Document:

ANNEX
A

     

    CERTIFICATE
OF DESIGNATIONS OF

     

    FIXED
RATE CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A

     

    OF

     

    CITIZENS
SOUTH BANKING CORPORATION

     

    CITIZENS
SOUTH BANKING CORPORATION, a corporation organized and existing under the
laws of the State
of Delaware (the “Corporation”), in
accordance with the provisions of Section 151(g) of the General Corporation Law
of the State of Delaware thereof, does hereby certify:

     

    The board
of directors of the Corporation (the “Board of Directors”),
in accordance with the certificate of incorporation and bylaws of the
Corporation and applicable law, adopted the following resolution on December 4,
2008 creating a series of 20,500 shares of Preferred Stock of the Corporation
designated as “Fixed
Rate Cumulative Perpetual Preferred Stock, Series A”.

     

    RESOLVED, that pursuant to the
provisions of the certificate of incorporation and the bylaws of the Corporation
and applicable law, a series of Preferred Stock, par value $0.01 per share, of
the Corporation be and hereby is created, and that the designation and number of
shares of such series, and the voting and other powers, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations and restrictions thereof, of the shares of such series, are as
follows:

     

    Part 1.
Designation and Number
of Shares. There is hereby created out of the authorized and unissued
shares of preferred stock of the Corporation a series of preferred stock
designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series A”
(the “Designated
Preferred Stock”). The authorized number of shares of Designated
Preferred Stock shall be 20,500.

     

    Part 2.
Standard
Provisions. The Standard Provisions contained in Annex A attached hereto
are incorporated herein by reference in their entirety and shall be deemed to be
a part of this Certificate of Designations to the same extent as if such
provisions had been set forth in full herein.

     

    Part. 3.
Definitions.
The following terms are used in this Certificate of Designations (including the
Standard Provisions in Annex A hereto) as defined below:

     

    (a)            “Common Stock” means
the common stock, par value $0.01 per share, of the Corporation.

     

    (b)            “Dividend Payment
Date” means February 15, May 15, August 15 and November 15 of each
year.

    

    (c)           “Junior Stock” means
the Common Stock, and any other class or
series of stock of the Corporation the terms of which expressly provide that it
ranks junior to Designated Preferred Stock as to dividend rights and/or as to
rights on liquidation, dissolution or winding up of the
Corporation.

     

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    (d)            “Liquidation Amount”
means $1,000 per share of Designated Preferred Stock.

     

    (e)            “Minimum Amount” means
$5,125,000

     

    (f)            “Parity Stock” means
any class or series of stock of the Corporation (other than Designated Preferred
Stock) the terms of which do not expressly provide that such class or series
will rank senior or junior to Designated Preferred Stock as to dividend rights
and/or as to rights on liquidation, dissolution or winding up of the Corporation
(in each case without regard to whether dividends accrue cumulatively or
non-cumulatively).

     

    (g)            “Signing Date”
means December 12,
2008.

     

    Part. 4.
Certain Voting
Matters. Holders of shares of
Designated Preferred Stock will be entitled to one vote for each such share on
any matter on which holders of Designated Preferred Stock are entitled to vote,
including any action by written consent.

     

    [Remainder
of Page Intentionally Left Blank]

     

    
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    IN
WITNESS WHEREOF, Citizens South Banking Corporation has caused this Certificate
of Designations to be signed by Kim S. Price, its President and Chief Executive
Officer, this 10th day of December, 2008.

     

    CITIZENS
SOUTH BANKING CORPORATION

    

    
      
        
          
            	
                    By:

                  	      
                    /s/
      Kim S. Price

                  
	 
      	
                    Name:

                  	
                    Kim
      S. Price

                  
	 
      	
                    Title:

                  	
                    President
      and Chief Executive
Officer

                  

          

        

      

    

     

    
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    ANNEX
A

     

    STANDARD
PROVISIONS

     

    Section
1. General
Matters. Each share of Designated Preferred Stock shall be identical in
all respects to every other share of Designated Preferred Stock. The Designated
Preferred Stock shall be perpetual, subject to the provisions of Section 5 of
these Standard Provisions that form a part of the Certificate of Designations.
The Designated Preferred Stock shall rank equally with Parity Stock and shall
rank senior to Junior Stock with respect to the payment of dividends and the
distribution of assets in the event of any dissolution, liquidation or winding
up of the Corporation.

     

    Section
2. Standard
Definitions. As used herein with respect to Designated Preferred
Stock:

     

    (a)            “Applicable Dividend
Rate” means (i) during the period from the Original Issue Date to, but
excluding, the first day of the first Dividend Period commencing on or after the
fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and
after the first day of the first Dividend Period commencing on or after the
fifth anniversary of the Original Issue Date, 9% per annum.

     

    (b)            “Appropriate Federal Banking
Agency” means the “appropriate Federal banking agency” with respect to
the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act
(12 U.S.C. Section 1813(q)), or any successor provision.

     

    (c)            “Business Combination”
means a merger, consolidation, statutory share exchange or similar transaction
that requires the approval of the Corporation's stockholders.

     

    (d)            “Business Day” means
any day except Saturday, Sunday and any day on which banking institutions in the
State of New York generally are authorized or required by law or other
governmental actions to close.

     

    (e)            “Bylaws” means the
bylaws of the Corporation, as they may be amended from time to
time.

     

    (f)            “Certificate of
Designations” means the Certificate of Designations or comparable
instrument relating to the Designated Preferred Stock, of which these Standard
Provisions form a part, as it may be amended from time to time.

     

    (g)            “Charter” means the
Corporation's certificate or articles of incorporation, articles of association,
or similar organizational document.

     

    (h)             “Dividend Period” has
the meaning set forth in Section 3(a).

     

    (i)             “Dividend Record Date”
has the meaning set forth in Section 3(a).

     

    (j)             “Liquidation
Preference” has the meaning set forth in Section 4(a).

     

    
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    (k)            “Original Issue Date”
means the date on which shares of Designated Preferred Stock are first
issued.

     

    (1)             “Preferred Director”
has the meaning set forth in Section 7(b).

     

    (m            “Preferred Stock”
means any and all series of preferred stock of the Corporation, including the
Designated Preferred Stock.

     

    (n)            “Qualified Equity
Offering” means the sale and issuance for cash by the Corporation to
persons other than the Corporation or any of its subsidiaries after the Original
Issue Date of shares of perpetual Preferred Stock, Common Stock or any
combination of such stock, that, in each case, qualify as and may be included in
Tier 1 capital of the Corporation at the time of issuance under the applicable
risk-based capital guidelines of the Corporation's Appropriate Federal Banking
Agency (other than any such sales and issuances made pursuant to agreements or
arrangements entered into, or pursuant to financing plans which were publicly
announced, on or prior to October 13, 2008).

     

    (o)             “Share Dilution
Amount” has the meaning set forth in Section 3(b).

     

    (p)            “Standard Provisions”
mean these Standard Provisions that form a part of the Certificate of
Designations relating to the Designated Preferred Stock.

     

    (q)             “Successor Preferred
Stock” has the meaning set forth in Section 5 (a).

     

    (r)            “Voting Parity Stock”
means, with regard to any matter as to which the holders of Designated Preferred
Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these
Standard Provisions that form a part of the Certificate of Designations, any and
all series of Parity Stock upon which like voting rights have been conferred and
are exercisable with respect to such matter.

     

    Section
3. Dividends.

     

    (a)            Rate. Holders of
Designated Preferred Stock shall be entitled to receive, on each share of
Designated Preferred Stock if, as and when declared by the Board of Directors or
any duly authorized committee of the Board of Directors, but only out of assets
legally available therefor, cumulative cash dividends with respect to each
Dividend Period (as defined below) at a rate per annum equal to the Applicable
Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred
Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend
Period on such share of Designated Preferred Stock, if any. Such dividends shall
begin to accrue and be cumulative from the Original Issue Date, shall compound
on each subsequent Dividend Payment Date (i.e., no dividends shall
accrue on other dividends unless and until the first Dividend Payment Date for
such other dividends has passed without such other dividends having been paid on
such date) and shall be payable quarterly in arrears on each Dividend Payment
Date, commencing with the first such Dividend Payment Date to occur at least 20
calendar days after the Original Issue Date. In the event that any Dividend
Payment Date would otherwise fall on a day that is not a Business Day, the
dividend payment due on that date will be postponed to the next day that is a
Business Day and no additional dividends will accrue as a result of that
postponement. The period from and including any Dividend Payment Date to, but
excluding, the next Dividend Payment Date is a “Dividend Period”,
provided that the initial Dividend Period shall be the period from and including
the Original Issue Date to, but excluding, the next Dividend Payment
Date.

     

    
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    Dividends
that are payable on Designated Preferred Stock in respect of any Dividend Period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. The amount of dividends payable on Designated Preferred Stock on any
date prior to the end of a Dividend Period, and for the initial Dividend Period,
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months, and actual days elapsed over a 30-day month.

     

    Dividends
that are payable on Designated Preferred Stock on any Dividend Payment Date will
be payable to holders of record of Designated Preferred Stock as they appear on
the stock register of the Corporation on the applicable record date, which shall
be the 15th calendar day immediately preceding such Dividend Payment Date or
such other record date fixed by the Board of Directors or any duly authorized
committee of the Board of Directors that is not more than 60 nor less than 10
days prior to such Dividend Payment Date (each, a “Dividend Record
Date”). Any such day that is a Dividend Record Date shall be a Dividend
Record Date whether or not such day is a Business Day.

     

    Holders
of Designated Preferred Stock shall not be entitled to any dividends, whether
payable in cash, securities or other property, other than dividends (if any)
declared and payable on Designated Preferred Stock as specified in this Section
3 (subject to the other provisions of the Certificate of
Designations).

    

    (b)           Priority of
Dividends. So long as any share of Designated Preferred Stock remains
outstanding, no dividend or distribution shall be declared or paid on the Common
Stock or any other shares of Junior Stock (other than dividends payable solely
in shares of Common Stock) or Parity Stock, subject to the immediately following
paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or
Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise
acquired for consideration by the Corporation or any of its subsidiaries unless
all accrued and unpaid dividends for all past Dividend Periods, including the
latest completed Dividend Period (including, if applicable as provided in
Section 3(a) above, dividends on such amount), on all outstanding shares of
Designated Preferred Stock have been or are contemporaneously declared and paid
in full (or have been declared and a sum sufficient for the payment thereof has
been set aside for the benefit of the holders of shares of Designated Preferred
Stock on the applicable record date). The foregoing limitation shall not apply
to (i) redemptions, purchases or other acquisitions of shares of Common Stock or
other Junior Stock in connection with the administration of any employee benefit
plan in the ordinary course of business (including purchases to offset the Share
Dilution Amount (as defined below) pursuant to a publicly announced repurchase
plan) and consistent with past practice, provided that any purchases
to offset the Share Dilution Amount shall in no event exceed the Share Dilution
Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of
the Corporation solely for the purpose of market-making, stabilization or
customer facilitation transactions in Junior Stock or Parity Stock in the
ordinary course of its business; (iii) purchases by a broker-dealer subsidiary
of the Corporation of capital stock of the Corporation for resale pursuant to an
offering by the Corporation of such capital stock underwritten by such
broker-dealer subsidiary; (iv) any dividends or distributions of rights or
Junior Stock in connection with a stockholders' rights plan or any redemption or
repurchase of rights pursuant to any stockholders' rights plan; (v) the
acquisition by the Corporation or any of its subsidiaries of record ownership in
Junior Stock or Parity Stock for the beneficial ownership of any other persons
(other than the Corporation or any of its subsidiaries), including as trustees
or custodians; and (vi) the exchange or conversion of Junior Stock for or into
other Junior Stock or of Parity Stock for or into other Parity Stock (with the
same or lesser aggregate liquidation amount) or Junior Stock, in each case,
solely to the extent required pursuant to binding contractual agreements entered
into prior to the Signing Date or any subsequent agreement for the accelerated
exercise, settlement or exchange thereof for Common Stock. “Share Dilution
Amount” means the increase in the number of diluted shares outstanding
(determined in accordance with generally accepted accounting principles in the
United States, and as measured from the date of the Corporation's consolidated
financial statements most recently filed with the Securities and Exchange
Commission prior to the Original Issue Date) resulting from the grant, vesting
or exercise of equity-based compensation to employees and equitably adjusted for
any stock split, stock dividend, reverse stock split, reclassification or
similar transaction.

     

    
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    When
dividends are not paid (or declared and a sum sufficient for payment thereof set
aside for the benefit of the holders thereof on the applicable record date) on
any Dividend Payment Date (or, in the case of Parity Stock having dividend
payment dates different from the Dividend Payment Dates, on a dividend payment
date falling within a Dividend Period related to such Dividend Payment Date) in
full upon Designated Preferred Stock and any shares of Parity Stock, all
dividends declared on Designated Preferred Stock and all such Parity Stock and
payable on such Dividend Payment Date (or, in the case of Parity Stock having
dividend payment dates different from the Dividend Payment Dates, on a dividend
payment date falling within the Dividend Period related to such Dividend Payment
Date) shall be declared pro rata so that the respective
amounts of such dividends declared shall bear the same ratio to each other as
all accrued and unpaid dividends per share on the shares of Designated Preferred
Stock (including, if applicable as provided in Section 3(a) above, dividends on
such amount) and all Parity Stock payable on such Dividend Payment Date (or, in
the case of Parity Stock having dividend payment dates different from the
Dividend Payment Dates, on a dividend payment date falling within the Dividend
Period related to such Dividend Payment Date) (subject to their having been
declared by the Board of Directors or a duly authorized committee of the Board
of Directors out of legally available funds and including, in the case of Parity
Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to
each other. If the Board of Directors or a duly authorized committee of the
Board of Directors determines not to pay any dividend or a full dividend on a
Dividend Payment Date, the Corporation will provide written notice to the
holders of Designated Preferred Stock prior to such Dividend Payment
Date.

     

    Subject
to the foregoing, and not otherwise, such dividends (payable in cash, securities
or other property) as may be determined by the Board of Directors or any duly
authorized committee of the Board of Directors may be declared and paid on any
securities, including Common Stock and other Junior Stock, from time to time out
of any funds legally available for such payment, and holders of Designated
Preferred Stock shall not be entitled to participate in any such
dividends.

     

    
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    Section
4. Liquidation
Rights.

    

    (a)            Voluntary or Involuntary
Liquidation. In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary, holders of
Designated Preferred Stock shall be entitled to receive for each share of
Designated Preferred Stock, out of the assets of the Corporation or proceeds
thereof (whether capital or surplus) available for distribution to stockholders
of the Corporation, subject to the rights of any creditors of the Corporation,
before any distribution of such assets or proceeds is made to or set aside for
the holders of Common Stock and any other stock of the Corporation ranking
junior to Designated Preferred Stock as to such distribution, payment in full in
an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the
amount of any accrued and unpaid dividends (including, if applicable as provided
in Section 3(a) above, dividends on such amount), whether or not declared, to
the date of payment (such amounts collectively, the “Liquidation
Preference”).

     

    (b)            Partial Payment. If
in any distribution described in Section 4(a) above the assets of the
Corporation or proceeds thereof are not sufficient to pay in full the amounts
payable with respect to all outstanding shares of Designated Preferred Stock and
the corresponding amounts payable with respect of any other stock of the
Corporation ranking equally with Designated Preferred Stock as to such
distribution, holders of Designated Preferred Stock and the holders of such
other stock shall share ratably in any such distribution in proportion to the
full respective distributions to which they are entitled.

    

    (c)            Residual
Distributions. If the Liquidation Preference has been paid in full to all
holders of Designated Preferred Stock and the corresponding amounts payable with
respect of any other stock of the Corporation ranking equally with Designated
Preferred Stock as to such distribution has been paid in full, the holders of
other stock of the Corporation shall be entitled to receive all remaining assets
of the Corporation (or proceeds thereof) according to their respective rights
and preferences.

    

    (d)            Merger, Consolidation and
Sale of Assets Not Liquidation. For purposes of this Section 4, the
merger or consolidation of the Corporation with any other corporation or other
entity, including a merger or consolidation in which the holders of Designated
Preferred Stock receive cash, securities or other property for their shares, or
the sale, lease or exchange (for cash, securities or other property) of all or
substantially all of the assets of the Corporation, shall not constitute a
liquidation, dissolution or winding up of the Corporation.

    

    Section
5. Redemption.

    

    (a)            Optional Redemption.
Except as provided below, the Designated Preferred Stock may not be redeemed
prior to the first Dividend Payment Date falling on or after the third
anniversary of the Original Issue Date. On or after the first Dividend Payment
Date falling on or after the third anniversary of the Original Issue Date, the
Corporation, at its option, subject to the approval of the Appropriate Federal
Banking Agency, may redeem, in whole or in part, at any time and from time to
time, out of funds legally available therefor, the shares of Designated
Preferred Stock at the time outstanding, upon notice given as provided in
Section 5(c) below, at a redemption price equal to the sum of (i) the
Liquidation Amount per share and (ii) except as otherwise provided below, any
accrued and unpaid dividends (including, if applicable as provided in Section 3
(a) above, dividends on such amount) (regardless of whether any dividends are
actually declared) to, but excluding, the date fixed for
redemption.

     

    
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    Notwithstanding
the foregoing, prior to the first Dividend Payment Date falling on or after the
third anniversary of the Original Issue Date, the Corporation, at its option,
subject to the approval of the Appropriate Federal Banking Agency, may redeem,
in whole or in part, at any time and from time to time, the shares of Designated
Preferred Stock at the time outstanding, upon notice given as provided in
Section 5(c) below, at a redemption price equal to the sum of (i) the
Liquidation Amount per share and (ii) except as otherwise provided below, any
accrued and unpaid dividends (including, if applicable as provided in Section
3(a) above, dividends on such amount) (regardless of whether any dividends are
actually declared) to, but excluding, the date fixed for redemption; provided that (x) the
Corporation (or any successor by Business Combination) has received aggregate
gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as
defined in the relevant certificate of designations for each other outstanding
series of preferred stock of such successor that was originally issued to the
United States Department of the Treasury (the “Successor Preferred
Stock”) in connection with the Troubled Asset Relief Program Capital
Purchase Program) from one or more Qualified Equity Offerings (including
Qualified Equity Offerings of such successor), and (y) the aggregate redemption
price of the Designated Preferred Stock (and any Successor Preferred Stock)
redeemed pursuant to this paragraph may not exceed the aggregate net cash
proceeds received by the Corporation (or any successor by Business Combination)
from such Qualified Equity Offerings (including Qualified Equity Offerings of
such successor).

    

    The
redemption price for any shares of Designated Preferred Stock shall be payable
on the redemption date to the holder of such shares against surrender of the
certificate(s) evidencing such shares to the Corporation or its agent. Any
declared but unpaid dividends payable on a redemption date that occurs
subsequent to the Dividend Record Date for a Dividend Period shall not be paid
to the holder entitled to receive the redemption price on the redemption date,
but rather shall be paid to the holder of record of the redeemed shares on such
Dividend Record Date relating to the Dividend Payment Date as provided in
Section 3 above.

    

    (b)            No Sinking Fund. The
Designated Preferred Stock will not be subject to any mandatory redemption,
sinking fund or other similar provisions. Holders of Designated Preferred Stock
will have no right to require redemption or repurchase of any shares of
Designated Preferred Stock.

     

    
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    (c)            Notice of Redemption.
Notice of every redemption of shares of Designated Preferred Stock shall be
given by first class mail, postage prepaid, addressed to the holders of record
of the shares to be redeemed at their respective last addresses appearing on the
books of the Corporation. Such mailing shall be at least 30 days and not more
than 60 days before the date fixed for redemption. Any notice mailed as provided
in this Subsection shall be conclusively presumed to have been duly given,
whether or not the holder receives such notice, but failure duly to give such
notice by mail, or any defect in such notice or in the mailing thereof, to any
holder of shares of Designated Preferred Stock designated for redemption shall
not affect the validity of the proceedings for the redemption of any other
shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares
of Designated Preferred Stock are issued in book-entry form through The
Depository Trust Corporation or any other similar facility, notice of redemption
may be given to the holders of Designated Preferred Stock at such time and in
any manner permitted by such facility. Each notice of redemption given to a
holder shall state: (1) the redemption date; (2) the number of shares of
Designated Preferred Stock to be redeemed and, if less than all the shares held
by such holder are to be redeemed, the number of such shares to be redeemed from
such holder; (3) the redemption price; and (4) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price.

     

    (d)            Partial Redemption.
In case of any redemption of part of the shares of Designated Preferred Stock at
the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other
manner as the Board of Directors or a duly authorized committee thereof may
determine to be fair and equitable. Subject to the provisions hereof, the Board
of Directors or a duly authorized committee thereof shall have full power and
authority to prescribe the terms and conditions upon which shares of Designated
Preferred Stock shall be redeemed from time to time. If fewer than all the
shares represented by any certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without charge to the holder
thereof.

     

    (e)            Effectiveness of
Redemption. If notice of redemption has been duly given and if on or
before the redemption date specified in the notice all funds necessary for the
redemption have been deposited by the Corporation, in trust for the pro rata benefit of the
holders of the shares called for redemption, with a bank or trust company doing
business in the Borough of Manhattan, The City of New York, and having a capital
and surplus of at least $500 million and selected by the Board of Directors, so
as to be and continue to be available solely therefor, then, notwithstanding
that any certificate for any share so called for redemption has not been
surrendered for cancellation, on and after the redemption date dividends shall
cease to accrue on all shares so called for redemption, all shares so called for
redemption shall no longer be deemed outstanding and all rights with respect to
such shares shall forthwith on such redemption date cease and terminate, except
only the right of the holders thereof to receive the amount payable on such
redemption from such bank or trust company, without interest. Any funds
unclaimed at the end of three years from the redemption date shall, to the
extent permitted by law, be released to the Corporation, after which time the
holders of the shares so called for redemption shall look only to the
Corporation for payment of the redemption price of such shares.

     

    (f)            Status of Redeemed
Shares. Shares of Designated Preferred Stock that are redeemed,
repurchased or otherwise acquired by the Corporation shall revert to authorized
but unissued shares of Preferred Stock (provided that any such
cancelled shares of Designated Preferred Stock may be reissued only as shares of
any series of Preferred Stock other than Designated Preferred
Stock).

     

    Section
6. Conversion.
Holders of Designated Preferred Stock shares shall have no right to exchange or
convert such shares into any other securities.

    
       

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    Section
7. Voting
Rights.

    

    (a)            General. The holders
of Designated Preferred Stock shall not have any voting rights except as set
forth below or as otherwise from time to time required by law.

    

    (b)            Preferred Stock
Directors. Whenever, at any time or times, dividends payable on the
shares of Designated Preferred Stock have not been paid for an aggregate of six
quarterly Dividend Periods or more, whether or not consecutive, the authorized
number of directors of the Corporation shall automatically be increased by two
and the holders of the Designated Preferred Stock shall have the right, with
holders of shares of any one or more other classes or series of Voting Parity
Stock outstanding at the time, voting together as a class, to elect two
directors (hereinafter the “Preferred Directors”
and each a “Preferred
Director”) to fill such newly created directorships at the Corporation's
next annual meeting of stockholders (or at a special meeting called for that
purpose prior to such next annual meeting) and at each subsequent annual meeting
of stockholders until all accrued and unpaid dividends for all past Dividend
Periods, including the latest completed Dividend Period (including, if
applicable as provided in Section 3(a) above, dividends on such amount), on all
outstanding shares of Designated Preferred Stock have been declared and paid in
full at which time such right shall terminate with respect to the Designated
Preferred Stock, except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent default of the character
above mentioned; provided
that it shall be a qualification for election for any Preferred Director
that the election of such Preferred Director shall not cause the Corporation to
violate any corporate governance requirements of any securities exchange or
other trading facility on which securities of the Corporation may then be listed
or traded that listed or traded companies must have a majority of independent
directors. Upon any termination of the right of the holders of shares of
Designated Preferred Stock and Voting Parity Stock as a class to vote for
directors as provided above, the Preferred Directors shall cease to be qualified
as directors, the term of office of all Preferred Directors then in office shall
terminate immediately and the authorized number of directors shall be reduced by
the number of Preferred Directors elected pursuant hereto. Any Preferred
Director may be removed at any time, with or without cause, and any vacancy
created thereby may be filled, only by the affirmative vote of the holders a
majority of the shares of Designated Preferred Stock at the time outstanding
voting separately as a class together with the holders of shares of Voting
Parity Stock, to the extent the voting rights of such holders described above
are then exercisable. If the office of any Preferred Director becomes vacant for
any reason other than removal from office as aforesaid, the remaining Preferred
Director may choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred.

    

    (c)            Class Voting Rights as to
Particular Matters. So long as any shares of Designated Preferred Stock
are outstanding, in addition to any other vote or consent of stockholders
required by law or by the Charter, the vote or consent of the holders of at
least 66 2/3% of the shares of Designated Preferred Stock at the time
outstanding, voting as a separate class, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the purpose,
shall be necessary for effecting or validating:

    
       

      UST
Sequence No.195

    
      
        
           

        

        
          A-8

          
            

          

        

        
           

        

      

    

    

    (i)              Authorization of Senior
Stock. Any amendment or alteration of the Certificate of Designations for
the Designated Preferred Stock or the Charter to authorize or create or increase
the authorized amount of, or any issuance of, any shares of, or any securities
convertible into or exchangeable or exercisable for shares of, any class or
series of capital stock of the Corporation ranking senior to Designated
Preferred Stock with respect to either or both the payment of dividends and/or
the distribution of assets on any liquidation, dissolution or winding up of the
Corporation;

    

    (ii)              Amendment of Designated
Preferred Stock. Any amendment, alteration or repeal of any provision of
the Certificate of Designations for the Designated Preferred Stock or the
Charter (including, unless no vote on such merger or consolidation is required
by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a
merger, consolidation or otherwise) so as to adversely affect the rights,
preferences, privileges or voting powers of the Designated Preferred Stock;
or

     

    (iii)              Share Exchanges,
Reclassifications, Mergers and Consolidations. Any consummation of a
binding share exchange or reclassification involving the Designated Preferred
Stock, or of a merger or consolidation of the Corporation with another
corporation or other entity, unless in each case (x) the shares of Designated
Preferred Stock remain outstanding or, in the case of any such merger or
consolidation with respect to which the Corporation is not the surviving or
resulting entity, are converted into or exchanged for preference securities of
the surviving or resulting entity or its ultimate parent, and (y) such shares
remaining outstanding or such preference securities, as the case may be, have
such rights, preferences, privileges and voting powers, and limitations and
restrictions thereof, taken as a whole, as are not materially less favorable to
the holders thereof than the rights, preferences, privileges and voting powers,
and limitations and restrictions thereof, of Designated Preferred Stock
immediately prior to such consummation, taken as a whole;

     

    provided, however, that for
all purposes of this Section 7(c), any increase in the amount of the authorized
Preferred Stock, including any increase in the authorized amount of Designated
Preferred Stock necessary to satisfy preemptive or similar rights granted by the
Corporation to other persons prior to the Signing Date, or the creation and
issuance, or an increase in the authorized or issued amount, whether pursuant to
preemptive or similar rights or otherwise, of any other series of Preferred
Stock, or any securities convertible into or exchangeable or exercisable for any
other series of Preferred Stock, ranking equally with and/or junior to
Designated Preferred Stock with respect to the payment of dividends (whether
such dividends are cumulative or non-cumulative) and the distribution of assets
upon liquidation, dissolution or winding up of the Corporation will not be
deemed to adversely affect the rights, preferences, privileges or voting powers,
and shall not require the affirmative vote or consent of, the holders of
outstanding shares of the Designated Preferred Stock.

    
       

      UST
Sequence No.195

    
      
        
           

        

        
          A-9

          
            

          

        

        
           

        

      

    

     

    (d)            Changes after Provision for
Redemption. No vote or consent of the holders of Designated Preferred
Stock shall be required pursuant to Section 7(c) above if, at or prior to the
time when any such vote or consent would otherwise be required pursuant to such
Section, all outstanding shares of the Designated Preferred Stock shall have
been redeemed, or shall have been called for redemption upon proper notice and
sufficient funds shall have been deposited in trust for such redemption, in each
case pursuant to Section 5 above.

     

    (e)            Procedures for Voting and
Consents. The rules and procedures for calling and conducting any meeting
of the holders of Designated Preferred Stock (including, without limitation, the
fixing of a record date in connection therewith), the solicitation and use of
proxies at such a meeting, the obtaining of written consents and any other
aspect or matter with regard to such a meeting or such consents shall be
governed by any rules of the Board of Directors or any duly authorized committee
of the Board of Directors, in its discretion, may adopt from time to time, which
rules and procedures shall conform to the requirements of the Charter, the
Bylaws, and applicable law and the rules of any national securities exchange or
other trading facility on which Designated Preferred Stock is listed or traded
at the time.

     

    Section
8. Record
Holders. To the fullest extent permitted by applicable law, the
Corporation and the transfer agent for Designated Preferred Stock may deem and
treat the record holder of any share of Designated Preferred Stock as the true
and lawful owner thereof for all purposes, and neither the Corporation nor such
transfer agent shall be affected by any notice to the contrary.

     

    Section
9. Notices. All
notices or communications in respect of Designated Preferred Stock shall be
sufficiently given if given in writing and delivered in person or by first class
mail, postage prepaid, or if given in such other manner as may be permitted in
this Certificate of Designations, in the Charter or Bylaws or by applicable law.
Notwithstanding the foregoing, if shares of Designated Preferred Stock are
issued in book-entry form through The Depository Trust Corporation or any
similar facility, such notices may be given to the holders of Designated
Preferred Stock in any manner permitted by such facility.

     

    Section
10. No Preemptive
Rights. No share of Designated Preferred Stock shall have any rights of
preemption whatsoever as to any securities of the Corporation, or any warrants,
rights or options issued or granted with respect thereto, regardless of how such
securities, or such warrants, rights or options, may be designated, issued or
granted.

     

    Section
11. Replacement
Certificates. The Corporation shall replace any mutilated certificate at
the holder's expense upon surrender of that certificate to the Corporation. The
Corporation shall replace certificates that become destroyed, stolen or lost at
the holder's expense upon delivery to the Corporation of reasonably satisfactory
evidence that the certificate has been destroyed, stolen or lost, together with
any indemnity that may be reasonably required by the Corporation.

     

    Section
12. Other
Rights. The shares of Designated Preferred Stock shall not have any
rights, preferences, privileges or voting powers or relative, participating,
optional or other special rights, or qualifications, limitations or restrictions
thereof, other than as set forth herein or in the Charter or as provided by
applicable law.

    
       

      UST
Sequence No.195

    
      
        
           

        

        
          A-10UST
Sequence Number: 195

     

    WARRANT
TO PURCHASE COMMON STOCK

     

    THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND
OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH
THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR
OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.

     

    WARRANT

    to
purchase

     

    428,870

     

    Shares
of Common Stock

     

    of
Citizens South Banking Corporation

     

    Issue
Date: December 12, 2008

     

    1.       Definitions. Unless
the context otherwise requires, when used herein the following terms shall have
the meanings indicated.

     

    “Affiliate” has the meaning
ascribed to it in the Purchase Agreement.

     

    “Appraisal Procedure” means a
procedure whereby two independent appraisers, one chosen by the Company and one
by the Original Warrantholder, shall mutually agree upon the determinations then
the subject of appraisal. Each party shall deliver a notice to the other
appointing its appraiser within 15 days after the Appraisal Procedure is
invoked. If within 30 days after appointment of the two appraisers they are
unable to agree upon the amount in question, a third independent appraiser shall
be chosen within 10 days thereafter by the mutual consent of such first two
appraisers. The decision of the third appraiser so appointed and chosen shall be
given within 30 days after the selection of such third appraiser. If three
appraisers shall be appointed and the determination of one appraiser is
disparate from the middle determination by more than twice the amount by which
the other determination is disparate from the middle determination, then the
determination of such appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be binding and
conclusive upon the Company
and the Original Warrantholder; otherwise, the average of all three
determinations shall be binding upon the Company and the Original Warrantholder.
The costs of conducting any Appraisal Procedure shall be borne by the
Company.

     

    UST
Sequence No. 195

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    “Board of Directors” means
the board of directors of the Company, including any duly authorized committee
thereof.

     

    “Business Combination” means
a merger, consolidation, statutory share exchange or similar transaction that
requires the approval of the Company’s stockholders.

     

    “Business day” means any day
except Saturday, Sunday and any day on which banking institutions in the State
of New York generally are authorized or required by law or other governmental
actions to close.

     

    “Capital Stock” means (A)
with respect to any Person that is a corporation or company, any and all shares,
interests, participations or other equivalents (however designated) of capital
or capital stock of such Person and (B) with respect to any Person that is not a
corporation or company, any and all partnership or other equity interests of
such Person.

     

    “Charter” means, with respect to any
Person, its certificate or articles of incorporation, articles of association,
or similar organizational document.

     

    “Common Stock” has the
meaning ascribed to it in the Purchase Agreement.

     

    “Company” means the Person
whose name, corporate or other organizational form and jurisdiction of
organization is set forth in Item 1 of Schedule A hereto.

     

    “Conversion” has the meaning
set forth in Section 13(B).

     

    “Convertible securities” has
the meaning set forth in Section 13(B).

     

    “CPP” has the meaning
ascribed to it in the Purchase Agreement.

     

    “Exchange Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the
rules and regulations promulgated thereunder.

     

    “Exercise Price” means the
amount set forth in Item 2 of Schedule A hereto.

     

    “Expiration Time” has the
meaning set forth in Section 3.

     

    “Fair Market Value” means,
with respect to any security or other property, the fair market value of such
security or other property as determined by the Board of Directors, acting in
good faith or, with respect to Section 14, as determined by the Original
Warrantholder acting in good faith. For so long as the Original Warrantholder
holds this Warrant or any portion thereof, it may object in writing to the Board
of Director’s calculation of fair market value within 10 days of receipt of
written notice thereof. If the Original Warrantholder and the Company are unable
to agree on fair market value during the 10-day period following the delivery of
the Original Warrantholder’s objection, the Appraisal Procedure may be invoked
by either party to determine
Fair Market Value by delivering written notification thereof not later than the
30th
day after delivery of the Original Warrantholder’s objection.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    “Governmental Entities” has
the meaning ascribed to it in the Purchase Agreement.

     

    “Initial Number” has the
meaning set forth in Section 13(B).

     

    “Issue Date” means the date
set forth in Item 3 of Schedule A hereto.

     

    “Market Price” means, with
respect to a particular security, on any given day, the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the last closing bid and ask prices regular way, in either case on
the principal national securities exchange on which the applicable securities
are listed or admitted to trading, or if not listed or admitted to trading on
any national securities exchange, the average of the closing bid and ask prices
as furnished by two members of the Financial Industry Regulatory Authority, Inc.
selected from time to time by the Company for that purpose. “Market Price” shall be determined without reference
to after hours or extended hours trading. If such security is not listed and
traded in a manner that the quotations referred to above are available for the
period required hereunder, the Market Price per share of Common Stock shall be
deemed to be (i) in the event that any portion of the Warrant is held by the
Original Warrantholder, the fair market value per share of such security as
determined in good faith by the Original Warrantholder or (ii) in all other
circumstances, the fair market value per share of such security as determined in
good faith by the Board of Directors in reliance on an opinion of a nationally
recognized independent investment banking corporation retained by the Company
for this purpose and certified in a resolution to the Warrantholder. For the
purposes of determining the Market Price of the Common Stock on the “trading day” preceding, on or following the
occurrence of an event, (i) that trading day shall be deemed to commence
immediately after the regular scheduled closing time of trading on the New York
Stock Exchange or, if trading is closed at an earlier time, such earlier time
and (ii) that trading day shall end at the next regular scheduled closing time,
or if trading is closed at an earlier time, such earlier time (for the avoidance
of doubt, and as an example, if the Market Price is to be determined as of the
last trading day preceding a specified event and the closing time of trading on
a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on
that day, the Market Price would be determined by reference to such 4:00 p.m.
closing price).

     

    “Ordinary Cash Dividends”
means a regular quarterly cash dividend on shares of Common Stock out of
surplus or net profits legally available therefor (determined in accordance with
generally accepted accounting principles in effect from time to time), provided that Ordinary Cash
Dividends shall not include any cash dividends paid subsequent to the Issue Date
to the extent the aggregate per share dividends paid on the outstanding Common
Stock in any quarter exceed the amount set forth in Item 4 of Schedule A hereto,
as adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction.

     

    “Original Warrantholder”
means the United States Department of the Treasury. Any actions specified
to be taken by the Original Warrantholder hereunder may only be taken by such
Person and not by any other Warrantholder.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          3

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    “Permitted Transactions” has
the meaning set forth in Section 13(B).

     

    “Person” has the meaning
given to it in Section 3(a)(9) of the Exchange Act and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act.

     

    “Per Share Fair Market Value”
has the meaning set forth in Section 13(C).

     

    “Preferred Shares” means the
perpetual preferred stock issued to the Original Warrantholder on the Issue Date
pursuant to the Purchase Agreement.

     

    “Pro Rata Repurchases” means any
purchase of shares of Common Stock by the Company or any Affiliate thereof
pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or
14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any
other offer available to substantially all holders of Common Stock, in the case
of both (A) or (B), whether for cash, shares of Capital Stock of the Company,
other securities of the Company, evidences of indebtedness of the Company or any
other Person or any other property (including, without limitation, shares of
Capital Stock, other securities or evidences of indebtedness of a subsidiary),
or any combination thereof, effected while this Warrant is outstanding. The
“Effective Date” of a
Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or
exchange by the Company under any tender or exchange offer which is a Pro Rata
Repurchase or the date of purchase with respect to any Pro Rata Repurchase that
is not a tender or exchange offer.

     

    “Purchase Agreement” means
the Securities Purchase Agreement — Standard Terms incorporated into the Letter
Agreement, dated as of the date set forth in Item 5 of Schedule A hereto, as
amended from time to time, between the Company and the United States Department
of the Treasury (the “Letter Agreement”), including
all annexes and schedules thereto.

     

    “Qualified Equity Offering”
has the meaning ascribed to it in the Purchase Agreement.

     

    “Regulatory Approvals” with
respect to the Warrantholder, means, to the extent applicable and required to
permit the Warrantholder to exercise this Warrant for shares of Common Stock and
to own such Common Stock without the Warrantholder being in violation of
applicable law, rule or regulation, the receipt of any necessary approvals and
authorizations of, filings and registrations with, notifications to, or
expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder.

     

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

     

    “Securities Act” means the
Securities Act of 1933, as amended, or any successor statute, and the rules and
regulations promulgated thereunder.

     

    “Shares” has the meaning set
forth in Section 2.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          4

          
            

          

        

        
           

        

      

    

     

    UST Sequence
Number: 195

     

    “Trading day” means (A) if
the shares of Common Stock are not traded on any national or regional securities
exchange or association or over-the-counter market, a business day or (B) if the
shares of Common Stock are traded on any national or regional securities
exchange or association or over-the-counter market, a business day on which such
relevant exchange or quotation system is scheduled to be open for business and
on which the shares of Common Stock (i) are not suspended from trading on any
national or regional securities exchange or association or over-the-counter
market for any period or periods aggregating one half hour or longer; and (ii)
have traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the shares of Common Stock.

     

    “U.S. GAAP” means United
States generally accepted accounting principles.

     

    “Warrantholder” has the
meaning set forth in Section 2.

     

    “Warrant” means this Warrant,
issued pursuant to the Purchase Agreement.

     

    2.       Number of Shares; Exercise
Price. This certifies that, for value received, the United States
Department of the Treasury or its permitted assigns (the “Warrantholder”) is entitled,
upon the terms and subject to the conditions hereinafter set forth, to acquire
from the Company, in whole or in part, after the receipt of all applicable
Regulatory Approvals, if any, up to an aggregate of the number of fully paid and
nonassessable shares of Common Stock set forth in Item 6 of Schedule A hereto,
at a purchase price per share of Common Stock equal to the Exercise Price. The
number of shares of Common Stock (the “Shares”) and the Exercise
Price are subject to adjustment as provided herein, and all references to “Common Stock,”
“Shares” and “Exercise Price” herein shall be deemed to include any
such adjustment or series of adjustments.

     

    3.       Exercise of Warrant;
Term. Subject to Section 2, to the extent permitted by applicable laws
and regulations, the right to purchase the Shares represented by this Warrant is
exercisable, in whole or in part by the Warrantholder, at any time or from time
to time after the execution and delivery of this Warrant by the Company on the
date hereof, but in no event later than 5:00 p.m., New York City time on the
tenth anniversary of the Issue Date (the “Expiration Time”), by (A) the
surrender of this Warrant and Notice of Exercise annexed hereto, duly completed
and executed on behalf of the Warrantholder, at the principal executive office
of the Company located at the address set forth in Item 7 of Schedule A hereto
(or such other office or agency of the Company in the United States as it may
designate by notice in writing to the Warrantholder at the address of the
Warrantholder appearing on the books of the Company), and (B) payment of the
Exercise Price for the Shares thereby purchased:

     

    (i) by
having the Company withhold, from the shares of Common Stock that would
otherwise be delivered to the Warrantholder upon such exercise, shares of Common
stock issuable upon exercise of the Warrant equal in value to the aggregate
Exercise Price as to which this Warrant is so exercised based on the Market
Price of the Common Stock on the trading day on which this Warrant is exercised
and the Notice of Exercise is delivered to the Company pursuant to this Section
3, or

     

    (ii) with
the consent of both the Company and the Warrantholder, by tendering in cash, by
certified or cashier’s check payable to the order of the Company, or by wire
transfer of immediately available funds to an account designated by the
Company.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    If the
Warrantholder does not exercise this Warrant in its entirety, the Warrantholder
will be entitled to receive from the Company within a reasonable time, and in
any event not exceeding three business days, a new warrant in substantially
identical form for the purchase of that number of Shares equal to the difference
between the number of Shares subject to this Warrant and the number of Shares as
to which this Warrant is so exercised. Notwithstanding anything in this Warrant
to the contrary, the Warrantholder hereby acknowledges and agrees that its
exercise of this Warrant for Shares is subject to the condition that the
Warrantholder will have first received any applicable Regulatory
Approvals.

     

    4.       Issuance of Shares;
Authorization; Listing. Certificates for Shares issued upon exercise of
this Warrant will be issued in such name or names as the Warrantholder may
designate and will be delivered to such named Person or Persons within a
reasonable time, not to exceed three business days after the date on which this
Warrant has been duly exercised in accordance with the terms of this Warrant.
The Company hereby represents and warrants that any Shares issued upon the
exercise of this Warrant in accordance with the provisions of Section 3 will be
duly and validly authorized and issued, fully paid and nonassessable and free
from all taxes, liens and charges (other than liens or charges created by the
Warrantholder, income and franchise taxes incurred in connection with the
exercise of the Warrant or taxes in respect of any transfer occurring
contemporaneously therewith). The Company agrees that the Shares so issued will
be deemed to have been issued to the Warrantholder as of the close of business
on the date on which this Warrant and payment of the Exercise Price are
delivered to the Company in accordance with the terms of this Warrant,
notwithstanding that the stock transfer books of the Company may then be closed
or certificates representing such Shares may not be actually delivered on such
date. The Company will at all times reserve and keep available, out of its
authorized but unissued Common Stock, solely for the purpose of providing for
the exercise of this Warrant, the aggregate number of shares of Common Stock
then issuable upon exercise of this Warrant at any time. The Company will (A)
procure, at its sole expense, the listing of the Shares issuable upon exercise
of this Warrant at any time, subject to issuance or notice of issuance, on all
principal stock exchanges on which the Common Stock is then listed or traded and
(B) maintain such listings of such Shares at all times after issuance. The
Company will use reasonable best efforts to ensure that the Shares may be issued
without violation of any applicable law or regulation or of any requirement of
any securities exchange on which the Shares are listed or traded.

     

    5.       No Fractional Shares or
Scrip. No fractional Shares or scrip representing fractional Shares shall
be issued upon any exercise of this Warrant. In lieu of any fractional Share to
which the Warrantholder would otherwise be entitled, the Warrantholder shall be
entitled to receive a cash payment equal to the Market Price of the Common Stock
on the last trading day preceding the date of exercise less the pro-rated
Exercise Price for such fractional share.

     

    6.       No Rights as Stockholders;
Transfer Books. This Warrant does not entitle the Warrantholder to any
voting rights or other rights as a stockholder of the Company prior to the date
of exercise hereof. The Company will at no time close its transfer books against
transfer of this Warrant in any manner which interferes with the timely exercise
of this Warrant.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    7.     Charges, Taxes and
Expenses. Issuance of certificates for Shares to the Warrantholder upon
the exercise of this Warrant shall be made without charge to the Warrantholder
for any issue or transfer tax or other incidental expense in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company.

     

    8.     Transfer/Assignment.

     

    (A)          Subject
to compliance with clause (B) of this Section 8, this Warrant and all rights
hereunder are transferable, in whole or in part, upon the books of the Company
by the registered holder hereof in person or by duly authorized attorney, and a
new warrant shall be made and delivered by the Company, of the same tenor and
date as this Warrant but registered in the name of one or more transferees, upon
surrender of this Warrant, duly endorsed, to the office or agency of the Company
described in Section 3. All expenses (other than stock transfer taxes) and other
charges payable in connection with the preparation, execution and delivery of
the new warrants pursuant to this Section 8 shall be paid by the
Company.

     

    (B)   The transfer of the
Warrant and the Shares issued upon exercise of the Warrant are subject to the
restrictions set forth in Section 4.4 of the Purchase Agreement. If and for so
long as required by the Purchase Agreement, this Warrant shall contain the
legends as set forth in Sections 4.2(a) and 4.2(b) of the Purchase
Agreement.

     

    9.     Exchange and Registry of
Warrant. This Warrant is exchangeable, upon the surrender hereof by the
Warrantholder to the Company, for a new warrant or warrants of like tenor and
representing the right to purchase the same aggregate number of Shares. The
Company shall maintain a registry showing the name and address of the
Warrantholder as the registered holder of this Warrant. This Warrant may be
surrendered for exchange or exercise in accordance with its terms, at the office
of the Company, and the Company shall be entitled to rely in all respects, prior
to written notice to the contrary, upon such registry.

     

    10.           Loss, Theft, Destruction or
Mutilation of Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and in the case of any such loss, theft or destruction, upon receipt of
a bond, indemnity or security reasonably satisfactory to the Company, or, in the
case of any such mutilation, upon surrender and cancellation of this Warrant,
the Company shall make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of Shares as provided for in such lost,
stolen, destroyed or mutilated Warrant.

     

    11.           Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of any action
or the expiration of any right required or granted herein shall not be a
business day, then such action may be taken or such right may be exercised on
the next succeeding day that is a business day.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          7

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    12.           Rule 144
Information. The Company covenants that it will use its reasonable best
efforts to timely file all reports and other documents required to be filed by
it under the Securities Act and the Exchange Act and the rules and regulations
promulgated by the SEC thereunder (or, if the Company is not required to file
such reports, it will, upon the request of any Warrantholder, make publicly
available such information as necessary to permit sales pursuant to Rule 144
under the Securities Act), and it will use reasonable best efforts to take such
further action as any Warrantholder may reasonably request, in each case to the
extent required from time to time to enable such holder to, if permitted by the
terms of this Warrant and the Purchase Agreement, sell this Warrant without
registration under the Securities Act within the limitation of the exemptions
provided by (A) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (B) any successor rule or regulation hereafter adopted by
the SEC. Upon the written request of any Warrantholder, the Company will deliver
to such Warrantholder a written statement that it has complied with such
requirements.

     

    13.   Adjustments and Other
Rights. The Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall be subject to adjustment from time to time as
follows; provided, that
if more than one subsection of this Section 13 is applicable to a single event,
the subsection shall be applied that produces the largest adjustment and no
single event shall cause an adjustment under more than one subsection of this
Section 13 so as to result in duplication:

     

    (A)          Stock Splits, Subdivisions,
Reclassifications or Combinations. If the Company shall (i) declare and
pay a dividend or make a distribution on its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify the outstanding
shares of Common Stock into a smaller number of shares, the number of Shares
issuable upon exercise of this Warrant at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the Warrantholder
after such date shall be entitled to purchase the number of shares of Common
Stock which such holder would have owned or been entitled to receive in respect
of the shares of Common Stock subject to this Warrant after such date had this
Warrant been exercised immediately prior to such date. In such event, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted to the number obtained by dividing (x) the
product of (1) the number of Shares issuable upon the exercise of this Warrant
before such adjustment and (2) the Exercise Price in effect immediately prior to
the record or effective date, as the case may be, for the dividend,
distribution, subdivision, combination or reclassification giving rise to this
adjustment by (y) the new number of Shares issuable upon exercise of the Warrant
determined pursuant to the immediately preceding sentence.

     

    (B)          
Certain Issuances of
Common Shares or Convertible Securities. Until the earlier of (i) the
date on which the Original Warrantholder no longer holds this Warrant or any
portion thereof and (ii) the third anniversary of the Issue Date, if the Company
shall issue shares of Common Stock (or rights or warrants or other securities
exercisable or convertible into or exchangeable (collectively, a “conversion”) for shares of
Common Stock) (collectively, “convertible securities”)
(other than in Permitted Transactions (as defined below) or a transaction
to which subsection (A) of this Section 13 is applicable) without consideration
or at a consideration per share (or having a conversion price per share) that is
less than 90% of the Market Price on the last trading day preceding the date of
the agreement on pricing such shares (or such convertible securities) then, in
such event:

     

    UST
Sequence No. 195

    
      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    (A) the
number of Shares issuable upon the exercise of this Warrant immediately prior to
the date of the agreement on pricing of such shares (or of such convertible
securities) (the “Initial Number”) shall be
increased to the number obtained by multiplying the Initial Number by a fraction
(A) the numerator of which shall be the sum of (x) the number of shares of
Common Stock of the Company outstanding on such date and (y) the number of
additional shares of Common Stock issued (or into which convertible securities
may be exercised or convert) and (B) the denominator of which shall be the sum
of (I) the number of shares of Common Stock outstanding on such date and (II)
the number of shares of Common Stock which the aggregate consideration
receivable by the Company for the total number of shares of Common Stock so
issued (or into which convertible securities may be exercised or convert) would
purchase at the Market Price on the last trading day preceding the date of the
agreement on pricing such shares (or such convertible securities);
and

     

    (B) the
Exercise Price payable upon exercise of the Warrant shall be adjusted by
multiplying such Exercise Price in effect immediately prior to the date of the
agreement on pricing of such shares (or of such convertible securities) by a
fraction, the numerator of which shall be the number of shares of Common Stock
issuable upon exercise of this Warrant prior to such date and the denominator of
which shall be the number of shares of Common Stock issuable upon exercise of
this Warrant immediately after the adjustment described in clause (A)
above.

     

    For
purposes of the foregoing, the aggregate consideration receivable by the Company
in connection with the issuance of such shares of Common Stock or convertible
securities shall be deemed to be equal to the sum of the net offering price
(including the Fair Market Value of any non-cash consideration and after
deduction of any related expenses payable to third parties) of all such
securities plus the minimum aggregate amount, if any, payable upon exercise or
conversion of any such convertible securities into shares of Common Stock; and
“Permitted Transactions”
shall mean issuances (i) as consideration for or to fund the acquisition
of businesses and/or related assets, (ii) in connection with employee benefit
plans and compensation related arrangements in the ordinary course and
consistent with past practice approved by the Board of Directors, (iii) in
connection with a public or broadly marketed offering and sale of Common Stock
or convertible securities for cash conducted by the Company or its affiliates
pursuant to registration under the Securities Act or Rule 144A thereunder on a
basis consistent with capital raising transactions by comparable financial
institutions and (iv) in connection with the exercise of preemptive rights on
terms existing as of the Issue Date. Any adjustment made pursuant to this
Section 13(B) shall become effective immediately upon the date of such
issuance.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    (C)   Other Distributions.
In case the Company shall fix a record date for the making of a distribution to
all holders of shares of its Common Stock of securities, evidences of
indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash
Dividends, dividends of its Common Stock and other dividends or distributions
referred to in Section 13(A)), in each such case, the Exercise Price in effect
prior to such record date shall be reduced immediately thereafter to the price
determined by multiplying the Exercise Price in effect immediately prior to the
reduction by the quotient of (x) the Market Price of the Common Stock on the
last trading day preceding the first date on which the Common Stock trades
regular way on the principal national securities exchange on which the Common
Stock is listed or admitted to trading without the right to receive such
distribution, minus the amount of cash and/or the Fair Market Value of the
securities, evidences of indebtedness, assets, rights or warrants to be so
distributed in respect of one share of Common Stock (such amount and/or Fair
Market Value, the “Per Share Fair Market Value”)
divided by (y) such Market Price on such date specified in clause (x);
such adjustment shall be made successively whenever such a record date is fixed.
In such event, the number of Shares issuable upon the exercise of this Warrant
shall be increased to the number obtained by dividing (x) the product of (1) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment, and (2) the Exercise Price in effect immediately prior to the
distribution giving rise to this adjustment by (y) the new Exercise Price
determined in accordance with the immediately preceding sentence. In the case of
adjustment for a cash dividend that is, or is coincident with, a regular
quarterly cash dividend, the Per Share Fair Market Value would be reduced by the
per share amount of the portion of the cash dividend that would constitute an
Ordinary Cash Dividend. In the event that such distribution is not so made, the
Exercise Price and the number of Shares issuable upon exercise of this Warrant
then in effect shall be readjusted, effective as of the date when the Board of
Directors determines not to distribute such shares, evidences of indebtedness,
assets, rights, cash or warrants, as the case may be, to the Exercise Price that
would then be in effect and the number of Shares that would then be issuable
upon exercise of this Warrant if such record date had not been
fixed.

     

    (D)   Certain Repurchases of
Common Stock. In case the Company effects a Pro Rata Repurchase of Common
Stock, then the Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to the Effective Date
of such Pro Rata Repurchase by a fraction of which the numerator shall be (i)
the product of (x) the number of shares of Common Stock outstanding immediately
before such Pro Rata Repurchase and (y) the Market Price of a share of Common
Stock on the trading day immediately preceding the first public announcement by
the Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase,
and of which the denominator shall be the product of (i) the number of shares of
Common Stock outstanding immediately prior to such Pro Rata Repurchase minus the
number of shares of Common Stock so repurchased and (ii) the Market Price per
share of Common Stock on the trading day immediately preceding the first public
announcement by the Company or any of its Affiliates of the intent to effect
such Pro Rata Repurchase. In such event, the number of shares of Common Stock
issuable upon the exercise of this Warrant shall be increased to the number
obtained by dividing (x) the product of (1) the number of Shares issuable upon
the exercise of this Warrant before such adjustment, and (2) the Exercise Price
in effect immediately prior to the Pro Rata Repurchase giving rise to this
adjustment by (y) the new Exercise Price determined in accordance with the
immediately preceding sentence. For the avoidance of doubt, no increase to the
Exercise Price or decrease in the number of Shares issuable upon exercise of
this Warrant shall be made pursuant to this Section 13(D).

     

    UST
Sequence No. 195

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    (E)   Business
Combinations. In case of any Business Combination or reclassification of
Common Stock (other than a reclassification of Common Stock referred to in
Section 13(A)), the Warrantholder’s right to receive Shares upon exercise of
this Warrant shall be converted into the right to exercise this Warrant to
acquire the number of shares of stock or other securities or property (including
cash) which the Common Stock issuable (at the time of such Business Combination
or reclassification) upon exercise of this Warrant immediately prior to such
Business Combination or reclassification would have been entitled to receive
upon consummation of such Business Combination or reclassification; and in any
such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the Warrantholder shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to the
Warrantholder’s right to
exercise this Warrant in exchange for any shares of stock or other securities or
property pursuant to this paragraph. In determining the kind and amount of
stock, securities or the property receivable upon exercise of this Warrant
following the consummation of such Business Combination, if the holders of
Common Stock have the right to elect the kind or amount of consideration
receivable upon consummation of such Business Combination, then the
consideration that the Warrantholder shall be entitled to receive upon exercise
shall be deemed to be the types and amounts of consideration received by the
majority of all holders of the shares of common stock that affirmatively make an
election (or of all such holders if none make an election).

     

    (F)   Rounding of Calculations;
Minimum Adjustments. All calculations under this Section 13 shall be made
to the nearest one-tenth (1/10th) of a
cent or to the nearest one-hundredth (1/100th) of a share, as the case may be.
Any provision of this Section 13 to the contrary notwithstanding, no adjustment
in the Exercise Price or the number of Shares into which this Warrant is
exercisable shall be made if the amount of such adjustment would be less than
$0.01 or one-tenth (1/10th) of a
share of Common Stock, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with
any subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate $0.01 or 1/10th of a
share of Common Stock, or more.

     

    (G)   Timing of Issuance of
Additional Common Stock Upon Certain Adjustments. In any case in which
the provisions of this Section 13 shall require that an adjustment shall become
effective immediately after a record date for an event, the Company may defer
until the occurrence of such event (i) issuing to the Warrantholder of this
Warrant exercised after such record date and before the occurrence of such event
the additional shares of Common Stock issuable upon such exercise by reason of
the adjustment required by such event over and above the shares of Common Stock
issuable upon such exercise before giving effect to such adjustment and (ii)
paying to such Warrantholder any amount of cash in lieu of a fractional share of
Common Stock; provided,
however, that the Company upon request shall deliver to such
Warrantholder a due bill or other appropriate instrument evidencing such
Warrantholder’s right to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.

     

    (H)   Completion of Qualified
Equity Offering. In the event the Company (or any successor by Business
Combination) completes one or more Qualified Equity Offerings on or prior to
December 31, 2009 that result in the Company (or any such successor) receiving
aggregate gross proceeds of not less than 100% of the aggregate liquidation
preference of the Preferred Shares (and any preferred stock issued by any such
successor to the Original Warrantholder under the CPP), the number of shares of
Common Stock underlying the portion of this Warrant then held by the Original
Warrantholder shall be thereafter reduced by a number of shares of Common Stock
equal to the product of (i) 0.5 and (ii) the number of shares underlying the
Warrant on the Issue Date (adjusted to take into account all other theretofore
made adjustments pursuant to this Section 13).

     

    UST
Sequence No. 195

    
      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    (I)    Other Events. For so
long as the Original Warrantholder holds this Warrant or any portion thereof, if
any event occurs as to which the provisions of this Section 13 are not strictly
applicable or, if strictly applicable, would not, in the good faith judgment of
the Board of Directors of the Company, fairly and adequately protect the
purchase rights of the Warrants in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make such
adjustments in the application of such provisions, in accordance with such
essential intent and principles, as shall be reasonably necessary, in the good
faith opinion of the Board of Directors, to protect such purchase rights as
aforesaid. The Exercise Price or the number of Shares into which this Warrant is
exercisable shall not be adjusted in the event of a change in the par value of
the Common Stock or a change in the jurisdiction of incorporation of the
Company.

     

    (J)    Statement Regarding
Adjustments. Whenever the Exercise Price or the number of Shares into
which this Warrant is exercisable shall be adjusted as provided in Section 13,
the Company shall forthwith file at the principal office of the Company a
statement showing in reasonable detail the facts requiring such adjustment and
the Exercise Price that shall be in effect and the number of Shares into which
this Warrant shall be exercisable after such adjustment, and the Company shall
also cause a copy of such statement to be sent by mail, first class postage
prepaid, to each Warrantholder at the address appearing in the Company’s
records.

     

    (K)      
Notice of Adjustment
Event. In the event that the Company shall propose to take any action of
the type described in this Section 13 (but only if the action of the type
described in this Section 13 would result in an adjustment in the Exercise Price
or the number of Shares into which this Warrant is exercisable or a change in
the type of securities or property to be delivered upon exercise of this
Warrant), the Company shall give notice to the Warrantholder, in the manner set
forth in Section 13(J), which notice shall specify the record date, if any, with
respect to any such action and the approximate date on which such action is to
take place. Such notice shall also set forth the facts with respect thereto as
shall be reasonably necessary to indicate the effect on the Exercise Price and
the number, kind or class of shares or other securities or property which shall
be deliverable upon exercise of this Warrant. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
10 days prior to the date so fixed, and in case of all other action, such notice
shall be given at least 15 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.

     

    (L)   Proceedings Prior to Any
Action Requiring Adjustment. As a condition precedent to the taking of
any action which would require an adjustment pursuant to this Section 13, the
Company shall take any action which may be necessary, including obtaining
regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable
national securities exchange or stockholder approvals or exemptions, in order
that the Company may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock that the Warrantholder is entitled to
receive upon exercise of this Warrant pursuant to this Section 13.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          12

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    (M)        
Adjustment
Rules. Any adjustments pursuant to this Section 13 shall be made
successively whenever an event referred to herein shall occur. If an adjustment
in Exercise Price made hereunder would reduce the Exercise Price to an amount
below par value of the Common Stock, then such adjustment in Exercise Price made
hereunder shall reduce the Exercise Price to the par value of the Common
Stock.

     

    14.           Exchange. At any time
following the date on which the shares of Common Stock of the Company are no
longer listed or admitted to trading on a national securities exchange (other
than in connection with any Business Combination), the Original Warrantholder
may cause the Company to exchange all or a portion of this Warrant for an
economic interest (to be determined by the Original Warrantholder after
consultation with the Company) of the Company classified as permanent equity
under U.S. GAAP having a value equal to the Fair Market Value of the portion of
the Warrant so exchanged. The Original Warrantholder shall calculate any Fair
Market Value required to be calculated pursuant to this Section 14, which shall
not be subject to the Appraisal Procedure.

     

    15.           No Impairment. The
Company will not, by amendment of its Charter or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Warrantholder.

     

    16.           Governing Law. This Warrant will be governed
by and construed in
accordance with the federal law of the United States if and to the extent such
law is applicable, and otherwise in accordance with the laws of the State of New
York applicable to contracts made and to be performed entirely within such
State. Each of the Company and the Warrantholder agrees (a) to submit to the
exclusive jurisdiction and venue of the United States District Court for the
District of Columbia for any civil action, suit or proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby, and (b) that
notice may be served upon the Company at the address in Section 20 below and
upon the Warrantholder at the address for the Warrantholder set forth in the
registry maintained by the Company pursuant to Section 9 hereof. To the extent
permitted by applicable law, each of the Company and the Warrantholder hereby
unconditionally waives trial by jury in any civil legal action or proceeding
relating to the Warrant or the transactions contemplated hereby or
thereby.

     

    17.    Binding Effect. This
Warrant shall be binding upon any successors or assigns of the
Company.

     

    18.    Amendments. This
Warrant may be amended and the observance of any term of this Warrant may be
waived only with the written consent of the Company and the
Warrantholder.

     

    19.           
Prohibited
Actions. The Company agrees that it will not take any action which would
entitle the Warrantholder to an adjustment of the Exercise Price if the total
number of shares of Common Stock issuable after such action upon exercise of
this Warrant, together with all shares of Common Stock then outstanding and all
shares of Common Stock then issuable upon the exercise of all outstanding
options, warrants, conversion and other rights, would exceed the total number of
shares of Common Stock then authorized by its Charter.

     

    UST
Sequence No. 195

    
      
        
           

        

        
          13

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    20.    Notices. Any notice,
request, instruction or other document to be given hereunder by any party to the
other will be in writing and will be deemed to have been duly given (a) on the
date of delivery if delivered personally, or by facsimile, upon confirmation of
receipt, or (b) on the second business day following the date of dispatch if
delivered by a recognized next day courier service. All notices hereunder shall
be delivered as set forth in Item 8 of Schedule A hereto, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice.

     

    21.    Entire Agreement.
This Warrant, the forms attached hereto and Schedule A hereto (the terms of
which are incorporated by reference herein), and the Letter Agreement (including
all documents incorporated therein), contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or undertakings with respect thereto.

     

    [Remainder
of page intentionally left blank]

     

    UST
Sequence No. 195

    
      
        
           

        

        
          14

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    Form
of Notice of Exercise

     

    Date:
_____

     

    TO:
Citizens South Banking Corporation

     

    RE: 
Election to Purchase Common Stock

     

    The
undersigned, pursuant to the provisions set forth in the attached Warrant,
hereby agrees to subscribe for and purchase the number of shares of the Common
Stock set forth below covered by such Warrant. The undersigned, in accordance
with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price
for such shares of Common Stock in the manner set forth below. A new warrant
evidencing the remaining shares of Common Stock covered by such Warrant, but not
yet subscribed for and purchased, if any, should be issued in the name set forth
below.

     

    Number of
Shares of Common Stock ______________________________

     

    Method of
Payment of Exercise Price (note if cashless exercise pursuant to Section 3(i) of
the Warrant or cash exercise pursuant to Section 3(ii) of the Warrant, with
consent of the Company and the Warrantholder)   ___________________
___________

     

    Aggregate
Exercise Price: ______________________________

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                	 	 	
                                                        Holder:

                                                      	 
      	 
	 	 	
                                                        By:

                                                      	 
      	 
	 	 	
                                                        Name:

                                                      	 
      	 
	  
      	
                                                         
      

                                                      	
                                                        Title:

                                                      	
                                                         
      

                                                      	 

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    UST Sequence No. 195

    
      
        
           

        

        
          15

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a
duly authorized officer.

     

    Dated:
December 12, 2008

    

    
      
        
          
            
              	
                      CITIZENS
      SOUTH BANKING CORPORATION

                    
	 
      	 
      
	
                      By:

                    	/s/
      Kim S. Price 
	 
      	
                      Name:
      Kim S. Price

                    
	 
      	
                      Title:
      President and Chief Executive Officer

                    
	 
      	 
      
	
                      Attest:

                    
	 
      	 
      
	
                      By:

                    	
                      /s/ 
      Paul L. Teem, Jr. 

                    
	 
      	
                      Name:
      Paul L. Teem, Jr. 

                    
	 
      	
                      Title:
      Executive Vice President and Corporate

                               
      Secretary

                    

            

          

        

      

    

     

    [Signature
Page to Warrant]

     

    UST Sequence No. 195

    
      
        
           

        

        
          16

          
            

          

        

        
           

        

      

    

     

    UST Sequence Number: 195

     

    SCHEDULE A

     

    Item 1

    Name:
Citizens South Banking
Corporation.

    Corporate
or other organizational form: C
Corporation

    Jurisdiction
of organization: Delaware

     

    Item 2

    Exercise
Price: $7.17

     

    Item 3

    Issue
Date: December 12,
2008

     

    Item 4

    Amount of
last dividend declared prior to the Issue Date: $0.085 on October 20,
2008

     

    Item 5

    Date of
Letter Agreement between the Company and the United States Department of the
Treasury: December 12,
2008

     

    Item 6

    Number of
shares of Common Stock: 428,870

     

    Item 7

    Company’s
address: 519 South New Hope
Road, Gastonia, North Carolina 28054-4040

     

    Item
8

    Notice
information:  Gary F.
Hoskins

     
Citizens South Banking Corporation

     
519 South New Hope Road

     
Gastonia, North Carolina 28054-4040

     

    Initial
exercise price to be calculated based on the average of closing prices of the
Common Stock on the 20 trading days ending on the last trading day prior to the
date the Company’s application for participation in the Capital Purchase Program
was approved by the United States Department of the Treasury.

     

    UST Sequence No. 195

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