

         Section 9.04 Notation on Debt Securities.

         Debt Securities  authenticated and delivered after the execution of any
supplemental  indenture pursuant to the provisions of this Article IX may bear a
notation as to any matter provided for in such  supplemental  indenture.  If the
Company or the Trustee shall so determine, new Debt Securities so modified as to
conform,  in the  opinion  of the  Board of  Directors  of the  Company,  to any
modification of this Indenture contained in any such supplemental  indenture may
be prepared  and executed by the  Company,  authenticated  by the Trustee or the
Authenticating  Agent and  delivered  in exchange for the Debt  Securities  then
outstanding.

         Section 9.05  Evidence of Compliance  of  Supplemental  Indenture to be
Furnished to Trustee.

         The  Trustee,  subject to the  provisions  of  Sections  6.01 and 6.02,
shall,  in  addition to the  documents  required  by Section  14.06,  receive an
Officers'  Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental  indenture  executed pursuant hereto complies with the requirements
of this  Article  IX.  The  Trustee  shall  receive  an  Opinion  of  Counsel as
conclusive  evidence that any supplemental  indenture  executed pursuant to this
Article IX is  authorized  or  permitted  by, and conforms to, the terms of this
Article IX and that it is proper for the Trustee  under the  provisions  of this
Article IX to join in the execution thereof.

                                   ARTICLE X

                            REDEMPTION OF SECURITIES

         Section 10.01 Optional Redemption.

         At any time the Company shall have the right, subject to the receipt by
the Company of prior approval from the Federal  Reserve,  if then required under
applicable capital guidelines or policies of the Federal Reserve,  to redeem the
Debt Securities, in whole or in part, on any March 23, June 23, September 23 and
December 23 on or after June 23, 2011 (the "Redemption Date"), at the Redemption
Price.

         Section 10.02 Special Event Redemption.

         If a Special  Event shall occur and be  continuing,  the Company  shall
have the right, subject to the receipt by the Company of prior approval from the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve, to redeem the Debt Securities, in whole but not in part,
at any time within 90 days  following the  occurrence of such Special Event (the
"Special Redemption Date"), at the Special Redemption Price.

                                       47
<PAGE>

         Section 10.03 Notice of Redemption; Selection of Debt Securities.

         In case the Company  shall  desire to exercise the right to redeem all,
or, as the case may be, any part of the Debt Securities, it shall fix a date for
redemption  and shall mail a notice of such  redemption at least 30 and not more
than 60 days  prior to the date  fixed for  redemption  to the  holders  of Debt
Securities  so to be redeemed as a whole or in part at their last  addresses  as
the same appear on the Debt  Security  Register.  Such mailing shall be by first
class  mail.  The  notice if  mailed  in the  manner  herein  provided  shall be
conclusively  presumed  to have  been  duly  given,  whether  or not the  holder
receives  such notice.  In any case,  failure to give such notice by mail or any
defect  in the  notice  to  the  holder  of any  Debt  Security  designated  for
redemption  as a  whole  or in  part  shall  not  affect  the  validity  of  the
proceedings for the redemption of any other Debt Security.

         Each such notice of redemption shall specify the CUSIP number,  if any,
of the Debt  Securities  to be  redeemed,  the date  fixed for  redemption,  the
redemption  price at which  Debt  Securities  are to be  redeemed,  the place or
places of payment,  that payment will be made upon presentation and surrender of
such Debt  Securities,  that interest  accrued to the date fixed for  redemption
will be paid as  specified  in said  notice,  and that on and  after  said  date
interest thereon or on the portions thereof to be redeemed will cease to accrue.
If less than all the Debt Securities are to be redeemed the notice of redemption
shall  specify the numbers of the Debt  Securities  to be redeemed.  In case the
Debt Securities are to be redeemed in part only, the notice of redemption  shall
state the portion of the principal amount thereof to be redeemed and shall state
that on and after the date fixed for  redemption,  upon  surrender  of such Debt
Security,  a new Debt Security or Debt  Securities in principal  amount equal to
the unredeemed portion thereof will be issued.

         Prior to 10:00 a.m.  New York City time on the  Redemption  Date or the
Special  Redemption Date specified in the notice of redemption given as provided
in this  Section,  the Company will deposit with the Trustee or with one or more
Paying Agents an amount of money sufficient to redeem on the redemption date all
the Debt  Securities  so called for  redemption  at the  appropriate  redemption
price, together with accrued interest to the date fixed for redemption.

         The Company will give the Trustee notice not less than 45 nor more than
60 days prior to the  redemption  date as to the  redemption  price at which the
Debt  Securities are to be redeemed and the aggregate  principal  amount of Debt
Securities to be redeemed and the Trustee shall select, in such manner as in its
sole  discretion  it shall deem  appropriate  and fair,  the Debt  Securities or
portions thereof (in integral multiples of $1,000) to be redeemed.

         Section 10.04 Payment of Debt Securities Called for Redemption.

         If notice of  redemption  has been given as provided in Section  10.03,
the Debt  Securities or portions of Debt  Securities  with respect to which such
notice has been given shall become due and payable on the Redemption Date or the
Special  Redemption  Date (as the case may be) and at the place or places stated
in such  notice at the  applicable  redemption  price,  together  with  interest
accrued to the date fixed for redemption,  and on and after said Redemption Date
or the Special  Redemption Date (unless the Company shall default in the payment
of such Debt Securities at the redemption price,  together with interest accrued
to said date) interest on the Debt  Securities or portions of Debt Securities so
called for redemption  shall cease to accrue.  On presentation  and surrender of
such Debt Securities at a place of payment  specified in said notice,  such Debt

                                       48
<PAGE>

Securities or the specified  portions  thereof shall be paid and redeemed by the
Company at the  applicable  redemption  price,  together with  interest  accrued
thereon to the Redemption  Date or the Special  Redemption Date (as the case may
be).

         Upon  presentation  of any Debt  Security  redeemed  in part only,  the
Company shall execute and the Trustee shall  authenticate and make available for
delivery  to the  holder  thereof,  at the  expense of the  Company,  a new Debt
Security or Debt  Securities of  authorized  denominations  in principal  amount
equal to the unredeemed portion of the Debt Security so presented.

                                   ARTICLE XI

                CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

         Section 11.01 Company May Consolidate, etc., on Certain Terms.

         Nothing  contained in this  Indenture or in the Debt  Securities  shall
prevent  any  consolidation  or  merger  of the  Company  with or into any other
corporation  or  corporations  (whether or not  affiliated  with the Company) or
successive  consolidations  or mergers in which the Company or its  successor or
successors shall be a party or parties,  or shall prevent any sale,  conveyance,
transfer or other disposition of the property or capital stock of the Company or
its successor or successors as an entirety,  or substantially as an entirety, to
any other  corporation  (whether  or not  affiliated  with the  Company,  or its
successor or successors)  authorized to acquire and operate the same;  provided,
however,  that the  Company  hereby  covenants  and agrees  that,  upon any such
consolidation,  merger  (where the  Company is not the  surviving  corporation),
sale, conveyance, transfer or other disposition, the due and punctual payment of
all payments due on all of the Debt  Securities in accordance  with their terms,
according to their tenor, and the due and punctual performance and observance of
all the  covenants and  conditions of this  Indenture to be kept or performed by
the Company,  shall be expressly  assumed by supplemental  indenture  reasonably
satisfactory in form to the Trustee executed and delivered to the Trustee by the
entity formed by such  consolidation,  or into which the Company shall have been
merged,  or by the entity  which shall have  acquired  such  property or capital
stock.

         Section 11.02 Successor Entity to be Substituted.

         In case of any such consolidation,  merger, sale, conveyance,  transfer
or other  disposition  contemplated  in Section 11.01 and upon the assumption by
the successor entity, by supplemental  indenture,  executed and delivered to the
Trustee  and  reasonably  satisfactory  in form to the  Trustee,  of the due and
punctual payment of the principal of and premium, if any, and interest on all of
the Debt  Securities and the due and punctual  performance and observance of all
of the covenants and conditions of this Indenture to be performed or observed by
the Company,  such successor  entity shall succeed to and be substituted for the
Company, with the same effect as if it had been named herein as the Company, and
thereupon the predecessor  entity shall be relieved of any further  liability or
obligation  hereunder  or  upon  the  Debt  Securities.  Such  successor  entity
thereupon may cause to be signed, and may issue either in its own name or in the
name of the Company,  any or all of the Debt Securities issuable hereunder which
theretofore  shall not have been  signed by the  Company  and  delivered  to the
Trustee  or the  Authenticating  Agent;  and,  upon the order of such  successor

                                       49
<PAGE>

entity  instead of the  Company  and  subject to all the terms,  conditions  and
limitations  in this  Indenture  prescribed,  the Trustee or the  Authenticating
Agent shall  authenticate and deliver any Debt Securities which previously shall
have been signed and delivered by the officers of the Company, to the Trustee or
the Authenticating Agent for authentication,  and any Debt Securities which such
successor  entity  thereafter  shall  cause to be signed  and  delivered  to the
Trustee or the Authenticating Agent for that purpose. All the Debt Securities so
issued  shall in all  respects  have the same legal rank and benefit  under this
Indenture as the Debt Securities  theretofore or thereafter issued in accordance
with the terms of this Indenture as though all of such Debt  Securities had been
issued at the date of the execution hereof.

         Section 11.03 Opinion of Counsel to be Given to Trustee.

         The Trustee, subject to the provisions of Sections 6.01 and 6.02, shall
receive,  in  addition to the Opinion of Counsel  required by Section  9.05,  an
Opinion of Counsel as conclusive evidence that any consolidation,  merger, sale,
conveyance,  transfer or other  disposition,  and any  assumption,  permitted or
required by the terms of this Article XI complies  with the  provisions  of this
Article XI.

                                  ARTICLE XII

                     SATISFACTION AND DISCHARGE OF INDENTURE

         Section 12.01 Discharge of Indenture.

         When (a) the Company shall deliver to the Trustee for  cancellation all
Debt Securities theretofore  authenticated (other than any Debt Securities which
shall have been destroyed,  lost or stolen and which shall have been replaced or
paid as provided in Section 2.06) and not theretofore  canceled,  or (b) all the
Debt  Securities  not  theretofore  canceled  or  delivered  to the  Trustee for
cancellation shall have become due and payable,  or are by their terms to become
due and payable  within one year or are to be called for  redemption  within one
year under arrangements  satisfactory to the Trustee for the giving of notice of
redemption,  and the Company  shall deposit with the Trustee,  in trust,  funds,
which shall be  immediately  due and payable,  sufficient  to pay at maturity or
upon redemption all of the Debt Securities (other than any Debt Securities which
shall have been destroyed,  lost or stolen and which shall have been replaced or
paid as provided in Section 2.06) not  theretofore  canceled or delivered to the
Trustee for cancellation,  including principal and premium, if any, and interest
due or to become due to such date of maturity or  redemption  date,  as the case
may be, but  excluding,  however,  the  amount of any moneys for the  payment of
principal  of, and  premium,  if any,  or interest  on the Debt  Securities  (1)
theretofore  repaid to the Company in accordance  with the provisions of Section
12.04,  or (2) paid to any state or to the District of Columbia  pursuant to its
unclaimed  property or similar laws,  and if in the case of either clause (a) or
clause (b) the Company shall also pay or cause to be paid all other sums payable
hereunder  by the  Company,  then this  Indenture  shall  cease to be of further
effect except for the provisions of Sections 2.05, 2.06, 3.01, 3.02, 3.04, 6.06,
6.09 and 12.04  hereof,  which shall survive  until such Debt  Securities  shall

                                       50
<PAGE>

mature or are redeemed, as the case may be, and are paid.  Thereafter,  Sections
6.06,  6.09 and 12.04 shall survive,  and the Trustee,  on demand of the Company
accompanied by an Officers'  Certificate and an Opinion of Counsel, each stating
that all conditions  precedent  herein provided for relating to the satisfaction
and discharge of this  Indenture  have been complied  with,  and at the cost and
expense  of  the  Company,   shall  execute  proper  instruments   acknowledging
satisfaction of and discharging  this Indenture,  the Company,  however,  hereby
agreeing  to  reimburse  the  Trustee  for  any  costs  or  expenses  thereafter
reasonably  and  properly  incurred  by the  Trustee  in  connection  with  this
Indenture or the Debt Securities.

         Section 12.02 Deposited Moneys to be Held in Trust by Trustee.

         Subject to the provisions of Section 12.04,  all moneys  deposited with
the Trustee  pursuant to Section  12.01 shall be held in trust and applied by it
to the  payment,  either  directly or through any Paying  Agent  (including  the
Company if acting as its own Paying  Agent),  to the  holders of the  particular
Debt  Securities  for the payment of which such moneys have been  deposited with
the  Trustee,  of all sums due and to become  due  thereon  for  principal,  and
premium, if any, and interest.

         Section 12.03 Paying Agent to Repay Moneys Held.

         Upon the satisfaction and discharge of this Indenture,  all moneys then
held by any Paying Agent of the Debt Securities  (other than the Trustee) shall,
upon demand of the Company, be repaid to the Company or paid to the Trustee, and
thereupon  such Paying Agent shall be released from all further  liability  with
respect to such moneys.

         Section 12.04 Return of Unclaimed Moneys.

         Any moneys  deposited  with or paid to the Trustee or any Paying  Agent
for  payment of the  principal  of, and  premium,  if any,  or  interest on Debt
Securities  and not  applied  but  remaining  unclaimed  by the  holders of Debt
Securities  for two years  after  the date upon  which  the  principal  of,  and
premium, if any, or interest on such Debt Securities,  as the case may be, shall
have  become due and  payable,  shall be repaid to the Company by the Trustee or
such  Paying  Agent  on  written  demand;  and  the  holder  of any of the  Debt
Securities  shall thereafter look only to the Company for any payment which such
holder may be  entitled  to collect  and all  liability  of the  Trustee or such
Paying Agent with respect to such moneys shall thereupon cease.

                                  ARTICLE XIII

         IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS

         Section  13.01   Indenture  and  Debt   Securities   Solely   Corporate
Obligations.

         No recourse for the payment of the principal of or premium,  if any, or
interest on any Debt  Security,  or for any claim based  thereon or otherwise in
respect  thereof,  and no  recourse  under or upon any  obligation,  covenant or
agreement of the Company in this Indenture or in any supplemental  indenture, or
in any such Debt  Security,  or  because  of the  creation  of any  indebtedness
represented  thereby,  shall  be  had  against  any  incorporator,  stockholder,
officer,  director,  employee or agent, as such, past, present or future, of the
Company or of any  predecessor or successor  corporation of the Company,  either
directly or through the Company or any  successor  corporation  of the  Company,
whether  by  virtue  of any  constitution,  statute  or rule  of law,  or by the

                                       51
<PAGE>

enforcement  of any  assessment  or penalty  or  otherwise;  it being  expressly
understood that all such liability is hereby  expressly waived and released as a
condition of, and as a  consideration  for, the execution of this  Indenture and
the issue of the Debt Securities.

                                  ARTICLE XIV

                            MISCELLANEOUS PROVISIONS

         Section 14.01 Successors.

         All the covenants, stipulations, promises and agreements of the Company
contained in this Indenture  shall bind its  successors  and assigns  whether so
expressed or not.

         Section 14.02 Official Acts by Successor Entity.

         Any act or proceeding by any provision of this Indenture  authorized or
required  to be done or  performed  by any  board,  committee  or officer of the
Company  shall and may be done and  performed  with like force and effect by the
like board,  committee,  officer or other  authorized  Person of any entity that
shall at the time be the lawful successor of the Company.

         Section 14.03 Surrender of Company Powers.

         The  Company by  instrument  in writing  executed by  authority  of 2/3
(two-thirds)  of its  Board  of  Directors  and  delivered  to the  Trustee  may
surrender any of the powers  reserved to the Company and thereupon such power so
surrendered  shall  terminate  both as to the  Company  and as to any  permitted
successor.

         Section 14.04 Addresses for Notices, etc.

         Any  notice or  demand  which by any  provision  of this  Indenture  is
required  or  permitted  to be  given  or  served  by  the  Trustee  or  by  the
Securityholders  on the  Company  may be given or  served  in  writing  by being
deposited  postage  prepaid by  registered  or  certified  mail in a post office
letter box  addressed  (until  another  address is filed by the Company with the
Trustee for such purpose) to the Company at:

                  381 Halton Road
                  Greenville, South Carolina 29606
                  Attention: John Butler Garrett

         Any notice,  direction,  request or demand by any Securityholder or the
Company to or upon the Trustee shall be deemed to have been  sufficiently  given
or made,  for all  purposes,  if  given  or made in  writing  at the  office  of
Wilmington Trust Company at:

                  Rodney Square North
                  1100 North Market Street
                  Wilmington, Delaware 19890
                  Attention: Corporate Capital Markets

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<PAGE>

         Section 14.05 Governing Law.

         This  Indenture and each Debt Security shall be deemed to be a contract
made  under  the law of the  State of New York,  and for all  purposes  shall be
governed by and  construed  in  accordance  with the law of said State,  without
regard to conflict of laws principles thereof.

         Section 14.06 Evidence of Compliance with Conditions Precedent.

         Upon any  application  or demand by the  Company to the Trustee to take
any action under any of the  provisions  of this  Indenture,  the Company  shall
furnish to the Trustee an Officers'  Certificate  stating that in the opinion of
the signers all  conditions  precedent,  if any,  provided for in this Indenture
relating  to the  proposed  action  have been  complied  with and an  Opinion of
Counsel  stating  that,  in the  opinion of such  counsel,  all such  conditions
precedent  have been  complied  with  (except that no such Opinion of Counsel is
required to be furnished to the Trustee in  connection  with the  authentication
and issuance of Debt Securities issued on the date of this Indenture).

         Each  certificate  or  opinion  provided  for  in  this  Indenture  and
delivered to the Trustee with respect to compliance with a condition or covenant
provided  for in this  Indenture  (except  certificates  delivered  pursuant  to
Section  3.05)  shall  include  (a) a  statement  that the  person  making  such
certificate  or  opinion  has  read  such  covenant  or  condition;  (b) a brief
statement as to the nature and scope of the  examination or  investigation  upon
which the  statements or opinions  contained in such  certificate or opinion are
based;  (c) a statement that, in the opinion of such person,  he or she has made
such  examination  or  investigation  as is  necessary  to enable  him or her to
express an informed  opinion as to whether or not such covenant or condition has
been complied  with; and (d) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.

         Section 14.07 Business Day Convention..

         Notwithstanding  anything  to the  contrary  contained  herein,  if any
Interest  Payment Date, other than the Maturity Date, any Redemption Date or the
Special  Redemption  Date,  falls on a day that is not a Business  Day, then any
interest  payable will be paid on, and such Interest  Payment Date will be moved
to, the next  succeeding  Business Day, and additional  interest will accrue for
each day that such payment is delayed as a result thereof. If the Maturity Date,
any Redemption Date or the Special  Redemption Date falls on a day that is not a
Business Day, then the principal,  premium,  if any, and/or interest  payable on
such date will be paid on the next  succeeding  Business  Day, and no additional
interest  will accrue in respect of such  payment  made on such next  succeeding
Business Day.

         Section 14.08 Table of Contents, Headings, etc.

         The table of contents  and the titles and  headings of the articles and
sections of this Indenture have been inserted for convenience of reference only,
are not to be  considered a part hereof,  and shall in no way modify or restrict
any of the terms or provisions hereof.

                                       53
<PAGE>

         Section 14.09 Execution in Counterparts.

         This Indenture may be executed in any number of  counterparts,  each of
which shall be an original,  but such counterparts shall together constitute but
one and the same instrument.

         Section 14.10 Separability.

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

         Section 14.11 Assignment.

         Subject to Article XI, the Company  will have the right at all times to
assign any of its rights or  obligations  under  this  Indenture  to a direct or
indirect wholly owned Subsidiary of the Company, provided, that, in the event of
any such  assignment,  the Company will remain liable for all such  obligations.
Subject to the  foregoing,  this  Indenture  is  binding  upon and inures to the
benefit of the parties hereto and their respective  successors and assigns. This
Indenture may not otherwise be assigned by the parties thereto.

         Section 14.12 Acknowledgment of Rights.

         The Company acknowledges that, with respect to any Debt Securities held
by the Trust or the  Institutional  Trustee of the Trust,  if the  Institutional
Trustee of the Trust fails to enforce  its rights  under this  Indenture  as the
holder of Debt Securities held as the assets of the Trust after the holders of a
majority in  Liquidation  Amount of the Capital  Securities of the Trust have so
directed  in  writing  such  Institutional  Trustee,  a holder of record of such
Capital  Securities may to the fullest extent  permitted by law institute  legal
proceedings directly against the Company to enforce such Institutional Trustee's
rights under this  Indenture  without first  instituting  any legal  proceedings
against such  Institutional  Trustee or any other  Person.  Notwithstanding  the
foregoing,  if an Event of Default has occurred and is continuing and such event
is  attributable  to the failure of the Company to pay interest (or premium,  if
any) or principal on the Debt  Securities on the date such interest (or premium,
if any) or principal is otherwise due and payable (or in the case of redemption,
on the redemption  date),  the Company  acknowledges  that a holder of record of
Capital  Securities of the Trust may directly institute a proceeding against the
Company for  enforcement of payment to such holder  directly of the principal of
(or  premium,  if any) or interest on the Debt  Securities  having an  aggregate
principal  amount  equal to the  aggregate  Liquidation  Amount  of the  Capital
Securities of such holder on or after the  respective  due date specified in the
Debt Securities.

                                   ARTICLE XV

                        SUBORDINATION OF DEBT SECURITIES

         Section 15.01 Agreement to Subordinate.

                                       54
<PAGE>

         The Company  covenants and agrees,  and each holder of Debt  Securities
issued  hereunder  and  under  any   supplemental   indenture  (the  "Additional
Provisions") by such Securityholder's  acceptance thereof likewise covenants and
agrees,  that all Debt  Securities  shall be issued subject to the provisions of
this Article XV; and each holder of a Debt Security, whether upon original issue
or upon transfer or assignment  thereof,  accepts and agrees to be bound by such
provisions.

         The payment by the Company of the payments  due on all Debt  Securities
issued hereunder and under any Additional Provisions shall, to the extent and in
the manner hereinafter set forth, be subordinated and junior in right of payment
to the prior payment in full of all Senior Indebtedness of the Company,  whether
outstanding at the date of this Indenture or thereafter incurred.

         No  provision of this Article XV shall  prevent the  occurrence  of any
default or Event of Default hereunder.

         Section 15.02 Default on Senior Indebtedness.

         In the event and during the  continuation of any default by the Company
in the payment of principal,  premium,  interest or any other payment due on any
Senior  Indebtedness of the Company following any applicable grace period, or in
the event that the maturity of any Senior  Indebtedness  of the Company has been
accelerated  because of a default,  and such acceleration has not been rescinded
or canceled  and such  Senior  Indebtedness  has not been paid in full then,  in
either  case,  no  payment  shall be made by the  Company  with  respect  to the
payments due on the Debt Securities.

         In the event that,  notwithstanding the foregoing, any payment shall be
received  by the  Trustee  when such  payment  is  prohibited  by the  preceding
paragraph of this Section 15.02,  such payment shall,  subject to Section 15.06,
be held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior  Indebtedness or their respective  representatives,  or to the
trustee or  trustees  under any  indenture  pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear, but
only to the  extent  that the  holders  of the  Senior  Indebtedness  (or  their
representative  or  representatives  or a trustee) notify the Trustee in writing
within 90 days of such  payment of the amounts  then due and owing on the Senior
Indebtedness and only the amounts  specified in such notice to the Trustee shall
be paid to the holders of Senior Indebtedness.

         Section 15.03 Liquidation; Dissolution; Bankruptcy.

         Upon any  payment  by the  Company  or  distribution  of  assets of the
Company of any kind or character,  whether in cash,  property or securities,  to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company,  whether  voluntary or involuntary  or in  bankruptcy,  insolvency,
receivership or other proceedings,  all amounts due upon all Senior Indebtedness
of the Company shall first be paid in full, or payment  thereof  provided for in
money in accordance with its terms, before any payment is made by the Company on
the Debt Securities;  and upon any such dissolution or winding-up or liquidation
or reorganization,  any payment by the Company, or distribution of assets of the
Company of any kind or character,  whether in cash,  property or securities,  to
which the  Securityholders  or the Trustee would be entitled to receive from the
Company,  except for the  provisions  of this  Article XV,  shall be paid by the

                                       55
<PAGE>

Company, or by any receiver,  trustee in bankruptcy,  liquidating trustee, agent
or other Person making such payment or distribution,  or by the  Securityholders
or by the Trustee  under this  Indenture if received by them or it,  directly to
the holders of Senior  Indebtedness  of the Company (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders,
as calculated by the Company) or their representative or representatives,  or to
the trustee or trustees  under any indenture  pursuant to which any  instruments
evidencing such Senior  Indebtedness  may have been issued,  as their respective
interests may appear, to the extent necessary to pay such Senior Indebtedness in
full, in money or money's worth,  after giving effect to any concurrent  payment
or  distribution to or for the holders of such Senior  Indebtedness,  before any
payment or distribution is made to the Securityholders or to the Trustee.

         In the event  that,  notwithstanding  the  foregoing,  any  payment  or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities,  prohibited by the  foregoing,  shall be received by the
Trustee or any Securityholder  before all Senior  Indebtedness of the Company is
paid in full, or provision is made for such payment in money in accordance  with
its terms,  such payment or distribution  shall be held in trust for the benefit
of  and  shall  be  paid  over  or  delivered  to the  holders  of  such  Senior
Indebtedness or their  representative or  representatives,  or to the trustee or
trustees under any indenture  pursuant to which any instruments  evidencing such
Senior  Indebtedness  may have been issued,  as their  respective  interests may
appear,  as calculated  by the Company,  for  application  to the payment of all
Senior  Indebtedness of the Company  remaining unpaid to the extent necessary to
pay such  Senior  Indebtedness  in full in money in  accordance  with its terms,
after giving  effect to any  concurrent  payment or  distribution  to or for the
benefit of the holders of such Senior Indebtedness.

         For  purposes  of  this  Article  XV,  the  words  "cash,  property  or
securities"  shall not be deemed to  include  shares of stock of the  Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization  or readjustment,  the payment of which
is  subordinated at least to the extent provided in this Article XV with respect
to the Debt Securities to the payment of all Senior Indebtedness of the Company,
that may at the time be outstanding, provided, that (a) such Senior Indebtedness
is  assumed  by  the  new   corporation,   if  any,   resulting  from  any  such
reorganization or readjustment, and (b) the rights of the holders of such Senior
Indebtedness  are not,  without  the  consent of such  holders,  altered by such
reorganization  or readjustment.  The  consolidation of the Company with, or the
merger  of  the  Company  into,  another   corporation  or  the  liquidation  or
dissolution of the Company  following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions  provided for in Article XI of this Indenture  shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the purposes
of  this  Section  15.03  if such  other  corporation  shall,  as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article XI of this  Indenture.  Nothing in Section  15.02 or in this  Section
15.03 shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 6.06 of this Indenture.

                                       56
<PAGE>

         Section 15.04 Subrogation.

         Subject  to the  payment  in full  of all  Senior  Indebtedness  of the
Company, the Securityholders shall be subrogated to the rights of the holders of
such Senior  Indebtedness to receive payments or distributions of cash, property
or securities of the Company  applicable to such Senior  Indebtedness  until all
payments due on the Debt Securities shall be paid in full; and, for the purposes
of such subrogation,  no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the Securityholders or
the Trustee would be entitled  except for the provisions of this Article XV, and
no payment  over  pursuant to the  provisions  of this  Article XV to or for the
benefit of the holders of such Senior  Indebtedness  by  Securityholders  or the
Trustee,  shall,  as between the Company,  its  creditors  other than holders of
Senior  Indebtedness  of the Company,  and the holders of the Debt Securities be
deemed to be a payment or  distribution  by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article XV are
and are intended  solely for the purposes of defining the relative rights of the
holders of the Debt Securities,  on the one hand, and the holders of such Senior
Indebtedness, on the other hand.

         Nothing  contained in this  Article XV or elsewhere in this  Indenture,
any  Additional  Provisions  or in the Debt  Securities  is intended to or shall
impair,  as between the Company,  its creditors other than the holders of Senior
Indebtedness  of the  Company,  and the  holders  of the  Debt  Securities,  the
obligation of the Company,  which is absolute and  unconditional,  to pay to the
holders of the Debt  Securities all payments on the Debt  Securities as and when
the same shall  become due and payable in  accordance  with their  terms,  or is
intended  to or shall  affect  the  relative  rights of the  holders of the Debt
Securities  and  creditors  of the  Company,  other  than the  holders of Senior
Indebtedness  of the Company,  nor shall anything  herein or therein prevent the
Trustee  or the  holder  of any  Debt  Security  from  exercising  all  remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the  rights,  if any,  under this  Article XV of the  holders of such  Senior
Indebtedness in respect of cash,  property or securities of the Company received
upon the exercise of any such remedy.

         Upon any payment or distribution  of assets of the Company  referred to
in this Article XV, the Trustee, subject to the provisions of Article VI of this
Indenture,  and the Securityholders  shall be entitled to conclusively rely upon
any order or decree made by any court of  competent  jurisdiction  in which such
dissolution,  winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver,  trustee in bankruptcy,  liquidation  trustee,
agent or other  Person  making such  payment or  distribution,  delivered to the
Trustee or to the Securityholders,  for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of Senior Indebtedness
and other  indebtedness of the Company,  the amount thereof or payable  thereon,
the amount or amounts paid or distributed  thereon and all other facts pertinent
thereto or to this Article XV.

         Section 15.05 Trustee to Effectuate Subordination.

         Each  Securityholder  by  such   Securityholder's   acceptance  thereof
authorizes and directs the Trustee on such Securityholder's  behalf to take such
action as may be  necessary  or  appropriate  to  effectuate  the  subordination
provided  in this  Article XV and  appoints  the Trustee  such  Securityholder's
attorney-in-fact for any and all such purposes.

                                       57
<PAGE>

         Section 15.06 Notice by the Company.

         The Company shall give prompt written  notice to a Responsible  Officer
of the Trustee at the  Principal  Office of the Trustee of any fact known to the
Company  that would  prohibit  the making of any  payment of moneys to or by the
Trustee in respect of the Debt  Securities  pursuant to the  provisions  of this
Article  XV.  Notwithstanding  the  provisions  of this  Article XV or any other
provision of this Indenture or any Additional Provisions,  the Trustee shall not
be charged with  knowledge of the existence of any facts that would prohibit the
making of any  payment  of moneys to or by the  Trustee  in  respect of the Debt
Securities  pursuant to the  provisions  of this Article XV,  unless and until a
Responsible  Officer of the Trustee at the Principal Office of the Trustee shall
have received  written notice thereof from the Company or a holder or holders of
Senior Indebtedness or from any trustee therefor;  and before the receipt of any
such written  notice,  the Trustee,  subject to the  provisions of Article VI of
this  Indenture,  shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received the notice
provided for in this Section  15.06 at least two Business Days prior to the date
upon  which by the terms  hereof any money may become  payable  for any  purpose
(including,  without limitation, the payment of the principal of (or premium, if
any) or interest on any Debt Security),  then,  anything herein contained to the
contrary  notwithstanding,  the Trustee  shall have full power and  authority to
receive  such  money and to apply the same to the  purposes  for which they were
received,  and shall not be affected by any notice to the  contrary  that may be
received by it within two Business Days prior to such date.

         The Trustee, subject to the provisions of Article VI of this Indenture,
shall be entitled to conclusively rely on the delivery to it of a written notice
by  a  Person  representing  himself  or  herself  to  be  a  holder  of  Senior
Indebtedness  of the Company (or a trustee or  representative  on behalf of such
holder) to establish  that such notice has been given by a holder of such Senior
Indebtedness  or a trustee  or  representative  on behalf of any such  holder or
holders.  In the event that the Trustee  determines  in good faith that  further
evidence is required with respect to the right of any Person as a holder of such
Senior  Indebtedness to participate in any payment or  distribution  pursuant to
this Article XV, the Trustee may request such Person to furnish  evidence to the
reasonable  satisfaction  of  the  Trustee  as to  the  amount  of  such  Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such  Person  under this  Article  XV,  and,  if such  evidence is not
furnished,  the Trustee may defer any  payment to such Person  pending  judicial
determination as to the right of such Person to receive such payment.

         Section 15.07 Rights of the Trustee; Holders of Senior Indebtedness.

         The  Trustee in its  individual  capacity  shall be entitled to all the
rights set forth in this Article XV in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other holder of Senior  Indebtedness,
and nothing in this  Indenture or any  Additional  Provisions  shall deprive the
Trustee of any of its rights as such holder.

         With respect to the holders of Senior Indebtedness of the Company,  the
Trustee  undertakes  to  perform or to observe  only such of its  covenants  and
obligations  as are  specifically  set forth in this  Article XV, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this  Indenture  or any  Additional  Provisions  against  the
Trustee. The Trustee shall not owe or be deemed to owe any fiduciary duty to the
holders of such Senior Indebtedness and, subject to the provisions of Article VI

                                       58
<PAGE>

of this Indenture,  the Trustee shall not be liable to any holder of such Senior
Indebtedness if it shall pay over or deliver to Securityholders,  the Company or
any other Person money or assets to which any holder of such Senior Indebtedness
shall be entitled by virtue of this Article XV or otherwise.

         Nothing in this  Article XV shall apply to claims of, or  payments  to,
the Trustee under or pursuant to Section 6.06.

         Section 15.08 Subordination May Not Be Impaired.

         No right of any present or future holder of any Senior  Indebtedness of
the Company to enforce subordination as herein provided shall at any time in any
way be  prejudiced  or  impaired by any act or failure to act on the part of the
Company,  or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company, with the terms, provisions and covenants of
this  Indenture,  regardless of any  knowledge  thereof that any such holder may
have or otherwise be charged with.

         Without in any way limiting the generality of the foregoing  paragraph,
the holders of Senior Indebtedness of the Company may, at any time and from time
to time, without the consent of or notice to the Trustee or the Securityholders,
without incurring responsibility to the Securityholders and without impairing or
releasing  the  subordination  provided  in this  Article XV or the  obligations
hereunder  of the holders of the Debt  Securities  to the holders of such Senior
Indebtedness,  do any one or more of the following: (a) change the manner, place
or terms of payment or extend  the time of payment  of, or renew or alter,  such
Senior Indebtedness,  or otherwise amend or supplement in any manner such Senior
Indebtedness or any instrument  evidencing the same or any agreement under which
such  Senior  Indebtedness  is  outstanding;  (b)  sell,  exchange,  release  or
otherwise deal with any property pledged,  mortgaged or otherwise  securing such
Senior  Indebtedness;  (c)  release  any  Person  liable in any  manner  for the
collection  of such  Senior  Indebtedness;  and (d)  exercise  or  refrain  from
exercising any rights against the Company, and any other Person.

         Wilmington  Trust Company,  in its capacity as Trustee,  hereby accepts
the  trusts  in this  Indenture  declared  and  provided,  upon  the  terms  and
conditions herein above set forth.

                                       59
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed by their respective officers thereunto duly authorized,  as of the
day and year first above written.

                              [SIGNATURES OMITTED]

                                       60
<PAGE>

                                                                       EXHIBIT A

        FORM OF FLOATING RATE JUNIOR SUBORDINATED DEBT SECURITY DUE 2036

                           [FORM OF FACE OF SECURITY]

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE  "SECURITIES  ACT"),  OR ANY STATE  SECURITIES LAWS OR ANY OTHER
APPLICABLE   SECURITIES  LAWS.   NEITHER  THIS  SECURITY  NOR  ANY  INTEREST  OR
PARTICIPATION  HEREIN MAY BE REOFFERED,  SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED,
ENCUMBERED  OR  OTHERWISE  DISPOSED  OF IN THE ABSENCE OF SUCH  REGISTRATION  OR
UNLESS SUCH  TRANSACTION  IS EXEMPT  FROM,  OR NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF  THE  SECURITIES  ACT.  THE  HOLDER  OF  THIS  SECURITY  BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY
(A) TO THE COMPANY,  (B) PURSUANT TO RULE 144A UNDER THE  SECURITIES  ACT ("RULE
144A"), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED  IN RULE 144A THAT  PURCHASES  FOR ITS OWN  ACCOUNT OR FOR THE
ACCOUNT  OF A  QUALIFIED  INSTITUTIONAL  BUYER TO WHOM  NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,  (C)  PURSUANT TO AN  EXEMPTION
FROM THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT TO AN  "ACCREDITED
INVESTOR"  WITHIN THE MEANING OF  SUBPARAGRAPH  (a) (1), (2), (3) OR (7) OF RULE
501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF AN "ACCREDITED  INVESTOR," FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION  WITH,  ANY  DISTRIBUTION  IN
VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE  EXEMPTION
FROM  THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT,  SUBJECT  TO THE
COMPANY'S  RIGHT PRIOR TO ANY SUCH OFFER,  SALE OR TRANSFER  PURSUANT TO CLAUSES
(C) OR (D) TO REQUIRE  THE  DELIVERY  OF AN OPINION  OF  COUNSEL,  CERTIFICATION
AND/OR OTHER INFORMATION  SATISFACTORY TO IT IN ACCORDANCE WITH THE INDENTURE, A
COPY OF WHICH MAY BE OBTAINED  FROM THE COMPANY.  THE HOLDER OF THIS SECURITY BY
ITS   ACCEPTANCE   HEREOF   AGREES  THAT  IT  WILL  COMPLY  WITH  THE  FOREGOING
RESTRICTIONS.

         THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS
AND  WARRANTS  THAT IT WILL NOT ENGAGE IN HEDGING  TRANSACTIONS  INVOLVING  THIS
SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT.

         THE HOLDER OF THIS  SECURITY  BY ITS  ACCEPTANCE  HEREOF  ALSO  AGREES,
REPRESENTS  AND  WARRANTS  THAT  IT  IS  NOT  AN  EMPLOYEE  BENEFIT,  INDIVIDUAL
RETIREMENT  ACCOUNT  OR  OTHER  PLAN OR  ARRANGEMENT  SUBJECT  TO TITLE I OF THE
EMPLOYEE  RETIREMENT  INCOME  SECURITY  ACT OF 1974,  AS AMENDED  ("ERISA"),  OR

                                     A-1-1
<PAGE>

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

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

         THIS  SECURITY  WILL BE ISSUED  AND MAY BE  TRANSFERRED  ONLY IN BLOCKS
HAVING A PRINCIPAL  AMOUNT OF NOT LESS THAN  $100,000 AND MULTIPLES OF $1,000 IN
EXCESS  THEREOF.  ANY  ATTEMPTED  TRANSFER OF THIS  SECURITY IN A BLOCK HAVING A
PRINCIPAL  AMOUNT  OF LESS  THAN  $100,000  SHALL BE DEEMED TO BE VOID AND OF NO
LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE
THE HOLDER OF THIS SECURITY FOR ANY PURPOSE,  INCLUDING, BUT NOT LIMITED TO, THE
RECEIPT OF DISTRIBUTIONS ON THIS SECURITY,  AND SUCH PURPORTED  TRANSFEREE SHALL
BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY.

         THIS  OBLIGATION  IS NOT A DEPOSIT  AND IS NOT  INSURED  BY THE  UNITED
STATES OR ANY AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT
INSURANCE  CORPORATION.  THIS  OBLIGATION  IS  SUBORDINATED  TO  THE  CLAIMS  OF
DEPOSITORS  AND THE CLAIMS OF GENERAL AND SECURED  CREDITORS OF THE COMPANY,  IS
INELIGIBLE  AS COLLATERAL  FOR A LOAN BY THE COMPANY OR ANY OF ITS  SUBSIDIARIES
AND IS NOT SECURED.

                                     A-1-2
<PAGE>

            Floating Rate Junior Subordinated Debt Security due 2036

                                       of

                            GRANDSOUTH BANCORPORATION

         GrandSouth Bancorporation, a bank holding company incorporated in South
Carolina (the "Company"), for value received promises to pay to Wilmington Trust
Company, not in its individual capacity but solely as Institutional  Trustee for
GrandSouth  Capital  Trust I, a  Delaware  statutory  trust (the  "Holder"),  or
registered  assigns,  the principal sum of EIGHT MILLION TWO HUNDRED FORTY EIGHT
THOUSAND  Dollars  ($8,248,000)  on June 23,  2036 and to pay  interest  on said
principal sum from May 10, 2006, or from the most recent  interest  payment date
(each such date, an "Interest  Payment Date") to which interest has been paid or
duly  provided  for,  quarterly  (subject to  deferral  as set forth  herein) in
arrears  on March  23,  June  23,  September  23 and  December  23 of each  year
commencing  June 23,  2006,  at a  variable  per annum  rate  equal to LIBOR (as
defined in the Indenture)  plus 1.85% (the "Interest  Rate") until the principal
hereof  shall have  become due and  payable,  and on any overdue  principal  and
(without  duplication  and to the  extent  that  payment  of  such  interest  is
enforceable  under applicable law) on any overdue  installment of interest at an
annual rate equal to the Interest Rate in effect for each such Extension  Period
compounded  quarterly.  The amount of interest  payable on any Interest  Payment
Date shall be computed on the basis of a 360-day  year and the actual  number of
days elapsed in the relevant  interest period.  Notwithstanding  anything to the
contrary contained herein, if any Interest Payment Date, other than the Maturity
Date, any Redemption Date or the Special Redemption Date, falls on a day that is
not a Business Day, then any interest payable will be paid on, and such Interest
Payment Date will be moved to, the next succeeding  Business Day, and additional
interest  will  accrue  for each day that such  payment  is  delayed as a result
thereof.  If the Maturity Date, any  Redemption  Date or the Special  Redemption
Date falls on a day that is not a Business Day, then the principal,  premium, if
any,  and/or  interest  payable on such date will be paid on the next succeeding
Business Day, and no additional  interest will accrue in respect of such payment
made on such next succeeding Business Day. The interest  installment so payable,
and punctually paid or duly provided for, on any Interest  Payment Date will, as
provided  in the  Indenture,  be paid to the  Person  in whose  name  this  Debt
Security (or one or more Predecessor  Securities,  as defined in said Indenture)
is  registered  at the close of  business  on the  regular  record date for such
interest installment,  except that interest and any Deferred Interest payable on
the Maturity  Date shall be paid to the Person to whom  principal  is paid.  Any
such  interest  installment  not  punctually  paid or duly  provided  for  shall
forthwith  cease to be payable to the registered  holders on such regular record
date and may be paid to the Person in whose name this Debt  Security  (or one or
more  Predecessor  Debt  Securities) is registered at the close of business on a
special record date to be fixed by the Trustee for the payment of such defaulted
interest,  notice whereof shall be given to the  registered  holders of the Debt
Securities  not less than 10 days prior to such special record date, all as more
fully  provided in the  Indenture.  The  principal  of and interest on this Debt
Security  shall be  payable  at the  office or agency of the  Trustee  (or other
paying agent  appointed by the Company)  maintained for that purpose in any coin
or currency of the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided,  however, that payment
of  interest  may be made at the option of the  Company  by check  mailed to the
registered  holder at such address as shall appear in the Debt Security Register

                                     A-1-3
<PAGE>

or by wire transfer to an account appropriately designated by the holder hereof.
Notwithstanding  the  foregoing,  so long as the holder of this Debt Security is
the Institutional  Trustee, the payment of the principal of and interest on this
Debt Security will be made in immediately  available  funds at such place and to
such account as may be designated by the Trustee.

         So long as no Event of Default pursuant to Sections 5.01(b), (e) or (f)
of the  Indenture  has occurred and is  continuing,  the Company  shall have the
right,  from time to time and  without  causing  an Event of  Default,  to defer
payments of interest on the Debt  Securities by extending  the interest  payment
period on the Debt  Securities at any time and from time to time during the term
of the Debt Securities,  for up to 20 consecutive  quarterly  periods (each such
extended interest payment period, an "Extension Period"), during which Extension
Period no interest shall be due and payable (except any Additional Interest that
may be due and payable).  During any Extension Period, interest will continue to
accrue on the Debt  Securities,  and  interest on such  accrued  interest  (such
accrued interest and interest thereon referred to herein as "Deferred Interest")
will  accrue,  at the Interest  Rate,  compounded  quarterly  from the date such
Deferred  Interest would have been payable were it not for the Extension Period,
both to the extent permitted by law. No Extension Period may end on a date other
than an  Interest  Payment  Date.  At the end of any such  Extension  Period the
Company  shall pay all  Deferred  Interest  then  accrued and unpaid on the Debt
Securities;  provided,  however,  that no Extension Period may extend beyond the
Maturity Date, Redemption Date or Special Redemption Date and provided, further,
however,  during any such Extension  Period,  the Company may not (A) declare or
pay any dividends or distributions on, or redeem,  purchase,  acquire, or make a
liquidation  payment with respect to, any of the Company's  capital  stock,  (B)
make any payment on or repay,  repurchase  or redeem any debt  securities of the
Company that rank pari passu in all  respects  with or junior in interest to the
Debt Securities or (C) make any payment under any guarantees of the Company that
rank  pari  passu in all  respects  with or junior in  interest  to the  Capital
Securities   Guarantee  (other  than  (a)  repurchases,   redemptions  or  other
acquisitions  of shares of capital stock of the Company (I) in  connection  with
any employment  contract,  benefit plan or other similar arrangement with or for
the benefit of one or more employees,  officers, directors or consultants,  (II)
in connection with a dividend reinvestment or stockholder stock purchase plan or
(III) in  connection  with the  issuance  of capital  stock of the  Company  (or
securities   convertible   into  or  exercisable  for  such  capital  stock)  as
consideration in an acquisition transaction entered into prior to the occurrence
of (I),  (II) or (III) above,  (b) as a result of any exchange or  conversion of
any class or series of the  Company's  capital  stock (or any capital stock of a
subsidiary  of the  Company)  for any class or series of the  Company's  capital
stock or of any class or series of the Company's  indebtedness  for any class or
series of the Company's capital stock, (c) the purchase of fractional  interests
in shares of the Company's  capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security  being  converted or exchanged,
(d) any  declaration of a dividend in connection with any  stockholder's  rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or repurchase of rights  pursuant  thereto or (e)
any dividend in the form of stock,  warrants,  options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants,  options or
other  rights is the same stock as that on which the  dividend  is being paid or
ranks  pari  passu  with or  junior in  interest  to such  stock).  Prior to the
termination of any Extension Period, the Company may further extend such period,

                                     A-1-4
<PAGE>

provided,  that  such  period  together  with  all  such  previous  and  further
consecutive  extensions  thereof  shall  not  exceed  20  consecutive  quarterly
periods,  or extend  beyond  the  Maturity  Date.  Upon the  termination  of any
Extension Period and upon the payment of all Deferred Interest,  the Company may
commence a new  Extension  Period,  subject to the  foregoing  requirements.  No
interest  or Deferred  Interest  shall be due and  payable  during an  Extension
Period,  except  at the  end  thereof,  but  interest  shall  accrue  upon  each
installment  of interest that would  otherwise  have been due and payable during
such Extension  Period until such installment is paid. The Company must give the
Trustee  notice of its  election  to begin  such  Extension  Period at least one
Business  Day prior to the date such  interest is payable,  but in any event not
later than the related regular record date.

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

         The  Company  waives  demand,   presentment  for  payment,   notice  of
nonpayment, notice of protest, and all other notices.

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

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

         This  Debt  Security  may  contain  more  than one  counterpart  of the
signature page and this Debt Security may be executed and  authenticated  by the
affixing of the signature of a proper officer of the Company,  and the signature
of the Trustee providing  authentication,  to any of such counterpart  signature
pages. All of such counterpart  signature pages shall be read as though one, and
they shall have the same force and effect as though the  Company  had  executed,
and the Trustee had authenticated, a single signature page.

                                     A-1-5
<PAGE>

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

                                     GRANDSOUTH BANCORPORATION

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

Dated:  __________________, ________

                          CERTIFICATE OF AUTHENTICATION

         This  certificate   represents  Debt  Securities  referred  to  in  the
within-mentioned Indenture.

                                         WILMINGTON TRUST COMPANY, not in its
                                         individual capacity but solely as the
                                         Trustee

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

Dated: __________________, ______

                                     A-1-6
<PAGE>

                          [FORM OF REVERSE OF SECURITY]

         This  Debt  Security  is  one  of a  duly  authorized  series  of  Debt
Securities of the Company,  all issued or to be issued  pursuant to an Indenture
(the "Indenture"), dated as of May 10, 2006, duly executed and delivered between
the Company and Wilmington Trust Company,  as Trustee (the "Trustee"),  to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description  of the  rights,  limitations  of  rights,  obligations,  duties and
immunities  thereunder  of the Trustee,  the Company and the holders of the Debt
Securities  (referred  to herein as the "Debt  Securities")  of which  this Debt
Security  is a part.  The summary of the terms of this Debt  Security  contained
herein does not purport to be complete  and is  qualified  by  reference  to the
Indenture.

         Upon the  occurrence  and  continuation  of a Tax Event,  an Investment
Company Event or a Capital  Treatment  Event,  this Debt Security may become due
and payable, in whole but not in part, at any time, within 90 days following the
occurrence  of such Tax Event,  Investment  Company  Event or Capital  Treatment
Event  (the  "Special  Redemption  Date"),  as the case may be,  at the  Special
Redemption  Price.  The  Company  shall also have the right to redeem  this Debt
Security  at the option of the  Company,  in whole or in part,  on any March 23,
June 23,  September 23 and December 23 on or after June 23, 2011 (a  "Redemption
Date"), at the Redemption Price.

         Any  redemption  pursuant  to the  preceding  paragraph  will be  made,
subject  to the  receipt  by the  Company  of prior  approval  from the Board of
Governors of the Federal Reserve System (the "Federal Reserve") if then required
under applicable capital guidelines or policies of the Federal Reserve, upon not
less than 30 days' nor more than 60 days'  notice.  If the Debt  Securities  are
only partially redeemed by the Company, the Debt Securities will be redeemed pro
rata or by lot or by any other method utilized by the Trustee.

         "Redemption  Price"  means  100% of the  principal  amount  of the Debt
Securities  being  redeemed  plus  accrued  and  unpaid  interest  on such  Debt
Securities  to the  Redemption  Date or, in the case of a redemption  due to the
occurrence of a Special Event,  to the Special  Redemption  Date if such Special
Redemption Date is on or after June 23, 2011.

         "Special Redemption Price" means, with respect to the redemption of any
Debt  Security  following  a  Special  Event,  an  amount  in cash  equal to the
percentage  for the principal  amount of the Debt  Securities  that is specified
below for the Special  Redemption Date plus unpaid  interest  accrued thereon to
the Special Redemption Date:

           Special Event Redemption During
               Period  Beginning On             Percentage of Principal Amount
               ------  ------------             ------------------------------

                   May 10, 2006                             104.40
                  June 23, 2007                             103.52
                  June 23, 2008                             102.64
                  June 23, 2009                             101.76
                  June 23, 2010                             100.88
                  June 23, 2011                             100.00

                                     A-1-7
<PAGE>

         In the event of  redemption  of this Debt  Security in part only, a new
Debt  Security or Debt  Securities  for the  unredeemed  portion  hereof will be
issued in the name of the holder hereof upon the cancellation hereof.

         In case an Event of Default,  as defined in the  Indenture,  shall have
occurred and be continuing,  the principal of all of the Debt  Securities may be
declared due and payable, and upon such declaration of acceleration shall become
due and payable,  in the manner,  with the effect and subject to the  conditions
provided in the Indenture.

         The  Indenture  contains  provisions  permitting  the  Company  and the
Trustee,  with the  consent  of the  holders  of not  less  than a  majority  in
aggregate  principal  amount  of the Debt  Securities  at the  time  outstanding
affected  thereby,  as  specified  in the  Indenture,  to  execute  supplemental
indentures for the purpose of adding any provisions to or changing in any manner
or  eliminating  any of the  provisions of the Indenture or of any  supplemental
indenture  or of  modifying  in any manner the rights of the holders of the Debt
Securities;  provided, however, that no such supplemental indenture shall, among
other  things,  without the consent of the  holders of each Debt  Security  then
outstanding  and  affected  thereby  (i) extend the fixed  maturity  of the Debt
Securities,  or reduce the principal  amount thereof or any  redemption  premium
thereon,  or reduce the rate or extend the time of payment of interest  thereon,
or make  payments  due on the Debt  Securities  payable in any coin or  currency
other than that provided in the Debt  Securities,  or impair or affect the right
of any holder of Debt Securities to institute suit for the payment  thereof,  or
(ii) reduce the aforesaid  percentage of Debt  Securities,  the holders of which
are required to consent to any such supplemental  indenture.  The Indenture also
contains provisions  permitting the holders of a majority in aggregate principal
amount of the Debt Securities at the time  outstanding,  on behalf of all of the
holders of the Debt Securities,  to waive any past default in the performance of
any of the covenants contained in the Indenture,  or established pursuant to the
Indenture, and its consequences,  except a default in payments due on any of the
Debt  Securities.  Any such consent or waiver by the  registered  holder of this
Debt Security  (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this Debt
Security and of any Debt Security issued in exchange  herefor or in place hereof
(whether by registration  of transfer or otherwise),  irrespective of whether or
not any notation of such consent or waiver is made upon this Debt Security.

         No  reference  herein to the  Indenture  and no  provision of this Debt
Security  or of the  Indenture  shall  alter or  impair  the  obligation  of the
Company,  which is absolute and  unconditional,  to pay all payments due on this
Debt  Security  at the time and place  and at the rate and in the  money  herein
prescribed.

         As provided in the Indenture and subject to certain  limitations herein
and therein set forth,  this Debt  Security is  transferable  by the  registered
holder hereof on the Debt Security  Register of the Company,  upon  surrender of
this Debt Security for  registration  of transfer at the office or agency of the
Trustee  in  Wilmington,   Delaware  accompanied  by  a  written  instrument  or
instruments of transfer in form  satisfactory to the Company or the Trustee duly
executed  by the  registered  holder  hereof  or  such  holder's  attorney  duly
authorized  in  writing,  and  thereupon  one or more  new  Debt  Securities  of
authorized  denominations  and for the same aggregate  principal  amount will be

                                     A-1-8
<PAGE>

issued to the designated  transferee or  transferees.  No service charge will be
made for any such registration of transfer,  but the Company may require payment
of a sum  sufficient to cover any tax or other  governmental  charge  payable in
relation thereto.

         Prior to due  presentment  for  registration  of  transfer of this Debt
Security,  the Company, the Trustee, any Authenticating Agent, any Paying Agent,
any  transfer  agent  and the Debt  Security  registrar  may deem and  treat the
registered  holder hereof as the absolute owner hereof (whether or not this Debt
Security shall be overdue and notwithstanding any notice of ownership or writing
hereon) for the purpose of receiving  payment of or on account of the  principal
hereof, premium, if any, and interest due hereon and for all other purposes, and
neither the Company nor the Trustee nor any Authenticating  Agent nor any Paying
Agent nor any transfer agent nor any Debt Security  registrar  shall be affected
by any notice to the contrary.

         No  recourse  shall  be had  for the  payment  of the  principal  of or
premium,  if any, or the interest on this Debt Security,  or for any claim based
hereon,  or  otherwise  in  respect  hereof,  or based on or in  respect  of the
Indenture,  against any incorporator,  stockholder,  officer or director,  past,
present or future,  as such, of the Company or of any  predecessor  or successor
corporation,  whether by virtue of any constitution,  statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being,  by the  acceptance  hereof  and as  part  of the  consideration  for the
issuance hereof, expressly waived and released.

         The Debt Securities are issuable only in registered  certificated  form
without coupons. As provided in the Indenture and subject to certain limitations
herein and  therein  set forth,  Debt  Securities  are  exchangeable  for a like
aggregate  principal  amount  of  Debt  Securities  of  a  different  authorized
denomination, as requested by the holder surrendering the same.

         All terms used in this Debt  Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

         THE LAW OF THE STATE OF NEW YORK  SHALL  GOVERN THE  INDENTURE  AND THE
DEBT SECURITIES, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.

                                     A-1-9
<PAGE>

                                                                       EXHIBIT B

                               FORM OF CERTIFICATE
                                   OF OFFICER
                                       OF
                            GRANDSOUTH BANCORPORATION

         Pursuant  to  Section  3.05  of  the   Indenture   between   GrandSouth
Bancorporation,  as issuer (the  "Company"),  and Wilmington  Trust Company,  as
trustee, dated as of May 10, 2006 (as amended or supplemented from time to time,
the "Indenture"), the undersigned certifies that he/she is a principal executive
officer,  principal  financial  officer or principal  accounting  officer of the
Company  and in the  course of the  performance  by the  undersigned  of his/her
duties as an  officer  of the  Company,  the  undersigned  would  normally  have
knowledge  of any default by the  Company in the  performance  of any  covenants
contained in the Indenture,  and the undersigned  hereby further  certifies that
he/she  has no  knowledge  of any such  default  for the year 20__  [,except  as
follows: specify each such default and the nature thereof].

         Capitalized terms used herein,  and not otherwise defined herein,  have
the respective meanings ascribed thereto in the Indenture.

         IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
___________, 20__.

                                              -------------------------------
                                              Name: _________________________
                                              Title:  _______________________

                                     B-1-1

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