Document:

Exhibit 4.01

 

CUSIP
NO. 5252M0GX9

ISIN NO. US5252M0GX98

 

	
  REGISTERED

  	
   

  	
  PRINCIPAL AMOUNT:
  $2,845,000

  
	
  No. R-1

  	
   

  	
   

  

 

LEHMAN BROTHERS HOLDINGS INC.

 

MEDIUM-TERM NOTE, SERIES I

 

CRUDE OIL-LINKED DUAL PARTICIPATION NOTES
 DUE AUGUST 22, 2011

 

THIS
NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY OR A NOMINEE OF THE
DEPOSITORY.  UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55
WATER STREET, NEW YORK, NEW YORK) TO THE COMPANY (AS DEFINED BELOW) OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

UNLESS
AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM (A
“CERTIFICATED NOTE”), THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT
AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF
THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITORY.

 

 

LEHMAN BROTHERS HOLDINGS INC., a corporation duly organized and
existing under the laws of the State of Delaware (herein called the “Company,”
which term includes any successor corporation under the Indenture referred to
on the reverse hereof), for value received, hereby promises to pay to CEDE &
Co., or registered assigns, on the Maturity Date, an amount equal to
the Redemption Amount at Maturity.

 

The “Maturity Date” is August 22, 2011,
or if such day is not a New York business day, the immediately succeeding New
York business day, subject to the occurrence of a Change in Law Redemption
Event.

 

The “Valuation
Date” is August 15, 2011, or if such day is not an Exchange Business Day,
the immediately preceding Exchange Business Day; provided
that, upon the occurrence of a Change in Law Redemption Event or the occurrence
of a Disruption Event, the Valuation Date may be adjusted (as described below).

 

The
Observation Period is the period from and including the Original Trade Date to
and including the Valuation Date.

 

The “Redemption
Amount” will be a single U.S. dollar payment on the Maturity Date equal to the
principal amount of the notes plus the Supplemental Redemption Amount, if any.

 

The “Supplemental
Redemption Amount” is a single U.S. dollar payment on the Maturity Date per
$1,000 note equal to the following:

 

(A)      $1,000
times the Participation Rate times the Crude Oil Return, if Crude OilREF
is strictly within the Crude Oil Range on each Exchange Business Day during the
Observation Period and the Crude Oil Return is greater than or equal to 0.000%;
or

 

(B)        $1,000
times the Participation Rate times the product of –1 times the Crude Oil
Return, if Crude OilREF is strictly within the Crude Oil Range on
each Exchange Business Day during the Observation Period and the Crude Oil
Return is less than 0.000%; or

 

(C)        $1,000
times the Partial Participation Rate times the Crude Oil Return, if Crude OilREF
is outside the Crude Oil Range (or equal to either the Lower Barrier or the
Upper Barrier) on any Exchange Business Day during the Observation
Period and the Crude Oil Return is greater than or equal to 0.000%; or

 

(D)       $1,000
times the Partial Participation Rate times the product of –1 times the Crude
Oil Return, if Crude OilREF is outside the Crude Oil Range (or equal
to either the Lower Barrier or the Upper Barrier) on any Exchange
Business Day during the Observation Period and the Crude Oil Return is less
than 0.000%.

 

“Crude Oil” is light sweet crude oil.

 

 

The “Participation Rate” is 150%.

 

The “Partial Participation Rate” is 40%.

 

The “Crude OilREF”
is, for any Exchange Business Day within the Observation Period, the Crude Oil
Price on such Exchange Business Day.

 

The Crude Oil Range is as follows:

 

	
  Lower Barrier

  	
   

  	
  Upper
  Barrier

  
	
  $57.60

  	
   

  	
  $172.80

  
	
  (Equal to the Crude

  	
   

  	
  (Equal to the Crude

  
	
  Oil Strike * 50%)

  	
   

  	
  Oil Strike * 150%)

  

 

The “Crude Oil Return” is a
quotient, the numerator of which is the difference of the Final Crude Oil Price
minus the Crude Oil Strike and the denominator of which is the Crude Oil
Strike, expressed as a percentage rounded to three decimal places.

 

The “Upsize
Trade Dates” are August 13, 2008 and August 21, 2008.

 

The “Original
Trade Date” was August 8, 2008.

 

The “Issue
Date” is August 22, 2008.

 

The “Crude
Oil Contract” is the first nearby month futures contract (or, in the case of
the last trading day of the first nearby month contract, the second nearby
month contract) for Crude Oil traded on the Relevant Exchange.

 

The “Crude
Oil Price” is the official settlement price of the Crude Oil Contract,
expressed as the U.S. dollar price per barrel of Crude Oil, as made public by
the Relevant Exchange (subject to the occurrence of a Disruption Event).

 

The “Final
Crude Oil Price” is the Crude Oil Price on the Valuation Date.

 

The “Crude Oil Strike” is $ 115.20
(equal to the Crude Oil Price on the Original Trade Date).

 

The “Relevant Exchange” is the NYMEX Division, or its
successor, of the New York Mercantile Exchange, Inc., or its successor;
or, if NYMEX is no longer the principal exchange or trading market for Crude
Oil options or futures contracts, such other exchange or principal trading
market for Crude Oil as determined in good faith by the Calculation Agent which
serves as the source of prices for Crude Oil, and any principal exchanges where
options or futures contracts on Crude Oil are traded.

 

An “Exchange
Business Day” is a day, as determined by the Calculation Agent, on which the
Relevant Exchange is scheduled to be (or, but for the occurrence of a
Disruption Event, would have been) open for trading during its regular trading
session (notwithstanding the Relevant Exchange closing prior to its scheduled
closing time).

 

 

Upon the occurrence of a
Change in Law that, in the sole discretion of the Calculation Agent, would have
an adverse affect upon, or otherwise require Lehman Brothers Holdings or its
affiliates to unwind or terminate, any of the contractual arrangements pursuant
to which Lehman Brothers Holdings or its affiliates have hedged the commodity
exposure under the notes, we may, but are not obligated to, redeem the notes in
whole (but not in part) in accordance with the provisions set forth below.  For purposes of the above, “Change in Law”
means the adoption of, or change in, any applicable law, rule or
regulation, or the promulgation of or any change in the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of any
applicable law, rule or regulation, occurring after the Original Trade
Date.

 

If we elect to redeem the
notes following the occurrence of a Change in Law, the Valuation Date will be
deemed to be the first Exchange Business Day on which such Change in Law
occurred, as determined in the sole discretion of the Calculation Agent, acting
in good faith, and the notes will be redeemed on the fifth Business Day
following the Valuation Date so adjusted (the “Change in Law Redemption Date”)
at a Redemption Amount determined in accordance with Redemption Amount as
defined above; provided that, in calculating the
Supplemental Redemption Amount for the Redemption Amount, the Calculation Agent
shall determine the Final Crude Oil Price on the adjusted Valuation Date in its
sole and absolute discretion, taking into account the latest available
quotation for Crude Oil and any other information that in good faith it deems
relevant.  All amounts that may otherwise
be payable following such Change in Law Redemption Date shall cease to be
payable.  As promptly as possible and in
no event later than the New York business day immediately following the
adjusted Valuation Date, we will provide written notice of the Change in Law
Redemption Event to DTC.

 

If a Disruption Event is in effect on any day
during the Observation Period, to but excluding the earlier of (a) the
Valuation Date and (b) any Exchange Business Day during the Observation
Period where Crude OilREF trades outside the Crude Oil Range (or equal to either the
Lower Barrier or the Upper Barrier), and
for so long as such Disruption Event is continuing, the Calculation Agent will
determine the Crude OilREF on such day in its sole and absolute discretion taking into
account the latest available quotation for the Oil Price and any other
information that in good faith it deems relevant.

 

If a
Disruption Event identified in clauses (A), (B) or (C) below has
occurred and is in effect on the scheduled Valuation Date, the Calculation
Agent will calculate the Final Crude Oil Price on the immediately succeeding
Exchange Business Day on which no Disruption Event occurs or is continuing; provided however that if a Disruption Event has occurred or
is continuing on each of the three scheduled Exchange Business Days following
the scheduled Valuation Date, then (a) that third scheduled Exchange
Business Day shall be deemed the Valuation Date; and (b) the Calculation
Agent will determine the Final Crude Oil Price on such day in its sole and
absolute discretion taking into account the latest available quotation for the
Crude Oil Price and any other information that in good faith it deems relevant.

 

If a
Disruption Event identified in clauses (D) or (E) is in effect on the
scheduled Valuation Date, the Calculation Agent will determine the Final Crude
Oil Price on the scheduled Valuation Date in its sole and absolute discretion
taking into account the latest available quotation for the Crude Oil Price and
any other information that in good faith it deems relevant.

 

 

A “Disruption Event” means any of
the following events, as determined in good faith by the Calculation Agent:

 

(A)                              the suspension of or material
limitation on trading in the Crude Oil Contract or Crude Oil, or futures
contracts or options related to the Crude Oil Contract or Crude Oil, on the
Relevant Exchange;

 

(B)                                either (i) the failure of
trading to commence, or permanent discontinuance of trading, in the Crude Oil
Contract or Crude Oil, or futures contracts or options related to the Crude Oil
Contract or Crude Oil, on the Relevant Exchange, or (ii) the disappearance
of, or of trading in, Crude Oil;

 

(C)                                the failure of the Relevant
Exchange to publish the official daily settlement price for that day for the
Crude Oil Contract (or the information necessary for determining the settlement
price);

 

(D)                               the occurrence since the Original
Trade Date of a material change in the content, composition, or constitution of
Crude Oil or the Crude Oil Contract; or

 

(E)                                 the occurrence since the Original
Trade Date of a material change in the formula for or the method of calculating
the settlement price of the Crude Oil Contract.

 

For the purpose of determining whether a Disruption Event
has occurred:

 

(1)                                  a limitation on the hours in a
trading day and/or number of days of trading will not constitute a Disruption
Event if it results from an announced change in the regular business hours of
the Relevant Exchange;

 

(2)                                  a suspension in trading on the
Relevant Exchange (without taking into account any extended or after-hours trading
session), in the Crude Oil Contract, by reason of a price change reflecting the
maximum permitted price change from the previous trading day’s settlement price
will constitute a Disruption Event; and

 

(3)                                  a suspension of or material
limitation on trading on the Relevant Exchange will not include any time when
the Relevant Exchange is closed for trading under ordinary circumstances.

 

The “Calculation Agent” means Lehman Brothers Commodity Services Inc,
the determinations and calculations of which will be binding absent manifest
error.

 

Except as provided below, any Redemption Amount at Maturity may, at the
option of the Company, be made by check mailed to the person entitled thereto
at such person’s address as it appears on the registry books of the Company.

 

 

Payment of any Redemption Amount at Maturity will be made in
immediately available funds in accordance with the normal procedures of the
Trustee (or any duly appointed Paying Agent).

 

The Company will pay any administrative costs imposed by banks in making payments in
immediately available funds, but any tax, assessment or governmental charge
imposed upon payments hereunder, including, without limitation, any withholding
tax, will be borne by the Holder hereof.

 

References herein
to “U.S. dollars” or “U.S.$” or “$” or “USD” are to the coin or currency of the
United States as at the time of payment is legal tender for the payment of
public and private debts.

 

REFERENCE IS
HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE REVERSE HEREOF.  SUCH FURTHER PROVISIONS SHALL FOR ALL
PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.

 

This Note shall
not be valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been signed by the Trustee under the
Indenture.

 

 

IN WITNESS
WHEREOF, Lehman Brothers Holdings Inc. has caused this instrument to be signed
by its Chairman of the Board, its President, its Vice Chairman, its Chief
Financial Officer, one of its Vice Presidents or its Treasurer, by manual or
facsimile signature under its corporate seal, attested by its Secretary or one
of its Assistant Secretaries by manual or facsimile signature.

 

Dated:  August 22, 2008

 

	
  [SEAL]

  	
   

  	
  LEHMAN BROTHERS
  HOLDINGS INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Andrew M.W. Yeung

  
	
   

  	
   

  	
   

  	
  Title:   Vice
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attest:

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Cindy Buckholz

  
	
   

  	
   

  	
   

  	
  Title:   Assistant
  Secretary

  

 

 

TRUSTEE’S
CERTIFICATE OF AUTHENTICATION

 

This is one of the
Securities of the series designated herein referred to in the within-mentioned Indenture.

 

CITIBANK, N.A.

as Trustee

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Officer

  	
   

  

 

 

[REVERSE
OF NOTE]

 

LEHMAN BROTHERS
HOLDINGS INC.

MEDIUM-TERM NOTES,
SERIES I

CRUDE OIL-LINKED DUAL PARTICIPATION NOTES  
 DUE AUGUST 22, 2011

 

Section 1.  General.  This Note is one of a duly authorized series
of Notes of the Company designated as the Medium-Term Notes, Series I,
Crude Oil-Linked Dual Participation Notes (herein called the “Notes”).  The
Notes are one of an indefinite number of series of debt securities of the
Company (collectively, the “Securities”) issued or issuable under and pursuant
to an indenture dated as of September 1, 1987, as amended and supplemented
(the “Indenture”), duly executed and delivered by the Company and Citibank,
N.A., as Trustee (herein called 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 Securities.  The separate series of Securities may be
issued in various aggregate principal amounts, may mature at different times,
may bear interest (if any) at different rates, may be subject to different
redemption provisions or repurchase rights (if any), may be subject to
different sinking, purchase or analogous funds (if any), may be subject to
different covenants and Events of Default and may otherwise vary as in the
Indenture provided.

 

Section 2.  Principal Amount for Indenture Purposes.  For the purpose of determining whether
Holders of the requisite amount of Notes of this series outstanding under the
Indenture have made a demand, given a notice or waiver or taken any other
action, the principal amount of this Note will be deemed to be the principal
amount of this Note then outstanding.

 

Section 3.  Modification and Waivers.  The Indenture contains provisions permitting
the Company and the Trustee, with the consent of the Holders of not less than
66-2/3% in aggregate principal amount of each series of the Securities at the
time Outstanding to be affected, evidenced as in the Indenture provided, to
execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the holders of
the Securities of all such series; provided, however, that no such supplemental
indenture shall, among other things, (i) change the fixed maturity of any
Security, or reduce the Redemption Amount at Maturity or the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon
or reduce any premium or other amount payable on redemption, or make the
Redemption Amount at Maturity or the principal amount thereof, premium or other
amount payable, if any, or interest thereon payable in any coin or currency
other than that herein above provided, without the consent of the Holder of
each Security so affected, or (ii) change the place of payment on any
Security, or impair the right to institute suit for payment on any Security, or
reduce the aforesaid percentage of Securities, the holders of which are
required to consent to any such supplemental indenture, without the consent of
the holders of each Security so affected. 
It is also provided in the Indenture that, prior to any declaration accelerating
the maturity of any series of Securities, the holders of a majority in
aggregate principal amount of

 

 

the Securities of such
series Outstanding may on behalf of the holders of all the Securities of such
series waive any past default or Event of Default under the Indenture with
respect to such series and its consequences, except a default in the payment of
interest, if any, on the Redemption Amount at Maturity or the principal amount,
or premium, if any, on any of the Securities of such series, or in the payment
of any sinking fund installment or analogous obligation with respect to
Securities of such series.  Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future holders and owners of this Note and any
Notes of this series which may be issued in exchange or substitution herefor,
irrespective of whether or not any notation thereof is made upon this Note or
such other Notes of this series.

 

Section 4.  Obligations Unconditional.  No reference herein to the Indenture and no
provisions of this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay any
Redemption Amount at Maturity on this Note at the place, at the respective
times, at the rate, and in the coin or currency herein prescribed.

 

Section 5.  Defeasance.  The Indenture contains provisions for the
discharge of the Indenture and defeasance at any time of the indebtedness on
this Note upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Note.

 

Section 6.  Authorized Form and Denominations.  The Notes of this series are issuable in
registered form, without coupons.  Each
Note will be issued initially as either a Global Security or a Certificated
Note, at the option of the Company, in denominations of $1,000 or whole
multiples of $1,000, either at the office or agency to be designated and
maintained by the Company for such purpose in the Borough of Manhattan, New York
City, pursuant to the provisions of the Indenture or at any of such other
offices or agencies as may be designated and maintained by the Company for such
purpose pursuant to the provisions of the Indenture, and in the manner and
subject to the limitations provided in the Indenture, but without the payment
of any service charge, except for any tax or other governmental charges imposed
in connection therewith.  Notes of this
series are exchangeable for a like aggregate principal amount of Notes of this
series of a different authorized denomination, except that Global Securities
will not be exchangeable for Certificated Notes of this series.

 

Section 7.  Registration of Transfer.  As provided in the Indenture and subject to
certain limitations as therein set forth, the transfer of this Note is
registrable in the Security Register, upon surrender of this Note for
registration of transfer, at the Corporate Trust Office or agency in a Place of
Payment for this Note, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar
requiring such written instrument of transfer duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more
new Notes of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

 

If at any time the
Depository notifies the Company that it is unwilling or unable to continue as
Depository or if at any time the Depository shall no longer be eligible under
the Indenture, the Company shall appoint a successor Depository.  If a successor Depository for the Notes of
this series is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such ineligibility, the Company will
issue, and the Trustee will

 

 

authenticate and deliver,
Notes of this series in definitive form in an aggregate principal amount equal
to the principal amount of this Note.

 

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

 

Prior to due presentment
of this Note for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the person in whose name this
Note is registered as the owner hereof for all purposes, and neither the
Company nor the Trustee nor any agent of the Company or of the Trustee shall be
affected by any notice to the contrary.

 

Section 8.  Events of Default.  If an Event of Default with respect to Notes
of this series shall occur and be continuing, the amount that may be declared
due and payable upon any acceleration of the notes will be determined by the
Calculation Agent for the period from and including the Issue Date to but
excluding the date of early repayment and will equal, for each note, the
Redemption Amount at Maturity, calculated as the date of early repayment were
the Maturity Date. If a bankruptcy proceeding is commenced in respect of Lehman
Brothers Holdings, the claim of the beneficial owner of a note for the period
from and including the Issue Date to but excluding the date of early repayment
will be capped at the Redemption Amount at Maturity, calculated as though the
date of the commencement of the proceeding were the Maturity Date.

 

Section 9.  No Recourse Against Certain Persons.  No recourse for the payment of the Redemption
Amount at Maturity or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any Indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, stockholder, officer or director, as such,
past, present or future, of the Company or of any successor corporation, either
directly or through the Company or any 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 issue hereof, expressly waived and
released.

 

Section 10.  Defined
Terms.  All terms used but not
defined in this Note are used herein as defined in the Indenture.

 

Section 11.  GOVERNING LAW.  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.EXHIBIT 10.1

 

THIS
AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE SOUTH CAROLINA UNIFORM ARBITRATION
ACT: SC CODE ANN.  §15-48-10 ET SEQ. AND THE FEDERAL ARBITRATION ACT 9 U.S.C. 1 ET SEQ.

 

 

SUBORDINATED NOTE PURCHASE AGREEMENT

 

DATED AS OF AUGUST 22, 2008

 

BY AND AMONG

 

COMMUNITYSOUTH FINANCIAL CORPORATION

 

AND

 

THE PURCHASERS NAMED HEREIN

 

 

 

 

SUBORDINATED NOTE PURCHASE AGREEMENT

 

This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is
dated as of August 22, 2008, and entered into by and among COMMUNITYSOUTH
FINANCIAL CORPORATION, a South Carolina corporation  (the “Company”), and the purchasers
listed on Exhibit A hereto (the “Initial Purchaser”) and any
subsequent purchaser (a “Subsequent Purchaser”) who executes a counterpart of
this Agreement that is accepted by the Company (each Initial Purchaser and any
Subsequent Purchaser is referred to herein as a “Purchaser” and
collectively, as the “Purchasers”). Capitalized terms that are not
otherwise defined shall have the meanings set forth in Section 11
hereof.

 

R  E  C  I
T  A  L  S:

 

WHEREAS, the Company owns all of the outstanding Equity Securities of
CommunitySouth Bank and Trust, a state bank incorporated under the laws of  the state of South Carolina (the “Bank”); and

 

WHEREAS, subject to the terms and conditions hereof, the Purchasers
desire to purchase and the Company desire that the Purchasers purchase
subordinated notes of the Company  that
qualify as Tier 2 Capital under applicable rules and regulations of the
Board of Governors of the Federal Reserve System (“FRB”).

 

NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Company agrees with the
Purchasers as follows:

 

SECTION 1

 

THE NOTES; CLOSING

 

1.1                                 Purchase and Sale.
Subject to the terms and conditions of this Agreement:

 

(A)                              The Company shall sell to
the Initial Purchasers and the Initial Purchasers shall purchase from the
Company, on the Initial Closing Date, the Company’s 11.5% Subordinated Notes
due 2018, in the aggregate principal amount of up to $7,000,000, in
substantially the form attached hereto as Exhibit B, appropriately
completed in conformity herewith and duly and validly issued, authorized and
executed by the Company in the amounts set forth opposite each Initial Purchaser’s
name on Exhibit A hereto on the Initial Closing Date (the “Initial
Notes”). The term “Notes” as used herein shall mean the Initial Notes, any
Subsequent Notes and all notes issued in exchange or substitution for such
Initial Notes or Subsequent Notes. The Notes, including the principal and
interest, shall be unsecured and subordinate and junior in right of payment to
the holders of the Senior Indebtedness to the extent set forth in Section 9
hereof.

 

(B)                                The closing of the
purchase and sale of the Initial Notes (the “Initial Closing”) shall
take place at the offices of Nelson Mullins Riley & Scarborough, LLP
in Greenville, SC on August 22, 2008 or at such other place or on such
other date as may be

 

1

 

determined by the Company. The date on which the Initial Closing occurs
is referred to herein as the “Initial Closing Date.”

 

In connection with the Initial Closing, the Company will deliver to the
Initial Purchasers the Initial Notes, each registered in each Initial Purchaser’s
name as stated in Exhibit A (or in the name of such Initial
Purchaser’s nominees as may be specified in Exhibit A), against
payment by the Initial Purchasers of the purchase price of the Initial Notes.

 

(C)                                The Company may sell to
Subsequent Purchasers and Subsequent Purchasers may purchase from the Company,
on one or more Subsequent Closing Dates, the Company’s 11.5% Subordinated Notes
due 2018, in an aggregate principal amount that, together with the aggregate
principal amount of the Initial Notes and any other Subsequent Notes as of
their respective date(s) of issuance, does not exceed $7,000,000, in
substantially the Form attached here to as Exhibit B,
appropriately completed in conformity herewith and duly and validly issued,
authorized and executed by the Company, in each case in the amount determined
by the Company up to the amount set forth on a Subsequent Purchaser’s
subscription agreement (any such notes are referred to herein as “Subsequent
Notes”).

 

(D)                               The closing of the
purchase and sale of any Subsequent Notes (any such closing, a “Subsequent
Closing”) shall take place at the offices of Nelson Mullins Riley &
Scarborough, LLP on one or more dates to be determined by the Company.  The date on which any Subsequent Closing
occurs is referred to herein as a “Subsequent Closing Date.”  The term “Closing Date” refers to the Initial
Closing Date or to a Subsequent Closing Date, as applicable, as the context
requires.  In connection with any
Subsequent Closing, the Company will deliver to the applicable Subsequent
Purchaser one or more Subsequent Notes, each registered in the name of the
Subsequent Purchaser as set forth in the applicable counterpart (or in the name
of such Subsequent Purchaser’s nominees as may be specified in the applicable
counterpart), against payment by the applicable Subsequent Purchaser(s) of
the purchase price of the Subsequent Note(s).

 

1.2                                 Interest and
Related Fees.

 

(A)                              Interest. Except
as provided in subsection 1.2(B), interest shall accrue on the unpaid
principal amount of the Notes, and on all other Obligations, outstanding from
time to time at the rate of 11.5% per annum, compounded quarterly. Interest on
the unpaid principal amount of the Notes outstanding from time to time and on
all other Obligations shall be calculated daily on the basis of a three hundred
sixty five (365) day year (or a three hundred sixty six (366) day year in a
leap year) for the actual number of days elapsed in the period during which it
accrues.

 

(B)                                Payment of Interest
and Related Fees. The Company shall pay accrued interest on the first day
of each calendar quarter commencing October 1, 2008. In addition, accrued
and unpaid interest shall be payable on the maturity of the Notes, whether by
acceleration or otherwise, and on the date of any prepayment (with respect to
the amount prepaid).

 

2

 

(C)                                Excess Interest.
Under no circumstances will the rate of interest chargeable be in excess of the
maximum amount permitted by law. If excess interest is charged and paid in
error, then the excess amount will be promptly refunded or applied to repayment
or prepayment of principal; provided, that to the extent all or any
portion of such excess amount is applied to repayment or prepayment of
principal, interest on the amount so prepaid will not be required to be paid at
such time.

 

(D)                               Expenses and
Attorneys Fees.  The Company agrees
to promptly pay or cause to be paid all reasonable fees, costs and expenses
(including reasonable attorneys’ fees and expenses) to the extent incurred by
the Holders in connection with any action that is necessary or appropriate to
enforce any Transaction Documents or to collect any payments actually due from
the Company. All fees, costs and expenses for which the Company is responsible
under this subsection 1.2(F)(ii) shall be deemed part of the Obligations
when incurred.

 

1.3                                 Payments. All
payments by the Company of the Obligations shall be without set off, deduction
(unless required by applicable law) or counterclaim and shall be made in same
day funds and delivered to each Holder, as applicable, by wire transfer to the
account set forth on the subscription agreement for such Holder or such other
place as such Holder may from time to time designate in writing. The Company
shall receive credit on the day of receipt for funds received by such Holder by
1:00 p.m., Eastern Standard Time. In the absence of timely receipt, such
funds shall be deemed to have been paid on the next Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a
Business Day, the payment may be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the amount of
interest due hereunder.

 

1.4                                 Repayments and
Prepayments.

 

(A)                              Voluntary Prepayments
of Notes. The Company may prepay the Notes at any time after the September 30,
2011, in whole or in part. To exercise its option to make any voluntary
prepayment hereunder, the Company must give the Holders of the Notes written
notice of such prepayment not less than ten (10) and not more than forty
(40) days prior to the date fixed for such prepayment, specifying the date of
proposed prepayment. On the date so fixed for payment, the principal amount of
the Notes and the accrued interest on the Notes shall be and become due and
payable in full. Any prepayment of the Notes under this subsection 1.4(A)
will be made subject to receipt by the Company of prior approval from, or
consultation with, the FRB if then required under applicable capital guidelines
or policies of the FRB.

 

(B)                                Scheduled Repayments.
The Company shall pay the aggregate principal amount of the Notes outstanding
in full on September 30, 2018 (the “Maturity Date”).

 

(C)                                Pro Rata Payment.
All payments owed to the Holders of the Notes (whether for principal, interest,
or otherwise) shall be made pro rata among such Holders based upon the
aggregate unpaid principal amount of the Notes held by each such Holder.

 

3

 

1.5                                 Tax
Forms .

 

(A)                              Tax Forms. Each
Holder shall provide to the Company a properly completed Form W-9 or W-8
or similar form, and any successor Holder shall provide to the Company a
properly completed Form W-9 or Form W-8 (or any successor thereto) or
similar form, as appropriate to such Holder’s status. All such forms shall be
completed in such a manner as to eliminate, to the fullest extent permitted by
law, the Company’s obligation to make, withhold, or deduct any Taxes with
respect to any payments of reimbursements made hereunder.

 

SECTION 2

 

AFFIRMATIVE COVENANTS

 

The Company covenants and agrees that so long as the Notes or any
Obligations relating thereto remain outstanding, the Company shall perform and
comply in all material respects with all covenants in this Section 2
provided  that the Company will comply with any such covenant that
is already qualified by a materiality qualifier in all respects.

 

2.1                                 Compliance with
Agreement. The Company will timely perform the terms, representations,
warranties and covenants of this Agreement and all other Transaction Documents.

 

2.2                                 Organizational
Existence and Conduct of Business. Except as otherwise permitted by Section 3.4,
the Company will, and will cause the Bank to, at all times preserve and keep in
full force and effect such Person’s (i) organizational existence and all
rights and franchises material to such Person’s business, and (ii) material
leases, privileges, franchises, qualifications and rights that are necessary in
the ordinary conduct of its business.

 

2.3                                 Subordinated Debt.
If the Notes cease to be deemed to be Tier 2 Capital, other than due to the
limitation imposed by the FRB on the capital treatment of subordinated debt
during the five years immediately preceding the maturity date of the Notes: (a) the
Company will immediately notify Holders, and (b) the Company and the
Holders will work together in good faith to immediately execute and deliver all
such agreements (including, without limitation, replacement notes) as
reasonably necessary in order to restructure the obligations evidenced by the
Notes and this Agreement to qualify for Tier 2 capital treatment.

 

2.4                                 Exchange of Notes.
The Company shall at any time, upon written request of the Holder of a Note and
surrender of the Note for such purpose, at the expense of the Company, issue
new Notes in exchange therefor in such denominations of at least $100,000, as
shall be specified by the Holder of such Note, in an aggregate principal amount
equal to the then unpaid principal amount of the Note or Notes surrendered and
substantially in the form of Exhibit B with appropriate insertions
and variations, and bearing interest from the date to which interest has been
paid on the Note surrendered.

 

2.5                                 Replacement of
Notes. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of any Note, and, in the case of any
such loss, theft or destruction, upon delivery of a bond of indemnity
reasonably satisfactory to the Company or, if the Company agrees, an indemnity
agreement in form and substance reasonably satisfactory to the Company, or, in
the case of any such mutilation, upon surrender and 

 

4

 

cancellation of the Note, as the case may be, the Company will issue a
new Note of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Note.

 

SECTION 3

 

NEGATIVE COVENANTS

 

The Company covenants and agrees that so long as the Notes or any
Obligations relating thereto remain outstanding, unless Majority Holders shall
otherwise give their prior written consent, the Company, shall perform and
comply with all covenants in this Section 3.

 

3.1                                 Limitations on
Dividend Payments. If there shall have occurred and be continuing a Default
or an Event of Default pursuant to Section 7.1 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 Equity Securities, or (B) make any payment of principal, if any,
or interest on or repay, repurchase or redeem any Indebtedness of the Company
that rank pari passu in all respects with or junior in interest to the Notes
(other than repurchases, redemptions or other acquisitions of Equity Securities
of the Company in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of one or more employees,
officers, directors or consultants, or a dividend reinvestment or stockholder
stock purchase plan).

 

3.2                                 Consolidation,
Merger, Conveyance, Transfer or Lease. 
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:

 

(A)                              In case the Company shall
consolidate with or merge into another Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, the Person
formed by such consolidation or into which the Company is merged or the Person
which acquires by conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety (i) shall be a
corporation, partnership, national association or trust, (ii) shall be
organized and validly existing under the laws of the United States of America,
any State thereof or the District of Columbia and (iii) shall expressly
assume the due and punctual payment of the principal of and any interest on the
Notes and all other Obligations of the Company hereunder; and

 

(B)                                Immediately after
giving effect to such transaction and treating any Indebtedness that becomes an
obligation of the Company or any of its Subsidiaries as a result of such
transaction as having been incurred by the Company or any of its Subsidiaries
at the time of such transaction, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
occurred and be continuing.

 

5

 

SECTION 4

 

REPORTING

 

The Company covenants and agrees that so long as the Notes or any
Obligations relating thereto remain outstanding, unless Majority Holders shall
otherwise give their prior written consent, the Company shall perform and
comply with all covenants in Section 4.1.

 

4.1                                 Events of Default.
Promptly upon any executive officer of the Company obtaining knowledge of any
condition or event that constitutes, or which would reasonably be expected to
result in, an Event of Default or Default. the Company shall deliver copies of
all notices given or received by any CommunitySouth Entity with respect to any
such event or condition and a certificate of an executive officer of the
Company specifying the nature and period of existence of such event or
condition and what action the Company has taken, is taking and proposes to take
with respect thereto.

 

SECTION 5

 

COMPANY REPRESENTATIONS AND WARRANTIES

 

The Company represents and warrants to the Purchasers that, except as
disclosed in, or incorporated by reference in, the CommunitySouth Financial
Corporation 11.5% Subordinated Notes Due 2018 Private Placement Memorandum
dated August 19, 2008 (including any amendments or supplements thereto),
as of such Purchaser’s Closing Date the following statements will be true,
correct and complete:

 

5.1                                 No Conflicts.
The consummation of the Related Transactions will not (i) violate or
conflict with any Organizational Documents of any CommunitySouth Entity, or (ii) violate
or conflict with any laws, rules, regulations or orders of any Governmental
Authority, except if such violations or conflicts would not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect.  No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the Related Transactions, other than
those the absence of which would not reasonably be expected to result in a
Material Adverse Effect.

 

5.2                                 Organization,
Powers and Good Standing.

 

(A)                              Organization and
Powers. The Company is a “bank holding company” under the Bank Holding
Company Act of 1956, as amended, and the South Carolina Banking and Branching
Efficiency Act, as amended, and is duly registered as such with the FRB and the
South Carolina Board of Financial Institutions (“SCBFI”).

 

The Bank is a state bank organized, existing and in good standing under
the laws of the State of South Carolina supervised and regulated by the SCBFF
and the FDIC (collectively, the “Regulatory Authorities”). After giving
effect to the transactions contemplated by this Agreement, the Bank will be “well
capitalized” for all purposes of its Regulatory Authorities.

 

Each CommunitySouth Entity is duly organized, validly existing and (if
applicable) in good standing under the laws of South Carolina.  Each CommunitySouth Entity has all requisite

 

6

 

corporate or organizational power and authority to own and operate its
material properties, to carry on its business as now conducted in all material
respects, to enter into any Transactions Document to which it is a party, and
to incur the Obligations and carry out the Related Transactions, as applicable.
This Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby and performance by the Company of its
obligations hereunder and thereunder have been duly and validly authorized by
all necessary corporate or organizational action on the part of the Company.

 

(B)                                Subsidiaries.  The Company has no Subsidiaries other than
the Bank, and the Bank has no Subsidiaries. 
The issued and outstanding shares of capital stock or other ownership
interests of the Bank were duly authorized and validly issued, are fully paid
and nonassessable and, are owned by the Company, directly or indirectly, free
and clear of any material Liens, other than any Liens in favor of the Bank of
Tennessee or that may be granted to other lenders to the Company.

 

(C)                                Binding Obligation.
This Agreement is, and the other Transactions Documents when executed and
delivered will be, the legal, valid and binding obligations of  the Company, each enforceable against the
Company in accordance with their respective terms, except to the extent that
the enforceability thereof may be limited by the application of bankruptcy,
receivership, conservatorship, reorganization, insolvency and similar laws
affecting creditors’ rights generally and equitable principles being applied at
the discretion of a court before which any proceeding may be brought, and to
limitations on the rights to indemnity and contribution hereunder that exist by
virtue of public policy under federal and state securities laws.

 

5.3                                 Private Offering.
No form of general solicitation or general advertising was used by any
CommunitySouth Entity or any representative thereof in connection with the
offer or sale of the Notes.  None of the
CommunitySouth Entities or any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would, and none of the foregoing
shall take any actions or steps that would, require registration of the offer
and sale of any of the Notes under the Securities Act or any state securities
or “blue sky” laws.

 

SECTION 6

 

PURCHASER REPRESENTATIONS; TRANSFER
RESTRICTIONS

 

6.1                                 Authorization.
Each of the Purchasers has full power and authority to enter into this
Agreement and any other Transaction Documents to which it is a party, and each
such agreement constitutes its valid and legally binding obligation,
enforceable in accordance with its terms, except to the extent enforceability may
be limited by the application of bankruptcy, receivership, conservatorship,
reorganization, insolvency and similar laws affecting creditors’ rights
generally and equitable principles being applied at the discretion of a court
before which any proceeding may be brought, and to limitations on the rights to
indemnity and contribution hereunder that exist by virtue of public policy
under federal and state securities laws.

 

7

 

6.2                                 Purchase for Own
Account. Each of the Purchasers is acquiring the Notes for such Purchaser’s
own account and not with a view to the distribution of such securities.

 

6.3                                 Investment
Experience. Each of the Purchasers acknowledges that such Purchaser can
bear the economic risk of its investment, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits
and risks of the investment in the securities to be sold in accordance with
this Agreement.

 

6.4                                 Accredited Investor.
Each of the Purchasers is an “accredited investor” within the meaning of SEC Rule 501
of Regulation D under the Securities Act.

 

6.5                                 Investment Process.
Each of the Purchasers has independently evaluated its investment decision;
followed its own investment procedures; conducted diligence and received
information it needs for an informed decision. 
Each Purchaser has access to and has reviewed, the extent such
Purchaser, so desires, the Company’s filings with the Securitas and Exchange
Commission (the “SEC”), which filings are available at the SEC’s website
(https://www.sec.gov).

 

6.6                                 Restricted
Securities. Each of the Purchasers understands that the securities it is
purchasing as contemplated hereby are “restricted securities” under the federal
securities laws and that such securities may be resold without registration
under the Securities Act only in certain limited circumstances. Each of the
Purchasers understands that, in the absence of an effective registration
statement covering the securities or an available exemption from registration
under the Securities Act, the securities must be held indefinitely.  Any transfer of Notes in a transaction in the
absence of an effective registration statement is subject to the Company’s
approval, based on the Company’s assessment of whether the transaction complies
with applicable state and federal securities laws.

 

6.7                                 Legends.

 

(A)             (i)                                     The
Purchasers agree to the imprinting, so long as is required by this Section 6.7,
of a legend on the Notes purchased pursuant to this Agreement in substantially
the following form:

 

THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR APPLICABLE STATE LAWS AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND/OR SUCH LAWS COVERING THIS
INSTRUMENT OR THE COMPANY, UPON ITS REQUEST, RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THIS INSTRUMENT ACCEPTABLE TO THE COMPANY’S STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT
AND APPLICABLE STATE LAWS.

 

8

 

THIS SUBORDINATED NOTE IS NOT A SAVINGS ACCOUNT OR DEPOSIT AND IT IS
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY FEDERAL AGENCY.

 

(B)               Certificates
evidencing the Notes shall not contain any legend (including the legends
described in subsection 6.7(A)), if the Company determines that such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the SEC and applicable state laws).

 

6.8                                 Transfer
Restrictions. Any sale, transfer, assignment or other disposition of Notes
must be in denominations of at least $100,000 (or, if less, the aggregate
outstanding principal amount of the Note(s) held by the Holder seeking to
sell, transfer, assign or otherwise dispose of one or more Notes), unless
otherwise consented to by the Company in its sole discretion.  The Notes may be sold, assigned, transferred
or otherwise disposed of, in whole or in part, by the Holder thereof, only in
accordance with applicable securities laws and subject to the provisions of
this Agreement.  Without limiting the
foregoing, without prior written consent of the Company, no Note may be sold,
transferred, or assigned during the six month period following the original
purchase of such Note from the Company.

 

6.9                                 Sufficient Funds.
As of the applicable Closing Date, each Purchaser will have sufficient funds to
make full payment for the Notes to be purchased by such Purchaser.

 

SECTION 7

 

DEFAULT, RIGHTS AND REMEDIES

 

7.1                                 Event of Default.
“Event of Default” shall mean the occurrence or existence of any one or more of
the following:

 

(A)                              Payment.  (i)                              Failure
to pay any installment or other payment of principal or interest of any of the
Notes, when due, or (ii) failure to pay any other amount due under this
Agreement or any of the other Transaction Documents, in either case within 180
days of receipt by the Company of Notice from a Holder that such payment is
past due, or

 

(B)                                Default in Other
Agreements.  (i) Failure of any
CommunitySouth Entity to pay when due or within any applicable grace period any
principal or interest on Indebtedness having a principal balance in excess of
$7,000,000 or (ii) breach or default of any CommunitySouth Entity, or the
occurrence of any condition or event, with respect to any Indebtedness of such
CommunitySouth Entity, if the effect of such breach, default or occurrence is
to cause such Indebtedness having an aggregate principal amount in excess of
$7,000,000 to become or be declared due prior to their stated maturity; or

 

(C)                                Breach of Certain
Provisions.  A material failure of
the Company to perform or comply with the terms and conditions contained in Section 3.1
or Section 3.2; or

 

(D)                               Breach of Warranty.  Any representation, warranty, certification
or other statement made by any CommunitySouth Entity in any of the Transaction
Documents or in any

 

9

 

certificate at any time given by such Person in writing pursuant to or
in connection with any of the Transaction Documents is false in any material
respect on the date made or, if such representation, warranty, certification or
other statement relates to a date other than the date as of which made, then as
of such date, which in either case would reasonably be expected to result in a
Material Adverse Effect and such breach is not remedied or waived within thirty
(30) days after receipt by the Company of notice from Majority Holders of such
breach; or

 

(E)                                 Other Defaults
Under Transaction.  Any
CommunitySouth Entity defaults in the performance of or compliance with any
material term contained in this Agreement or the other Transaction Documents
(other than occurrences described in other provisions of this Section 7.1
for which a different grace or cure period is specified or which constitute
immediate Events of Default) and such default would reasonably be expected to
result in a Material Adverse Effect and such default is not remedied or waived
within thirty (30) days after receipt by the Company of notice from Majority
Holders of such default; or

 

(F)                                 Bankruptcy.

 

(i)                    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, appointment or order shall remain unstayed and in effect for a period
of sixty (60) days; or

 

(ii)                 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

 

(iii)              A
court or administrative or governmental agency or body shall enter a decree or
order for the appointment of a receiver of the Bank or all or substantially all
of its property in any liquidation, insolvency or similar proceeding with
respect to the Bank or all or substantially all of its property; provided that
at such time the Bank is a major subsidiary depository institution of the
Company as contemplated by Appendix A of 12 CFR part 225; or

 

(iv)             The
Bank shall consent to the appointment of a receiver for it or all or
substantially all of its property in any liquidation, insolvency or similar
proceeding with respect to it or all or substantially all of its property.;
provided that at such time the Bank is a major subsidiary depository
institution of the Company as contemplated by Appendix A of 12 CFR part 225;

 

10

 

(G)                                Dissolution.  Any order, judgment or decree is entered
against the Company or the Bank decreeing the dissolution or split up of the
Company or the Bank and such order remains undischarged or unstayed for a
period in excess of thirty (30) days; or

 

(H)                               Solvency.  The Company or the Bank ceases to be solvent
or admits in writing its present or prospective inability to pay its debts as
they become due or is notified that it is considered an institution in “troubled
condition” within the meaning of 12 U.S.C. Section 1831i and the
regulations promulgated thereunder; or

 

(I)                                    Injunction.  The Company or a the Bank is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any part of its
business for more than thirty (30) days unless such event or circumstance would
not reasonably be expected to have a Material Adverse Effect; or

 

7.2                                 Acceleration and
other Remedies.

 

(A)                              Non-Bankruptcy
Defaults.  When any Event of Default
other than those set forth in subsection 7.1(F) has occurred and is
continuing, the Majority Holders may, by written notice to the Company enforce
any and all rights and remedies available to the Holders under the Transaction
Documents or applicable law (subject to the provisions of the Transaction
Documents); provided, however, the Holders may not accelerate payment of the
principal of, or the accrued interest on, the Notes.

 

(B)                                Bankruptcy Defaults.  When any Event of Default described in subsection
7.1(F) has occurred and is continuing, then the Notes, including both
principal and interest, and all fees, charges and other Obligations payable
hereunder and under the Transaction Documents, shall immediately become due and
payable without presentment, demand, protest or notice of any kind. In
addition, the Holders may exercise any and all remedies available to it under
the Transaction Documents or applicable law.

 

(C)                                Tier 2 Capital
Characterization.  If the Company
receives a written notification from the FRB that the Notes no longer
constitute Tier 2 Capital of the Company, other than due to the limitation
imposed by the second sentence of 12 C.F.R. Section 250.166(e), which
limits the capital treatment of subordinated debt during the five years
immediately preceding the maturity date of the subordinated debt and the Notes
and this Agreement cannot be restructured so as to qualify the Notes for Tier 2
capital treatment as provided in Section 2.3, and if thereafter any
Event of Default shall occur and be continuing under Section 7.1,
the Majority Holders may declare the Notes and any other amounts due Holders
hereunder immediately due and payable, whereupon the Notes and such other
amounts payable hereunder shall immediately become due and payable, without
presentments, demand, protest or notice of any kind.

 

7.3                                 Proceedings for
Enforcement.  In case any one or more
Events of Default shall have occurred and be continuing, unless such Events of
Default shall have been waived in the manner provided in Section 11.2
hereof, Majority Holders, subject to the terms of the

 

11

 

subordination provisions of the Note, may proceed to protect and
enforce their rights pursuant to the dispute resolution mechanisms contained in
Section 10 of this Agreement.

 

SECTION 8

 

CLOSING DELIVERIES AND
CONDITIONS TO

COMPANY’S OBLIGATIONS TO CLOSE

 

8.1                                 Closing Deliveries
to the Purchasers.

 

(A)                              The documents and other
items listed below shall be duly authorized, executed and delivered by the
Company to the Initial Purchasers or the Subsequent Purchases, as applicable,
on, before or promptly following their respective Closing Date:

 

(1)                                  This Agreement;

 

(2)                                  In the case of the
Initial Closing the Initial Notes; and

 

(3)                                  In
the case of a Subsequent Closing, the applicable Subsequent Note(s).

 

8.2                                 Conditions to
Closing of Company. The obligations of the Company to sell Initial Notes on
the Closing Date to any potential Purchaser, and the obligations of the Company
to sell any Subsequent Notes on a Subsequent Closing Date to any potential
Subsequent Purchaser, are subject to the satisfaction of all conditions
precedent set forth in this Section 8.2 as of the applicable
Closing Date.

 

(A)                              The documents and other
items listed below shall be duly authorized, executed and delivered to the
Company by such Purchaser on or before the Closing Date and shall be in full
force and effect as of the Closing Date.

 

(i)                                     This Agreement and
the Purchaser’s subscription agreement and investment questionnaire;

 

(ii)                                  If
required by the Company, signature and incumbency certificates of the officers
or other authorized signatories of the Initial Purchasers or the Subsequent
Purchaser, as applicable, that are not natural persons executing the
Transaction Documents.

 

(iii)                               In
the case of a Subsequent Closing, the applicable Counterpart(s);

 

(B)                                With respect to the
Initial Closing, the Initial Purchaser shall have delivered the purchase price
for the Initial Notes as specified in Exhibit A hereto.  With respect to a Subsequent Closing, the
applicable Subsequent Purchaser(s) shall have delivered the purchase price
for their Subsequent Notes.

 

12

 

(C)                                The Company shall have
determined, in its sole discretion, to accept the subscription agreement of,
and to sell Notes to, the applicable Purchaser (and shall not have revoked such
determination and acceptance).

 

(D)                               The Board shall have
authorized the Company to enter into this Agreement.

 

SECTION 9

 

SUBORDINATION

 

The Indebtedness of the Company evidenced by this
Agreement and the Notes, including the principal, interest, if any, shall be
subordinated and junior in right of payment to the holders of the Senior
Indebtedness. In the event that any default occurs in the payment of principal,
interest, if any, on any Senior Indebtedness and, as a result thereof, (i) a
judicial proceeding shall have been instituted with respect to such defaulted
payment or (ii) the holders of the Senior Indebtedness can accelerate the
Senior Indebtedness and such default is continuing, then no payment shall be
made by the Company to the Holders on account of the principal, interest, if
any, on the Notes. In the event of any insolvency, receivership,
conservatorship, reorganization, readjustment of debt, marshaling of assets and
liabilities or similar proceeding or any liquidation or winding up of, or
relating to, the Company, whether voluntary or involuntary, all Senior
Indebtedness shall be entitled to be paid in full before any payment shall be
made on account of the Obligations under this Agreement or the Notes. In the
event of any such proceedings, after payment in full of all sums owing on the
Senior Indebtedness, the Holders of the Notes shall be entitled to be paid from
the remaining assets of the Company the unpaid principal, interest, if any, and
all Obligations under this Agreement before any payment or other distribution,
whether in cash, property or otherwise, shall be made on account of any capital
stock or any obligations of the Company ranking junior to the Notes and the Obligations
under this Agreement. Subject to the payment in full of the Senior
Indebtedness, the Holders of the Notes shall be subrogated to the rights of the
holders of the Senior Indebtedness to receive payment or distributions of cash,
property or other securities of the Company applicable to the Senior
Indebtedness until all amounts on the Notes and all Obligations hereunder have
been paid in full.

 

The provisions of this paragraph are intended
solely for the purpose of defining the relative rights of the Holders of the
Notes, on the one hand, and the holders of the Senior Indebtedness, on the
other hand, and nothing herein shall impair the obligation of the Company,
which is absolute and unconditional, to pay the principal, interest, if any, on
the Notes.

 

SECTION 10

 

DISPUTE RESOLUTION

 

10.1                           Any claim of, or dispute or
controversy involving, the Company, a Purchaser, a Holder (including any former
Holder) or another party to or beneficiary of the Transaction Documents (each a
“Party” and, collectively the “Parties”) arising out of, connected with or
relating to this Agreement or the Transaction Documents, the subject matter of
this Agreement or

 

13

 

the Transaction Documents, their formation or
execution, or any right or obligation created by this Agreement or the
Transaction Documents, irrespective of the legal theory or claims underlying
such claim, dispute, or controversy (including tort or statutory claims) ( any “Dispute”),
shall be resolved in accordance with this Section.

 

10.2                           Dispute Notice.  The Party asserting the
Dispute will give prompt notice to the other Party describing the Dispute in
reasonable detail (“Dispute Notice”).

 

10.3                           Informal Proceedings.  Prior to
the initiation of formal dispute resolution procedures, the Parties shall first
attempt to resolve their dispute informally. 
Towards that end, promptly after receipt of the Dispute Notice, the
Parties, personally or through party representatives, will negotiate in good
faith to resolve the Dispute.  The
specific format for the discussions shall be left to the discretion of the
designated representatives.

 

10.4                           Formal Proceedings.  Formal proceedings for the
resolution of a dispute pursuant to this Section may not be commenced
until the earlier of:

 

(A)                              the Parties or designated Party representatives
concluding in good faith that amicable resolution through continued negotiation
of the matter does not appear likely; or

 

(B)                                thirty (30) business days from the date of the
Dispute Notice.  (This period shall be
deemed to run notwithstanding any claim that the process described in this Section was
not followed
or completed).

 

10.5                           MANDATORY ARBITRATION.

 

(A)                               Upon demand of any Party (whether made before or
after institution of any judicial proceeding), any dispute shall be referred to
arbitration, and the final decision rendered shall be binding upon the Parties
to this Agreement.  Disputes include,
without limitation, tort claims, counterclaims, disputes as to whether a matter
is subject to binding arbitration, claims brought as class actions, claims
relating to any Transaction Document executed in the future, or claims arising
out of or connected with the transaction reflected by any Note.

 

(B)                               To the extent not specified or modified hereafter, arbitration
shall be conducted under and governed by the Commercial Arbitration Rules (the
“Arbitration Rules”) promulgated by the American Arbitration Association (“AAA”),
the Securities Arbitration Supplementary Procedures promulgated by the AAA, and
Chapter 48 of Title 15 of the Code of Laws of South Carolina, as amended (the
South Carolina Uniform Arbitration Act). 
All arbitration hearings shall be conducted in Greenville County, South
Carolina.  The Expedited Procedures set
forth in the Arbitration Rules shall be applicable to claims of less than
One Hundred Thousand ($100,000.00) Dollars. 
All applicable statutes of limitation shall apply to a dispute.  A judgment upon the award may be entered in
any court having jurisdiction over the Party.

 

(C)                               Where the claim amounts to or exceeds One Hundred
Thousand ($100,000.00) Dollars, the arbitration shall be conducted before three
arbitrators, who shall be licensed attorneys in the State of South
Carolina.  All plaintiffs/claimants in
the action shall be

 

14

 

permitted the selection of one arbitrator and
all defendants/respondents shall be permitted the selection of the second
arbitrator.  (For purposes of selection
of the arbitrators, third-party, counter, or cross claimants shall not be
recognized).  The two, selected
arbitrators shall then select the third arbitrator.

 

(D)                               Where the claim is less than One Hundred Thousand
($100,000.00) Dollars, the arbitration shall be conducted before a single
arbitrator, who shall be a licensed attorney in the State of South
Carolina.  This arbitrator shall be
selected by mutual agreement of the Parties.

 

10.6         Litigation.

 

(A)                               In the event that the provisions hereof requiring
binding arbitration shall for any reason be deemed unenforceable (or if no
Party demands that a Dispute be submitted to binding arbitration), the Parties
agree as follows:

 

(1)          Consent to Jurisdiction.  Each Party
consents to the jurisdiction of the state courts of Greenville County, South
Carolina and the Federal Courts of the District of South Carolina, Greenville
Division.  Each Party expressly and
irrevocably consents to the jurisdiction of the aforesaid courts and waives any
defenses of lack of personal jurisdiction, improper venue, or forum non conveniens.

 

(2)          Exclusive Selection of Forum.  Any Dispute
shall be brought exclusively in the Court of Common Pleas for Greenville
County, South Carolina or in the federal courts of the District of South
Carolina, Greenville Division.

 

(3)         Waiver of
Right to Jury Trial.  Each Party waives their respective right to a
trial by jury with respect to any Dispute. 
Each Party acknowledges and understands that this wavier is a material
inducement to enter into a business relationship, that each has relied on this
waiver in entering into this Agreement and the other Transaction Documents, and
that each will continue to rely on the waiver in their related future
dealings.  Each Party represents and
warrants that each has had the opportunity of reviewing this jury waiver with
legal counsel, and that each knowingly and voluntarily waives its jury trial
rights.

 

10.7         The foregoing
obligations, contained in this Section 10, shall indefinitely survive the
expiration or earlier termination of this Agreement.

 

SECTION 11

 

MISCELLANEOUS

 

11.1                           Indemnities. In
addition to and without limiting the terms of any other provision of this
Agreement, the Company agrees to indemnify, pay and hold each Holder and their
respective officers, directors, employees, partners, agents and attorneys (the “Indemnitees”)
harmless to the fullest extent permissible under applicable law, from and
against, permitted by

 

15

 

law, any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs and expenses (including all reasonable
fees and expenses of counsel to such Indemnitees) of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against the
Indemnitees or any of them by an unrelated third party arising out of claims
asserted against the Indemnitees or any of them as a result of such Indemnitees
being parties to this Agreement or the transactions consummated pursuant to
this Agreement; provided, that the Company shall have no obligation to an
Indemnitee hereunder with respect to liabilities to the extent resulting from
the gross negligence or willful misconduct of such Indemnitee as determined by
a court of competent jurisdiction or in binding arbitration. If and to the
extent that the foregoing undertaking may be unenforceable for any reason, the
Company agrees to make the maximum contribution to the payment and satisfaction
thereof which is permissible under applicable law; provided further that this
indemnity provision shall not apply to any third party claim against
Indemnitees from any of the Indemnitees’ Affiliates, investors, limited
partners, managers, retired managers, directors, former directors, partners,
retired partners, members, retired members, shareholders or any of their family
members. This Section 11.1 and all other indemnification provisions
contained within the Transaction Documents shall survive the termination of
this Agreement.

 

11.2                           Amendments and Waivers.
Except as otherwise provided herein, no amendment, modification, termination or
waiver of any provision of this Agreement, the Notes, or any of the other
Transaction Documents, or consent to any departure by any CommunitySouth Entity
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Majority Holders and the CommunitySouth Entity; provided,
that no amendment, modification, termination or waiver shall, unless in writing
and signed by all Holders, do any of the following: (A) reduce the
principal of or the rate of interest on any Note or the fees hereunder; (B) extend
any date fixed for any payment of principal, interest or fees; (C) change
the definition of the term Majority Holders or the percentage of Holders which
shall be required for Holders to take any action hereunder; (D) amend or
waive this Section 11.2 or the definitions of the terms used in
this Section 11.2 insofar as the definitions affect the substance
of this Section 11.2; or (E) consent to the assignment,
delegation or other transfer by any CommunitySouth Entity of any of its rights
and obligations under any Transaction Documents. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No notice to or demand on the Company
shall entitle any CommunitySouth Entity to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 11.2
shall be binding upon each Holder of the Notes at the time outstanding, each
future Holder of the Notes and, if signed by the Company.

 

11.3                           Notices. Any notice
or other communication required hereunder shall be in writing addressed to the
respective party as set forth below and may be personally served, telecopied,
sent by overnight courier service or U.S. mail and shall be deemed to have been
given: (A) if delivered in person, when delivered; (B) if delivered
by telecopy, on the date of transmission if transmitted on a Business Day before
4:00 p.m. Eastern Standard Time or, if not, on the next succeeding
Business Day (in either case to the extent electronic confirmation of receipt
is received); (C) if delivered by overnight courier, one (1) Business
Day after delivery to the courier properly addressed; or (D) if delivered
by U.S. mail, upon receipt.

 

16

 

Notices shall be addressed as follows:

 

If to the Company:

 

c/o CommunitySouth Financial Corporation

6602 Calhoun Memorial Highway

Easley, South Carolina 29640

Attention: C. Allan Ducker, III

Telecopy: (864) 306-3116

 

With a copy (which shall not constitute notice) to:

 

c/o Nelson Mullins Riley & Scarborough, LLP

104 South Main Street, Suite 900

Greenville, South Carolina 29601

Attention: Neil E. Grayson, Esq.

Telecopy: (864) 250-2359

 

If to any Holder:

 

To the address set forth in such Holder’s subscription agreement with
respect to the Notes or to such other address as shall be designated in a
written notice to the Company.

 

11.4                           Failure or Indulgence Not
Waiver; Remedies Cumulative. No failure or delay on the part of any Holder
to exercise, nor any partial exercise of, any power, right or privilege
hereunder or under any other Transaction Document shall impair such power,
right, or privilege or be construed to be a waiver of any Default or Event of
Default. All rights and remedies existing hereunder or under any other
Transaction Documents are cumulative to and not exclusive of any rights or
remedies otherwise available.

 

11.5                           Marshaling; Payments Set
Aside. No Holder shall be under any obligation to marshal any assets in
payment of any or all of the Obligations. To the extent that the Company makes
payment(s) or any Holder exercises its right of set-off, and such payment(s) or
the proceeds of such set-off are subsequently invalidated, declared to be
fraudulent or preferential, set aside, or required to be repaid by anyone, then
to the extent of such recovery, the Obligations or part thereof originally
intended to be satisfied, and all rights and remedies therefor, shall be
revived and continued in full force and effect as if such payment had not been
made or such set-off had not occurred.

 

11.6                           Severability. The
invalidity, illegality, or unenforceability in any jurisdiction of any
provision under the Transaction Documents shall not affect or impair the
remaining provisions in the Transaction Documents.  If any provision herein is declared invalid,
this

 

17

 

Agreement shall be deemed to be amended to replace, to the extent
legally possible, the rights and obligations contained in the invalid
provision. The invalidity of any provision is not a failure of consideration
hereunder.

 

11.7                           Holders’ Obligations Several;
Independent Nature of Holders’ Rights. The obligation of each Holder
hereunder is several and not joint and no Holder shall be responsible for the
obligation or commitment of any other Holder hereunder. Nothing contained in
any Transaction Documents and no action taken by any Holder pursuant hereto or
thereto shall be deemed to constitute Holders to be a partnership, an
association, a joint venture or any other kind of entity. The amounts payable
at any time hereunder to each Holder shall be separate and independent debts.

 

11.8                           Headings. Section and
subsection headings are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purposes or be
given substantive effect.

 

11.9                           Applicable Law. This Agreement
and the other Transaction Documents shall be governed by and shall be
interpreted, construed, and enforced in accordance with the laws of the State
of South Carolina, without regard to conflicts of law principles. This
Agreement, the Transaction Documents, and all transactions contemplated herein
shall be subject to the provisions of the Securities Act, to the extent
required by law. To the extent the preceding choice of law provision is in
conflict with the requirements of the Securities Act, the Securities act shall
govern the construction, interpretation, and enforcement of the Agreement and
the other Transaction Documents.

 

11.10                     Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns (including any Holder); provided,
that no CommunitySouth Entity may assign any of its rights or obligations
hereunder without the written consent of all Holders except pursuant to Section 3.2.

 

11.11                     Construction. The Purchasers
and the Company acknowledge that each of them has had the opportunity to
consult legal counsel of its own choice and has been afforded an opportunity to
review the Transaction Documents with its legal counsel and that the
Transaction Documents shall be construed as if jointly drafted by the
Purchasers and the Company.

 

11.12                     Confidentiality. The
Purchasers agree to use their best efforts to keep confidential any
confidential information delivered pursuant to the Transaction Documents and
not to use or disclose such information to Persons other than those employed by
or engaged by the Purchasers and those employed by or engaged by the Purchasers’
assignees or participants, or potential assignees or participants, in each
case, who have agreed to keep such information confidential. This Section 11.12
shall not apply to disclosures required to be made by the Purchasers to any
regulatory or Governmental Authority or pursuant to legal process; provided,
that unless prohibited by law or process, the Purchasers shall use commercially
reasonable efforts to notify the Company of its confidential information is to
be disclosed and to cooperate in the efforts of the Company to limit or
prohibit disclosure. The obligations of the Purchasers under this Section 11.12

 

18

 

 shall be in addition to and
shall not supersede and replace the obligations of the Purchasers under any
other obligation in respect of this financing that existed prior to the date
hereof.

 

11.13                     Survival of Warranties and
Certain Agreements. Unless otherwise provided by their terms, the
representations and warranties made herein shall survive the execution and
delivery of this Agreement for a period of one (1) year from the date
hereof (except for Section 5.4, which shall survive indefinitely);
provided, however, that the representations and warranties made herein shall be
used for determining the occurrence or existence of an Event of Default for as
long as any of the Notes are outstanding. Notwithstanding anything in this
Agreement or implied by law to the contrary, the agreements set forth in Section 10  and those contained in Sections 1.5
and 11.1 shall survive the repayment of the Obligations and the
termination of this Agreement. The covenants and agreements of the Company
shall exist and remain in effect to the extent and as provided in the preamble
paragraphs of each of Section 2, Section 3 and Section 4 of this
Agreement.

 

11.14                     Entire Agreement. This
Agreement, the Notes, and the other Transaction Documents embody the entire
agreement among the parties hereto and supersede all prior commitments,
agreements, representations, and understandings, whether oral or written,
relating to the subject matter hereof, and may not be contradicted or varied by
evidence of prior, contemporaneous or subsequent oral agreements or discussions
of the parties hereto.

 

11.15                     Counterparts; Effectiveness.
This Agreement, any Counterpart, and any amendments, waivers, consents or
supplements may be executed, including by facsimile in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute but one in the same instrument.
This Agreement shall become effective upon the execution of a counterpart
hereof by the Company and each of the Initial Purchasers.

 

11.16                     Maintenance of Register.
The Company or its duly appointed agent shall maintain a register for the Notes
in which it shall register the issuance and transfer of the Notes. All
transfers of the Notes shall be recorded on the register maintained by the
Company or its agent, and the Company shall be entitled to regard the
registered holder of such Note as the actual owner of the Note so registered
until the Company or its agent is required to record a transfer of such Note on
its register. The Company or its agent shall be required to record any such
transfer when it receives the Note to be transferred duly and properly endorsed
by the registered holder thereof or by its attorney duly authorized in writing.

 

SECTION 12

 

DEFINITIONS

 

12.1                           Certain Defined Terms.
The terms defined below are used in this Agreement as so defined. Terms defined
elsewhere in this Agreement are used in this Agreement as so defined.

 

“Affiliate” means any Person (a) directly
or indirectly controlling, controlled by, or under common control with, the
Company; (b) directly or indirectly owning or holding ten percent (10%) or
more of any Equity Securities or the Company; or (c) ten percent (10%) or 

 

19

 

more of whose voting stock or other Equity Securities are directly or
indirectly owned or held by the Company. For purposes of this definition, “control”
(including with correlative meanings, the terms “controlling”, “controlled by”
and “under common control with”) means the possession directly or indirectly of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or by contract or
otherwise. Notwithstanding the foregoing, neither any Holder nor any of their
respective Affiliates shall be considered an Affiliate of the Company or any of
their Subsidiaries.

 

“Agreement” means this Agreement (including
all schedules, annexes and exhibits hereto), as the same may from time to time
be amended, supplemented or otherwise modified.

 

“Bank” means CommunitySouth Bank and Trust.

 

“Bankruptcy Code” means Title 11 of the
United States Code entitled “Bankruptcy”, as amended from time to time or any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect and all rules and regulations promulgated thereunder.

 

“Board” means the board of directors of the
Company.

 

“Business Day” means any day excluding
Saturday, Sunday and any day which is a legal holiday under the laws of the
State of South Carolina, or is a day on which banking institutions located in
the State of South Carolina are closed.

 

“CommunitySouth Entities” means,
collectively, the Company and the Bank, and “CommunitySouth Entity” means any
one of the foregoing “CommunitySouth Parties.”

 

“Company” has the meaning ascribed to such
term in the preamble of this Agreement.

 

“Default” means a condition or event that,
after notice or lapse of time or both, would constitute an Event of Default if
that condition or event were not cured or removed within any applicable grace
or cure period.

 

“Equity Securities” means all shares of
capital stock (whether denominated as common stock, preferred stock, common
units, preferred units or otherwise), equity interests, beneficial, partnership
or membership interests, joint venture interests, participations or other
ownership or profit interests in or equivalents (regardless of how designated)
of or in a Person (other than an individual), whether voting or non-voting.

 

“Event of Default” has the meaning ascribed
to that term in Section 7.1.

 

“Exchange Act” means the Securities Exchange
Act of 1934, and the regulations promulgated thereunder.

 

“FDIC” means the Federal Deposit Insurance
Corporation.

 

20

 

“FRB” shall have the meaning ascribed to such
term in the recitals hereto and shall include any other Governmental Authority
that serves as the primary federal regulator of Company from time to time while
the Notes are outstanding.

 

“GAAP” means generally accepted accounting
principles as set forth in statements from Auditing Standards No. 69
entitled “The Meaning of ‘Present Fairly in Conformance with Generally Accepted
Accounting Principles in the Independent Auditors Reports’” issued by the
Auditing Standards Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination.

 

“Governmental Authority” means any nation or
government, any state or other political subdivision thereof, any central bank
(or similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.

 

“Holder” means any holder of a Note.

 

“Indebtedness” as applied to any Person,
means: (a) all indebtedness for borrowed money; (b) that portion of
obligations with respect to capital leases that is properly classified as a
liability on a balance sheet in conformity with GAAP; (c) any obligation
under any lease treated as an operating lease under GAAP and as a loan or
financing for United States income tax purposes or creditors rights purposes; (d) all
obligations evidenced by bonds, debentures, notes or similar instrument or upon
which interest charges are customarily paid; (e) any obligation owed for
all or any part of the deferred purchase price of property or services other
than current accounts payable and accrued expenses arising in the ordinary
course of business and not more than ninety (90) days overdue; (f) “earnouts”
and similar payment obligations; and (g) all indebtedness secured by any
Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that
Person, or is nonrecourse to the credit of that Person, provided, that
in the case of indebtedness pursuant to this clause (g) which is
non-recourse, the amount of such indebtedness shall be limited to the value of
property and assets securing such indebtedness.

 

“Indemnitees” has the meaning ascribed to
such term in Section 11.1.

 

“Initial Closing” has the meaning ascribed to
such term in subsection 1.1(B).

 

“Initial Closing Date” has the meaning ascribed
to such term in subsection 1.1(B).

 

“Initial Notes” has the meaning ascribed to
such term in subsection 1.1(A).

 

“Lien” means any lien, mortgage, pledge,
security interest, charge, encumbrance or governmental levy or assessment of
any kind, whether voluntary or involuntary (including any conditional sale or
other title retention agreement and any lease in the nature thereof), and any
agreement to give any lien, mortgage, pledge, security interest, charge or
encumbrance.

 

21

 

“Majority Holders” means Holders holding more
than fifty percent (50%) of the aggregate then outstanding principal balance of
the Notes.

 

“Material Adverse Effect” means (a) a
material adverse effect upon the business, operations, properties, assets or
financial condition of the CommunitySouth Entities, taken as a whole or (b) the
material impairment of the ability of the Company to perform its obligations
under any Transaction Document to which it is a party or of any Holder to
enforce any Transaction Document or collect any of the Obligations; provided,
that the meaning shall exclude any changes from general economic, industry,
market or competitive conditions, interest rates, or changes in law, rules or
regulations affecting Persons in the CommunitySouth Entities’ industries. In
determining whether any individual event would result in a Material Adverse
Effect, notwithstanding that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred if the cumulative
effect of such event and all other then existing events would result in a
Material Adverse Effect.

 

“Maturity Date” has the meaning ascribed to
such term in subsection 1.4(B).

 

“Notes” has the meaning ascribed thereto in subsection
1.1(A).

 

“Obligations” means all obligations,
liabilities and Indebtedness of every nature of each CommunitySouth Entity from
time to time owed to any Holder under the Transaction Documents, including the
principal amount of all debts, claims and Indebtedness, accrued and unpaid
interest and all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable whether before or after the filing of a
proceeding under the Bankruptcy Code by or against any CommunitySouth Entity.

 

“Organizational Documents” means, (a) for
any corporation, the certificate or articles of incorporation, the bylaws, any
certificate of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, (b) for
any partnership, the partnership agreement and, if applicable, certificate of
limited partnership, (c) for any limited liability company, the operating
agreement and articles or certificate of formation or (d) any other
document setting forth the manner of election or duties of the officers,
directors, managers or other similar persons, or the designation, amount or
relative rights, limitations and preference of the Equity Securities of a
Person.

 

“Person” means and includes natural persons,
corporations, limited liability companies, limited partnerships, limited
liability partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof and their
respective permitted successors and assigns (or in the case of a governmental
person, the successor functional equivalent of such Person).

 

“Purchaser” and “Purchasers” have the meaning
ascribed to such terms in the preamble.

 

22

 

“Regulatory Authorities” means the FDIC and the
SCBFI.

 

“Related Transactions” means the execution
and delivery of the Transactions Documents, the purchase and sale of the
Initial Notes on the Closing Date, and the payment of all fees, costs and
expenses associated with all of the foregoing.

 

“SEC” means the U.S. Securities and Exchange
Commission.

 

“Securities Act” means the Securities Act of
1933, and the regulations promulgated thereunder.

 

“Senior Indebtedness” means, with respect to
the Company, (i) the principal, and interest in respect of (A) indebtedness
for borrowed money and (B) indebtedness evidenced by securities,
debentures, notes, bonds or other similar instruments issued by the Company; (ii) all
capitalized 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, 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 Agreement or thereafter incurred, unless, with the prior approval of
the FRB 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 subordinated or are pari
passu in right of payment to the Notes.

 

“Subsidiaries” shall have the meaning
provided in Rule 405 of the Securities Act, as amended, and includes all
direct and indirect subsidiaries of a Person.

 

“Tax” or “Taxes” means any federal, state,
county, local, foreign or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, membership or
partnership interest, license, payroll, wage or other withholding, employment,
social security, severance, stamp, occupation, alternative or add-on minimum,
estimated and other taxes of any kind whatsoever (including deficiencies,
penalties, additions to tax, and interest attributable thereto) whether
disputed or not.

 

“Tier 2 Capital” has the definition provided
in, and shall be determined in accordance with, the rules and regulations
of the FRB.

 

23

 

“Transaction Documents” means this Agreement,
the Notes, and all other instruments, documents and agreements executed by or
on behalf of the Company and delivered concurrently herewith or at any time
hereafter to or for the benefit of any Holder in connection with the transactions
contemplated by this Agreement, all as amended, supplemented or modified from
time to time.

 

12.2                           Other Definitional
Provisions. References to “Sections,” “subsections,” “Exhibits,” “Schedules”
and “sub schedules” shall be to Sections, subsections, Exhibits, Schedules and
sub schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 11.1 may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. References to an agreement shall include all amendments,
restatements, modifications and supplements to such agreement, subject to such
consents or approvals of Holders as may be required by the terms of this
Agreement. In this Agreement, “hereof,” “herein,” “hereto,” “hereunder” and the
like mean and refer to this Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears; words
importing any gender include the other gender; references to “writing” include
printing, typing, lithography and other means of reproducing words in a
tangible visible form; the words “including,” “includes” and “include” shall be
deemed to be followed by the words “without limitation”; the word “or” shall
not be deemed to be exclusive; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments,
assignments and other modifications are not prohibited by the terms of this
Agreement or any other Transaction Documents; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such Persons;
and all references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations.

 

[Remainder of page blank; signature pages follow]

 

24

 

Witness the due execution hereof by the
undersigned as of the date and year first written above.

 

 

	
   

  	
  COMMUNITY SOUTH FINANCIAL

  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: 

  	
  C. Allan Ducker

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
					

 

 

[Purchaser signatures are on
the pages that follow]

 

25

 

The foregoing CommunitySouth Financial Corporation 11.5% Subordinated
Note Purchase Agreement is hereby accepted as of the date and year first above
written on such Agreement.

 

 

	
  PURCHASER SIGNATURE

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  

 

 

[Continuation of CommunitySouth
Financial Corporation 11.5% Subordinated Note Purchase Agreement Signature
Page]

 

 

EXHIBIT B

 

[FORM OF NOTE]

 

 

THIS NOTE AND THE SUBORDINATED NOTE PURCHASE AGREEMENT
REFERENCED AND INCORPORATED HEREIN IS SUBJECT TO ARBITRATION PURSUANT TO THE
SOUTH CAROLINA UNIFORM ARBITRATION ACT.: SC CODE ANN. §15-48-10 ET SEQ. AND THE FEDERAL ARBITRATION ACT 9
U.S.C. 1  ET SEQ.

 

The issuance of this Subordinated Note has
not been registered under the Securities Act of 1933 or applicable state laws,
and this Note may not be sold or transferred except in a transaction that is
exempt under such laws or pursuant to an effective registration under such
laws.

 

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 senior indebtedness of the Company and is not
secured.

 

11.5% SUBORDINATED NOTE DUE
2018

 

$[              ]
   [INSERT APPLICABLE CLOSING DATE], 2008

 

FOR VALUE RECEIVED, the undersigned, COMMUNITYSOUTH FINANCIAL
CORPORATION, a South Carolina corporation (the “Company”), hereby promises to
pay to the order of [
                              ], an [individual resident of South Carolina]
(“Purchaser”), at its offices at 6602 Calhoun Memorial Highway, Easley, South
Carolina 29640 (or at such other place as the holder may from time to time
designate) the principal sum of [                    ($            )] on September 30, 2018 (the “Maturity
Date”) (or such date as the Company may prepay the principal sum pursuant to Section 1.4
of the Note Purchase Agreement (as defined below) or any earlier date of
acceleration of the Maturity Date), and to pay interest accrued on the
outstanding principal amount of this 11.5% Subordinated Note Due 2018 (the “Note”)
from [INSERT APPLICABLE CLOSING DATE], 2008, or from the most recent Interest
Payment Date (as defined below) to which interest has been paid or duly
provided for, quarterly on the first day of each calendar quarter, commencing
on [October 1, 2008(1)] (each, an “Interest Payment Date”), at a rate per
annum of 11.5% (or such rate of interest as then in affect pursuant to Section 1.2
of the Note Purchase Agreement) until the principal hereof shall have been paid
or duly provided for, compounded quarterly.

 

This Note is one of the Notes referred to in the Subordinated Note
Purchase Agreement (as may be amended, modified, or restated from time to
time), dated as of August 22, 2008, by and among the Company and the
purchasers of the Company’s 11.5% Subordinated Notes Due 2018 (the “Note
Purchase Agreement”). Capitalized terms used in this Note are defined in the
Note

 

(1) If a Note were sold in a Closing after October 1, 2008,
then this date would be January 1, 2009.

 

 

Purchase Agreement, unless otherwise expressly stated herein. This Note
is entitled to the benefits of the Note Purchase Agreement and is subject to
all of the agreements, terms and conditions contained therein, all of which are
incorporated herein by this reference. This Note may be prepaid, in whole or in
part, in accordance with the terms and conditions set forth in the Note
Purchase Agreement.

 

The outstanding principal balance of this Note shall be due and payable
as provided in Section 1.4 of the Note Purchase Agreement. Interest on the
principal amount of this Note from time to time outstanding, and other amounts
owing, shall be due and payable as provided in Section 1.2 of the Note
Purchase Agreement (computed on the basis of the actual number of days elapsed
over a 365/366-day year). In no event, however, shall interest exceed the
maximum rate permitted by law.

 

If an Event of Default involving bankruptcy provided for under Section 7.1(F) of
the Note Purchase Agreement occurs, then the principal of, interest accrued on,
and other Obligations payable under the Notes and the Transaction Documents
will immediately become due and payable. Notwithstanding anything to the
contrary herein or in the Note Purchase Agreement, other than Section 7.1(F) of
the Note Purchase Agreement, there is no right of acceleration for any Default,
including a default in the payment of principal or interest or the performance
of any other covenant or obligation by the Company, or Event of Default under
this Note or the Note Purchase Agreement.

 

This Note is not secured by any assets or commitments of the Company.
This Note is a debt of the Company only and is not an obligation of
CommunitySouth Bank and Trust or any of its affiliates.

 

The Indebtedness of the Company evidenced by this Note, including the
principal, interest and premium, if any, is, to the extent and in the manner
set forth in the Note Purchase Agreement, unsecured, subordinated and junior in
right of payment to its obligations to holders of Senior Indebtedness, as
defined in the Note Purchase Agreement, and each holder of the Notes, by the
acceptance hereof, agrees to and shall be bound by such provisions of the Note
Purchase Agreement.

 

THIS NOTE SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF SOUTH CAROLINA, WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES.

 

BINDING ARBITRATION.
UPON DEMAND OF ANY PARTY (AS DEFINED IN THE NOTE PURCHASE AGREEMENT) (THE
TERM PARTY INCLUDES, WITHOUT LIMITATION, ANY SUBSEQUENT HOLDER OF THIS
NOTE),WHETHER SUCH DEMAND IS MADE BEFORE OR AFTER INSTITUTION OF ANY
JUDICIAL  PROCEEDING, ANY DISPUTE, CLAIM
OR CONTROVERSY ARISING OUT OF, CONNECTED WITH OR RELATING TO THIS NOTE AND/OR
ANY OTHER TRANSACTION DOCUMENT, THEIR SUBJECT MATTER OR FORMATION OR EXECUTION,
OR ANY RIGHT OR OBLIGATION CREATED THEREBY, IRRESPECTIVE 

 

 

OF THE LEGAL THEORY OR CLAIMS UNDERLYING SUCH DISPUTE, CLAIM OR CONTROVERSY
(INCLUDING TORT OR STATUTORY CLAIMS) (ANY “DISPUTE”) BETWEEN OR AMONG ANY
PARTIES SHALL BE RESOLVED BY BINDING ARBITRATION AS PROVIDED IN SECTION 10
OF THE REFERENCED NOTE PURCHASE AGREEMENT INCORPORATED HEREIN. INSTITUTION OF A
JUDICIAL PROCEEDING BY A PARTY DOES NOT WAIVE THE RIGHT OF THAT PARTY TO DEMAND
ARBITRATION HEREUNDER. DISPUTES MAY INCLUDE, WITHOUT LIMITATION, TORT
CLAIMS, COUNTERCLAIMS, DISPUTES AS TO WHETHER A MATTER IS SUBJECT TO
ARBITRATION, CLAIMS BROUGHT AS CLASS ACTIONS, CLAIMS RELATING TO ANY
TRANSACTION DOCUMENT EXECUTED IN THE FUTURE, OR CLAIMS ARISING OUT OF OR
CONNECTED WITH THE TRANSACTION REFLECTED BY THIS NOTE.

 

EXCLUSIVE VENUE SELECTION.
IN THE EVENT THE PRIOR BINDING ARBITRATION IS FOUND TO BE UNENFORCEABLE (OR IF
NO PARTY DEMANDS ARBITRATION), ANY DISPUTE ARISING BETWEEN OR AMONG ANY PARTIES
SHALL BE BROUGHT EXCLUSIVELY IN THE COURT OF COMMON PLEAS FOR GREENVILLE
COUNTY, SOUTH CAROLINA OR IN THE FEDERAL COURTS OF THE DISTRICT OF SOUTH
CAROLINA, GREENVILLE DIVISION.

 

CONSENT TO JURISDICTION.
EACH PARTY CONSENTS TO THE JURISDICTION OF THE STATE COURTS OF GREENVILLE
COUNTY, SOUTH CAROLINA AND THE FEDERAL COURTS OF THE DISTRICT OF SOUTH
CAROLINA, GREENVILLE DIVISION. EACH PARTY EXPRESSLY AND IRREVOCABLY CONSENTS TO
THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSES OF LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS.

 

EACH PARTY WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
DISPUTE. EACH PARTY ACKNOWLEDGES THAT THIS WAVIER IS A MATERIAL INDUCEMENT FOR
COMPANY AND PURCHASER TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE AND THE OTHER TRANSACTION
DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. PURCHASER, ANY SUBSEQUENT HOLDERS AND THE COMPANY REPRESENT
AND WARRANT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER
WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS.

 

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

 

The undersigned expressly waives any presentment, demand, protest,
notice of default, notice of intention to accelerate, notice of acceleration or
notice of any other kind except as expressly provided in the Note Purchase
Agreement.

 

 

This Note is executed as of the date first written above.

 

 

	
   

  	
  COMMUNITYSOUTH FINANCIAL CORPORATION,

  
	
   

  	
  a South
  Carolina corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Allan Ducker, III

  
	
   

  	
   

  
	
   

  	
  Title: Chief Executive Officer

  
				

 

 

REVERSE OF SECURITY

 

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

 

Subject to the terms and conditions of the Note Purchase Agreement,
this Note is transferable by the holder hereof on the register maintained by
the Company, or its agent, upon surrender of this Note for registration of
transfer at the office of the Company duly executed by the holder hereof or
such holder’s attorney duly authorized in writing, and thereupon one or more
new Notes of authorized denominations and for the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be made for any such registration of transfer.

 

Prior to due presentment for registration of transfer of this Note, the
Company, or its agent, may deem and treat the holder hereof as the absolute
owner hereof for the purpose of receiving payment of the principal of and
premium, if any, and interest on this Note and for all other purposes, and
neither the Company, nor its agent, shall be affected by any notice to the
contrary.

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