LOAN AND SUBORDINATED DEBENTURE PURCHASE AGREEMENT

Exhibit 10.1

EXECUTION VERSION

LOAN AND SUBORDINATED DEBENTURE
PURCHASE AGREEMENT

BETWEEN

JPMORGAN CHASE BANK, N.A.

AND

GATEWAY FINANCIAL HOLDINGS, INC.

Dated as of May 30, 2008

TABLE OF CONTENTS

SCHEDULES:

Schedule 3.1 — Subsidiaries
Schedule 3.5 — Title and Rights
Schedule 3.9 — Reserve for Possible Loan and Lease Losses
Schedule 3.10 — No Liens
Schedule 4.1 — Permitted Debt

EXHIBITS:

Exhibit A — Term Promissory Note
Exhibit B — Senior Revolving Promissory Note
Exhibit C — Subordinated Debenture
Exhibit D — Confirmation
Exhibit E — Form of Pledge and Security Agreement
Exhibit F — Opinion of Borrower’s Counsel
Exhibit G — Quarterly Compliance Certificate

LOAN AND SUBORDINATED DEBENTURE
PURCHASE AGREEMENT

     This LOAN AND SUBORDINATED DEBENTURE PURCHASE AGREEMENT (the “Agreement”), dated as of this 30th day of May, 2008, is entered into between JPMORGAN CHASE BANK, N.A., a national banking association having a place of business at 10 South Dearborn Street, Chicago, Illinois 60603 (the “Lender”), and GATEWAY FINANCIAL HOLDINGS, INC., a North Carolina corporation, having its principal place of business at 1580 Laskin Road, Virginia Beach, Virginia 23451 (the “Borrower”).

RECITALS :

     A. The Borrower is a bank holding company that owns 100% of the outstanding capital stock of Gateway Bank & Trust Co., a North Carolina banking corporation with its main banking premises located at 1145 North Road Street, Elizabeth City, North Carolina 27909 (the “Bank”). The outstanding capital stock of the Bank may be referred to as the “Bank Shares.”

     B. The Lender and the Borrower have entered into that certain Credit Agreement, dated as of May 31, 2007 (the “2007 Loan Agreement”), pursuant to which the Lender provides the Borrower a revolving line of credit in the maximum principal amount of Twenty Million Dollars ($20,000,000) (the “Senior Revolving Loan”).

     C. The parties hereto desire to restate the Senior Revolving Loan contemplated by the 2007 Loan Agreement in accordance with the terms contemplated herein and, in addition, to provide for the extension of two additional credit facilities.

     D. This Agreement contemplates that the Lender will provide the Borrower with three (3) credit facilities in the aggregate principal amount of Forty Million Five Hundred Thousand Dollars ($40,500,000) consisting of (a) a term loan in the principal amount of Five Hundred Thousand Dollars ($500,000) (the “Term Loan”); (b) the Senior Revolving Loan; and (c) a subordinated debt facility in the aggregate principal amount of Twenty Million Dollars ($20,000,000) (the “Subordinated Debt”). The Term Loan and the Senior Revolving Loan may be referred to together as the “Senior Loans,” and the Senior Loans and the Subordinated Debt may be referred to collectively as the “Loans.” The proceeds from the Term Loan shall be used for general capital needs. The proceeds from the Senior Revolving Loan shall be used for general corporate purposes. The proceeds from the Subordinated Debt shall be used for general capital needs. In addition, the Subordinated Debt is intended to qualify as Tier 2 capital under applicable rules and regulations promulgated by the Board of Governors of the Federal Reserve System (the “FRB”).

     E. The Lender is willing to lend to the Borrower up to an aggregate principal amount of Forty Million Five Hundred Thousand Dollars ($40,500,000) under the Loans in accordance with the terms, subject to the conditions and in reliance on the representations, warranties and covenants set forth herein and in the other documents and instruments entered into or delivered in connection with or relating to the Loans (collectively, including this Agreement, the “Loan Documents”).

     NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

AGREEMENT :

ARTICLE I
THE LOAN AND THE NOTES

      1.1 Certain Definitions . As used in this Agreement, the following terms shall have the following definitions.

          (a) “ Advance ” shall mean any advance made with respect to the Loans and shall include the initial Advances made at Closing (as defined below), other new Advances and Advances that result from the conversion or renewal of previous Advances.

          (b) “ Affiliate(s) ” shall mean, with respect to any Person, such Person’s immediate family members, partners, members or parent and subsidiary corporations, and any other Person directly or indirectly controlling, controlled by, or under common control with, said Person, and their respective Affiliates, members, shareholders, directors, officers, employees, agents and representatives.

          (c) “ Business Day ” shall mean (i) for all purposes other than as covered by clause (ii) hereof, any day, other than Saturday, Sunday, a day that is a legal holiday under the laws of the State of Illinois or any other day on which banking institutions located in Illinois are authorized or required by law or other governmental action to close; and (ii) with respect to determinations in connection with, and payments of principal and interest in Eurodollar Advances, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar-denominated deposits in the London Interbank Eurodollar Market.

          (d) “ Early Termination Date ” means the date, pursuant to Section 5.7 of this Agreement, upon which, whether by notice or by right hereunder, the Lender’s obligation to make Advances under the Subordinated Debt is terminated.

          (e) “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

          (f) “ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

          (g) “ ERISA Event ” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the failure with respect to any Plan to meet the minimum funding standard (as defined in Section 412 of the Code or Section 302 of ERISA),

whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the Pension Benefit Guaranty Corporation (“PBGC”) or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

          (h) “ Eurodollar Advance ” shall mean an Advance that bears interest based on the LIBOR Rate.

          (i) “ Eurodollar Reserve Requirement ” shall mean the maximum reserve requirement percentage (expressed as a decimal) as specified in Regulation D of the FRB that the Lender determines would be applicable on the first day of any Interest Period in respect of any Eurodollar Advance, but subject to any amendments to such reserve requirement by the FRB, and taking into account any transitional adjustments thereto becoming effective during such Interest Period. Eurodollar Advances shall be deemed to be Eurocurrency liabilities as defined in Regulation D without benefit of or credit for prorations, exemptions or offsets under Regulation D.

          (j) “ Interest Period ” shall mean a period of 90 days, plus or minus one or two days, with respect to a Eurodollar Advance; provided that no Interest Period shall extend beyond the Maturity Date (as defined below) for any Loan or such earlier date on which amounts outstanding under any such Loan shall become due and payable on account of acceleration by the Lender in accordance with the terms of this Agreement.

          (k) “ LIBOR Rate ” means, with respect to each Interest Period, a rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula:

          (l) “ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

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

          (n) “ Plan ” means any employee pension benefit plan (other than a Multiemployer

Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

          (o) “ Prime Rate ” shall mean the rate of interest (expressed as a percentage per annum) most recently announced or published publicly from time to time by the Lender as its prime rate or base rate of interest, which is not necessarily the lowest or most favorable rate of interest charged by the Lender on commercial loans at any one time. The rate of interest shall change automatically and immediately as and when the prime rate or base rate shall change, without notice to the Borrower, and any notice to which it may be entitled is hereby waived, and any such change in the Lender’s prime rate or base rate shall not affect any of the terms and conditions of any of the Notes (as defined below) or this Agreement, all of which shall remain in full force and effect.

          (p) “ Prime Rate Advance ” shall mean an Advance that bears interest based on the Prime Rate.

          (q) “ Quoted Rate ” shall mean, with respect to each Interest Period, the average of the rates per annum quoted to the Lender in accordance with Lender’s normal practice in the London Interbank Eurodollar Market for U.S. Dollar deposits with prime banks as such average appears on Reuters Screen LIBOR01 Page or any successor thereto, at approximately 11:00 a.m., London time, two (2) Business Days before the first day of any Interest Period for a period of time equal to 90 days.

          (r) “ Subordinated Debt Termination Date ” means the earliest to occur of (i) May 30, 2015 or (ii) the Early Termination Date.

          (s) “ Subsidiary ” means the Bank and any other corporation or other entity of which any of the following is directly or indirectly owned by the Borrower: shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person that is not a corporation, and any and all warrants, options or other rights to purchase any of the foregoing.

          (t) “ Swap Agreement ” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.

          (u) “ TP Indentures ” means collectively (i) that certain indenture dated as of August 1, 2003 between the Borrower and U.S. Bank National Association, as trustee, as amended, restated, supplemented or modified from time to time; (ii) that certain indenture dated as of June 17, 2004 between the Borrower and Wilmington Trust Company, as trustee, as

amended, restated, supplemented or modified from time to time; (iii) that certain indenture dated as of May 31, 2006 between the Borrower and Wilmington Trust Company, as trustee, as amended, restated, supplemented or modified from time to time; and (iv) that certain indenture dated as of May 31, 2007 between the Borrower and Wilmington Trust Company, as trustee, as amended, restated, supplemented or modified from time to time.

          (v) “ TP Junior Subordinated Debentures ” means the floating rate junior subordinated deferrable interest debentures issued by the Borrower pursuant to the TP Indentures.

      1.2 The Loans . The Lender agrees to extend to the Borrower the following credit facilities in the aggregate principal amount of Forty Million Five Hundred Thousand Dollars ($40,500,000):

          (a) The Term Loan . The Lender agrees to extend the Term Loan to the Borrower in accordance with the terms of, and subject to the conditions set forth in, this Agreement, the Term Note (as defined below) and the other Loan Documents. An initial Advance under the Term Loan shall be made on the Closing Date (as defined below) and, thereafter, any such Advance may be converted or renewed from time to time in accordance with the terms and subject to the conditions set forth in this Agreement. Subject to Section 1.5 and Section 1.6 any Advance under the Term Loan shall be treated as a Eurodollar Advance and shall bear interest per annum at a rate equal to the LIBOR Rate plus one and one-half percent (1 ¹ / 2 %) ( i.e. , one hundred and fifty basis points).

The unpaid principal balance plus all accrued but unpaid interest on the Term Loan shall be due and payable on May 30, 2015 (the “Term Loan Maturity Date”), or such earlier date on which such amount shall become due and payable on account of acceleration by the Lender in accordance with the terms of the Term Note and this Agreement.

          (b) The Senior Revolving Loan . The Lender agrees to extend the Senior Revolving Loan to the Borrower in accordance with the terms of, and subject to the conditions set forth in, this Agreement, the Senior Revolving Note (as defined below) and the other Loan Documents. The Borrower may request Advances under the Senior Revolving Loan from time to time for advance under the Senior Revolving Loan, but which shall not exceed, in the aggregate principal amount at any time outstanding, $20,000,000. Any such Advance may be converted or renewed from time to time in accordance with the terms and subject to the conditions set forth in this Agreement. Subject to Section 1.5 and Section 1.6 , any Advance under the Senior Revolving Loan shall be treated as a Eurodollar Advance and shall bear interest per annum at a rate equal to the LIBOR Rate plus one and one-fourth percent (1 ¹ / 4 %) ( i.e. , one hundred and twenty-five basis points).

The unpaid principal balance plus all accrued but unpaid interest on the Senior Revolving Loan shall be due and payable on May 30, 2010, or such later date through which the Senior Revolving Loan may be extended or renewed (the “Senior Revolving Loan Maturity Date”), or such earlier date on which such amount shall become due and payable on account of acceleration by the Lender in accordance with the terms of the Senior Revolving Note and this Agreement.

          (c) The Subordinated Debt . The Lender agrees to extend the Subordinated Debt to the Borrower in accordance with the terms of, and subject to the conditions set forth in, this Agreement, the Subordinated Debenture (as defined below) and the other Loan Documents. An initial Advance in an amount equal to the entire principal amount of the Subordinated Debt shall be borrowed on the Closing Date and, thereafter, any such Advance may be converted or renewed from time to time in accordance with the terms and subject to the conditions set forth in this Agreement. Subject to Section 1.5 and Section 1.6 , any Advance under the Subordinated Debt shall be treated as a Eurodollar Advance and shall bear interest per annum at a rate equal to three percent (3%) ( i.e. , three hundred basis points) plus the LIBOR Rate.

The unpaid principal balance plus all accrued but unpaid interest on the Subordinated Debt shall be due and payable on May 30, 2015, or such later date through which the Subordinated Debt may be extended or renewed (the “Subordinated Debt Maturity Date”), or such earlier date on which such amount shall become due and payable on account of acceleration by the Lender in accordance with the terms of Section 5.7 of this Agreement. Each of the Term Loan Maturity Date, the Senior Revolving Loan Maturity Date and the Subordinated Debt Maturity Date may be referred to in this Agreement as a “Maturity Date.”

      1.3 The Notes . The Loans shall be evidenced by the following instruments to be entered into concurrently herewith, substantially in the form of Exhibits A through C hereto, respectively: (a) with respect to the Term Loan, a promissory note in the principal amount of Five Hundred Thousand Dollars ($500,000) (as amended, restated, supplemented or modified from time to time, the “Term Note”); (b) with respect to the Senior Revolving Loan, a promissory note in the amount of Twenty Million Dollars ($20,000,000) (as amended, restated, supplemented or modified from time to time, the “Senior Revolving Note”); and (c) with respect to the Subordinated Debt, a subordinated debenture in the principal amount of up to Twenty Million Dollars ($20,000,000) (as amended, restated, supplemented or modified from time to time, the “Subordinated Debenture”). The term “Notes” as used in this Agreement shall mean the Term Note, the Senior Revolving Note and the Subordinated Debenture, and each note or debenture, as the case may be, delivered in substitution or exchange therefor; and the term “Note” as used in this Agreement shall mean any of the Term Note, Senior Revolving Note or Subordinated Debenture, and any note or debenture, as the case may be, delivered in substitution or exchange therefor. The term “Senior Notes” as used in this Agreement shall mean the Term Note and the Senior Revolving Note and any note delivered in substitution or exchange therefor.

      1.4 General Payment Provisions .

          (a) Principal and Interest Payments; Interest Rate .

          (i) Term Loan . All accrued but unpaid interest on the principal balance of the Term Loan outstanding from time to time shall be payable (a) on June 30, 2008, (b) at all times after June 30, 2008, the last day of each quarter, in arrears, and (c) with a final payment of all outstanding amounts due under the Term Note, including, but not limited to, principal, interest and any expenses pursuant to Section 1.8 of the Agreement, if not sooner paid, on the Term Loan Maturity Date. The Borrower shall pay to the Lender the aggregate outstanding principal amount of the Term Loan as follows:

               (A) twenty-eight (28) consecutive quarterly principal installments (to be based on a seven (7) year amortization) each due and payable on the last day of each quarter beginning with June 30, 2008; and

               (B) one final installment in the amount of all unpaid principal of the Term Loan due and payable on the Term Loan Maturity Date.

          (ii) Senior Revolving Loan . All accrued but unpaid interest on the principal balance of the Senior Revolving Loan outstanding from time to time shall be payable (a) on June 30, 2008, (b) at all times after June 30, 2008, the last day of each quarter, in arrears, and (c) with a final payment of all outstanding amounts due under the Senior Revolving Note, including, but not limited to, principal, interest and any expenses pursuant to Section 1.8 of the Agreement, if not sooner paid, on the Senior Revolving Loan Maturity Date. The Borrower shall pay to the Lender the aggregate outstanding principal amount of the Senior Revolving Loan in one final installment in the amount of all unpaid principal of the Senior Revolving Loan due and payable on the Senior Revolving Loan Maturity Date.

          (iii) Subordinated Debt . All accrued but unpaid interest on the principal balance of the Subordinated Debt outstanding from time to time shall be payable (a) on June 30, 2008, (b) at all times after June 30, 2008, the last day of each quarter, in arrears, and (c) with a final payment of all outstanding amounts due under the Subordinated Debenture, including, but not limited to, principal, interest and any expenses pursuant to Section 1.8 of the Agreement, if not sooner paid, on the Subordinated Debt Maturity Date. The Borrower shall pay to the Lender the aggregate outstanding principal amount of the Subordinated Debt as follows::

               (A) twenty (20) consecutive quarterly principal installments (to be based on a five (5) year amortization) each due and payable on the last day of each quarter beginning with June 30, 2010; and

               (B) one final installment in the amount of all unpaid principal of the Subordinated Debt due and payable on the Subordinated Debt Maturity Date.

          (iv)  General . All amounts outstanding from time to time under each Note shall bear interest on the basis of a 360-day year, counting the actual number of days elapsed.

          (b)  Usury . The parties hereto intend to conform strictly to applicable usury laws as in effect from time to time during the terms of the Loans. Accordingly, if the transaction contemplated hereby would be usurious under applicable law (including the laws of the United States of America, or of any other jurisdiction whose laws may be mandatorily applicable), then, in that event, notwithstanding anything to the contrary in this Agreement or any Note, the Borrower and the Lender agree that the aggregate of all consideration that constitutes interest under applicable law that is contracted for, charged or received under or in connection with this Agreement shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited to the Borrower by the Lender (or if such consideration shall have been paid in full, such excess refunded to the Borrower by the Lender).

          (c)  Default Rate of Interest . Upon the occurrence of any Default (as such term is defined in Section 5.1 ), except for a Default pursuant to Section 5.1(k) , the rate of interest on the Notes (the “Default Rate of Interest”) shall be three percent (3%) above the interest rate otherwise applicable from the date of occurrence, and during the continuance, of the Default; provided, further, that upon the occurrence of a Default under Section 5.1(k) hereof, the Default Rate of Interest shall be six percent (6%) above the interest rate otherwise applicable from the date, and during the continuance, of the Default. Notwithstanding anything to the contrary set forth in this Section 1.4(c) or elsewhere in this Agreement, the Default Rate of Interest shall apply with respect to a Default relating to the Subordinated Debt if, and only if, such Default occurs pursuant to Section 5.1(a) or such Default is one with respect to which the Lender would be entitled to declare the Subordinated Debenture immediately due and payable pursuant to Section 5.7 of this Agreement.

          (d)  Application of Payments . Subject to Section 1.4(f)(ii) , all payments received by the Lender from or on behalf of the Borrower shall first be applied to amounts due under Section 1.8 , second to accrued interest under the Subordinated Debenture, third to accrued interest under the Senior Revolving Note, fourth to accrued interest under the Term Note, fifth to principal amounts outstanding under the Senior Revolving Note, sixth to principal amounts outstanding under the Subordinated Debenture and then to principal amounts outstanding under the Term Note; provided, however, subject to Section 5.7 , that after the date on which the final payment of principal with respect to any Loan is due or following and during any Default, all payments received on account of the Borrower’s Liabilities (as defined below) shall be applied in whatever order, combination and amounts as the Lender, in its sole and absolute discretion, decides, to all costs, expenses and other indebtedness owing to the Lender. No amount paid or prepaid on the Term Note or Subordinated Debenture may be reborrowed.

          (e)  Method of Payment . The Borrower will pay to the Lender in immediately available funds, at its office at the address as specified in Section 6.3 , or such other address as the Lender shall specify in writing, all amounts payable to it in respect of the principal of, or interest on, each Note then held by the Lender, without any presentation of any such Note. The Lender may, if it so determines, make notation of each payment of principal on the appropriate Note, and it will promptly make such notation if the Borrower shall so request. The Lender may also, if it so determines, make notation on the face of any Note or elsewhere of any modification, amendment, alteration, guaranty or assumption of such Note. The aggregate unpaid principal amount shown on the face of, or elsewhere on, such Note shall be rebuttable presumptive evidence of the principal amount owing and unpaid on such Note. The failure to record any such amount on such schedule, however, shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Note.

          (f)  Prepayment . Subject to Section 1.6(d) , the Borrower may, upon at least one Business Day’s notice to the Lender, prepay, without a prepayment fee, all or a portion of the principal amount outstanding under either the Senior Revolving Loan or the Subordinated Debt by paying the principal amount to be prepaid, together with unpaid accrued interest thereon to the date of prepayment. Notwithstanding anything to the contrary set forth in the immediately preceding sentence, the date of any prepayment pursuant to this Section 1.4(f) shall be considered to be the Business Day following receipt of the prepayment by the Lender unless such prepayment is received by the Lender before 1:00 p.m. (Chicago time) and is made in

immediately available funds. Notwithstanding anything to the contrary set forth in this Agreement or in any other Loan Document, principal amounts outstanding under the Term Loan may not be prepaid without the written consent and approval of the Lender, which consent and approval may be withheld at the Lender’s sole and absolute discretion; provided, however, that if all amounts outstanding under all other indebtedness owing from the Borrower to the Lender have been repaid and the Borrower has satisfied in full all other financial obligations to the Lender, then the Borrower may prepay by paying the principal amount to be prepaid together with unpaid accrued interest thereon to the date of prepayment. Notwithstanding anything to the contrary set forth in this Agreement or in any other Loan Document, for any prepayment of all or, from time to time, part of the outstanding unpaid principal balance under the Subordinated Debenture at any time, Borrower shall pay to Lender a prepayment fee in an amount equal to 0.50% of the principal amount so prepaid, in a form acceptable to the Lender.

          (g)  Crediting of Payments; Payments to be Made on Business Days . The date of any payment under the Notes, including any prepayment, shall be considered to be the Business Day following receipt of the payment by the Lender unless such payment is received by the Lender before 1:00 p.m. (Chicago time) and is made in immediately available funds. If any payment to be made by the Borrower hereunder shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing any interest in respect of such payment.

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

      1.5 Certain Matters Regarding Eurodollar Advances; Capital Adequacy .

          (a)  Changes; Legal Restrictions . In the event the adoption of or any change in any law, treaty, rule, regulation, guideline or the interpretation or application thereof by a Governmental Agency (as defined below) (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) either (i) subjects the Lender to any tax (other than income taxes or franchise taxes not specifically based on loan transactions), duty or other charge of any kind with respect to any Eurodollar Advance or changes the basis of taxation of payments to the Lender of principal, fees, interest or any other amount payable in connection with a Eurodollar Advance, or (ii) imposes on the Lender any other condition materially more burdensome in nature, extent or consequence than those in existence as of the date of this Agreement, and the result of any of the foregoing is to increase the cost to the Lender of making, renewing or maintaining any Eurodollar Advances or to reduce any amount receivable thereunder; then, in any such case, the Borrower shall promptly pay to the Lender, as applicable, upon demand, such amount or amounts as may be necessary to compensate the Lender for any such additional cost incurred or reduced amounts received.

          (b)  LIBOR Rate Lending Unlawful . If the Lender shall determine (which determination shall, upon notice thereof to the Borrower, be conclusive and binding in the absence of readily demonstrable error) that the adoption of or any change in any law, treaty, rule, regulation, guideline or in the interpretation or application thereof by any Governmental Agency makes it unlawful for the Lender to make or maintain any Eurodollar Advance, (i) the obligation

of the Lender to make or continue any Eurodollar Advance shall, upon such determination, forthwith be suspended until the Lender shall notify the Borrower that the circumstances causing such suspension no longer exist, and (ii) if required by such law, interpretation or application, all Eurodollar Advances shall automatically convert into Prime Rate Advances.

          (c)  Unascertainable Interest Rate . If the Lender shall have determined in good faith that adequate means do not exist for ascertaining the interest rate applicable hereunder to Eurodollar Advances, then, upon notice from the Lender to the Borrower, the obligations of the Lender to make or continue Eurodollar Advances shall forthwith be suspended, and thereafter the Loans shall continue as Prime Rate Advances until the Lender shall notify the Borrower that the circumstances causing such suspension no longer exist. The Lender will give such notice when it determines, in good faith that such circumstances no longer exist; provided, however, that the Lender shall not have any liability with respect to any delay in giving such notice.

          (d)  Funding Losses . In the event the Lender shall incur any loss or expense (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender to make or maintain any Eurodollar Advance) as a result of any continuance, conversion, repayment or prepayment of the principal amount of, or failure to make or termination of, any Eurodollar Advance on a date other than the scheduled last day of the Interest Period applicable thereto, then, upon the written notice of such from the Lender to the Borrower, the Borrower shall reimburse the Lender for such loss or expense within three Business Days after receipt of such notice. Such written notice (which shall include calculations in reasonable detail) shall be conclusive and binding in the absence of readily demonstrable error.

          (e)  Additional Interest on Eurodollar Advance . So long as and to the extent the Lender shall be required under regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency liabilities (as defined in the definition of Eurodollar Reserve Requirement in Section 1.1 ), and the Lender’s performance under this Agreement shall have given rise to additional reserve requirements for the Lender thereunder, the Borrower shall pay to the Lender additional interest on the unpaid principal amount of each Eurodollar Advance. Such additional interest shall accrue from the later of the date such reserve requirement commences and the date of the first disbursement under such Eurodollar Advance until the earlier of the date such reserve requirement ends and the date the principal amount of such Eurodollar Advance is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the LIBOR Rate for the Interest Period for such Eurodollar Advance from (ii) the rate obtained by dividing the LIBOR Rate by a percentage equal to 100% minus the Eurodollar Reserve Requirement as in effect from time to time during such Interest Period. The Lender shall, as soon as practicable but not later than the last day of the Interest Period, provide notice to the Borrower of any such additional interest arising in connection with such Eurodollar Advance and the certification of the Lender that the additional amount is due and that the additional reserve requirement is applicable to such Eurodollar Advance. Such additional interest shall be payable directly to the Lender on the dates specified herein for payment of interest.

          (f)  Notice of Changes or Increased Costs Relating to Eurodollar Advance . The Lender agrees that, as promptly as reasonably practicable after it becomes aware of the

occurrence of an event or the existence of a condition which would cause it to be affected by any of the events or conditions described in this Section 1.5 , it will notify the Borrower of such event and the possible effects thereof, provided that the failure to provide such notice shall not affect the Lender’s rights to reimbursement provided for herein.

          (g)  Capital Adequacy . If the Lender shall reasonably determine that the application or adoption of any law, rule, regulation, directive, interpretation, treaty or guideline regarding capital adequacy, or any change therein or in the interpretation or administration thereof, whether or not having the force of law (including, without limitation, application of changes to Regulation H and Regulation Y of the FRB issued by the FRB on January 19, 1989) increases the capital required or expected to be maintained by the Lender or any Person controlling the Lender, and such increase is based upon the existence of the Lender’s obligations hereunder and under other commitments of this type, then, within 10 days after demand from the Lender, the Borrower shall pay to the Lender, from time to time, such amount or amounts as will compensate the Lender or such controlling Person, as the case may be, for such increased capital requirement. The determination of any amount to be paid by the Borrower under this Section 1.5(g) shall take into consideration the policies of the Lender or of any Person controlling the Lender with respect to capital adequacy and shall be based upon any reasonable averaging, attribution and allocation methods. A certificate of the Lender setting forth the amount or amounts as shall be necessary to compensate the Lender as specified in this Section 1.5(g) shall be delivered to the Borrower and shall be conclusive and binding in the absence of readily demonstrable error.

      1.6 Determination of Interest Rate on Advances; Renewals and Conversions .

          (a)  Notification by the Borrower to Establish Interest Rate . So long as no Event of Default has occurred and is continuing and the conditions set forth in Section 2.1 (for any Advance on the Closing Date) and in Section 2.2 (for all Advances) have been satisfied, the Borrower shall have the option, subject to the other provisions of this Agreement, to (i) request that Advances under any Loan on the Closing Date be treated as a Prime Rate Advance by giving telephonic notice to the Lender prior to 11:00 a.m. (Chicago time) at least one (1) Business Day prior to the Closing Date or such other requested later date of the Advance, or as a Eurodollar Advance by giving telephonic notice to the Lender prior to 11:00 a.m. (Chicago time) at least two (2) Business Days prior to the Closing Date or such other requested later date of the Advance; provided that the Borrower gives the Lender written confirmation of its telephonic notice in the form of Exhibit D hereto by facsimile prior to the Closing Date, and (ii) convert (from one type of Advance to another type of Advance), on any Business Day, all, but not any partial amount, of the outstanding principal amount of any Advance by giving at least two (2) Business Days prior telephonic notice thereof in the case of a conversion to a Eurodollar Advance, or one (1) Business Day prior telephonic notice thereof in the case of a conversion to a Prime Rate Advance, to the Lender; provided that the Borrower gives the Lender written confirmation of its telephonic notice in the form of Exhibit D hereto by facsimile prior to the day any such conversion is made hereunder. In the absence of notice to the contrary pursuant to the immediately preceding sentence and subject to the requirements set forth in this Agreement, an existing Advance will automatically be renewed as the same type of Advance on the last day of the current Interest Period to take effect for the next Interest Period. No Eurodollar Advance may be converted into a Prime Rate Advance pursuant to this Section 1.6(a) except on the last

day of the Interest Period applicable to such converting Advance.

          (b)  Determination of LIBOR Rate . The Lender’s determination of the LIBOR Rate from time to time as provided in this Agreement shall be conclusive and binding in the absence of readily demonstrable error.

          (c)  Event of Default . In the event an Event of Default has occurred and is continuing or the conditions set forth in Article II have not been satisfied on the date of a requested Eurodollar Advance (including a renewal of a Eurodollar Advance or the conversion of a Prime Rate Advance into a Eurodollar Advance), then such Eurodollar Advance shall be treated as a Prime Rate Advance.

          (d)  Prepayment of Eurodollar Advances . The Borrower’s right to prepay any Eurodollar Advance on a date prior to the last day of the Interest Period applicable to such Eurodollar Advance is subject to Borrower’s obligation under Section 1.5(d) .

      1.7 Collateral . The Borrower’s obligations under this Agreement, the Term Note, the Senior Revolving Note and any other Loan Documents (other than the Subordinated Debenture) (collectively, the “Borrower’s Liabilities”), shall be secured by a pledge of the Bank Shares pursuant to the terms of a Pledge and Security Agreement dated as of the Closing Date between the Borrower and the Lender (the “Pledge Agreement”) in the form attached as Exhibit E hereto. Notwithstanding anything to the contrary in any Loan Document, the obligations of the Borrower to the Lender under the Subordinated Debenture shall be unsecured.

      1.8 Expenses . Whether or not the Loans are made, the Borrower will (a) pay all reasonable costs and expenses of the Lender incident to the transactions contemplated by this Agreement including, but not limited to, all costs and expenses incurred in connection with the preparation, negotiation and execution of the Loan Documents, or in connection with any modification, amendment, alteration or enforcement of this Agreement, the Notes or the other Loan Documents, including, without limitation, the Lender’s expenses and the charges and disbursements to counsel retained by the Lender, and (b) pay and save the Lender and all other holders of the Notes harmless against any and all liability with respect to amounts payable as a result of (i) any taxes, other than income tax obligations of the Lender, that may be determined to be payable in connection with the execution and delivery of this Agreement, the Notes or the other Loan Documents or any modification, amendment or alteration of the terms or provisions of this Agreement, the Note or the other Loan Documents, (ii) any interest or penalties resulting from nonpayment or delay in payment by the Borrower of such expenses, charges, disbursements, liabilities or taxes, and (iii) any income taxes in respect of any reimbursement by the Borrower for any of such violations, taxes, interests or penalties paid by the Lender. The obligations of the Borrower under this Section 1.8 shall survive the repayment in full of the Notes. Any of the foregoing amounts incurred by the Lender and not paid by the Borrower upon demand shall bear interest from the date incurred at the rate of interest in effect or announced by the Lender from time to time as its prime rate of interest plus three percent (3%) per annum and shall be deemed part of the Borrower’s Liabilities hereunder.

      1.9 The Closing . The initial funding of the Loans (the “Closing”) will occur at the offices of the Borrower at 1580 Laskin Road, Virginia Beach, Virginia at 12:00 p.m. on May 30,

2008 (the “Closing Date”), or at such other place or time or on such other date as the parties hereto may agree, by disbursing the proceeds of the Loans in accordance with the Borrower’s written instructions received at least one Business Day prior to Closing (the “Instructions”).

ARTICLE II
CONDITIONS

     The Lender’s obligation to make the Loans shall be subject to the performance by the Borrower prior to the Closing Date of all of its agreements theretofore to be performed under this Agreement and to the satisfaction of the following further conditions precedent:

      2.1 Closing Deliveries and Payments . The obligation of the Lender to make the Loans is, in addition to the conditions precedent specified elsewhere in this Article II , subject to the condition precedent that the Lender shall have received all of the following, where appropriate, duly executed and dated the Closing Date and in form and substance satisfactory to the Lender and its counsel:

          (a) the Notes;

          (b) the Pledge Agreement;

          (c) the actual certificates representing all of the securities constituting the Pledged Stock (as defined in the Pledge Agreement) together with irrevocable stock powers for each such certificate endorsed by the Borrower in blank;

          (d) the Instructions;

          (e) copies certified by the appropriate secretary of state or Governmental Agency (as such term is defined in Section 2.1(i) ) of (i) the certificate of incorporation of the Borrower and (ii) the charter of the Bank;

          (f) letters of good standing for the Borrower and the Bank issued by the North Carolina Department of Revenue and certificates of existence for the Borrower and the Bank issued by the Secretary of State of the State of North Carolina;

          (g) copies certified by the Secretary or an Assistant Secretary of the Borrower of the Bylaws of the Borrower and the Bank;

          (h) copies certified by the Secretary or an Assistant Secretary of the Borrower of resolutions of the board of directors of the Borrower authorizing the execution, delivery and performance (including the authority to pledge the Pledged Stock) of this Agreement, the Notes and the other Loan Documents;

          (i) copies certified by the Secretary or an Assistant Secretary of the Borrower of all documents evidencing all necessary consents, approvals and determinations of any federal, state or local governmental department, commission, board, regulatory authority or agency including, without limitation, the FRB, the North Carolina Commissioner of Banks (the “NCCB”), the Securities and Exchange Commission (the “SEC”), and the Federal Deposit

Insurance Corporation (the “FDIC”) (collectively, the “Governmental Agencies” or individually, a “Governmental Agency”) with respect to the transactions contemplated in the Loan Documents and any other transactions between the Lender and Borrower or the Bank;

          (j) an incumbency certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names of the officer or officers of the Borrower authorized to sign this Agreement, the Notes and the other documents provided for in this Agreement, together with a sample of the true signature of each such officer (the Lender may conclusively rely on such certificate until formally advised by a like certificate of any changes therein);

          (k) the opinion of Williams Mullen, counsel for the Borrower, substantially in the form of Exhibit F hereto;

          (l) evidence that any pledge, lien, security interest, charge or encumbrance with respect to the Bank Shares for the benefit of any party other than the Lender shall have been released;

          (m) payment to the Lender, in a form acceptable to the Lender, of (i) a structuring fee in the amount of $100,000, and (ii) all amounts required to be paid by the Borrower pursuant to Section 1.8 of this Agreement;

          (n) such UCC, tax lien and judgment searches as the Lender shall determine regarding the Borrower and its subsidiaries pertaining to the jurisdictions in which the Borrower and such subsidiaries are organized and headquartered;

          (o) a certificate signed by the President or a Vice President of the Borrower certifying that the conditions specified in Article II have been satisfied;

          (p) such other additional information regarding the Borrower, any Subsidiary and their respective assets, liabilities (including any liabilities arising from, or relating to, legal proceedings) and contracts as the Lender may require in its sole discretion; and

          (q) such other certificates, affidavits, schedules, resolutions, opinions, notes and/or other documents which are provided for hereunder or as the Lender may reasonably request.

      2.2 Other Conditions of Borrowing .

     Notwithstanding any other provision of this Agreement, the Lender shall not be required to make any Advance under any Loan, or to renew or convert any Advance, at any time that any of the following shall be true:

          (a) if there has occurred, in the Lender’s sole and complete discretion, a material adverse change in the financial condition or affairs of the Borrower or the Bank since the date of the Financial Statements (as defined below);

          (b) if the representations and warranties of the Borrower contained in Article III and the information set forth in Paragraph A of the Recitals hereto shall not be true on and as of

the date of any Advance, with the same effect as though such representations and warranties had been made on and as of such date;

          (c) if any Default or Event of Default (as defined below) has occurred;

          (d) if any litigation or governmental proceeding has been instituted or threatened in writing against the Borrower or the Bank or any of their officers or shareholders, or any legislation has been passed, in either case which, in the sole discretion of the Lender, may materially and adversely affect the financial condition or operations of the Borrower or the Bank;

          (e) if all necessary or appropriate actions and proceedings shall not have been taken in connection with, or relating to, the transactions contemplated hereby and all documents incident thereto shall not have been completed and tendered for delivery, in substance and form satisfactory to the Lender, including, but not limited to, if appropriate in the opinion of the Lender, the Lender’s failure to have received evidence that all necessary approvals from Governmental Agencies to enter into this Agreement and to consummate the transactions contemplated herein have been received;

          (f) if the Lender shall not have received in substance and form reasonably satisfactory to the Lender, all certificates, affidavits, schedules, resolutions, opinions, notes, and/or other documents which are provided for hereunder, or which it may reasonably request;

          (g) if the Lender shall not have received, in immediately available funds, any payment of any other amount owing to the Lender pursuant to this Agreement; or

          (h) any of the Bank Shares are subject to any pledge, lien, security interest, charge or encumbrance other than in favor of the Lender.

The Lender’s refusal to disburse any proceeds of the Loans on account of the provisions of Section 2.1 or this Section 2.2 shall not alter or diminish any of the Borrower’s other obligations hereunder or otherwise prevent any breach or default by the Borrower hereunder from becoming an Event of Default or a Default. Each request submitted by the Borrower pursuant to Section 1.6(a) shall constitute an affirmation that the Borrower has performed, observed and complied with its covenants, conditions and agreements contained herein in all material respects and that all representations and warranties made by the Borrower hereunder continue to be true and correct as of the date of such request.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

     To induce the Lender to make the Loan provided for herein, the Borrower represents and warrants, and covenants, as set forth below.

      3.1 Organization and Status . (1) Borrower is a North Carolina corporation registered as a federal bank holding company under the laws of the United States which has elected with the FRB to become a financial holding company, and Borrower and each of its Subsidiaries are each duly organized, validly existing and in good standing under the laws of its organization and is duly qualified to do business and is in good standing under the laws of each state in which the

ownership of its properties and the nature and extent of the activities transacted by it makes such qualification necessary. (2) Borrower has no Subsidiary other than those listed on Schedule 3.1 and each Subsidiary is owned by Borrower or another of its Subsidiaries in the percentage set forth on Schedule 3.1 . The deposit accounts of the Bank are insured by the FDIC. The Borrower and the Bank have made payment of all franchise and similar taxes as are due and payable as of the date of this Agreement in the State of North Carolina and in all of the respective jurisdictions in which they are incorporated, chartered or qualified, and so far as such taxes are due and payable at the date of this Agreement.

      3.2 Financial Statements. All financial statements delivered to the Lender are complete and correct and fairly present, in accordance with GAAP, the financial condition and the results of operations of Borrower and each Subsidiary of Borrower, as at the dates and for the periods indicated. No material adverse change has occurred in the assets, liabilities, financial condition, business or affairs of the Borrower or any of its Subsidiaries since the dates of such financial statements dated March 31, 2008. Neither Borrower nor any of its Subsidiaries is subject to any instrument or agreement materially and adversely affecting its financial condition, business or affairs.

      3.3 Enforceability . This Agreement, the Notes, and the other Loan Documents have been duly authorized, executed and delivered by the parties thereto and are valid and binding agreements of the parties, enforceable according to their terms, except as the enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and subject to general principles of equity. The execution, delivery and performance of the Agreement, the Notes and the other Loan Documents and the obligations that they impose, do not violate any legal requirement, applicable law or regulation, conflict with any agreement by which any party is bound, or require any Governmental Authorizations, as defined below, or other third party which has not been promptly obtained in connection with the execution and delivery of the Agreement and the other Loan Documents.

      3.4 Litigation . There is no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower, any of its Subsidiaries or any other obligor pending or threatened, and no other event has occurred which may in any one case or in the aggregate materially adversely affect Borrower, any of its Subsidiaries, any other obligor or any of their respective financial conditions and properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by the Lender in writing.

      3.5 Title and Rights . Except as provided on Schedule 3.5 , Borrower and each of its Subsidiaries have good and marketable title to its properties, free and clear of any lien except for those liens permitted by the Agreement and the other Loan Documents. Borrower and each of its Subsidiaries possess all permits, licenses, patents, trademarks and copyrights required to conduct their respective businesses.

      3.6 Regulation U; Business Purpose . None of the proceeds of any of the Loans will be used to purchase or carry, directly or indirectly, any margin stock or for any other purpose which would make this credit a “purpose credit” within the meaning of Regulation U or not an exempt transaction under Regulation U. All Loans will be used for business purposes and for the

express purposes that Borrower has informed the Lender that it will use the credit. None of the stock of the Borrower’s Subsidiaries is margin stock as defined in Regulation U.

      3.7 Capital Stock of the Borrower’s Subsidiaries . (1) All of the issued and outstanding capital stock of each of Borrower’s Subsidiaries (the “Borrower’s Current Subsidiaries’ Shares”) has been duly authorized, legally and validly issued, fully paid and non-assessable, and the Borrower’s Current Subsidiaries’ Shares are owned by Borrower, free and clear of all liens, except as may exist for the benefit of the Lender; (2) none of the Borrower’s Current Subsidiaries’ Shares have been issued in violation of any shareholder’s preemptive rights; and (3) there are, as of the date of this Agreement, no outstanding options, rights, warrants, plans, understandings or other agreements or instruments obligating Borrower to issue, deliver or sell, or cause to be issued, delivered or sold, or contemplating or providing for the issuance of, additional shares of the capital stock of the Borrower’s Subsidiaries, or obligating Borrower or Borrower’s Subsidiaries to grant, extend or enter into any such agreement or commitment.

      3.8 Regulatory Enforcement Actions . None of Borrower or any of its Subsidiaries, or any of their respective officers or directors, is now operating under or will operate under any effective written restrictions agreed to by Borrower, or by any of their Subsidiaries, or agreements, memoranda, or written commitments by the Borrower, or by any of their Subsidiaries (other than restrictions of general application) imposed by any Governmental Agency, nor are any such restrictions threatened or agreements, memoranda or commitments being sought by any Governmental Agency.

      3.9 Reserve for Possible Loan and Lease Losses . The reserves for possible loan and lease losses shown in the most recently delivered financial statements pursuant to Section 4.2(a)(i) , with respect to the Borrower and in the Reports of Condition and Income (“Call Reports”) of the Bank are adequate in all respects to provide for losses, net of recoveries relating to loans previously charged off, on loans and leases outstanding as of the date of such statements or reports, as of the date of such statements or reports. Except for loans listed on Schedule 3.9 , to the Borrower’s knowledge, the aggregate principal amount of loans contained in the loan portfolio of the Bank in excess of the corresponding reserve is fully collectible.

      3.10 No Liens . Except as provided on Schedule 3.10 , neither Borrower nor any of its Subsidiaries is a party to any agreement, instrument or undertaking or subject to any other restriction pursuant to which the Borrower or its Subsidiary has placed, or will be required to place (or under which any other Person may place), a lien upon any of its properties securing indebtedness, either upon demand or upon the happening of a condition, with or without any demand.

      3.11 Compliance . The Borrower and each of its Subsidiaries has filed all applicable tax returns and paid all taxes shown thereon to be due, except those for which extensions have been obtained and those which are being contested in good faith and for which adequate reserves have been established. The Borrower and each of its Subsidiaries is in compliance with all applicable legal requirements and manages and operates (and will continue to manage and operate) its business in accordance with good industry practices. Neither the Borrower nor any of its Subsidiaries is in default in the payment of any other indebtedness or under any agreement to which it is a party. The parties have obtained all consents of and registered with all

Governmental Agencies and other Persons required to execute, deliver and perform the Loan Documents.

      3.12 Restrictions on the Borrower . Neither the Borrower nor the Bank is a party to, nor is bound by, any contract or agreement or instrument, or subject to any charter or other corporate restriction materially and adversely affecting its financial condition, business or operations.

      3.13 No Claims Against the Bank . There are no defenses or counterclaims, offsets or adverse claims, demands or actions of any kind, personal or otherwise, that the Borrower or any other obligor could assert with respect to this Agreement or the Loans.

      3.14 Statements by Others . All statements made by or on behalf of the Borrower, any of its Subsidiaries or any other of the parties in connection with any Loan Document constitute the joint and several representations and warranties of the Borrower under this Agreement.

      3.15 Continuing Representations . Each request for an advance or renewal of an Advance under any of the Loans shall constitute a representation and warranty by the Borrower that all of the representations and warranties set forth in this Agreement shall be true and correct on and as of such date with the same effect as though such representations and warranties had been made on such date, except to the extent that such representations and warranties are stated to expressly relate solely to an earlier date.

      3.16 Environment . The Borrower and each of its Subsidiaries have complied with applicable legal requirements in each instance in which any of them have generated, handled, used, stored or disposed of any hazardous or toxic waste or substance, on or off its premises (whether or not owned by any of them). Neither the Borrower nor any of its Subsidiaries has any material contingent liability for non-compliance with environmental or hazardous waste laws. Neither the Borrower nor any of its Subsidiaries has received any notice that it or any of its property or operations does not comply with, or that any Governmental Authority is investigating its compliance with, any environmental or hazardous waste laws.

      3.17 Solvency . After giving effect to the consummation of the transactions contemplated by this Agreement, the Borrower and the Bank have capital sufficient to carry on their respective business and transactions and all businesses and transactions in which they are about to engage, and each is solvent and able to pay its debts as they mature. No transfer of property is being made and no indebtedness is being incurred in connection with the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors of the Borrower or the Bank.

      3.18 Subordination . The TP Junior Subordinated Debentures are expressly subordinate and junior in all respects (including, without limitation, with respect to the right of payment) to the Loans to the extent provided in the TP Indentures. The Loans constitute senior indebtedness pursuant to the terms of the TP Indentures.

      3.19 Pledged Stock . The Pledged Stock pledged pursuant to the terms of this Agreement and the Pledge Agreement have been issued, executed, granted and pledged in

compliance with all applicable laws or regulations, including, without limitation, the laws of the State of North Carolina.

      3.20 No Misstatement . No information, exhibit, report or document furnished by the Borrower to the Lender in connection with the negotiation or execution of this Agreement or the making of any Loan contains any untrue statement of a material fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances when made or furnished to the Lender.

      3.21 Investment Status . Neither Borrower or any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

      3.22 ERISA . No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a material adverse change.

ARTICLE IV
COVENANTS

      4.1 Negative Covenants . The Borrower agrees that until the commitment of the Lender to make Advances has terminated and the Borrower satisfies all of its obligations to the Lender, including, but not limited to, its obligations to pay in full all of the Borrower’s Liabilities, without the prior written consent of the Lender, which may be given or withheld in the Lender’s sole and absolute discretion, the Borrower shall not itself, nor shall the Borrower cause, permit or allow the Bank to:

          (a) create, assume, incur, have outstanding, or in any manner become liable in respect of any indebtedness (as such term is defined in this Section 4.1(a) ), other than: (i) as reflected in Schedule 4.1 ; (ii) with respect to Swap Agreements as permitted in Section 4.1(s); (iii) with respect to issuances of trust preferred securities by the Borrower, provided that the ratio of “total debt” to “tangible equity of the Bank” upon consummation of the issuance does not exceed seventy-five percent (75%), with “total debt” defined as all indebtedness (as defined below) of the Borrower and its Subsidiaries, excluding the proceeds of ordinary-course transactions of the Bank listed in subparagraph (iv) of this Section 4.1(a) , and with “tangible equity of the Bank” defined as (1) the Total Equity Capital as reported on line 28 of Schedule RC-Balance Sheet of the most recent Call Report of the Bank, minus (2) the aggregate of the Intangible Assets as reported on lines 10 (a) and (b) of Schedule RC-Balance Sheet of the most recent Call Report of the Bank; or (iv) with respect to the Bank, in the normal course of business and in accordance with applicable laws and regulations and safe and sound banking practices any of the following:

          (i) any deposits with or funds collected by the Bank;

          (ii) any banker’s acceptance or letter of credit issued, assumed, accepted, endorsed or guaranteed by the Bank;

          (iii) any check, note, certificate of deposit, money order, travelers check, draft or bill of exchange accepted or endorsed by the Bank;

          (iv) interbank credit facilities, such as arrangements for participations in customer loans, provided, however, that such arrangements do not involve borrowed debt of the Bank;

          (v) Federal Home Loan Bank advances;

          (vi) Federal Reserve Discount Window borrowings; (vii) unsecured Fed Funds lines; (viii) Reverse Repurchase Agreements; and

          (ix) any transaction in which the Bank acts solely in a fiduciary or agency capacity.

For purposes of this Agreement, the phrase “indebtedness” shall mean and include: (w) all items arising from the borrowing of money that, according to GAAP now in effect, would be included in determining total liabilities as shown on the balance sheet; (x) all indebtedness secured by any lien in property owned by the Borrower whether or not such indebtedness shall have been assumed; (y) all guarantees and similar contingent liabilities with respect to indebtedness of others; and (z) all other obligations (including, without limitation, with respect to letters of credit, and any interest rate swap, cap, collar or other hedging or derivative agreement) evidencing indebtedness to other;

          (b) create, assume, incur, suffer or permit to exist any mortgage, pledge, deed of trust, encumbrance (including the lien or retained security title of a conditional vendor), security interest, assignment, lien or charge of any kind or character upon or with respect to any of their real or personal property, including, without limitation, any capital stock owned by the Borrower or the Bank, whether owned at the date hereof or hereafter acquired, or assign or otherwise convey any right to receive income excepting only: (i) liens for taxes, assessments or other governmental charges for the then current year or which are not yet due or delinquent; (ii) liens for taxes, assessments or other governmental charges already due, but the validity of which is being contested at the time in good faith in such a manner as not to make the property forfeitable; (iii) liens and charges incidental to current operations that are not due or delinquent; (iv) liens for workmen’s compensation awards not due or delinquent; (v) pledges or deposits to secure obligations under workmen’s compensation laws or similar legislation; (vi) purchase money mortgages or other liens on real property, and bank furniture and fixtures acquired or held in the ordinary course of business to secure the purchase price of such property or to secure the indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject to such mortgages or other liens, or mortgages or other liens existing on any such property at the time of acquisition, or extensions, renewals, or replacements of any of the foregoing for the same or a lesser amount, provided that no such mortgage or other lien shall extend to or cover any property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the mortgage or lien being extended, renewed or replaced, and provided further that no such mortgage or lien shall exceed 75% of the price of acquisition, construction or improvement at the time of acquisition, construction or

improvement, and provided, further, that the aggregate principal amount of consolidated indebtedness at any one time outstanding and secured by mortgages, liens, conditional sale agreements and other security interests permitted by this clause (vi) shall not exceed 10% of the consolidated capital of the Borrower; (vii) liens existing on the date hereof as shown on Schedule 5.1 ; (viii) in the case of the Bank, liens incurred in the ordinary course of the business of banking and in accordance with applicable laws and regulations and safe and sound banking practices; and (ix) any lien granted by the Borrower to the Lender;

          (c) dispose of by sale, assignment, lease or otherwise, property or assets now owned or hereafter acquired if such property or assets plus all other properties and assets sold, leased, transferred or otherwise disposed of during the 12-month period ending on the date of such sale, lease or other disposition shall have an aggregate value of more than two percent (2%) of the consolidated assets of the Borrower as reflected in the most recent balance sheet delivered to the Lender pursuant to Section 4.2(a)(i) , except that the Bank may dispose of its property or assets to the Borrower or sell mortgages, loan participations and whole loans in the ordinary course of its banking business and consistent with safe and sound banking practices;

          (d) except for guaranties by the Borrower or the Bank of indebtedness incurred in accordance with Section 4.1(a) , become a guarantor, surety or otherwise liable for the debts or other obligations of any other Person;

          (e) purchase the assets of, acquire the capital stock of, merge with or into or consolidate with or into, any Person without the prior written consent of the Lender; provided, however, that the prior consent of the Lender shall not be required for any transaction otherwise subject to this Section 4.1(e) where: (i) Borrower has consulted with Lender in advance regarding the existence and financial terms of such transaction; and (ii) the assets to be acquired by Borrower in such transaction constitute less than thirty percent (30%) of the consolidated assets of Borrower on a pro forma basis as of the anticipated consummation date of such transaction;

          (f) declare or pay any cash or other distribution in respect of the liquidation or dissolution of the Borrower, whether pursuant to a plan of liquidation, plan of dissolution or otherwise;

          (g) make any loans or advances, whether secured or unsecured, to any Person, other than loans or advances made by the Bank in the ordinary course of business and in accordance with applicable laws and regulations and safe and sound banking practices;

          (h) engage in any business or activity not permitted by all applicable laws and regulations, including without limitation, the Bank Holding Company Act of 1956, as amended (including, without limitation, by the Gramm-Leach-Bliley Act of 1999), the Federal Deposit Insurance Act, as amended (the “FDI Act”), any applicable state banking laws, and any regulations promulgated under any of such acts;

          (i) make any loan or advance secured by the capital stock of another bank or depository institution, or acquire the capital stock, assets or obligations of or any interest in

another bank or depository institution, in each case other than in the ordinary course of business and in accordance with applicable laws and regulations and safe and sound banking practices;

          (j) directly or indirectly create, assume, incur, suffer or permit to exist any pledge, encumbrance, security interest, assignment, lien or charge of any kind or character on the Bank Shares or any other stock owned by the Borrower or the Bank, except for any security interest granted herewith or previously by the Borrower to the Lender;

          (k) cause or allow the percentage of the Bank Shares owned by the Borrower to diminish as a percentage of the outstanding capital stock of the Bank;

          (l) dispose of any stock or other interest in the equity of any of its Subsidiaries, now owned or hereafter acquired, by sale, assignment, lease or otherwise;

          (m) (i) grant any option with respect to any capital stock of the Borrower, except for grants of options under stock option plans in existence as of the date hereof, or otherwise in accordance with past practices; or (ii) purchase or redeem any of its capital stock, except where the gross consideration paid for such purchase or redemption, when combined with the “net consideration” paid for all such purchases or redemptions during the preceding twelve (12) months, does not exceed four and three/tenths percent (4.3%) of the “tangible equity of the Bank” as defined in Section 4.1(a)(iii) above, with “net consideration” defined as the gross consideration paid by the Borrower for all of its capital stock purchased or redeemed during the period minus the gross consideration received for all of its capital stock sold during the period;

          (n) breach or fail to perform or observe any of the terms and conditions of the Notes, the Pledge Agreement or any other Loan Document;

          (o) engage in any unsafe or unsound banking practices;

          (p) enter into any transaction including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any affiliate (as such term is defined in this Section 4.1(p) except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower’s or such affiliate’s business and upon terms reasonably found by the appropriate board(s) of directors to be fair and reasonable and no less favorable to the Borrower or such affiliate than would be obtained in a comparable arm’s length transaction with a Person not an affiliate. As used in this Section 4.1(p) , “affiliate” shall mean, with respect to a Person, any other Person controlling, controlled by or under common control with such Person;

          (q) (i) be or become subject at any time to any law, regulation, or list of any Government Agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits the Lender from making any advance or extension of credit to the Borrower or from otherwise conducting business with the Borrower, or (ii) fail to provide documentary or other evidence of the Borrower’s identity as may be requested by the Lender at any time to enable the Lender to verify the Borrower’s identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318;

          (r) engage to any material extent in any business other than businesses of the type

conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto; or

          (s) enter into any Swap Agreement, except (i) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any Subsidiary has actual exposure (other than those in respect of equity interests or restricted indebtedness of the Borrower or any of its Subsidiaries), and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Subsidiary.

      4.2 Affirmative Covenants . The Borrower agrees that until the commitment of the Lender to make Advances has terminated and the Borrower satisfies all of its obligations to the Lender, including, but not limited to, its obligations to pay in full all of the Borrower’s Liabilities, the Borrower shall satisfy the covenants set forth below.

          (a) The Borrower shall furnish and deliver to the Lender:

          (i) as soon as available, but in any event not more than ninety (90) days after the close of each fiscal year of the Borrower, or within such further time as the Lender may permit, consolidated and consolidating audited financial statements for the Borrower and the Bank, including a balance sheet and related profit and loss statement, prepared in accordance with GAAP consistently applied throughout the periods reflected therein by Accountant or other independent certified public accountants acceptable to the Lender, who shall give their unqualified opinion with respect thereto;

          (ii) (A) as soon as available, but in any event not more than forty-five (45) days after the close of each quarterly period of each fiscal year of the Borrower, or within such further time as the Lender may permit, the Call Reports filed by the Bank with federal bank regulatory agencies; (B) promptly upon the request of Lender, the internally prepared “watch list” or other reports of the Bank with respect to delinquent, classified or assets requiring special attention; and (C) as soon as available, but in any event not more than forty-five (45) days after the close of each quarterly period of each fiscal year of the Borrower, or within such further time as the Lender may permit, Form FRY-9C filed by the Borrower with federal bank regulatory agencies;

          (iii) the Borrower shall furnish the Lender, at the same time as the quarterly financial reports referred to in Section 4.2(a)(ii) , a quarterly compliance certificate in the form set forth as Exhibit G hereto, which certificate shall state that (A) the Borrower is in compliance in all material respects with all covenants contained in this Agreement, (B) that no Default or Event of Default has occurred or is continuing, or, if there is any such event, describing such event, the steps,