COOPERATIVE BANKSHARES INC
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>coop8kaug3005ex10-2.txt
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.2














                               GUARANTEE AGREEMENT

                          Cooperative Bankshares, Inc.

                           Dated as of August 30, 2005



<PAGE>


                                TABLE OF CONTENTS

                                                                            PAGE

                                    ARTICLE I
                         DEFINITIONS AND INTERPRETATION

SECTION 1.1.  Definitions and Interpretation..................................1

                                   ARTICLE II
               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

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

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

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

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

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

                                   ARTICLE III
                              THE GUARANTEE TRUSTEE

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

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

                                   ARTICLE IV
                                    GUARANTEE

SECTION 4.1.  Guarantee.......................................................9

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

SECTION 4.3.  Obligations Not Affected.......................................10

SECTION 4.4.  Rights of Holders..............................................11

SECTION 4.5.  Guarantee of Payment...........................................11

SECTION 4.6.  Subrogation....................................................11

SECTION 4.7.  Independent Obligations........................................12

SECTION 4.8.  Enforcement....................................................12


                                      -i-
<PAGE>


                               TABLE OF CONTENTS
                                  (continued)

                                                                           PAGE

                                   ARTICLE V
                   LIMITATIONS OF TRANSACTIONS; SUBORDINATION


SECTION 5.1.  Limitation of Transactions.....................................12

SECTION 5.2.  Ranking........................................................13

                                   ARTICLE VI
                                   TERMINATION

SECTION 6.1.   Termination...................................................13

                                   ARTICLE VII
                                 INDEMNIFICATION

SECTION 7.1.   Exculpation...................................................14

SECTION 7.2.   Indemnification...............................................14

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

                                  ARTICLE VIII
                                  MISCELLANEOUS

SECTION 8.1.   Successors and Assigns........................................16

SECTION 8.2.   Amendments....................................................16

SECTION 8.3.   Notices.......................................................16

SECTION 8.4.   Benefit.......................................................17

SECTION 8.5.   Governing Law.................................................17

SECTION 8.6.   Counterparts..................................................17



                                      -ii-

<PAGE>
                               GUARANTEE AGREEMENT
                               -------------------

     This GUARANTEE AGREEMENT (the "Guarantee"), dated as of August 30, 2005, is
executed and delivered by Cooperative Bankshares, Inc., incorporated in North
Carolina (the "Guarantor"), and LaSalle Bank National Association, as trustee
(the "Guarantee Trustee"), for the benefit of the Holders (as defined herein)
from time to time of the Capital Securities (as defined herein) of Cooperative
Bankshares Capital Trust I, a Delaware statutory trust (the "Issuer").

     WHEREAS,  pursuant to an Amended  and  Restated  Declaration  of Trust (the
"Declaration"), dated as of August 30, 2005, among the trustees named therein of
the Issuer, Cooperative Bankshares, Inc., as sponsor, and the Holders from time
to time of undivided  beneficial interests in the assets of the Issuer, the
Issuer is issuing on the date hereof securities, having an aggregate liquidation
amount of up to $15,000,000, designated the TP Securities (the  "Capital
Securities"); and

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

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

                                    ARTICLE I
                         DEFINITIONS AND INTERPRETATION

SECTION 1.1. Definitions and Interpretation.
             ------------------------------

            In this Guarantee, unless the context otherwise requires:

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

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

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

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

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


<PAGE>


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

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

            "Corporate Trust Office" means the office of the Guarantee Trustee
at which the corporate trust business of the Guarantee Trustee shall, at
any particular time, be principally administered.

             "Covered Person" means any Holder of Capital Securities.

             "Debentures" means the junior subordinated debentures of
Cooperative Bankshares, Inc., designated the Junior Subordinated Debt Securities
due 2035, held by the Institutional Trustee (as defined in the Declaration) of
the Issuer.

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

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

             "Guarantee Trustee" means LaSalle Bank National Association,
until a Successor Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Guarantee and thereafter means each
such Successor Guarantee Trustee.

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

             "Indemnified Person" means the Guarantee Trustee (including in
its individual capacity), any Affiliate of the Guarantee Trustee, or any
officers, directors, shareholders,

                                      -2-

<PAGE>


members, partners, employees, representatives, nominees, custodians or agents
of the Guarantee Trustee.

             "Indenture" means the Indenture, dated as of August 30, 2005,
between the Guarantor and LaSalle Bank National Association, not in its
individual capacity but solely as trustee, and any indenture supplemental
thereto pursuant to which the Debentures are to be issued to the Institutional
Trustee of the Issuer.

             "Liquidation  Distribution"  has the meaning set forth in the def-
inition of "Guarantee  Payments" herein.

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

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

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

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

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

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

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

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

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

                                      -3-

<PAGE>


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

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

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

                                   ARTICLE II
               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

SECTION 2.1.  Powers and Duties of the Guarantee Trustee.
              ------------------------------------------

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

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

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

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

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

                                      -4-


<PAGE>

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

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

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

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

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

SECTION 2.2.  Certain Rights of the Guarantee Trustee.
              ---------------------------------------

        (a)      Subject to the provisions of Section 2.1:

            (i)  The Guarantee Trustee may conclusively rely, and shall be fully
        protected in acting or refraining from acting upon, any resolution,
        certificate, statement, instrument, opinion, report, notice, request,
        direction, consent, order, bond, debenture, note, other evidence of
        indebtedness or other paper or document believed by it to be genuine
        and to have been signed, sent or presented by the proper party or
        parties.

                                      -5-
<PAGE>

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

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

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

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

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

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

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


                                      -6-

<PAGE>

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

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

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

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

SECTION 2.3.  Not Responsible for Recitals or Issuance of Guarantee.
              -----------------------------------------------------

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

SECTION 2.4.  Events of Default; Waiver.
              -------------------------

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

               (b) The Holders of a Majority in liquidation amount of the
         Capital Securities may, voting or consenting as a class, on behalf of
         the Holders of all of the Capital Securities, waive any past Event of
         Default and its consequences. Upon such waiver, any such Event of
         Default shall cease to exist, and shall be deemed to have been cured,


                                      -7-

<PAGE>


         for every purpose of this Guarantee, but no such waiver shall extend to
         any subsequent or other default or Event of Default or impair any right
         consequent thereon.

SECTION 2.5.  Events of Default; Notice.
              -------------------------

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

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

                                  ARTICLE III
                              THE GUARANTEE TRUSTEE

SECTION 3.1.  The Guarantee Trustee; Eligibility.
              ----------------------------------

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

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

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

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


                                      -8-

<PAGE>


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

SECTION 3.2.  Appointment, Removal and Resignation of the Guarantee Trustee.
              -------------------------------------------------------------

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

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

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

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

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

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

                                   ARTICLE IV
                                    GUARANTEE

SECTION 4.1.  Guarantee.
              ---------

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


                                      -9-


<PAGE>


         Guarantor's obligation to make a Guarantee Payment may be satisfied by
         direct payment of the required amounts by the Guarantor to the Holders
         or by causing the Issuer to pay such amounts to the Holders.

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

SECTION 4.2.  Waiver of Notice and Demand.
              ---------------------------

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

SECTION 4.3.  Obligations Not Affected.
              ------------------------

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

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

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

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

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


                                      -10-

<PAGE>


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

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

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

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

SECTION 4.4.  Rights of Holders.
              -----------------

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

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

SECTION 4.5.  Guarantee of Payment.
              --------------------

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

SECTION 4.6.  Subrogation.
              -----------

               The Guarantor shall be subrogated to all (if any) rights of the
Holders of Capital Securities against the Issuer in respect of any amounts paid
to such Holders by the Guarantor under this Guarantee; provided, however, that
                                                       --------  -------
the Guarantor shall not (except to the extent required by applicable provisions
of law) be entitled to enforce or exercise any right that it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases


                                      -11-

<PAGE>


as a result of payment under this Guarantee, if, after giving effect to any such
payment, any amounts are due and unpaid under this Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.

SECTION 4.7.  Independent Obligations.
              -----------------------

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

SECTION 4.8.  Enforcement.
              -----------

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

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

                                   ARTICLE V
                    LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 5.1.  Limitation of Transactions.
              --------------------------

               So long as any Capital Securities remain outstanding, if (a)
there shall have occurred and be continuing an Event of Default or (b) the
Guarantor shall have selected an Extension Period as provided in the Declaration
and such period, or any extension thereof, shall have commenced and be
continuing, then the Guarantor may not (x) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Guarantor's capital stock or (y) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Guarantor that rank pari passu in all respects with
or junior in interest to the Debentures (other than (i) payments under this
Guarantee, (ii) repurchases, redemptions or other acquisitions of shares of
capital stock of the Guarantor (A) in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of one or more
employees, officers, directors, or consultants, (B) in connection with a
dividend reinvestment or stockholder stock purchase plan or (C) in connection
with the issuance of capital stock of the Guarantor (or securities convertible
into or exercisable for such capital stock), as consideration in an acquisition
transaction entered into prior to the occurrence of the Event of Default or the
applicable Extension Period, (iii) as a result of any exchange,


                                      -12-

<PAGE>



reclassification, combination or conversion of any class or series of the
Guarantor's capital stock (or any capital stock of a subsidiary of the
Guarantor) for any class or series of the Guarantor's capital stock or of any
class or series of the Guarantor's indebtedness for any class or series of the
Guarantor's capital stock, (iv) the purchase of fractional interests in shares
of the Guarantor's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(v) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, or (vi)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock).

SECTION 5.2.  Ranking.
              -------

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

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

                                   ARTICLE VI
                                  TERMINATION

SECTION 6.1.  Termination.
              -----------

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


                                      -13-

<PAGE>


                                  ARTICLE VII
                                 INDEMNIFICATION

SECTION 7.1.  Exculpation.
              -----------

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

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

SECTION 7.2.  Indemnification.
              ---------------

               (a) The Guarantor agrees to indemnify each Indemnified Person
         for, and to hold each Indemnified Person harmless against, any and all
         loss, liability, damage, claim or expense incurred without negligence
         or willful misconduct on the part of the Indemnified Person, arising
         out of or in connection with the acceptance or administration of the
         trust or trusts hereunder, including but not limited to the costs and
         expenses (including reasonable legal fees and expenses) of the
         Indemnified Person defending itself against, or investigating, any
         claim or liability in connection with the exercise or performance of
         any of the Indemnified Person's powers or duties hereunder. The
         obligation to indemnify as set forth in this Section 7.2 shall survive
         the resignation or removal of the Guarantee Trustee and the termination
         of this Guarantee.

               (b) Promptly after receipt by an Indemnified Person under this
         Section 7.2 of notice of the commencement of any action, such
         Indemnified Person will, if a claim in respect thereof is to be made
         against the Guarantor under this Section 7.2, notify the Guarantor in
         writing of the commencement thereof; but the failure so to notify the
         Guarantor (i) will not relieve the Guarantor from liability under
         paragraph (a) above unless and to the extent that the Guarantor did not
         otherwise learn of such action and such failure results in the
         forfeiture by the Guarantor of substantial rights and defenses and (ii)
         will not, in any event, relieve the Guarantor from any obligations to
         any Indemnified Person other than the indemnification obligation
         provided in paragraph (a) above. The Guarantor shall be entitled to


                                      -14-

<PAGE>


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

SECTION 7.3.  Compensation; Reimbursement of Expenses.
              ---------------------------------------

               Other than as provided in the Fee Agreement of even date herewith
between Cohen Bros. & Company, the Guarantee Trustee and Delaware Trustee (as
defined in the Declaration), the Guarantor agrees:

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

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

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



                                      -15-

<PAGE>


                                  ARTICLE VIII
                                  MISCELLANEOUS

SECTION 8.1.  Successors and Assigns.
              ----------------------

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

SECTION 8.2.  Amendments.
              ----------

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

SECTION 8.3.  Notices.
              -------

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

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

                           LaSalle Bank National Association
                           135 S. LaSalle Street, Suite 1511
                           Chicago, Illinois 60603
                           Attention:  CDO Trust Services Group
                           Cooperative Bankshares Capital Trust I
                           Telecopy:  (312) 904-0524
                           Telephone: (312) 904-0283

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



                                      -16-

<PAGE>


                           Cooperative Bankshares, Inc.
                           201 Market Street
                           Wilmington, North Carolina
                           Attention: Todd Sammons, Chief Financial Officer
                           Telecopy: (910) 341-7396
                           Telephone: (910) 442-4179

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

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

SECTION 8.4.  Benefit.
              -------

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

SECTION 8.5.  Governing Law.
              -------------

               THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).

SECTION 8.6.  Counterparts.
              ------------

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



                                      -17-



<PAGE>



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

                                 COOPERATIVE BANKSHARES, INC.,
                                 AS GUARANTOR


                                 By: /s/ Frederick Willetts, III
                                     -------------------------------------------
                                 Name: Frederick Willetts, III
                                      ------------------------------------------
                                 Title: President
                                       -----------------------------------------



                                 LASALLE BANK NATIONAL
                                 ASSOCIATION, AS GUARANTEE TRUSTEE


                                 By: /s/ By designated representative
                                    --------------------------------------------
                                 Name:
                                      ------------------------------------------
                                 Title:
                                       -----------------------------------------




                                     - 18 -
</TEXT>
</DOCUMENT>
