As filed with the Securities and Exchange Commission on January 5, 1998
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LOCAL FINANCIAL CORPORATION
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(Exact name of registrant as specified in its articles of incorporation)
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Delaware 6711 65-0424192
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(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
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3601 N.W. 63rd Street
Oklahoma City, Oklahoma 73116
(405) 841-2100
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(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Alan L. Pollock
Senior Vice President, Secretary and General Counsel
Local Financial Corporation
3601 N.W. 63rd Street
Oklahoma City, Oklahoma 73116
(405) 841-2100
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With a copy to:
Norman B. Antin, Esq.
Jeffrey D. Haas, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., 12th Floor
Washington, D.C. 20005
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Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ x ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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Proposed Maximum Proposed Maximum
Title Of Each Class Of Amount To Be Offering Price Per Aggregate Offering Amount Of
Securities To Be Registered Registered Note or Share(1) Price(1) Registration Fee
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Senior Notes due 2004............... $80,000,000 100% $80,000,000 $ 23,600.00
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Common Stock, $.01 par value per
share............................. 21,128,209 shares $10.75(3) $227,128,247 $ 67,003.00
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Total................................................................................................... $ 90,603.00
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes up to 591,000 shares which may be issued in connection with
warrants previously granted to the Registrant's placement agent and 837,209
shares which are proposed to be issued in connection with the Registrant's
acquisition of Green Country Banking Corporation.
(3) Based upon the average of the bid and asked price for the Common Stock on
January 2, 1998.
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The Registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that the
Registration Statement shall thereafter become effective in
accordance with section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the Commission
acting pursuant to said section 8(a) may determine.
<PAGE>
LOCAL FINANCIAL CORPORATION
Cross Reference Sheet Showing Location in the Prospectus of Information Required
by Items of Form S-1
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Registration Statement Item and Caption Prospectus Headings
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1. Forepart of the Registration Statement and Outside Front Outside Front Cover Page; Cross
Cover Page of Prospectus Reference Sheet
2. Inside Front and Outside Back Cover Page of the Prospectus Inside Front and Outside Back Cover
Pages of the Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings to Prospectus Summary; Risk Factors;
Fixed Charges Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Not applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of the
Prospectus; Prospectus Summary; Plan
of Distribution
9. Description of Securities to be Registered Description of Senior Notes;
Description of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters
11. Information with Respect to the Registrant Outside Front Cover Page; Selected
Consolidated Financial and Other Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business of the Company;
Regulation; Management; Consolidated
Financial Statements
12. Disclosure of Commission Position on Not applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
Subject to Completion, Dated January 5, 1998
PROSPECTUS
21,128,209 Shares of Common Stock
$80,000,000 of 11.0% Senior Notes due September 8, 2004
LOCAL FINANCIAL CORPORATION
This Prospectus relates to the public offer and sale of up to 21,128,209
shares of common stock, par value $0.01 per share (the "Common Stock"), of Local
Financial Corporation (the "Company") and up to $80.0 million of the Company's
11.0% Senior Notes due September 8, 2004 (the "Senior Notes"). The Common Stock
covered by this Prospectus includes up to 591,000 shares which may be issued in
connection with warrants previously granted to the Company's placement agent,
which assisted the Company in the private placement of 19,700,000 shares of
Common Stock and the Senior Notes, which were issued and sold on September 8,
1997 (the "Private Placement"). The Common Stock covered by this Prospectus also
includes up to 837,209 shares which are proposed to be issued by the Company in
connection with its proposed acquisition of Green Country Banking Corporation
("Green Country"). All of such Common Stock and the Senior Notes offered hereby
are collectively referred to herein as the "Local Securities."
The Local Securities were issued and sold in private placement
transactions exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), to persons reasonably believed by the
Company to be "qualified institutional buyers" (as defined by Rule 144A under
the Securities Act) or other "accredited investors" (as defined in Rule 501(a)
of Regulation D under the Securities Act. In connection with the Private
Placement, the Company executed and delivered for the benefit of the holders of
the Local Securities a Registration Rights Agreement dated September 8, 1997
(the "Registration Rights Agreement"), providing for, among other things, the
filing with the Securities and Exchange Commission (the "Commission") of the
Registration Statement of which this Prospectus forms a part. The Company has
also agreed to register the Common Stock proposed to be issued in connection
with its acquisition of Green Country. The Local Securities offered hereby may
be offered and sold from time to time (the "Offering") by the holders named
herein or, if required, by holders named in an accompanying supplement (a
"Prospectus Supplement") or by their respective transferees, pledgees, donees,
or their successors (collectively, the "Selling Holders") pursuant to this
Prospectus and a Prospectus Supplement, if required.
The Local Securities may be sold by the Selling Holders from time to time
directly to purchasers or through underwriters, dealers or agents. See "Plan of
Distribution." If required, the names of any such underwriters, dealers or
agents involved in the sale of the Local Securities in respect of which this
Prospectus is being delivered and the applicable underwriter's discount,
dealer's purchaser price or agent's commission, if any, will be set forth in a
Prospectus Supplement.
The Selling Holders will receive all of the net proceeds from the sale of
the Local Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the Local Securities. The Company
is responsible for payment of all other expenses incident to the offer and sale
of the Local Securities.
The Selling Holders and any underwriters, dealers or agents which
participate in the distribution of the Local Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Local Securities purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Plan of Distribution" for a description of indemnification
arrangements.
<PAGE>
Prior to this Offering, there has been no public market for the Local
Securities. Although the Company intends to apply to have the Common Stock and
the Senior Notes listed on a national and/or regional securities exchange or
inter-dealer quotation service upon satisfaction of the applicable minimum
listing requirements, no assurance can be made as to when, if at all, the
Company will satisfy such listing requirements or if any such application will
ultimately be approved. Consequently, there is no assurance that an active
public trading market for either or both of the Common Stock or the Senior Notes
will develop or be sustained.
SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THE LOCAL SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY
GOVERNMENT AGENCY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ______________, 1998
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements, including the
accompanying Notes, appearing elsewhere in this Prospectus. Prospective
investors should carefully consider the information set forth under the heading
"Risk Factors." Unless the context otherwise requires, references herein to the
Company include Local Federal and Local America. A glossary of terms applicable
to the Indenture and the Senior Notes is set forth under "Description of Senior
Notes--Certain Definitions."
The Company
General. The Company is a Delaware corporation headquartered in
Oklahoma City, Oklahoma. The Company was organized in 1993 to become the holding
company of Local Federal Bank, F.S.B. ("Local Federal"), a federally chartered
savings institution. Local Federal was organized in 1908 under the name Local
Building and Loan Association, changed to a federal mutual charter in 1935 and
converted to the stock form of organization in 1983. Local Federal's
wholly-owned subsidiaries include Local America Inc. and its wholly-owned
subsidiary, Local America Bank of Tulsa, F.S.B. ("Local America"), a federally
chartered savings institution. Local Federal and Local America are collectively
referred to herein as the "Banks." The Company also owns through Local Federal
two indirect automobile finance subsidiaries, Local Acceptance Company of
Florida ("Local Acceptance" or "LAC") and Star Financial Services Corporation
("Star") of Oklahoma. At September 30, 1997, the Company had consolidated assets
of $2.05 billion, substantially all of which is comprised of its direct and
indirect 100% ownership interest in the Banks, consolidated liabilities of $1.99
billion, consolidated deposits of $1.61 billion and consolidated stockholders'
equity of $67.9 million.
The Banks presently conduct business through forty-one branch offices
located throughout the state of Oklahoma, with heavy concentration in the
Oklahoma City and Tulsa areas. Twenty- eight branch offices operate under the
Local Federal name. Seven of these branch offices are located in Oklahoma City
and nine additional branches are within a fifty mile radius. Local America
operates thirteen branches in the Tulsa area. According to SNL Securities, as of
June 30, 1996, the Banks ranked fourth in Oklahoma by deposit market share among
depository institutions and first in deposit market share among thrift
institutions.
Prior to the Private Placement and the Redemption (as defined and
described below), the Banks' strategy was to run a low cost institution
structured around the following areas: (i) a nationally diversified wholesale
commercial real estate mortgage portfolio; (ii) an Oklahoma- based retail
deposit franchise operated on a low-overhead basis delivering a traditional set
of thrift products and services, including conforming single-family residential
home loans, home equity, student guaranteed, direct automobile and installment
loans through its branch network; (iii) a wholesale securities portfolio
involving derivative mortgage securities funded both by retail as well as
wholesale funding through advances from the Federal Home Loan Bank ("FHLB") of
Topeka and securities sold under agreements to repurchase ("reverse repurchase
agreements"); and (iv) during the past few years, origination of indirect
sub-prime automobile finance contracts purchased from dealerships in Oklahoma
and Florida. Portfolios of residential loans packaged and sold by the Resolution
Trust Corporation ("RTC") and the Federal Deposit Insurance Corporation ("FDIC")
were also purchased. Both LAC and Star were incorporated in an attempt to engage
in the purchase and servicing of sub-prime automobile finance contracts in their
respective markets. See "Business."
2
<PAGE>
Operating Results. The Company reported net income of $13.6 million,
$14.4 million, $52.5 million during the years ended June 30, 1996, 1995 and
1994, respectively. However, beginning in fiscal 1996, the Company's results of
operations have been adversely impacted by increases to the provision for loan
losses to cover realized and anticipated losses associated with the Company's
indirect automobile receivables. During fiscal 1996, net income declined by
$847,000 or 5.9% from fiscal 1995 levels, as the Company's provision for loan
losses increased by $4.0 million to $5.1 million. An aggregate of $4.5 million
of such provision was related to the indirect automobile receivables portfolio.
The Company's financial position deteriorated further during fiscal 1997. For
the fiscal year ended June 30, 1997, the Company experienced a net loss of $30.0
million. This loss reflects a $28.4 million provision for loan losses, $28.1
million of which related to realized losses with respect to the Company's
indirect automobile receivables. The loss during fiscal 1997 was also due to
$29.9 million of losses which were recognized on the sale of a portion of the
Company's adjustable-rate collateralized mortgage obligations ("CMOs") with
interest rate adjustments tied to the FHLB Eleventh District Cost of Funds Index
("COFI"), and a non-recurring $10.3 million special assessment (before
applicable tax benefits) which was recorded in fiscal 1997 in connection with
legislation which recapitalized the Savings Association Insurance Fund ("SAIF").
Primarily as a consequence of actions taken in connection with the
Private Placement and the Redemption (described below), during the three months
ended September 30, 1997, the Company incurred a net loss of $98.5 million.
Specifically, the Company incurred $125.5 million of losses on the sale of
assets, of which an aggregate loss of $53.4 million was incurred in connection
with the liquidation or write-off of the Company's hedging contracts, and an
aggregate loss of $72.0 million was incurred on the sale and mark-to-market of
the Company's securities portfolio (which primarily related to the sale and
mark-to-market of the Company's COFI-based CMOs). The Company also recorded a
$25.4 million provision for loan losses during the three months ended September
30, 1997, primarily to cover realized and anticipated losses with respect to the
Company's portfolio of indirect automobile receivables. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Private Placement and the Redemption. On August 25, 1997, the
Company entered into a Redemption Agreement, as amended on September 5, 1997
(the "Redemption Agreement"), with Barron Collier and Miles Collier, the sole
stockholders of the Company (the "Selling Stockholders"), pursuant to which the
Company agreed to redeem all of the Company's issued and outstanding shares of
Common Stock for consideration of $154.0 million, subject to adjustment as
described under "The Private Placement and the Redemption Transactions--The
Redemption Agreement" (the "Redemption"), and the satisfaction of various
conditions, including the raising of funds through a private placement of at
least $190.0 million of Common Stock and at least $70.0 million of Senior Notes.
In addition, pursuant to the Redemption Agreement, the Company agreed to prepay
a promissory note payable to the mother of the Selling Stockholders at a price
equal to the principal amount thereof plus accrued and unpaid interest thereon
to the date of prepayment (i.e., $7.2 million).
3
<PAGE>
On September 8, 1997, the Company entered into a Purchase Agreement
with Friedman Billings, Ramsey & Co., Inc. ("FBR" or the Placement Agent") and
the various purchasers of the Local Securities (the "Purchase Agreement"), which
provided, among other things, for the purchase on such date of an aggregate of
$197.0 million of Common Stock and $80.0 million of Senior Notes. A closing was
held on such date at which the Redemption was consummated. In connection
therewith, Edward A. Townsend, the present Chairman of the Board and Chief
Executive Officer of the Company and the Banks, Jan A. Norton, the present
President of the Company and the Banks and Joseph A. Leone, a director of Local
Federal, were elected directors of the Company and all of the persons then
serving as directors of the Company resigned. The remaining directors who
presently serve as directors of the Company were than elected and management
appointments were made. In connection with the Private Placement, the Company on
September 8, 1997 also entered into the Registration Rights Agreement with the
initial purchasers of the Local Securities and the Placement Agent, pursuant to
which, among other things, the Company agreed to file within 120 days a shelf
registration statement with the Commission providing for the offer and sale of
the Local Securities. The Registration Statement of which this Prospectus forms
a part, has been filed in satisfaction of such requirement. See "The Private
Placement and the Redemption Transactions--The Purchase Agreement," "Management"
and "Registration Rights."
Initiatives by New Management. Since the completion of the Private
Placement and the Redemption, new management has been actively implementing the
measures that were described in the Company's Confidential Private Placement
Memorandum dated August 25, 1997. These actions include reducing the level of
the Company's CMOs with interest rate adjustments tied to the COFI, eliminating
all swap and hedging contracts and resolving the Company's portfolio of indirect
automobile loans. While the actions taken are expected to favorably impact the
Company on a going forward basis, as described above under "--Operating
Results," during the three months ended September 30, 1997, the implementation
of these measures resulted in a net loss of $98.5 million. The Company's results
for the first quarter of fiscal 1998 were significantly impacted by nonrecurring
charges relating to disposition of the hedging contracts, the writedown and
disposition of securities and additional reserves taken by management. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
New management of the Company has already implemented several
initiatives since consummation of the Private Placement and the Redemption,
which are intended to enhance the Banks' franchise, particularly in the Oklahoma
markets where the Company operates. In the commercial real estate lending area,
the Company has hired an individual with over fifteen years experience in the
Oklahoma City market. In addition, the Company intends to establish a
commercial business lending function, and has recruited two experienced senior
executives from the Oklahoma City market. These individuals have worked together
successfully in Local Financial's markets and are highly visible to area
entrepreneurs and small business owners.
4
<PAGE>
The Company is presently in the process of updating 13 branch
facilities. The projects include drive-in expansions to better accommodate
checking account growth, interior renovations to provide greater customer
privacy, parking lot remodeling to improve customer accessibility and space
availability and interior teller line expansion to more efficiently provide
customer service. In addition, the Company has applied for regulatory approval
for a second Edmond branch and is evaluating a new larger site location for the
Purcell branch.
The Company will also consider acquisition opportunities when it
perceives such acquisitions will enhance the Company's franchise value. The
Company anticipates that its focus will be on the acquisition of
community-oriented commercial banks and savings institutions which are located
in communities outside of the larger metropolitan markets of Oklahoma City and
Tulsa and in smaller, less urban markets. Except for the acquisition of Green
Country discussed below, there are no current plans, arrangements,
understandings or agreements regarding any such acquisition opportunities.
Finally, the Company is attempting to establish more of a sales culture
at both Local Federal and Local America. The Company's marketing department is
actively working on a number of campaigns to promote Local Federal and Local
America, including: a new checking account campaign; a corporate image
advertising campaign focusing on the Company's commitment to local markets; a
home equity loan campaign; and a campaign featuring the Company's new commercial
and industrial lending capabilities. The Company's emphasis is to work on ways
to better serve the Banks' customers, as well as to promote additional fee
income through investment products and overdraft protection.
Proposed Acquisition of Green Country Banking Corporation. On October
22, 1997, Local Financial and Local America entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Green Country and its wholly owned
subsidiary, Green Country Bank, FSB ("Green Country Bank") pursuant to which
Green Country would be merged with and into the Company, with the Company as the
surviving corporation, and in connection therewith, Green Country Bank would be
merged with and into Local America (collectively, the "Merger"). The Merger
Agreement provides, among other things, that as a result of the Merger, each
outstanding share of common stock and preferred stock of Green Country will be
converted into 27.907 and 4,150.27 newly-issued shares, respectively, of the
Company's Common Stock. As a result of the foregoing, an aggregate of 837,209
shares of the Company's Common Stock are expected to be issued in connection
with the Merger to the three existing shareholders of Green Country, which
include Edward A. Townsend, Chairman and Chief Executive Officer of the Company,
and Jan A. Norton, President and Chief Operating Officer of the Company. The
shares of Company Common Stock to be issued in connection with the Merger will
be subject to the terms and conditions of the Registration Rights Agreement. The
Merger is expected to be accounted for under the purchase method of accounting
and is subject to a number of conditions, including, but not limited to, the
receipt of all requisite stockholder and regulatory approvals. At September 30,
1997, Green Country operated out of three full-service offices located in Miami,
Grove and Commerce, Oklahoma, and had consolidated assets, liabilities, deposits
and stockholders' equity of $107.7 million, $102.0 million, $79.5 million and
$5.7 million, respectively.
5
<PAGE>
The Company, as a registered savings and loan holding company, is
subject to examination and regulation by the Office of Thrift Supervision (the
"OTS"). The Banks, as federally chartered savings banks, are subject to
comprehensive regulation and examination by the OTS, as their chartering
authority and primary regulator, and by the FDIC, which administers the SAIF,
which insures the Banks' deposits to the maximum extent permitted by law. The
Banks are members of the FHLB of Topeka, which is one of the 12 regional banks
which comprise the FHLB System. The Banks are further subject to regulations of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") governing reserves required to be maintained against deposits and
certain other matters.
The Company's executive offices are located at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087 and its main telephone number is (405)
841-2100.
THE OFFERING
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The Private Placement.......................... The Local Securities issued to investors in the Private
Placement were sold by the Company on September 8,
1997. An aggregate of 19.7 million shares of Common
Stock were sold to 113 purchasers and an aggregate of $80.0
million of the Senior Notes were sold to 38 purchasers. In
connection therewith, the Company executed and delivered
for the benefit of the holders of the Local Securities the
Registration Rights Agreement, providing for, among other
things, the filing of the Registration Statement of which this
Prospectus forms a part. See "The Private Placement and
the Redemption Transactions" and "Selling Holders."
Securities Offered............................. 21,128,209 shares of Common Stock and $80.0 million
aggregate principal amount of Senior Notes.
The Senior Notes............................... See "Description of the Senior Notes."
Maturity Date............................. September 8, 2004
Interest Payment Dates.................... Semi-annually on March 1 and September 1, commencing
March 1, 1998.
Ranking................................... The Senior Notes are general unsecured obligations of the
Company and will rank senior to such other Indebtedness (as
defined in the Indenture) as the Company may incur.
Because the Company is the sole stockholder of the Banks,
the rights of creditors of the Banks to payments from the
Banks is, in effect, senior to the rights of the Company as
a stockholder of the Banks, and in effect, senior to the rights
of holders of Senior Notes, who will have no direct claim
against the Banks for payment.
6
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Interest Reserve Account................. The Indenture pursuant to which the Senior Notes is issued
required the Company to establish at the time of issuance of
the Senior Notes the Interest Reserve Account, which is a
segregated account which contains a sufficient amount of
cash and other Permitted Investments to pay the aggregate
interest payments scheduled to be made with respect to the
Senior Notes for the next two succeeding Interest Payment
Dates.
Sinking Fund.............................. None
Mandatory or Optional Redemption.......... None
Change of Control......................... Upon a Change of Control (as defined in the Indenture),
holders of Senior Notes will have the option to require the
Company to repurchase all outstanding Senior Notes at
101% of their principal amount, plus accrued interest to the
date of repurchase. There can be no assurance that the
Company will have the funds available to repurchase the
Senior Notes in the event of a Change of Control.
Certain Additional Covenants............. The Indenture pursuant to which the Senior Notes have been
issued contains certain additional covenants that, among
other things, limit: (i) the incurrence of Indebtedness by
the Company, except for certain Junior Indebtedness; (ii)
the payment of dividends and the making of certain other
distributions by the Company and its subsidiaries; (iii) the
incurrence of certain liens on the Company's assets; (iv)
the sale or other transfer of capital stock of the Banks;
and (v) the Company's ability to enter into any arrangement
that would impose certain restrictions on the ability of
subsidiaries of the Company to make dividend and other
payments of the Company. The Indenture also restricts the
Company's and the Banks' ability to merge, consolidate or
sell all or substantially all of the assets of the Company
or the Banks.
7
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Acceleration.............................. The maturity of the Senior Notes may be accelerated upon
an Event of Default, as defined in the Indenture. Such
Events of Default include, among other things, continued
default in payment of interest upon any Senior Note for a
period of thirty days, continued breach of certain covenants
or warranties of the Indenture for a period of thirty days
after notice of such default from the holders of at least
25% of the outstanding principal balance of the Senior
Notes, bankruptcy of the Company or the Banks, the
appointment of a conservator or receiver for the Company or
the Banks, default by the Company or a Subsidiary on any
Indebtedness in excess of 5% of the Company's Consolidated
Tangible Net Worth, which default has not been cured within
30 days, the entry of a final judgment in excess of 5% of
the Company's Consolidated Tangible Net Worth or the
continuing failure of either of the Banks to comply with
their Regulatory Capital Requirements.
The Common Stock............................... See "Description of Capital Stock."
Dividends................................. The Company does not expect to pay a dividend on the
Common Stock in the immediate future, but rather will
retain any earnings and increase capital. The Company's
ability to pay dividends will depend principally on the
ability of Local Federal to pay dividends to the Company.
In connection with the OTS' most recent regulatory
examination of Local Federal, the OTS informed Local Federal
that as a result of Local Federal's recent financial
condition and operating results, it was being deemed an
institution in need of more than normal supervision and,
consequently, was being designated as a Tier 3 institution
for purposes of the OTS' capital distribution regulation.
Tier 3 institutions may not make capital distributions
without obtaining the prior approval of the OTS. In
addition, the OTS can impose growth restrictions on savings
institutions which are in need of more than normal
supervision. However, as a result of, among other things,
the capital raised in the Private Placement and the
initiatives undertaken by new management in connection with
the Private Placement and the Redemption, the Midwest
Regional Office of the OTS forwarded a letter to Local
Federal, dated as of December 8, 1997, indicating that the
OTS was removing its designation of Local Federal as an
institution in need of more than normal supervision and
upgrading Local Federal's status from a Tier 3 institution
to a Tier 1 institution.
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8
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A Tier 1 institution is authorized to make capital
distributions without OTS approval during a calendar year of
up to the higher of (i) 100 percent of its net income to the
date of such distribution during the calendar year plus the
amount that would reduce by one-half its surplus capital
ratio, as defined, at the beginning of the calendar year; or
(ii) 75% of its net income over the most recent four-quarter
period. Applicable regulations require, however, that all
savings institutions give the OTS at least 30 days advance
notice of any capital distributions, and the OTS may
prohibit any capital distribution that it determines would
constitute an unsafe or unsound practice. As of January 1,
1998, under applicable regulations of the OTS, the total
capital available for the payment of dividends by Local
Federal to the Company was $___, assuming application of the
OTS' safe harbor for capital distributions. See generally
"Regulation--Regulation of Federal Savings
Institutions--Capital Distribution Regulation."
Local Federal is subject to a Dividend Limitation Agreement
dated as of August 21, 1989 (the "Dividend Agreement"),
between the Selling Stockholders and the OTS. Pursuant to
its terms, the Dividend Agreement provides that Local
Federal may not pay a dividend if it is below its fully-
phased in regulatory capital requirement or if the dividend
payment would cause Local Federal to fall below such
requirement. In addition, at any time Local Federal exceeds
its fully-phased in capital requirement, Local Federal may
not pay dividends in an amount in excess of 100% of its
cumulative net income for the prior eight quarters, reduced
by dividends actually paid for such eight quarters, without
prior OTS approval. The Company has sought OTS approval of
termination of the Dividend Agreement. No assurance can be
given that such agreement will be terminated. To the extent
such OTS approval is not obtained, the Company's ability to
pay dividends during the term of such agreement will be
limited. See "Dividends and Market for Local Securities" and
"Regulation--Regulation of Federal Savings Institutions--
Capital Distribution Regulation."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Market for Local Securities................... Since consummation of the Private Placement, transactions
in the Local Securities have been limited, and there is no
established market for the Local Securities at this time.
Although the Company intends to apply to have the Common
Stock and the Senior Notes listed on a national and/or
regional securities exchange or inter-dealer quotation
service upon satisfaction of the applicable minimum listing
requirements, no assurance can be made when, if at all, the
Company will satisfy such listing requirements or if any
such application will ultimately be approved. Accordingly,
there can be no assurance that an active public trading
market for either the Common Stock or the Senior Notes will
develop or be sustained. See "Dividends and Market for Local
Securities."
Use of Proceeds................................ The Selling Holders will receive all of the proceeds from the
Local Securities sold pursuant to this Prospectus. See "Use
of Proceeds" for a discussion of the use of the net proceeds
from the Private Placement.
</TABLE>
Risk Factors
Prospective investors are urged to carefully review the matters
discussed under "Risk Factors."
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in Thousands, Except Per Share Data)
The selected consolidated financial data of the Company set forth below
should be read in conjunction with, and is qualified in its entirety by, the
Consolidated Financial Statements of the Company, including the related Notes,
included herein.
<TABLE>
<CAPTION>
June 30,
September 30, -------------------------------------------------------------
1997 1997 1996 1995 1994 1993
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet and Other Data:
Total assets...................................... $2,053,891 $2,625,181 $3,278,511 $3,264,850 $3,325,613 $2,306,605
Cash and due from banks........................... 22,650 15,904 13,640 14,497 11,678 16,639
Loans receivable, net............................. 989,562 1,013,824 1,018,135 804,610 708,566 544,453
Securities available for sale..................... 885,233 985,565 1,741,725 361,402 373,532 700,396
Securities and other investment securities held
to maturity...................................... -- 408,207 392,324 1,983,756 2,078,748 897,577
Equity securities................................. -- -- 11,604 12,287 17,076 1,764
Non-performing assets(1).......................... 2,774 12,570 16,185 10,889 10,961 11,164
Deposits.......................................... 1,610,350 1,644,356 1,602,460 1,577,821 1,474,171 1,416,098
Securities sold under agreements to repurchase.... -- 310,801 1,079,194 779,626 381,829 52,540
Promissory note payable........................... -- 7,010 14,020 21,030 28,040 35,050
Senior notes payable.............................. 80,000 -- -- -- -- --
FHLB advances..................................... 258,620 531,161 439,011 703,202 1,287,377 703,767
Total liabilities................................. 1,985,998 2,522,552 3,170,452 3,121,631 3,198,925 2,228,490
Stockholders' equity.............................. 67,893 102,629 108,059 143,219 126,688 78,115
Number of full-service customer facilities........ 41 41 41 41 41 42
Approximate number of employees................... 483 481 492 425 423 378
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended September 30, Year Ended June 30,
------------------------- -------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------------ ---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Interest and dividend income............. $ 47,453 $59,525 $222,664 $236,156 $214,558 $175,143 $141,991
Interest expense......................... 35,181 46,195 169,761 187,488 162,590 104,496 85,301
-------- ------- ------- -------- -------- -------- --------
Net interest income...................... 12,272 13,330 52,903 48,668 51,968 70,647 56,690
Provision for loan losses................ (25,353)(2) (2,340) (28,428)(2) (5,117) (1,157) (1,764) 580
-------- ------- ------- -------- -------- -------- --------
Net interest income after provision
for loan losses........................ (13,081) 10,990 24,475 43,551 50,811 68,883 57,270
Noninterest income....................... (122,597)(3) 2,840 (17,124)(3) 10,316 16,632 29,916 14,256
Noninterest expense...................... 13,568 19,846 49,256 35,427 46,460 25,089 35,775
-------- ------- ------- -------- -------- -------- --------
Income (loss) before provision for
income taxes and cumulative effect
of change in accounting principle...... (149,246) (6,016) (41,905) 18,440 20,983 73,710 35,751
Provision for income taxes............... (50,795) (1,861) (11,860) 4,872 6,568 27,516 4,884
-------- ------- -------- -------- --------- -------- --------
Income before cumulative effect of
change in accounting principle and
extraordinary item .................... (98,451) (4,155) (30,045) 13,568 14,415 46,194 30,867
Cumulative effect of change in
accounting principle................... -- -- -- -- -- 6,266 --
Utilization of net operating loss
carryforwards.......................... -- -- -- -- -- -- 4,284
-------- ------- -------- -------- -------- -------- --------
Net income (loss)........................ $(98,451) $(4,155) $(30,045) $ 13,568 $ 14,415 $ 52,460 $ 35,151
======== ======= ======== ======== ======== ======== ========
Net earnings (loss) per share (4) ....... $ (5.00) $ (0.21) $ (1.53) $ 0.69 $ 0.73 $ 2.66 $ 1.78
======== ======= ======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
At or For the Three Months
Ended
September 30, At or For the Year Ended June 30,
-------------------------- -----------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---------- -------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios(5):
Return on assets(6)..................... (3.87)% (0.08)% (0.76)% 0.41% 0.43% 1.58% 1.52%
Return on common equity(6).............. (107.99) (2.35) (22.35) 10.00 10.59 41.41 49.99
Interest rate spread(7)................. 1.73 1.46 1.57 1.36 1.32 1.80 2.29
Net interest margin(8).................. 1.97 1.62 1.78 1.52 1.59 2.46 2.75
Noninterest expense to average
assets(6)(9) 0.52 0.59 1.56 1.04 1.36 0.75 1.55
Efficiency ratio(6)(10)................. N/A 57.06 105.39 57.96 65.92 23.72 48.68
Capital Ratios(11):
Local Federal Bank, F.S.B
Tangible.............................. 5.16 4.73 5.17 4.94 4.89 4.45 4.78
Core.................................. 5.26 4.83 5.25 5.04 5.03 4.60 5.10
Risk-based............................ 11.22 12.16 12.34 12.71 13.22 13.60 14.50
Local America Bank, F.S.B.
Tangible.............................. 13.57 10.22 11.97 10.54 10.13 10.31 10.81
Core.................................. 13.69 10.35 12.07 10.69 10.33 10.60 11.30
Risk-based............................ 25.07 26.52 25.31 28.14 26.23 33.70 36.60
Asset Quality Ratios:
Nonperforming assets to total assets at
end of period(1)...................... 0.14 0.52 0.48 0.49 0.33 0.33 0.48
Nonperforming loans to total loans at
end of period(1)...................... 0.11 0.45 0.38 0.51 0.38 0.46 0.18
Allowance for loan losses to total loans
at end of period...................... 3.24 0.25 1.10 0.31 0.56 0.51 0.39
Allowance for loan losses to
nonperforming loans at
end of period(1)...................... 2875.75 55.60 291.49 60.43 147.82 110.38 210.66
</TABLE>
(1) Nonperforming loans consist of nonaccrual loans and loans delinquent 90
days or more but still accruing interest, and nonperforming assets consist
of nonperforming loans, real estate acquired through foreclosure or
deed-in-lieu thereof and repossessions (such as automobiles), net of
writedowns and reserves.
(2) Primarily reflects provisions established by management to cover realized
and anticipated losses with respect to the Company's portfolio of indirect
automobile receivables. See "The Company--Operating Results,"
"--Initiatives by New Management" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations."
(3) Primarily reflects nonrecurring charges incurred by management relating to
the liquidation or disposition of certain hedging contracts and the
disposition of investment securities and adjustments to reflect market
values. See "The Company--Operating Results," "--Initiatives by New
Management" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
(4) Net earnngs (loss) per share is based upon the weighted average number of
shares outstanding during the period. As a result of the Private Placement
and the Redemption transactions described under "The Private Placement and
the Redemption Transactions," the weighted average number of shares used in
the computation of earnings (loss) per share is 19,700,000 for all periods
presented. See also Note 1 of the Notes to Consolidated Financial
Statements.
(5) With the exception of end of period ratios, all ratios are based on average
monthly balances during the periods presented. All ratios are annualized
where appropriate.
(6) For the year ended June 30, 1997 and the three months ended September 30,
1996, such ratios do not reflect the $10.3 million one-time special
assessment (before applicable tax benefits) to recapitalize the SAIF which
was accrued during the quarter ended September 30, 1996. See
"Regulation--Regulation of Federal Savings Institutions--FDIC Assessments."
(7) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(8) Net interest margin represents net interest income as a percent of average
interest-earning assets.
(9) Noninterest expense excludes the amortization of intangibles.
(10) Represents noninterest expense divided by the aggregate of net interest
income before provision for loan losses and noninterest income.
(11) The tangible and core capital ratios are calculated as a percent of
adjusted total assets and the risk-based capital ratio is calculated as a
percent of total risk-weighted assets. See "Regulation--Regulation of
Federal Savings Institutions--Regulatory Capital Requirements" for
information with respect to the Banks' regulatory capital requirements.
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following
information in conjunction with the other information contained in this
Prospectus before purchasing Local Securities in the Offering. This Prospectus
contains certain forward-looking statements and information relating to the
Company that are based on the beliefs of management as well as assumptions made
by and information currently available to management. In addition, in those and
other portions of this document, the words "anticipate," "believe," "estimate,"
"expect," "intend," "should" and similar expressions, or the negative thereof,
as they relate to the Company or the Company's management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future looking events and are subject to certain
risks, uncertainties and assumptions, including the risk factors described in
this Prospectus. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. The Company does not intend to update these forward-
looking statements.
Financial Condition and Results of Operations
The Company reported a $98.5 million and $30.0 million net loss for the
three months ended September 30, 1997 and the fiscal year ended June 30, 1997,
respectively, after reporting net income of $13.6 million, $14.4 million and
$52.5 million for the years ended June 30, 1996, 1995 and 1994, respectively.
The net loss reported for the three months ended September 30, 1997 is
attributable to deliberate actions taken by the Company's new management
subsequent to the Private Placement and the Redemption to restructure the
Company's balance sheet. Specifically, the Company incurred $125.5 million of
losses on the sale of assets, of which an aggregate loss of $53.4 million was
incurred in connection with liquidation or write-off of the hedging contracts
which the Company had entered into to reduce its exposure to interest rates, see
"--Interest Rate Swaps, Floors and Caps," and an aggregate loss of $72.0 million
was incurred on the sale and mark-to-market of the Company's securities
portfolio (which primarily related to the sale and mark-to-market of the
Company's COFI-based CMOs). The Company also recorded a $25.4 million provision
for loan losses during the three months ended September 30, 1997, primarily to
cover realized and anticipated losses with respect to the Company's portfolio of
indirect automobile receivables. For the fiscal year ended June 30, 1997, the
net loss was primarily attributable to a $28.4 million provision for loan
losses, which was also primarily associated with the Company's indirect
automobile finance receivables, $29.2 million of losses on the sale of assets,
of which $28.0 million related to the sale of CMOs with interest rate
adjustments tied to COFI, and a non-recurring $10.3 million special assessment
(before applicable tax benefits) which was recorded in connection with the SAIF
recapitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
13
<PAGE>
At September 30, 1997, the Company had $757.3 million of
adjustable-rate CMOs with interest rate adjustments tied to COFI (all of which
were classified as available for sale). As of September 30, 1997, the Company
did not have any net unrealized gains or losses with respect to its COFI-based
CMO portfolio. During the three months ended September 30, 1997 and fiscal 1997,
the Company disposed of COFI-based CMOs having an aggregate carrying value of
$345.2 million and $758.9 million, respectively, for an aggregate sale price of
$329.3 million and $729.0 million, respectively. The Company's future operating
results will be impacted by, among other things, the quality of its assets,
including its portfolio of indirect automobile receivables and its portfolio of
COFI-based CMOs, as well as the appropriateness of the level of reserves taken
with respect thereto. See "--Lending and Investing Activities--Indirect
Automobile Lending" and "--Investments in Mortgage-Related Securities."
Lending and Investment Activities
General. Since 1989, the Company's principal lending focus has been on
the origination and purchase of loans secured primarily by commercial and
multi-family real estate located throughout the United States. To a lesser
extent, the Company has also originated various types of single-family
residential and consumer loans and, through two wholly-owned subsidiaries, has
purchased sub-prime automobile finance receivables from automobile dealerships
located in Florida and Oklahoma. In addition, the Company's investment strategy
has focused on the investment in mortgage-backed and related securities and
other similar investments permitted by applicable laws and regulations. As
described below, the Company's lending and investing strategies may be
considered to involve a higher degree of risk than the single-family residential
lending traditionally emphasized by savings institutions.
Commercial Real Estate Lending. The Company originates and purchases
commercial and multi-family real estate loans (referred to herein as "commercial
real estate loans"). In addition, the Company also purchases loans secured by
various forms of commercial real estate located throughout the United States.
Commercial real estate lending in general entails different and significant
risks when compared to single-family residential lending because such loans
typically involve large loan balances to single borrowers and because the
payment experience on such loans is typically dependent on the successful
operation of the property or the borrower's business. In addition, the
geographic diversity of the real estate securing the Company's commercial real
estate loans may entail additional risks. Such purchased loans may be more
difficult to monitor and the properties securing such loans may be located in
states which could in the future experience adverse economic conditions. The
Company attempts to address this risk by only originating and purchasing loans
that meet the Company's underwriting standards. At September 30, 1997, $418,000
or 0.06% of the Company's commercial real estate loans were classified as
nonperforming. See "Business--Lending Activities--Commercial Real Estate Loans"
and "--Asset Quality--Nonperforming Assets."
Indirect Automobile Lending. In December 1993, the Company established
LAC as a wholly-owned subsidiary of Local Federal. Prior to February 1997, LAC,
which is headquartered in Hollywood, Florida, purchased sub-prime automobile
loans, normally on a discounted basis, from car dealerships in and around
Hollywood, Florida. In addition, in January 1995, the Company established Star
as a wholly-owned subsidiary of Local Federal. Prior to February 1997, Star,
which is headquartered in Oklahoma City, purchased sub-prime automobile loans
from car dealerships located in Oklahoma.
14
<PAGE>
During the fourth quarter of 1996, the prior Board of Directors of the
Company became aware of a significant deterioration in the credit quality of its
portfolio of indirect automobile finance receivables. Consequently, in February
1997, the Company discontinued its third-party automobile loan purchase
activity. LAC and Star are currently only servicing the loans which remain in
their respective portfolios. At September 30, 1997, the Company's gross
portfolio of indirect automobile finance receivables amounted to $66.8 million
(consisting of approximately 8,148 loans). In connection with the closing of the
Private Placement and the Redemption, during the three months ended September
30, 1997, the Company established a provision for loan losses of $25.4 million,
of which $23.4 million relates to the indirect automobile portfolio. During the
fiscal year ended June 30, 1997, the Company provided $28.4 million to the
allowance for loan losses, of which $28.1 million related to the indirect
automobile portfolio. As of September 30, 1997, loans current or not more than
30 days past due amounted to $55.9 million or 83.6% of the indirect automobile
portfolio. Although management believes that the reserves that have now been
taken are adequate to address losses that may be realized on the portfolio, the
Company's future results of operations may be adversely affected if the credit
quality of the Company's indirect automobile finance portfolio declines further
or if the reserves taken to date with respect thereto prove to be inadequate to
cover actual losses. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Results of Operations--Provisions for Loan
Losses" and Business--Lending Activities--Indirect Automobile Finance
Receivables."
During the last quarter of calendar 1997, management determined to sell
the indirect automobile portfolio and solicited bids for a possible sale. On
December 30 and 31, 1997, the Company entered into two contracts for the sale of
a portion of its indirect automobile portfolio. Because of the adjustments which
may be a portion to the final purchase price as well as compliance requirements
with respect to conditions set forth in each of the aforementioned sales
contracts, no assurance can be made as of the date of this Prospectus as to the
aggregate amount of receivables that will ultimately be sold or as to the
aggregate sales price received with respect thereto. Management's opinion is
that the result of these transactions will not exceed the amount previously
provided to the allowance of loan losses.
Investments in Mortgage-Related Securities. From time to time the
Company has invested in a variety of mortgage-related securities such as
floating-rate CMOs tied to COFI. The COFI is a compilation of the average rates
paid by institutions which are members of the 11th District of the FHLB System,
which index generally adjusts more slowly to changes in market rates of interest
when compared to other indices. As a result, the values of the Company's
COFI-based CMOs have declined in recent periods. In late 1996 and in
anticipation of the proposed sale of the Company, the Company began reducing its
securities, particularly its CMO holdings, through periodic bulk sale
transactions. During fiscal 1997, the Company sold $743.9 million of securities
and recognized $29.6 million of losses with respect to such sales. At June 30,
1997, the Company's securities portfolio amounted to $1.4 billion ($1.1 billion
of which consisted of COFI-based CMOs) or 53.1% of total assets. As of such
date, the Company had $32.0 million of unrealized losses with respect to its
securities portfolio (net of applicable tax benefits).
15
<PAGE>
During September 1997 and in connection with the Private Placement and
the Redemption, new management of the Company determined that its CMO portfolio
was "other than temporarily impaired" and, in accordance with generally accepted
accounting principals ("GAAP"), wrote-down its CMO portfolio by $54.7 million.
In addition, since assuming control of the Company on September 8, 1997, new
management has been accelerating the disposition of its securities portfolio,
particularly its COFI-based CMOs. During the three months ended September 30,
1997, the Company sold $539.2 million of securities and recognized $17.3 million
of losses with respect to such sales. The Company has utilized the proceeds of
such sales to repay all of its outstanding reverse repurchase agreements and a
portion of its outstanding FHLB advances. At September 30, 1997, the Company's
securities portfolio amounted to $885.2 million ($757.3 million of which
consisted of COFI-based CMOs) or 43.1% of assets. As of such date, all of the
Company's securities were classified as available for sale and the Company had
unrealized gains with respect to the portfolio of $114,000 (net of applicable
taxes). Management of the Company may continue to reduce its securities
portfolio, particularly its CMO holdings, as market conditions permit. Although
the Company has reduced its investment in mortgage-related securities in recent
periods, it continues to maintain a substantial investment which could adversely
affect the Company's results of operations depending on, among other things, the
future interest rate environment. There can be no assurance as to the amount of
actual losses to be incurred upon the disposition of all or part of the
remaining COFI-based CMO portfolio. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--
Noninterest Income" and "Business--Investment Activities."
Interest Rate Swaps, Floors and Caps. The Company in the past has been
a party to various hedging contracts such as interest rate swaps, floors and
caps, which were utilized in order to reduce its exposure to fluctuations in
interest rates. During the three months ended September 30, 1997, the Company
terminated all outstanding interest rate swaps, caps and floors. Specifically,
the Company terminated interest rate swaps with an aggregate notional value of
$500.0 million which resulted in losses of $47.3 million (excluding applicable
tax benefits). The Company also terminated interest rate cap and floor
agreements with an aggregate notional value of $2.4 billion, which resulted in
losses of $2.2 million (excluding applicable tax benefits). Upon termination of
the foregoing interest rate swap, cap and floor agreements, the Company
recognized all deferred gains and losses which resulted from prior hedging
activities, which resulted in an additional loss of approximately $3.9 million
(excluding applicable tax benefits). The foregoing losses resulted in an
aggregate net tax benefit of approximately $18.7 million.
Pursuant to the Redemption Agreement, the Selling Stockholders are
responsible to the Company for any aggregate pre-tax loss (net of any related
tax benefit) to the Company in excess of $42.5 million which results from the
sale or termination of the Company's existing hedging contracts. The Company is
currently attempting to collect such difference (which it estimates to amount to
$4.6 million) from the Selling Stockholders and has filed a lawsuit in the
United States District Court for the Western District of Oklahoma in order to
facilitate such recovery. However, no assurance can be made that the Company
will be able to recover from the Selling Stockholders all or a portion of such
$4.6 million.
The liquidation of the Company's hedging contracts increased the
Company's interest rate sensitivity as of September 30, 1997, which could result
in material losses to the Company in a rising interest rate environment.
However, subsequent to September 30, 1997, the Company disposed of additional
securities (particularly COFI-based CMOs) which management believes has resulted
in a decrease in the Company's interest rate sensitivity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Asset
and Liability Management."
16
<PAGE>
Adequacy of Allowance for Losses
The Company's allowance for loan losses amounted to $33.6 million or
3.24% of total loans and 2,875.8% of total nonperforming loans, each at
September 30, 1997. The Company brings its total allowance for loan losses to a
level considered appropriate by management by charging the provision for loan
losses to earnings. The Company established provisions for loans losses of $25.4
million, $2.3 million, $28.4 million, $5.1 million and $1.2 million during the
three months ended September 30, 1997 and 1996 and the years ended June 30,
1997, 1996 and 1995, respectively. During such respective periods, loan
charge-offs (net of recoveries) amounted to $3.2 million, $2.9 million $20.2
million, $6.5 million and $253,000. The $25.4 million and $28.4 million
provisions established during the three months ended September 30, 1997 and the
year ended June 30, 1997 were intended primarily to cover realized and
anticipated losses with respect to the Company's portfolio of indirect
automobile receivables. At September 30, 1997, the Company's portfolio of such
indirect automobile loans amounted to $66.8 million. As discussed under
"--Indirect Automobile Lending," the Company has entered into contracts for the
sale of a portion of its indirect automobile receivables portfolio.
Future additions to the allowance for loan losses may be necessary due
to changes in economic conditions and the performance of the Company's loan
portfolio. Future additions to the Company's allowance for losses on foreclosed
assets may also be necessary to reflect changes in the economies and markets for
real estate in which the Company's real estate owned is located and other
factors which may result in adjustments which are necessary to ensure that the
Company's foreclosed assets are carried at the lower of cost or fair value, less
estimated costs to dispose of the properties. Moreover, the OTS, as an integral
part of its examination process, periodically reviews the Company's allowances
for losses and the carrying values of its assets. The Banks were most recently
examined by the OTS in this regard during the second quarter of 1997. Increases
in the provisions for losses on loans and foreclosed assets would adversely
affect the Company's results of operations. See "Business--Asset
Quality--Allowance for Loan Losses."
New Management
In connection with the closing of the transactions contemplated by the
Private Placement and the Redemption, the prior members of the Company's Board
of Directors resigned. A new Board of Directors, under the leadership of Edward
A. Townsend, the Chairman of the Board and Chief Executive Officer, are now
responsible for the direction and operation of the Company. In addition to
electing Mr. Townsend as Chief Executive Officer, the Company's new Board of
Directors elected Jan A. Norton as President. Messrs. Townsend and Norton are
expected to have a significant role in the development and management of the
Company's business. The Company has entered into three-year employment
agreements with both of such officers, which agreements will automatically
extend for an additional one-year term beginning at the end of the first
anniversary of the effective date, unless prior notice is given by either party.
The loss of services of one or both of such officers could disrupt and have a
material adverse effect on the operations of the Company. See "Management."
17
<PAGE>
Dividends
Payment of dividends on the Common Stock is at the discretion of the
Board of Directors, subject to applicable regulatory and other restrictions
imposed by law and subject to the terms of the Indenture. The Company does not
expect to pay a dividend on the Common Stock but intends to retain earnings and
increase capital. The Company's ability to pay dividends will depend principally
on the ability of Local Federal to pay dividends to the Company.
In connection with the OTS' most recent regulatory examination of Local
Federal which occurred prior to the Private Placement and the Redemption, the
OTS informed Local Federal that as a result of Local Federal's recent financial
condition and operating results, it was being deemed an institution in need of
more than normal supervision and, consequently, was being designated as a Tier 3
institution for purposes of the OTS' capital distribution regulation. Tier 3
institutions may not make capital distributions without obtaining the prior
approval of the OTS. In addition, the OTS can impose growth restrictions on
savings institutions which are in need of more than normal supervision. However,
as a result of, among other things, the capital raised in the Private Placement
and the initiatives undertaken by new management in connection with the Private
Placement and the Redemption, the Midwest Regional Office of the OTS forwarded a
letter to Local Federal, dated as of December 8, 1997, indicating that the OTS
was removing its designation of Local Federal as an institution in need of more
than normal supervision and upgrading Local Federal's status from a Tier 3
institution to a Tier 1 institution.
A Tier 1 institution is authorized to make capital distributions
without OTS approval during a calendar year of up to the higher of (i) 100
percent of its net income to the date of such distribution during the calendar
year plus the amount that would reduce by one-half its surplus capital ratio, as
defined, at the beginning of the calendar year; or (ii) 75% of its net income
over the most recent four-quarter period. Applicable regulations require,
however, that all savings institutions give the OTS at least 30 days advance
notice of any capital distributions, and the OTS may prohibit any capital
distribution that it determines would constitute an unsafe or unsound practice.
As of January 1, 1998, under applicable regulations of the OTS, the total
capital available for the payment of dividends by Local Federal to the Company
was $___, assuming application of the OTS' safe harbor for capital
distributions. See generally "Regulation--Regulation of Federal Savings
Institutions--Capital Distribution Regulation."
Local Federal is subject to the Dividend Agreement between the Selling
Stockholders and the OTS. Pursuant to its terms, the Dividend Agreement provides
that Local Federal may not pay a dividend if it is below its fully-phased in
regulatory capital requirement or if the dividend payment would cause Local
Federal to fall below such requirement. In addition, at any time Local Federal
exceeds its fully-phased in capital requirement, Local Federal may not pay
dividends in an amount in excess of 100% of its cumulative net income for the
prior eight quarters, reduced by dividends actually paid for such eight
quarters, without prior OTS approval. The Company has applied for OTS approval
of the termination of the Dividend Agreement. No assurance can be given that
such agreement will be terminated. To the extent such OTS approval is not
obtained, the Company's ability to pay dividends during the term of such
agreement will be limited.
18
<PAGE>
Interest Rate Risk
The Company's operating results depend to a large extent on its net
interest income, which is the difference between the interest and dividend
income earned on interest-earning assets and the interest expense incurred in
connection with its interest-bearing liabilities. Changes in the general level
of interest rates can affect the Company's net interest income by affecting the
spread between the Company's interest-earning assets and interest-bearing
liabilities. This may be due to the disparate maturities or period to repricing
of the Company's interest-earning assets and interest-bearing liabilities, as
well as in the case of an increase in the general level of interest rates,
periodic caps which limit the interest rate change on many of the Company's
adjustable-rate mortgage loans. In addition to its affect on the Company's
interest rate spread, changes in the general level of interest rates also
affect, among other things, the ability of the Company to originate loans, the
value of the Company's interest-earning assets and its ability to realize gains
from the sale of such assets, the average life of the Company's interest-earning
assets, and the Company's ability to obtain deposits in competition with other
available investment alternatives. Interest rates are highly sensitive to many
factors, including governmental monetary policies, domestic and international
economic and political conditions and other factors beyond the control of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset and Liability Management."
Source of Payments on the Senior Notes
The Company is a holding company with no significant business
operations of its own. The Company's only significant asset is all of the common
stock of Local Federal. Other than the interest reserve account established
pursuant to the Indenture in the Private Placement and operating cash reserves
retained from the proceeds of the Private Placement, the Company's only source
of cash to pay interest on and principal of the Senior Notes will consist of
distributions from Local Federal. There can be no assurance that the earnings
from Local Federal will be sufficient to make distributions to the Company to
enable it to pay interest on the Senior Notes when due or principal of the
Senior Notes at maturity or that such distributions will be permitted by
applicable federal banking laws and regulations. Moreover, distributions from
Local Federal may not be sufficient to pay the principal amount of the Senior
Notes prior to maturity upon the occurrence of an event of default (as defined
in the Indenture) or to repurchase the Senior Notes upon a change of control (as
defined therein). If there shall occur an event of default or a requirement for
the Company to repurchase the Senior Notes upon a change of control or, in the
event that earnings from Local Federal are not sufficient to make distributions
to the Company to enable it to pay the principal amount of the Senior Notes at
maturity, the Company may be required to adopt one or more alternatives, such as
borrowing funds, selling its equity securities and/or the equity securities or
assets of the Banks, or seeking loans from the Banks. There can be no assurance
that any of the foregoing actions could be effected on satisfactory terms, that
any of the foregoing actions would enable the Company to pay the principal
amount of the Senior Notes or that any of such actions would be permitted by the
terms of the Indenture or applicable federal banking laws and regulations. See
"Description of Senior Notes."
19
<PAGE>
Federal banking laws and regulations, including the regulations of the
OTS, limit the Banks' ability to pay dividends. The Banks generally may not
declare dividends or make any other capital distribution to the Company if,
after the payment of such dividend or other distribution, they would fall within
any of the three undercapitalized categories under the prompt corrective action
standards established by the OTS and the other federal banking agencies pursuant
to the Federal Deposit Insurance Act. In addition, a capital distribution
regulation of the OTS also limits the Banks' ability to pay dividends and make
other capital distributions in a manner which depends upon the extent to which
the Banks meet their respective regulatory capital requirements. The Home
Owners' Loan Act ("HOLA") requires every savings institution subsidiary of a
savings and loan holding company to give the OTS at least 30 days' advance
notice of any proposed dividends or capital distributions. The OTS may prohibit
any dividend or other capital distribution that it determines would constitute
an unsafe or unsound practice. There are also various statutory and regulatory
limitations on the extent to which the Banks can finance or otherwise transfer
funds to the Company or non-banking subsidiaries of the Company, whether in the
form of loans, extensions of credit, investments or asset purchases. The
Director of the OTS may further restrict these transactions in the interests of
safety and soundness.
As of January 1, 1998, under regulations of the OTS, the total capital
available for payment of dividends by Local Federal to the Company was $____,
assuming application of the OTS' safe harbor for capital distributions. See
"Regulation--Regulation of Federal Savings Institutions--Capital Distribution
Regulations."
No Prior Public Market
Although the Company intends to apply to have the Common Stock and the
Senior Notes listed on a national and/or regional securities exchange or
inter-dealer quotation service upon satisfaction of the applicable minimum
listing requirements, no assurance can be made when, if at all, the Company will
satisfy such listing requirements or if any such application will ultimately be
approved. Accordingly, there can be no assurance that an established and liquid
trading market for the Common Stock or Senior Notes will develop or that it will
continue if it does develop. See "Dividends and Market for Local Securities."
Economic Conditions
The success of the Company is dependent to a certain extent upon
general economic conditions, particularly in the areas in which it conducts its
business activities. Adverse changes in the economic conditions of these areas
may impair the ability of the Company to collect loans and would otherwise have
an adverse effect on its business, including the demand for new loans, the
ability of customers to repay loans and the value of both the real estate which
secures its loans and its foreclosed assets.
20
<PAGE>
Competition
The Company experiences substantial competition both in attracting and
retaining deposits and in making loans. Its most direct competition for deposits
historically has come from other thrift institutions, commercial banks and
credit unions doing business in its market areas. In addition, as with all
banking organizations, the Company has experienced increasing competition from
nonbanking sources. For example, the Company competes for funds with full
service and discount broker-dealers and with other investment alternatives, such
as mutual funds and corporate and governmental debt securities. The Company's
competition for loans comes principally from other thrift institutions,
commercial banks, mortgage banking companies, consumer finance companies,
insurance companies and other institutional lenders. A number of institutions
with which the Company competes for deposits and loans have significantly
greater assets, capital and other resources than the Company. In addition, many
of the Company's competitors are not subject to the same extensive federal
regulation that governs savings and loan holding companies such as the Company
and federally-chartered and federally-insured savings institutions such as the
Banks. As a result, many of the Company's competitors have advantages over the
Company in conducting certain businesses and providing certain services.
Regulation
Both the Company, as a savings and loan holding company, and the Banks,
as federally-chartered savings institutions, are subject to significant
governmental supervision and regulation, which is intended primarily for the
protection of depositors and the federal deposit insurance funds. Statutes and
regulations affecting the Company and the Banks may be changed at any time, and
the interpretation of these statutes and regulations by examining authorities
also is subject to change. There can be no assurance that future changes in
applicable statutes and regulations or in their interpretation will not
adversely affect the business of the Company. The Company is subject to
regulation and examination by the OTS, and the Banks are subject to examination
by the OTS, as their chartering authority and primary regulator, and by the
FDIC, as the insurer of their deposits through the SAIF administered by it.
There can be no assurance that the OTS or the FDIC will not, as a result of such
regulation and examination, impose various requirements or regulatory sanctions
upon the Company or the Banks, as applicable. In addition to governmental
supervision and regulation, each of the Company and the Banks is subject to
changes in federal and state laws, including changes in tax laws, which could
materially and adversely affect the real estate industry, such as repeal of the
federal mortgage interest deduction. See "Regulation"
21
<PAGE>
Certain Charter and Bylaw Provisions
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could delay, discourage or prevent an attempted acquisition or
change of control of the Company. These provisions include (i) a Board of
Directors classified into three classes with the directors of each class having
staggered, three-year terms, (ii) a provision establishing certain advance
notice procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at an annual meeting of stockholders and
(iii) a provision that special meetings of the stockholders of the Company may
be called by stockholders only upon the written request of holders of at least a
majority of the outstanding shares of capital stock entitled to vote at any such
meeting. The Company's Certificate of Incorporation authorizes the Board of
Directors of the Company to issue shares of preferred stock without stockholder
approval and upon such terms as the Board of Directors may determine. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisition, financings and other corporate purposes, could also
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a controlling interest in the
Company. See "Description of Capital Stock--Restrictions on Acquisition of the
Company."
22
<PAGE>
THE COMPANY
The Company is a Delaware corporation headquartered in Oklahoma City,
Oklahoma. The Company was organized in 1993 to become the holding company of
Local Federal. Local Federal was organized in 1908 under the name Local Building
and Loan Association, changed to a federal mutual charter in 1935 and converted
to the stock form of organization in 1983. Local Federal's wholly-owned
subsidiaries include Local America. The Company also owns through Local Federal
two indirect automobile finance subsidiaries, Local Acceptance and Star. At
September 30, 1997, the Company had consolidated assets of $2.05 billion,
substantially all of which is comprised of its direct and indirect 100%
ownership interest in the Banks, consolidated liabilities of $1.99 billion,
consolidated deposits of $1.61 billion and consolidated stockholders' equity of
$67.9 million.
The Banks presently conduct business through forty-one branch offices
located throughout the state of Oklahoma, with heavy concentration in the
Oklahoma City and Tulsa areas. Twenty-eight branch offices operate under the
Local Federal name. Seven of these branch offices are located in Oklahoma City
and nine additional branches are within a fifty mile radius. Local America
operates thirteen branches in the Tulsa area. According to SNL Securities, as of
June 30, 1996, the Banks ranked fourth in Oklahoma by deposit market share among
depository institutions and first in deposit market share among thrift
institutions.
The Company, as a registered savings and loan holding company, is
subject to examination and regulation by the OTS. The Banks, as federally
chartered savings banks, are subject to comprehensive regulation and examination
by the OTS, as their chartering authority and primary regulator, and by the
FDIC, which administers the SAIF, which insures the Banks' deposits to the
maximum extent permitted by law. The Banks are members of the FHLB of Topeka,
which is one of the 12 regional banks which comprise the FHLB System. The Banks
are further subject to regulations of the Federal Reserve Board governing
reserves required to be maintained against deposits and certain other matters.
The Company's executive offices are located at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087 and its main telephone number is (405)
841-2100.
THE PRIVATE PLACEMENT AND THE REDEMPTION TRANSACTIONS
The Redemption Agreement. On August 25, 1997, the Company entered into
the Redemption Agreement with the Selling Stockholders, pursuant to which the
Company agreed to redeem all of the Company's issued and outstanding shares of
Common Stock for consideration of $154.0 million, subject to adjustment as
described below. The Redemption Agreement was subject to the satisfaction or
waiver of various conditions, including that the Company shall have completed
the sale of at least $70.0 million of Senior Notes and $190.0 million of Common
Stock. In addition, pursuant to the Redemption Agreement, the Company agreed to
prepay a promissory note payable to the mother of the Selling Stockholders at a
price equal to the principal amount thereof plus accrued and unpaid interest
thereon to the date of prepayment (i.e., $7.2 million).
23
<PAGE>
The amount to be ultimately paid to the Selling Stockholders in
connection with the Redemption is subject to adjustment as follows. Upon
consummation of the Redemption, the Company deposited a portion of the amount to
be paid to the Selling Stockholders (i.e., $10.0 million) in an escrow account
(the "FDIC Dispute Escrow Account"). In the event that upon the resolution of
certain litigation between the Company and the FDIC (the "FDIC Dispute") (see
"Business--Legal Proceedings"), the Company is required to make a net payment to
the FDIC, then such payment shall be made as follows: (i) first, from the
Company's reserve in respect of the FDIC Dispute as of the date of consummation
of the Redemption and (ii) second, from the FDIC Dispute Escrow Account. If the
aggregate amount of such payment exceeds both the reserve amount and the amount
in the FDIC Dispute Escrow Account, then the Selling Stockholders will pay such
excess. If after payment in full of the amount of such payment to the FDIC, any
remaining reserve amount (plus interest on such remaining amount from the date
of consummation of the Redemption) and any remaining balance in the FDIC Dispute
Escrow Account will be paid to the Selling Stockholders. If upon resolution of
the FDIC Dispute, the FDIC is required to make a net payment to the Company,
then the Company shall pay such amount to the Selling Stockholders, together
with the amount of the reserve in respect of the FDIC Dispute (plus interest
from the date of consummation of the Redemption), and the entire amount of the
FDIC Dispute Escrow Amount will be paid to the Selling Stockholders. The Selling
Stockholders will be responsible for the payment of all reasonable costs and
expenses incurred by the Company in connection with the FDIC litigation, except
that such costs and expenses will be paid out of the FDIC Dispute Escrow Account
to the extent funds are available therein.
Pursuant to the Redemption Agreement, if the Company's unaudited
consolidated stockholders' equity (after adding back to total stockholders'
equity (i) any provisions for loan losses recognized by the Company after May
31, 1997, (ii) the amount of any unrealized loss on COFI-based CMOs categorized
as available for sale under Statement of Financial Accounting Standards ("SFAS")
No. 115, (iii) the after-tax amount of certain losses on the sale of available
for sale CMOs during June of 1997 and (iv) certain legal fees and expenses
incurred by the Company in connection with the Private Placement and the
Redemption) (as adjusted, the "Adjusted Equity Amount") as of the closing date
of the Redemption is less than $144.5 million, then the purchase price will be
reduced by the amount of such shortfall, and if the Adjusted Equity Amount is
greater than $144.5 million, then the purchase price will be increased by the
amount of such excess. Upon consummation of the Redemption, the Company
deposited $5.0 million of the proceeds to be paid to the Selling Stockholders in
an escrow account with respect to such equity adjustment. The Company and the
Selling Stockholders have been unable to agree on the Adjusted Equity Amount
and, pursuant to the terms of the Redemption Agreement, will have this matter
determined by an independent accounting firm selected by each party's
representative.
24
<PAGE>
If the sale or termination of the Company's existing hedging contracts
results in an aggregate pre-tax loss to the Company in excess of $42.5 million,
the Selling Stockholders will pay to the Company such excess, net of any related
tax benefit. If the sale or termination of the Company's existing hedging
contracts results in an aggregate pre-tax loss to the Company which is less than
$42.5 million, the Company will pay to the Selling Stockholders such difference,
net of any related tax benefit. The Company is currently attempting to collect
such difference (which it estimates to amount to $4.6 million) from the Selling
Stockholders and has filed a lawsuit in the United States District Court for the
Western District of Oklahoma in order to facilitate such recovery. However, no
assurance can be made that the Company will be able to recover from the Selling
Stockholders all or a portion of such $4.6 million.
Pursuant to the Redemption Agreement, the Selling Stockholders have
made certain representations and warranties to the Company, which
representations and warranties will survive for six months after the date of the
Redemption Agreement, or until March 8, 1998.
The Company and the Selling Stockholders have entered into an Escrow
Agreement with The Bank of New York, as Escrow Agent, dated the date of closing
of the Redemption Agreement (the "Escrow Agreement"), which provides for the
establishment of the escrow accounts to be utilized in connection with the
adjustments to the purchase price under the Redemption Agreement, which are
described above. The funds deposited into escrow have been invested in
short-term certificates of deposit, short-term obligations of the United States,
any state or agency thereof or money market mutual funds investing in the
foregoing instruments. Pursuant to the terms of the Redemption Agreement and the
Escrow Agreement, the Selling Stockholders may provide the Company with
substitute collateral which is acceptable to it in replacement for funds which
have been deposited in one or more of such escrow accounts. The Escrow Agent
will release such escrowed funds to the Selling Stockholders upon receipt of a
joint notice from the Company and the Selling Stockholders.
The Company and the Selling Stockholders have jointly and severally
indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability or expenses (including attorney's fees and other costs of defense)
which may be incurred, or that arises out of or in connection with, its
performance of its duties and obligations under the Escrow Agreement; except
where the Escrow Agent shall have been adjudged negligent or to have acted in
bad faith or through willful misconduct. The Escrow Agreement provides for a
mechanism for the parties to remove the Escrow Agent and for the Escrow Agent to
resign and provides for the parties to equally pay the fees and expenses of the
Escrow Agent.
The Purchase Agreement. On September 8, 1997, the Company entered into
the Purchase Agreement with FBR and the various purchasers of the Local
Securities issued pursuant to the Private Placement, which provided, among other
things, for the purchase on such date of an aggregate of $197.0 million of
Common Stock and $80.0 million of Senior Notes. A closing was held on such date
at which the Redemption was consummated.
25
<PAGE>
In connection with the consummation of the transactions contemplated by
the Purchase Agreement and the Redemption Agreement, Edward A. Townsend, the
present Chairman of the Board and Chief Executive Officer of the Company and the
Banks, Jan A. Norton, the present President of the Company and the Banks and
Joseph A. Leone were elected directors of the Company. All of the persons then
serving as directors of the Company resigned. Following such resignations and
appointments, the new members of the Board of Directors caused Robert A.
Kotecki, George Nigh and Kenneth W. Townsend to be appointed to the Company's
Board of Directors and management appointments were made.
The obligations of the purchasers of the Local Securities issued
pursuant to the Purchase Agreement were subject to the satisfaction or waiver,
prior to the closing of the transaction, of various conditions, including, among
other things: (a) the continued accuracy of all representations and warranties
made by the Company in the Purchase Agreement (which representations and
warranties shall survive for six months from the date of the Purchase Agreement,
or until March 8, 1998) and the performance in all material respects of all
covenants and agreements to be performed by the Company prior to the closing of
the transaction; (b) the execution by the Company and both of the Selling
Stockholders of the Redemption Agreement and the consummation of the transaction
contemplated thereby; and (c) the Company shall have obtained the requisite
stockholder approval of an amendment to its Certificate of Incorporation to
increase its authorized Common Stock to 25,000,000 shares and its authorized
Preferred Stock to 5,000,000 shares and shall have filed with the Secretary of
State of the State of Delaware the appropriate documentation in order to effect
such amendment.
The Purchase Agreement provided for the Company to pay the Placement
Agent a fee equal to, in the aggregate, (i) 7.0% of the gross proceeds raised
with respect to the sale of the Common Stock in the Private Placement and (ii)
5.5% of the gross proceeds raised with respect to the sale of the Senior Notes
in the Private Placement. In addition, the Company reimbursed the Placement
Agent for its actual out-of-pocket expenses pertaining to its engagement,
including legal fees and expenses and indemnified the Placement Agent against
certain liabilities arising out of its engagement, including certain liabilities
under the securities laws.
Pursuant to the Purchase Agreement, the Company issued warrants to the
Placement Agent to purchase a number of shares of Common Stock equal to an
aggregate of 3.0% of the Common Stock issued in the Private Placement, or
591,000 shares. The warrants are exercisable for a five-year period commencing
upon the date of consummation of the Private Placement, at an exercise price per
share equal to the $10.00 per share price of the Common Stock issued in the
Private Placement. The shares of Common Stock underlying the warrants are
subject to the provisions of the Registration Rights Agreement. The warrants
contain anti-dilution provisions providing for appropriate adjustments of the
exercise price and the number of underlying shares of Common Stock which may be
purchased upon exercise in the event of any recapitalization, reclassification,
stock dividend, stock split or similar transaction. The warrants will not
entitle the Placement Agent to any rights as stockholders of the Company unless
and until the warrants are exercised and the underlying shares of Common Stock
are purchased thereunder. See "Registration Rights."
26
<PAGE>
Under the terms of a letter agreement which was assumed by the Company
pursuant to the Purchase Agreement, the Company has retained FBR as exclusive
financial advisor in connection with, among other things, strategic
opportunities and initiatives as well as capital markets financing (the "Post
Placement Engagement"). The term of FBR's engagement shall continue for 24
months from completion of the Private Placement and shall be renewed annually
unless terminated by either party. During the term of the Post Placement
Engagement, and for a period of twelve months following any termination of the
Post Placement Engagement, FBR shall be (i) exclusive financial advisor in
connection with any sale of stock or assets, merger, acquisition or other
strategic transaction entered into or completed by the Company or the Banks,
(ii) exclusive underwriters or placement agent in connection with any offering
of equity or debt securities entered into or completed by the Company or the
Banks, (iii) lead manager in connection with any securitization or similar
transaction entered into or completed by the Company or the Banks; (iv)
exclusive agent in connection with the exercise of warrants or options in the
Company or the Banks by employees, agents or others pursuant to a cashless
exercise or other exercise program and (v) dealer manager in connection with any
tender offer (including any self tender). Fees and expenses to be paid by the
Company to FBR in connection with any such transactions shall be subject to
mutual agreement of the parties. Robert A. Kotecki, a director of the Company
and the Banks, is a Senior Vice President of FBR.
In connection with the Private Placement, the Company on September 8,
1997 also entered into the Registration Rights Agreement with the initial
purchasers of the Local Securities and the Placement Agent, pursuant to which,
among other things, the Company agreed to file within 120 days a shelf
registration statement with the Commission providing for the offer and sale of
the Local Securities. The Registration Statement of which this Prospectus forms
a part has been filed in satisfaction of such requirement. See "Registration
Rights."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to
fixed charges of the Company for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
----------------------- ------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---------- --------- ---------- --------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios of earnings to fixed charges:
Including interest on deposits ... (524.22)x (113.02)x (124.68)x 109.84x 112.91x 170.54x 141.91x
Excluding interest on deposits ... (978.18)x 154.67 x 147.52 x 193.70x 194.56x 362.58x 442.17x
Dollar amount of excess (deficiency)
of earnings to fixed charges:
Including interest on deposits ... $(149,246) $ (6,016) $(41,905) $18.440 $20.983 $ 73.710 $35.751
========= ======== ======== ======= ======= ======== =======
Excluding interest on deposits ... $(128,723) $ 14,201 $ 41,186 $99.613 $89.218 $129.057 $93.675
========= ======== ======== ======== ======= ======== =======
</TABLE>
For purposes of computing the ratios of earnings to fixed charges,
earning represent net income (loss) before extraordinary items and cumulative
effect of changes in accounting principles plus applicable income taxes and
27
<PAGE>
fixed charges. Fixed charges, excluding interest on deposits, include gross
interest expense (other than on deposits) and the portion deemed representative
of the interest factor of rent expense, net of income from subleases. Fixed
charges, including gross interest on deposits, include all interest expense and
the portion deemed representative of the interest factor of rent expense, net of
income for subleases.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the Local
Securities sold pursuant to this Prospectus.
On September 8, 1997, the Company completed the Private Placement. Net
proceeds from the sale of the Local Securities in the Private Placement were
approximately $258.0 million, after deducting the commission of the Placement
Agent and offering expenses payable by the Company. Pursuant to the terms of the
Purchase Agreement and the Redemption Agreement, the net proceeds from the sale
of the Local Securities in the Private Placement were used as follows: (i)
$154.0 million, which is subject to adjustment as described under "The Private
Placement and the Redemption Transactions--The Redemption Agreement," was used
to redeem all of the Company's then issued and outstanding shares of common
stock held by the Selling Stockholders; (ii) $7.2 million was used to prepay a
promissory note payable to the mother of the Selling Stockholders at a price
equal to the principal amount thereof plus accrued and unpaid interest thereon
to the date of prepayment and (iii) $83.8 million was used to make capital
contributions to the Banks which, after giving effect to the after tax loss on
the sale or termination of the Company's existing hedging contracts and the
additional write-downs and reserves recognized in connection with the closing of
the Private Placement and the Redemption, was the required amount to cause each
of the Banks to be classified as "well capitalized" pursuant to the OTS' prompt
corrective action capital standards . See "Regulation--Regulation of Federal
Savings Institutions--Regulatory Capital Requirements." In addition to the
foregoing, the Company used $8.8 million of the net proceeds from the Private
Placement to establish the Interest Reserve Account in accordance with the terms
of the Senior Notes, see "Description of the Senior Notes--Interest Reserve
Account," and approximately $3.0 million of the net proceeds were retained by
the Company for general corporate purposes. The Company anticipates that it will
utilize all or a portion of such proceeds to retire outstanding indebtedness of
Green Country following consummation of the Merger. See "Prospectus Summary--The
Company--Proposed Acquisition of Green Country Banking Corporation." Initially,
the net proceeds from the sale of the Local Securities in the Private Placement
that have been contributed to the Banks as well as retained by the Company were
used to pay-off short-term borrowings with the remaining proceeds invested in
short-term money market instruments.
DIVIDENDS AND MARKET FOR LOCAL SECURITIES
The Board of Directors of the Company does not presently intend to
implement a policy of paying dividends on the Common Stock. Rather, the Company
expects to retain earnings to increase capital. The initiation of a cash
28
<PAGE>
dividend policy will depend upon a number of factors, including investment
opportunities available to the Company or the Banks, capital requirements, the
Company's and the Banks' financial condition and results of operations, tax
considerations, statutory and regulatory limitations, general economic
conditions and the terms of the Indenture. No assurances can be given that any
dividends will be paid or that, if paid, will not be reduced or eliminated in
future periods. See "Regulation--Regulation of Federal Savings Institutions--
Capital Distribution Regulation," "Description of Senior Notes--Certain
Covenants--Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries" and "Description of Capital Stock."
Dividends from the Company will depend principally on the ability of
Local Federal to pay dividends to the Company. In connection with the OTS' most
recent regulatory examination of Local Federal, the OTS informed Local Federal
that as a result of Local Federal's recent financial condition and operating
results, it was being deemed an institution in need of more than normal
supervision and, consequently, was being designated as a Tier 3 institution for
purposes of the OTS' capital distribution regulation. Tier 3 institutions may
not make capital distributions without obtaining the prior approval of the OTS.
In addition, the OTS can impose growth restrictions on savings institutions
which are in need of more than normal supervision. However, as a result of,
among other things, the capital raised in the Private Placement and the
initiatives undertaken by new management in connection with the Private
Placement and the Redemption, the Midwest Regional Office of the OTS forwarded a
letter to Local Federal, dated as of December 8, 1997, indicating that the OTS
was removing its designation of Local Federal as an institution in need of more
than normal supervision and upgrading Local Federal's status from a Tier 3
institution to a Tier 1 institution.
As described in Regulation--Regulation of Federal Savings
Institutions--Capital Distribution Regulation," a Tier 1 institution is
authorized to make capital distributions without OTS approval during a calendar
year of up to the higher of (i) 100 percent of its net income to the date of
such distribution during the calendar year plus the amount that would reduce by
one-half its surplus capital ratio, as defined, at the beginning of the calendar
year; or (ii) 75% of its net income over the most recent four-quarter period.
Applicable regulations require, however, that all savings institutions give the
OTS at least 30 days advance notice of any capital distributions, and the OTS
may prohibit any capital distribution that it determines would constitute an
unsafe or unsound practice. As of January 1, 1998, under applicable regulations
of the OTS, the total capital available for the payment of dividends by Local
Federal to the Company was $___, assuming application of the OTS' safe harbor
for capital distributions. See "Regulation--Regulation of Federal Savings
Institutions--Capital Distribution Regulation."
Local Federal is subject to the Dividend Agreement between the Selling
Stockholders and the OTS. Pursuant to its terms, the Dividend Agreement provides
that Local Federal may not pay a dividend if it is below its fully-phased in
regulatory capital requirement or if the dividend payment would cause Local
Federal to fall below such requirement. In addition, at any time Local Federal
exceeds its fully-phased in capital requirement, Local Federal may not pay
dividends in an amount in excess of 100% of its cumulative net income for the
prior eight quarters, reduced by dividends actually paid for such eight
quarters, without prior OTS approval. The Company has applied for OTS approval
29
<PAGE>
of the termination of the Dividend Agreement. No assurance can be given that
such agreement will be terminated. To the extent such OTS approval is not
obtained, the Company's ability to pay dividends during the term of such
agreement will be limited.
Any payment of dividends by Local Federal to the Company which would be
deemed to be drawn out of Local Federal's bad debt reserves would require a
payment of taxes at the then-current tax rate by the Local Federal on the amount
of earnings deemed to be removed from the reserves for such distribution. If not
paid out of current period earnings, taxes on any such distribution to the
extent made out of such reserves would also be subject to the Company's
carryforward of net operating losses. See "Taxation."
Unlike the Banks, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders,
although the source of such dividends may be dependent, in part, upon dividends
from Local Federal. The Company is subject, however, to the requirements of
Delaware law, which generally limit dividends to an amount equal to the excess
of the net assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year.
Since consummation of the Private Placement, transactions in the Local
Securities has been limited, and there is no established market for the Local
Securities at this time. Although the Company intends to apply to have the
Common Stock and the Senior Notes quoted on a national and/or regional
securities exchange or inter-dealer quotation service upon satisfaction of the
applicable minimum listing requirements, no assurance can be made as to when, if
at all, the Company will satisfy such listing requirements or if any such
application will ultimately be approved. Accordingly, there can be no assurance
that an active public trading market for either the Common Stock or the Senior
Notes will develop or be sustained.
The development of a liquid public market depends on the existence of
willing buyers and sellers, the presence of which is not within the control of
the Company. Accordingly, the number of active buyers and sellers of the Common
Stock or the Senior Notes at any particular time may be limited. Under such
circumstances, investors in the Common Stock or the Senior Notes could have
difficulty disposing of their securities and should not view the Common Stock or
the Senior Notes as a short-term investment. Accordingly, there can be no
assurance that an active and liquid trading market for the Common Stock or the
Senior Notes will develop or that, if developed, it will continue, nor is there
any assurance that persons purchasing shares of Common Stock or Senior Notes
will be able to sell them at or above the purchase price therefor.
30
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997, which gives effect to the consummation of the
Private Placement and the Redemption. The table should be read in conjunction
with the Consolidated Financial Statements of the Company, including the related
Notes, included elsewhere herein.
<TABLE>
<CAPTION>
September 30, 1997
----------------------------
(Dollars in Thousands)
<S> <C>
Deposits .......................................................................... $1,610,350
Borrowings:
FHLB advances................................................................... 258,620
Senior Notes.................................................................... 80,000
Other liabilities.................................................................. 37,028
----------
Total liabilities.............................................................. 1,985,998
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized; none outstanding.................................................... --
Common Stock, $0.01 par value; 25,000,000 shares
authorized; 19,700,060 shares issued and 19,700,000
outstanding..................................................................... 197
Additional paid-in-capital......................................................... 197,753
Retained earnings.................................................................. 19,265
Treasury stock, 60 shares.......................................................... (149,436)
Unrealized gains on securities available for sale, net of
income tax provision (benefit) of $62........................................... 114
----------
Total stockholders' equity...................................................... 67,893
----------
Total liabilities and stockholders' equity...................................... $2,053,891
==========
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus.
Changes in Financial Condition
General. Total assets decreased by $571.3 million or 21.8% during the
three months ended September 30, 1997 and by $653.3 million or 19.9% during the
year ended June 30, 1997. The substantial decrease in total assets during fiscal
1997 and the first quarter of fiscal 1998 was primarily due to the sale of an
aggregate of $1.27 billion of mortgage-backed and other securities and, during
the three months ended September 30, 1997, a $54.7 million write-down with
respect to the Company's COFI-based CMO portfolio. The sale of mortgage-backed
and other securities reflects the implementation of new management's strategy to
reduce the Company's securities portfolio, particularly its COFI-based CMO
portfolio. The proceeds from such sales were used primarily to repay outstanding
reverse repurchase agreements and advances from the FHLB of Topeka. As a result
of the foregoing, reverse repurchase agreements, which amounted to $1.1 billion
at June 30, 1996, were fully paid off as of September 30, 1997, and advances
from the FHLB of Topeka declined from $439.0 million at June 30, 1996 to $258.6
million at September 30, 1997, a reduction of $180.4 million or 41.1%. The shift
in the composition of the Company's asset and liability mix since June 30, 1996
reflects new managements' operational philosophy. See "Prospectus Summary--The
Company."
Cash and Cash Equivalents. Cash and cash equivalents (consisting of
cash and due from banks and interest-bearing deposits with other banks) amounted
to $22.7 million, $15.9 million and $13.6 million at September 30, 1997 and June
30, 1997 and 1996, respectively. The Company manages its cash and cash
equivalents based upon the Company's operating, investing and financing
activities. See "--Liquidity and Capital Resources."
Securities. Beginning in 1993, the Company under its prior management
began to implement an investment strategy whereby it purchased mortgage-backed
and related securities and financed those securities primarily through reverse
repurchase agreements and FHLB advances. The Company predominantly purchased
adjustable-rate Federal National Mortgage Association ("FNMA") and Federal Home
Loan Mortgage Corporation ("FHLMC") CMOs tied to COFI. As a result, at June 30,
1996, the Company's securities portfolio amounted to $2.1 billion ($1.9 billion
of which consisted of COFI-based CMOs) or 65.1% of total assets. The COFI is a
compilation of the average rates paid by savings institutions which are members
of the 11th District of the FHLB system, and the COFI generally adjusts more
slowly to changes in market rates of interest when compared to adjustable-rate
loans and securities with interest rates based on other indices. As a result of
recent fluctuations in the level of interest rates as well as the structure of
the COFI, the values of the Company's COFI-based CMOs have declined in recent
periods. At June 30, 1996, the Company had $48.5 million of unrealized losses
with respect to its securities portfolio (net of applicable tax benefits).
32
<PAGE>
In late 1996 and in anticipation of the proposed sale of the Company,
the Company began reducing its securities, particularly its CMO holdings,
through periodic bulk sale transactions. During fiscal 1997, the Company sold
$743.9 million of securities and recognized $29.6 million of losses with respect
to such sales. At June 30, 1997, the Company's securities portfolio amounted to
$1.4 billion ($1.1 billion of which consisted of COFI-based CMOs) or 53.1% of
total assets. As of such date, the Company had $32.0 million of unrealized
losses with respect to its securities portfolio (net of applicable tax
benefits).
During September 1997 and in connection with the Private Placement and
the Redemption, new management of the Company determined that its CMO portfolio
was "other than temporarily impaired" and, in accordance with GAAP, wrote-down
its CMO portfolio by $54.7 million. In addition, since assuming control of the
Company on September 8, 1997, new management has been accelerating the
disposition of its securities portfolio, particularly its COFI- based CMOs.
During the three months ended September 30, 1997, the Company sold $539.2
million of securities and recognized $17.3 million of losses with respect to
such sales. The Company has utilized the proceeds of such sales to repay all of
its outstanding reverse repurchase agreements and a portion of its outstanding
FHLB advances. At September 30, 1997, the Company's securities portfolio
amounted to $885.2 million ($757.3 million of which consisted of COFI-based
CMOs) or 43.1% of assets. As of such date, all of the Company's securities were
classified as available for sale and the Company had unrealized gains with
respect to the portfolio of $114,000 (net of applicable taxes). Management
further reduced its securities portfolio, particularly its CMO holdings,
subsequent to September 30, 1997 and may continue to do so as market conditions
permit. For additional information, see "Business--Investment Activities,"
"Capitalization" and Note 4 of the Notes to Consolidated Financial Statements.
Loans Receivable. Net loans receivable amounted to $989.6 million,
$1.01 billion and $1.02 billion at September 30, 1997 and June 30, 1997 and
1996, respectively. Net loans receivable decreased by $24.3 million or 2.4%
during the three months ended September 30, 1997 and by $4.3 million or 0.4%
during the year ended June 30, 1997. During the three months ended September 30,
1997, the Company sold $880,000 of guaranteed student loans and experienced
$70.9 million of loan repayments, which was partially offset by $65.5 million of
loan originations and purchases. During the year ended June 30, 1997, the
Company sold $12.0 million of guaranteed student loans and experienced $318.6
million of loan repayments, which was partially offset by $320.2 million of loan
originations and purchases. New management intends to emphasize lending
activities as opposed to investing activities in order to enhance the weighted
average yield on its interest-earning assets and, thus, its results of
operations. Consequently, management expects its loan portfolio to grow over the
next several years. For additional information, see "Business--Lending
Activities" and Note 5 of the Notes to Consolidated Financial Statements.
Nonperforming Assets and Allowance for Loan Losses. Nonperforming
assets (consisting of non-accruing loans, accruing loans greater than 90 days
delinquent and foreclosed assets) have declined significantly since June 30,
1996. At September 30, 1997, nonperforming assets amounted to $2.8 million or
.14% of total assets, as compared to $12.6 million or .48% and $16.2 million or
.49% as of June 30, 1997 and 1996, respectively. The decline in nonperforming
33
<PAGE>
assets during the three months ended September 30, 1997 reflected a $2.4 million
decline in non-accrual loans (primarily commercial real estate loans) and a $7.0
million decline in foreclosed assets, which was primarily due to the transfer of
a $6.0 million retail shopping center from real estate owned to real estate held
for investment during the period. Local Federal has profitably managed the
shopping center since it became real estate owned. The property was transferred
to real estate held for investment during the period because the Company had
exceeded the five year regulatory limit for holding real estate owned. The
Company is continuing its efforts to sell the property.
At September 30, 1997, the Company's allowance for loan losses amounted
to $33.6 million, as compared to $11.4 million and $3.2 million at June 30, 1997
and 1996, respectively. In connection with the Private Placement and the
Redemption, new management increased the Company's reserves, particularly with
respect to the Company's indirect automobile portfolio. As a result, at
September 30, 1997, the Company's allowance for loan losses represented 3.24% of
the total loan portfolio and 2875.75% of total nonperforming loans, as compared
to 1.10% and 291.49% at June 30, 1997 and 0.31% and 60.43% at June 30, 1996,
respectively. Although management of the Company believes that its allowance for
loan losses was adequate at September 30, 1997 based on facts and circumstances
available to it, there can be no assurance that additions to such allowance will
not be necessary in future periods. For additional information, see
"Business--Asset Quality."
Deposits. At September 30, 1997, deposits totalled $1.61 billion, as
compared to $1.64 billion and $1.60 billion at June 30, 1997 and 1996,
respectively. One of the Company's strategies is to promote retail deposit
growth as a cost-efficient funding source as well as a source of fee income and
cross-selling opportunities. In connection with the proposed acquisition of
Green Country, the Company will be acquiring three branch offices and assuming
$79.5 million of Green Country Bank's deposits (as of September 30, 1997). In
addition, Local Federal is currently seeking OTS approval to open a second
branch office in Edmond, Oklahoma. The Company expects to continue to focus on
expanding its branch network and retail deposit franchise. For additional
information, see "Business--Sources of Funds--Deposits" and Note 8 of the Notes
to Consolidated Financial Statements.
Borrowings. Other than deposits, the Company's primary sources of funds
have historically consisted of the sale of securities under agreements to
repurchase (consisting of agreements to purchase on a specified later date the
same securities or substantially identical securities) ("reverse repurchase
agreements") and advances from the FHLB of Topeka. Although a substantial
portion of the Company's growth in its securities portfolio in recent periods
has been funded through the use of reverse repurchase agreements and FHLB
advances, new management is in the process of reducing its securities holdings
and utilizing the proceeds therefrom to pay down borrowings. Consequently,
reverse repurchase agreements declined from $1.1 billion at June 30, 1996 to $0
at September 30, 1997. Similarly, advances from the FHLB of Topeka declined from
$439.0 million at June 30, 1996 to $258.6 million at September 30, 1997. For
additional information, see "Business--Sources of Funds--Borrowings" and Notes 9
and 10 of the Notes to Consolidated Financial Statements.
34
<PAGE>
Prior to the Private Placement and the Redemption, the Company had
outstanding a promissory note payable to Isabel Collier Read, a former
stockholder and the mother of the Selling Stockholders. At June 30, 1997 and
1996, the promissory note had an outstanding principal balance of $7.0 million
and $14.0 million, respectively. The promissory note required annual
installments of $7.0 million plus accrued interest and bore interest at a
specified prime lending rate which could not exceed 8.0% nor fall below 5.7%. On
September 8, 1997 in connection with the closing of the Private Placement and
the Redemption, the Company prepaid the promissory note at a price equal to the
principal amount thereof plus accrued and unpaid interest thereon. For
additional information, see "Business--Sources of Funds--Borrowings" and Note 11
of the Notes to Consolidated Financial Statements.
Pursuant to the Private Placement, the Company issued $80.0 million of
Senior Notes which are due in August 2004 and which bear interest at the rate of
11.0%, payable semi-annually. The Company has established an interest reserve
account with an independent trustee which contains $8.8 million, which is
sufficient to pay the aggregate interest payments scheduled to be made with
respect to the first two interest payment dates on the Senior Notes. Debt
issuance costs of approximately $4.5 million at September 30, 1997 were
capitalized and reflected as Other Assets. For additional information, see
"Business--Sources of Funds--Borrowings" and Note 12 of the Notes to
Consolidated Financial Statements.
Stockholders' Equity. Stockholders' equity declined from $108.1 million
at June 30, 1996 to $102.6 million at June 30, 1997 and further declined to
$67.9 million at September 30, 1997. The decline in stockholders' equity during
fiscal 1997 was primarily due to the $30.0 million net loss recognized during
the year. The decline in stockholders' equity during the three months ended
September 30, 1997 reflected certain non-recurring charges recognized by the
Company during the quarter as a result of certain initiatives undertaken by new
management in connection with the Private Placement and the Redemption, which
was partially offset by the capital raised from the sale of Local Securities in
the Private Placement. Such non-recurring charges included (i) a $25.4 million
provision for loan losses, which primarily related to the Company's indirect
automobile portfolio, (ii) $53.4 million of losses recognized with respect to
the liquidation or write-off of all of the Company's outstanding hedging
contracts, (iii) a $54.7 million write-down with respect to the Company's
COFI-based CMO portfolio in order to reflect market values and (iv) $17.3
million of losses recognized on the sale of securities, primarily relating to
the sale of COFI-based CMOs. At September 30, 1997, the ratio of the Company's
stockholders' equity to total assets amounted to 3.3% and both of the Banks
exceeded their respective minimum regulatory capital requirements. See
- --"Liquidity and Capital Resources."
Results of Operations
General. The Company's results of operations depend substantially on
its net interest and dividend income, which is the difference between interest
and dividend income on interest-earning assets, which consist primarily of loans
receivable, mortgage-backed and investment securities and various other
short-term investments, and interest expense on interest-bearing liabilities,
which consist primarily of deposits and borrowings. The Company's results of
35
<PAGE>
operations have also been significantly affected by the net costs of hedging its
interest rate exposure; its provisions for losses on loans resulting from the
Company's assessment of the adequacy of its allowance for losses on loans; the
level of its noninterest income, including deposit related income, loan fees and
service charges and net gains (losses) on sales of assets; the level of its
noninterest expense, such as compensation and employee benefits, deposit
insurance premiums, provisions for losses on foreclosed assets, equipment and
data processing expense and occupancy expense; and provisions (benefits) for
income taxes.
The Company reported net earnings (loss) of $(98.5) million, $(4.2)
million, $(30.0) million, $13.6 million and $14.4 million during the three
months ended September 30, 1997 and 1996 and the years ended June 30, 1997, 1996
and 1995, respectively. The net loss reported for the three months ended
September 30, 1997 is attributable to deliberate actions taken by the Company's
new management subsequent to the Private Placement and Redemption to restructure
the Company's balance sheet. Specifically, the Company incurred $125.5 million
of losses on the sale and write-down of assets, of which an aggregate loss of
$53.4 million was incurred in connection with the liquidation or write-off of
the hedging contracts which the Company had entered into in order to reduce its
exposure to interest rates. See "--Asset and Liability Management." In addition,
the Company recognized a loss of $17.3 million on the sale of securities ($16.0
million of which related to the sale of CMOs with interest rate adjustments tied
to COFI) and a loss of $54.7 million which related to the write-down of the
Company's remaining COFI-based CMO portfolio to reflect market values. The
Company also recorded a $25.4 million provision for loan losses during the three
months ended September 30, 1997, primarily to cover realized and anticipated
losses with respect to the Company's portfolio of indirect automobile
receivables.
The net loss recognized during the fiscal year ended June 30, 1997 was
primarily attributable to a $28.4 million provision for loan losses, which was
principally associated with the Company's indirect automobile finance
receivables, $29.9 million of losses which were related to the sale of CMOs with
interest rate adjustments tied to COFI, and a non-recurring $10.3 million
special assessment (before applicable tax benefits) which was recorded in
connection with legislation in 1996 which recapitalized the SAIF.
The Company recognized net income of $13.6 million during the year
ended June 30, 1996, as compared to net income of $14.4 million during the year
ended June 30, 1995. The $847,000 or 5.9% decrease in the Company's net income
during fiscal 1996 was primarily due to a $6.3 million decrease in noninterest
income, a $4.0 million increase in the provision for loan losses, and a $3.3
million decrease in net interest and dividend income, which was partially offset
by a $11.0 million decrease in noninterest expense and a $1.7 million decline in
the provision for income taxes.
Net Interest and Dividend Income. Net interest and dividend income is
determined by the Company's interest rate spread (i.e., the difference between
the yields earned on its interest-earning assets and the rates paid on its
interest-bearing liabilities) and the relative amounts of interest-earning
assets and interest-bearing liabilities.
36
<PAGE>
Net interest and dividend income totalled $12.3 million, $13.3 million,
$52.9 million, $48.7 million and $52.0 million during the three months ended
September 30, 1997 and 1996 and the years ended June 30, 1997, 1996 and 1995,
respectively. Net interest and dividend income decreased by $1.1 million or 7.9%
during the three months ended September 30, 1997, as compared to the same period
in the prior year, due to a significant decline in the average balance of
securities of $787.0 million during the period, which is attributable to the
sales of such securities. Net interest and dividend income increased by $4.2
million or 8.7% during the year ended June 30, 1997 due to a $22.1 million
increase net interest-earning assets and a 21 basis point increase in the
Company's interest rate spread. Net interest and dividend income declined by
$3.3 million or 6.4% during the year ended June 30, 1996 due to a $83.6 million
decline in net interest-earning assets, which was partially offset by an
increase in the Company's interest rate spread of 4 basis points.
37
<PAGE>
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rates; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Information is based on average daily balances during the
indicated periods.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------------------------------------------------------
1997 1996
------------------------------------- -------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------ --------- ------- ---------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)........................ $1,014,860 $25,810 10.09% $1,012,808 $26,985 10.57%
Securities(2)............................... 1,346,456 20,084 5.92 2,133,456 30,807 5.73
Other earning assets(3)..................... 105,339 1,559 5.87 108,526 1,733 6.34
---------- ------- ---------- -------
Total interest-earning assets............. 2,466,655 47,453 7.63% 3,254,790 59,525 7.26%
------- ===== ------- ======
Noninterest-earning assets..................... 79,111 48,272
---------- ----------
Total assets.............................. $2,545,767 $3,303,062
========== ==========
Interest-bearing liabilities:
Deposits:
Transaction accounts(4).................... 278,110 1,820 2.60% 272,690 1,915 2.79%
Term certificates of deposit............... 1,309,864 18,703 5.66 1,283,552 18,302 5.66
---------- ------- ---------- -------
Total deposits........................... 1,587,974 20,523 5.13 1,556,242 20,217 5.15
Borrowings:
FHLB advances.............................. 642,133 11,893 7.35 1,139,498 18,452 6.42
Securities sold under agreements to
repurchase............................... 110,470 2,073 7.44 448,412 7,244 6.41
Promissory note payable.................... 5,181 108 8.27 14,020 282 7.98
Senior notes(5)............................ 19,130 584 12.11 -- -- --
---------- ------- ---------- ------- ------
Total interest-bearing liabilities....... 2,364,889 35,181 5.90% 3,158,172 46,195 5.80%
------- ===== ------- ======
Noninterest bearing liabilities................ 89,711 36,431
---------- ----------
Total liabilities........................ 2,454,600 3,194,603
Stockholders' equity........................... 91,166 108,459
---------- ----------
Total liabilities and stockholders'
equity................................. $2,545,766 $3,303,062
========== ==========
Net interest-earning assets.................... $ 101,767 $ 96,618
========== ==========
Net interest income/interest rate spread....... $12,272 1.73% $13,330 1.46%
======= ====== ======= ======
Net interest margin............................ 1.97% 1.62%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities...... 104.30% 103.06%
====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
---------- -------- --------- ---------- -------- --------- ---------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) .......... $1,041,342 $107,715 10.34% $ 867,151 $ 95,839 11.05% $ 769,943 $ 74,791 9.71%
Securities(2) ................. 1,845,179 109,224 5.92 2,255,318 134,761 5.98 2,425,301 134,051 5.53
Other earning assets(3) ....... 93,077 5,725 6.15 84,314 5,556 6.59 73,807 5,716 7.74
---------- -------- ---------- -------- ---------- --------
Total interest-earning
assets ...... ............. 2,979,598 222,664 7.47% 3,206,783 236,156 7.36% 3,269,051 214,558 6.56%
Noninterest-earning assets ....... 92,630 -------- ===== 89,147 -------- 58,674 --------
---------- ---------- ----------
Total assets ................ $3,072,228 $3,295,930 $3,327,725
========== ========== ==========
Interest-bearing liabilities:
Deposits:
Transaction accounts(4) ...... 268,047 7,474 2.79% 280,111 7,828 2.79% 342,451 9,679 2.83%
Term certificates of deposit . 1,329,463 75,617 5.69 1,271,079 73,345 5.77 1,149,834 58,556 5.09
---------- -------- ---------- -------- ----------
Total deposits ............. 1,597,510 83,091 5.20 1,551,190 81,173 5.23 1,492,285 68,235 4.57
Borrowings:
FHLB advances ................ 848,733 57,442 6.77 869,568 58,309 6.71 952,373 55,747 5.85
Securities sold under
agreements to repurchase ... 418,784 28,202 6.73 686,558 46,400 6.76 634,282 36,503 5.76
Promissory note payable ...... 12,852 1,026 7.98 19,862 1,606 8.09 26,872 2,105 7.83
Senior notes(5) .............. -- -- -- -- -- -- -- -- --
---------- -------- ----- ---------- -------- ----- ---------- -------- ------
Total interest-bearing
liabilities ............... 2,877,879 169,761 5.90% 3,127,178 187,488 6.00% 3,105,812 162,590 5.24%
-------- ===== ===== -------- ======
Noninterest bearing liabilities .. 89,914 33,075 85,744
---------- ---------- ----------
Total liabilities .......... 2,967,793 3,160,253 3,191,556
Stockholders' equity ............. 104,435 135,677 136,169
---------- ---------- ----------
Total liabilities and
stockholders' equity ..... $3,072,228 $3,295,930 $3,327,725
========== ========== ==========
Net interest-earning assets ...... $ 101,719 $ 79,605 $ 163,239
========== ========== ==========
Net interest income/interest
rate spread .................... $ 52,903 1.57% $ 48,668 1.36% $ 51,968 1.32%
======== ====== ======== ===== ======== ======
Net interest margin .............. 1.78% 1.52% 1.59%
====== ===== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities ... 103.53% 102.55% 105.26%
====== ====== ======
</TABLE>
- ----------
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis.
(2) Includes mortgage-backed securities classified as held to maturity and
available for sale.
(3) Includes cash and due from banks and FHLB stock.
(4) Includes passbook, NOW and money market accounts.
(5) The average balance calculation on the Senior Notes includes debt issuance
costs of approximately $4.6 million.
38
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and
volumes on net interest income of the Company. Information is provided with
respect to (i) effects on interest income attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) changes in rate/volume (change in rate multiplied by change in
volume).
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
Compared to Three Months Ended
September 30, 1996 Year Ended June 30, 1997 compared to 1996
---------------------------------------------- -----------------------------------------------
Increase (decrease) due to Increase (decrease) due to Total
-------------------------------- Total --------------------------------- Net
Rate/ Net Increase Rate/ Increase
Rate Volume Volume (Decrease) Rate Volume Volume (Decrease)
-------- --------- -------- ----------- --------- ---------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ................ $ (1,227) $ 55 $ (3) $ (1,175) $ (6,142) $ 19,252 $ (1,234) $ 11,876
Securities ...................... 1,016 (11,364) (375) (10,723) (1,259) (24,507) 229 (25,537)
Other earning assets ............ (127) (51) 4 (174) (370) 577 (38) 169
-------- -------- -------- -------- -------- -------- -------- --------
Total net change in income on
interest-earning assets ......... (338) (11,360) (374) (12,072) (7,771) (4,678) (1,043) (13,492)
-------- -------- -------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
Transaction accounts .......... (130) 38 (3) (95) (18) (337) 1 (354)
Term certificates of deposit .. 25 375 1 401 (1,049) 3,369 (48) 2,272
-------- -------- -------- -------- -------- -------- -------- --------
Total deposits .............. (105) 413 (2) 306 (1,067) 3,032 (47) 1,918
Borrowings:
FHLB advances ................. 2,653 (8,054) (1,158) (6,559) 543 (1,397) (13) (867)
Securities sold under
agreements to repurchase 1,171 (5,459) (882) (5,171) (165) (18,098) 65 (18,198)
Promissory note payable ....... 10 (178) (6) (174) (20) (567) 7 (580)
Senior notes .................. -- -- 584 584 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total net change in expense on
interest-bearing liabilities .... 3,729 (13,278) (1,464) (11,014) (709) (17,030) 12 (17,727)
-------- -------- -------- -------- -------- -------- -------- --------
Change in net interest income ..... $ (4,067) $ 1,918 $ 1,090 $ (1,058) $ (7,062) $ 12,352 $ (1,055) $ 4,235
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30, 1996 compared to 1995
---------------------------------------------
Increase (decrease) due to
--------------------------------- Total Net
Rate/ Increase
Rate Volume Volume (Decrease)
--------- -------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ............................... $ 10,304 $ 9,443 $ 1,301 $ 21,048
Securities ..................................... 10,867 (9,395) (762) 710
Other earning assets ........................... (852) 813 (121) (160)
-------- -------- -------- --------
Total net change in income on interest-earning
assets ......................................... 20,319 861 418 21,598
-------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
Transaction accounts ......................... (109) (1,762) 20 (1,851)
Term certificates of deposit ................. 7,793 6,174 822 14,789
-------- -------- -------- --------
Total deposits ............................. 7,684 4,412 842 12,938
Borrowings:
FHLB advances ................................ 8,115 (4,847) (706) 2,562
Securities sold under agreements to repurchase 6,364 3,008 525 9,897
Promissory note payable ...................... 68 (549) (18) (499)
Senior notes ................................. -- -- -- --
-------- -------- -------- --------
Total net change in expense on interest-bearing
liabilities .................................... 22,231 2,024 643 24,898
-------- -------- -------- --------
Change in net interest income .................... $ (1,912) $ (1,163) $ (225) $ (3,300)
======== ======== ======== ========
</TABLE>
39
<PAGE>
Interest Income. Total interest and dividend income decreased by $12.1
million or 20.3% during the three months ended September 30, 1997, as compared
to the same period in the prior year, decreased by $13.5 million or 5.7% during
the year ended June 30, 1997 and increased by $21.6 million or 10.1% during the
year ended June 30, 1996. Interest income on loans receivable decreased by $1.2
million or 4.4% during the three months ended September 30, 1997, as compared to
the same period in the prior year, and increased by $11.9 million or 12.4% and
$21.0 million or 28.1% during the years ended June 30, 1997 and 1996,
respectively. The decrease in interest on loans receivable during the three
months ended September 30, 1997 was due to a decline in the average yield earned
on the Company's loan portfolio of 48 basis points. This decline in the average
yield reflected, in part, the discontinuance of the Company's third party
automobile loan purchase activity. Such loans generally carry higher yields than
traditional real estate secured loans. The increase in interest on loans
receivable during the years ended June 30, 1997 and 1996 was primarily due to
increases in the average balance of loans outstanding of $174.2 million and
$97.2 million, respectively. During fiscal 1997, prior management significantly
increased its originations of consumer loans, particularly automobile finance
receivables, and, during fiscal 1997 and 1996, the Company continued its
emphasis on the origination and purchase of commercial real estate loans. During
such years, the Company originated and purchased a total of $320.2 and $432.2
million of loans, which included $73.6 million and $179.6 million of consumer
loans and $205.5 million and $202.5 million of commercial real estate loans,
respectively.
Interest income on securities and other interest-earning assets (which
include mortgage-backed and related securities, including CMOs, U.S. Government
and agency securities, FHLB stock and, during fiscal 1997 and 1996, interest
rate caps and floors and Student Loan Marketing Association preferred stock)
decreased by $10.9 million or 33.5% during the three months ended September 30,
1997, as compared to the same period in the prior year, decreased by $25.4
million or 18.1% during the year ended June 30, 1997 and increased slightly by
$550,000 or 0.4% during the year ended June 30, 1996. The decline in interest
income on such investments during the three months ended September 30, 1997 and
the year ended June 30, 1997 was primarily due to the decreases in the average
balance of such investments of $790.2 million and $401.4 million during such
respective periods. During fiscal 1997, the Company began reducing its
securities holdings (primarily its COFI- based CMO's) through periodic bulk sale
transactions which resulted in the sale of $743.9 million of securities during
the year. During the first quarter of fiscal 1998 and in connection with the
Private Placement and the Redemption, new management of the Company determined
that its CMO portfolio was "other than temporarily impaired" and, in accordance
with GAAP, wrote-down the portfolio by $54.7 million. In addition, since
assuming control of the Company on September 8, 1997, new management has been
accelerating the disposition of its securities portfolio, particularly its
COFI-based CMOs. During the three months ended September 30, 1997, the Company
sold $521.8 million of securities. Management further reduced its securities
portfolio, particularly its CMO holdings, subsequent to September 30, 1997 and
expects to continue to reduce what remains of the portfolio as market conditions
permit.
40
<PAGE>
Interest Expense. Total interest expense decreased by $11.0 million or
23.8% during the three months ended September 30, 1997, as compared to the same
period in the prior year, decreased by $17.7 million or 9.5% during the year
ended June 30, 1997 and increased by $24.9 million or 15.3% during the year
ended June 30, 1996. Interest expense on deposits, the largest component of the
Company's interest-bearing liabilities, increased slightly by $306,000 or 1.5%
during the three months ended September 30, 1997 and increased by $1.9 million
or 2.4% and $12.9 million or 19.0% during the years ended June 30, 1997 and
1996, respectively. The Company has increased its average balance of deposits
during each of the periods presented in accordance with the Company's strategy
to promote retail deposit growth.
Interest expense on FHLB advances decreased by $6.6 million or 35.5%
during the three months ended September 30, 1997, as compared to the same period
in the prior year, decreased slightly by $867,000 or 1.5% during the year ended
June 30, 1997 and increased by $2.6 million or 4.6% during the year ended June
30, 1996. Similarly, interest expense on reverse repurchase agreements decreased
by $5.2 million or 71.4% during the three months ended September 30, 1997, as
compared to the same period in the prior year, decreased by $18.2 million or
39.2% during the year ended June 30, 1997 and increased by $9.9 million or 27.1%
during the year ended June 30, 1996. As discussed previously, beginning in 1993,
the Company began to implement an investment strategy whereby it purchased
mortgage-backed and related securities and financed those securities primarily
through reverse repurchase agreements and FHLB advances. However, during fiscal
1997 and continuing through the first quarter of fiscal 1998, the Company has
begun to reduce its securities holdings through periodic bulk sale transactions
and has utilized the proceeds therefrom to pay off its reverse repurchase
agreements and pay down FHLB advances.
During the periods presented, interest expense on notes payable
consisted of interest paid on a promissory note payable to Isabel Collier Read
and, since September 8, 1997, interest accrued with respect to the Senior Notes.
Interest expense on the promissory note amounted to $108,000, $282,000, $1.0
million, $1.6 million and $2.1 million during the three months ended September
30, 1997 and 1996 and the years ended June 30, 1997, 1996 and 1995,
respectively. Interest expense on the Senior Notes (which began to accrue on
September 8, 1997) amounted to $584,000 during the three months ended September
30, 1997. On September 8, 1997, in connection with the closing of the Private
Placement and the Redemption, the Company issued $80.0 million of the Senior
Notes (which are due in August 2004 and bear interest at the rate of 11.0%
payable semi-annually) and prepaid the promissory note held by Ms. Read at a
price equal to the principal amount thereof plus accrued and unpaid interest
thereon.
Provision for Loan Losses. The provision for loan losses is charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on (i) an estimate by management of loan losses
that occurred during the current period and (ii) an ongoing adjustment of prior
estimates of losses occurring in prior periods. To serve as a basis for making
41
<PAGE>
this provision each quarter, the Company maintains an extensive credit risk
monitoring process that considers several factors, including among other things,
current economic conditions affecting the Company's customers, the payment
performance of individual large loans and pools of homogeneous small loans,
portfolio seasoning, changes in collateral values, and detailed reviews of
specific large loan relationships. For large loans deemed to be impaired due to
an expectation that all contractual payments will probably not be received,
impairment is measured by comparing the Company's recorded investment in the
loan to the present value of expected cash flows discounted at the loans'
effective interest rate, the fair value of the collateral or the loan's
observable market price. While management endeavors to use the best information
available in making its evaluations, future adjustments to the allowance for
loan losses may be necessary if economic conditions change substantially from
the assumptions used in making the evaluations. In addition, regulatory
examiners may require the Banks to recognize additions to their allowances based
upon their judgments about information available to them at the time of their
examination.
The Company established provisions for loan losses of $25.4 million,
$2.3 million, $28.4 million, $5.1 million and $1.2 million during the three
months ended September 30, 1997 and 1996 and the years ended June 30, 1997, 1996
and 1995, respectively. During such respective periods, loan charge-offs (net of
recoveries) amounted to $3.2 million, $2.9 million, $20.2 million, $6.5 million
and $253,000. The $25.4 million and $28.4 million provisions established during
the three months ended September 30, 1997 and the year ended June 30, 1997 were
intended primarily to cover realized and anticipated losses with respect to the
Company's portfolio of indirect automobile receivables. At September 30, 1997,
the Company's portfolio of such indirect automobile loans amounted to $66.8
million. See "Risk Factors--Lending and Investment Activities--Indirect
Automobile Lending" for a discussion of two contracts executed in late December
1997 for the sale of a portion of the Company's indirect automobile receivables.
Noninterest Income. Total noninterest income (loss) amounted to
$(122.6) million, $2.8 million, $(17.1) million, $10.3 million and $16.6 million
during the three months ended September 30, 1997 and 1996 and the years ended
June 30, 1997, 1996 and 1995, respectively. The components of noninterest income
consist of deposit related income, loan fees and loan service charges, net gains
(losses) on sale of assets and other miscellaneous income. The noninterest
losses recognized during the three months ended September 30, 1997 and the year
ended June 30, 1997 primarily related to losses incurred on the sale of assets.
Specifically, during the first quarter of fiscal 1998, the Company incurred
$125.5 million of losses on the sale and write-down of assets, of which an
aggregate loss of $53.4 million was incurred in connection with the liquidation
of the hedging contracts previous management had entered into in an attempt to
reduce the Company's exposure to interest rates. See "--Asset and Liability
Management." In addition, the Company recognized a loss of $17.3 million on the
sale of securities ($16.0 million of which related to the sale of CMOs with
interest rate adjustments tied to COFI) and a loss of $54.7 million which
related to the write-down of the Company's remaining COFI-based CMO portfolio to
reflect market values. During the year ended June 30, 1997, the Company
recognized $29.6 million of losses on the sale of securities ($28.0 million of
which related to the sale of CMOs with interest rate adjustments tied to COFI).
42
<PAGE>
Noninterest Expense. Total noninterest expense decreased by $6.3
million or 31.6% during the three months ended September 30, 1997, as compared
to the same period in the prior year, increased by $13.8 million or 39.0% during
the year ended June 30, 1997 and decreased by $11.0 million or 23.7% during the
year ended June 30, 1996. The decrease in noninterest expense during the three
months ended September 30, 1997 was primarily due to the absence of the $10.3
million (before applicable tax benefits) special assessment which was recognized
by the Company in September 1996 in connection with the recapitalization of the
SAIF, which was partially offset by a $5.0 million increase in miscellaneous
other expenses. Pursuant to legislation effective September 30, 1996, all SAIF
member institutions were required to pay a one-time special assessment equal to
65.7 basis points for all SAIF- assessable deposits as of March 31, 1995. This
legislation resulted in the recapitalization of the SAIF and, consequently,
during the fourth calendar quarter of 1996, the FDIC lowered the Banks'
assessment rates. See "Regulation--Regulation of Federal Savings
Institutions--FDIC Assessments." The increase in miscellaneous other expense
recognized by the Company during the three months ended September 30, 1997
primarily reflected non-recurring charges which were related to the Private
Placement and the Redemption which were consummated on September 8, 1997.
The increase in noninterest expense during the year ended June 30, 1997
was due primarily to the one-time special SAIF assessment which was recognized
by the Company in September 1996, as discussed above. In addition, during fiscal
1997, the Company's provision for uninsured risk and losses increased by $1.9
million or 140.5% due to the Company's reassessment of its potential liability
with respect to the FDIC Dispute. See "Business--Legal Proceedings."
The decrease in noninterest expense during the year ended June 30, 1996
was due primarily to a $9.6 million or 40.4% decrease in compensation and
employee benefits which reflected bonuses and other payments which were made
during fiscal 1995 to the former senior management of the Company pursuant to
certain employment agreements with such individuals. In addition, during fiscal
1996, the Company's provision for uninsured risk and losses declined by $4.4
million or 76.0% as the Company continued to reassess the adequacy of its
reserves for any potential liability to the FDIC in connection with the FDIC
Dispute. See "Business--Legal Proceedings." Partially offsetting these decreases
during the fiscal year was a $1.1 million or 17.0% increase in miscellaneous
other expense (consisting primarily of expenses relating to the operations of
Star, which commenced business in January 1995).
Provision (Benefit) for Income Taxes. During the three months ended
September 30, 1997 and 1996 and the years ended June 30, 1997, 1996 and 1995,
the Company recognized $(50.8) million, $(1.9) million, $(11.9) million, $4.9
million and $6.6 million of provisions (benefits) for income taxes. At September
30, 1997, the Company had approximately $20.6 million and $179.7 million of net
43
<PAGE>
operating loss carryforwards available for federal and state income tax
purposes, respectively. The state net operating loss carryforwards expire in
varying amounts between 2006 and 2012. The federal net operating loss
carryforwards expire in 2013. See "Taxation" and Note 14 of the Notes to
Consolidated Financial Statements.
Asset and Liability Management
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control risks associated with interest rate movements. In
general, management's strategy is to match asset and liability balances within
maturity categories to limit the Company's exposure to earnings variations and
variations in the value of assets and liabilities as interest rates change over
time. The Company's asset and liability management strategy is formulated and
monitored by the Asset/Liability Management Committee, which is comprised of the
Chief Executive Officer, the Chief Financial Officer, the Treasurer and the
Director of Retail Operations of the Company, in accordance with policies
approved by the Board of Directors of the Company. The Asset/Liability
Management Committee meets at least quarterly to review, among other things, the
sensitivity of the Company's assets and liabilities to interest rate changes,
the book and market values of assets and liabilities, unrealized gains and
losses, including those attributable to hedging transactions, purchase and sale
activity, and maturities of investments and borrowings. The Asset/Liability
Management Committee also approves and establishes pricing and funding decisions
with respect to overall asset and liability composition and reports regularly to
the full Board of Directors.
One of the primary goals of the Company's Asset/Liability Management
Committee is to effectively increase the duration of the Company's liabilities
and/or effectively contract the duration of the Company's assets so that the
respective durations are matched as closely as possible. This duration
adjustment can be accomplished either internally by restructuring the Company's
balance sheet, or externally by adjusting the duration of the Company's assets
and/or liabilities through the use of hedging contracts, such as interest rate
swaps, caps and floors. Although the Company has in the past hedged its interest
rate exposure externally through the use of various hedging contracts, the
Company's current strategy is to hedge internally through the use of core
transaction deposit accounts which are not as rate sensitive as other deposit
instruments and FHLB advances, together with an emphasis on investing in
shorter-term or adjustable rate assets which are more responsive to changes in
interest rates, such as adjustable rate U.S. Government agency mortgage-backed
securities, short-term U.S. Government agency securities and commercial and
consumer loans. The foregoing strategies are more fully described below.
Internal hedging through balance sheet restructuring generally involves
either the attraction of longer-term or less rate sensitive funds (i.e., core
transaction deposit accounts which are not as rate sensitive as other deposit
instruments or FHLB advances) or the investment in certain types of shorter-term
or adjustable-rate assets such as adjustable-rate mortgage-backed securities,
shorter-term U.S. Government agency securities and commercial and consumer
loans.
44
<PAGE>
External hedging has generally involved the Company's use of interest
rate swaps, caps and floors. The Company previously utilized interest rate swaps
to hedge its outstanding FHLB advances and reverse repurchase agreements while
the Company previously utilized interest rate caps and floors to hedge the
Company's COFI-based CMO portfolio. The notional amount of hedging contracts
represents the underlying amount on which periodic cash flows are calculated and
exchanged between counterparties. However, this notional amount does not
represent the amount of borrowings or securities which would effectively be
hedged by that hedging contract. In selecting the type and amount of hedging
contract to utilize, the Company compares the duration of a particular contract,
or its change in value for a 100 basis point movement in interest rates, to that
of the borrowings or securities to be hedged. A hedging rate contract with the
appropriate offsetting duration often may have a notional amount much greater
than the face amount of the borrowings and/or securities being hedged.
During the three months ended September 30, 1997, the Company
terminated all outstanding interest rate swaps, caps and floors. Specifically,
the Company terminated interest rate swaps with an aggregate notional value of
$500.0 million which resulted in losses of $47.3 million (excluding applicable
tax benefits). The Company also terminated interest rate cap and floor
agreements with an aggregate notional value of $2.4 billion, which resulted in
losses of $2.2 million (excluding applicable tax benefits). Upon termination of
the foregoing interest rate swap, cap and floor agreements, the Company
recognized all deferred gains and losses which resulted from prior hedging
activities, which resulted in an additional loss of approximately $3.9 million
(excluding applicable tax benefits). The foregoing losses resulted in an
aggregate net tax benefit of approximately $18.7 million.
Pursuant to the Redemption Agreement, the Selling Stockholders are
responsible to the Company for any aggregate pre-tax loss (net of any related
tax benefit) to the Company in excess of $42.5 million which results from the
sale or termination of the Company's existing hedging contracts. The Company is
currently attempting to collect such difference (which it estimates to amount to
$4.6 million) from the Selling Stockholders and has filed a lawsuit in the
United States District Court for the Western District of Oklahoma in order to
facilitate such recovery. However, no assurance can be made that the Company
will be able to recover from the Selling Stockholders all or a portion of such
$4.6 million.
The Asset/Liability Management Committee's methods for evaluating
interest rate risk include an analysis of the Company's interest rate
sensitivity "gap," which is defined as the difference between interest-earning
assets and interest-bearing liabilities maturing or repricing within a given
time period. A gap is considered positive when the amount of interest-rate
sensitive assets exceeds the amount of interest-rate sensitive liabilities. A
gap is considered negative when the amount of interest-rate sensitive
liabilities exceeds interest-rate sensitive assets. During a period of falling
interest rates, a negative gap would tend to result in an increase in net
45
<PAGE>
interest income, while a positive gap would tend to affect net interest income
adversely. Because different types of assets and liabilities with the same or
similar maturities may react differently to changes in overall market rates or
conditions, changes in interest rates may affect net interest income positively
or negatively even if an institution were perfectly matched in each maturity
category.
The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
September 30, 1997, based on the information and assumptions set forth in the
notes below.
<TABLE>
<CAPTION>
More Than
Three to More Than Three Years
Within Three Twelve One Year to to Five Over Five
Months Months Three Years Years Years Total
------------ ------------ ------------ ------------ ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1):
Loans receivable (2):
Single-family residential loans $ 19,997 $ 59,417 $ 53,889 $ 33,087 $116,127 $ 282,517
Commercial real estate......... 213,052 99,240 110,250 81,039 139,640 643,221
Consumer....................... 7,969 75,321 9,963 7,407 9,344 110,004
Securities(1)(3)................. 786,774 60,302 7,014 6,390 24,577 885,057
Other interest-earning assets (4)... 66,888 -- -- -- -- 66,888
---------- ---------- ---------- --------- -------- ----------
Total........................ $1,094,680 $ 294,280 $ 181,116 $ 127,923 $289,688 $1,987,687
========== ========== ========== ========= ======== ==========
Interest-bearing liabilities:
Deposits(5):
Money market and NOW
accounts..................... $ 10,343 $ 31,027 $ 54,374 $ 31,540 $ 52,713 $ 179,997
Passbook accounts.............. 2,470 7,410 15,822 11,721 33,501 70,924
Certificates of deposit........ 289,705 643,314 349,026 17,269 393 1,299,707
Borrowings:
FHLB advances.................. 258,620 -- -- -- -- 258,620
Senior notes................... -- -- -- -- 80,000 80,000
---------- ---------- ---------- --------- -------- ----------
Total........................ $ 561,138 $ 681,751 $ 419,222 $ 60,530 $166,607 $1,889,248
========== ========== ========== ========= ======== ==========
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities...................... $ 533,542 $ (387,471) $ (238,106) $ 67,393 $123,081 $ 98,439
========== ========== ========== ========= ======== ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities.............. $ 533,542 $ 146,071 $ (92,035) $ (24,642) $ 98,439 $ 98,439
========== ========== ========== ========= ======== ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities as a percent of
total assets..................... 25.98% 7.11% (4.48)% (1.20)% 4.79% 4.79%
========== ========== ======== ========= ======== ==========
</TABLE>
46
<PAGE>
- ----------
(1) Adjustable-rate loans and securities are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due and fixed-rate loans and securities are included in the
periods in which they are scheduled to be repaid, based on scheduled
amortization, in each case as adjusted to take into account estimated
prepayments based on, among other things, historical performance.
(2) Balances have been reduced for non-performing loans, which amounted to $1.2
million at September 30, 1997. Indirect automobile loans are included in
the three to twelve month category due to the anticipated sale of such
loans. See "Business--Lending Activities--Consumer Loans."
(3) Does not include unrealized loss on securities classified as available for
sale of $176,000.
(4) Comprised of cash and due from banks and FHLB stock.
(5) Adjusted to take into account assumed annual decay rates which were applied
against money market, NOW and passbook accounts of 31.31%, 17.07% and
13.93%, respectively.
Although interest rate sensitivity gap is a useful measurement and
contributes toward effective asset and liability management, it is difficult to
predict the effect of changing interest rates based solely on that measure. As a
result, the Asset/Liability Management Committee also regularly reviews interest
rate risk by forecasting the impact of alternative interest rate environments on
net interest income and net portfolio value ("NPV"), which is defined as the net
present value of an institution's existing assets, liabilities and off-balance
sheet instruments, and evaluating such impacts against the maximum potential
changes in net interest income and NPV that is authorized by the Board of
Directors of the Company. For information with respect to the estimated
percentage change of the Company's net interest income over a four-quarter
period and NPV based on an indicated change in interest rates, see
"Regulation--Regulation of Federal Savings Institutions--Regulatory Capital
Requirements."
Liquidity and Capital Resources
Liquidity. Liquidity refers to the Company's ability to generate
sufficient cash to meet the funding needs of current loan demand, savings
deposit withdrawals, principal and interest payments with respect to outstanding
borrowings and to pay operating expenses. It is management's policy to maintain
greater liquidity than required in order to be in a position to fund loan
originations, to meet withdrawals from deposit accounts, to make principal and
interest payments with respect to outstanding borrowings and to make investments
that take advantage of interest rate spreads. The Company monitors its liquidity
in accordance with guidelines established by the Company and applicable
regulatory requirements. The Company's need for liquidity is affected by loan
demand, net changes in deposit levels and the scheduled maturities of its
borrowings. The Company can minimize the cash required during the times of heavy
loan demand by modifying its credit policies or reducing its marketing effort.
47
<PAGE>
Liquidity demand caused by net reductions in deposits are usually caused by
factors over which the Company has limited control. The Company derives its
liquidity from both its assets and liabilities. Liquidity is derived from assets
by receipt of interest and principal payments and prepayments, by the ability to
sell assets at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including deposits, advances from the FHLB of Topeka and other
short and long-term borrowings.
The Company's liquidity management is both a daily and long-term
function of funds management. Liquid assets are generally invested in short-term
investments such as overnight money funds and short-term government agency
securities. If the Company requires funds beyond its ability to generate them
internally, various forms of both short and long-term borrowings provide an
additional source of funds. At September 30, 1997, the Company had $333.0
million in borrowing capacity under a collateralized line of credit with the
FHLB of Topeka. The Bank does not currently accept brokered deposits as a source
of liquidity, and does not anticipate a change in this practice in the
foreseeable future.
At September 30, 1997, the Company had outstanding commitments
(including unused lines of credit) to originate and/or purchase mortgage and
non-mortgage loans of $40.9 million. Certificates of deposit which are scheduled
to mature within one year totaled $936.8 million at September 30, 1997, and
borrowings that are scheduled to mature within the same period amounted to
$207.6 million. The Company anticipates that it will have sufficient funds
available to meet its current loan commitments.
Beginning March 1, 1998, the Company intends to begin making interest
payments on the Senior Notes, which is expected to be initially funded through
an interest reserve account established with an independent trustee and
subsequently through dividends from the Banks. The Senior Notes have an annual
debt reserve requirement of $8.8 million (or $4.4 million for each semi-annual
period). The Interest Reserve Account currently contains cash and other
investments permitted by the Indenture governing the Senior Notes sufficient to
pay the aggregate interest payments scheduled to be made on March 1, 1998 and
September 1, 1998.
Capital Resources. Federally insured savings institutions such as the
Banks are required to maintain minimum levels of regulatory capital. See
"Regulation--Regulation of Federal Savings Institutions--Regulatory Capital
Requirements." The following table reflects the Banks' actual levels of
regulatory capital and applicable regulatory capital requirements at September
30, 1997.
48
<PAGE>
<TABLE>
<CAPTION>
Required(4) Actual Excess
------------------------------- ---------------------------- ----------------------------
Percent Amount Percent Amount Percent Amount
-------------- -------------- -------------- ----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Local Federal:
Tangible capital........... 1.50% $30,179 5.16% $103,785 3.66% $73,606
Core capital(1)............ 3.00 60,421 5.26 105,873 2.26 45,452
Risk-based capital(2)(3)... 8.00 80,341 11.22 112,634 3.22 32,293
Local America:
Tangible capital........... 1.50 9,790 13.57 88,575 12.07 78,785
Core capital(1)............ 3.00 19,607 13.69 89,475 10.69 69,868
Risk-based capital (2)(3).. 8.00 29,624 25.07 92,838 17.07 63,214
</TABLE>
- ----------
(1) Does not reflect amendments which were proposed by the OTS in April 1991,
which would increase this requirement to between 4% and 5%.
(2) Does not reflect the interest-rate risk component to the risk-based capital
requirement, the effective date of which has been postponed.
(3) Tangible and core capital are computed as a percentage of adjusted total
assets and risk-based capital is computed as a percentage of adjusted
risk-weighted assets.
(4) Does not reflect the requirements to be met in order for an institution to
be deemed "adequately capitalized" under applicable laws and regulations.
See "Regulation--Regulation of Federal Savings Institutions--Prompt
Corrective Action."
Inflation and Changing Prices
The Consolidated Financial Statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars (except with respect to available for sale
securities which are carried at market value), without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.
Recent Accounting Pronouncements
Set forth below are recent accounting pronouncements which may have a
future effect on the Company's operations. These pronouncements should be read
in conjunction with the significant accounting policies which the Company has
adopted that are set forth in the Company's Notes to Consolidated Financial
Statements.
49
<PAGE>
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, which was
effective, on a prospective basis, for transactions occurring after December 31,
1996. SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on
consistent application of a financial-components approach that focuses on
control. SFAS No. 125 extends the "available for sale" and "trading" approach of
SFAS No. 115 to non-security financial assets that can be contractually prepaid
or otherwise settled in such a way that the holder of the asset would not
recover substantially all of its recorded investment. The extension of the SFAS
No. 115 approach to certain non-security financial assets and the amendment to
SFAS No. 115 are effective for financial assets held on or acquired after
January 1, 1997. The adoption of SFAS No. 125 did not have a material adverse
effect on the Company's financial condition or results of operations.
In February 1997, the FASB released SFAS No. 128, "Earnings Per Share."
SFAS No. 128 establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. SFAS No. 128 simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15, Earnings Per Share
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. SFAS No. 128 requires restatement of all prior-period EPS data
presented. Management does not anticipate that this Statement will have a
material adverse impact on the consolidated financial position, the future
results of operations of the Company or the net earnings (loss) per share
reported in the Consolidated Financial Statements.
In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 continues the existing requirements to
disclose the pertinent rights and privileges of all securities other than
ordinary common stock but expands the number of companies subject to portions of
its requirements. Specifically, the Statement requires all entities to provide
the capital structure disclosures previously required by APB Opinion No. 15.
Companies that were exempt from the provisions of APB Opinion No. 15 will now
need to make those disclosures.
50
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management does not anticipate that this
Statement will have a material adverse impact on the consolidated financial
position or the future results of operations of the Company.
In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Relation Information." SFAS No. 131 requires disclosures
for each segment that are similar to those required under current standards with
the addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. It requires limited segment data on a quarterly basis.
It also requires geographic data by country, as opposed to broader geographic
regions as permitted under current standards. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997 with earlier application
permitted. Management does not anticipate that this Statement will have a
material adverse impact on the consolidated financial position or the future
results of operations of the Company.
BUSINESS
Lending Activities
General. The Company has historically generated loans through its own
branch network in the case of residential and consumer loans and, in the case of
commercial real estate loans, through a network of loans brokers, mortgage
bankers and unaffiliated financial institutions. All commercial real estate and
residential real estate mortgages are generally secured by first trust deeds on
real property. Consumer loans are comprised of direct automobile loans
originated by the Banks as well as an indirect automobile finance receivables
portfolio, a mix of home equity and other secured and unsecured consumer loans.
As of September 30, 1997, the Company's net loans receivable portfolio amounted
to $989.6 million or 48.2% of the Company's total consolidated assets.
51
<PAGE>
The following table presents information on the Company's consolidated
loan portfolio as of the dates indicated:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------
September 30,
1997 1997 1996 1995 1994 1993
---------- ---------- ---------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Single-family residential real estate loans $ 283,013 $ 282,034 $ 280,173 $282,319 $292,119 $272,089
Construction loans................... -- -- -- 5,000 -- 332
Commercial real estate loans(1)...... 643,640 638,091 606,811 496,803 404,572 260,373
Consumer loans(2).................... 110,256 122,908 165,380 42,189 32,846 28,451
---------- ---------- ---------- -------- -------- --------
Total gross loans................ 1,036,909 1,043,033 1,052,364 826,311 729,537 561,245
---------- ---------- ---------- -------- -------- --------
Less:
Unaccreted discounts .............. (9,958) (12,522) (16,163) (15,451) (16,880) (13,918)
Unearned interest.................. (3,198) (4,479) (13,959) (890) (142) --
Allowance for loan losses.......... (33,560)(3) (11,435)(3) (3,228) (4,593) (3,689) (2,172)
Loans in process................... -- -- -- -- (3) (42)
Deferred income.................... (631) (773) (879) (767) (257) (660)
---------- ---------- ---------- -------- -------- --------
Loans receivable, net............ $ 989,562 $1,013,824 $1,018,135 $804,610 $708,566 $544,453
========== ========== ========== ======== ======== ========
</TABLE>
- ----------
(1) Includes loans secured by multi-family residential properties.
(2) At September 30, 1997 and June 30, 1997, 1996, 1995, 1994 and 1993,
includes $66.8 million, $82.2 million, $33.3 million, $21.7 million, $1.9
million and $0 of indirect automobile loan receivables.
(3) See "--Allowance for Loan Losses" for information on the increase in the
Company's allowance for loan losses during fiscal 1997 and the three months
ended September 30, 1997.
Contractual Principal Repayments and Interest Rates. The following
table sets forth scheduled contractual amortization of the Company's total loan
portfolio at September 30, 1997, as well as the dollar amount of such loans
which are scheduled to mature after one year which have fixed or adjustable
interest rates. Demand loans, loans having no schedule of repayments and no
stated maturity and overdraft loans are reported as due in one year or less.
52
<PAGE>
<TABLE>
<CAPTION>
Principal Repayments Contractually Due or Repricing
in Year(s) Ended September 30,
---------------------------------------------------------------------
Total at
September 30, There-
1997 1998 1999 2000 2001 2002 after
---- ---- ---- ---- ---- ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Residential real estate..... $ 283,013 $ 630 $ 678 $ 1,647 $ 3,364 $ 4,116 $272,578
Commercial real estate...... 643,640 30,027 45,063 52,151 52,232 76,920 387,247
Consumer.................... 110,256 78,137 1,576 2,683 2,788 2,745 22,327
--------- ------- ------ ------ ------ ------ -------
Total(1).................... $1,036,909 $108,794 $47,317 $56,481 $58,384 $83,781 $682,152
========= ======= ====== ====== ====== ====== =======
</TABLE>
- -------------------
(1) Of the $928.1 million of loan principal repayments contractually due
after September 30, 1998, $528.3 million have fixed rates of interest
and $399.8 million have adjustable rates of interest. Commercial,
consumer and total loans are presented net of undistributed loan
proceeds.
Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less than
their contractual terms because of prepayments and, in the case of conventional
mortgage loans, due-on-sale clauses, which generally give the Banks the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase when current
mortgage loan rates are substantially higher than rates on existing mortgage
loans and, conversely, decrease when rates on existing mortgages are
substantially lower than current mortgage loan rates (due to refinancings of
adjustable-rate and fixed-rate loans at lower rates).
Origination, Purchase and Sale of Loans. The lending activities of the
Banks are subject to the written, non-discriminatory underwriting standards and
loan origination procedures established by the Banks' Boards of Directors and
management. Loan originations are obtained by a variety of sources, including
referrals from real estate brokers, loan brokers, mortgage bankers, unaffiliated
financial institutions, existing customers, walk-in customers and advertising.
In its present marketing efforts, the Banks emphasize their customized personal
service, competitive rates, and an efficient underwriting and approval process.
Property valuations are performed by the Banks' staff as well as by independent
outside appraisers approved by the Banks' Boards of Directors. The Banks
generally require title, hazard and, to the extent applicable, flood insurance
on its security property.
A savings institution generally may not make loans to any one borrower
and related entities in an amount which exceeds 15% of its unimpaired capital
and surplus, although loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a borrower if the loans are fully
secured by readily marketable securities. At September 30, 1997, Local Federal's
and Local America's regulatory limit on loans-to-one borrower was $20.8 million
and $13.9 million, respectively. As of such date, the five largest loans or
groups of loans-to-one borrower, including related entities, held in the Banks'
portfolios aggregated $26.0 million, $24.3 million, $18.1 million, $16.9 million
and $15.8 million. All of the loans which exceed the Banks' respective lending
limits were originated during periods when the asset size of the Banks was
greater and the Banks' lending limits were higher. As a result, such loans are
grandfathered and comply with such OTS regulations. All of these five largest
loans or loan concentrations were secured by commercial real estate and were
performing in accordance with their terms at September 30, 1997.
53
<PAGE>
The following table shows the activity in the Company's loan portfolio
during the periods indicated.
<TABLE>
<CAPTION>
Three Months Year Ended June 30,
Ended --------------------------------------
September 30, 1997 1997 1996 1995
------------------ ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Gross loans held at beginning
of period...................................... $1,043,033 $1,052,364 $ 826,311 $ 729,537
Originations of loans:
Single-family residential...................... 12,079 41,115 50,126 20,032
Commercial real estate......................... 12,220 118,527 114,818 121,554
Consumer....................................... 10,822 73,627 179,554 54,222
--------- --------- ------- --------
Total originations........................... 35,121 233,269 344,498 195,808
--------- --------- ------- --------
Purchases of loans:
Single-family residential.................... -- -- -- 3,524
Commercial real estate....................... 30,350 86,939 87,714 142,516
Construction................................. -- -- -- 5,000
--------- --------- ------- --------
Total purchases............................ 30,350 86,939 87,714 151,040
--------- --------- ------- --------
Total originations and
purchases.................................. 65,471 320,208 432,212 346,848
--------- --------- ------- --------
Loans sold:
Consumer loans(1)............................ 880 11,974 15,009 27,537
Single-family residential.................... -- -- 13 --
Commercial real estate....................... -- -- -- 62,147
--------- --------- ------- --------
Total sold................................. 880 11,974 15,022 89,684
Repayments(2)..................................... (70,883) (318,571) (196,101) (161,595)
Transfers to real estate owned.................... 168 1,006 4,964 1,205
Net activity in loans............................. (6,124) (9,331) 226,053 96,774
--------- --------- --------- --------
Gross loans held at end of
period......................................... $1,036,909 $1,043,033 $1,052,364 $ 826,311
========= ========= ========= ========
</TABLE>
- ----------
(1) Consists solely of guaranteed student loans.
(2) Includes repossessions with respect to indirect automobile loans.
54
<PAGE>
Commercial Real Estate Loans. As of September 30, 1997, commercial real
estate loans (which include multi-family residential loans) amounted to $643.6
million or 62.1% of the Company's total loan portfolio. The Banks originate and
purchase whole loans and loan packages through a network of loan brokers,
mortgage bankers and institutions throughout the country with whom the Banks
have relationships, who find potential loans based upon the Banks' established
underwriting and pricing guidelines. All originations and purchases undergo a
three-step underwriting and evaluation process. First, an initial review of the
loan package is conducted by the originator to determine conformity to
guidelines and consistency with the Banks' lending philosophy. An indication of
pricing and terms may be issued in the case of loans which have already been
originated. Second, once the indication is accepted by the borrower and a
completed application submitted, a detailed underwriting is conducted in which
both the originator and the Banks' in-house appraiser conduct an onsite
inspection and analysis. Rent rates are analyzed and compared to market rents,
reported occupancy is checked against evidence onsite, environmental issues are
identified and the appropriate level of investigation is conducted and a final
credit write-up is prepared. Finally, the Banks' closing department reviews the
totality of work, including completeness of analysis and documentation, title
searches, borrower background checks, appraisal and environmental reports and
other pertinent data. Only after these three broad steps is a final approval and
disbursement made.
The Company also purchases packages of commercial real estate loans
from a financial institution located in Oregon and a financial institution
located in Utah. These loans are secured primarily by multi-family residential
and nonresidential real estate and are generally purchased on a servicing
retained basis. Commercial real estate loans purchased by the Company are
underwritten pursuant to the same guidelines as direct loan originations. The
Company purchased a total of $30.4 million and $86.9 million of commercial real
estate loans during the first three months of fiscal 1998 and the year ended
June 30, 1997, respectively.
The Banks impose in-house lending limits which are below statutory
lending limits. While the OTS statutory limit is 15% of an institution's
unimpaired capital and surplus (or with respect to Local Federal and Local
America, approximately $20.8 million and $13.9 million, respectively, at
September 30, 1997), management of the Company generally restricts single loans
to $12 to $15 million in size and generally limits exposure to any single
borrower to $20 million.
The Company originates both fixed-rate and adjustable rate commercial
real estate loans. Fixed-rate commercial real estate loans generally have terms
to maturity of between five and ten years and amortize over a period of up to 30
years. Adjustable-rate commercial real estate loans have interest rates which
generally adjust every six months, one-year, three years and five years in
accordance with a designated index (either the London Interbank Offer Rate, the
prime rate quoted in the Wall Street Journal or U.S. Treasury rates).
55
<PAGE>
Loan-to-value ratios on commercial real estate loans are generally
limited to a maximum of 80% for apartments and manufactured housing communities
(loans on real estate as distinguished from manufactured homes), 75% on
mini-storage units and multi-tenant warehouses, 70% for offices and 65% for
hotels and retail properties.
Wholesale commercial origination/acquisition volume was relatively
stable in fiscal 1996 and 1997, amounting to $202.5 million and $205.4 million,
respectively, but amounted to $42.6 for the three months ended September 30,
1997.
By virtue of its nationwide wholesale commercial mortgage originations,
the commercial real estate portfolio is diversified geographically. As of
September 30, 1997, the states in which the highest geographic concentration of
assets existed were California (14.3%), Oregon (14.1%), Texas (10.9%) and New
York (10.7%). In terms of primary collateral type, as of September 30, 1997,
$280.6 million or 43.5% of the commercial mortgage portfolio was secured by
apartment buildings, $112.5 million or 17.4% of the commercial mortgage
portfolio was secured by hotels and motels and $106.2 million or 16.5% of the
commercial mortgage portfolio was secured by manufactured housing communities.
The largest single commercial real estate loan as of such date had an
outstanding principal balance of $15.8 million and is secured by a 100-unit
apartment building located in Tennessee. Multiple commercial mortgage loans to
one borrower are generally cross-collateralized and cross-defaulted.
Under prior management, the Company originated and purchased commercial
real estate loans secured by properties located throughout the United States.
New management expects to continue the origination and purchase of commercial
and multi-family residential loans throughout the United States but plans to
emphasize the origination and purchase of loans secured by multi-family and
commercial real estate located within the State of Oklahoma and surrounding
states. The Company recently hired an experienced commercial real estate lender
with over 15 years of experience in the Oklahoma City market. As a result, the
Company expects to expand its origination of commercial real estate loans,
particularly within its local market area.
The Company also anticipates that during fiscal 1998 it will begin to
originate within the State of Oklahoma commercial business loans. The Company
has recently hired two senior loan officers from the Oklahoma City market who
have significant commercial business lending experience and who have worked
together in the past and are well known in the local business community.
Commercial lending entails different and significant risks when
compared to single-family residential lending because such loans typically
involve large loan balances to single borrowers and because the payment
experience on such loans is typically dependent on the successful operation of
the project or the borrower's business. The risks relating to commercial real
estate lending can also be significantly affected by supply and demand
conditions in the local market for apartments, offices, warehouses or other
commercial space. The Company attempts to minimize its risk exposure by imposing
stringent underwriting standards and continually monitoring the operation and
physical condition of the collateral.
56
<PAGE>
As shown under "--Asset Quality," the Company's nonperforming
commercial real estate loans amounted to $418,000 or 0.06% of total commercial
real estate loans at September 30, 1997, as compared to $2.0 million or 0.3% of
total commercial real estate loans at June 30, 1997. The Company's commercial
real estate owned amounted to $125,000 or 7.8% of total foreclosed assets at
September 30, 1997, as compared to $6.2 million or 71.4% of total foreclosed
assets as of June 30, 1997. The decline was primarily due to the transfer of a
$6.0 million retail shopping center from real estate owned to real estate held
for investment. Local Federal has profitably managed the shopping center since
it became real estate owned. The property was transferred to real estate held
for investment during the period because the Company had exceeded the 5-year
regulatory limit for holding real estate owned. The Company is continuing its
efforts to sell the property.
Single-Family Residential Real Estate Loans. At September 30, 1997, the
Company's single-family residential mortgage loan portfolio amounted to $283.0
million or 27.3% of the total loan portfolio. All of the Company's single-family
residential mortgage loans are secured by properties located in the State of
Oklahoma. The majority of the single-family residential loan portfolio consist
of conforming loans (i.e., not insured or guaranteed by a federal agency) with
an average balance of below $100,000 per loan. For the three months ended
September 30, 1997 and the year ended June 30, 1997, the Company originated
$12.1 million and $41.1 million of single-family residential mortgage loans,
respectively. The single-family residential loan portfolio was originated
through the Banks' retail branch network as well as through a centralized
residential loan origination center. New management expects to increase the
Banks' emphasis on single-family residential lending within its primary market
area in Oklahoma.
The loan-to-value ratio, maturity and other provisions of the loans
made by the Banks generally have reflected the policy of making less than the
maximum loan permissible under applicable regulations, in accordance with market
conditions and underwriting standards established by the Banks. The Company's
lending policies on single-family residential mortgage loans generally limits
the maximum loan-to-value ratio to 95% of the lesser of the appraised value or
purchase price of the property and generally all single-family residential loans
in excess of an 80% loan-to-value ratio require private mortgage insurance.
The Banks offer fixed-rate single-family residential loans with terms
of 15 to 30 years. Such loans are amortized on a monthly basis with principal
and interest due each month and customarily include "due-on-sale" clauses, which
are provisions giving the Banks the right to declare a loan immediately due and
payable in the event the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid.
57
<PAGE>
Since the early 1980s, the Banks have been offering adjustable-rate
loans in order to decrease the vulnerability of its operations to changes in
interest rates. At September 30, 1997, $70.2 million or 25.7% of the
single-family residential loans in the Company's total loan portfolio consisted
of adjustable-rate loans.
The Banks' single-family residential adjustable-rate loans are fully
amortizing loans with contractual maturities of up to 30 years. These loans have
interest rates which are scheduled to adjust every year in accordance with a
designated index (i.e., the weekly average yield on U.S. Treasury securities
adjusted to a constant comparable maturity, as made available by the Federal
Reserve Board). There is a 2% cap on the rate adjustment per period and a 6% cap
on the rate adjustment over the life of the loan. The Banks' adjustable-rate
loans are not currently convertible into fixed-rate loans, are not assumable, do
not contain prepayment penalties and do not produce negative amortization.
The demand for adjustable-rate loans in the Company's primary market
area has been a function of several factors, including the level of interest
rates, the expectations of changes in the level of interest rates and the
difference between the interest rates and loan fees offered for fixed-rate loans
and adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate
residential loans that can be originated at any time is largely determined by
the demand for each in a competitive environment.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. The Company believes that these risks, which have not had a
material adverse effect on the Company to date, generally are less than the
risks associated with holding only fixed-rate loans in an increasing interest
rate environment.
At September 30, 1997, total non-performing single-family residential
mortgages and foreclosed single-family residential assets amounted to $515,000
and $180,000, respectively.
Consumer Loans. Consumer loans totaled $110.0 million as of September
30, 1997 and consisted of $28.2 million of home equity loans, $7.8 million of
deposit secured loans, $4.4 million of guaranteed student loans, $69.5 million
of automobile finance loans and $260,000 of property improvement and personal
loans. These loans are originated through the Banks' branch network. Under the
Banks' home equity underwriting guidelines, loans are restricted to not more
than $100,000, and the loan-to-value may not exceed 100% at origination.
Applications are taken at the branch level but underwriting, except in the case
of cash secured loans, is done centrally. New management expect to increase the
Banks' emphasis on consumer lending within its primary market area in Oklahoma.
As of September 30, 1997, excluding indirect automobile loans, the Banks did not
have any non-performing nor foreclosed consumer loans.
58
<PAGE>
From February 1994 until February 1997, the Banks, through LAC and
Star, purchased sub-prime automobile finance receivables from auto dealers. LAC,
established in 1993, purchased contracts, normally on a discounted basis, from
dealers in and around Hollywood, Florida. Star, established in 1995, purchased
auto contracts from dealers in Oklahoma and operated a branch origination office
in Tulsa. All purchases of automobile paper by the Banks were performed by these
subsidiaries. Summarized financial reports were submitted to the Board of
Directors of the Banks. All dealer relationships, underwriting, pricing,
purchasing and servicing of contracts were controlled at the subsidiary level.
Evidence of significant credit problems came to the attention of the
former Board of Directors of the Company during the fourth calendar quarter of
1996. Upon additional scrutiny of the causes of this deterioration, it became
evident that both Star and LAC were going to continue to incur credit losses and
that these losses were mounting rapidly. Management of the Banks further believe
that it has uncovered evidence of fraud at LAC and has notified law enforcement
authorities. In February 1997, the Banks stopped originations permanently and
dismantled the origination infrastructure of the two subsidiaries. The two
subsidiaries are now only servicing and collecting remaining contracts.
The condition of the indirect automobile finance receivables portfolio
has had a direct and material adverse impact on the Company's results of
operations. During the three months ended September 30, 1997 and the years ended
June 30, 1997 and 1996, the Company provided an aggregate of $23.4 million,
$28.1 million and $4.5 million in provisions for loan losses to cover realized
and anticipated losses associated with respect to this portfolio. At September
30, 1997, the Company had $66.8 million of indirect automobile finance
receivables, $234,000 of which were classified nonperforming. The carrying value
of the Banks' repossessed automobiles amounted to $0 at June 30, 1995, $4.0
million at June 30, 1996, $2.2 million at June 30, 1997 and $1.3 million at
September 30, 1997. See "Risk Factors--Lending and Investment Activities--
Indirect Automobile Lending" for the discussion of two contracts executed in
late December 1997 for the sale of a portion of the Company's indirect
automobile receivables.
Asset Quality
Loan Delinquencies. When a borrower fails to make a required payment on
a loan, the Company attempts to cure the deficiency by contacting the borrower
and seeking payment. Contacts are generally made following the 15th day after a
payment is due (30th day in the case of commercial real estate loans), at which
time a late payment is assessed. In most cases, deficiencies are cured promptly.
If a delinquency extends beyond 15 days (30 days in the case of commercial real
estate loans), the loan and payment history is reviewed and efforts are made to
collect the loan. While the Company generally prefers to work with borrowers to
resolve such problems, when the account becomes 90 days delinquent, the Company
does institute foreclosure or other proceedings, as necessary, to minimize any
potential loss.
59
<PAGE>
The following table presents information as of September 30, 1997 with
respect to the delinquent loans of the Company on a consolidated basis:
<TABLE>
<CAPTION>
Loans Delinquent For:
--------------------------------------------------------------------------------------------
Total Loans Delinquent
60 - 89 Days 90 Days and Over 60 Days or More
------------------------------ --------------------------- ------------------------------
Percent of Percent of Percent of
Loan Loan Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential.......... 30 $ 455 0.19% 15 $345 0.12% 45 $ 800 0.31%
Commercial real estate............. 3 933 0.14 4 418 0.06 7 1,351 0.20
Consumer........................... 152 1,291 1.15 24 144 0.23 176 1,435(1) 1.38
--- ----- ---- -- --- ---- --- ----- ----
Total............................ 185 $2,679 0.26% 43 $907 0.09% 228 $3,586 0.35%
=== ===== ==== == === ==== === ===== ====
</TABLE>
- ----------
(1) Includes $1.3 million of indirect automobile finance receivables.
60
<PAGE>
Nonperforming Assets. All loans are reviewed on a regular basis and are
placed on non-accrual status when, in the opinion of management, the collection
of additional interest is deemed insufficient to warrant further accrual. As a
matter of policy, the Company does not accrue interest on loans past due 90 days
or more except when the estimated value of the collateral and collection efforts
are deemed sufficient to ensure full recovery. Consumer loans generally are
written down when the loan becomes over 120 days delinquent. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan.
Assets acquired through foreclosure and repossession are recorded at
estimated fair value, net of estimated selling costs at the date of foreclosure
or repossession. The values of assets acquired through foreclosure and
repossession are monitored by the Company continually through sales and rental
activities, and by updated appraisals and other valuation methods when needed.
The allowance for losses on assets acquired through foreclosure and repossession
represents an amount which management believes will be adequate to absorb losses
from the disposition and/or revaluation of these assets. Additions or reversals
of the allowance for losses on assets acquired through foreclosure and
repossession are provided as an expense or a benefit, respectively, through the
provisions for uninsured risks and losses on assets acquired through foreclosure
and repossession in the accompanying Consolidated Statements of Operations. The
allowance for losses is charged or reduced as losses through sales or
revaluations are incurred. At September 30, 1997, the allowance for losses on
assets acquired through foreclosure and repossession amounted to $5,000. See
Note 7 of the Notes to Consolidated Financial Statements.
61
<PAGE>
The following table presents information on the Company's nonperforming
assets at the dates indicated. The Company did not have any troubled debt
restructurings at any of the dates presented.
<TABLE>
<CAPTION>
September 30, June 30,
------------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
Single-family residential $ 515 $ 927 $ 220 $ 329 $ 539 $ 698
Commercial real estate.. 418 1,977 3,574 2,778 2,785 315
Consumer(1)............. 141 604 -- -- 18 18
--------- -------- --------- ------- ------- -------
Total................. $ 1,074 $ 3,508 $ 3,794 $ 3,107 $ 3,342 $ 1,031
--------- -------- --------- ------- -------- --------
Accruing loans greater than
90 days delinquent(2).... 93 415 1,548 -- -- --
Foreclosed assets:
Single-family residential 180 236 304 419 116 1,174
Commercial real estate.. 125 6,170 6,570 7,363 7,503 8,959
Construction............ -- -- -- -- -- --
Consumer(1)............. 1,302 2,241 3,969 -- -- --
Total foreclosures.... 1,607 8,647 10,843 7,782 7,619 10,133
--------- -------- --------- --------- --------- ---------
Total non-performing assets $ 2,774 $ 12,570 $ 16,185 $ 10,889 $ 10,961 $ 11,164
========= ========= ========= ========= ========= =========
Total non-performing assets
as a percentage of total
assets................... 0.14% 0.48% 0.49% 0.33% 0.33% 0.48%
======== ======== ======== ========= ======== ========
</TABLE>
- ----------
(1) Consists primarily of indirect automobile finance receivables.
(2) Consists solely of indirect automobile finance receivables.
The decline in nonperforming assets during the three months ended
September 30, 1997 reflected a $2.4 million decline in non-accrual loans
(primarily commercial real estate loans) and a $7.0 million decline in
foreclosed assets (which was primarily due to the transfer of a $6.0 million
retail shopping center from real estate owned to real estate held for investment
during the period).
62
<PAGE>
Classified Assets. The Company adheres to internal procedures and
controls to review and classify its assets. All assets are reviewed on a
periodic basis. If warranted, all or a portion of any assets exhibiting the
characteristics of risk associated with adverse classifications are assigned
those classifications. To monitor loans and to establish loss reserves, the
Company classifies its assets into the following five categories: pass, special
mention, substandard, doubtful, and loss. Under federal regulations, each
insured savings institution must classify its assets on a regular basis. In
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them.
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets, with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Special mention
assets is a category established and maintained for assets which do not
currently expose an insured institution to a sufficient degree of risk to
warrant classification as substandard, doubtful or loss. Assets classified as
substandard or doubtful require the institution to establish general allowances
for loan losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in the
amount of 100% of the portion of the asset classified loss, or charge-off such
amount. General loss allowances established to cover possible losses related to
assets classified substandard or doubtful may be included in determining an
institution's regulatory capital up to certain amounts, while specific valuation
allowances for loan losses do not qualify as regulatory capital. Federal
examiners may disagree with an insured institution's classifications and amounts
reserved. As of September 30, 1997, excluding assets which were classified as a
loss and completely written down, the Company's classified assets consisted of
$13.7 million of loans which were classified as special mention and $24.0
million of loans which were classified as substandard.
Allowance for Loan Losses. The Company has established valuation
allowances for estimated inherent losses in its loan portfolio by charging
earnings for estimated losses on loans, including the related accrued interest,
using a specific and percentage reserve method. The allowance for loan losses is
established and maintained through a periodic review and evaluation of various
factors which affect the loans' collectibility; any additional allowances
required result in provisions for loan losses. The determination of specific
valuation allowances includes a periodic evaluation of the financial status of
individual borrowers or collateral relating to loans specifically identified as
containing elements of potential risk in the loan portfolio. Numerous factors
are considered in the evaluation, including a review of (i) individual
borrowers' financial status, credit standing and available collateral, (ii) loss
experience in relation to outstanding loans and the overall loan portfolio
quality, (iii) management's judgment regarding prevailing and anticipated
economic conditions and (iv) other relevant factors. The general valuation
allowance is based upon a number of factors, including historical loss
experience, composition of the loan portfolio, prevailing and forecasted
economic conditions and management's judgment. It is the Company's policy to
charge off any loan or portion thereof when deemed uncollectible in the ordinary
course of business. Losses and recoveries are charged or credited directly to
the allowance. The OTS and the FDIC, as an integral part of their examination
process, periodically review the Banks' allowances for possible loan losses.
Such agencies may require the Banks to recognize additions to such allowances
based on their judgments about information available to them at the time of
their examination.
63
<PAGE>
The following table provides information on the Company's allowance for
loan losses as of the dates indicated:
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------ ---------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.. $11,435 $3,228 $3,228 $4,593 $3,689 $2,172 $2,746
Loans charged off:
Single-family residential.... -- -- (3) (143) (191) (320) (516)
Commercial real estate....... -- -- -- (1,368) (4) (48) (2,677)
Consumer(1).................. (3,236) (3,253) (20,290) (5,026) (167) -- --
Recoveries:
Single-family residential.... -- 1 2 11 39 27 145
Commercial real estate....... 1 -- 53 3 68 104 881
Consumer(1).................. 7 349 17 41 2 1 10
Allowance of acquired
institution.................. -- -- -- -- -- -- 84
-------
Net loans charged off....... (3,228) (2,903) (20,221) (6,482) (253) (247) (2,144)
Provision for loan losses....... 25,353 2,340 28,428 5,117 1,157 1,764 1,570
------- ------
Balance at end of period........ $33,560 $2,665 $11,435 $3,228 $4,593 $3,689 $2,172
======= ====== ====== ===== ====== ===== =====
Allowance for loan losses to total
nonperforming loans at end of
period........................ 2,875.75% 55.60% 291.49% 60.43% 147.82% 110.38% 210.66%
======== ====== ====== ===== ====== ====== ======
Allowance for loan losses to total
loans at end of period........ 3.24% 0.25% 1.10% 0.31% 0.57% 0.52% 0.40%
======= ====== ====== ===== ====== ====== ======
</TABLE>
- ----------
(1) Consists primarily of indirect automobile finance receivables.
64
<PAGE>
The following table sets forth information concerning the allocation of
the Company's allowance for loan losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------
September 30, 1997 1997 1996 1995
------------------- ------------------- ------------------ -------------------
Percent to Percent to Percent to Percent to
Total Total Total Total
Amount Allowance Amount Allowance Amount Allowance Amount Allowance
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential..... $ 427 1.27% $ 427 3.73% $ 407 12.60% $ 411 8.95%
Commercial real estate........ 10,234 30.49 2,836 24.80 2,624 81.30 3,644 79.34
Consumer(1)................... 19,489 58.07 8,172 71.47 197 6.10 538 11.71
General unallocated........... 3,320 9.89 -- -- -- -- -- --
------ ------ ------- ------ ------ ------ ------ ------
Total $33,560 100.00% $11,435 100.00% $3,228 100.00% $4,593 100.00%
======= ====== ======= ====== ====== ====== ====== ======
</TABLE>
June 30,
---------------------------------------------
1994 1993
--------------------- --------------------
Percent to Percent to
Total Total
Amount Allowance Amount Allowance
------ --------- ------ ---------
Single-family residential..... $ 467 12.66% $ 453 20.84%
Commercial real estate........ 3,023 81.95 1,521 70.04
Consumer(1)................... 199 5.39 198 9.12
General unallocated........... -- -- -- --
------ ------ ------ ------
Total $3,689 100.00% $2,172 100.00%
====== ====== ====== ======
- ----------
(1) Consists primarily of indirect automobile finance receivables.
65
<PAGE>
Investment Activities
The Company's securities portfolio is managed in accordance with a
written investment policy adopted by the Board of Directors and administered by
the Company's Investment Committee. All transactions must be approved by the
Investment Committee and reported to the Board of Directors.
The Banks are authorized to invest in obligations issued or fully
guaranteed by the U.S. Government, certain federal agency obligations, certain
time deposits, negotiable certificates of deposit issued by commercial banks and
other insured financial institutions, investment grade corporate debt securities
and other specified investments such as mortgage-backed and related securities.
The Company invests in mortgage-backed and related securities,
including mortgage participation certificates, which are insured or guaranteed
by U.S. Government agencies and government sponsored enterprises, and CMOs and
real estate mortgage investment conduits ("REMICs"). Mortgage-backed securities
(which also are known as mortgage participation certificates or pass-through
certificates) represent a participation interest in a pool of single-family or
multi-family mortgages, the principal and interest payments on which are passed
from the mortgage originators, through intermediaries (generally U.S. Government
agencies and government sponsored enterprises) that pool and repackage the
participation interests in the form of securities, to investors such as the
Company. Such U.S. Government agencies and government sponsored enterprises,
which guarantee the payment of principal and interest to investors, primarily
include the FHLMC, the FNMA and the Government National Mortgage Association
("GNMA").
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
characteristics of the underlying pool of mortgages, i.e., fixed-rate or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder. The term of a mortgage-backed pass-through security thus approximates
the term of the underlying mortgages.
The Company's mortgage-backed and related securities include CMOs,
which include securities issued by entities which have qualified under the
Internal Revenue Code of 1986, as amended ("Code"), as REMICs. CMOs and REMICs
(collectively CMOs) have been developed in response to investor concerns
regarding the uncertainty of cash flows associated with the prepayment option of
the underlying mortgagor and are typically issued by governmental agencies,
government sponsored enterprises and special purpose entities, such as trusts,
corporations or partnerships, established by financial institutions or other
similar institutions. A CMO can be collateralized by loans or securities which
are insured or guaranteed by FNMA, FHLMC or GNMA. In contrast to pass-through
mortgage-backed securities, in which cash flow is received pro rata by all
security holders, the cash flow from the mortgages underlying a CMO is segmented
and paid in accordance with a predetermined priority to investors holding
various CMO classes. By allocating the principal and interest cash flows from
the underlying collateral among the separate CMO classes, different classes of
bonds are created, each with its own stated maturity, estimated average life,
coupon rate and prepayment characteristics.
66
<PAGE>
Beginning in 1993, the Company began to implement an investment
strategy whereby it purchased mortgage-backed and related securities and
financed those securities primarily through reverse repurchase agreements and
FHLB advances. The Company predominantly purchased adjustable-rate FNMA and
FHLMC CMOs tied to COFI. As a result, at June 30, 1996, the Company's securities
portfolio amounted to $2.1 billion ($1.9 billion of which consisted of
COFI-based CMOs) or 65.1% of total assets. The COFI is a compilation of the
average rates paid by savings institutions which are members of the 11th
District of the FHLB system, and the COFI generally adjusts more slowly to
changes in market rates of interest when compared to adjustable-rate loans and
securities with interest rates based on other indices. As a result of recent
fluctuations in the level of interest rates as well as the structure of the
COFI, the values of the Company's COFI-based CMOs have declined in recent
periods. At June 30, 1996, the Company had $48.5 million of unrealized losses
with respect to its securities portfolio (net of applicable tax benefits).
In late 1996 and in anticipation of the proposed sale of the Company,
the Company began reducing its securities, particularly its CMO holdings,
through periodic bulk sale transactions. During fiscal 1997, the Company sold
$743.9 million of securities and recognized $29.6 million of losses with respect
to such sales. At June 30, 1997, the Company's securities portfolio amounted to
$1.4 billion ($1.1 billion of which consisted of COFI-based CMOs) or 53.1% of
total assets. As of such date, the Company had $32.0 million of unrealized
losses with respect to its securities portfolio (net of applicable tax
benefits).
During September 1997 and in connection with the Private Placement and
the Redemption, new management of the Company determined that its CMO portfolio
was "other than temporarily impaired" and, in accordance with GAAP, wrote-down
its CMO portfolio by $54.7 million. In addition, since assuming control of the
Company on September 8, 1997, new management has been accelerating the
disposition of its securities portfolio, particularly its COFI-based CMOs.
During the three months ended September 30, 1997, the Company sold $539.2
million of securities and recognized $17.3 million of losses with respect to
such sales. The Company has utilized the proceeds of such sales to repay all of
its outstanding reverse repurchase agreements and a portion of its outstanding
FHLB advances. At September 30, 1997, the Company's securities portfolio
amounted to $885.2 million ($757.3 million of which consisted of COFI-based
CMOs) or 43.1% of assets. As of such date, all of the Company's securities were
classified as available for sale. Pursuant to SFAS No. 115, securities
classified as available for sale are carried at fair value with any resulting
unrealized gains or losses charged to stockholders' equity. As of September 30,
1997, the Company had unrealized gains with respect to its securities
portfolio of $114,000 (net of applicable taxes). Management further reduced its
securities portfolio, particularly its CMO holdings, subsequent to September 30,
1997 and may continue to do so as market conditions permit. For additional
information, see "Capitalization" and Note 4 of the Notes to Consolidated
Financial Statements.
67
<PAGE>
The following table sets forth information regarding the carrying and
market value of the Company's securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------
September 30, 1997 1997 1996 1995
------------------- ------------------ ------------------- -------------------
Carrying Market Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value Value Value
----- ----- ----- ----- ----- ----- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale (at
market):
FHLMC............................... $383,170 $383,170 $473,963 $473,963 $ 884,936 $884,936 $ 89,183 $ 89,183
FNMA................................ 425,084 425,084 483,508 483,508 810,963 810,963 272,219 272,219
GNMA............................... 405 405 --
Private............................. 60,873 60,873 28,046 28,046 41,174 41,174
U.S. Government agency securities.. 15,701 15,701 -- --
Equity securities.................. -- -- -- -- 11,604 11,604 12,287 12,287
Interest rate caps and floors....... -- -- 48 48 4,652 4,652
-------- ------- ------- ------- --------- --------- ------- -------
$885,233 $885,233 $985,565 $985,565 $1,753,329 $1,753,329 $373,689 $373,689
======= ======= ======= ======= ========= ========= ======= =======
Held to maturity:
FHLMC............................... $ -- $ -- $206,915 $201,924 $248,006 $239,996 $1,173,807 $1,151,783
FNMA................................ -- -- 88,070 84,552 90,301 86,713 691,313 680,201
GNMA................................ -- -- 429 417 504 488 607 590
Private............................. -- -- 38,674 37,805 53,513 51,807 118,029 113,163
U.S. Government agency securities.. -- -- 74,119 74,219 -- -- -- --
-------- -------- ------- ------- -------- -------- ---------- ----------
$ -- $ -- $408,207 $398,917 $392,324 $379,004 $1,983,756 $1,945,737
======== ======== ======= ======= ======= ======= ========= =========
</TABLE>
The following table sets forth the activity in the Company's aggregate
securities portfolio during the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
Three Months Ended
September 30, 1997 1997 1996 1995
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
(In Thousands)
Securities at beginning of period....... $1,393,772 $2,145,652 $2,357,445 $2,469,356
Purchases............................... 74,440 73,389 9,040 37,708
Loan securitizations.................... -- -- -- 60,824
Proceeds from securities sales.......... (521,802) (743,943) (50,321) (95,255)
Proceeds from swap terminations......... -- -- (3,637) --
Loss on termination of options.......... (2,234) -- -- --
Gain (loss) from securities sales....... (17,336) (29,582) (181) 2,298
Repayments and prepayments.............. (35,767) (65,406) (80,977) (113,845)
Amortization and accretion.............. (497) (10,355) (11,905) (6,898)
Accretion of deferred (gains) or losses
from swap terminations................ -- 1,888 1,154 --
Purchase mark-to-market and impairment
adjustments........................... (54,724) -- -- --
Decrease (increase) in unrealized losses
on available-for-sale securities(1).. 49,381 25,408 (74,966) 3,257
Charge-offs and transfers to loans...... -- (3,279) -- --
--------- ---------- ---------- ----------
Securities at end of period............. $ 855,233 $1,393,772 $2,145,652 $2,357,445
========= ========== ========== ==========
</TABLE>
- -------------------
(1) At September 30, 1997, the cumulative unrealized gains on securities
classified as available-for-sale amounted to $114,000.
68
<PAGE>
At September 30, 1997, the Company's securities portfolio had an
aggregate carrying value of $885.2 million, $869.5 million of which consisted of
mortgage-backed and related securities and $15.7 million of which consisted of
U.S. Government agency securities. At September 30, 1997, of the Company's
$869.5 million of mortgage-backed and related securities, $68.2 was scheduled to
mature in one year or less, $2.5 million was scheduled to mature in between one
and five years, $400,000 was scheduled to mature in between five and ten years,
and $798.4 million was scheduled to mature after ten years.
The actual maturity of a mortgage-backed or related security is less
than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and affect its yield to maturity. The yield to maturity is based upon
the interest income and the amortization of any premium or discount related to
the security. In accordance with GAAP, premiums and discounts are amortized over
the estimated lives of the loans, which decrease and increase interest and
dividend income, respectively. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed or related security, and these assumptions are
reviewed periodically to reflect actual prepayments. Although prepayments of
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
falling mortgage interest rates, if the coupon rate of the underlying mortgages
exceeds the prevailing market interest rates offered for mortgage loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security.
All of the $15.7 million of U.S. Government agency securities held by
the Company at September 30, 1997 was scheduled to mature in one year or less.
Sources of Funds
General. Deposits are the primary source of the Company's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from loan principal repayments and advances from the FHLB of
Topeka. Furthermore, in prior periods, the Company utilized reverse repurchase
agreements in order to fund its lending and investing activities. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by general interest rates and money
market conditions. Borrowings may be used on a short-term basis to compensate
for reductions in the availability of funds from other sources. They may also be
used on a longer-term basis for general business purposes.
69
<PAGE>
Deposits. The Banks accept deposits through their 41 branch offices,
consisting of 28 Local Federal branches and 13 Local America branches. See
"--Offices and Other Material Properties." Deposits are solicited on a regular
basis directly through the Banks' customer base and through various advertising
media within its markets. The Banks offer several savings account and checking
account plans to its customers. Among savings account plans, the Banks offer
basic savings, short- and long-term certificates of deposit, a variable rate
IRA/Keogh and regular IRAs and Keoghs. The Banks offer checking account plans
that range from a no-fee, no-interest plan to a variable-fee, bundled product
plan that includes services or products such as personalized checks, ATM cards,
overdraft protection, no annual fee Visa/Mastercard membership, safe deposit box
discounts, and assistance with travelers checks.
According to SNL Securities, as of June 30, 1996, the Company operated
on a consolidated basis the largest thrift institution in terms of total
deposits in the State of Oklahoma. The Banks ranked fourth overall among all
depository institutions as of such date, with 4.8% of the state's deposit market
share, adjusted for pending mergers and acquisitions.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Banks, on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals and federal regulations.
The Banks do not advertise for deposits outside their local market
areas or utilize the services of deposit brokers.
70
<PAGE>
The following table presents the average balance of each deposit type
and the average rate paid on each deposit type of the Company for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------
Three Months Ended
September 30, 1997 1997 1996
----------------------------- ---------------------------------- ---------------------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Interest Paid Balance Interest Paid Balance Interest Paid
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-
bearing deposits. $ 57,818 $ -- --% $ 52,087 $ -- --% $ 46,791 $ -- --%
Passbook
accounts......... 88,295 505 2.29 72,441 2,093 2.89 75,359 2,190 2.91
NOW and
money market
accounts......... 189,815 1,315 2.77 195,606 5,381 2.75 204,752 5,638 2.75
Term certificates. 1,309,864 18,703 5.71 1,329,463 75,617 5.69 1,271,079 73,345 5.77
---------- ------- ---------- ------- ---------- -------
Total deposits. $1,645,792 $20,523 4.99% $1,649,597 $83,091 5.04% $1,597,982 $81,173 5.10%
========== ======= ==== ========== ======= ==== ========== ======= ====
</TABLE>
----------------------------------
1995
---------------------------------
Average
Average Rate
Balance Interest Paid
------- -------- ----
Noninterest-
bearing deposits. $ 38,356 $ -- --%
Passbook
accounts......... 93,699 2,742 2.93
NOW and
money market
accounts......... 248,752 6,937 2.79
Term certificates. 1,149,834 58,556 5.09
---------- -------
Total deposits. $1,530,641 $68,235 4.46%
========== ======= ====
<PAGE>
The following table sets forth activity in the Company's deposits
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------
Three Months
Ended September 30,
1997 1997 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Beginning balance............. $1,644,356 $1,602,460 $1,577,822 $1,474,172
Net increase (decrease)
before interest............. (54,529) (41,195) (56,535) 35,415
Interest credited............. 20,523 83,091 81,173 68,235
---------- ---------- ---------- ----------
Net increase (decrease) in
deposits.................... (34,006) 41,896 24,638 103,650
---------- ---------- ---------- ----------
Ending balance................ $1,610,350 $1,644,356 $1,602,460 $1,577,822
========== ========== ========== ==========
</TABLE>
The following table sets forth by various average interest rate
categories the term certificates with the Company at the dates indicated.
<TABLE>
<CAPTION>
June 30,
September 30, ---------------------------------------------------
Average Rate Paid 1997 1997 1996 1995
- ----------------- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
0.00% to 3.99%....................... $ -- $ -- $ 2,860 $ 4,539
4.00% to 4.99%....................... 4,525 21,105 7,039 7,408
5.00% to 5.99%....................... 1,004,777 1,008,889 1,024,706 877,469
6.00% to 6.99%....................... 289,575 293,583 254,328 351,744
7.00% to 7.99%....................... 830 881 1,290 4,169
---------- --------- ---------- ----------
$1,299,707 $1,324,458 $1,290,223 $1,245,329
========= ========= ========= =========
</TABLE>
71
<PAGE>
The following table sets forth the amount and remaining maturities of
the Company's term certificates at September 30, 1997.
<TABLE>
<CAPTION>
Over Six
Months Over One Year Over Two
Six Months Through One Through Two Years Through Over Three
and Less Year Years Three Years Years
-------------- -------------- -------------- --------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
0.00% to 3.99%............. $ -- $ 10 $ -- $ -- $ --
4.00% to 4.99%............. 24,303 991 852 30 --
5.00% to 5.99%............. 449,969 297,740 174,775 15,766 10,484
6.00% to 6.99%............. 42,238 108,480 91,974 29,048 6,193
7.00% to 7.99%............. 8,407 4,311 14,846 17,647 1,306
8.00% to 8.99%............. 304 33 -- -- --
------- ------- -------- ------- -------
Total.................... $525,221 $411,565 $282,447 $62,491 $17,983
======= ======= ======= ======= ======
</TABLE>
As of September 30, 1997, the aggregate amount of outstanding time
certificates of deposit in amounts greater than or equal to $100,000, was
approximately $152.7 million. The following table presents the maturity of these
time certificates of deposit at such dates.
September 30,
1997
-------------
(In Thousands)
3 months or less.......................................... $ 32,592
Over 3 months through 6 months............................ 23,324
Over 6 months through 12 months........................... 49,755
Over 12 months............................................ 47,048
-------
$152,719
=======
Borrowings. Other than deposits, the Company's primary sources of funds
have historically consisted of reverse repurchase agreements and advances from
the FHLB of Topeka. Although a substantial portion of the Company's growth in
its securities portfolio in recent periods has been funded through the use of
reverse repurchase agreements and FHLB advances, new management is in the
process of reducing its securities holdings and utilizing the proceeds therefrom
to pay down borrowings. Consequently, reverse repurchase agreements declined
from $1.1 billion at June 30, 1996 to $0 at September 30, 1997. Similarly,
advances from the FHLB of Topeka declined from $439.0 million at June 30, 1996
to $258.6 million at September 30, 1997. For additional information, see Notes 9
and 10 of the Notes to Consolidated Financial Statements.
Prior to the Private Placement and the Redemption, the Company had
outstanding a promissory note payable to Isabel Collier Read, a former
stockholder and the mother of the Selling Shareholders. At June 30, 1997 and
1996, the promissory note had an outstanding principal balance of $7.0 million
and $14.0 million, respectively. The promissory note required annual
installments of $7.0 million plus accrued interest and bore interest at a
specified prime lending rate which could not exceed 8.0% nor fall below 5.7%. On
September 8, 1997 in connection with closing of the Private Placement and the
Redemption, the Company prepaid the promissory note at a price equal to the
principal amount thereof plus accrued and unpaid interest thereon. For
additional information, see Note 11 of the Notes to Consolidated Financial
Statements.
72
<PAGE>
Pursuant to the Private Placement, the Company issued $80.0 million of
Senior Notes which are due in August 2004 and which bear interest at the rate of
11.0%, payable semi-annually. The Company has established an interest reserve
account with an independent trustee which contains $8.8 million, which is
sufficient to pay the aggregate interest payments scheduled to be made with
respect to the first two interest payment dates on the Senior Notes. Debt
issuance costs of approximately $4.5 million at September 30, 1997 was
capitalized and deducted from the outstanding principal balance shown as of such
date. For additional information, see "Description of the Senior Notes" and Note
12 of the Notes to Consolidated Financial Statements.
The following table sets forth certain information regarding the
short-term borrowings of the Company at or for the dates indicated.
<TABLE>
<CAPTION>
At or For the Three Months
Ended September 30, At or For the Year Ended June 30,
-------------------------- -------------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
FHLB of Topeka advances:
Average balance outstanding ........................... $ 642,133 $1,139,498 $ 848,733 $ 869,568 $ 952,373
Maximum amount outstanding at any
month-end during the period .......................... 839,346 1,311,735 1,311,735 1,588,618 1,227,829
Balance outstanding at end of period .................. 258,620 1,243,178 531,161 439,011 703,202
Average interest rate during the period ............... 7.35% 6.42% 6.77% 6.71% 5.85%
Average interest rate at end of period ................ 5.90% 5.45% 5.73% 5.70% 6.24%
Securities sold under agreements to purchase:
Average balance outstanding ........................... $ 110,470 $ 448,412 $ 418,784 $ 686,558 $ 634,282
Maximum amount outstanding at any
month-end during the period .......................... 239,914 319,222 942,315 1,079,194 865,713
Balance outstanding at end of period .................. -- 319,222 310,801 1,079,194 779,626
Average interest rate during the period ............... 7.44% 6.41% 6.73% 6.76% 5.76%
Average interest rate at end of period ................ --% 5.31% 5.55% 5.36% 6.11%
</TABLE>
Subsidiaries
The Banks are permitted to invest up to 2% of their assets in the
capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment is
primarily for community development purposes. In addition, the Banks are
permitted to make an unlimited investment in one or more operating subsidiaries,
which are permitted to engage only in activities that the Banks may undertake
directly. As of September 30, 1997, Local Federal maintained six direct or
indirect subsidiaries, consisting of Local America Inc., Local America, Local
Acceptance, Star, Local Mortgage Corporation, Star Properties, Inc., Service
Corporation of Tulsa, Inc. and Oklahoma Financial Services Corporation. At
September 30, 1997, Local Federal's investment in its subsidiaries amounted to
$158.5 million in the aggregate.
73
<PAGE>
Local America, Inc. is the parent holding company for Local America and
does not conduct any independent operations. Local Acceptance and Star
previously operated as indirect automobile finance subsidiaries. As discussed
under "--Lending Activities--Indirect Automobile Finance Receivables," the loan
origination infrastructure of Local Acceptance and Star has been dismantled and
the two subsidiaries are now only servicing and collecting remaining contracts.
Local Mortgage Corporation was organized in 1995 as a Connecticut
corporation for the primary purpose of originating commercial real estate loans.
Local Mortgage Corporation is licensed to do business in Connecticut, Illinois
and Texas. Although Local Mortgage Corporation is currently originating loans
out of its Connecticut office, both its Illinois and Texas offices are currently
closed and the Connecticut office is expected to close in February 1998.
Star Properties, Inc. was organized in 1981 as an Oklahoma corporation
for the purpose of acquiring, maintaining and managing real estate to be used
for offices and related facilities of the Banks, as well as other fixed assets.
Star Properties, Inc. leases to the Banks, pursuant to certain written
agreements, office furniture and fixtures at the Banks' branch offices. Star
Properties, Inc. has not made any purchases of real estate or office furniture
and fixtures since 1985.
Service Corporation of Tulsa, Inc. was organized in 1970 as an Oklahoma
corporation for the purpose of engaging in real estate development activities.
This service corporation is currently inactive.
Oklahoma Financial Services Corporation was organized in 1981 as an
Oklahoma corporation in order to engage in real estate development. Oklahoma
Financial Services Corporation has not engaged in any real estate development
since 1984. Annuities, mutual funds and various other insurance products are
marketed to the Bank's customers.
74
<PAGE>
Offices and Other Material Properties
The following table provides information on the Company's consolidated
branch network as of September 30, 1997:
<TABLE>
<CAPTION>
Net Book Value of
Property and
Leasehold
Ownership Size Deposits as of Improvements at
Location Status Lease Terms (Square Feet) September 30, 1997(1) September 30, 1997
-------- ------ ----------- ------------- --------------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Corporate Headquarters:
3601 N.W. 63rd Owned -- 70,000 $24,496 $3,602
Oklahoma City, OK 73116
Local Federal Branch Offices:
Downtown Office Leased $1,212.50/mo. 1,164 17,352 11
100 West Park Avenue 5 Years
Oklahoma City, OK 73102 Expires 1/31/99
May Avenue Office Owned -- 14,090 79,596 341
5701 North May Avenue
Oklahoma City, OK 73112
Norman Office Owned -- 5,000 48,676 185
2201 West Main Street
Norman, OK 73069-6499
Midwest City Office Owned -- 5,500 93,926 357
414 North Air Depot
Midwest City, OK 73110
Springbrook Office Owned -- 5,200 45,723 267
6233 N.W. Expressway
Oklahoma City, OK 73132
Bethany Office Owned -- 2,650 49,916 74
7723 N.W. 23rd Street
Bethany, OK 73008
Penn South Office Owned -- 2,650 55,067 50
8700 South Pennsylvania
Oklahoma City, OK 73159
Quail Creek Office Owned -- 3,250 35,220 175
12241 North May Avenue
Oklahoma City, OK 73120
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Net Book Value of
Property and
Leasehold
Ownership Size Deposits as of Improvements at
Location Status Lease Terms (Square Feet) September 30, 1997(1) September 30, 1997
-------- ------ ----------- ------------- --------------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Portland Office Owned -- 1,800 $43,666 $241
1924 North Portland
Oklahoma City, OK 73107
Purcell Office Leased $600/mo. 722 19,516 --
422 West Main 2 Years
Purcell, OK 73080 Expires 7/31/99
Chandler Office Owned -- 1,600 16,705 127
1804 East First Street
Chandler, OK 74834
Edmond Office Leased $1,530/mo. 2,160 35,276 5
301 South Bryant 5 Years
Edmond, OK 73034 Expires 1/31/98
Shawnee Office Owned -- 2,650 37,539 82
2512 North Harrison
Shawnee, OK 74801
Yukon Office Leased $1,500/mo. 1,500 21,233 8
1203 Cornwell 5 Year
Yukon, OK 73099 Expires 6/30/99
Lindsay Office Owned -- 1,200 21,609 17
420 South Main
Lindsay, OK 73052
Elk City Branch Owned -- 10,300 64,845 180
200 Broadway
Elk City, OK 73644
Moore Office Owned -- 1,500 20,412 62
513 Northeast 12th Street
Moore, OK 73160
Crown Heights Office Owned -- 1,800 21,074 157
4716 North Western
Oklahoma City, OK 73118
Pauls Valley Office Owned -- 2,280 24,417 103
700 West Grant
Pauls Valley, OK 73075
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Net Book Value of
Property and
Leasehold
Ownership Size Deposits as of Improvements at
Location Status Lease Terms (Square Feet) September 30, 1997(1) September 30, 1997
-------- ------ ----------- ------------- --------------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Weatherford Office Owned -- 3,000 $19,389 $ 90
109 East Franklin
Weatherford, OK 73096
Clinton Office Owned -- 2,000 39,072 38
1002 West Frisco
Clinton, OK 73601
Duncan Downtown Office Owned -- 2,500 58,596 126
1006 West Main Street
Duncan, OK 73533
Duncan North Office Owned -- 3,000 31,497 93
2210 North Highway 81
Duncan, OK 73533
Sulphur Office Owned -- 3,000 20,305 81
2009 West Broadway
Sulphur, OK 73086
Chickasha Office Owned -- 3,143 48,578 101
628 Grand Avenue
Chickasha, OK 73018
Lawton Downtown Office Leased $5,156/mo. Note 6,000 91,185 --
1 S.W. 11th Street 10 Years
Lawton, OK 73501 Expires 3/31/03
Lawton Willow Creek Owned -- 1,500 18,486 174
7210 N.W. Cache Road
Lawton, OK 73505
Ardmore Office Owned -- 7,066 43,667 154
313 W. Broadway
Ardmore, OK 73401
Local America Branch Offices:
Hudson Office Leased $6,676.17/mo. 6,374 36,791 --
5801 East 41st Street Note(2)
Tulsa, OK 74135 5 Years
Expires 6/30/99
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
Net Book Value of
Property and
Leasehold
Ownership Size Deposits as of Improvements at
Location Status Lease Terms (Square Feet) September 30, 1997(1) September 30, 1997
-------- ------ ----------- ------------- --------------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Downtown Office Leased $2,279.75/mo. 3,316 $16,036 $ 6
111 West 5th Street 3 Years
Tulsa, OK 74103 Expires 11/30/98
Harvard Office Leased $2,270.83/mo. 2,500 50,829 2
3332 East 51st Street Note(2)
Tulsa, OK 74135 5 Years
Expires 5/31/98
Yale Office Leased $1,300/mo. 2,400 77,384 --
2118 South Yale 5 Years
Tulsa, OK 74114 Expires 2/28/00
Broken Arrow Office Leased $2,020/mo. 2,424 29,725 8
3359 South Elm Place 3 Years
Broken Arrow, OK 74012 Expires 5/31/99
Sand Springs Office Leased $1,912.50/mo. 3,214 43,978 1
800 East Charles Page Blvd. 10 Years
Sand Springs, OK 74063 Expires 3/31/03
Springs Village Leased $1,368.50/mo 1,642 14,656 --
3973 South Highway 97 3 Years
Sand Springs, OK 74063 Expires 5/31/99
Memorial Office Leased $3,060/mo. 3,060 30,085 3
8202 East 71st Street 5 Years
Tulsa, OK 74133 Expires 5/31/02
Sapulpa Office Owned -- 1,300 25,905 427
911 East Taft
Sapulpa, OK 74066
Lewis Office Leased Rent: See 4,685 23,745 4
2250 East 73rd Street Note(3)
Tulsa, OK 74136 5 Years
Expires 11/30/01
Claremore Office Owned -- 15,100 57,849 922
1050 Lynn Riggs Blvd.
Claremore, OK 74017
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Net Book Value of
Property and
Leasehold
Ownership Size Deposits as of Improvements at
Location Status Lease Terms (Square Feet) September 30, 1997(1) September 30, 1997
-------- ------ ----------- ------------- --------------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Owasso Office Owned -- 1,100 $17,658 $ 88
201 East 2nd Street
Owasso, OK 74055
Muskogee Office Leased $2,200/mo. 3,400 33,746 3
2401 East Chandler 5 Years
Muskogee, OK 74403 Expires 7/31/98
</TABLE>
- ----------
(1) Deposit accounts totalling $4.9 million cannot be identified with a
specific branch office and are, consequently, not included in this
table.
(2) Subject to rent increases each year on July 1.
(3) Monthly rent derived as follows: $3,768 (1st year); $4,003.50 (2nd
year); $4,239 (3rd year); $4,474.50 (4th year); and $4,710 (5th year).
79
<PAGE>
Personnel
As of September 30, 1997, the Company (on a consolidated basis) has 421
full-time employees and 88 part-time employees. The employees are not
represented by a collective bargaining agreement and the Company believes that
it has good relations with its employees.
Legal Proceedings
In conjunction with Local Federal's acquisition of Local America during
1989, Local Federal and Local America entered into an Assistance Agreement with
the Federal Savings and Loan Insurance Corporation ("FSLIC"), the fund which
previously insured all savings institutions' deposits. Under the terms of the
Assistance Agreement, the FSLIC Resolution Fund (the "Fund"), which is currently
managed by the FDIC, is entitled to receive certain portions of the tax benefits
attributable to acquired net operating loss carryforwards and deductions
resulting from certain items for which the Fund has agreed to provide
assistance, provided that such tax benefits are realized by Local Federal on a
consolidated basis.
80
<PAGE>
In connection with the Assistance Agreement, a dispute exists between
Local America and the FDIC regarding certain tax benefits. Management, after
consultation with legal counsel and based on available facts and proceedings to
date, has determined that Local America will have some liability to the FDIC
with respect to such tax benefits. At June 30, 1997, the Company estimated this
liability to be approximately $13.0 million, which has been reserved for and is
included in other liabilities in the Consolidated Statements of Financial
Condition included elsewhere herein. The Company believes that as of June 30,
1997, the FDIC's estimate of this liability was approximately $23.0 million.
Pursuant to the terms of the Redemption Agreement, the Selling Stockholders have
agreed to indemnify the Company with respect to the Assistance Agreement to the
extent the Company is found to be liable for an amount in excess of the amount
of the reserve in respect of such dispute which is reflected on the Company's
audited balance sheet as of June 30, 1997. Upon consummation of the Redemption,
the Company deposited a portion of the amount to be paid to the Selling
Stockholders (i.e., $10.0 million) into the FDIC Dispute Escrow Account in order
to fund any potential payments which may be required to be made by the Selling
Stockholders to the Company in connection with such indemnification. See "The
Private Placement and the Redemption Transactions--The Redemption Agreement."
For information with respect to a lawsuit filed by the Company against
the Selling Stockholders, see "The Private Placement and the Redemption
Transactions--The Redemption Agreement."
The Company is also involved in routine legal proceedings occurring in
the ordinary course of business which, in the aggregate, are believed by
management to be immaterial to the financial condition and results of operation
of the Company.
MANAGEMENT
Directors
Pursuant to the terms of the Purchase Agreement, upon consummation of
the Private Placement, each of the persons then serving as directors of the
Company resigned and Edward A. Townsend, Jan A. Norton and Joseph A. Leone were
appointed as directors of the Company. Following such resignations and
appointments, the new members of the Board of Directors caused Robert A.
Kotecki, George Nigh, and Kenneth W. Townsend to be appointed to the Company's
Board of Directors. Following the reconstitution of the Board of Directors, the
Company elected the persons named below as directors of the Banks.
81
<PAGE>
The following table sets forth information with respect to the
directors of the Company and the Banks. Except as described above, there were
and are no arrangements or understandings between the Company and the Banks and
any person pursuant to which such person has been elected as a director, and no
director is related to any other director or executive officer of the Company or
the Banks by blood, marriage or adoption. At September 30, 1997, all directors
and officers of the Company as a group owned 43,000 shares or 0.2% of the issued
and outstanding Common Stock. For information with respect to the number of
shares held by individual directors and officers, see "Selling Holders."
Director Term
Name Age(1) Since(2) Expires
---- ------ -------- -------
The Company(3):
Robert A. Kotecki 33 1997 1998
Joseph A. Leone 64 1973(4) 1998
George Nigh 70 1997 1998
Jan A. Norton 50 1997 1998
Edward A. Townsend 55 1997 1998
Kenneth W. Townsend 54 1997 1998
Local Federal:
Gene C. Howard 71 1996 1998
Robert A. Kotecki 33 1997 1998
George Nigh 70 1997 1998
Jan A. Norton 50 1997 1998
Edward A. Townsend 55 1997 1998
Kenneth W. Townsend 54 1997 1998
Robert L. Vanden 50 1993 1998
Andrew M. Coats 62 1997 1998
Local America:
Gene C. Howard 71 1996 1998
Robert A. Kotecki 33 1997 1998
George Nigh 70 1997 1998
Jan A. Norton 50 1997 1998
Edward A. Townsend 55 1997 1998
Kenneth W. Townsend 54 1997 1998
Robert L. Vanden 50 1993 1998
Andrew M. Coats 62 1997 1998
- ----------
(1) As of September 30, 1997.
(2) Includes service as a director of the Company, Local Federal and/or
Local America.
(3) In October 1997, the Company elected J. David Rosenberg to the Board of
Directors of the Company commencing February 1998.
(4) Mr. Leone has been a director of Local Federal since 1973.
<PAGE>
Biographical Information
Information concerning the principal position and principal occupation
of each director of the Company and the Banks during the past five years is set
forth below.
Andrew M. Coats. Mr. Coats was elected as a director of the Banks in
October 1997. Mr. Coats served as the District Attorney of Oklahoma County from
1976 to 1980. Mr. Coats won the Democratic nomination for U.S. Senate from
Oklahoma in 1980. In 1983, Mr. Coats was elected Mayor of Oklahoma City where he
served until April 1987. Mr. Coats served as President of the law firm of Crowe
& Dunlevy in 1987 and 1988 and served as President of the Oklahoma Bar
Association in 1992. Mr. Coats is currently serving as the President of the
American College of Trial Lawyers. On July 1, 1996, Mr. Coats became the Dean of
the University of Oklahoma College of Law.
Gene C. Howard. Mr. Howard was elected as a director of the Banks
immediately following consummation of the Private Placement. Mr. Howard was
initially elected to the Board of Directors of Local Federal in 1996 and has
served as an attorney and senior partner with the law firm of Howard, Weddows,
Bulogle & Vaughn, P.C., Tulsa, Oklahoma, since 1952.
Robert A. Kotecki. Mr. Kotecki was elected as a director of the Company
and the Banks immediately following consummation of the Private Placement. Mr.
Kotecki has served as Senior Vice President of Friedman, Billings, Ramsey & Co.,
Inc., Arlington, Virginia, which served as the Placement Agent in connection
with the Private Placement, since March 1993. From November 1988 through March
1993, Mr. Kotecki served as an Associate with Trident Financial Corp., an
investment banking firm located in Raleigh, North Carolina.
Joseph A. Leone. Mr. Leone was elected as a director of the Company and
the Banks immediately upon consummation of the Private Placement. Mr. Leone was
initially elected to the Board of Directors of Local Federal in 1973. Since
1987, Mr. Leone has served as managing partner with MBI, Inc., a limited
partnership which owns several commercial real estate properties located within
Oklahoma. From 1978 through 1987, Mr. Leone served as Executive Vice Chancellor
and Chancellor of the Oklahoma State System of Higher Education.
George Nigh. Governor Nigh was elected as a director of the Company and
the Banks immediately following the consummation of the Private Placement.
Governor Nigh is currently retired. From July 1992 through June 1997, Governor
Nigh served as President of the University of Central Oklahoma, where he had
served as Distinguished Statesman in Residence for the previous five years. From
January 1979 through 1987, Governor Nigh served as Governor of the State of
Oklahoma. Prior to 1979, Governor Nigh served 16 years at Lt. Governor and eight
years in the House of Representatives of the State of Oklahoma. Governor Nigh
currently serves on the Board of Directors for J.C. Penney Company and is a
consultant for Express Services Personnel.
82
<PAGE>
Jan A. Norton. Mr. Norton was elected as a director of the Company and
the Banks immediately upon consummation of the Private Placement. In addition,
Mr. Norton became President of the Company and the Banks following consummation
of the Private Placement. Mr. Norton has served as President of Green Country
Bank since May 1994. From May 1992 through April 1994, Mr. Norton served as a
principal with the Thistle Group, a corporate financial consulting firm located
in Dallas, Texas.
Edward A. Townsend. Mr. Townsend was elected as a director of the
Company and the Banks immediately upon consummation of the Private Placement. In
addition, Mr. Townsend became Chairman and Chief Executive Officer of the
Company and the Banks following consummation of the Private Placement. Since
April 1994, Mr. Townsend has served as Chairman and Chief Executive Officer of
Green Country Bank and President of Green Country. From January 1993 through
March 1994, Mr. Townsend served as Senior Vice President of Stifel, Nicolaus &
Company, an investment banking firm located in St. Louis, Missouri. From October
1988 through September 1992, Mr. Townsend served as Chairman and President of
Local Federal. From 1967 to 1987, Mr. Townsend was employed in various positions
at InterFirst Corporation.
Kenneth W. Townsend. Mr. Townsend was elected as a director of the
Company and the Banks immediately following consummation of the Private
Placement. Mr. Townsend has served as Executive Director of the National Cowboy
Hall of Fame, Oklahoma City, Oklahoma, since January 1997. From August 1991
through June 1997, Mr. Townsend served as President of Boatsmen's First National
Bank of Oklahoma, Oklahoma City, Oklahoma.
Robert L. Vanden. Mr. Vanden was elected as a director of the Banks
immediately following consummation of the Private Placement. In addition, Mr.
Vanden began serving as Executive Vice President of the Banks upon consummation
of the Private Placement. From January 1997 until September 1997, Mr. Vanden
served as President and Chief Executive Officer of Local Federal. Since February
1990 through December 1996, Mr. Vanden served as Executive Vice President of
Local Federal in charge of wholesale commercial lending. Prior to joining Local
Federal in February 1990, Mr. Vanden served as Executive Vice President of the
Richard Gill Company and Gill Savings.
Executive Officers Who Are Not Directors
Set forth below is information concerning the executive officers of the
Company and the Banks who do not serve on the Board of Directors of the Company
or the Banks. All executive officers were elected by the Board of Directors of
the Company and/or the Banks following consummation of the Private Placement and
serve until their successors are elected and qualified. No executive officer is
related to any director or other executive officer of the Company or the Banks
by blood, marriage or adoption, and there are no arrangements or understandings
between a director of the Company or the Banks and any other person pursuant to
which such person was elected an executive officer.
83
<PAGE>
Richard L. Park. Mr. Park began serving as Executive Vice President and
Chief Financial Officer of the Company and the Banks in charge of finance and
operations following consummation of the Private Placement. Mr. Park has served
as Chief Financial Officer of Green Country Bank, since October 1996. From
January 1991 through May 1996, Mr. Park was Chief Financial Officer of Western
Farm Credit Bank in Sacramento, California, the Eleventh District Bank in the
Federal Farm Credit System. Mr. Park is a Certified Public Accountant.
Christopher C. Turner. Mr. Turner has served as Executive Vice
President of the Banks in charge of residential and consumer lending and branch
administration since October 1996. Prior to October 1996, Mr. Turner held
various positions in the Internal Audit Department of the Company which he
joined in November 1980. Prior to November 1980, Mr. Turner served as an
internal auditor with Continental Federal Savings and Loan.
Jana Boren Hand. Ms. Hand has served as Senior Vice President in charge
of finance of the Banks since September 1997 and Senior Vice President and Chief
Financial Officer of the Banks from January 1997 to September 1997. Prior to
January 1997, Ms. Hand served as Vice President and Controller of the Banks
since 1994 and Audit Director since joining the Company in February 1991. From
1987 to 1990, Ms. Hand held the position of Audit Supervisor at NCNB Corp., a
predecessor to NationsBank Corporation.
Randall K. Day. Mr. Day has served as Executive Vice President and
Treasurer of the Banks since July 1989. Since joining the Company as a credit
analyst in April 1981, Mr. Day has also served as Director of Budget and
Economics and Director of Investments. Prior to April 1981, Mr. Day held
positions with Wichita Mortgage Company and Oklahoma Mortgage Company as a
branch manager.
Alan L. Pollock. Mr. Pollock has served as Senior Vice President,
Secretary and General Counsel of the Banks since February 1980. Mr. Pollock also
served as President and Chief Executive Officer of Local America from June 1987
until September 1997. Prior to joining the Company in February 1980, Mr. Pollock
was engaged in the practice of law in Oklahoma City as a sole practitioner since
1975. Prior to 1975, Mr. Pollock served as an attorney with the law firm of
Merson & Campbell.
Board of Directors Meetings and Committees of the Company and the Banks
The Board of Directors as newly constituted since consummation of the
Private Placement and the Redemption will hold regular meetings of the Board of
Directors on a quarterly basis and special meetings may be called at any time as
necessary. During the year ended June 30, 1997, the Board of Directors held no
meetings. The Company does not have a standing nominating committee. The full
Board of Directors performs this function.
84
<PAGE>
The Board of Directors as newly constituted since consummation of the
Private Placement and the Redemption will hold regular meetings of the Board of
Directors of the Banks on a monthly basis (except in January) and special
meetings may be called at any time as necessary. During the year ended June 30,
1997, the Boards of Directors of Local Federal and Local America each met six
times.
The Audit Committee of the Board of Directors of the Company is
responsible for examining and reviewing the affairs and reports of the Company,
including its system of internal control, as well as the reports of the
independent auditors. The Audit Committee also monitors the Company's adherence
in accounting and financial reporting to GAAP. The Audit Committee met five
times during fiscal 1997 and currently consists of Messrs. Nigh, Leone and
Kenneth Townsend.
The Retirement Committee of the Board of Directors of Local Federal
reviews executive compensation, investigates new and different forms of
compensation and makes recommendations with respect thereto to the Board of
Director of Local Federal. The Retirement Committee met one time during fiscal
1997 and currently consists of Messrs. Leone, Coats and Howard.
Board of Directors Fees
As of September 1997, each member of the board of directors of the
Company receives $10,000 per year which is paid quarterly. As of September 1997,
each member of the Boards of Directors of the Banks receives $8,000 per year
which is paid quarterly and $500 per meeting (with one paid absence). In
addition, as of September 1997, members of the Audit Committee and Retirement
Committee receive $300 per meeting. Messrs. Edward Townsend, Norton do not
receive compensation for service on the Boards of Directors of the Company and
the Banks. Mr. Kotecki, a director of Local Financial and the Banks, has
requested that an amount be donated to local charities which would have equaled
his annual Director fees.
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<PAGE>
Executive Compensation
Summary Compensation Table. The following table includes individual
compensation information with respect to the Chairman of the Board and Chief
Executive Officer of the Company and the four other most highly compensated
officers of the Company and its subsidiaries whose total compensation exceeded
$100,000 for services rendered in all capacities during the fiscal year ended
June 30, 1997.
<TABLE>
<CAPTION>
Annual Compensation
--------------------------
Long-Term All Other
Name and Principal Position Salary(1) Bonus Compensation Awards Compensation(2)
--------------------------- --------- ----- ------------------- ---------------
<S> <C> <C> <C> <C>
Bruce Sherman,
President and Treasurer
of the Company; Chairman
of Local Federal(3) $ -- $104,350 $ -- $ --
E. Daniel Powers,
President of Local Federal(4) 175,008 140,000 -- 23,944
Robert L. Vanden
Executive Vice President of
the Banks 187,506 95,000 -- 3,467
Mark Bauer,
Senior Vice President of the
Banks(5) 134,388 140,000 -- 200
Alan Goss,
Senior Vice President of the
Banks 134,388 100,000 -- 309
Robert J. Irvin(6)
Vice President and -- 208,700 -- --
Secretary of the Company;
Chairman of Local Federal
John A. Price,
President of Local America(7) 119,028 26,000 -- 75,000
</TABLE>
- -------------
(1) Does not include amounts attributable to miscellaneous benefits
received by the named officers. The costs to the Company of providing
such benefits to the named officers during the year ended June 30, 1997
did not exceed the lesser of $50,000 or 10% of the total of annual
salary and bonus reported.
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<PAGE>
(2) Consists of vacation pay, excess life insurance and, in the case of
Messrs. Powers and Price, severance pay.
(3) Mr. Sherman became Chairman of Local Federal following Mr. Irvin's
resignation. See Note 6 below. In September 1997 and in connection with
the Private Placement and the Redemption, Mr. Edward Townsend became
Chairman and Chief Executive Officer of the Company and the Banks and
Mr. Sherman resigned.
(4) Mr. Powers resigned from Local Federal in December 1996.
(5) Mr. Bauer resigned from the Banks in October 1997.
(6) Mr. Irvin resigned from the Company in December 1996.
(7) Mr. Price resigned from Local America in June 1997.
Benefits
Employment Agreements. The Company and the Banks (the "Employers") have
entered into employment agreements with each of Messrs. Townsend and Norton (the
"Executives"). Under such employment agreements, the Employers have agreed to
employ Messrs. Townsend and Norton for a term of three years, which term shall
be extended each year beginning at the end of the first anniversary of the
effective date for a successive additional one-year period upon approval of the
Employers' Board of Directors, unless either party elects, not less than 60 days
prior to the annual anniversary date, not to extend the employment term. In
addition, the annual base salaries for Messrs. Townsend and Norton will be
$320,000 and $240,000, respectively, which is to be paid in monthly
installments. The employment agreements further provide each of the Executives
with the same employee benefits that are provided by Local Federal to executive
employees generally, provide for vacation and participation in Local Federal
benefit plans, membership in a golf and country club in Oklahoma City, an
automobile of a type and kind comparable to that which Local Federal provides to
its other executive officers, and a one time moving/housing allowance of
$100,000 and $50,000 to Messrs. Townsend and Norton, respectively.
Each of the foregoing employment agreements are terminable with or
without cause by the Employers. The Executives will have no right to
compensation or other benefits pursuant to the employment agreements for any
period after voluntary termination or termination by the Employers for cause.
The employment agreements provide for certain benefits in the event of an
Executives' disability. In the event that either employment agreement is
terminated by the Employers other than for cause, the Executive will be entitled
to receive the benefits he was otherwise entitled to receive under the
employment agreement as if such termination had not occurred.
87
<PAGE>
Mr. Vanden has an employment agreement to serve as President and Chief
Executive Officer of Local Federal, providing for a base salary for the period
July 1, 1997 through June 30, 1998, in the amount of $225,000. He is presently
serving as Executive Vice President of the Banks. Pursuant to its terms, on
August 15, 1997, Mr. Vanden received a bonus of $150,000, and if he remains
employed by Local Federal, pursuant to the agreement and without interruption,
from July 1, 1997 through June 30, 1998, then on August 15, 1998, he is entitled
to a bonus in an amount not less than $175,000. The agreement further provides
that it shall not be terminated by reason of any of the following: (a) the
merger or consolidation of Local Federal or the Company involving more than a
fifty percent (50%) change in ownership; (b) the transfer of all or
substantially all of the assets of Local Federal or the Company; (c) voluntary
or involuntary dissolution of Local Federal or the Company; or (d) change of
control of Local Federal or the Company, defined to be a change in ownership of
more than 50% of the voting stock of Local Federal or the Company. (The events
described in subparagraphs (a) through (c) above shall hereafter be referred to
in this section as the "Change of Ownership"). The agreement further provides
that in the event of a Change of Ownership, that the new owner shall be bound by
the provisions of the employment agreement. Mr. Vanden, however, is accorded the
right to terminate his employment with Local Federal in the event of a Change of
Ownership not later than thirty (30) days following the completion of such
event. If he elects to so terminate his employment, he shall be paid a severance
payment equal to one-half (1/2) of his then current annualized base salary. If
Mr. Vanden is terminated during the term of his employment agreement, i.e. on or
before June 30, 1998, by Local Federal, without cause, he shall be entitled to
receive the base salary and bonus that would have otherwise been payable to him
if he had continued to serve as an employee of Local Federal throughout the term
of the agreement.
Ms. Hand has an employment agreement to serve as the Senior Vice
President and Chief Financial Officer of Local Federal, providing for a base
salary from July 1, 1997 through July 30, 1998, in the amount of $95,000. Ms.
Hand is presently serving as Senior Vice President- Finance of the Banks.
Pursuant to its terms, Ms. Hand received a bonus of $40,000, on August 15, 1997.
If Ms. Hand remains employed pursuant to the agreement and without interruption
from July 1, 1997 through June 30, 1998, then on August 15, 1998, she is
entitled to a bonus of at least $40,000. Ms. Hand's agreement also provides that
a Change of Ownership, as defined above, shall not terminate her agreement but
she shall have the right to resign within thirty (30) days following the
completion of such an event, in which case, she will receive a severance payment
equal to one-half (1/2) of her then current annualized base salary. If Ms. Hand
is terminated during the term of her employment agreement, i.e. on or before
June 30, 1998, by Local Federal, without cause, she shall be entitled to receive
the base salary and bonus that would have otherwise been payable to her if she
had continued to serve as an employee of Local Federal throughout the term of
the agreement.
Mr. Day has an employment agreement to serve as the Executive Vice
President and Treasurer of Local Federal for a base salary payable from July 1,
1997 through July 30, 1998 in the amount of $95,000. Pursuant to its terms, Mr.
Day received a bonus of $40,000 on August 15, 1997, If Mr. Day remains employed
pursuant to the agreement and without interruption from July 1, 1997 through
June 30, 1998, he is entitled to a bonus of at least $45,000. Mr Day's agreement
also provides that it shall not be terminated by a Change of Ownership, as
defined above, and he shall have the right to terminate his employment upon the
occurrence of a Change of Ownership event within thirty (30) days and, in such
event, receive a severance payment equal to one-half (1/2) of his annualized
base salary. If Mr. Day is terminated during the term of his employment
agreement, i.e. on or before June 30, 1998, by Local Federal without cause, he
shall be entitled to receive the base salary and bonus that would have otherwise
been payable to him if he had continued to serve as an employee of Local Federal
throughout the term of the Agreement.
Stock Option Plan. Effective upon consummation of the Private
Placement, the Board of Directors of the Company adopted the Stock Option Plan.
An aggregate of 1,420,370 shares of Common Stock were authorized under the Stock
Option Plan. The Stock Option Plan provides for the grant of incentive stock
options intended to comply with the requirements of Section 422 of the Code
("incentive stock options"), non-incentive or compensatory stock options and
stock appreciation rights (collectively "Awards"). Unless sooner terminated, the
Stock Option Plan will be in effect for a period of ten years from the earlier
of adoption by the Board of Directors or approval by the Company's stockholders.
88
<PAGE>
The Stock Option Plan will be administered and interpreted by a
committee of the Board or Directors ("Committee"), which will interpret the plan
and determine the number of shares subject to each option, whether such options
may be exercised by delivering other shares of Common Stock and when such
options become exercisable.
Under implementing stock option agreements effective at the
consummation of the Private Placement, Messrs. Edward Townsend and Jan Norton
received incentive options to purchase an aggregate of 811,640 and 304,365
shares of Common Stock, respectively. Such options, which have an exercise price
of $10.00 per share, will expire upon the consummation ten years from the date
of grant and will be exercisable in three equal annual installments, beginning
one-year from the date of grant. In addition, in December 1997, the Company
awarded to certain directors and officers of the Company and the Banks options
to purchase an additional 218,000 shares of Common Stock at an exercise price of
$11.75 per share, which will expire upon the consummation of ten years from the
date of grant and which will be exercisable in five equal annual installments,
beginning one-year from the date of grant. All executive officers of the Company
and the Banks as a group (which did not include Messrs. Edward Townsend and
Norton) received options to purchase 85,000 shares, all non-employee directors
of the Company and the Banks as a group (other than Mr. Kotecki) received
options to purchase 60,000 shares and all employees (not including executive
officers) as a group received options to purchase 73,000 shares.
89
<PAGE>
Retirement Plan
Retirement Plan. Local Federal has a defined benefit pension plan
("Retirement Plan") for all salaried and hourly employees who have completed one
year of service with Local Federal and its subsidiaries. In general, the
Retirement Plan provides a benefit at an employee's "Normal Retirement Age" (age
65) according to the following formula: (a) 1% of Average Monthly Compensation
times Years of Credited Service, plus (b) .65% of Average Monthly Compensation
in excess of Covered Compensation, times years of Credited Service up to 35
years. "Average Monthly Compensation" equals the highest average of an
employee's basic rate of compensation for any five consecutive plan
anniversaries (July 1st) preceding retirement. "Covered Compensation" is the
average annual compensation with respect to which Social Security retirement
benefits would be provided at Social Security retirement age.
During the year ended June 30, 1997, Local Federal did not make a
contribution to the Retirement Plan, as the plan was adequately funded and
subject to the IRS "Full Funding Limitation." When subject to the Full Funding
Limitation, no contribution is either required or deductible.
The following table illustrates annual pension benefits for retirement
at age 65 under various levels of compensation and years of Credited Service.
<TABLE>
<CAPTION>
Years of Credited Service
--------------------------------------------------------------------------------------------------------
Final Average
Compensation 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 80,000 $16,943 $22,590 $28,238 $33,886 $39,533
90,000 19,418 25,890 32,363 38,836 45,308
100,000 21,893 29,190 36,488 43,786 51,083
110,000 24,368 32,490 40,613 48,736 56,858
120,000 26,843 35,790 44,738 53,686 62,633
140,000 31,793 42,390 52,988 63,586 74,183
160,000 36,248 48,495 60,743 72,991 85,238
180,000 40,208 54,105 68,003 81,901 95,798
200,000 44,168 59,715 75,263 90,811 106,358
220,000 48,128 65,325 82,523 99,721 116,918
</TABLE>
The figures in the above table assume that the Retirement Plan
continues in its present form and that the participants elect a 10-year certain
and life annuity form of benefit.
The maximum annual compensation which may be taken into account under
the Code (as adjusted from time to time by the IRS) for calculating benefits and
contributions under qualified defined benefit plans currently is $160,000 and
the maximum annual benefit permitted under such plans currently is $125,000.
The pension benefits listed in the table are not subject to any
deduction for Social Security or other offset amounts.
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<PAGE>
At June 30, 1997, Messrs. Vanden and Goss had 7 and 6 years of Credited
Service under the Retirement Plan.
Transactions With Certain Related Persons
The Banks' provide loans to its directors and officers in the ordinary
course of their business, on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons. Such loans do not involve more than the normal
risk of collectibility or present other unfavorable features. As of September
30, 1997, mortgage and consumer loans to directors and officers in excess of
$60,000 aggregated $210,631 or 0.31% of the Company's consolidated stockholders'
equity as of such date.
The Company has entered into the Merger Agreement with Green Country,
pursuant to which Green Country would be merged with and into the Company, with
the Company as the surviving corporation, and in connection therewith, Green
Country Bank would be merged with and into Local America. Messrs. Edward A.
Townsend and Jan A. Norton, the Chairman and Chief Executive Officer of the
Company and the President and Chief Operating Officer of the Company,
respectively, are two of the three stockholders of Green Country, each of whom
will receive shares of Common Stock of the Company in connection with the
consummation of the transactions contemplated by the Merger Agreement. See
"Prospectus Summary--The Company--Proposed Acquisition of Green Country Banking
Corporation."
REGULATION
General
The Banks are federally chartered and insured stock savings banks
subject to extensive regulation and supervision by the OTS, as the primary
federal regulator of savings institutions, and the FDIC, as the administrator of
the SAIF.
The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings institutions and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description of
these provisions or their effects on Local Financial or the Banks, is qualified
in its entirety by reference to the particular statutory or regulatory
provisions or proposals.
Regulation of Savings and Loan Holding Companies
Holding Company Acquisitions. Local Financial is a registered savings
and loan holding company. The HOLA and OTS regulations generally prohibit a
savings and loan holding company, without prior OTS approval, from acquiring,
directly or indirectly, the ownership or control of any other savings
association or savings and loan holding company, or all, or substantially all,
of the assets or more than 5% of the voting shares thereof. These provisions
also prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
association not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the OTS.
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<PAGE>
Holding Company Activities. Local Financial currently operates as a
multiple savings and loan holding company by virtue of its direct ownership of
Local Federal and its indirect ownership of Local America. Multiple savings and
loan holding company are subject to substantial restrictions, as described
below, although such restrictions have not limited the Company's operations to
date. The Company intends to consider consolidating Local America into Local
Federal at some time in the future. At such time, the Company will operate as a
unitary savings and loan holding company. Generally, there are limited
restrictions on the activities of a unitary savings and loan holding company and
its non-savings association subsidiaries.
Multiple savings and loan holding companies are subject to restrictions
which do not apply to unitary savings and loan holding companies. Among other
things, no multiple savings and loan holding company or subsidiary thereof which
is not a savings institution shall commence or continue for a limited period of
time after becoming a multiple savings and loan holding company or subsidiary
thereof any business activity, upon prior notice to, and no objection by the
OTS, other than: (i) furnishing or performing management services for a
subsidiary savings institution; (ii) conducting an insurance agency or escrow
business; (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings institution; (iv) holding or managing properties used
or occupied by a subsidiary savings institution; (v) acting as trustee under
deeds of trust; (vi) those activities authorized by regulation as of March 5,
1987 to be engaged in by multiple savings and loan holding companies; or (vii)
unless the Director of the OTS by regulation prohibits or limits such activities
for savings and loan holding companies, those activities authorized by the
Federal Reserve Board as permissible for bank holding companies. Those
activities described in (vii) above also must be approved by the Director of the
OTS prior to being engaged in by a multiple savings and loan holding company.
In addition, if the Director of the OTS determines that there is
reasonable cause to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness or stability of its subsidiary savings institution, the Director may
impose such restrictions, as deemed necessary to address such risk, including
limiting (i) payment of dividends by the savings institution; (ii) transactions
between the savings institution and its affiliates; and (ii) any activities of
the savings institution that might create a serious risk that the liabilities of
the holding company and its affiliates may be imposed on the savings
institution.
The HOLA requires every savings association subsidiary of a savings and
loan holding company to give the OTS at least 30 days' advance notice of any
proposed dividends to be made on its guarantee, permanent or other
non-withdrawable stock, or else such dividend will be invalid. See "--Regulation
of Federal Savings Institutions--Capital Distribution Regulation."
92
<PAGE>
Affiliate Restrictions. Transactions between a savings association and
its "affiliates" are subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act. Affiliates of a savings
association include, among other entities, the savings association's holding
company and companies that are under common control with the savings
association.
In general, Sections 23A and 23B and OTS regulations issued in
connection therewith limit the extent to which a savings association or its
subsidiaries may engage in certain "covered transactions" with affiliates to an
amount equal to 10% of the association's capital and surplus, in the case of
covered transactions with any one affiliate, and to an amount equal to 20% of
such capital and surplus, in the case of covered transactions with all
affiliates. In addition, a savings association and its subsidiaries may engage
in covered transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
In addition, under the OTS regulations, a savings association may not
make a loan or extension of credit to an affiliate unless the affiliate is
engaged only in activities permissible for bank holding companies; a savings
association may not purchase or invest in securities of an affiliate other than
shares of a subsidiary; a savings association and its subsidiaries may not
purchase a low-quality asset from an affiliate; and covered transactions and
certain other transactions between a savings association or its subsidiaries and
an affiliate must be on terms and conditions that are consistent with safe and
sound banking practices. With certain exceptions, each loan or extension of
credit by a savings association to an affiliate must be secured by collateral
with a market value ranging from 100% to 130% (depending on the type of
collateral) of the amount of the loan or extension of credit.
The OTS regulation generally excludes all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Federal Reserve Board decides to treat
such subsidiaries as affiliates. The regulation also requires savings
associations to make and retain records that reflect affiliate transactions in
reasonable detail, and provides that certain classes of savings associations may
be required to give the OTS prior notice of affiliate transactions.
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<PAGE>
Regulation of Federal Savings Institutions
Regulatory System. As federally insured savings banks, lending
activities and other investments of the Banks must comply with various statutory
and regulatory requirements. The Banks are regularly examined by the OTS and
must file periodic reports concerning its activities and financial condition.
Although the OTS is the Banks' primary regulator, the FDIC has "backup
enforcement authority" over the Banks. The Banks' eligible deposit accounts are
insured by the FDIC under the SAIF, up to applicable limits.
Federal Home Loan Banks. The Banks are members of the FHLB System.
Among other benefits, FHLB membership provides the Banks with a central credit
facility. The Banks are required to own capital stock in an FHLB in an amount
equal to the greater of: (i) 1% of its aggregate outstanding principal amount of
its residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each calendar year, (ii) .3% of total assets, or (iii) 5% of
its FHLB advances (borrowings).
Liquid Assets. Under OTS regulations, for each calendar month, a
savings institution is required to maintain an average daily balance of liquid
assets (including cash, certain time deposits and savings accounts, bankers'
acceptances, certain government obligations and certain other investments) not
less than a specified percentage of the average daily balance of its net
withdrawable accounts plus short-term borrowings (its liquidity base) during the
preceding calendar month. This liquidity requirement, which is currently at
4.0%, may be changed from time to time by the OTS to any amount between 4.0% to
10.0%, depending upon certain factors. The Banks maintain liquid assets in
compliance with this regulation.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to satisfy minimum capital standards: risk-based capital
requirements, a leverage requirement and a tangible capital requirement. Savings
institutions must meet each of these standards in order to be deemed in
compliance with OTS capital requirements. In addition, the OTS may require a
savings institutions to maintain capital above the minimum capital levels.
All savings institutions are required to meet a minimum risk-based
capital requirement of total capital (core capital plus supplementary capital)
equal to 8% of risk-weighted assets (which includes the credit risk equivalents
of certain off-balance sheet items). In calculating total capital for purposes
of the risk-based requirement, supplementary capital may not exceed 100% of core
capital. Under the leverage requirement, a savings institution is required to
maintain core capital equal to a minimum of 3% of adjusted total assets. (In
addition, under the prompt corrective action provisions of the OTS regulations,
all but the most highly-rated institutions must maintain a minimum leverage
ratio of 4% in order to be adequately capitalized. See "--Prompt Corrective
Action.") A savings institution is also required to maintain tangible capital in
an amount at least equal to 1.5% of its adjusted total assets.
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<PAGE>
Under OTS regulations, a savings institution with a greater than
"normal" level of interest rate exposure must deduct an interest rate risk
("IRR") component in calculating its total capital for purposes of determining
whether it meets its risk-based capital requirement. Interest rate exposure is
measured, generally, as the decline in an institution's net portfolio value that
would result from a 200 basis point increase or decrease in market interest
rates (whichever would result in lower net portfolio value), divided by the
estimated economic value of the savings association's assets. The interest rate
risk component to be deducted from total capital is equal to one-half of the
difference between an institution's measured exposure and "normal" IRR exposure
(which is defined as 2%), multiplied by the estimated economic value of the
institution's assets. In August 1995, the OTS indefinitely delayed
implementation of its IRR regulation.
The following table sets forth as of September 30, 1997 the estimated
percentage change in the Company's net interest income over a four-quarter
period and NPV based on the indicated changes in interest rates.
Estimated Change in
--------------------------------------------
Change (in Basis Points) in Net Interest Income(2)
Interest Rates(1) (next four quarters) NPV(2)
----------------- -------------------- ------
+400 (7)% (59)%
+300 (4) (40)
+200 (2) (23)
+100 (1) (10)
0 -- --
-100 1 11
-200 4 14
-300 9 8
-400 5 --
- ----------
(1) Assumes an instantaneous uniform change in interest rates at all
maturities.
(2) Interest rate shocks were run at the Company level and are adjusted for
the sale of securities and the repayment of FHLB advances in October
and November 1997 and the anticipated sale of the indirect lending
operations.
Management of the Company believes that the assumptions used by it to
evaluate the vulnerability of the Company's operations to changes in interest
rates approximate actual experience and considers them reasonable; however, the
interest rate sensitivity of the Company's assets and liabilities and the
estimated effects of changes in interest rates on the Company's net interest
income and NPV could vary substantially if different assumptions were used or
actual experience differs from the historical experience on which they are
based. See "Regulation--Regulation of Federal Savings Institutions--Regulatory
Capital Requirements" for a discussion of a proposed OTS regulation which would
subject an institution with a greater than "normal" level of interest rate
exposure to a deduction of an interest rate risk ("IRR") component in
calculating its total capital for risk-based capital purposes.
95
<PAGE>
These capital requirements are viewed as minimum standards by the OTS,
and most institutions are expected to maintain capital levels well above the
minimum. In addition, the OTS regulations provide that minimum capital levels
higher than those provided in the regulations may be established by the OTS for
individual savings institutions, upon a determination that the savings
institution's capital is or may become inadequate in view of its circumstances.
The OTS regulations provide that higher individual minimum regulatory capital
requirements may be appropriate in circumstances where, among others: (1) a
savings institution has a high degree of exposure to interest rate risk,
prepayment risk, credit risk, concentration of credit risk, certain risks
arising from nontraditional activities, or similar risks or a high proportion of
off-balance sheet risk; (2) a savings institution is growing, either internally
or through acquisitions, at such a rate that supervisory problems are presented
that are not dealt with adequately by OTS regulations; and (3) a savings
institution may be adversely affected by activities or condition of its holding
company, affiliates, subsidiaries or other persons or savings institutions with
which it has significant business relationships. The Banks are not subject to
any such individual minimum regulatory capital requirement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Capital Resources."
Certain Consequences of Failure to Comply with Regulatory Capital
Requirements. A savings institution's failure to maintain capital at or above
the minimum capital requirements may be deemed an unsafe and unsound practice
and may subject the savings institution to enforcement actions and other
proceedings. Any savings institution not in compliance with all of its capital
requirements is required to submit a capital plan that addresses the
institution's need for additional capital and meets certain additional
requirements. While the capital plan is being reviewed by the OTS, the savings
institution must certify, among other things, that it will not, without the
approval of its appropriate OTS Regional Director, grow beyond net interest
credited or make capital distributions. If a savings institution's capital plan
is not approved, the institution will become subject to additional growth and
other restrictions. In addition, the OTS, through a capital directive or
otherwise, may restrict the ability of a savings institution not in compliance
with the capital requirements to pay dividends and compensation, and may require
such a bank to take one or more of certain corrective actions, including,
without limitation: (i) increasing its capital to specified levels, (ii)
reducing the rate of interest that may be paid on savings accounts, (iii)
limiting receipt of deposits to those made to existing accounts, (iv) ceasing
issuance of new accounts of any or all classes or categories except in exchange
for existing accounts, (v) ceasing or limiting the purchase of loans or the
making of other specified investments, and (vi) limiting operational
expenditures to specified levels.
The HOLA permits savings institutions not in compliance with the OTS
capital standards to seek an exemption from certain penalties or sanctions for
noncompliance. Such an exemption will be granted only if certain strict
requirements are met, and must be denied under certain circumstances. If an
exemption is granted by the OTS, the savings institution still may be subject to
enforcement actions for other violations of law or unsafe or unsound practices
or conditions.
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Prompt Corrective Action. The prompt corrective action regulation of
the OTS, promulgated under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), requires certain mandatory actions and authorizes
certain other discretionary actions to be taken by the OTS against a savings
institution that falls within certain undercapitalized capital categories
specified in the regulation.
The regulation establishes five categories of capital classification:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Under the regulation, the
ratio of total capital to risk-weighted assets, core capital to risk-weighted
assets and the leverage ratio are used to determine an institution's capital
classification. At September 30, 1997, each of the Banks met the capital
requirements of a "well capitalized" institution under applicable OTS
regulations.
In general, the prompt corrective action regulation prohibits an
insured depository institution from declaring any dividends, making any other
capital distribution, or paying a management fee to a controlling person if,
following the distribution or payment, the institution would be within any of
the three undercapitalized categories. In addition, adequately capitalized
institutions may accept brokered deposits only with a waiver from the FDIC and
are subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew or roll-over
brokered deposits.
Institutions that are classified as undercapitalized are subject to
certain mandatory supervisory actions, including: (i) increased monitoring by
the appropriate federal banking agency for the institution and periodic review
of the institution's efforts to restore its capital, (ii) a requirement that the
institution submit a capital restoration plan acceptable to the appropriate
federal banking agency and implement that plan, and that each company having
control of the institution guarantee compliance with the capital restoration
plan in an amount not exceeding the lesser of 5% of the institution's total
assets at the time it received notice of being undercapitalized, or the amount
necessary to bring the institution into compliance with applicable capital
standards at the time it fails to comply with the plan, and (iii) a limitation
on the institution's ability to make any acquisition, open any new branch
offices, or engage in any new line of business without the prior approval of the
appropriate federal banking agency for the institution or the FDIC.
The regulation also provides that the OTS may take any of certain
additional supervisory actions against an undercapitalized institution if the
agency determines that such actions are necessary to resolve the problems of the
institution at the least possible long-term cost to the deposit insurance fund.
These supervisory actions include: (i) requiring the institution to raise
additional capital or be acquired by another institution or holding company if
certain grounds exist, (ii) restricting transactions between the institution and
its affiliates, (iii) restricting interest rates paid by the institution on
deposits, (iv) restricting the institution's asset growth or requiring the
institution to reduce its assets, (v) requiring replacement of senior executive
officers and directors, (vi) requiring the institution to alter or terminate any
activity deemed to pose excessive risk to the institution, (vii) prohibiting
capital distributions, (viii) requiring the institution to divest certain
subsidiaries, or requiring the institution's holding company to divest the
institution or certain affiliates of the institution, and (ix) taking any other
supervisory action that the agency believes would better carry out the purposes
of the prompt corrective action provisions of FDICIA.
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Institutions classified as undercapitalized that fail to submit a
timely, acceptable capital restoration plan or fail to implement such a plan are
subject to the same supervisory actions as significantly undercapitalized
institutions. Significantly undercapitalized institutions are subject to the
mandatory provisions applicable to undercapitalized institutions. The regulation
also makes mandatory for significantly undercapitalized institutions certain of
the supervisory actions that are discretionary for institutions classified as
undercapitalized, creates a presumption in favor of certain discretionary
supervisory actions, and subjects significantly undercapitalized institutions to
additional restrictions, including a prohibition on paying bonuses or raises to
senior executive officers without the prior written approval of the appropriate
federal bank regulatory agency. In addition, significantly undercapitalized
institutions may be subjected to certain of the restrictions applicable to
critically undercapitalized institutions.
The regulation requires that an institution be placed into
conservatorship or receivership within 90 days after it becomes critically
undercapitalized, unless the OTS, with concurrence of the FDIC, determines that
other action would better achieve the purposes of the prompt corrective action
provisions of FDICIA. Any such determination must be renewed every 90 days. A
depository institution also must be placed into receivership if the institution
continues to be critically undercapitalized on average during the fourth quarter
after the institution initially became critically undercapitalized, unless the
institution's federal bank regulatory agency, with concurrence of the FDIC,
makes certain positive determinations with respect to the institution.
Critically undercapitalized institutions are also subject to the
restrictions generally applicable to significantly undercapitalized institutions
and to a number of other severe restrictions. For example, beginning 60 days
after becoming critically undercapitalized, such institutions may not pay
principal or interest on subordinated debt without the prior approval of the
FDIC. (However, the regulation does not prevent unpaid interest from accruing on
subordinated debt under the terms of the debt instrument, to the extent
otherwise permitted by law.) In addition, critically undercapitalized
institutions may be prohibited from engaging in a number of activities,
including entering into certain transactions or paying interest above a certain
rate on new or renewed liabilities.
If the OTS determines that an institution is in an unsafe or unsound
condition, or if the institution is deemed to be engaging in an unsafe and
unsound practice, the OTS may, if the institution is well capitalized,
reclassify it as adequately capitalized; if the institution is adequately
capitalized but not well capitalized, require it to comply with restrictions
applicable to undercapitalized institutions; and, if the institution is
undercapitalized, require it to comply with certain restrictions applicable to
significantly undercapitalized institutions.
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Enforcement Powers. The OTS and, under certain circumstances, the FDIC,
have substantial enforcement authority with respect to savings institutions,
including authority to bring various enforcement actions against a savings
institution and any of its "institution-affiliated parties" (a term defined to
include, among other persons, directors, officers, employees, controlling
stockholders, agents and stockholders who participate in the conduct of the
affairs of the institution). This enforcement authority includes, without
limitation: (i) the ability to terminate a savings institution's deposit
insurance, (ii) institute cease-and-desist proceedings, (iii) bring suspension,
removal, prohibition and criminal proceedings against institution-affiliated
parties, and (iv) assess substantial civil money penalties. As part of a
cease-and-desist order, the agencies may require a savings institution or an
institution-affiliated party to take affirmative action to correct conditions
resulting from that party's actions, including to make restitution or provide
reimbursement, indemnification or guarantee against loss; restrict the growth of
the institution; and rescind agreements and contracts.
Capital Distribution Regulation. In addition to the prompt corrective
action restriction on paying dividends, OTS regulations limit certain "capital
distributions" by OTS-regulated savings institutions. Capital distributions are
defined to include, in part, dividends and payments for stock repurchases and
cash-out mergers.
Under the regulation, an institution that meets its fully phased-in
capital requirements both before and after a proposed distribution and has not
been notified by the OTS that it is in need of more than normal supervision (a
"Tier 1 institution") may, after prior notice to but without the approval of the
OTS, make capital distributions during a calendar year up to the higher of: (i)
100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its surplus capital ratio at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period. A Tier 1 institution may make capital distributions in excess of the
above amount if it gives notice to the OTS and the OTS does not object to the
distribution. A savings institution that meets its regulatory capital
requirements both before and after a proposed distribution but does not meet its
fully phased-in capital requirement (a "Tier 2 institution") is authorized,
after prior notice to the OTS but without OTS approval, to make capital
distributions in an amount up to 75% of its net income over the most recent
four-quarter period, taking into account all prior distributions during the same
period. Any distribution in excess of this amount must be approved in advance by
the OTS. A savings institution that does not meet its current regulatory capital
requirements (a "Tier 3 institution") cannot make any capital distribution
without prior approval from the OTS, unless the capital distribution is
consistent with the terms of a capital plan approved by the OTS.
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In connection with the OTS' most recent regulatory examination of Local
Federal, the OTS informed Local Federal that as a result of Local Federal's
recent financial condition and operating results, it was being deemed an
institution in need of more than normal supervision and, consequently, was being
designated as a Tier 3 institution for purposes of the OTS' capital distribution
regulation. Tier 3 institutions may not make capital distributions without
obtaining the prior approval of the OTS. In addition, the OTS can impose growth
restrictions on savings institutions which are in need of more than normal
supervision. However, as a result of, among other things, the capital raised in
the Private Placement and the initiatives undertaken by new management in
connection with the Private Placement and the Redemption, the Midwest Regional
Office of the OTS forwarded a letter to Local Federal, dated as of December 8,
1997, indicating that the OTS was removing its designation of Local Federal as
an institution in need of more than normal supervision and upgrading Local
Federal's status from a Tier 3 institution to a Tier 1 institution.
A Tier 1 institution is authorized to make capital distributions
without OTS approval during a calendar year of up to the higher of (i) 100
percent of its net income to the date of such distribution during the calendar
year plus the amount that would reduce by one-half its surplus capital ratio, as
defined, at the beginning of the calendar year; or (ii) 75% of its net income
over the most recent four-quarter period. Applicable regulations require,
however, that all savings institutions give the OTS at least 30 days advance
notice of any capital distributions, and the OTS may prohibit any capital
distribution that it determines would constitute an unsafe or unsound practice.
As of January 1, 1998, under applicable regulations of the OTS, the total
capital available for the payment of dividends by Local Federal to the Company
was $___, assuming application of the OTS' safe harbor for capital
distributions.
Local Federal is subject to the Dividend Agreement between the Selling
Stockholders and the OTS. Pursuant to its terms, the Dividend Agreement provides
that Local Federal may not pay a dividend if it is below its fully-phased in
regulatory capital requirement or if the dividend payment would cause Local
Federal to fall below such requirement. In addition, at any time Local Federal
exceeds its fully-phased in capital requirement, Local Federal may not pay
dividends in an amount in excess of 100% of its cumulative net income for the
prior eight quarters, reduced by dividends actually paid for such eight
quarters, without prior OTS approval. The Company has sought OTS approval of
the termination of the Dividend Agreement. No assurance can be given that such
agreement will be terminated. To the extent such OTS approval is not obtained,
the Company's ability to pay dividends during the term of such agreement will be
limited.
The OTS has proposed to amend its capital distribution regulation to
conform its requirements to the OTS prompt corrective action regulation. Under
the proposed regulation, an institution that would remain at least adequately
capitalized after making a capital distribution, and that was owned by a holding
company, would be required to provide notice to the OTS prior to making a
capital distribution. "Troubled" institutions and undercapitalized institutions
would be allowed to make capital distributions only by filing an application and
receiving OTS approval, and such applications would be approved under certain
limited circumstances.
Qualified Thrift Lender Test. In general, savings institutions are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets). A savings
institution that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.
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Recent legislation permits a savings association to qualify as a
qualified thrift lender not only by maintaining 65% of portfolio assets in
qualified thrift investments (the "QTL test") but also, in the alternative, by
qualifying under the Code as a "domestic building and loan association." The
Banks are domestic building and loan associations as defined in the Code.
Recent legislation also expands the QTL test to provide savings
institutions with greater authority to lend and diversify their portfolios. In
particular, credit card and educational loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10 percent of total assets, plus an
additional 10 percent for small business loans. Loans for personal, family and
household purposes (other than credit card, small business and educational
loans) are now included without limit with other assets that, in the aggregate,
may account for up to 20% of total assets. At September 30, 1997, the Banks met
the QTL test.
FDIC Assessments. The deposits of the Banks are insured to the maximum
extent permitted by the SAIF, which is administered by the FDIC, and are backed
by the full faith and credit of the U.S. Government. As insurer, the FDIC is
authorized to conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the OTS an opportunity to take such
action.
Under FDIC regulations, institutions are assigned to one of three
capital groups for insurance premium purposes--"well capitalized," "adequately
capitalized" and undercapitalized"--which are defined in the same manner as the
regulations establishing the prompt corrective action system, as discussed
below. These three groups are then divided into subgroups which are based on
supervisory evaluations by the institution's primary federal regulator,
resulting in nine assessment classifications. Effective January 1, 1997,
assessment rates for both SAIF-insured institutions and BIF-insured institutions
ranged from 0% of insured deposits for well-capitalized institutions with minor
supervisory concerns to .27% of insured deposits for undercapitalized
institutions with substantial supervisory concerns. In addition, an addition
assessment of 6.4 basis points and 1.3 basis points is added to the regular
SAIF-assessment and the regular BIF-assessment, respectively, until
December 31, 1999 in order to cover Financing Corporation debt service payments.
Both the SAIF and the BIF are required by law to attain and thereafter
maintain a reserve ratio of 1.25% of insured deposits. The BIF has achieved the
required reserve ratio, and as a result, the FDIC reduced the average deposit
insurance premium paid by BIF-insured banks to a level substantially below the
average premium previously paid by savings institutions. Banking legislation was
enacted on September 30, 1996 to eliminate the premium differential between
SAIF-insured institutions and BIF-insured institutions. The legislation provided
that all insured depository institutions with SAIF-assessable deposits as of
March 31, 1995 pay a special one-time assessment to recapitalize the SAIF.
Pursuant to this legislation, the FDIC promulgated a rule that established the
special assessment necessary to recapitalize the SAIF at 65.7 basis points of
SAIF-assessable deposits held by affected institutions as of March 31, 1995.
Based upon their level of SAIF deposits as of March 31, 1995, the Banks paid a
special assessment of $10.3 million. The assessment was accrued in the quarter
ended September 30, 1996.
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The FDIC may terminate the deposit insurance of any insured depository
institution, including the Banks, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. There are no pending proceedings to terminate the deposit insurance of
the Banks.
Conservatorship/Receivership. In addition to the grounds discussed
under "--Prompt Corrective Action," the OTS (and, under certain circumstances,
the FDIC) may appoint a conservator or receiver for a savings institution if any
one or more of a number of circumstances exist, including, without limitation,
the following: (i) the institution's assets are less than its obligations to
creditors and others, (ii) a substantial dissipation of assets or earnings due
to any violation of law or any unsafe or unsound practice, (iii) an unsafe or
unsound condition to transact business, (iv) a willful violation of a final
cease-and-desist order, (v) the concealment of the institution's books, papers,
records or assets or refusal to submit such items for inspection to any examiner
or lawful agent of the appropriate federal banking agency or state bank or
savings association supervisor, (vi) the institution is likely to be unable to
pay its obligations or meet its depositors' demands in the normal course of
business, (vii) the institution has incurred, or is likely to incur, losses that
will deplete all or substantially all of its capital, and there is no reasonable
prospect for the institution to become adequately capitalized without federal
assistance, (viii) any violation of law or unsafe or unsound practice that is
likely to cause insolvency or substantial dissipation of assets or earnings,
weaken the institution's condition, or otherwise seriously prejudice the
interests of the institution's depositors or the federal deposit insurance fund,
(ix) the institution is undercapitalized and the institution has no reasonable
prospect of becoming adequately capitalized, fails to become adequately
capitalized when required to do so, fails to submit a timely and acceptable
capital restoration plan, or materially fails to implement an accepted capital
restoration plan, (x) the institution is critically undercapitalized or
otherwise has substantially insufficient capital, or (xi) the institution is
found guilty of certain criminal offenses related to money laundering.
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Cross-Guarantee Liability and Effect of a Resolution of the Banks.
Depository institutions insured by the FDIC, such as the Banks, can be held
liable for any loss incurred, or reasonably expected to be incurred, by the FDIC
in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
Accordingly, to the extent that the FDIC incurs or anticipates incurring any
loss in connection with either of the Banks, the other Bank could be required to
compensate the FDIC by reimbursing it for the amount of such loss. Such
cross-guarantee liability can result in the ultimate failure or insolvency of
all insured depository institutions in a holding company structure. Any
obligation or liability owed by a banking subsidiary to its parent company, any
other shareholder or any of the banking subsidiary's other affiliates is
subordinate to the banking subsidiary's cross-guarantee liability.
Because the Company is a legal entity separate and distinct from the
Banks and its other subsidiaries, the Company's right to participate in the
distribution of assets of any subsidiary upon the subsidiary's liquidation or
reorganization will be subject to the prior claims of the subsidiary's
creditors. In the event of a liquidation or other resolution of either of the
Banks, the claims of depositors and other general or subordinated creditors of
such Bank would be entitled to a priority of payment over the claims of holders
of any obligation of the Bank to its shareholders, including any depository
institution holding company (such as the Company) or any shareholder or creditor
of such holding company.
Thrift Charter. Congress has been considering legislation in various
forms that would require federal thrifts, such as the Banks, to convert their
charters to national or state bank charters. Recent legislation required the
Treasury Department to prepare for Congress a comprehensive study on development
of a common charter for federal savings associations and commercial banks; and,
in the event that the thrift charter was eliminated by January 1, 1999, would
require the merger of the BIF and the SAIF into a single Deposit Insurance Fund
on that date. The Banks cannot determine whether, or in what form, such
legislation may eventually be enacted and there can be no assurance that any
legislation that is enacted would contain adequate grandfather rights for the
Banks and their parent holding companies.
Community Reinvestment Act and the Fair Lending Laws. Savings
institutions have a responsibility under the Community Reinvestment Act ("CRA")
and related regulations of the OTS to help meet the credit needs of their
communities, including low-and moderate-income neighborhoods. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act (together, the "Fair
Lending Laws") prohibit lenders from discriminating in their lending practices
on the basis of characteristics specified in those statutes. An institution's
failure to comply with the provisions of CRA could, at a minimum, result in
regulatory restrictions on its activities, and failure to comply with the Fair
Lending Laws could result in enforcement actions by the OTS, as well as other
federal regulatory agencies and the Department of Justice.
New Safety and Soundness Guidelines. The OTS and the other federal
banking agencies have established guidelines for safety and soundness,
addressing operational and managerial, as well as compensation matters for
insured financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators. The
OTS and the other agencies have also established guidelines regarding asset
quality and earnings standards for insured institutions.
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Change of Control. Subject to certain limited exceptions, no company
can acquire control of a savings association without the prior approval of the
OTS, and no individual may acquire control of a savings association if the OTS
objects. Any company that acquires control of a savings association becomes a
savings and loan holding company subject to extensive registration, examination
and regulation by the OTS. Conclusive control exists, among other ways, when an
acquiring party acquires more than 25% of any class of voting stock of a savings
association or savings and loan holding company, or controls in any manner the
election of a majority of the directors of the company. In addition, a
rebuttable presumption of control exists if, among other things, a person
acquires more than 10% of any class of a savings association or savings and loan
holding company's voting stock (or 25% of any class of stock) and, in either
case, any of certain additional control factors exist.
Under recent legislation, companies subject to the Bank Holding Company
Act that acquire or own savings associations are no longer defined as savings
and loan holding companies under the HOLA and, therefore, are not generally
subject to supervision and regulation by the OTS. OTS approval is no longer
required for a bank holding company to acquire control of a savings association,
although the OTS has a consultative role with the Federal Reserve Board in
examination, enforcement and acquisition matters.
TAXATION
Federal Taxation
General. The Company and its subsidiaries, including the Banks, are
subject to federal income taxation under the Code in the same general manner as
other corporations with some exceptions discussed below. The following
discussion of federal taxation is intended only to summarize certain pertinent
federal income tax matters and is not a comprehensive description of the tax
rules applicable to the Banks. The Company's and its subsidiaries' consolidated
federal income tax returns have been audited or closed without audit by the
Internal Revenue Service ("IRS") through 1993.
Method of Accounting. For federal income tax purposes, the Company and
its subsidiaries, including the Banks, currently report their income and
expenses on the accrual method of accounting and use a tax year ending June 30
for filing their consolidated federal income tax returns. The Small Business
Protection Act of 1996 (the "1996 Act") eliminated the use of the reserve method
of accounting for bad debt reserves by savings institutions, effective for
taxable years beginning after 1995.
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Bad Debt Reserves. Prior to the 1996 Act, the Banks were permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Banks' taxable income. As a result of the 1996 Act, the Banks must use
the specific chargeoff method in computing their bad debt deduction beginning
with their 1996 Federal tax return. In addition, the 1996 Act requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
June 30, 1996 over those established as of June 30, 1988. The amounts of such
reserves subject to recapture as of June 30, 1997 are approximately $11.5
million and $5.6 million for Local Federal and Local America, respectively.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to July 1, 1988 were subject to recapture into taxable
income should the Banks fail to meet certain thrift asset and definitional
tests. Federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Banks make certain non-dividend distributions or cease to maintain a bank
charter.
At June 30, 1997, the total federal pre-1988 reserves were
approximately $18.9 million and $2.5 million for Local Federal and Local
America, respectively. This reserve reflects the cumulative effects of federal
tax deductions by the Banks for which no Federal income tax provision has been
made.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Banks
have not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Net Operating Loss Carryovers. A corporation may carry back net
operating losses to the preceding three taxable years and forward to the
succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At September 30, 1997, the Company and its
subsidiaries had $20.6 million of net operating loss carryforwards for federal
income tax purposes which expire in 2013. For taxable years beginning after
August 5, 1997, a corporation may carry back net operating losses to the two
preceding taxable years and carry forward and deduct from taxable income for the
20 succeeding taxable years.
Consummation of the Private Placement and the transactions contemplated
by the Redemption Agreement caused an "ownership change" with respect to the
Company for federal income tax purposes. As a result, the Company is subject to
certain limitations in its ability to use any unrealized built-in losses and any
net operating losses it may have had immediately prior to the ownership change
to offset taxable income generated in taxable periods ending after the ownership
change. Specifically, the Company's ability to use (i) any net unrealized
built-in- losses possessed by the Company immediately before the ownership
change to offset taxable income generated in taxable periods ending after the
ownership change will be subject to an annual limitation (as described below)
(the "Annual Limitation"), and (ii) any net operating losses, tax credits, or
certain other losses and deductions possessed by the Company immediately before
the ownership change to offset taxable income generated in taxable periods
ending after the ownership change will be similarly subject to the Annual
Limitation. The Annual Limitation is generally equal to the product of the value
of the Company's outstanding stock immediately before the Private Placement
(less certain capital contributions and after taking into account the value of
certain redemptions or other corporate contractions that occur in connection
with the ownership change) and the "long-term tax-exempt rate" (as defined in
Section 382(f) of the Code).
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At the present time, the Company believes that it will be able to apply
any tax attributes described in (i) and (ii) above that were possessed by the
Company immediately before the ownership change in their entirety against
taxable income in the preceding taxable years. As such, the Company does not
believe it will be subject to the Annual Limitation.
Corporate Dividends-Received Deduction. The Company may exclude from
its income 100% of dividends received from its subsidiaries, including the
Banks, as a member of the same affiliated group of corporations. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf.
State and Local Taxation
Oklahoma State Taxation. The Company and its subsidiaries, including
the Banks, are subject to an annual Oklahoma corporate income tax of 6% of their
federal taxable income as computed under the Code, subject to certain prescribed
adjustments. In addition to the Oklahoma corporate income tax, the Company and
its subsidiaries are subject to an annual Oklahoma franchise tax, which is
imposed at a rate of .125% on the capital used, invested or employed in
Oklahoma, with a maximum franchise tax equal to $20,000 per annum. At September
30, 1997, the Company had approximately $179.7 million of net operating loss
carryforwards available for Oklahoma state income tax purposes. The state net
operating loss carryforwards expire in varying amounts between 2006 and 2012.
Delaware State Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempt from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
State of Delaware. The Delaware franchise tax based on the Company's authorized
capital stock or on its assumed par and no-par capital, whichever yields a lower
result. Under the authorized capital method, each share is taxed at a graduated
rate based on the number of authorized shares with a maximum aggregate tax of
$150,000 per year. Under the assumed par value capital method, Delaware taxes
each $1,000,000 of assumed par-capital at the rate of $200.
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DESCRIPTION OF SENIOR NOTES
General
The Senior Notes have been issued pursuant to the Indenture between the
Company and The Bank of New York, as trustee (the "Trustee"). The Indenture will
be qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), upon effectiveness of the Registration Statement of which this
Prospectus forms a part. This summary of certain terms and provisions of the
Senior Notes and the Indenture does not purport to be complete, and where
reference is made to particular provisions of the Indenture, such provisions,
including the definitions of certain terms, some of which are not otherwise
defined herein, are qualified in their entirety by reference to all of the
provisions of the Indenture and those terms made a part of the Indenture by the
Trust Indenture Act. See "Additional Information." Capitalized terms not
otherwise defined herein have the meanings specified in the Indenture. The
Indenture has been filed as in exhibit to the Registration Statement.
The Senior Notes will mature on September 8, 2004. The Senior Notes are
general unsecured obligations of the Company and rank senior to such other
Indebtedness as the Company may incur that is not expressly subordinated to the
Senior Notes. The Indenture generally restricts the incurrence of additional
Indebtedness by the Company, except for certain Junior Indebtedness. See
"--Certain Covenants--Limitations on Indebtedness."
The Senior Notes are issuable and transferable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
above that amount.
The Senior Notes bear interest from the date of their initial issuance,
September 8, 1997, at the rate of 11.0% per annum, payable semi-annually in
arrears on March 1 and September 1 of each year (each an "Interest Payment
Date"), commencing March 1, 1998, to the holders of record at the close of
business on the February 15 or August 15 (whether or not a business day), as the
case may be, next preceding such Interest Payment Date (each, a "Regular Record
Date"). Interest will be computed on the basis of a 360-day year of twelve
30-day months.
The Senior Notes are not savings accounts or deposits and are not
insured by the FDIC or by the United States or any agency or fund thereof. The
Senior Notes are not secured by the assets of the Company or any of its
Subsidiaries, including the Banks, or otherwise and do not have the benefit of a
sinking fund for the retirement of principal or interest. Because the Company is
a holding company that currently conducts substantially all of its operations
through the Banks, the right of the Company to participate in any distribution
of assets of the Banks, upon their liquidation or reorganization or otherwise
(and thus the ability of Holders to benefit indirectly from such distribution),
are subject to the prior claims of creditors of the Banks, including claims of
depositors of the Banks. See "Regulation--Regulation of Federal Savings
Institutions--Cross-Guarantee Liability and Effect of a Resolution of the
Banks." Additionally, distributions to the Company by the Banks, whether in
liquidation, reorganization or otherwise, are subject to regulatory restrictions
and, under certain circumstances, may be prohibited.
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No Sinking Fund, Mandatory Redemption or Optional Redemption
The Senior Notes are not entitled to the benefit of any sinking fund,
mandatory redemption or optional redemption.
Interest Reserve Account
In connection with the issuance of the Senior Notes, the Company
established the Interest Reserve Account, which consists of a segregated deposit
account and segregated Permitted Investments in a bank or trust company, which
currently is the Trustee, which is unaffiliated with the Company and which meets
specified requirements. The arrangements relating to the Interest Reserve
Account have been set forth in a Security Agreement between the Company and the
Trustee (the "Security Agreement").
Any funds or other assets in the Interest Reserve Account from time to
time shall not be commingled with any other funds or assets of the Company or
any of the Company's subsidiaries or affiliates, provided, however, that if on
any Interest Payment Date, the amount of funds and the Fair Market Value of any
Permitted Investments in the Interest Reserve Account shall exceed the amount
required to be maintained therein in accordance with the Indenture, the Company
shall be entitled to withdraw all or any portion of such excess.
The Company is required to carry in the Interest Reserve Account an
aggregate amount of cash and Fair Market Value of Permitted Investments
(determined not less frequently than on each Interest Payment Date) sufficient
to pay at all times during the period commencing on the date of issuance of the
Senior Notes through the next two succeeding Interest Payment Dates. The Company
intends to use funds and Permitted Investments in the Interest Reserve Account
to pay the first two semi-annual interest payments due on the Senior Notes or as
otherwise required pursuant to the Security Agreement.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitations on Indebtedness. The Company may not create, incur, issue,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for or with respect to, or otherwise permit to exist any Indebtedness,
except: (i) Indebtedness represented by the Senior Notes; (ii) Junior
Indebtedness with a Stated Maturity of principal (or any required repurchase,
redemption, defeasance or sinking fund payments) which is after the final Stated
Maturity of the Senior Notes; (iii) Indebtedness the proceeds of which are
immediately applied to redeem or repurchase Senior Notes and provided that if
such Indebtedness is used to redeem or repurchase only a portion of the Senior
Notes, such Indebtedness has a Stated Maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund payments) which is after the
final Stated Maturity of the Senior Notes and (iv) Indebtedness specified in
paragraph (b) of the definition of "Permitted Payment."
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The Company may not create, incur, assume, guarantee or otherwise in
any manner become directly or indirectly liable for or with respect to, or
otherwise permit to exist, any Indebtedness (including any Indebtedness assumed
in connection with the acquisition of assets from another Person or as a result
of the merger of any Person with or into the Company) unless, at the time of
such event, the principal amount of total Indebtedness of the Company would not
exceed 100% of the Company's Consolidated Tangible Net Worth; provided that for
purposes of this requirement, Indebtedness shall be net of any fund or interest
reserve account which has been established to fund the payment of principal
and/or interest on Indebtedness.
Limitations on Restricted Payments. The Company may not, and may not
permit any Subsidiary to, directly or indirectly, make any Restricted Payment
if, at the time of such Restricted Payment or after giving effect thereto,
(a) a Default or Event of Default shall have occurred and be
continuing; or
(b) the Company would fail to maintain sufficient Liquid Assets to
comply with the terms of the covenant described below under "--Liquidity
Maintenance;"
(c) either of the Banks would fail to meet any of their respective
applicable minimum capital requirements under the regulations of the OTS which
are necessary to enable either of the Banks to qualify as an "adequately
capitalized" institution under such regulations; or
(d) the aggregate amount of all Restricted Payments (the amount of such
payments, if other than in cash, having been determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution filed with the Trustee) declared and made after the Issue Date
would exceed the sum of
(i) 25% of the aggregate Consolidated Net Income (or, if
such Consolidated Net Income is a deficit, 100% of such deficit) of the
Company accrued on a cumulative basis during the period beginning on
the first day of the fiscal quarter during which the Issue Date
occurred and ending on the last day of the Company's last fiscal
quarter ending prior to the date of such proposed Restricted Payment,
plus
(ii) the aggregate Net Cash Proceeds received by the
Company as capital contributions (other than from a Subsidiary) after
the Issue Date, plus
(iii) ggregate Net Cash Proceeds and the Fair Market Value
of property not constituting Net Cash Proceeds received by the Company
from the issuance or sale (other than to a Subsidiary) of Qualified
Capital Stock after the Issue Date; plus
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(iv) 100% of the amount of any Indebtedness of the Company
or a Subsidiary that is converted into or exchanged for Qualified
Capital Stock of the Company after the Issue Date;
provided, however, that the foregoing provisions will not prevent (x) the
payment of a dividend within 60 days after the date of its declaration if at the
date of declaration such payment was permitted by the foregoing provisions, (y)
any Permitted Payment; or (z) the redemption of all of the shares of Common
Stock of the Company which are issued and outstanding immediately prior to the
date of the Indenture.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company may not, and may not permit any of its Subsidiaries
to, create, assume or otherwise cause or suffer to exist or to become effective
any consensual encumbrance or restriction on the ability of any such Subsidiary
to:
(a) pay any dividends or make any other distribution on its Capital
Stock;
(b) make payments in respect of any Indebtedness owed to the Company or
any other Subsidiary; or
(c) make loans or advances to the Company or any Subsidiary or to
guarantee Indebtedness of the Company or any other Subsidiary;
other than, in the case of (a), (b) and (c),
(1) restrictions imposed by applicable laws and regulations;
(2) restrictions existing under agreements in effect on
the date of the Indenture;
(3) consensual encumbrances or restrictions binding upon any Person at
the time such Person becomes a Subsidiary of the Company so long as such
encumbrances or restrictions are not created, incurred or assumed in
contemplation of such Person becoming a Subsidiary;
(4) restrictions on the transfer of assets which are subject to Liens;
(5) restrictions existing under agreements evidencing Indebtedness
which is incurred after the date of the Indenture as permitted by the covenants
described above under "--Limitations on Indebtedness," provided that the terms
and conditions of any such restrictions are no more restrictive than those
contained in the Indenture; and
(6) restrictions existing under any agreement which refinances or
replaces any of the agreements containing the restrictions in clauses (2), (3)
and (5); provided that the terms and conditions of any such restrictions are not
less favorable to the Holders than those under the agreement evidencing or
relating to the Indebtedness refinanced.
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Restrictions on Issuance and Sale or Disposition of Capital Stock of
Subsidiaries. The Company (a) may not permit any Subsidiary to issue or sell any
shares of its Capital Stock (other than to the Company or a Wholly Owned
Subsidiary) and (b) except pursuant to existing agreements, options or option
plans, may not permit any Person to own any shares of Capital Stock of any
Subsidiary.
Limitations on Transactions with Affiliates. The Company may not, and
may not permit any of its Subsidiaries to, directly or indirectly, enter into
any transaction or series of related transactions (including without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate of the Company (except that the Company and any of its Subsidiaries
may enter into any transaction or series of related transactions with any
Subsidiary of the Company without limitation under this covenant) unless: (i)
such transactions or series of related transactions is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than would be
available in a comparable transaction in an arm's length dealing with a Person
that is not such an Affiliate; (ii) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $500,000, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of transactions complies with clause (i) above and has
been approved by a majority of the Board of Directors of the Company; and (iii)
with respect to any transaction or series of related transaction involving
aggregate payments in excess of $2 million, the Company delivers to the Trustee
a written opinion of a nationally-recognized investment banking firm to the
effect that the transaction or series of transactions are fair to the Company or
such Subsidiary from a financial point of view. The limitations set forth in
this paragraph will not apply to (a) transactions entered into pursuant to any
agreement already in effect on the date of the Indenture, (b) any employment
agreement, stock option, employee benefit, indemnification, compensation,
business expense reimbursement or other employment-related agreement,
arrangement or plan entered into by the Company or any of its Subsidiaries
either (A) in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary or (B) which agreement, arrangement
or plan was adopted by the Board of Directors of the Company or such Subsidiary,
as the case may be, (c) residential mortgage, credit card and other consumer
loans to an Affiliate who is an officer, director or employee of the Company or
any of its Subsidiaries and which comply with the applicable provisions of 12
U.S.C. ss. 1468(b) and any rules and regulations of the OTS thereunder, (d) any
Restricted Payments, (e) any issuance of capital stock to Messrs. Townsend and
Norton in connection with the acquisition by the Company of Green Country, or
(f) any transaction or series of transactions in which the total amount involved
does not exceed $250,000.
Limitations on Liens and Guarantees. The Company may not create,
assume, incur or suffer to exist any Lien upon (i) the Capital Stock of the
Banks or (ii) any of the Company's property or assets (other than the Capital
Stock of the Banks) now owned, or acquired after the date of the Indenture, or
any income or profits from any such property or assets, as security for
Indebtedness which may be incurred by the Company under the Indenture and having
a contractual time to maturity greater than one year (other than the Senior
Notes), without, in the case of either (i) or (ii), effectively providing that
the Senior Notes will be equally and ratably secured with (or prior to) such
Indebtedness, provided that if such Indebtedness is Junior Indebtedness, any
security interest with respect to such Junior Indebtedness shall be subordinated
to the security interest with respect to the Senior Notes to the same extent as
such Junior Indebtedness is subordinated to the Senior Notes.
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The Company may not permit any Subsidiary of the Company, directly or
indirectly, to guarantee or assume, or subject any of its assets to a Lien to
secure, any Indebtedness which may be incurred by the Company under the
Indenture (other than the Senior Notes) unless (i) such Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a guarantee of, or pledge of assets to secure, the Senior Notes by
such Subsidiary on terms at least as favorable to the Holders as such guarantee
or security interest in such assets is to the holders of such Indebtedness,
except that in the event of a guarantee or security interest in such assets with
respect to Junior Indebtedness, any such guarantee or security interest in such
assets with respect to such Junior Indebtedness shall be subordinated to such
Subsidiary's guarantee or security interest in such assets with respect to the
Senior Notes to the same extent as such Junior Indebtedness is subordinated to
the Senior Notes and (ii) such Subsidiary waives, and agrees that it and will
not in any manner whatsoever claim, or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Subsidiary of the Company as a result of any payment by
such Subsidiary under its guarantees.
Liquidity Maintenance. The Company will, at all times when the Senior
Notes are not rated in an investment grade category by one or more nationally
recognized statistical rating organizations, maintain Liquid Assets with a value
equal to at least 100% of the required interest payments due on the Senior Notes
on the next succeeding semi-annual Interest Payment Date.
Offer to Purchase upon a Change of Control. The Company will, upon the
occurrence of a Change of Control, make an offer to purchase (an "Offer to
Purchase"), and will, subject to the provisions described below, purchase, on a
Business Day (the "Change of Control Purchase Date") not more than 60 days nor
less than 30 days following the occurrence of the Change of Control, all of the
then outstanding Senior Notes at a purchase price (the "Change of Control
Purchase Price") equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to (but excluding) the Change of Control Purchase Date.
The Company will, subject to the provisions described below, purchase all Senior
Notes properly tendered in the Offer to Purchase and not withdrawn. Prior to the
mailing of the notice to Holders provided for, as described below, the Company
must (i) offer to repay in full all Indebtedness which by its terms requires
repayment by the Company prior to any repurchase by the Company of the Senior
Notes and repay the Indebtedness of each lender who has accepted such offer or
(ii) obtain the requisite consent under such Indebtedness to permit the
repurchase of the Senior Notes. If a notice has been mailed when such condition
precedent has not been satisfied, the Company will have no obligation to (and
shall not) effect the purchase of Senior Notes until such time as such condition
precedent is satisfied. Failure to mail the notice on the date specified below
or to have satisfied the foregoing condition precedent by the date that the
notice is required to be mailed shall in any event constitute a covenant Default
under the Indenture. The Offer to Purchase is required to remain open for at
least 20 Business Days and until the close of business on the Change of Control
Purchase Date.
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In order to effect such Offer to Purchase, the Company will, not later
than the 30th day after the Change of Control, mail to each Holder a notice,
which shall govern the terms of the Offer to Purchase and shall state, among
other things: (i) that a Change of Control has occurred and an Offer to Purchase
is being made, and that, although Holders are not required to tender their
Senior Notes, all Senior Notes that are timely tendered will be accepted for
payment; (ii) the purchase price and the Change of Control Purchase Date, which
will be no earlier than 30 days nor later than 60 days from the date such notice
is mailed; (iii) that any Senior Note not tendered will continue to accrue
interest; (iv) that any Senior Note accepted for payment pursuant to the Offer
to Purchase will cease to accrue interest on and after the Change of Control
Purchase Date; (v) the instructions that Holders will be required to follow in
order to have such Holders' Senior Notes repurchased; (vi) that Holders will be
entitled to withdraw their election not later than the close of business on the
third Business Day preceding the Change of Control Purchase Date and the
instructions that Holders must follow in order to withdraw such election; and
(vii) any other information necessary to enable Holders to tender their Senior
Notes and to have such Senior Notes repurchased.
On the Change of Control Purchase Date, the Company will (i) accept for
payment Senior Notes tendered pursuant to the Offer to Purchase, (ii) deposit
with the Paying Agent money sufficient to pay the purchase price of all Senior
Notes so tendered and (iii) deliver to the Trustee all Senior Notes so accepted
together with an Officers' Certificate stating the principal amount of Senior
Notes tendered to and accepted for payment by the Company. The Company will
publicly announce the results of the Offer to Purchase on or as soon as
practicable after the Change of Control Purchase Date. There can be no assurance
that the Company will have sufficient financial resources to repurchase any or
all of the Senior Notes at such time as it might be required to do so.
Notwithstanding the foregoing, if any Senior Note accepted for payment
is not so paid pursuant to the foregoing provisions of the Indenture, then, from
the Change of Control Purchase Date until the principal and interest on such
Senior Note is paid, interest will be paid on the unpaid principal and, to the
extent permitted by law, on any accrued but unpaid interest thereon, in each
case at the rate or rates prescribed therefor in the Senior Notes.
Maintenance of Depository Institution Subsidiary. The Company will,
subject to requirements governing consolidations, merges and conveyances,
maintain at all times as a Wholly Owned Subsidiary an entity that is a bank or
thrift or substantially similar institution subject to regulation by federal or
state authorities and do all things necessary to ensure that savings accounts of
the Banks or such other institution are insured by the FDIC or any successor
organization up to the maximum amount permitted by the Federal Deposit Insurance
Act and regulations thereunder or any succeeding federal law hereinafter
enacted.
Additional Covenants. The Indenture also contains covenants with
respect to, among other things, the following matters: (i) payment of principal,
premium and interest; (ii) maintenance of corporate existence; (iii) payment of
taxes and other claims; (iv) maintenance of properties; (v) maintenance of
insurance; and (vi) maintenance of books and records.
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Merger and Consolidation
The Indenture provides that the Company will not, in a single
transaction or a series of transactions, consolidate or merge with or into or
transfer, sell, lease or convey all or substantially all of its assets to
another Person unless: (i) either the Company will be the entity surviving such
merger or consolidation or the corporation formed by or surviving such
consolidation or merger, or the Person to which such transfer, sale, lease or
conveyance shall have been made, shall be a corporation duly organized and
existing under the laws of the United States, any state thereof or the District
of Columbia and will unconditionally expressly assume by a supplemental
indenture hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of the Company under the Senior Notes and the
Indenture; (ii) immediately before and immediately after giving effect to the
transaction or series of transactions, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to the
transaction or series of transactions, the Company or the surviving entity, as
applicable, and their respective banking and thrift subsidiaries, as applicable,
will be in compliance with all applicable regulatory capital requirements; (iv)
immediately after giving effect to the transaction or series of transactions,
the Company or the surviving entity, as applicable, could incur at least $1.00
of additional Indebtedness without violating the limitations on Indebtedness
provisions of the Indenture; and (v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger, business combination, transfer, sale, lease or conveyance
and such supplemental indenture complies with the Indenture and that all
conditions precedent therein relating to such transaction have been complied
with.
Modification of the Indenture; Waiver of Covenants
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of greater than 50% in
aggregate principal amount of the Senior Notes then Outstanding; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each outstanding Senior Note affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Senior Note
or reduce the principal amount thereof, premium, if any, or the rate of interest
thereon or change any Place of Payment, or change the coin or currency in which
any Senior Note or any premium or the interest thereon is payable or impair the
right to institute suit for the enforcement of any such payment after the Stated
Maturity thereof; (ii) reduce the percentage in principal amount of the
outstanding Senior Notes, the consent of whose Holders is required for any such
amendment or modification, or the consent of whose Holders is required for any
waiver of compliance with the Indenture or certain defaults thereunder; and
(iii) modify any of the provisions relating to supplemental indentures requiring
the consent of Holders or relating to the waiver of past defaults or relating to
the waiver of certain covenants, except to increase the percentage in principal
amount of outstanding Senior Notes required for such action or to provide that
certain other provisions of the Indenture may not be modified or waived without
the consent of the Holder of each Senior Note affected thereby.
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Notwithstanding the foregoing, without the consent of any Holders, the
Company and the Trustee may modify or amend the Indenture (i) to evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Senior
Notes in accordance with the provisions of the Indenture described above under
"--Merger and Consolidation;" (ii) to add any additional covenants of the
Company for the benefit of the Holders, or to surrender any right or power
conferred upon the Company in the Indenture or in the Senior Notes; (iii) to
secure the Senior Notes or to add a guarantor; (iv) to comply with any
requirements of the Commission in order to effect and maintain the qualification
of the Indenture under the Trust Indenture Act; or (v) to cure any ambiguity, to
correct or supplement any provision of the Indenture which may be defective or
inconsistent with any other provision of the Indenture, or to make any other
provisions with respect to matters or questions arising under the Indenture
which shall not be inconsistent with the provisions of the Indenture, provided
such action pursuant to clause (v) shall not adversely affect the interests of
the Holders in any material respect.
The Holders of greater than 50% in aggregate principal amount of the
Senior Notes outstanding may waive compliance with certain restrictive covenants
and provisions of the Indenture.
Events of Default
An Event of Default is defined in the Indenture to include:
(i) failure by the Company to pay the principal of, or
premium, if any, on any Senior Note when due and payable at maturity or
upon redemption, acceleration or otherwise;
(ii) failure by the Company to pay interest on any Senior
Note when due and payable, if such failure continues for a period of 30
days;
(iii) default in the performance, or breach, of the
provisions described above under "--Merger and Consolidation;"
(iv) default, on the Change of Control Purchase Date, in the
purchase of Senior Notes required to be purchased by the Company
pursuant to an Offer to Purchase;
(v) failure by the Company to comply with any other agreement
or covenant contained in the Indenture if such failure continues for a
period of 30 days after notice to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in principal
amount of the Senior Notes then Outstanding;
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(vi) default by the Company or any Subsidiary of the Company
in the payment of any Indebtedness of the Company or any Subsidiary of
the Company after any applicable grace period after final maturity or
in the event that final maturity is accelerated because of a default,
which default is not cured, waived or consented to for 30 days and the
total amount of such Indebtedness unpaid or accelerated is equal to or
greater than 5% of the Company's Consolidated Tangible Net Worth;
(vii) the existence of certain events of bankruptcy or
insolvency of the Company or either of the Banks;
(viii) one or more final judgments, decrees or orders has
been rendered against the Company or any Subsidiary for the payment of
an amount of money which, individually or in the aggregate, is equal
to or greater than 5% of the Company's Consolidated Tangible Net Worth
and which remains unsatisfied for a period of 60 days without a stay
of execution of any such judgment, decree or order; and
(ix) failure by either of the Banks to comply with any of
their respective Regulatory Capital Requirements; provided, that an
Event of Default under this paragraph (ix) shall not be deemed to have
occurred (a) during the 45-day period following the first day on which
either of the Banks fails to comply with any of its Regulatory Capital
Requirements, if within such 45-day period such Bank files a capital
plan with the OTS, (b) during the 60-day period following the initial
submission of a capital plan to the OTS by such Bank (or, if the OTS
notifies such Bank in writing that it needs a longer period of time to
determine whether to approve such capital plan, such longer period as
is so specified by the OTS), unless prior to such date the OTS shall
have notified such Bank of its determination not to approve such
capital plan, or (c) during the period that such Bank is operating in
material compliance with a capital plan approved by the OTS; provided,
further, that if such Bank meets the minimum amount of capital required
to meet each of the industry-wide regulatory capital requirements
pursuant to 12 U.S.C. Section 1464(t) and 12 C.F.R. Part 567 (and any
amendment to either thereof) or any successor law or regulation,
notwithstanding such Bank's failure to meet an individual minimum
capital requirement pursuant to 12 U.S.C. Section 1464(s) and 12 C.F.R.
Section 567.3 (and any amendment to either thereof) or any successor
law or regulation, no Event of Default shall have occurred pursuant to
this clause unless written notice thereof shall have been given (x) to
the Company by the Trustee or (y) to the Company and the Trustee by the
Holders of 25% in aggregate principal amount of the Senior Notes then
outstanding.
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The Company has covenanted in the Indenture to file annually with the
Trustee a statement regarding compliance by the Company with the terms of the
Indenture and specifying any defaults of which the signers may have knowledge.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of not less than 25% in principal amount of the Senior Notes then
outstanding may declare all the Senior Notes to be immediately due and payable
by notice to the Company (and to the Trustee if given by the Holders). Under
certain circumstances, the Holders of a majority in principal amount of the
Senior Notes then Outstanding may rescind such a declaration.
Defeasance
The Indenture provides that (A) if applicable, the Company will be
discharged from any and all obligations in respect of then Outstanding Senior
Notes, other than the obligation to duly and punctually pay the principal of,
premium, if any, and interest on, the Senior Notes in accordance with the terms
of the Senior Notes and the Indenture, or (B) if applicable, the Company may
omit to comply with certain restrictive covenants, and that such omission shall
not be deemed to be an Event of Default under the Indenture or the Senior Notes,
in either case (A) or (B); upon irrevocable deposit with the Trustee, in trust,
of money and/or U.S. Government Obligations which will provide money in an
amount sufficient in the opinion of a nationally-recognized accounting firm to
pay the principal of and premium, if any, and each installment of interest, if
any, on the Outstanding Senior Notes. With respect to clause (B), the
obligations under the Indenture other than with respect to such covenants shall
remain in full force and effect. Such trust may only be established if, among
other things, (i) with respect to clause (A), the Company has received from, or
there has been published by, the IRS a ruling or there has been a change in law,
which in an Opinion of Counsel provides that Holders of the Senior Notes will
not recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred; or with respect
to clause (B), the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the Senior Note will not recognize gain or loss
for Federal income tax purposes as a result of such deposit and defeasance and
will be subject to federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred; (ii) no Event of Default or event that with the passing of time or
the giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing; and (iii) certain other customary conditions
precedent are satisfied.
Satisfaction and Discharge
The Indenture will cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Senior Notes, as
expressly provided for in the Indenture) as to all outstanding Senior Notes when
(i) either (a) all the Senior Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Senior Notes which have been replaced or paid)
have been delivered to the Trustee for cancellation or (b) all Senior Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable, or will become due and payable or are to be called for redemption
within one year, and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Senior Notes not
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theretofore delivered to the Trustee for cancellation, for principal
of, and premium, if any, and interest on the Senior Notes to the date of deposit
together with irrevocable instructions to the Trustee from the Company directing
the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company has paid all other sums payable
under the Indenture by the Company; and (iii) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
The Trustee
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
The Indenture, and provisions of the Trust Indenture Act incorporated
by reference, contain limitations on the rights of the Trustee, should it become
a creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with the Company or any Affiliate; provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
Governing Law
The Indenture provides that it and the Senior Notes will be governed
by, and construed in accordance with, the laws of the State of New York but
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
Certain Definitions
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings corresponding to the
foregoing.
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"Capital Lease Obligation" of any Person means any obligations of such
Person under any capital lease for real or personal property which, in
accordance with GAAP, is required to be recorded as a capitalized lease
obligation; and, for the purpose of this Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents in the equity (however designated) of such
Person and any rights (other than debt securities convertible into an equity
interest), warrants or options to acquire an equity interest in such Person.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 25% of the total
Voting Stock of the Company, (ii) the Company consolidates with, or merges into,
another person, or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any person
consolidates with, or merges into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction between the Company and a Wholly Owned Subsidiary, or (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Company's Board of Directors (together with any new
directors whose elections by the Company's Board of Directors or whose
nomination for elections by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors then in office.
"Consolidated Net Income (Loss)" of any Person means, for any period,
the consolidated net income (or loss) of such Person and its consolidated
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income (loss), by excluding, without
duplication, (i) all extraordinary gains and losses (other than those relating
to the use of net operating losses of such Person carried forward), less all
fees and expenses relating thereto, net of taxes, (ii) the portion of net income
(or loss) of any other Person (other than any of such Person's consolidated
Subsidiaries) in which such Person or any of its Subsidiaries has an ownership
interest, except to the extent of the amount of dividends or other distributions
actually paid to such Person or its consolidated Subsidiaries in cash by such
other Person during such period, (iii) net income (or loss) of any Person
combined with such Person or any of its Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (iv) any gain
or loss, net of taxes, realized upon the termination of any employee pension
benefit plan or (v) the net income of any consolidated Subsidiary of such Person
to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulations applicable to that Subsidiary or its shareholders; provided that,
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upon the termination or expiration of such dividend or distribution
restrictions, the portion of net income (or loss) of such consolidated
Subsidiary allocable to such Person and previously excluded shall be added to
the Consolidated Net Income (Loss) of such Person to the extent of the amount of
dividends or other distributions available to be paid to such Person in cash by
such Subsidiary.
"Consolidated Tangible Net Worth" of any Person and its Subsidiaries
means as of the date of determination all amounts that would be included under
stockholders' equity on a consolidated balance sheet of such Person and its
Subsidiaries determined in accordance with GAAP, less an amount equal to the
consolidated intangible assets (other than capitalized mortgage servicing
rights) of such Person and its Subsidiaries determined in accordance with GAAP.
"Default" means any event that upon notice or the passage of time or
both would be an Event of Default.
"Disqualified Capital Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part on, or prior to, or is
exchangeable for debt securities of the Company or its Subsidiaries prior to,
the final Stated Maturity of principal of the Senior Notes; provided that only
the amount of such Capital Stock that matures or is redeemable prior to the
Stated Maturity of principal of the Senior Notes shall be deemed to be
Disqualified Capital Stock.
"Fair Market Value" means, with respect to any asset, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
compulsion to complete the transaction as determined by the Board of Directors
of the Company, acting in good faith, and shall be evidenced by a Board
Resolution delivered to the Trustee.
"GAAP" means generally accepted accounting principles.
"Guaranteed Indebtedness" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness; (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss; (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services without requiring that such property
be received or such services be rendered); (iv) to maintain working
capital or equity capital of the debtor, or otherwise to maintain the net worth,
solvency or other financial condition of the debtor; or (v) otherwise to assure
a creditor with respect to Indebtedness against loss; provided that the term
"guarantee" shall not include endorsements for collection of deposit, in the
ordinary course of business.
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"Holder" when used with respect to any Senior Note means a Noteholder.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit issued under letter of credit
facilities, and in connection with any agreement by such Person to purchase,
redeem, exchange, convert or otherwise acquire for value any Capital Stock of
such Person now or hereafter outstanding; (ii) all obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments; (iii) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even if the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business; (iv) all
obligations under interest rate agreements of such Person; (v) all Capital Lease
Obligations of such Person; (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends payable by other Persons,
the payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien, upon
or with respect to property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness (the amount of such
obligations being deemed to be the lesser of the value of such property or asset
or the amount of the obligations so secured); (vii) all guarantees by such
Person of Guaranteed Indebtedness; (viii) all Disqualified Capital Stock (valued
at the greater of book value and voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends) of such Person; and (ix) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing or any liability of the types referred to in clauses (i) through
(viii) above. For purposes hereof, (x) the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value is to be determined in good
faith by the board of directors (or any duly authorized committee thereof) of
the issuer of such Disqualified Capital Stock, and (y) Indebtedness is deemed to
be incurred pursuant to a revolving credit facility each time an advance is made
thereunder.
"Issue Date" means September 8, 1997.
"Junior Indebtedness" means any Indebtedness of the Company
subordinated in right of payment of either principal, premium (if any) or
interest thereon to the Senior Notes.
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"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Liquid Assets" shall include: (i) cash; (ii) any of the following
instruments that have a remaining term to maturity not in excess of 90 days from
the determination date: (a) repurchase agreements on obligations of, or are
guaranteed as to timely receipt of principal and interest by, the United States
or any agency or instrumentality thereof when such obligations are backed by the
full faith and credit of the United States, provided that the party agreeing to
repurchase such obligations is a primary dealer in U.S. government securities,
(b) federal funds and deposit accounts, including but not limited to
certificates of deposit, time deposits and bankers' acceptances of any U.S.
depository institution or trust company incorporated under the laws of the
United States or any state, provided that the debt of such depository
institution or trust company at the date of acquisition thereof has been rated
by Standard & Poor's Corporation in the highest short-term rating category or
has an equivalent rating from another nationally recognized rating agency, or
(c) commercial paper of any corporation incorporated under the laws of the
United States or any state thereof that on the date of acquisition is rated
investment grade by Standard & Poor's Corporation or has an equivalent rating
from another nationally recognized rating agency; (iii) any debt instrument
which is an obligation of, or is guaranteed as to the receipt of principal and
interest by the United States, its agencies or any U.S. government sponsored
enterprise, or (iv) any mortgage-backed or mortgage-related security issued by
the United States, its agencies, or any U.S. government sponsored enterprise, as
to which the payment of principal and interest from the mortgages underlying
such securities will be passed through to the holder thereof and which has a
remaining weighted average maturity of 15 years or less. Notwithstanding the
forgoing, Liquid Assets shall not include any debt instruments, securities or
collateralized mortgage obligations (real estate mortgage investment conduits)
that would be classified as a "High-Risk Mortgage Security" pursuant to the
policy statement adopted by the Federal Financial Institutions Examination
Counsel on February 10, 1992, as reflected in Volume I of the Federal Reserve
Report Service, Part 3-1562.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock, or options, warrants or rights to purchase Capital Stock, or debt
securities or Capital Stock that have been converted into or exchanged for
Capital Stock, or any capital contribution in respect of Capital Stock, the
proceeds of such issuance or sale or capital contribution in the form of cash or
cash equivalents, including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when disposed for, cash
or cash equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company), net of
attorney's fees, accountant's fees and brokerage, consulting, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale or capital contribution and net of taxes paid or payable by the Company as
a result thereof.
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"Noteholder" means a Person is whose name a Senior Note is registered
in the Note Register.
"Permitted Investments" means one or more of the following types of
investments:
(i) interest-bearing deposit accounts of any "insured
depository institution," as defined in Section 3(c) of the Federal
Deposit Insurance Act, as amended;
(ii) direct obligations of, or obligations the principal and
interest on which are unconditionally guaranteed by, the United States
of America or any agency or instrumentality thereof;
(iii) obligations of any corporate issuer which are rated in
one of the two highest rating categories of any nationally-recognized
statistical rating organization;
(iv) repurchase agreements with banks, brokers or dealers
involving any of the foregoing types of securities; and
(v) money market mutual funds;
provided that, notwithstanding anything to the contrary contained herein,
Permitted Investments shall not include any of the foregoing investments to the
extent that any such investment, in the good faith business judgment of the
Board of Directors of the Company, involves at the time of acquisition or
thereafter a reasonable likelihood of a loss of principal.
"Permitted Payment" means, so long as no Default or Event of Default is
continuing,
(a) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Capital Stock of the Company or any Affiliate (other
than a Wholly-Owned Subsidiary, which is unrestricted) of the Company, or any
Junior Indebtedness of the Company which may be incurred pursuant to the
covenant described above under "--Certain Covenants--Limitations of
Indebtedness" in exchange for (including any such exchange pursuant to the
exercise of a conversion right or privilege where, in connection therewith, cash
is paid in lieu of the issuance of fractional shares or scrip), or out of the
Net Cash Proceeds or Fair Market Value of property not constituting Net Cash
Proceeds of, a substantially concurrent issue and sale (other than to a
Subsidiary of the Company or to an employee benefit plan of the Company or any
of its Subsidiaries) of Qualified Capital Stock of the Company; provided that
the Net Cash Proceeds or Fair Market Value of such property received by the
Company from the issuance of such shares of Qualified Capital Stock, to the
extent so utilized, shall be excluded from clause (c)(iii) of the covenant
described above under "--Certain Covenants--Limitations on Restricted
Payments;" and
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(b) the repurchase, redemption, defeasance or other acquisition or
retirement for value of any Junior Indebtedness of the Company which may be
incurred pursuant to the covenant described under "--Certain Covenants
- --Limitations on Indebtedness" above in exchange for, or out of the Net Cash
Proceeds of, a substantially concurrent issue and sale (other than to a
Subsidiary of the Company) of new Indebtedness to the Company (such a
transaction, a "refinancing"); provided, that any such new Indebtedness of the
Company (i) shall be in a principal amount that does not exceed an amount equal
to the sum of (A) the principal amount of the Junior Indebtedness so refinanced
less any discount from the face amount of such Junior Indebtedness to be
refinanced expected to be deducted from the amount payable to the holders of
such Junior Indebtedness in connection with such refinancing, (B) the amount of
any premium expected to be paid in connection with such refinancing pursuant to
the terms of any Junior Indebtedness of the Company which may be incurred
pursuant to the covenant described above under "--Certain Covenants
- --Limitations on Indebtedness" refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such refinancing
by means of a tender offer, privately negotiated repurchase or otherwise and (C)
the amount of legal, accounting, printing and other similar expenses of the
Company incurred in connection with such refinancing; provided, further, that
for purposes of this clause (i), the principal amount of any Indebtedness shall
be deemed to mean the principal amount thereof or, if such Indebtedness provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, such lesser amount as of the date of
determination; (ii) each Stated Maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund payments) of such new
Indebtedness shall be after the final Stated Maturity of principal of the Senior
Notes then outstanding; and (iii) is made expressly subordinated to the Senior
Notes to substantially the same extent as the Junior Indebtedness being
refinanced or expressly subordinate to such refinanced Indebtedness.
"Person" means any natural person, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Qualified Capital Stock" of any Person means any and all Capital Stock
of such Person other than Disqualified Capital Stock.
"Regulatory Capital Requirements" means (i) the minimum amount of
capital required to meet each of the industry-wide regulatory capital
requirements applicable to the Banks pursuant to 12 U.S.C. Section 1464(t) and
12 C.F.R. Part 567 (and any amendment to either thereof) or any successor law or
regulation, and (ii) such higher amount of capital as the Banks, individually,
are required to maintain in order to meet any individual minimum capital
standard applicable to the Banks pursuant to 12 U.S.C. Section 1464(s) and 12
C.F.R. Section 567.3 (and any amendment to either thereof) or any successor law
or regulation.
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"Restricted Payment" means:
(a) the declaration, payment or setting apart of any funds for the
payment of any dividend on, or making of any distribution to holders of, the
Capital Stock of the Company or any Subsidiary of the Company (other than (i)
dividends or distributions in Qualified Capital Stock of the Company and, and
(ii) dividends or distributions payable on or in respect of any class or series
of Capital Stock of a Subsidiary of the Company as long as the Company receives
at least its pro rata share of such dividends or distributions in accordance
with its ownership interests in such class or series of Capital Stock);
(b) the purchase, redemption or other acquisition or retirement for
value, directly or indirectly, of any Capital Stock of the Company or any
Affiliate of the Company (other than a Wholly Owned Subsidiary); or
(c) the making of any principal payments on, or repurchase, redemption,
defeasance, retirement or other acquisition for value, directly or indirectly,
of any Junior Indebtedness, prior to the Stated Maturity of principal or
scheduled redemption or defeasance of, or any scheduled sinking fund payment on,
such Junior Indebtedness.
"Stated Maturity" when used with respect to any Senior Note or any
installment of interest thereon means the date specified in such Senior Note as
the fixed date on which the principal of such Senior Note or such installment of
interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having ordinary voting power to elect a majority of the
directors of such corporation, irrespective of whether or not at the time stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency, is at the time
directly or indirectly owned by the Company, by one or more Subsidiaries of the
Company, or by the Company and one or more Subsidiaries.
"Voting Stock" means Capital Stock of any class or classes, however
designated, having ordinary voting power for the election of a majority of the
board of directors, other than stock having such power only by reason of the
occurrence of a contingency.
"Wholly Owned Subsidiary" means a Subsidiary of which all of the
outstanding Capital Stock (other than directors' qualifying shares) is at the
time directly or indirectly owned by the Company, or by one or more Wholly Owned
Subsidiaries or by the Company and one or more Wholly Owned Subsidiaries.
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DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 30,000,000 shares of capital stock,
of which 25,000,000 are shares of Common Stock, par value $.01 per share, and
5,000,000 are shares of preferred stock, par value $.01 per share. An aggregate
of 19,700,000 shares of Common Stock are outstanding and no shares of preferred
stock are outstanding. Each share of Common Stock has the same relative rights
as, and is identical in all respects with, each other share of Common Stock. The
Common Stock is not subject to call for redemption.
The capital stock of the Company does not represent nonwithdrawable
capital, is not an account of an insurable type, and is not insured by the FDIC.
Common Stock
Dividends. Although there are no present plans to do so, the Company
can pay dividends if, as and when declared by its Board of Directors, subject to
compliance with limitations which are imposed by law. See "Dividends and Market
for Common Stock" and "Regulation--Regulation of Federal Savings
Institutions--Capital Distribution Regulation." The holders of Common Stock of
the Company are entitled to receive and share equally in such dividends as may
be declared by the Board of Directors of the Company out of funds legally
available therefor. If the Company issues preferred stock, the holders thereof
may have a priority over the holders of the Common Stock with respect to
dividends.
Voting Rights. The holders of Common Stock of the Company possess
exclusive voting rights in the Company. They elect the Company's Board of
Directors and act on such other matters as are required to be presented to them
under Delaware law or the Company's Certificate of Incorporation or as are
otherwise presented to them by the Board of Directors. Each holder of Common
Stock is entitled to one vote per share and does not have any right to cumulate
votes in the election of directors. Although there are no present plans to do
so, if the Company issues preferred stock, holders of the preferred stock may
also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Banks, the Company, as the sole holder of the Banks' capital stock, would
be entitled to receive, after payment or provision for payment of all debts and
liabilities of the Banks (including all deposit accounts and accrued interest
thereon), all assets of the Banks available for distribution. In the event of
any liquidation, dissolution or winding up of the Company, the holders of its
Common Stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, including the Senior Notes, all of the
assets of the Company available for distribution. If preferred stock is issued,
the holders thereof may have a priority over the holders of the Common Stock in
the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company generally
are not entitled to preemptive rights with respect to any shares which may be
issued in the future. However, pursuant to the terms of the Purchase Agreement,
the Company has agreed not to issue any capital securities or permit the Banks
to issue any capital securities to any person without first offering to
purchasers of the Common Stock in the Private Placement who continue to hold
such Common Stock the opportunity to purchase all or part of such capital
securities being issued at the same purchase price and on the same terms as are
proposed to be offered to such third party purchaser. This right does not apply
to the issuance of capital securities pursuant to or in connection with (i) a
reorganization, merger or consolidation of the Company or the Banks or a sale,
disposition or other transfer of all or substantially all of the assets of the
Company or the
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Banks, (ii) any conversion or exchange of any capital securities in accordance
with the terms of such securities, (iii) any employee benefit plans of the
Company, (iv) any stock dividends, or pro rata (as to any class) split-ups,
combinations or exchanges of or similar transactions involving capital
securities, (v) any bona fide public offering of capital securities which is
registered under the Securities Act, and (vi) any issuance of capital securities
to Edward A. Townsend or Jan A. Norton pursuant to the acquisition by the
Company of Green Country.
Preferred Stock
None of the shares of the Company's authorized preferred stock has been
issued. The Board of Directors of the Company is authorized to issue preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and
restrictions thereof. The preferred stock may be issued in distinctly designated
series, may be convertible into Common Stock and may rank prior to the Common
Stock as to dividend rights, liquidation preferences, or both.
The authorized but unissued shares of preferred stock (as well as the
authorized but unissued and unreserved shares of Common Stock) are available for
issuance in future mergers or acquisitions, in a future public offering or
private placement or for other general corporate purposes. Except as otherwise
required to approve the transaction in which the additional authorized shares of
preferred stock would be issued, stockholder approval generally would not be
required for the issuance of these shares. Depending on the circumstances,
however, stockholder approval may be required pursuant to the requirements for
listing the Common Stock on the Nasdaq Stock Market or any exchange on which the
Common Stock may then be listed, if any.
Restrictions on Acquisition of the Company
Restrictions in the Company's Certificate of Incorporation and Bylaws.
A number of provisions of the Company's Certificate of Incorporation, as amended
("Certificate of Incorporation"), and Bylaws ("Bylaws") deal with matters of
corporate governance and certain rights of stockholders. The following
discussion is a general summary of certain provisions of the Company's
Certificate of Incorporation and Bylaws which might be deemed to have a
potential "anti-takeover" effect. Reference should be made in each case to such
Certificate of Incorporation and Bylaws. See "Additional Information."
Board of Directors. Article 6 of the Certificate of Incorporation and
Article III of the Bylaws of the Company contain provisions relating to the
Board of Directors and provides, among other things, that the Board of Directors
shall be divided into three classes as nearly equal in number as possible with
the term of office of one class expiring each year. See "Management." Cumulative
voting in the election of directors is prohibited by Article 4 of the
Certificate of Incorporation. Directors may be removed only with cause at a duly
constituted meeting of stockholders called expressly for that purpose. Any
vacancy occurring in the Board of Directors for any reason (including an
increase in the number of authorized directors) may be filled by the concurring
vote of a majority of the Directors then in office, though less than a quorum of
the Board, and a director appointed to fill a vacancy shall serve for the
remainder of the term to which the director has been elected, and until his
successor has been elected and qualified.
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The Bylaws govern nominations for election to the Board, and provide
that nominations for election to the Board of Directors may be made at a meeting
of stockholders by or at the direction of the Board of Directors or by any
stockholder eligible to vote at an annual meeting of stockholders who has
complied with specified notice requirements. Written notice of a stockholder
nomination must be delivered to, or mailed to and received at, the Company's
principal executive offices not less than forty-five days or more than ninety
days prior to the meeting. In the event that less than sixty days' notice of the
date of the meeting is given to stockholders or prior public disclosure of the
date of the meeting is made, notice by the stockholder to be timely must be so
received not later than the close of business on the 15th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made.
Limitation of Liability. The Company's Certificate of Incorporation
provides that a director of the Company shall not be personally liable for
monetary damages for any breach of fiduciary duty by such director as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law ("DGCL")
for approval of an unlawful dividend or an unlawful stock purchase or
redemption, or (iv) for any transaction from which the director derived an
improper personal benefit.
Indemnification of Directors, Officers, Employees and Agents. The
Company's Bylaws provide that the Company shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, except actions by or in right of the
Company, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was a director, officer, employee or agent of
the Company against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. The Company's Bylaws also provide that reasonable expenses incurred by
a director, officer, employee or agent of the Company in defending any civil,
criminal, suit or proceeding described above shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding to the
fullest extent permitted under Delaware law.
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Special Meetings of Stockholders and Stockholder Proposals. The
Company's Certificate of Incorporation provides that special meetings of the
Company's stockholders, for any purpose or purposes, may be called by the
Chairman of the Board, the President, the affirmative vote of a majority of the
Board of Directors then in office at a duly constituted meeting of the Board of
Directors of the Company called for such purpose, or by the President of the
Company upon written request of the holders of at least a majority of the shares
of any class of capital stock then outstanding. The Company's Bylaws provide
that only such business as shall have been properly brought before an annual
meeting of stockholders shall be conducted at the annual meeting. In order to be
properly brought before an annual meeting, business must be (a) specified in the
notice given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For stockholder proposals to be included in the Company's proxy
materials, the stockholder must comply with all the timing and informational
requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended
("Exchange Act"). With respect to stockholder proposals to be considered at the
annual meeting of stockholders but not included in the Company's proxy
materials, the stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Company not less than 45 days or more
than 90 days prior to the meeting. In the event that less than 60 days' notice
of the date of the meeting is given to stockholders or prior public disclosure
of the date of the meeting is made, notice by the stockholder to be timely must
be so received not later than the close of business on the 15th day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made.
Amendment of Certificate of Incorporation and Bylaws. The Company's
Certificate of Incorporation generally provides that any amendment of the
Certificate of Incorporation must be first approved by a majority of the Board
of Directors and, to the extent required by law, then by the holders of a
majority of the shares of the Company entitled to vote in an election of
directors. The Company's Bylaws may be amended either by a vote of at least
two-thirds of the Board of Directors then in office or by the vote of at least a
majority of the shares eligible to be voted at a duly constituted meeting of
stockholders for such purpose.
Other Restrictions on Acquisition of the Company. Several provisions of
the DGCL could affect the acquisition of Common Stock or control of the Company.
Section 203 of the DGCL generally provides that a Delaware corporation shall not
engage in any "business combination" with an "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder unless (1) prior to such date the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; or (2)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for this purpose, shares owned by persons who are directors
and also officers and shares owned by employee stock ownership plans in which
employee participants do not have the right to determine confidentially whether
the shares held subject to the plan will be tendered in a tender offer or
exchange offer; or (3) on or subsequent to such date, the business combination
is approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. The
three-year prohibition on business combinations with an interested stockholder
does not apply under certain circumstances, including business combinations with
a corporation which does not have a class of voting stock that is (i) listed on
a national securities exchange, (ii) authorized for quotation on an inter-dealer
quotation system of a registered national securities association, or (iii) held
of record by more than 2,000 stockholders, unless in each case this result was
directly or indirectly caused by the interested stockholder.
129
<PAGE>
An "interested stockholder" generally means any person that (i) is the
owner of 15% of more of the outstanding voting stock of the corporation or (ii)
is an affiliate or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder; and the affiliates
and associates of such a person. The term "business combination" is broadly
defined to include a wide variety of transactions, including mergers,
consolidations, sales of 10% or more of a corporation's assets and various other
transactions which may benefit an interested stockholder.
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings association unless the OTS has been given 60 days'
prior written notice. The HOLA provides that no company may acquire "control" of
a savings association without the prior approval of the OTS. Any company that
acquires such control becomes a savings and loan holding company subject to
registration, examination and regulation by the OTS. See "Regulation--Regulation
of Savings and Loan Holding Companies--Holding Company Acquisitions."
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company, New York, New York.
REGISTRATION RIGHTS
In connection with the Private Placement, the Company on September 8,
1997 entered into the Registration Rights Agreement with the initial purchasers
of the Local Securities and with FBR, the Placement Agent in the Private
Placement, pursuant to which the Company agreed to (i) cause to be filed with
the Commission within 120 days after the original issuance of the Local
Securities pursuant to the Purchase Agreement, a shelf registration statement
providing for the offer and sale of the Local Securities issued in the Private
Placement, including Common Stock which is issuable pursuant to the exercise of
warrants granted to the Placement Agent, (ii) use its best efforts to cause the
shelf registration statement to be declared effective under the Securities Act
as promptly as possible and (iii) use its best efforts to keep effective the
shelf registration statement until the earlier of the second anniversary of the
date such shelf registration statement is declared effective by the Commission
or such time as all of the Local Securities and the Placement Agent's warrants
have been sold thereunder or otherwise may be sold without the need for the
shelf registration statement, as set forth in the Registration Rights Agreement.
In addition, pursuant to the Merger Agreement with Green Country, the Company
has agreed to register under the Securities Act the Common Stock to be issued in
connection with the Merger pursuant to the same terms and conditions as are set
forth in the Registration Rights Agreement. The Company agreed to bear the
expenses arising out of the filing of such shelf registration statement. The
Registration Statement of which this Prospectus forms a part has been filed to
satisfy the Company's obligations under the Registration Rights Agreement and
the Merger Agreement.
130
<PAGE>
Pursuant to the terms of the Registration Rights Agreement, a holder of
Local Securities and the Placement Agent desiring to sell some or all of such
securities pursuant to the shelf registration statement shall give the Company
not less than five days' prior written notice, and the Company will use its best
efforts to promptly file any required amendment(s) to the shelf registration
statement in order to facilitate such sales. Initiating Holders, as defined in
the Registration Rights Agreement to mean one or more holders of either not less
than 35% in aggregate principal amount of Senior Notes or not less than 25% of
the then-outstanding Common Stock, may elect that the offering of Local
Securities be in the form of an underwritten offering. Under such circumstances,
the Company will provide written notice to all holders of the Local Securities
and the Placement Agent of such underwritten offering and will provide them with
an opportunity to participate in such underwritten offering, under terms and
with such conditions as set forth in the Registration Rights Agreement.
Under the Registration Rights Agreement, a holder that sells Local
Securities pursuant to the shelf registration statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a holder (including certain indemnification rights and
obligations). Each holder of Local Securities may be required to deliver
information to be used in connection with the shelf registration statement in
order to have such holder's Local Securities included in the shelf registration
statement and to benefit from the provisions of the succeeding paragraph.
Each of the Local Securities and the Placement Agent's warrants contain
a legend to the effect that the holder thereof, by its acceptance thereof, is
deemed to have agreed to be bound by the provisions of the Registration Rights
Agreement. In that regard, each holder is deemed to have agreed that, upon
receipt of notice from the Company of the occurrence of any event which makes a
statement in the prospectus which is part of the shelf registration statement
untrue in any material respect or which requires the making of any changes in
such prospectus in order to make the statements therein not misleading, such
holder will suspend the sale of Local Securities pursuant to such prospectus
until the Company has amended or supplemented such prospectus to correct such
misstatement or omission and has furnished copies of the amended or supplemented
prospectus to such holder or the Company has given notice that the sale of the
Local Securities may be resumed.
131
<PAGE>
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of Delaware. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement.
SELLING HOLDERS
The Local Securities were originally issued and sold by the Company in
the Private Placement in transactions exempt from the registration requirements
of the Securities Act, to persons reasonably believed by the Company to be
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) or other "accredited investors" (as defined in Rule 501(a) under the
Securities Act). The Local Securities expected to be issued to the Green Country
stockholders are also persons reasonably believed by the Company to be
"accredited investors." The Selling Holders (which term includes their
transferees, pledgees, donees or their successors) may from time to time offer
and sell pursuant to this Prospectus any or all of the Local Securities owned by
each of them.
The following table sets forth information with respect to the Selling
Holders named herein and the shares of Common Stock and/or Senior Notes
beneficially owned and offered hereby by such Selling Holders. Such information
has been obtained from such Selling Holders. Except as otherwise disclosed
herein, such Selling Holders do not have, or within the past three years have
not had, any position, office or other material relationship with the Company or
affiliates. Because such Selling Holders may offer all or some portion of the
Common Stock or Senior Notes pursuant to this Prospectus, no estimate can be
given as to the amount of the Common Stock or Senior Notes that will be held by
such Selling Holders upon termination of any such sales. In addition, the
Selling Holders identified below may have sold, transferred or otherwise
disposed of all or a portion of their Common Stock and/or Senior Notes since the
date on which it provided the information regarding their Common Stock and/or
Senior Notes in transactions exempt from the registration requirements of the
Securities Act. Finally, if required, additional Selling Holders may from time
to time be identified and information with respect to such Selling Holders be
provided in a Prospectus Supplement.
132
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Common Principal Amount of Senior
Stock Beneficially Owned and Notes Beneficially Owned and
Offered Hereby and Percentage Offered Hereby and Percentage
Name of Selling Holder Outstanding Outstanding
---------------------- ----------- -----------
<S> <C> <C>
</TABLE>
The Company has agreed to indemnify the Selling Holders against certain
liabilities arising out of any actual or alleged material misstatements or
omissions in the Registration Statement, other than liabilities arising from
information supplied by the Selling Holders for use in the Registration
Statement. Each Selling Holder, severally but not jointly, has agreed to
indemnify the Company against liabilities arising out of any actual or alleged
material misstatements or omissions in the Registration Statement insofar as
such misstatements or omissions were made in reliance upon written information
furnished to the Company by such Selling Holder expressly for use in the
Registration Statement.
PLAN OF DISTRIBUTION
The Local Securities offered hereby may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the Selling Holders
may from time to time offer the Local Securities to or through underwriters,
dealers or agents who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Holders or the purchasers
of Local Securities, for whom they may act as agents. The Selling Holders and
any underwriters, dealers or agents which participate in the distribution of
Local Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of Local Securities by them and any
discounts, commissions, concessions or other compensation received by any such
underwriter, dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
133
<PAGE>
The Local Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Local Securities may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities exchange or
quotation service on which the Local Securities may be listed or quoted at the
time of sale, (ii) in the over-the-counter market or (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market. At the time
a particular offering of the Local Securities is made, a Prospectus Supplement,
if required, will be distributed which will set forth the aggregate amount and
type of Local Securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, any discounts,
commissions and other terms constituting compensation from the Selling Holders
and any discounts, commissions or concessions allowed or reallowed or paid to
dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Local Securities will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Local Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Local Securities may not simultaneously
engage in market-making activities with respect to such securities for a
restricted period prior to the commencement of such distribution. In addition to
and without limiting the foregoing, each Selling Holder and any other person
participating in a distribution will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Rules 102, 103 and 104, which provisions may limit the timing of
purchases and sales of any of the securities by the Selling Holders or any such
other person. All of the foregoing may affect the marketability of the Local
Securities and brokers' and dealers' ability to engage in market-making
activities with respect to these securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Local Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company will indemnified by the
Selling Holders against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith.
134
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
There are currently 19,700,000 shares of Common Stock of the Company
outstanding. All shares of Common Stock sold in the Offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by affiliates of the Company, as that term is
defined in Rule 144 under the Securities Act, may generally only be resold in
compliance with applicable provisions of Rule 144.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least one year is entitled to sell, within any three-month period,
a number of such shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date of the notice
filed pursuant to Rule 144. Sales under Rule 144 are also subject to certain
manner of sale restrictions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is
deemed an "affiliate" of the Company must comply with Rule 144 in any sale of
shares of Common Stock not covered by a registration statement (except, in the
case of registered shares acquired by the affiliate on the open market, for the
holding period requirement). A person (or person whose shares are aggregated)
who is not deemed an "affiliate" of the Company and who has beneficially owned
restricted shares for at least two years is entitled to sell such shares under
Rule 144(k) without regard to the volume, notice and other limitations of Rule
144. In meeting the one and two year holding periods described above, a holder
of restricted shares can include the holding periods of a prior owner who was
not an affiliate.
The Company has reserved 1,420,370 shares for grants under its existing
Stock Option Plan. As of September 30, 1997, the Company had options outstanding
to purchase up to 1,116,005 shares of Common Stock. In December 1997, the
Company granted options to officers and directors to purchase up to an
additional 218,000 shares of Common Stock. See "Management--Stock Option Plan."
The Company intends to file a registration statement under the Securities Act to
register all shares of Common Stock issuable under such Stock Option Plan.
Shares covered by this registration statement will be eligible for sale in the
public market after the effective date of such registration statement.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
On October 8, 1997, pursuant to authorization of its Board of
Directors, the Company dismissed the firm of Arthur Andersen LLP as its auditors
and retained KPMG Peat Marwick LLP ("KPMG Peat Marwick"). Arthur Andersen's
report for each of the fiscal years ended June 30, 1997 did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to audit scope or accounting principles.
During the subsequent interim period immediately preceding the change
in accountants, there were no disagreements with Arthur Andersen LLP on any
matter of accounting principles or practice, financial statement disclosure, or
auditing scope or procedure, which if not resolved to the satisfaction of Arthur
Andersen LLP would have caused them to make reference to the subject matter of
the disagreement in connection with their reports on the Company's financial
statements. During the subsequent interim period immediately preceding the
change in accountants, there were no reportable events (as that term is used in
Regulation S-K, Item 304(a)(1)(v)(A) through (D) of the Exchange Act.
135
<PAGE>
CERTAIN LEGAL MATTERS
The validity of the Local Securities offered hereby will be passed upon
for the Company by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C.
Certain members of Elias, Matz, Tiernan & Herrick L.L.P. beneficially own shares
of the Company's Common Stock and Senior Notes. The aggregate amount of such
holdings of Common Stock and Senior Notes do not exceed $432,000 and $25,000,
respectively.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part) on Form S-1 (the "Registration Statement")
under the Securities Act, with respect to the Local Securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information regarding the Company and the Local Securities offered
hereby, reference is made to the Registration Statement and the exhibits
thereto.
As a result of the Offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith, will
file reports and other information with the Commission. The Registration
Statement and the exhibits forming a part thereof filed by the Company with the
Commission, and reports and other information filed by the Company with the
Commission, can be inspected without charge at, and copies can be obtained from
the Commission, at prescribed rates, at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, 14th Floor, Suite 1400,
Chicago, Illinois 60661. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
136
<PAGE>
LOCAL FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants........................... F-1
Audited Consolidated Financial Statements:
Consolidated Statements of Financial Condition............. F-2
Consolidated Statements of Operations...................... F-3
Consolidated Statements of Stockholders' Equity............ F-4
Consolidated Statements of Cash Flows...................... F-5
Notes to Consolidated Financial Statements................. F-8
137
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Local Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of Local Financial Corporation and subsidiary (the Company), as of June 30, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Local Financial
Corporation and subsidiary as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
Oklahoma City, Oklahoma
August 27, 1997 (except with
respect to the matter discussed
in Note 2, as to which the date
is September 8, 1997)
F-1
<PAGE>
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
September 30, ---------------------------
ASSETS 1997 1997 1996
------ ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 22,650 $ 15,904 $ 13,640
Interest bearing deposits with other banks -- 89,500 --
Securities available for sale 885,233 985,565 1,741,725
Securities held to maturity -- 408,207 392,324
Equity securities available for sale -- -- 11,604
Loans receivable, net of allowance for loan losses
of $33,560 (unaudited) at September 30, 1997,
$11,435 at June 30, 1997, and $3,228 at
June 30, 1996 989,562 1,013,824 1,018,135
Federal Home Loan Bank of Topeka stock, at cost 44,238 40,046 23,421
Premises and equipment, net 10,829 11,060 11,035
Assets acquired through foreclosure and
repossession, net 1,602 8,399 10,582
Intangible assets, net 2,089 2,398 3,636
Deferred tax asset, net 33,715 16,976 24,439
Current income taxes receivable 30,340 13,568 6,281
Other assets 33,633 19,734 21,689
---------- --------- ----------
Total assets $2,053,891 $2,625,181 $3,278,511
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits-
Demand $ 239,719 $ 248,322 $ 238,511
Savings 70,924 71,576 73,726
Time 1,299,707 1,324,458 1,290,223
---------- ---------- ----------
Total deposits 1,610,350 1,644,356 1,602,460
Advances from borrowers for taxes and insurance 9,162 7,481 6,939
Securities sold under agreements to repurchase -- 310,801 1,079,194
Advances from the Federal Home Loan Bank of
Topeka 258,620 531,161 439,011
Senior notes 80,000 -- --
Note payable -- 7,010 14,020
Other liabilities 27,866 21,743 28,828
---------- --------- ------------
Total liabilities 1,985,998 2,522,552 3,170,452
---------- --------- ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares
authorized; 19,700,060 shares issued and
19,700,000 shares outstanding at
September 30, 1997; 2,000 shares authorized;
60 shares issued and outstanding at June 30,
1997 and 1996 197 -- --
Preferred stock, 0.01 par value, 5,000,000 shares
authorized; none outstanding -- -- --
Additional paid-in capital 197,753 16,896 8,797
Retained earnings 19,265 117,716 147,761
Treasury stock, 60 shares (149,436) -- --
Unrealized gains (losses) on securities
available for sale, net of income tax provision
(benefit) of $62 (unaudited), ($17,222) and
($26,114), respectively 114 (31,983) (48,499)
---------- --------- ------------
Total stockholders' equity 67,893 102,629 108,059
---------- --------- ------------
Total liabilities and stockholders' equity $2,053,891 $2,625,181 $ 3,278,511
========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
-------------------- -----------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 25,810 $ 26,985 $107,715 $ 95,839 $ 74,791
Securities available for sale 16,891 24,581 81,861 61,939 19,767
Securities held to maturity 3,193 6,226 27,363 72,822 114,284
Federal Home Loan Bank of
Topeka stock 768 998 3,658 3,220 3,719
Other investments 791 735 2,067 2,336 1,997
-------- -------- -------- -------- --------
Total interest and
dividend income 47,453 59,525 222,664 236,156 214,558
-------- -------- -------- -------- --------
Interest expense:
Deposit accounts 20,523 20,217 83,091 81,173 68,235
Advances from the Federal
Home Loan Bank of Topeka 11,893 18,452 57,442 58,309 55,747
Securities sold under
agreements to repurchase 2,073 7,244 28,202 46,400 36,503
Notes payable 692 282 1,026 1,606 2,105
-------- -------- -------- -------- --------
Total interest expense 35,181 46,195 169,761 187,488 162,590
-------- -------- -------- -------- --------
Net interest and dividend income 12,272 13,330 52,903 48,668 51,968
Provision for loan losses (25,353) (2,340) (28,428) (5,117) (1,157)
-------- -------- -------- -------- --------
Net interest and dividend income
(loss) after provision for loan
losses (13,081) 10,990 24,475 43,551 50,811
-------- -------- -------- -------- --------
Noninterest income:
Deposit related income 2,083 1,634 7,410 5,800 5,507
Loan fees and loan service
charges 561 700 2,730 2,197 2,010
Net gains (losses) on sale of
assets (125,485) 155 (29,183) 1,248 8,145
Other 244 351 1,919 1,071 970
-------- -------- -------- -------- --------
Total noninterest
income (loss) (122,597) 2,840 (17,124) 10,316 16,632
-------- -------- -------- -------- --------
Noninterest expense:
Compensation and employee
benefits 3,866 3,640 14,588 14,177 23,776
Deposit insurance premiums 263 11,223 12,470 3,617 3,535
Provision for uninsured risk - 300 3,300 1,372 5,728
Equipment and data processing 748 757 3,080 2,847 2,600
Occupancy 636 746 2,873 2,595 2,361
Advertising 129 461 1,556 1,131 1,310
Professional fees 408 194 1,152 825 970
Other 7,518 2,525 10,237 8,863 6,180
-------- -------- -------- -------- --------
Total noninterest
expense 13,568 19,846 49,256 35,427 46,460
-------- -------- -------- -------- --------
Income (loss) before provision
(benefit) for income taxes (149,246) (6,016) (41,905) 18,440 20,983
Provision (benefit) for income
taxes (50,795) (1,861) (11,860) 4,872 6,568
-------- -------- -------- -------- --------
Net income (loss) $(98,451) $ (4,155) $(30,045) $ 13,568 $ 14,415
======== ======== ======== ======== ========
Net earnings (loss) per share $ (5.00) $ (0.21) $ (1.53) $ 0.69 $ 0.73
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
Additional on Securities Total
Common Paid-in Retained Treasury Available for Stockholders'
Stock Capital Earnings Stock Sale, Net Equity
-------- ---------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 $ -- $ 8,797 $119,778 $ -- $(1,887) $ 126,688
Net income -- -- 14,415 -- -- 14,415
Net change in unrealized
gains on securities
available for sale, net of
income tax of $1,193 -- -- -- -- 2,116 2,116
------ -------- --------- --------- -------- ---------
Balance, June 30, 1995 -- 8,797 134,193 -- 229 143,219
Net income -- -- 13,568 -- -- 13,568
Unrealized losses on
securities transferred
from held to maturity to
available for sale, net
of income tax benefit
of $(5,832) -- -- -- -- (10,831) (10,831)
Net change in unrealized
losses on securities
available for sale,
net of income tax
benefit of $(20,406) -- -- -- -- (37,897) (37,897)
------ -------- --------- --------- -------- ---------
Balance, June 30, 1996 -- 8,797 147,761 -- (48,499) 108,059
Net loss -- -- (30,045) -- -- (30,045)
Net change in unrealized
gains on securities
available for sale, net of
income tax of $8,892 -- -- -- -- 16,516 16,516
Capital contribution
-- 8,099 -- -- -- 8,099
------ -------- --------- -------- -------- ---------
Balance, June 30, 1997 -- 16,896 117,716 -- (31,983) 102,629
------ -------- --------- --------- -------- ---------
Net loss -- -- (98,451) -- -- (98,451)
Net change in unrealized
gains on securities
available for sale, net of
income tax of $17,284 -- -- -- -- 32,097 32,097
Issuance of common stock 197 180,857 -- -- -- 181,054
Purchase of treasury stock -- -- -- (149,436) -- (149,436)
------ -------- --------- --------- -------- ---------
Balance, September 30, 1997,
(unaudited) $ 197 $197,753 $ 19,265 $(149,436) $ 114 $ 67,893
====== ======== ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
----------------------- -----------------------------------
1997 1996 1997 1996 1995
----------- --------- ----------- ---------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED (ABSORBED) BY OPERATING
ACTIVITIES:
Net income (loss) $ (98,451) $ (4,155) $ (30,045) $ 13,568 $ 14,415
Adjustments to reconcile net income
(loss) to net cash provided (absorbed)
by operating activities -
Provisions for loan losses and
uninsured risk and losses on assets
acquired through foreclosure and
repossession 25,377 2,653 31,804 6,673 6,821
Deferred income tax expense (benefit) (34,023) (413) (1,429) 1,961 (6,033)
Accretion of discounts on loans acquired (2,287) (1,042) (6,019) (4,281) (5,169)
Amortization of deferred (gains) losses
on interest rate swaps 806 76 73 (671) (11)
Net amortization (accretion) of
premium on securities available for sale 400 2,254 8,265 11,905 6,898
Net amortization (accretion) of premium
on securities held to maturity 97 1,329 2,090 -- --
Depreciation and amortization 766 664 2,688 2,450 2,392
Proceeds from the sales of loans 892 183 12,132 15,155 27,861
(Gain) loss on sale of assets 125,485 (155) 29,183 (1,248) (8,145)
Stock dividends received from Federal
Home Loan Bank stock (767) (999) (3,658) -- --
Change in other assets (20,119) (5,232) (5,332) (1,504) (7,341)
Change in other liabilities 6,123 1,295 (9,296) (3,013) 10,455
--------- --------- --------- --------- ---------
Net cash provided (absorbed) by
operating activities 4,299 (3,542) 30,456 40,995 42,143
--------- --------- --------- --------- ---------
CASH PROVIDED (ABSORBED) BY INVESTING
ACTIVITIES:
Proceeds from sales of securities
available for sale 521,802 -- 730,957 50,321 70,243
Proceeds from principal collections on
securities available for sale 7,713 19,408 13,245 80,977 113,845
Proceeds from principal collections on
securities held to maturity 28,054 -- 52,161 -- --
Purchases of securities available for sale -- -- -- (5,320) (17,715)
Purchases of securities held to maturity (74,440) -- (73,389) -- (15,058)
Purchases of interest rate caps -- -- -- (3,720) (4,935)
Payments on termination of interest rate
swap agreements (47,283) -- -- (3,344) --
Proceeds from termination of interest
rate swap agreements -- -- -- 3,637 --
Proceeds from sales of equity securities
available for sale -- -- 12,986 -- 5,017
Proceeds from sales of securities held to
maturity -- -- -- -- 19,995
Purchases of Federal Home Loan Bank
stock (3,425) (53,084) (80,850) (71,425) (7,564)
Proceeds from the sale of Federal Home
Loan Bank stock -- -- 67,883 83,400 61,105
Loans made by non-bank subsidiary (21) (20,627) (29,213) (133,914) (20,746)
Repayments of loans made by non-bank
subsidiary 10,474 20,818 49,755 39,411 1,964
</TABLE>
F-5
<PAGE>
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
------------------------- --------------------------------------
1997 1996 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Change in loans receivable, net $ (12,959) $ (19,746) $ (63,274) $ (142,412) $ (158,875)
Proceeds from disposal of assets
acquired through foreclosure and
repossession 3,493 8,341 18,257 5,806 2,516
Purchases of premises and equipment (115) (547) (1,480) (1,649) (622)
Proceeds from sales of premises and
equipment -- -- 9 72 230
----------- ----------- ----------- ----------- -----------
Net cash provided (absorbed) by
investing activities 433,293 (45,437) 697,074 (98,160) 49,400
----------- ----------- ----------- ----------- -----------
CASH PROVIDED (ABSORBED) BY FINANCING
ACTIVITIES:
Change in transaction accounts (9,255) 7,183 7,635 (20,256) (95,139)
Change in time deposits (24,751) (818) 34,261 44,894 198,790
Change in securities sold under
agreements to repurchase (312,774) (759,973) (770,223) 299,568 397,797
Proceeds from advances from the
Federal Home Loan Bank 1,090,699 4,454,084 9,978,290 4,679,967 1,399,513
Repayments of advances from the
Federal Home Loan Bank (1,365,993) (3,652,778) (9,886,271) (4,941,297) (1,983,677)
Proceeds from issuance of
common stock 181,054 -- -- -- --
Proceeds from issuance of
senior notes, net 75,439 -- -- -- --
Repayments of note payable (7,010) -- -- (7,010) (7,010)
Purchase of treasury stock (149,436) -- -- -- --
Change in advances by borrowers for
taxes and insurance 1,681 2,373 542 442 1,002
----------- ----------- ----------- ----------- -----------
Net cash provided (absorbed) by
financing activities (520,346) 50,071 (635,766) 56,308 (88,724)
----------- ----------- ----------- ----------- -----------
Net change in cash and cash equivalents (82,754) 1,092 91,764 (857) 2,819
Cash and cash equivalents at beginning
of period 105,404 13,640 13,640 14,497 11,678
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 22,650 $ 14,732 $ 105,404 $ 13,640 $ 14,497
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 37,627 $ 55,538 $ 173,920 $ 186,052 $ 169,313
=========== =========== =========== =========== ===========
Income taxes $ -- $ -- $ -- $ 9,250 $ 14,000
=========== =========== =========== =========== ===========
Supplemental schedule of noncash investing
and financing activities:
Loans made to facilitate the sale of
assets acquired through foreclosure
and repossession $ -- $ -- $ 79 $ 592 $ 652
=========== =========== ========== =========== ===========
Transfers of loans to assets acquired
through foreclosure and repossession $ 2,765 $ 8,610 $ 16,000 $ 8,137 $ 1,204
=========== =========== ========== =========== ===========
Transfer of loans to mortgage-backed
certificates available for sale $ -- $ -- $ -- $ -- $ 60,824
=========== =========== ========== =========== ===========
</TABLE>
F-6
<PAGE>
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Transfer of investments from held to
maturity to available for sale at
estimated market value
(amortized cost of $454,496 for
the three months ended September 30,
1997 and $1,500,793 for the year
ended June 30, 1996) $ 448,180 $ -- $ -- $ 1,484,130 $ --
=========== =========== ========== =========== ===========
Repayment of note payable and
accrued interest by shareholders $ -- $ -- $ 8,099 $ -- $ --
=========== =========== ========== =========== ===========
Transfer of assets acquired through
foreclosure and repossession to
other assets $ 6,045 $ -- $ -- $ -- $ --
=========== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
LOCAL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED), JUNE 30, 1997 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Local Financial Corporation ("Local Financial") is a thrift holding company
which owns 100% of the outstanding common stock of Local Federal Bank, a Federal
Savings Bank ("Local"). The accounting and reporting practices of the Company
reflect industry practices and are in accordance with generally accepted
accounting principles. The consolidated financial statements for the three
months ended September 30, 1997 and 1996 are unaudited and, in the opinion of
management, include all adjustments necessary (which consist of only normal
recurring adjustments) for a fair presentation of the financial position,
results of operations and cash flows for the interim periods. The financial
information and results of operations of the interim periods are not necessarily
indicative of the financial position and results of operations that may be
obtained for a full fiscal year. The more significant policies are described
below.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Local
Financial, and its wholly owned subsidiary, Local, as well as Local's
subsidiaries, Local America Bank of Tulsa, a Federal Savings Bank ("LAB"), Local
Acceptance Company ("Local Acceptance"), Star Financial Services Corporation
("Star Financial"), Local Mortgage Corporation ("Local Mortgage"), Oklahoma
Financial Services Corporation, and Star Properties, Incorporated ("Star
Properties"). Local and LAB are insured depository institutions which obtain
deposit funds primarily through retail branches throughout the State of Oklahoma
and lend those funds throughout the United States. Local Acceptance's and Star
Financial's principal activities are originating auto loan contracts through
dealerships in Florida and Oklahoma, respectively. Local Mortgage's principal
activity is originating commercial real estate loans. Oklahoma Financial
Services Corporation has an ownership interest in a credit life insurance
company through which Local writes credit life insurance. Star Properties'
principal activities are the ownership and leasing of certain office properties
and related equipment to Local. Local Financial and its subsidiary, Local, are
collectively referred to as the Company. All significant intercompany accounts
and transactions have been eliminated in the accompanying consolidated financial
statements.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions. Those estimates and assumptions relate
principally to the determination of the allowance for loan losses, income taxes,
the valuation of assets acquired through foreclosure and repossession and the
fair value of financial instruments. Actual results could differ from those
estimates. The accounting policies for these items and other significant
accounting policies are presented below. Certain reclassifications to 1996 and
1995 balances have been made to provide consistent financial statement
classifications in the periods presented herein. Such reclassifications had no
effect on net income and no material effect on total assets.
Statements of Cash Flows
For the purpose of the consolidated statements of cash flows, the Company
defines cash and cash equivalents as cash and due from banks and interest
bearing deposits with other banks.
F-8
<PAGE>
Debt and Equity Securities
Federal regulations require the Company to maintain average monthly liquid
assets, primarily cash and U. S. Government and other approved securities, in an
amount at least equal to 5% of deposit accounts (net of loans on deposit
accounts) plus short-term borrowings. For the month ended September 30, 1997,
the Company's average liquidity totaled approximately 10% (unaudited). For the
year and month ended June 30, 1997, the Company's average liquidity totaled
approximately 5% and 8%, respectively.
The Company's debt and equity securities consist primarily of mortgage-backed
certificates and U. S. Government and agencies securities. Mortgage-backed
certificates consist of mortgage-backed pass-through certificates ("MBS") and
mortgage-derivative securities ("MDS") such as collateralized mortgage
obligations and real estate mortgage investment conduits. The Company does not
own any principal only, interest only or residual tranches of mortgage-backed
certificates. The Company classifies its debt and equity securities as held to
maturity, available for sale and held for trading, as applicable. The Company
did not hold any trading securities during the three months ended September 30,
1997 or the fiscal years ended June 30, 1997, 1996 and 1995.
Held to Maturity Securities
The Company has classified certain mortgage-backed securities and agencies
securities as held to maturity. Management has the positive intent and the
Company has the ability to hold to maturity these securities at June 30, 1997,
as part of its portfolio of long-term interest-earning assets (see Note 2 for
events occurring subsequent to June 30, 1997). Held to maturity securities are
carried at cost, adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized or accreted in the consolidated
statements of operations to approximate a level yield over the life of the
related security.
Available for Sale Securities
The Company has classified certain mortgage-backed securities and equity
securities as available for sale. At the time of purchase, the Company
classifies securities as available for sale when such securities may be sold at
a future date or if there are foreseeable circumstances under which the Company
would sell such securities prior to maturity.
Securities classified as available for sale are recorded at their estimated
market value. Changes in the estimated market value of securities available for
sale are included in stockholders' equity as unrealized gains or losses, net of
the related income tax effect. Unrealized losses on available for sale
securities, which are judged to be other than temporary, are charged to earnings
in the consolidated statements of operations (see Note 4). Gains and losses on
available for sale securities are computed on a specific identification basis.
Premiums and discounts are amortized or accreted in the consolidated statements
of operations to approximate a level yield over the life of the related
security.
Loans Receivable
Loans receivable are recorded at the contractual amounts owed by borrowers, less
deferred income, unearned interest, the allowance for loan losses, undisbursed
funds, and discounts on loans acquired or originated. Interest on loans is
credited to income as earned, to the extent deemed collectible. Discounts on
loans and unearned interest on consumer loans are accreted into interest income
to approximate a level yield over the contractual lives of the loans, adjusted
for actual prepayments.
Loans are placed on nonaccrual status when they become 90 days past due.
Previously accrued but uncollected interest on loans placed on nonaccrual status
is reversed unless determined to be fully collectible. Payments received on
F-9
<PAGE>
nonaccrual loans are generally applied to principal as they are received. Upon
full collection of the principal balance or determination that future collection
of principal is probable, interest income is recognized as received.
Provision and Allowance for Loan Losses
Each period the provision for loan losses in the consolidated statements of
operations results from the combination of a) an estimate by management of loan
losses that occurred during the current period and b) the ongoing adjustment of
prior estimates of losses occurring in prior periods.
To serve as a basis for making this provision each quarter, the Company
maintains an extensive credit risk monitoring process that considers several
factors including: current economic conditions affecting the Company's
customers, the payment performance of individual large loans and pools of
homogeneous small loans, portfolio seasoning, changes in collateral values, and
detailed reviews of specific large loan relationships. For large loans deemed to
be impaired due to an expectation that all contractual payments will probably
not be received, impairment is measured by comparing the Company's recorded
investment in the loan to the present value of expected cash flows discounted at
the loan's effective interest rate, the fair value of the collateral or the
loan's observable market price.
The provision for loan losses increases the allowance for loan losses, a
valuation account which is netted against loans on the consolidated statements
of financial condition. As the specific customer and amount of a loan loss is
confirmed by gathering additional information, taking collateral in full or
partial settlement of the loan, bankruptcy of the borrower, etc., the loan is
written down, reducing the allowance for loan losses. If, subsequent to a
writedown, the Company is able to collect additional amounts from the customer
or obtain control of collateral worth more than previously estimated, a recovery
is recorded, thus increasing the allowance for loan losses.
Loan Origination Fees, Loan Commitment Fees and Related Costs
The Company defers loan origination fees, loan commitment fees and the
incremental direct costs (principally compensation and benefits relating to
successful underwriting efforts) relative to loans originated. These deferred
fees and costs are amortized into interest income to approximate a level yield
over the life of the related loans, adjusted for actual prepayments. Other loan
fees such as loan servicing fees, late payment fees and prepayment penalties are
included as a component of noninterest income in the accompanying consolidated
statements of operations.
Loans Held for Sale and Gains and Losses from the Sale of Loans
Loans originated and intended for sale are carried at the lower of cost or
estimated market value in the aggregate. Net unrealized losses are recognized
through a valuation allowance by charges to income. There were no loans other
than student loans held for sale at June 30, 1997 and 1996. (See Note 5 for
events occurring subsequent to June 30, 1997.)
Gains and losses resulting from the sale of loans are determined by the specific
identification method and reflect the extent that sales proceeds exceed or are
less than the carrying value of the loans sold. In some cases, the Company sells
loans and continues to service such loans for the investor. In these cases, the
Company recognizes either a servicing asset, at its allocated previous carrying
amount based on relative fair value, or a servicing liability at fair value. Any
servicing assets recognized as part of the sale are amortized as a deduction
from servicing income in proportion to and over the period of estimated net
servicing income. To the extent sales of loans involve the sale of part of a
loan or a pool of loans, the cost basis is allocated based upon the relative
fair value of the portion sold and the portion retained. Impairment of servicing
assets is assessed based on the fair value of those assets. Fair values are
estimated using discounted cash flows based on a current market interest rate.
At September 30, 1997, June 30, 1997 and June 30, 1996, the carrying value of
servicing assets was not impaired.
F-10
<PAGE>
Loan Servicing
Loans serviced by the Company for others are primarily the result of the Company
selling loans while retaining the servicing of those loans. These loans are not
included with loans receivable or any other asset in the accompanying
consolidated statements of financial condition. Fees earned for servicing loans
owned by investors are reported as income when the related loan payments are
collected. Loan servicing costs are charged to expense as incurred. Loans
serviced for others totaled approximately $136,530,000 (unaudited), $144,498,000
and $178,836,000 at September 30, 1997, June 30, 1997 and June 30, 1996,
respectively. Servicing fees earned totaled approximately $521,000, $581,000 and
$821,000 for the years ended June 30, 1997, 1996, and 1995, respectively, and
are included as a component of loan fees and loan service charges in the
accompanying consolidated statements of operations.
Premises and Equipment
Buildings, building improvements, furniture, fixtures and equipment are stated
at cost, less accumulated depreciation and amortization. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the related assets. Estimated lives range from 25 to 30 years
for buildings and building improvements and 3 to 10 years for furniture,
fixtures and equipment.
Maintenance and repairs are charged to expense as incurred and building
improvements are capitalized. The costs and accumulated depreciation relating to
premises and equipment retired or otherwise disposed of are eliminated from the
accounts and any resulting gains or losses are credited or charged to income.
Assets Acquired Through Foreclosure and Repossession
Assets acquired through foreclosure and repossession are recorded at estimated
fair value, net of estimated selling costs at the date of foreclosure or
repossession. The values of assets acquired through foreclosure and repossession
are monitored by the Company continually through sales and rental activities,
and by updated appraisals and other valuation methods when needed. The allowance
for losses on assets acquired through foreclosure and repossession is an amount
which management believes will be adequate to absorb losses from the disposition
and/or revaluation of these assets. Additions or reversals of the allowance for
losses on assets acquired through foreclosure and repossession are provided as
an expense or a benefit, respectively, through the provisions for uninsured
risks and losses on assets acquired through foreclosure and repossession in the
accompanying consolidated statements of operations. The allowance for losses is
charged or reduced as losses through sales or revaluations are incurred.
Debt Issuance Costs
Debt issuance costs of approximately $4,507,000 (unaudited) at September 30,
1997, were capitalized and are included in other assets in the consolidated
statements of financial condition. Debt issuance costs are amortized over the
life of the senior notes as a yield adjustment to notes payable interest expense
in the consolidated statements of operations.
Intangible Assets
Intangible assets consist of core deposit premiums paid in the acquisitions of
other depository institutions. These premiums are capitalized and amortized over
the expected lives of the core deposits, estimated to be eight to ten years,
using the straight-line method. Amortization expense totaled approximately
$1,238,000 for each of the years ended June 30, 1997, 1996 and 1995. Accumulated
amortization of core deposit premiums at June 30, 1997 and 1996, totaled
approximately $8,920,000 and $7,682,000, respectively.
F-11
<PAGE>
Interest Rate Swap, Cap and Floor Agreements
Interest rate swap, cap and floor agreements are entered into as a hedge to
stabilize the Company's funding cost and to stabilize the Company's yield on
floating rate debt securities, and as part of the Company's overall
asset/liability management program. The most frequently used derivative products
are various types of interest rate swaps. However, interest rate caps and floors
are also utilized. These derivatives are typically classified as either hedges
or synthetic alterations. The criteria that must be satisfied for each of these
classifications are as follows: (i) Hedge - the asset or liability to be hedged
exposes the Company, as a whole, to interest rate risk; (ii) Synthetic
alteration - the asset or liability converted exposes the Company, as a whole,
to interest rate risk and the derivative is designed and effective as a
synthetic alteration of a statement of financial condition item. Net interest
income or expense from the interest rate swap, cap and floor agreements is
recorded as an adjustment to the interest income/expense of the hedged
asset/liability, respectively. Premiums paid for caps and floors are amortized
over their contractual lives using the straight-line method. When interest rate
swap agreements are sold or settled without the simultaneous disposition of a
hedged item, any gain or loss is deferred and amortized into interest income or
expense over the remaining term of the swap agreement or until disposition of
the hedged item. As the assets or liabilities being hedged are sold or
liquidated, a proportionate amount of the deferred gain or loss and unamortized
premiums is also recognized. Deferred gains or losses and unamortized premiums
are reflected as an adjustment to the carrying value of the hedged item in the
accompanying consolidated statements of financial condition.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Net Earnings (Loss) Per Share
Net earnings (loss) per share is based upon the weighted average number of
shares outstanding during the period. Stock options and warrants to purchase
common stock are regarded as common stock equivalents and are therefore
considered in earnings per share calculations if dilutive. Common stock
equivalents are computed using the treasury stock method. As a result of the
recapitalization discussed in Note 2, the weighted average number of shares used
in the computation of earnings (loss) per share is 19,700,000 for all periods
presented.
Stock Compensation
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plan. Accordingly, no compensation cost has been recognized
for its stock option rights. Stock option rights were granted in September 1997;
thus, the difference between compensation expense for the three months ended
September 30, 1997 under APB Opinion 25 and the compensation expense if the
Company had used Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-based Compensation," is zero.
New Accounting Pronouncements
SFAS No. 122, "Accounting for Mortgage Servicing Rights," requires that a
banking enterprise recognize, as separate assets, rights to service mortgage
loans for others, regardless of how those servicing rights are acquired. This
statement was adopted for fiscal 1997 and had no material impact on the Company.
F-12
<PAGE>
During 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Under this statement, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
which are sales from transfers that are secured borrowings. This statement is
effective for transactions entered into after December 31, 1996. There was not a
material adverse impact on the consolidated financial position or the results of
operations of the Company due to the adoption of this new accounting
pronouncement.
During 1997, the FASB issued SFAS No. 128, "Earnings per Share." This statement
establishes standards for computing and presenting earnings per share. This
statement is required to be adopted by the Company in its June 30, 1998
financial statements, and earlier adoption is not permitted. At the time of
adoption, all previously reported financial statements will be restated to
report earnings per share as calculated under SFAS No. 128. Management does not
anticipate that this statement will have a material impact on the consolidated
financial position of the future results of the Company, or the net earnings
(loss) per share as reported herein.
The FASB has also issued SFAS No. 130, "Reporting Comprehensive Income." This
statement is required to be adopted by the Company in fiscal 1999. Management
does not anticipate this statement to have a material adverse impact on the
consolidated financial position or the future results of operations of the
Company.
2. CHANGE IN OWNERSHIP AND MANAGEMENT SUBSEQUENT TO JUNE 30, 1997:
On September 8, 1997, the Company completed a securities offering in which,
after increasing the number of authorized shares from 2,000 to 25,000,000,
19,700,000 shares of common stock totaling $197,000,000 and $80,000,000 of 11%
Senior Notes were issued to individual investors. Of the total net proceeds
received in the offering ($257,300,000), $7,200,000 was used to repay the note
payable and associated accrued interest to Isabel Collier Read (see Note 11) and
approximately $154,000,000 was used to redeem all of the previously issued and
outstanding shares of the Company's common stock. The redemption amount is
subject to adjustment under terms set forth in the Redemption Agreement, as
defined. Subsequent to September 8, 1997, adjustments totaling $5,000,000 were
assessed against shareholders and were reflected as a reduction to the cost of
treasury stock with a corresponding receivable from the Selling Shareholders of
approximately $5,000,000 recorded in other assets in the consolidated statements
of financial condition. The remainder of the proceeds was used to make capital
contributions to Local of approximately $83,839,000, as well as establish an
interest reserve account for the Senior Notes of approximately $8,800,000 and an
other reserve account of approximately $3,000,000.
In connection with the securities offering and redemption, the existing board of
directors resigned and a new board of directors was appointed. In addition, a
new chief executive officer and a new president of the Company were appointed.
Prior to the securities offering and change in management, the Company's
strategy had been to operate a low cost institution structured around the
following areas: (i) a nationally diversified wholesale commercial real estate
mortgage portfolio; (ii) a retail deposit franchise within Oklahoma operated on
a low-overhead basis delivering a traditional set of thrift products and
services, including conforming single-family residential home loans, equity,
student guaranteed, direct automobile and installment loans through its branch
network; (iii) a wholesale securities portfolio involving derivative mortgage
securities funded both by retail, as well as, wholesale funding through advances
from the Federal Home Loan Bank of Topeka ("FHLB") and securities sold under
agreements to repurchase; and (iv) origination of indirect subprime automobile
finance contracts through dealerships in Oklahoma and Florida (originations
ceased in fiscal 1997). New management has indicated that, among other things,
they intend to (i) cease the wholesale securities strategy previously employed
by the Company and cause the Company to sell all or a substantial portion of its
derivative mortgage portfolio and (ii) utilize the proceeds to repay outstanding
advances from the FHLB and securities sold under agreements to repurchase, as
well as terminate and liquidate the Company's interest rate contracts associated
with the derivative mortgage portfolio and the advances from the FHLB and
securities sold under agreements to repurchase.
F-13
<PAGE>
At June 30, 1997, the carrying value of the Company's mortgaged-backed
securities and associated interest rate contracts (see Notes 4 and 18) totaled
approximately $1,393,772,000 with an estimated market value of $1,384,482,000.
The carrying value of the Company's advances from the FHLB and securities sold
under agreements to repurchase and associated interest rate contracts (see Notes
9, 10 and 18) totaled approximately $841,962,000 at June 30, 1997, with an
estimated market value of $884,059,000.
Since the events described above occurred subsequent to June 30, 1997, no
adjustments have been made to the accompanying June 30, 1997, consolidated
financial statements to reflect assets and liabilities at amounts that may
ultimately be recovered or settled by the Company as a result of changes in
operations or strategies intended by new management. All such adjustments have
been recorded in the unaudited consolidated statement of operations for the
three months ended September 30, 1997.
Effective with the securities offering and redemption, the board of directors
adopted a stock option plan. The stock option plan has 1,420,370 shares of
common stock authorized and the stock option plan will provide for the granting
of incentive stock options intended to comply with the requirements of Section
422 of the Internal Revenue Code as well as non-incentive or compensatory stock
options and stock appreciation rights. At September 8, 1997, incentive stock
options for 1,116,005 shares of common stock were granted to executive officers
of the Company at an exercise price of $10 per share. The stock options shall be
exercisable in three equal annual installments, commencing with the end of the
first twelve month period following the date the stock options were granted. The
stock options expire ten years from the dates the options first become
exercisable by the executive officers.
In connection with the securities offering, warrants to buy 591,000 shares of
common stock of the Company were issued to the placement agent. The warrants
will be exercisable for a five year period commencing upon the date of
consummation, September 8, 1997, at an exercise price of $10 per share.
The issuance of new shares of common stock and Senior Notes and redemption of
all previously issued common stock has been accounted for as a recapitalization
with no adjustments to the carrying amounts of assets and liabilities since none
of the new investors individually or in concert control the Company. Regulatory
approval of the change in ownership was not required as the Office of Thrift
Supervision (OTS) does not require regulatory approval unless an investor or
group of investors in concert own more than 9.9% of the voting common stock.
3. EQUITY SECURITIES:
A summary of equity securities available for sale as of June 30, 1996, is as
follows (in thousands):
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------ ---------- ---------- ---------
Student Loan Marketing
Association Preferred stock $12,679 $ -- $1,075 $11,604
======== ======= ====== =======
Proceeds from the sale of equity securities during 1997 were approximately
$12,986,000. Gross gains of $307,000 were realized in 1997. There were no sales
of equity securities in 1996. Proceeds from the sale of equity securities during
1995 were approximately $5,017,000. Gross gains of $228,000 were realized in
1995.
F-14
<PAGE>
4. SECURITIES:
A comparative summary of securities available for sale is as follows (in
thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 1997 (unaudited):
-------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency
securities $ 15,751 $ -- $ 50 $ 15,701
Collateralized mortgage
obligations -
FNMA 423,244 -- -- 423,244
FHLMC 312,710 -- -- 312,710
Private Issuer 21,433 -- -- 21,433
Mortgage-backed securities-
FHLMC 70,410 50 -- 70,460
Private Issuer 39,273 167 -- 39,440
FNMA 1,834 6 -- 1,840
GNMA 402 3 -- 405
---------- ---------- --------- ----------
$ 885,057 $ 226 $ 50 $ 885,233
========== ========== ========= ==========
June 30, 1997:
--------------
Collateralized mortgage obligations -
FNMA $ 506,249 $ -- $ 22,741 $ 483,508
FHLMC 496,695 -- 22,732 473,963
Mortgage-backed securities -
Private Issuer 28,798 -- 752 28,046
Interest rate caps and floors 3,051 -- 3,003 48
---------- ---------- --------- ----------
$1,034,793 $ -- $ 49,228 $ 985,565
========== ========== ========= ==========
June 30, 1996:
--------------
Collateralized mortgage obligations -
FHLMC $ 915,781 $ -- $ 30,845 $ 884,936
FNMA 844,549 -- 33,586 810,963
Mortgage-backed securities -
Private Issuer 42,190 -- 1,016 41,174
Interest rate caps and floors 12,742 -- 8,090 4,652
---------- ---------- --------- ----------
$1,815,262 $ -- $ 73,537 $1,741,725
========== ========== ========= ==========
</TABLE>
F-15
<PAGE>
A comparative summary of securities held to maturity at June 30 is as follows
(in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- --------- ---------- ---------
June 30, 1997:
--------------
<S> <C> <C> <C> <C>
U.S. Government and agency
securities $ 74,119 $ 100 $ -- $ 74,219
Collateralized mortgage obligations -
FNMA 77,759 -- 3,314 74,445
FHLMC 53,077 -- 2,733 50,344
Private Issuer 24,502 -- 640 23,862
Mortgage-backed securities -
FHLMC 153,838 10 2,268 151,580
Private Issuer 14,172 5 234 13,943
FNMA 10,311 62 266 10,107
GNMA 429 -- 12 417
-------- ----- ------- --------
$408,207 $ 177 $ 9,467 $398,917
======== ===== ======= ========
June 30, 1996:
--------------
Collateralized mortgage obligations -
FNMA $ 77,794 $ -- $ 3,244 $ 74,550
FHLMC 53,082 -- 1,643 51,439
Private Issuer 31,950 -- 1,105 30,845
Mortgage-backed securities -
FHLMC 194,924 -- 6,367 188,557
Private Issuer 21,563 95 696 20,962
FNMA 12,507 74 418 12,163
GNMA 504 -- 16 488
-------- ----- ------- --------
$392,324 $ 169 $13,489 $379,004
======== ===== ======= ========
</TABLE>
During the period following June 30, 1997, and prior to the change in ownership
of the Company on September 8, 1997, the Company purchased approximately
$74,440,000 (unaudited) in agency securities for the held to maturity portfolio.
These short-term securities were purchased to meet liquidity requirements.
Subsequent to the change in ownership of the Company, new management elected to
classify the held to maturity portfolio as available for sale. The Company also
sold approximately $118,480,000 (unaudited) in agency securities, approximately
$75,482,000 (unaudited) in mortgage backed certificates and approximately
$345,176,000 (unaudited) in floating rate securities for a gross loss of
approximately $17,336,000 (unaudited). Management also has the intent to sell
the remaining floating rate securities portfolio in the near future. Management
is of the opinion that the fair value of the floating rate security portfolio
will not recover to approximately the amortized cost of the portfolio prior to
the expected time of sale. As a result, during the three months ended September
30, 1997, the Company recognized through earnings the unrealized loss on the
remaining floating rate portfolio of $54,724,000 (unaudited).
At June 30, 1997 and 1996, securities held to maturity and available for sale
included floating rate securities with an amortized cost of approximately
F-16
<PAGE>
$1,158,988,000 and $1,918,886,000, respectively, and fixed-rate securities of
approximately $206,842,000 and $275,961,000, respectively. The floating-rate
securities' weighted average yield was 5.60% and 5.70% at June 30, 1997 and
1996, respectively, including the effects of interest rate caps and floors
hedging these securities. The fixed rate securities' weighted average yield was
6.05% and 6.10% at June 30, 1997 and 1996, respectively. The overall weighted
average yield of securities was 5.66% and 5.75% at June 30, 1997 and 1996,
respectively.
The remaining contractual maturity of substantially all mortgage-backed
certificates at June 30, 1997, was more than ten years. Management expects the
actual maturities to be considerably shorter than their contractual maturities,
as borrowers may prepay obligations without prepayment penalties.
During 1997, the Company purchased approximately $73,389,000 in agency
securities held to maturity having a weighted average yield of 5.83% and
maturity dates of one year or less.
At June 30, 1997, securities with a total par amount of $1,250,299,000 were
pledged to secure various deposits, borrowings, interest rate swaps and
securitization transactions. Accrued interest receivable on securities of
approximately $7,427,000 and $11,250,000 was included in other assets at June
30, 1997 and 1996, respectively.
Proceeds from sales of securities available for sale at June 30, 1997, 1996 and
1995, were approximately $730,957,000, $50,321,000 and $70,243,000,
respectively. No gross gains were realized in 1997 and approximately $1,000 and
$2,185,000 was realized in 1996 and 1995, respectively. Gross losses of
$29,889,000, $182,000 and $110,000 were realized in 1997, 1996 and 1995,
respectively, and are included in net gains (losses) on sale of assets in the
accompanying consolidated statements of operations. No sales of securities held
to maturity occurred during 1997, 1996 or 1995.
In December 1995, concurrent with the adoption of its implementation guide on
SFAS No. 115, the Financial Accounting Standards Board allowed a one-time
reassessment of the SFAS No. 115 classifications of all securities currently
held. Any reclassifications would be accounted for at estimated market value in
accordance with SFAS No. 115 and any reclassifications from the held to maturity
portfolio that resulted from this one-time reassessment would not call into
question the Company's intent to hold other securities to maturity in the
future. The Company used the opportunity under this one-time reassessment to
reclassify $1,500,793,000 in securities from held to maturity to the available
for sale portfolio. In connection with this reclassification, gross unrealized
losses of $16,663,000 were recorded in available for sale securities. This
reclassification resulted in a reduction of stockholders' equity of $10,831,000
(net of tax).
5. LOANS RECEIVABLE:
Loans receivable are summarized below (in thousands):
September 30, June 30,
------------- ----------------------
1997 1997 1996
-------------- ---------- ---------
(unaudited)
Loans held for sale:
Auto loans $ 66,834 $ -- $ --
Guaranteed student loans 4,416 1,433 841
---------- ---------- ----------
71,250 1,433 841
---------- ---------- ----------
Residential real estate loans 283,013 282,034 280,173
Commercial real estate loans 643,640 638,091 606,811
Consumer loans 39,006 121,475 164,539
---------- ---------- ----------
Total gross loans 1,036,909 1,043,033 1,052,364
Less:
Unaccreted discounts (9,958) (12,522) (16,163)
Unearned interest (3,198) (4,479) (13,959)
Allowance for loan losses (33,560) (11,435) (3,228)
Deferred income (631) (773) (879)
---------- ---------- ----------
Loans receivable, net $ 989,562 $1,013,824 $1,018,135
========== ========== ==========
F-17
<PAGE>
Accrued interest receivable on loans of approximately $7,107,000 and $7,049,000
was included in other assets at June 30, 1997 and 1996, respectively.
The Company acquires commercial real estate loans from various sources. These
loans are secured primarily by multi-family residential and nonresidential real
estate. The purchased loans are geographically diverse and have no significant
concentrations of credit with any single borrower.
During 1997, 1996 and 1995, approximately $11,974,000, $15,009,000, and
$27,537,000, respectively, in guaranteed student loans were sold resulting in a
gain of $158,000, $146,000, and $324,000, respectively. The Company continues to
market student loans throughout the State of Oklahoma. The Student Loan
Marketing Association ("Sallie Mae") handles the application processing,
disbursement and servicing responsibilities on behalf of the Company. The
Company sells student loans to Sallie Mae approximately 60 days after the loans
are fully funded. At June 30, 1997 and 1996, student loans totaling
approximately $1,433,000 and $841,000, respectively, were held for sale and are
included as a component of loans receivable in the accompanying consolidated
statements of financial condition.
An analysis of the allowance for loan losses is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
------------- --------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $11,435 $ 3,228 $ 3,228 $ 4,593 $3,689
Loans charged off (3,236) (3,253) (20,293) (6,537) (362)
Recoveries 8 350 72 55 109
------- ------- -------- ------- ------
Net loans charged off (3,228) (2,903) (20,221) (6,482) (253)
Provision for loan losses,
primarily related to indirect
automobile loans 25,353 2,340 28,428 5,117 1,157
------- ------- -------- ------- ------
Balance at end of period $33,560 $ 2,665 $ 11,435 $ 3,228 $4,593
======= ======= ======== ======= ======
</TABLE>
Beginning in fiscal 1994, the Company initiated a subprime indirect automobile
financing program, through dealerships in Oklahoma and Florida. Loans were
generated through a network of principally used automobile dealers and were
extended to borrowers who typically were not eligible for traditional bank
financing, due to past credit problems or inadequate credit history. Loans were
typically extended in amounts to include the purchase price of the automobile,
tag, tax and license fees and optional credit life and vehicle maintenance
warranty insurance coverage. Loan terms included interest rates ranging from
13.9% to 30.9% and payment periods ranging from 12 months to 60 months. Due to
the nature of the borrowers involved, a higher than normal risk of borrower
default and inability to collect all amounts due was likely. During fiscal 1997,
the Company experienced greater than expected borrower defaults and resultant
losses and chose to cease all further origination activities. The Company
continues to service and collect on the remaining loan portfolio. At September
30, 1997, and June 30, 1997, the subprime loan portfolio totaled approximately
$62,017,000 (unaudited) and $75,545,000, respectively, net of discounts and
unearned interest, in which an allowance for loan losses of approximately
$19,016,000 (unaudited) and $7,684,000, respectively, or 31% and 10%,
respectively, of the carrying value of the subprime loan portfolio had been
established. From inception of the program through September 30, 1997, loan
originations totaled approximately $187,826,000 (unaudited) with associated
charge offs of approximately $25,444,000 (unaudited) or 14%. The allowance for
loan losses has been established for estimated inherent losses that exist in the
F-18
<PAGE>
auto loan portfolio at June 30, 1997, based primarily on the delinquency status
of the loan portfolio, the estimated value of the underlying collateral and
historical loss experience. The allowance for loan losses does not attempt to
provide for future losses that may occur. Based on losses experienced to date,
additional provisions for loan losses are likely to be made in future periods as
such losses become known. Such future losses may be greater than losses
experienced to date, due to the recent cessation of indirect auto loan
origination, as well as the dependence upon the Company's collection efforts to
ultimately realize the value of the underlying collateral of defaulted loans.
Additional losses were recognized subsequent to the change in ownership on
September 8, 1997, due to a decision by management to classify the subprime loan
portfolio as held for sale and reflect the portfolio balance at the lower of
cost or market.
At June 30, 1997, the Company classified approximately $2,770,000 of loans as
impaired, as defined by SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan." The average recorded investment in impaired loans for the year ended
June 30, 1997, was approximately $6,315,000. Interest payments received on
impaired loans are recorded as interest income, unless collection of the
remaining recorded investment is doubtful, at which time the loan is placed on
nonaccrual status and payments received are recorded as reductions of principal.
The Company recognized interest income on impaired loans of approximately
$383,000 for the year ended June 30, 1997.
During 1995, the Bank securitized and sold approximately $62,147,000 of fixed
rate multi-family commercial real estate loans. The Bank received mortgage
participation certificates collateralized by the loans securitized in fiscal
1995. As a result of the securitization, a servicing asset was recognized
totaling approximately $3,309,000. At June 30, 1997 and 1996, unamortized
servicing assets were approximately $1,726,000 and $2,732,000, respectively, and
are included in other assets. Amortization of these assets totaling
approximately $1,006,000, $1,262,000, and $247,000 was charged against loan
servicing income for the years ended June 30, 1997, 1996, and 1995,
respectively.
At June 30, 1997 and 1996, loans to directors, officers and employees of the
Company aggregated approximately $1,802,000 and $1,974,000, respectively. During
the year ended June 30, 1997, approximately $931,000 of loan advances were made
and repayments totaled approximately $1,103,000. In management's opinion, such
transactions were made on substantially the same terms as those prevailing at
the time for comparable transactions with other persons and did not involve more
than normal risk.
6. PREMISES AND EQUIPMENT:
Premises and equipment at June 30 consisted of the following (in thousands):
1997 1996
---- ----
Land $ 3,057 $ 3,057
Buildings and building improvements 11,865 11,520
Furniture, fixtures and equipment 10,870 9,764
-------- --------
25,792 24,341
Less-Accumulated depreciation and
amortization (14,732) (13,306)
-------- --------
$ 11,060 $ 11,035
======== ========
Depreciation and amortization expense relating to premises and equipment for the
years ended June 30, 1997, 1996, and 1995 was approximately $1,450,000,
$1,213,000, and $1,155,000, respectively.
F-19
<PAGE>
7. ASSETS ACQUIRED THROUGH FORECLOSURE AND REPOSSESSION:
Assets acquired through foreclosure and repossession are summarized as follows
(in thousands):
September 30, June 30,
------------- -------------------------
1997 1997 1996
---- ---- ----
(unaudited)
Commercial property $ 125 $ 6,170 $ 6,570
Repossessed automobiles 1,302 2,241 3,969
Residential property 180 236 304
---------- ---------- ----------
1,607 8,647 10,843
Less-Allowance for losses (5) (248) (261)
---------- ---------- ----------
$ 1,602 $ 8,399 $ 10,582
========== ========== ==========
On July 1, 1997, real estate held for investment with a book value of
approximately $6,045,000 (unaudited), was transferred from assets acquired
through foreclosure and repossession to other assets in the consolidated
statements of financial condition as required by the Office of Thrift
Supervision.
For the years ended June 30, 1997, 1996, and 1995, income from assets acquired
through foreclosure and repossession totaled approximately $873,000, $1,902,000,
and $3,060,000, respectively, which includes approximately $320,000, $1,273,000,
and $2,200,000 of gains from dispositions, respectively. Income from assets
acquired through foreclosure and repossessions is included in other noninterest
income, while the gain portion is included in net gains or losses on sale of
assets.
An analysis of the allowance for losses on assets acquired through foreclosure
and repossession is as follows (in thousands):
Three Months Ended
September 30, Years Ended June 30,
------------- --------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
Balance at beginning of period $ 248 $261 $261 $ 29 $ 5
Provision charged (credited) to
expense 24 13 76 184 (64)
Net amounts credited (charged)
to allowance (267) (16) (89) 48 88
----- ---- ---- ---- ----
Balance at end of period $ 5 $258 $248 $261 $ 29
===== ==== ==== ==== ====
F-20
<PAGE>
8. DEPOSIT ACCOUNTS:
Deposits and the related interest expense are summarized below (in thousands):
<TABLE>
<CAPTION>
Deposits Interest Expense
--------------------------------------- ---------------------------
September 30, June 30, Years Ended June 30,
------------- ---------------------- ---------------------------
1997 1997 1996 1997 1996 1995
---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
NOW and MMDA $ 239,719 $ 248,322 $ 238,511 $ 5,381 $ 5,638 $ 6,937
------------ ---------- ---------- ------- ------- -------
Savings 70,924 71,576 73,726 2,092 2,190 2,742
----------- ---------- ---------- ------- ------- -------
Time:
Less than 4.00% -- -- 2,860
4.00% to 4.99% 4,525 21,105 7,039
5.00% to 5.99% 1,004,777 1,008,889 1,024,706
6.00% to 6.99% 289,575 293,583 254,328
7.00% to 7.99% 830 881 1,290
----------- ---------- ----------
Total Time 1,299,707 1,324,458 1,290,223 75,618 73,345 58,556
----------- ---------- ---------- ------- ------- -------
$ 1,610,350 $1,644,356 $1,602,460 $83,091 $81,173 $68,235
=========== ========== ========== ======= ======= =======
</TABLE>
Accrued interest on deposit accounts of approximately $4,314,000 and $3,459,000
was included in other liabilities in the accompanying consolidated statements of
financial condition at June 30, 1997 and 1996, respectively.
The aggregate amount of certificates of deposits with a denomination greater
than $100,000 was approximately $74,000,000 and $65,000,000 at June 30, 1997 and
1996, respectively.
Contractual maturities of time deposits at June 30, 1997, are summarized as
follows (dollars in thousands):
Weighted Average
Contractual
Year ending June 30, Amount Rate
-------------------- ------ --------------
1998 $ 977,298 5.57%
1999 232,152 5.93
2000 94,964 6.47
2001 9,771 5.79
2002 and thereafter 10,273 6.18
----------
$1,324,458 5.70%
========== ====
Legislation was enacted in fiscal 1997 which required institutions holding
deposits insured by the Savings Association Insurance Fund ("SAIF") to pay a
one-time fee of approximately 65 cents for each $100 of SAIF insured deposits.
The Company accrued its one-time assessment of approximately $10,311,000 during
September 1996.
F-21
<PAGE>
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
Securities sold under agreements to repurchase at June 30 are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- ----
<S> <C> <C> <C>
Average outstanding balance $421,706 $ 685,601 $634,281
Weighted average interest rate during the year 5.45% 5.83% 5.76%
Maximum month-end balance $942,315 $1,079,194 $865,713
Outstanding balance at the end of the year 310,801 1,079,194 779,626
Weighted average rate at the end of the year 5.55% 5.36% 6.11%
Mortgage-backed securities securing the
agreements at year-end:
Carrying value $335,202 $1,171,395 $860,323
Estimated market value 322,451 1,115,428 813,796
Accrued interest payable at the end of the year 1,327 5,799 6,877
</TABLE>
Securities sold under agreements to repurchase were delivered to the
broker-dealers who arranged the transactions. The agreements entered into
generally mature within one month.
Additional interest expense incurred on interest rate swaps not included in the
above average rates totaled approximately $5,227,000, $6,428,000, and $1,448,000
for 1997, 1996, and 1995, respectively.
There are no securities sold under agreements to repurchase at September 30,
1997. All agreements outstanding at June 30, 1997, were either retired or
replaced with FHLB advances as part of the Company's ongoing asset/liability
management strategy.
10. ADVANCES FROM THE FEDERAL HOME LOAN BANK OF TOPEKA:
Advances from the FHLB are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
----------------------- --------------------------------------------------
1997 1997 1996
----------------------- ------------------------- -----------------------
(unaudited)
Weighted Weighted Weighted
Average Average Average
Contractural Contractual Contractual
Balance Rate Balance Rate Balance Rate
-------- ------------ -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Variable rate $219,784 5.65% $224,324 5.61% $374,671 5.41%
Fixed rate 38,836 7.32% 306,837 5.77 64,340 7.22
-------- -------- --------
$258,620 5.90% $531,161 5.73% $439,011 5.70%
======== ==== ======== ==== ======== ====
</TABLE>
Although no specific assets are pledged, the FHLB requires the Company to hold
eligible assets with a lending value, as defined, at least equal to FHLB
advances, which can include such items as first mortgage loans, investment
securities, federal funds sold and interest bearing deposits, which are not
already pledged or encumbered.
F-22
<PAGE>
Scheduled principal repayments of advances from the FHLB are as follows (dollars
in thousands):
September 30, 1997 June 30, 1997
------------------ -----------------------
(unaudited)
Weighted Weighted
Average Average
Contractural Contractual
Year ending June 30, Amount Rate Amount Rate
-------------------- ------ ---- ------ ----
1998 $ 42,500 7.21% $314,324 5.77%
1999 190,083 5.66 190,800 5.60
2000 -- -- -- --
2001 -- -- -- --
2002 and thereafter 26,037 5.49 26,037 5.53
-------- --------
$258,620 5.90% $531,161 5.73%
======== ==== ======== =====
Additional interest expense incurred on interest rate swaps not included in the
above average rates totaled approximately $10,186,000 and $8,146,000 for 1997
and 1996, respectively.
11. NOTE PAYABLE:
Local Financial had a note payable to Isabel Collier Read, a former stockholder
and the mother of the stockholders of the Company prior to September 8, 1997.
The note required annual installments of $7,010,000 plus accrued interest.
During 1997, the stockholders of the Company made the required annual payment of
interest and principal on the note payable on behalf of the Company. The payment
has been reflected as a capital contribution in the accompanying consolidated
statement of stockholders' equity. The note bore interest equal to the prime
lending rate set by Morgan Guaranty Trust. The rate of the note was not to
exceed 8.0% nor fall below 5.7%. During the years ended June 30, 1997 and 1996,
the average note rate was 8.0%. During the year ended June 30, 1995, the average
note rate was 7.84%. The note was secured by the common stock of Local. Accrued
interest payable on the note of approximately $94,000 and $202,000 was included
in other liabilities in the accompanying consolidated statements of financial
condition at June 30, 1997 and 1996, respectively.
On September 8, 1997, principal and interest on the note payable from Local
Financial to Isabel Collier Read were paid in full.
12. SENIOR NOTES:
Senior notes of $80,000,000 (unaudited) at 11% and issued to individual
investors were outstanding at September 30, 1997. Senior notes are due August
2004 and pay interest semiannually. Senior notes are general unsecured
obligations of Local Financial and will rank senior to such other indebtedness
as the Company may incur that is not expressly subordinated to the senior notes.
The indenture generally restricts the incurrence of additional indebtedness by
the Company, except for certain junior indebtedness. An interest reserve account
in the amount of approximately $8,800,000, representing an annual amount of
interest on the senior notes, was established in the event dividends from Local
are not sufficient to pay interest and is included as a component of cash and
due from banks in the accompanying consolidated statements of financial
condition.
13. INTEREST RATE SWAP, CAP AND FLOOR AGREEMENTS:
The Company is a party to financial instruments with off-balance sheet risk, in
the normal course of business, to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, options written, standby
letters of credit and financial guarantees, interest rate caps and floors
written, interest rate swaps, and forward and futures contracts. Those
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statements of
financial condition. The contract or notional amounts of those instruments
reflect the extent of the Company's involvement in particular classes of
financial instruments.
F-23
<PAGE>
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented by
the contractual notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. For interest rate caps, floors, and swap
transactions, forward and futures contracts, and options written, the contract
or notional amounts do not represent exposure to credit loss. The Company
controls the credit risk of its interest rate swap, cap and floor agreements,
and forward and futures contracts through credit approvals, limits, and
monitoring procedures.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with credit risk.
The Company enters into a variety of interest-rate swap transactions in managing
its interest rate exposure. Interest rate swap transactions generally involve
the exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. The Company minimizes its credit
exposure to interest rate counterparties by entering into the transactions with
counterparties that have been rated in one of the top three investment ratings
by at least two nationally recognized credit rating agencies. The Company also
utilized interest rate caps and floors to manage its interest rate exposure
through the use of these instruments.
Effective with the change in ownership on September 8, 1997, all outstanding
interest rate swap, cap and floor agreements were terminated. The termination of
the interest rate swap agreements, totaling approximately $500,000,000 notional
principal amount, resulted in realized gross losses of approximately $47,283,000
(unaudited). The termination of cap and floor agreements totaling approximately
$2,350,000,000 notional principal amount resulted in realized gross losses of
$2,234,000 (unaudited). Upon termination of the interest rate swap, cap and
floor agreements, and the corresponding liquidation of the underlying hedged
items, the Company recognized all remaining deferred gains and losses which
resulted in an additional loss of approximately $3,920,000 (unaudited). The
above losses resulted in a net tax benefit of approximately $18,703,000
(unaudited).
Interest rate swap, cap and floor agreements outstanding at June 30 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Interest Rate
Notional ----------------- Variable
Maturity Date Balance Pay Receive Rate Index
------------- ------- --- ------- ----------
<S> <C> <C> <C> <C>
1997
Interest Rate Swaps
Fixed Variable
January 8, 2005 $ 200,000 7.848% 5.563% 3 month LIBOR
February 14, 2005 100,000 7.880 5.813 3 month LIBOR
March 22, 2005 100,000 8.027 5.781 3 month LIBOR
May 8, 2005 50,000 8.463 5.816 3 month LIBOR
May 18, 2005 50,000 8.439 5.813 3 month LIBOR
Interest Rate Floors
Index Floor
February 19, 1998 $ 100,000 5.813% 5.678% 3 month LIBOR
March 22, 1998 100,000 5.781 5.404 3 month LIBOR
May 19, 1998 100,000 5.813 5.455 3 month LIBOR
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
Interest Rate
Notional ----------------- Variable
Maturity Date Balance Pay Receive Rate Index
------------- ------- --- ------- ----------
<S> <C> <C> <C> <C>
1997 Cont.
Interest Rate Caps
Cap Index
July 1, 1998 $ 450,000 7.000% 5.762% 3 month LIBOR
October 27, 1997 800,000 9.500 6.510 10 year CMT
November 5, 1997 800,000 10.000 6.510 10 year CMT
1996
Interest Rate Swaps
Fixed Variable
January 8, 2005 $ 300,000 7.848% 5.461% 3 month LIBOR
February 14, 2005 100,000 7.880 5.500 3 month LIBOR
March 22, 2005 100,000 8.027 5.563 3 month LIBOR
May 8, 2005 50,000 8.463 5.500 3 month LIBOR
May 18, 2005 50,000 8.439 5.488 3 month LIBOR
Interest Rate Floors
Index Floor
February 19, 1998 $ 100,000 5.563% 5.678% 3 month LIBOR
March 22, 1998 100,000 5.488 5.404 3 month LIBOR
May 19, 1998 100,000 5.488 5.455 3 month LIBOR
Interest Rate Caps
Cap Index
July 1, 1998 $ 450,000 7.000% 5.469% 3 month LIBOR
September 16, 1996 300,000 8.360 6.730 10 year CMT
October 27, 1997 800,000 9.500 6.730 10 year CMT
November 5, 1997 800,000 10.000 6.730 10 year CMT
</TABLE>
The notional principal amounts shown represent an agreed upon amount on which
calculations of amounts to be exchanged are based. They do not represent direct
credit exposures. The Company's credit exposure is limited to the net difference
between the calculated pay and receive amounts on each transaction, which is
generally netted and paid at least quarterly.
The interest rate swaps are utilized to hedge the FHLB advance borrowings and
the securities sold under agreements to repurchase, each of which have
short-term maturities. As of June 30, 1997, management intended to continue to
renew these borrowings to support the interest rate swaps hedging such
borrowings (see Note 2 for events occurring subsequent to June 30, 1997). The
interest rate caps and floors are utilized to hedge the available for sale
mortgage-backed floating rate securities.
During fiscal 1997, the Company terminated interest rate swaps used to hedge
securities sold under agreements to repurchase and FHLB advances with a notional
principal amount of $100,000,000 resulting in a loss of approximately $3,825,000
which is being amortized over the life of the original swap agreement of
approximately 7 years. During fiscal 1996, the Company terminated interest rate
swaps used to hedge a portion of the available for sale portfolio with a
notional principal of $300,000,000 resulting in a gain of $3,637,000 which is
being amortized over the original swap agreement of approximately 3 years. The
Company also terminated interest rate swaps during fiscal 1996 used to hedge a
portion of the securities sold under agreements to repurchase and FHLB advances
with a notional principal amount of $200,000,000 resulting in a loss of
approximately $3,344,000 which is being amortized over the original swap
agreement of approximately 2 years. As a result of interest rate swap
F-25
<PAGE>
terminations, amortization of deferred gains and losses resulted in the
recognition of approximately $73,000 in net losses during fiscal year 1997 and
$671,000 and $11,000 in net gains during fiscal years 1996 and 1995,
respectively. At June 30, 1997 and 1996, net unamortized deferred losses from
interest rate swap terminations were approximately $4,130,000 and $378,000,
respectively. There were no deferred gains or losses at June 30, 1995.
At June 30, 1997 and 1996, net accrued interest on interest rate swaps, caps and
floors totaled a net payable of approximately $1,504,000 and $2,282,000,
respectively, and is included in other assets and other liabilities in the
accompanying consolidated statements of financial condition, dependent upon the
asset or liability to which the hedge is related. Unamortized interest rate cap
and floor premiums were approximately $3,051,000 and $12,741,000 at June 30,
1997 and 1996, respectively, and are included in the carrying amount of the
assets hedged.
The swaps, caps and floors are secured by mortgaged-backed securities with an
estimated market value of approximately $74,330,000 and $68,757,000 at June 30,
1997 and 1996, respectively.
The net effect of the interest rate swaps, caps and floors on net interest
income was a decrease of approximately $21,148,000 ($13,746,000 net of income
tax), $21,509,000 ($14,772,000 net of income tax) and $7,782,000 ($5,345,000 net
of income tax) for the years ended June 30, 1997, 1996, and 1995, respectively.
Such decrease was attributable primarily to interest rate swaps used to hedge a
portion of the Company's cost of borrowings in periods of rising interest rates.
14. INCOME TAXES:
The provision (benefit) for income taxes has been allocated as follows,
including the tax effect of the changes in unrealized gains (losses) on
available for sale securities (in thousands):
Three Months Ended Years Ended
September 30, June 30,
--------------------- -------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
Income (loss) from
operations $(50,795) $(1,861) $(11,860) $ 4,872 $6,568
Stockholders' equity 17,284 1,608 8,892 (26,238) 1,141
--------- ------- -------- -------- ------
$(33,511) $ (253) $ (2,968) $(21,366) $7,709
========= ======= ======== ======== ======
Components of the provision (benefit) for income taxes from operations are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Years Ended
September 30, June 30,
------------- --------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Current income tax expense
(benefit) $(16,772) $(1,448) $(10,431) $2,911 $2,601
Deferred income tax expense
(benefit) (34,023) (413) (1,429) 1,961 6,033)
-------- ------- -------- ------ ------
$(50,795) $(1,861) $(11,860) $4,872 $6,568
======== ======= ======== ====== ======
</TABLE>
F-26
<PAGE>
The effective income tax rates differ from the statutory federal income tax rate
of 35%. A reconciliation of the provision (benefit) for income taxes based on
the statutory rates with the effective rates is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Years Ended
September 30, June 30,
------------------ ------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Income tax at statutory rate
(35%) $(52,236) $(2,106) $(14,667) $6,453 $7,344
Provision for deferred
tax assets 742 -- 2,000 -- --
Effect of state income
tax (benefit), net of
federal (6,000) (505) (3,013) (675) (607)
Refund of taxes
previously paid, net -- -- -- (800) --
Change in valuation
allowance 7,057 505 2,949 -- --
Other, net (358) 245 871 (106) (169)
-------- ------- -------- ------ ------
Provision (benefit) for
income taxes $(50,795) $(1,861) $(11,860) $4,872 $6,568
======== ======= ======== ====== ======
</TABLE>
Deferred income tax assets and liabilities consisted of the following (in
thousands):
September 30, June 30,
------------- --------
1997 1997 1996
---- ---- ----
(unaudited)
Deferred income tax assets:
Realized/unrealized losses
on available for sale
securities $ 19,215 $ 17,222 $ 26,114
Federal net operating
loss carryforwards 7,213 -- --
State net operating loss
carryforwards 10,006 4,071 1,058
Allowance for loan losses 6,953 -- --
Other 2,970 2,288 4,446
-------- -------- --------
46,357 23,581 31,618
-------- -------- --------
Deferred income tax liabilities:
Allowance for loan losses -- (1,012) (4,361)
Stock dividends receivable (1,284) (1,015) (650)
Depreciation and amortization (428) (373) (472)
Deferred loan fees (862) (805) (471)
Unrealized gains on available
for sale securities (62) -- --
Other -- (451) (1,225)
-------- -------- --------
(2,636) (3,656) (7,179)
-------- -------- --------
Net deferred tax asset 43,721 19,925 24,439
Valuation allowance (10,006) (2,949) --
-------- -------- --------
Deferred tax asset, net $ 33,715 $ 16,976 $ 24,439
======== ======== ========
F-27
<PAGE>
At September 30, 1997, the Company had approximately $20,608,000 (unaudited) and
$179,718,000 (unaudited) operating loss carryforwards available for federal and
state income tax purposes, respectively. The state net operating losses expire
in varying amounts between 2006 and 2012. The federal net operating losses
expire in 2013. At June 30, 1997, the Company had no net operating loss
carryforwards available for federal income tax purposes and approximately
$106,458,000 available for state income tax purposes.
During 1997, the Company established a valuation allowance for the portion of
the available state net operating loss carryforwards for which it was determined
to be more likely than not that the benefit of the deferred tax asset would not
be realized. At September 30, 1997, a valuation allowance for all available
state net operating loss carryforwards was established as it was determined to
be more likely than not that the benefit of the deferred tax asset would not be
realized. Historically, the Company has generated income for federal income tax
purposes. The tax loss for the year ended June 30, 1997, and the three months
ended September 30, 1997, was a result of the Company exiting the indirect
subprime automobile lending program, terminating the interest rate swap
agreements, and discontinuing the wholesale securities strategy previously
employed by former management. Based on the current strategy of new management,
no valuation allowance for other deferred tax assets has been established as the
Company believes it is more likely than not that sufficient income for federal
income tax purposes will be realized.
As a result of the Small Business Job Protection Act, the Company was required
to change its method of accounting for bad debts from the reserve method to the
direct charge-off method for income tax purposes during 1997. The Company will
be required to recapture the excess of the qualifying and nonqualifying tax loan
loss reserves over the base year tax loan loss reserves over a six-year period.
The recapture amount is estimated to be $17,244,000 and the qualifying and
nonqualifying base year tax reserves totaled approximately $8,116,000 and
$1,373,000, respectively. The Company expects to be eligible to defer this
recapture period for two years.
During 1997, the Company's federal income tax returns were examined by and/or
settled with the Internal Revenue Service through 1994. As a result of these
examinations and related claims for refund, the Company is expected to receive a
refund of taxes previously paid of approximately $800,000 which had not been
anticipated by the Company prior to the examination.
15. COMMITMENTS AND CONTINGENCIES:
In conjunction with the acquisition of LAB during fiscal 1989, the Company and
LAB entered into an Assistance Agreement with the Federal Savings and Loan
Insurance Corporation (the "FSLIC"). Under the terms of the Assistance
Agreement, the FSLIC Resolution Fund (the "FUND"), which is managed by the
Federal Deposit Insurance Corporation (the "FDIC"), is entitled to receive 100%
of the tax benefits attributable to acquired net operating loss carryforwards
and deductions resulting from certain items, other than covered asset losses,
for which the FUND has agreed to provide assistance to the extent such tax
benefits are realized by the consolidated group. LAB is entitled to share in
realized tax benefits of a portion of the FUND assistance on a 50-50 basis.
Under the LAB Assistance Agreement, a dispute exists between LAB and the FDIC
regarding tax benefits which have been received. Management, after consultation
with legal counsel and based on available facts and proceedings to date, has
determined that it is probable that LAB has some liability to the FDIC with
regard to the tax benefits. The Company's estimate of this liability is
approximately $13,000,000 (unaudited), which is included in other liabilities in
the accompanying June 30, 1997, consolidated statement of financial condition.
The Company provided for this liability through a provision for uninsured risk
in the consolidated statements of operations for the years ended 1997, 1996 and
1995. The FDIC's estimate of this liability is approximately $23,000,000.
Management of the Company is of the opinion that the FDIC's estimate does not
give credit to the Company for certain tax benefits originally contracted for in
the Assistance Agreement, but later eliminated as a result of the Revenue
Reconciliation Act of 1993. Management intends to vigorously defend its estimate
of the liability.
F-28
<PAGE>
Pursuant to the terms of the Redemption Agreement discussed in Note 2, the
Selling Shareholders have agreed to indemnify the Company with respect to the
Assistance Agreement to the extent the Company is found to be liable for an
amount in excess of approximately $13,000,000. In addition, the Selling
Shareholders have agreed to be solely and exclusively responsible for all
reasonable litigation costs and expenses which are incurred by the Company in
connection with the prosecution, defense and settlement with the FDIC.
In the ordinary course of business, the Company is subject to other legal
actions and complaints. Management, after consultation with legal counsel, and
based on available facts and proceedings to date, believes the ultimate
liability, if any, arising from such legal actions or complaints, will not have
a material adverse effect on the Company's financial position or future results
of operations.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Company evaluates each customers' creditworthiness
on a case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties. At June 30, 1997, the Company had
approximately $29,837,000 of outstanding loan commitments consisting of
residential and commercial mortgage loans approved but unfunded.
During 1995, the Company securitized and sold approximately $62,147,000 of fixed
rate multi-family commercial loans with recourse (See Note 5). The maximum
contractual recourse obligation of the Company is 10% of the total unpaid
principal balance of the mortgages on the settlement date. At June 30, 1997, the
unpaid principal balance of loans sold totaled approximately $41,368,000. The
Company has pledged assets, consisting primarily of mortgage-backed securities
totaling approximately $6,081,000 under the recourse provision of the
securitization transaction. Management does not expect any material losses to be
incurred as a result of the recourse provision.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing and
similar transactions. The Company holds marketable securities as collateral
supporting those commitments for which collateral is deemed necessary.
The Company leases certain real estate and equipment under operating leases. For
the years ended June 30, 1997, 1996, and 1995 lease expense totaled
approximately $730,000, $618,000, and $465,000, respectively. Future obligations
under operating leases at June 30, 1997, are summarized as follows (in
thousands):
Year Ending June 30,
--------------------
1998 $ 607
1999 481
2000 251
2001 183
2002 and thereafter 214
--------
$ 1,736
========
F-29
<PAGE>
16. REGULATORY MATTERS:
Local and LAB are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possible additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on Local's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Local and LAB must meet specific capital guidelines that involve quantitative
measures of Local's and LAB's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Local's and LAB's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Local and LAB to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), of Tier I capital (as defined) to adjusted
tangible assets (as defined) and of tangible capital (as defined) to tangible
assets. Management believes, as of September 30, 1997 and June 30, 1997, that
Local and LAB meet all capital adequacy requirements to which they are subject.
As of June 30, 1997 and 1996, the most recent notifications from the OTS
categorized Local and LAB as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized Local and LAB
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed Local's or LAB's category.
F-30
<PAGE>
<TABLE>
<CAPTION>
To Be Well Capitalized
Minimum For Capital For Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Total capital (to risk weighted
assets):
Local Federal Bank
Consolidated $112,634 11.22% $ 81,962 8.00% $102,453 10.00%
Local America Bank 92,838 25.07% 29,624 8.00% 37,030 10.00%
Core capital (to adjusted
tangible assets):
Local Federal Bank Consolidated 105,873 5.26% 60,421 3.00% 100,702 5.00%
Local America Bank 89,475 13.69% 19,607 3.00% 32,679 5.00%
Tangible capital (to tangible
assets):
Local Federal Bank Consolidated 103,785 5.16% 30,179 1.50% n/a n/a
Local America Bank 88,575 13.57% 9,790 1.50% n/a n/a
Tier I Capital (to risk
weighted assets):
Local Federal Bank Consolidated 105,873 10.54% n/a n/a 61,472 6.00%
Local America Bank 89,475 24.16% n/a n/a 22,218 6.00%
As of June 30, 1997:
Total capital (to risk weighted
assets):
Local Federal Bank Consolidated 145,132 12.34% 94,062 8.00% 117,578 10.00%
Local America Bank 112,842 25.31% 35,671 8.00% 44,589 10.00%
Core capital (to adjusted
tangible assets):
Local Federal Bank Consolidated 140,442 5.25% 80,187 3.00% 133,645 5.00%
Local America Bank 111,482 12.07% 27,711 3.00% 46,185 5.00%
Tangible capital (to tangible
assets):
Local Federal Bank Consolidated 138,044 5.17% 40,062 1.50% n/a n/a
Local America Bank 110,411 11.97% 13,839 1.50% n/a n/a
Tier I Capital (to risk
weighted assets):
Local Federal Bank Consolidated 140,442 11.94% n/a n/a 70,547 6.00%
Local America Bank 111,482 25.00% n/a n/a 26,754 6.00%
As of June 30, 1996:
Total capital (to risk weighted
assets):
Local Federal Bank Consolidated 172,055 12.71% 108,336 8.00% 135,419 10.00%
Local America Bank 115,638 28.14% 32,870 8.00% 41,088 10.00%
Core capital (to adjusted
tangible assets):
Local Federal Bank Consolidated 168,975 5.04% 100,513 3.00% 167,522 5.00%
Local America Bank 114,577 10.78% 32,155 3.00% 53,591 5.00%
Tangible capital (to tangible
assets):
Local Federal Bank Consolidated 165,339 4.94% 50,247 1.50% n/a n/a
Local America Bank 112,822 10.51% 16,096 1.50% n/a n/a
Tier I Capital (to risk
weighted assets):
Local Federal Bank Consolidated 168,975 12.48% n/a n/a 81,252 6.00%
Local America Bank 114,577 27.89% n/a n/a 24,653 6.00%
</TABLE>
F-31
<PAGE>
Management intends to continue compliance with all regulatory capital
requirements.
Federal regulations allow Local and LAB to pay dividends during a calendar year
up to the amount that would reduce Local's and LAB's surplus capital ratio, as
defined, to one-half of Local's and LAB's surplus capital ratio at the beginning
of the calendar year, adjusted to reflect Local's and LAB's net income to date
during the calendar year. The surplus capital ratio is defined as the percentage
by which Local's and LAB's net capital to assets ratio would exceed the ratio of
its fully phased-in capital requirement to its assets. The OTS has advised the
Company that Local is prohibited from paying dividends without prior approval
from the OTS until such time as the unrealized losses associated with Local's
mortgage-backed securities and interest rate contracts are resolved and that all
losses in Local's indirect automobile loan portfolio have been recognized.
17. EMPLOYEE BENEFITS:
The Company has a retirement plan (the "Plan"), which is a noncontributory
defined benefit pension plan, covering substantially all of its full-time
employees. The benefits are based on years of service and the employees'
compensation during the last five years of employment. The Company's policy,
generally, is to fund pension costs unless the plan is overfunded and no
contribution is required. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future. No contributions were made during the years ended June 30, 1997,
1996 or 1995, as the Plan is overfunded.
The following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated statements of financial condition and income at
June 30 and for the years then ended (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $6,549 in 1997, $6,097 in 1996 and
$5,313 in 1995 $(7,159) $(6,293) $(5,827)
======= ======= =======
Projected benefit obligation for service rendered to date $(9,332) $(8,226) $(7,739)
Plan assets at market value, primarily stocks
and cash equivalents 17,339 14,040 10,310
------- ------- -------
Plan assets in excess of projected benefit obligation 8,007 5,814 2,571
Unrecognized net gain from past experience different
form that assumed (6,588) (4,937) (1,809)
Unrecognized prior service cost (531) (566) (601)
Unrecognized net asset being recognized over 15 years (253) (337) (422)
------- ------- -------
Prepaid (accrued) pension cost $ 635 $ (26) $ (261)
======= ======= =======
Net pension benefit:
Service cost-benefits earned during the period $ 515 $ 490 $ 388
Interest cost on projected benefit obligation 627 553 516
Actual return on plan assets (3,820) (4,150) (2,449)
Net amortization and deferral 2,017 2,871 1,438
------- ------- -------
Net periodic pension benefit $ (661) $ (236) $ (107)
======= ======= =======
</TABLE>
A weighted average discount rate of 7.5% in each of the years 1997, 1996 and
1995 and a rate of increase in future compensation levels of 5.5% was used in
determining the actuarial present value of the projected benefit obligation for
1997, 1996 and 1995. The expected long-term rate of return on assets was 11.0%
for 1997, 1996 and 1995.
F-32
<PAGE>
The Company does not provide postretirement benefits other than pensions.
At June 30, 1997, the Company employed 481 full-time equivalent persons compared
to 492 at June 30, 1996 and 425 at June 30, 1995.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its financial instruments.
Fair value estimates, methods and assumptions set forth below for the Company's
financial instruments, are made solely to comply with the requirements of SFAS
No. 107.
Fair values are based on estimates or calculations at the transaction level
using present value techniques in instances where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial instruments, the fair value calculations attempt to incorporate the
effect of current market conditions at a specific time. Fair valuations are
management's estimates of the values, and they are often calculated based on
current pricing policy, the economic and competitive environment, the
characteristics of the financial instruments, expected losses and other such
factors. These calculations are subjective in nature, involve uncertainties and
matters of significant judgment and do not include tax ramifications; therefore,
the results cannot be determined with precision, substantiated by comparison to
independent markets and may not be realized in an actual sale or immediate
settlement of the instruments. The Company has not included certain material
items in its disclosure, such as the value of the long-term relationships with
the Company's depositors, since this intangible is not a financial instrument.
There may be inherent weaknesses in any calculation technique, and changes in
the underlying assumptions used, including discount rates and estimates of
future cash flows, could significantly affect the results. For all of these
reasons, the aggregation of the fair value calculations presented herein do not
represent, and should not be construed to represent, the underlying value of the
Company.
The following table presents a summary of the Company's financial instruments,
as defined by SFAS No. 107 (in thousands):
June 30, 1997 June 30, 1996
----------------------- ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- --------- ----------
Financial Assets:
Cash and cash equivalents $ 105,404 $ 105,404 $ 13,640 $ 13,640
Securities 1,393,724 1,384,434 2,129,397 2,116,077
Equity securities -- -- 11,604 11,604
Loans receivable, net 1,013,824 1,014,243 1,018,135 1,032,297
FHLB stock 40,046 40,046 23,421 23,421
Interest rate caps
and floors 48 48 4,652 4,652
Financial Liabilities:
Deposits $1,644,356 $1,641,328 $1,602,460 $1,597,150
Securities sold under
agreements to
repurchase 310,801 312,789 1,079,194 1,079,203
Advances from the FHLB 531,161 533,732 439,011 440,957
Notes payable 7,010 7,010 14,020 14,020
Interest rate swaps -- 37,538 -- 41,631
F-33
<PAGE>
The following are descriptions of the methods used to determine the estimated
fair values:
Cash and Cash Equivalents
This category includes cash, federal funds sold and securities purchased under
agreements to resell. The carrying amount is a reasonable estimate of fair value
because of the relatively short period of time between the origination of the
instrument and its expected realization.
Securities and Equity Securities
The carrying value and estimated fair value of equity securities available for
sale and securities at June 30, 1997 and 1996, are set forth in Notes 3 and 4,
respectively. The estimated fair value of interest rate caps and floors used to
hedge debt securities is based on the replacement cost (mark-to-market) of the
agreements. The estimated fair value of FHLB stock approximates the carrying
value as of June 30, 1997 and 1996.
Loans
The fair valuation calculation process differentiates loans based on their
financial characteristics, such as product classification, loan category,
pricing features and remaining maturity. Prepayment estimates are evaluated by
product and loan rate. Discount rates presented in the paragraphs below have a
wide range due to the Company's mix of fixed and variable rate products. In
establishing the credit risk component of the fair value calculations for loans,
the Company considered several approaches, including the use of variable
discount rates based on relative credit quality, forecasting cash flows, net of
projected losses and secondary market pricing for certain third party loan sale
transactions. After evaluating such information, the Company concluded that the
allowance for loan losses represented a reasonable estimate of the credit risk
component of the fair value of loans at June 30, 1997 and 1996.
The fair value of commercial real estate loans, other real estate mortgage loans
and real estate construction loans is calculated by discounting contractual cash
flows using discount rates that reflect the Company's current pricing for loans
with similar characteristics and remaining maturity. Most of the discount rates
applied to this portfolio are between 8.0% and 10.0%.
For real estate single family first and junior lien mortgages, fair value is
calculated by discounting contractual cash flows, adjusted for prepayment
estimates, using discount rates based on the Company's current pricing for loans
of similar size, type, remaining maturity and repricing characteristics. Most of
the discount rates applied to this portfolio are between 6.9% and 8.9%.
For other consumer loans, the fair value is calculated by discounting the
contractual cash flows, adjusted for projected default rates, projected
charge-off percentages and prepayment estimates. The net cash flows are then
discounted at 25%.
Deposit Liabilities
SFAS No. 107 states that the fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, interest-bearing checking and
savings deposits and market rate savings, is equal to the amount payable on
demand at the measurement date. Although SFAS No. 107's requirements for these
categories is not consistent with the market practice of using prevailing
interest rates to value these amounts, the amount included for these deposits in
the previous table is their carrying value at June 30, 1997 and 1996. The fair
value of certificates of deposit and other time deposits is calculated based on
the discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for similar duration deposits ranging between
5.75% and 6.19%.
F-34
<PAGE>
Advances from the Federal Home Loan Bank of Topeka and Securities Sold Under
Agreements to Repurchase and Notes Payable
The estimated fair value of FHLB advances and securities sold under agreements
to repurchase is based on the discounted value of contractual cash flows. The
discount rate is estimated using the current market rate for similar duration
borrowings. The estimated fair market value of interest rate swap agreements
used to hedge FHLB advances and securities sold under agreements to repurchase
is based on the replacement cost (mark-to-market value) of the agreements.
Commitments are related primarily to variable rate loans originated at current
market rates. The estimate of fair value of these commitments is considered to
be immaterial. The estimate of value of notes payable is based on the discounted
value of contractual cash flows. The rate used is Morgan Guaranty Prime.
Limitations
The information presented in this footnote is based on market quotes and fair
value calculations as of June 30, 1997 and 1996. These amounts have not been
updated since year end; therefore, the valuations may have changed significantly
since that point in time.
19. SUBSEQUENT EVENT (UNAUDITED):
Subsequent to September 30, 1997, the Company entered into an agreement to
purchase Green Country Banking Corporation (the Holding Company) which is
majority owned by the Chief Executive Officer and President of the Company and
subject to regulatory approval. The Company will issue 837,209 shares of its
common stock to acquire 100% of the Holding Company with the Company being the
surviving corporation. The Company's resultant wholly-owned subsidiary, Green
Country Bank, FSB, which was formerly the wholly-owned subsidiary bank of the
Holding Company, will be subsequently merged into LAB, with LAB being the
surviving bank.
The acquisition of the Holding Company will be accounted for under purchase
accounting treatment. Total assets and liabilities of the Holding Company at
September 30, 1997, are approximately $107,721,000 and $105,057,000,
respectively. Purchase accounting adjustments to estimated fair values will be
made with respect to the assets and liabilities based upon preliminary estimates
and evaluations as of September 30, 1997, resulting in a decrease in net assets
of approximately $425,000. Final purchase price adjustments will be made upon
closing of the transaction and will be based on the fair values of assets and
liabilities at that date. Earnings retained between September 30, 1997, and the
closing date will affect the allocation of the purchase price to the extent they
affect net asset values at closing. The excess of the purchase price over the
amounts assigned to identifiable assets acquired less liabilities assumed will
be recorded as goodwill. The resulting goodwill of approximately $6,800,000 will
be amortized on a straight-line basis over 15 years.
Pro forma results of operations assuming the proposed acquisition of Holding
Company occurred on July 1, 1995, are not material.
F-35
<PAGE>
20. PARENT COMPANY FINANCIAL INFORMATION:
Condensed financial information for Local Financial Corporation is as follow (in
thousands):
Statements of Financial Condition
September 30, June 30,
------------- -----------------------
1997 1997 1996
---- ---- ----
(unaudited)
Assets:
Cash and due from banks $ 11,828 $ 3 $ 29
Investment in subsidiary 127,648 109,682 122,517
Other assets 9,393 135 272
--------- --------- ---------
Total assets $ 148,869 $ 109,820 $ 122,818
========= ========= =========
Liabilities and Stockholders'
Equity:
Note payable -- 7,010 14,020
Senior notes 80,000 -- --
Other liabilities 976 181 739
--------- --------- ---------
Total liabilities 80,976 7,191 14,759
--------- --------- ---------
Common stock 197 -- --
Additional paid-in capital 197,753 16,896 8,797
Retained earnings 19,265 117,716 147,761
Treasury stock (149,436) -- --
Unrealized gains (losses) on
securities available
for sale, net of income tax 114 (31,983) (48,499)
--------- --------- ---------
Total stockholders' equity 67,893 102,629 108,059
--------- --------- ---------
Total liabilities and
stockholders' equity $ 148,869 $ 109,820 $ 122,818
========= ========= =========
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Years Ended
September 30, June 30,
------------- --------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Income:
Dividend income from subsidiary $ -- $ 1,300 $ 500 $10,600 $19,757
Equity in undistributed earnings
(losses) of subsidiary (97,970) (5,228) (29,886) 5,124 3,119
Other -- 3 200 43 10
-------- ------- -------- ------- -------
Total income (loss) (97,970) (3,925) (29,186) 15,767 22,886
Expense:
Interest expense 692 282 1,026 1,606 2,105
Compensation and employee benefits -- -- -- 871 11,468
Other 47 87 145 828 285
-------- ------- -------- ------- -------
Total expense 739 369 1,171 3,305 13,858
Benefit for income taxes 258 139 312 1,106 5,387
-------- ------- -------- ------- -------
Net income (loss) $(98,451) $(4,155) $(30,045) $13,568 $14,415
======== ======= ======== ======= =======
</TABLE>
F-36
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended Years Ended
September 30, June 30,
------------- --------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
CASH PROVIDED (ABSORBED) BY OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (98,451) $ (4,155) $(30,045) $ 13,568 $14,415
Adjustments to reconcile net income to net
cash provided (absorbed) by operating
activities:
Equity in undistributed losses 97,970 5,228 29,886 (5,124) (3,119)
(earnings) of subsidiary
Change in other liabilities 795 (16) (558) 531 (126)
Change in other assets (4,751) (1,083) (398) (1,937) (4,166)
--------- -------- -------- -------- -------
Net cash provided (absorbed) by operating
activities (4,437) (26) (1,115) 7,038 7,004
--------- -------- -------- -------- -------
CASH ABSORBED BY INVESTING ACTIVITY:
Investment in subsidiary (83,839) -- -- -- --
--------- -------- -------- -------- -------
Net cash absorbed by investing activity (83,839) -- -- -- --
--------- -------- -------- -------- -------
CASH PROVIDED (ABSORBED) BY FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 181,054 -- -- -- --
Capital contribution -- -- 8,099 -- --
Purchase of treasury stock (149,436) -- -- -- --
Repayment of note payable (7,010) -- (7,010) (7,010) (7,010)
Proceeds from issuance of senior notes, net 75,493 -- -- -- --
--------- -------- -------- -------- -------
Net cash provided (absorbed) by financing
activities 100,101 -- 1,089 (7,010) (7,010)
--------- -------- -------- -------- -------
Net change in cash and cash equivalents 11,825 (26) (26) 28 (6)
Cash and cash equivalents at beginning of period 3 29 29 1 7
--------- -------- -------- -------- -------
Cash and cash equivalents at end of period $ 11,828 $ 3 $ 3 $ 29 $ 1
========= ======== ======== ======== =======
Supplemental schedule of noncash investing
activity:
Tax benefit contributed to subsidiary $ -- $ -- $ 535 $ 1,752 $ 5,386
========= ======== ======= ======== =======
</TABLE>
F-37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following statement sets forth the estimated amount of expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance and distribution of the securities being registered. Except as
specifically indicated, all of such expenses are being borne by the Registrant.
SEC filing fees....................................... $ 90,603
Printing and distribution............................. 25,000
Legal fees and expenses............................... 225,000
Blue Sky fees and expenses............................ 20,000
Accounting fees and expenses.......................... 60,000
Miscellaneous fees and expenses....................... 29,397
--------
Total................................................. $450,000
=======
Item 14. Indemnification of Directors and Officers.
Article IX of the Registrant's Bylaws provides as follows:
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article IX, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, trustee or employee of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, trustee, employee or agent of
another corporation, association, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding, and any appeal therein, if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding, and any appeal
therein, by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
II-1
<PAGE>
Section 2. Power to Indemnify in Actions, suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, trustee or employee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against amounts paid in
settlement and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; provided, however, that
no indemnification shall be made against expenses in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to the
Corporation or against amounts paid in settlement unless and only to the extent
that there is a determination (as set forth in Section 3 of this Article IX)
that despite the adjudication of liability or the settlement, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses or amounts paid in settlement.
Section 3. Authorization of Indemnification. Any indemnification under
this Article IX (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because such director, officer, trustee, employee or agent
has met the applicable standard of conduct set forth in Section 1 or Section 2
of this Article IX and, if applicable, is fairly and reasonably entitled to
indemnity as set forth in the proviso in Section 2 of this Article IX, as the
case may be. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, (ii) if such quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders. To the extent,
however, that a director, officer, trustee, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case. No director, officer, trustee, employee or
agent of the Corporation shall be entitled to indemnification in connection with
any action, suit or proceeding voluntarily initiated by such person unless the
action, suit or proceeding was authorized by a majority of the entire board of
directors.
II-2
<PAGE>
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article IX, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any association, partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent. The provisions
of this section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Sections 1 or 2 of this Article IX, as the
case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he has met the applicable standards of conduct set
forth in Sections 1 and 2 of this Article IX, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. Notwithstanding any of
the foregoing, unless otherwise required by law, no director, officer trustee,
employee or agent of the Corporation shall be entitled to indemnification in
connection with any action, suit or proceeding voluntarily initiated by such
person unless the action, suit or proceeding was authorized by a majority of the
entire board of directors.
Section 6. Expense Payable in Advance. Expenses incurred in connection
with a threatened or pending action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, trustee, employee or agent to repay such amount if it shall be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article IX.
Section 7. Contract, Non-exclusivity and Survival of Indemnification.
The indemnification provided by this Article IX shall de deemed to be a contract
between the Corporation and each director, officer, employee and agent who
serves in such capacity at any time while this Article IX is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. Further, the indemnification and
advancement of expenses provided by this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any Certificate of Incorporation,
bylaw, agreement, contract, vote of stockholders or disinterested directors or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that, subject to the limitation in Section 3 of this Article IX
concerning voluntary initiation of actions, suits or proceedings,
indemnification of the persons specified in Sections 1 and 2 of this Article IX
shall be made to the fullest extent permitted by law. The provisions of this
Article IX shall not be deemed to preclude the indemnification of any person who
is not specified in Sections 1 or 2 of this Article IX but whom the Corporation
has the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, trustee, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
II-3
<PAGE>
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, trustee,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, association, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power or the obligation to indemnify him against such liability
under the provisions of this Article IX.
Section 9. Meaning of "Corporation" for Purposes of Article IX. For
purposes of this Article IX, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article IX with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
Item 15. Recent Sales of Unregistered Securities.
In accordance with Item 701 of Regulation S-K, the following
information is presented with respect to securities sold by the Registrant
within the past three years which were not registered under the Securities Act
of 1933, as amended ("Securities Act"):
(a) On September 8, 1997, the Registrant sold in a private
placement an aggregate of 19.7 million shares of its common
stock, par value $.01 per share ("Common Stock"), and $80.0
million of its Senior Notes due 2004 ("Senior Notes").
II-4
<PAGE>
(b) Friedman, Billings Ramsey & Co., Inc. ("FBR") acted as
Placement Agent for the Registrant in connection with the
private placement transaction. The securities were offered and
sold to institutional and accredited investors.
(c) The Registrant's Common Stock was sold for $10.00 per share and
the Senior Notes were sold at $1,000 aggregate principal amount
per Senior Note. FBR received $18.2 million as compensation in
the transaction (a 7.0% commission on the Common Stock sold and
a 5.5% commission on the Senior Notes sold), plus reimbursement
of expenses, and warrants entitling FBR to purchase from the
Registrant, for a period of five years from September 8, 1997,
an aggregate of up to 591,000 shares of Common Stock at $10.00
per share (the "Placement Agent Warrants").
(d) Based upon representations of the offerees and purchasers, the
Common Stock and the Senior Notes were offered and sold in
reliance upon an exemption from registration under Section 4(2)
of the Securities Act and in compliance with Rules 502 and 506
promulgated thereunder.
(e) As referenced in paragraph (c) above, the Placement Agent
Warrants may be exercised by FBR until September 8, 2002 at an
exercise price of $10.00 per share of Common Stock.
(f) Not applicable.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits
3.1 Certificate of Incorporation of Local Financial Corporation ("Local
Financial")
3.2 Certificate of Amendment to Certificate of Incorporation of Local
Financial
3.3 Bylaws of Local Financial
4.1 Purchase Agreement among Local Financial, Friedman, Billings, Ramsey &
Co., Inc. ("FBR") and the Purchasers named therein, dated September 8,
1997
4.2 Registration Rights Agreement between Local Financial, FBR and the
Purchasers named therein, dated September 8, 1997
4.3 Indenture between Local Financial and The Bank of New York ("BONY"), as
Trustee, dated September 8, 1997
4.4 Form of Common Stock certificate of Local Financial
II-5
<PAGE>
4.5 Form of Senior Note (included in Exhibit 4.3)
5.0 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality
10.1 Redemption Agreement between Local Financial and Barron Collier and
Miles Collier (collectively, the "Selling Stockholders"), dated August
25, 1997
10.2 Amendment to Redemption Agreement between Local Financial and the
Selling Stockholders, dated September 5, 1997
10.3 Security Agreement between Local Financial and BONY, as Trustee, dated
September 8, 1997
10.4 Escrow Agreement between Local Financial, the Selling Stockholders and
BONY, as Escrow Agent, dated September 8, 1997
10.5 Common Interest Agreement between Local America, Inc., Local America
Bank of Tulsa, F.S.B., Local Federal Bank, F.S.B. and the Selling
Stockholders, dated September 8, 1997.
10.6 Warrant of Local Financial to FBR to purchase 591,000 shares of Common
Stock, dated September 8, 1997
10.7 Employment Agreement between Local Financial and Edward A. Townsend,
dated September 8, 1997
10.8 Employment Agreement between Local Financial and Jan A. Norton, dated
September 8, 1997
10.9 Local Financial Stock Option Plan
10.10 Local Financial Stock Option Agreement between Local Financial and
Edward A. Townsend, dated September 8, 1997
10.11 Local Financial Stock Option Agreement between Local Financial and Jan
A. Norton, dated September 8, 1997
16.0 Letter re: Change in Certifying Accountant
21.0 Subsidiaries of the Registrant (see "Business--Subsidiaries" in the
Prospectus)
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibit
5.0)
23.2 Consent of Arthur Andersen LLP
24.0 Power of Attorney (included in Signature Page of this Registration
Statement)
25.0 Statement of Eligibility of Trustee (included in Volume III)
27.0 Financial Data Schedule
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under
the rules of Regulation S-X.
II-6
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) (1) to file, during any period in which offers or sales are
being made, a post- effective amendment to this registration
statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Form S-1 Registration Statement to signed on its
behalf by the undersigned, thereunto duly authorized, in Oklahoma City, Oklahoma
on December 30, 1997.
LOCAL FINANCIAL CORPORATION
By: /s/ Edward A. Townsend
----------------------------------------
Edward A. Townsend
Chairman of the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby constitutes and appoints Edward A. Townsend and Jan A. Norton, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting upon said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Edward A. Townsend Chairman of the Board and December 30, 1997
- ------------------------------- Chief Executive Officer
Edward A. Townsend (principal executive officer)
/s/ Jan A. Norton President and Director December 30, 1997
- -------------------------------
Jan A. Norton
/s/ Richard L. Park Executive Vice President December 30, 1997
- ------------------------------- (Principal accounting officer)
Richard L. Park
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Robert A. Kotecki Director December 30, 1997
- -------------------------------
Robert A. Kotecki
/s/ Joseph A. Leone Director December 22, 1997
- -------------------------------
Joseph A. Leone
/s/ George Nigh Director December 19, 1997
- -------------------------------
George Nigh
/s/ Kenneth W. Townsend Director December 22, 1997
- -------------------------------
Kenneth W. Townsend
</TABLE>
<PAGE>
EXHIBIT INDEX
Item
No. Description
- ---- -----------
3.1 Certificate of Incorporation of Local Financial Corporation ("Local
Financial")
3.2 Certificate of Amendment to Certificate of Incorporation of Local
Financial
3.3 Bylaws of Local Financial
4.1 Purchase Agreement among Local Financial, Friedman, Billings, Ramsey &
Co., Inc. ("FBR") and the Purchasers named therein, dated September 8,
1997
4.2 Registration Rights Agreement between Local Financial, FBR and the
Purchasers named therein, dated September 8, 1997
4.3 Indenture between Local Financial and The Bank of New York ("BONY"), as
Trustee, dated September 8, 1997
4.4 Form of Common Stock certificate of Local Financial
4.5 Form of Senior Note (included in Exhibit 4.3)
5.0 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality
10.1 Redemption Agreement between Local Financial and Barron Collier and
Miles Collier (collectively, the "Selling Stockholders"), dated August
25, 1997
10.2 Amendment to Redemption Agreement between Local Financial and the
Selling Stockholders, dated September 5, 1997
10.3 Security Agreement between Local Financial and BONY, as Trustee, dated
September 8, 1997
10.4 Escrow Agreement between Local Financial, the Selling Stockholders and
BONY, as Escrow Agent, dated September 8, 1997
10.5 Common Interest Agreement between Local America, Inc., Local America
Bank of Tulsa, F.S.B., Local Federal Bank, F.S.B. and the Selling
Stockholders, dated September 8, 1997.
10.6 Warrant of Local Financial to FBR to purchase 591,000 shares of Common
Stock, dated September 8, 1997
10.7 Employment Agreement between Local Financial and Edward A. Townsend,
dated September 8, 1997
10.8 Employment Agreement between Local Financial and Jan A. Norton, dated
September 8, 1997
10.9 Local Financial Stock Option Plan
10.10 Local Financial Stock Option Agreement between Local Financial and
Edward A. Townsend, dated September 8, 1997
10.11 Local Financial Stock Option Agreement between Local Financial and Jan
A. Norton, dated September 8, 1997
16.0 Letter re: Change in Certifying Accountant
21.0 Subsidiaries of the Registrant (see "Business--Subsidiaries" in the
Prospectus)
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibit
5.0)
24.0 Power of Attorney (included in Signature Page of this Registration
Statement)
25.0 Statement of Eligibility of Trustee
27.0 Financial Data Schedule
Exhibit 3.1
STATE OF DELAWARE
CERTIFICATE OF INCORPORATION
OF
LOCAL FINANCIAL CORPORATION
Local Financial Corporation, a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
Article 1. Corporate Title. The name of the corporation is Local
Financial Corporation (the "Corporation").
Article 2. Duration. The duration of the Corporation is perpetual.
Article 3. Purpose. The purpose or purposes for which the Corporation is
organized are to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
Article 4. Capital Stock. The total number of shares of all classes of
the capital stock which the Corporation has authority to issue is three thousand
(3,000), of which two thousand (2,000) shall be common stock, par value $.01 per
share, and one thousand (1,000) shall be serial preferred stock, par value $.01
per share. The shares may be issued by the Corporation from time to time as
approved by its board of directors without the approval of its stockholders. The
consideration for the issuance of the shares shall be paid in full before their
issuance and shall not be less than the par value per share. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of the shares of the Corporation. The consideration for the shares
shall be cash, labor or services actually performed for the corporation,
personal property, real property, leases of real property or any combination of
the foregoing. In the absence of actual fraud in the transaction, the value of
such property, labor or services, as determined by the board of directors of the
Corporation, shall be conclusive. Upon payment of such consideration such shares
shall be deemed to be fully paid and nonassessable. In the case of a stock
dividend, that part of the surplus of the Corporation which is transferred to
stated capital upon the issuance of shares as stock dividend shall be deemed to
be the consideration for their issuance.
Nothing contained in this Article 4 (or in any resolution or resolutions
adopted by the board of directors pursuant hereto) shall entitle the holders of
any class of series of capital stock to vote as a separate class or series or to
more than one vote per share with no cumulative voting in the election of
directors; provided, however, that this restriction on voting separately by
class or series shall not apply to any amendment which would adversely
<PAGE>
change the specific terms of any class or series of capital stock as set forth
in this Article 4 (or in any resolution or resolutions adopted by the board of
directors pursuant hereto). An amendment which increases the number of
authorized shares of any class or series of capital stock, or substitutes the
surviving Corporation in a merger or consolidation for the Corporation, shall
not be considered to be such an adverse change.
A description of the different classes and series of the Corporation's
capital stock and a statement of the designations, and the powers, preferences
and rights, and the qualifications, limitations and restrictions of the shares
of each class of and series of capital stock are as follows:
A. Common Stock. Except as provided in this Article 4 (or in any
resolution or resolutions adopted by the board of directors pursuant
hereto), the holders of the common stock shall exclusively possess all
voting power. Each holder of shares of common stock shall be entitled to
one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund or
retirement fund or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only
when and as declared by the board of directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the
holders of any class having preferences over the common stock in the
event of liquidation, dissolution or winding up of the full preferential
amounts to which they are respectively entitled, the holders of the
common stock, and of any class or series of stock entitled to
participate therewith in whole or in part, as to distribution of assets,
shall be entitled after payment or provision for payment of all debts
and liabilities of the Corporation, to receive the remaining assets of
the Corporation available for distribution, in cash or in kind. Each
share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
B. Serial Preferred Stock. Except as provided in this Article 4,
the board of directors of the Corporation is authorized by resolution or
resolutions from time to time adopted and by filing a certificate of
designations pursuant to the applicable law of the State of Delaware, to
provide for the issuance of serial preferred stock in series and to fix
and state the voting powers,
<PAGE>
designations, preferences and relative, participating, optional or other
special rights of the shares of each such series and the qualifications,
limitations and restrictions thereof, including, but not limited to,
determination of any of the following:
(1) the distinctive serial designation and the number of
shares constituting such series;
(2) the dividend rates or the amount of dividends to be
paid on the shares of such series, whether dividends shall be
cumulative and, if so, from which date or dates, the payment date
or dates for dividends, and the participating or other special
rights, if any, with respect to dividends;
(3) the voting powers, full or limited, if any, of shares
of such series;
(4) whether the shares of such series shall be redeemable
and, if so, the price or prices at which, and the terms and
conditions on which such shares may be redeemed;
(5) the amount or amounts payable upon the shares of such
series in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(6) whether the shares of such series shall be entitled
to the benefit of a sinking or retirement fund to be applied to
the purchase or redemption of such shares, and if so entitled,
the amount of such fund and manner of its application, including
the price or prices at which such shares may be redeemed or
purchased through the application of such fund;
(7) whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other class
of classes or of any other series of the same or any other class
or classes of stock of the Corporation, and if so convertible or
exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which
such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(8) the price or other consideration for which the shares
of such series shall be issued; and
<PAGE>
(9) whether the shares of such series which are redeemed
or converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may be
reissued as shares of the same or any other series of serial
preferred stock. Each share of each series of serial preferred
stock shall have the same relative rights as and be identical in
all respects with all the other shares of the same series.
Article 5. Preemptive Rights . Holders of the capital stock of the
Corporation shall not be entitled to preemptive rights with respect to any
shares or other securities of the Corporation which may be issued.
Article 6. Directors. The Corporation shall be under the direction of a
board of directors. The board of directors shall consist of not less than three
directors nor more than fifteen directors. The number of directors within this
range shall be as stated in the Corporation's bylaws, as may be amended from
time to time. The board of directors shall divide the directors into three
classes and, when the number of directors is changed, shall determine the class
or classes to which the increased or decreased number of directors shall be
apportioned; provided, that the directors in each class shall be as nearly equal
in number as possible; provided, further, that no decrease in the number of
directors shall affect the term of any director then in office. The terms,
classifications, qualifications and election of the board of directors and the
filling of vacancies thereon shall be as provided herein and in the
Corporation's bylaws.
Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified. Elections of
directors need not be by written ballot unless so required by the board of
directors in its discretion.
Any vacancy occurring in the board of directors, including any vacancy
created by reason of an increase in the number of directors, shall be filled by
the concurring vote of a majority of the directors then in office, whether or
not a quorum, and any director so chosen shall hold office until the next annual
meeting of stockholders and until such director's successor shall have been
elected and qualified.
No director may be removed except for cause and then only by an
affirmative vote of at least a majority of the total votes eligible to be voted
by stockholders at a duly constituted meeting of stockholders called for such
purpose. At last 30 days prior to such meeting of stockholders, written notice
shall be sent to the director or directors whose removal will be considered at
such meeting. The term "cause" shall mean (i) conduct as a director of the
Corporation or any subsidiary involving willful material misconduct, breach of
material fiduciary duty involving personal profit, or gross negligence as to
material duties or (ii) conduct, whether or not as a director of the Corporation
or any subsidiary, involving
<PAGE>
dishonesty or breach of trust which is punishable by imprisonment for a term
exceeding one year under Federal or state law.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware for approval of an unlawful dividend or an unlawful stock purchase
or redemption, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or modification of this paragraph by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation for acts or omissions occurring prior to the effective date of such
repeal or modification.
Article 7. Bylaws. The board of directors or the stockholders may from
time to time amend the bylaws of the Corporation. Such action by the board of
directors shall require the affirmative vote of at least two-thirds of the
directors then in office at a duly constituted meeting of the board of directors
called for such purpose. Such action by the stockholders shall require the
affirmative vote of at least a majority of the total votes eligible to be voted
at a duly constituted meeting of stockholders called for such purpose.
Article 8. Special Meetings. Special meetings of stockholders may be
called at any time but only by the chairman of the board or the president of the
Corporation, by an affirmative vote of a majority of the directors then in
office at a duly constituted meeting of the board of directors of the
Corporation called for such purpose, or by the president of the Corporation upon
the written request of the holders of at least a majority of the shares of any
class of capital stock then outstanding.
Article 9. Registered Office. The street address of the Corporation's
registered office in the State of Delaware if 1209 Orange Street, City of
Wilmington, County of New Castle, and the name of its registered agent at such
address is The Corporation Trust Company.
Article 10. Amendment of Certificate of Incorporation. Except as set
forth in this Article 10 or as otherwise specifically required by law, no
amendment of any provision of this Certificate of Incorporation shall be made
unless such amendment has been first proposed by the board of directors of the
Corporation upon the affirmative vote of at least a majority of the directors
then in office at a duly constituted meeting of the board of directors called
for such purpose and thereafter approved by the stockholders of the Corporation
by the affirmative vote of the holders of at least a majority of the shares
entitled to vote thereon at a duly called annual or special meeting.
<PAGE>
Article 11. Incorporator. The name and address of the incorporator are
as follows:
Daniel H. Burd Suite 700
1220-19th Street, N.W.
Washington, D.C. 20036
Article 12. Initial Directors. The number of directors constituting the
initial board of directors of the Corporation is three, and the names and
addresses of the persons who are to serve as directors until their successors
are elected and qualified, together with the classes of directorships to which
such persons have been assigned, are:
Name Address Class & Term
---- ------- ------------
Miles C. Collier 3610 N.W. 63rd Street III-1995
Oklahoma City, OK 73126
Bruce S. Sherman 3610 N.W. 63rd Street II-1994
Oklahoma City, OK 73126
Robert J. Irvin 3610 N.W. 63rd Street I-1993
Oklahoma City, OK 73126
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 30th day of September, 1992.
/s/ Daniel H. Burd
-------------------------------
Daniel H. Burd
Incorporator
Exhibit 3.2
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
LOCAL FINANCIAL CORPORATION
-------------------------------------------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-------------------------------------------------------------------------------
Local Financial Corporation, a Delaware corporation (hereinafter called
the "Corporation"), does hereby certify as follows:
FIRST: The first sentence of Article 4 of the Corporation's Certificate
of Incorporation is hereby amended to read in its entirety as set forth below:
The total number of shares of all classes of capital stock which
the Corporation has authority to issue is thirty million
(30,000,000), of which twenty-five million (25,000,000) shall be
common stock, par value $.01 per share, and five million
(5,000,000) shall be serial preferred stock, par value $.01 per
share.
SECOND: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware by the
unanimous written consent of the holders of all of the issued and outstanding
shares of capital stock of the Corporation.
IN WITNESS WHEREOF, Local Financial Corporation has caused this
certificate to be duly executed in its corporate name this 29th day of August,
1997.
LOCAL FINANCIAL CORPORATION
By: /s/ Bruce Sherman
--------------------------------
Name: Bruce Sherman
Title: President
Exhibit 3.3
BYLAWS OF
LOCAL FINANCIAL CORPORATION
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders for the election of
directors or for any other purpose shall be held at such time and place, either
within or without the State of Delaware, as shall be designated from time to
time by the board of directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meetings of stockholders shall be
held at such place, date and hour as shall be designated from time to time by
the board of directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a board of directors
and transact such other business as may properly be brought before the meeting.
Written notice of the annual meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting, except as
otherwise required by law. The notice shall also set forth the purpose or
purposes for which the meeting is called.
<PAGE>
Section 3. Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the director of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 45 days or more than 90 days prior to the meeting;
provided however, that in the event that less than 60 days notice of the date of
the meeting is given to stockholders or prior public disclosure of the date of
the meeting is made, notice by the stockholder to be timely must be so received
not later than the close of business on the 15th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, (d) any
material interest of the stockholder in such business and (e) the same
information required by clauses (b), (c) and (d) above with respect to any other
stockholder that, to the knowledge of the stockholder proposing such business,
supports such proposal. Notwithstanding anything in these bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 3. the chairman of an
annual meeting shall, if the facts warrant, determine and declare to the annual
meeting that a matter of business was not properly brought before the meeting in
accordance with the provisions of this Section 3, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
Section 4. Special Meetings. Special Meetings of stockholders for any
purpose may be called only as provided in the Certificate of Incorporation.
Written notice of a special meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given, except as otherwise required by law, not less than 10 nor more than 60
days before the date of the meeting to each stockholder entitled to vote at such
meeting.
Section 5. Quorum. The holders of a majority of the capital stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
2
<PAGE>
Section 6. Voting. Except as otherwise required by law, the Certificate of
Incorporation or these bylaws, any matter brought before any meeting of
stockholders shall be decided by the affirmative vote of the majority of the
votes cast on the matter. Each stockholder represented at a meeting of
stockholders shall be entitled to cast one vote for each share of common stock
entitled to vote thereat held by such stockholder and such number of votes,
including multiple or fractional votes, as may be provided by resolution of the
board of directors for each share of serial preferred stock entitled to vote
thereat held by such stockholder. The board of directors, in its discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the list
required by section 7 of this Article II or to vote in person or by proxy at any
meeting of stockholders.
Section 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or his duly authorized
attorney-in-fact. Proxies solicited on behalf of the board of directors shall be
voted as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
Section 10. Voting of Shares in the Name of Two or More Persons. If shares
or other securities having voting power stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the secretary of the Corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (1) if only one votes, his act binds all; (2) if more
than one vote, the act of the majority so voting binds all; (3) if more than one
vote, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or any person voting the shares,
or a beneficiary, if any, may apply to the Court of Chancery of the State of
Delaware or such other court as may have jurisdiction to appoint an additional
person to act with the persons so voting the shares, which shall then be voted
as determined by a majority of such persons and the person appointed by the
Court. If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this subsection shall be
a majority or even-split in interest.
3
<PAGE>
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name. Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer into his name if authority so to do
is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such shares
unless in the transfer by the pledgor on the books of the Corporation he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee,
or his proxy, may represent such stock and vote thereon.
Neither treasury shares of its own stock held by the Corporation, nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
Section 12. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. The number of inspectors shall be either one or three. If the board of
directors so appoints either one or three such inspectors, that appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, and on the request of
not less than ten percent of the votes represented at the meeting shall, make
such appointments at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or by the chairman of the board or the
president.
4
<PAGE>
Unless otherwise prescribed law, the duties of such inspectors shall
include: determining the number of shares of stock entitled to vote, the voting
power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or the vote with fairness to all stockholders.
Section 13. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with rules prescribed by the presiding officer of the
meeting, unless otherwise prescribed by law or these bylaws. The board of
directors shall designate, when present, either the chairman of the board or the
president to preside at such meetings.
Section 14. Stockholder Action by Written Consent. Any action required or
permitted to be taken by the stockholders of the Corporation at an annual or
special meeting may be taken without a meeting if a consent in writing, setting
forth the action to be taken, shall be given by all stockholders entitled to
vote with respect to the action.
ARTICLE III
DIRECTORS
Section 1. Number and Directors. The number of directors shall be four.
Directors need not be residents of the State of Delaware. Directors shall be
elected only by stockholders at annual meetings of stockholders, except as
provided in Section 2 of this Article III in the case of vacancies and newly
created directorships. Each director elected shall hold office for the term for
which he is elected and until his successor is elected and qualified or until
his earlier resignation or removal.
Section 2. Classes; Terms of Office; Vacancies. The board of directors
shall divide the directors into three classes; and, when the number of directors
is changed, shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided, further, that no
decrease in the number of directors shall affect the term of any director then
in office. At each annual meeting of stockholders, directors elected to succeed
those whose terms are expiring shall be elected for a term of office to expire
at the third succeeding annual meeting of stockholders and when their respective
successors are elected and qualified. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by the concurring vote of a majority of the directors then in office, whether or
not a quorum, and any director so chosen shall hold office until the next annual
meeting of stockholders and until such director's successor shall have been
elected and qualified.
5
<PAGE>
Section 3. Duties and Powers. The business of the Corporation shall be
managed by, or under the direction of, the board of directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not be statute or by the Certificate of Incorporation or by these
bylaws directed or required to be exercised or done by the stockholders. The
board of directors shall annually elect a chairman of the board from among its
members who, when present, shall preside at its meetings.
Section 4. Meetings. The board of directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The annual regular meeting of the board of directors shall be held
without other notice than this bylaw immediately after, and at the same place
as, the annual meeting of the stockholders. Additional regular meetings of the
board of directors shall be held at least quarterly, and may be held without
notice at such time and at such place as may from time to time be determined by
the board of directors. Special meetings of the board of directors may be called
by the chairman of the board, the president or a majority of directors then in
office. Notice thereof stating the place, date and hour of the meeting shall be
given to each director either by mail not less than 48 hours before the date of
the meeting, or by telephone or telegram on 24 hours' notice.
Section 5. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these bylaws, at all meetings of the
board of directors, a majority of the directors then in office shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the board of directors. If a quorum shall not be present at any meeting of the
board of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions Without Meeting. Any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting, if all the members of the board of directors or
committee, as the case may be, with the minutes of proceedings of the board of
directors or committee.
Section 7. Meetings by Means of Conference Telephone. Members of the board
of directors of the Corporation, or any committee designated by the board of
directors, may participate in a meeting of the board of directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. Compensation. The board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their reasonable
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a reasonable fixed sum for actual attendance at each meeting of the
board of directors. Directors, as such, may receive a stated salary for their
services. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
6
<PAGE>
Section 9. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board of directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the board of directors or the committee, and the board of directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the board of directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
Section 10. Corporate Books. The directors may keep the books of the
Corporation outside the State of Delaware at such place or places as they may
from time to time determine.
Section 11. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any matter is
taken shall be presumed to have assented to the action taken unless his dissent
or abstention shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation within five days after the
date he receives a copy of the minutes of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action.
Section 12. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the chairman of the board or the president
of the Corporation. Unless otherwise specified therein such resignation shall
take effect upon receipt thereof by the chairman of the board or the president.
More than three consecutive absences from regular meetings of the board of
directors, unless excused by resolution of the board of directors, shall
automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
7
<PAGE>
Section 13. Nominees. Only persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
Corporation may be made at a meeting of stockholders by or at the direction of
the board of directors or by any stockholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 13. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 45 days or more
than 90 days prior to the meeting; provided, however, that in the event that
less than 60 days' notice of the date of the meeting is given to stockholders or
prior public disclosure of the date of the meeting is made, notice by the
stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations or proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such persons's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving notice (i) the name and address,
as they appear on the Corporation's books, of such stockholder and (ii) the
class and number of shares of the Corporation which are beneficially owned by
such stockholder. At the request of the board of directors, any person nominated
by the board of directors for election as a director shall furnish to the
secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 13. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with procedures prescribed by the
bylaws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may establish such committees composed of directors
as they may determine to be necessary or appropriate for the conduct of the
business of the Corporation and may prescribe the duties and powers thereof.
8
<PAGE>
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the Corporation shall include a
president, a secretary and a treasurer, each of whom shall be elected by the
board of directors. The president shall be the chief executive officer, unless
the board of directors designates the chairman of the board as the chief
executive officer. The chief executive officer shall also serve as a director of
the Corporation. The chairman of the board and the president may be the same
person. The secretary and treasurer may be the same person. The board of
directors may also elect or authorize the appointment of such other officers as
the business of the Corporation may require and may designate the chairman of
the board of directors as an officer. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election. The board of directors at its first meeting held
after the annual meeting of stockholders shall elect annually the officers of
the Corporation who shall exercise such powers and perform such duties as shall
be set forth in these bylaws and as determined from time to time by the board of
directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the board of directors may be removed at any
time by the affirmative vote of a majority of the board of directors. Any
vacancy occurring in any office of the Corporation shall be filled by the board
of directors. The salaries of all officers of the Corporation shall be fixed by
the board of directors.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
Section 4. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the president or any vice president, and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The board of directors may, by resolution, from time to time confer
like powers upon any other person or persons.
9
<PAGE>
ARTICLE VI
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by (i) the president and (ii) the secretary or an assistant
secretary of the Corporation, representing the number of shares registered in
certificate form.
Section 2. Signatures. Any or all of the signatures on a certificate may
be facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
issue.
Section 3. Lost Certificates. The president or any vice president may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the president or any vice president may, in his discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as such officer may require and/or to give the Corporation a
bond in such sum as he may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than 60 days nor less than 10 days before the date
of such meeting, nor more than 60 days prior to any other action for which the
record date is established. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting. In order that the Corporation
may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the board of directors may fix, in advance, a record
date, which shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the board of directors.
10
<PAGE>
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not the Corporation shall
have express or other notice thereof, except as otherwise required by law.
ARTICLE VII
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these bylaws to be given to any director, member
of a committee or stockholder, such notice may be given by mail, addressed to
such director, member of a committee or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these bylaws to be given to any director, member
of a committee or stockholder, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting with the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any other waiver of notice unless so required by the Certificate of
Incorporation or these bylaws.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation and the laws of
the State of Delaware, may be declared by the board of directors at any regular
or special meeting, and may be paid in case, in property, or in shares of
capital stock of the Corporation. Subject to the provisions of the General
Corporation Law of the State of Delaware, such dividends may be paid either out
of surplus, out of the net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.
11
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Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be June
30.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
ARTICLE IX
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Corporation. Subject to Section 3 of this
Article IX, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, trustee or employee of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, trustee, employee or agent of
another corporation, association, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding, and any appeal therein, if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding, and any appeal
therein, by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
12
<PAGE>
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, trustee or employee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against amounts paid in
settlement and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; provided, however, that
no indemnification shall be made against expenses in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to the
Corporation or against amounts paid in settlement unless and only to the extent
that there is a determination (as set forth in Section 3 of this Article IX)
that despite the adjudication of liability or the settlement, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses or amounts paid in settlement.
Section 3. Authorization of Indemnification. Any indemnification under
this Article IX (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because such director, officer, trustee, employee or agent
has met the applicable standard of conduct set forth in Section 1 or Section 2
of this Article IX and, if applicable, is fairly and reasonably entitled to
indemnity as set forth in the proviso in Section 2 of this Article IX, as the
case may be. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders. To the extent,
however, that a director, officer, trustee, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case. No director, officer, trustee, employee or
agent of the Corporation shall be entitled to indemnification in connection with
any action, suit or proceeding voluntarily initiated by such person unless the
action, suit or proceeding was authorized by a majority of the entire board of
directors.
13
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Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article IX, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any association, partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent. The provisions
of this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Sections 1 or 2 of this Article IX, as the
case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he has met the applicable standards of conduct set
forth in Sections 1 and 2 of this Article IX, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. Notwithstanding any of
the foregoing, unless otherwise required by law, no director, officer, trustee,
employee or agent of the Corporation shall be entitled to indemnification in
connection with any action, suit or proceeding voluntarily initiated by such
person unless the action, suit or proceeding was authorized by a majority of the
entire board of directors.
Section 6. Expenses Payable in Advance. Expenses incurred in connection
with a threatened or pending action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, trustee, employee or agent to repay such amount if it shall be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article IX.
14
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Section 7. Contract, Non-exclusivity and Survival of Indemnification. The
indemnification provided by this Article IX shall be deemed to be a contract
between the Corporation and each director, officer, employee and agent who
serves in such capacity at any time while this Article IX is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. Further, the indemnification and
advancement of expenses provided by this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any Certificate of Incorporation,
bylaw, agreement, contract, vote of stockholders or disinterested directors or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that, subject to the limitation in Section 3 of this Article IX
concerning voluntary initiation of actions, suits or proceedings,
indemnification of the persons specified in Sections 1 and 2 of this Article IX
shall be made to the fullest extent permitted by law. The provisions of this
Article IX shall not be deemed to preclude the indemnification of any person who
is not specified in Sections 1 or 2 of this Article IX but whom the Corporation
has the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, trustee, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 8. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, trustee, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
Section 9. Meaning of "Corporation" for Purposes of Article IX. For
purposes of this Article IX, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article IX with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE X
AMENDMENTS
The board of directors or the stockholders may from time to time amend the
bylaws of the Corporation. Such action by the board of directors shall require
the affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the board of directors called for such purpose. Such
action by the stockholders shall require the affirmative vote of at least a
majority of the total votes eligible to be voted at a duly constituted meeting
of stockholders called for such purpose.
15
Exhibit 4.1
PURCHASE AGREEMENT
by and among
LOCAL FINANCIAL CORPORATION,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
and
EACH OF THE PURCHASERS REFERRED TO HEREIN
Dated as of September 8, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I. Definitions............................................................................1
Section 1.1 Definitions...................................................................1
Article II. Purchase and Sale of Securities........................................................6
Section 2.1 Purchase and Sale of Securities...............................................6
Section 2.2 Closing.......................................................................6
Article III. Representations and Warranties.........................................................6
Section 3.1 Representations and Warranties of the Company.................................6
Section 3.2 Representations and Warranties of the Purchasers.............................15
Article IV. Conditions Precedent to the Closing...................................................19
Section 4.1 Conditions to Obligations of the Parties.....................................19
Section 4.2 Conditions to Obligations of the Purchasers..................................19
Section 4.3 Conditions to Obligations of the Company.....................................21
Article V. Covenants.............................................................................22
Section 5.1 Investigation and Confidentiality............................................22
Section 5.2 Press Releases...............................................................23
Section 5.3 No Solicitation..............................................................23
Section 5.4 Use of Proceeds..............................................................24
Section 5.5 Rights of First Refusal......................................................25
Section 5.6 Rule 144 and Rule 144A Reporting.............................................28
Section 5.7 Stock Options................................................................29
Section 5.8 Warrants.....................................................................29
Section 5.9 Exchange of Securities.......................................................29
Article VI. Miscellaneous.........................................................................29
Section 6.1 Survival of Provisions.......................................................29
Section 6.2 Termination..................................................................30
Section 6.3 Waiver; Amendments...........................................................30
Section 6.4 Communications...............................................................31
Section 6.5 Costs, Expenses and Taxes....................................................31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.6 Execution in Counterparts....................................................32
Section 6.7 Binding Effect; Assignment...................................................32
Section 6.8 Governing Law................................................................32
Section 6.9 Severability of Provisions...................................................32
Section 6.10 Headings and Gender..........................................................33
Section 6.11 Integration..................................................................33
Exhibit A Form of Senior Note
Exhibit B Form of Registration Rights Agreement
</TABLE>
ii
<PAGE>
PURCHASE AGREEMENT
Purchase Agreement, dated as of September 8, 1997 (the "Agreement"), by
and among Local Financial Corporation, a Delaware corporation, the Placement
Agent, and the other parties named on the signature pages hereof (each of which
is acting severally and not jointly and as to itself only).
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Purchase Agreement, as amended, supplemented or
modified from time to time.
"Banks" means Local Federal Bank, F.S.B., a federally-chartered savings
bank, and Local America Bank, F.S.B., a federally-chartered savings bank, in
each case together with their respective successors.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks and savings institutions in the State of Oklahoma are
authorized or obligated by law to close.
"Capital Securities" of any Person means Capital Stock of the Person
and Stock Equivalents of the Person.
"Capital Stock" of any Person means any and all shares of capital stock
or other equity interest of such Person.
1
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"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended (or any
successor statute in effect from time to time), and the rules and regulations
promulgated thereunder.
"Commission" means the Securities and Exchange Commission and any
successor thereto.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Company" means Local Financial Corporation, a Delaware corporation,
together with its successors.
"Environmental Claim" means any written notice from any governmental
authority or third party alleging potential liability (including without
limitation potential liability for investigating costs, cleanup costs,
governmental response costs, natural resource damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from the
presence, or release into the environment of any Materials of Environmental
Concern.
"Environmental Laws" means any law, statute, rule or regulation of any
governmental, judicial, legislative, executive, administrative or regulatory
authority of the United States, or of any state, local or foreign government or
any subdivision thereof or of any governmental body or other regulatory or
administrative agency or commission, domestic or foreign (a "Law"), relating to
pollution or protection of the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata), including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as
amended, and other Laws relating to (i) emissions, discharges or releases of
pollutants, contaminants, chemicals, or industrial toxic or hazardous substances
or wastes (collectively known as "Polluting Substances") or (ii) the handling,
storage, disposal, reclamation, recycling or transportation of Polluting
Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (or any successor statute in effect from time to time).
"Escrow Agreement" means the Escrow Agreement to be entered into
effective as of the Closing between the Company, the Selling Shareholders and
The Bank of New York, as escrow agent, which agreement shall contain customary
terms and conditions.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time (or any successor statute in effect from time to
time), and the rules and regulations of the Commission promulgated thereunder.
"FDIA" means the Federal Deposit Insurance Act, as amended (or any
successor statute in effect from time to time).
"FDIC" means the Federal Deposit Insurance Corporation and any
successor thereto.
"HOLA" means the Home Owners' Loan Act, as amended (or any successor
statute in effect from time to time).
"Indenture" means the Indenture between the Company and The Bank of New
York, a New York banking corporation, as trustee, as the same may be amended
from time to time in accordance with the terms thereof, providing for the
issuance of the Senior Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in respect of such asset.
"Management" means the following members of the senior management of
the Company: Chairman, President, Chief Executive Officer, Chief Financial
Officer and any Executive Vice President.
"Material Adverse Effect" means a material adverse effect on the
financial condition, business or results of operations of the Company and the
Company Subsidiaries, taken as a whole; provided, however, that Material Adverse
Effect shall not be deemed to include the impact of the transactions
contemplated by this Agreement or any Related Agreement, including the fees and
expenses to be paid in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements or any impact or
effect on the Company resulting from actions taken by the Company after the
Closing.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
"Non-performing Assets" means the following consolidated assets of the
Company: (i) loans, securities or other assets with respect to which the Company
or either of the Banks have ceased recognizing interest under generally accepted
accounting principles or as to which any payments of principal or interest are
past due 90 days or more as of the applicable date and (ii) Real Estate Owned;
and references herein to the amounts of Non- performing Assets shall mean and
refer to the aggregate carrying value of such assets as stated in the books and
financial statements of the Company and the Banks under generally accepted
accounting principles.
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"OTS" means the Office of Thrift Supervision and any successor thereto.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or a political subdivision or an agency or instrumentality thereof.
"Placement Agent" means Friedman, Billings, Ramsey & Co., Inc., in its
capacity as private placement agent with respect to the offering of Securities
described in the Private Placement Memorandum.
"Preferred Stock" means the Preferred Stock, par value $.01 per share,
of the Company.
"Previously Disclosed" means disclosed either (i) in a letter dated the
date hereof delivered from the Company to each Purchaser or from a Purchaser to
the Company, as applicable, specifically referring to the appropriate section of
this Agreement and describing in reasonable detail the matters contained
therein, or (ii) in the Private Placement Memorandum.
"Private Placement Memorandum" means the Private Placement Memorandum,
dated August 25, 1997, with respect to the Securities referred to therein, as
amended or supplemented by the Company at any time prior to the Closing.
"Purchaser" means each Person (other than the Company) listed on the
signature pages of this Agreement, and its permitted successors and assigns as
provided herein, including any Person who becomes a party hereto by executing
and delivering a signature page hereto after the date of this Agreement.
"Real Estate Owned" means the consolidated properties of the Company
acquired by foreclosure on a loan or deed-in-lieu thereof or otherwise included
in the Company's real estate owned for purposes of reporting asset quality of
the Banks in their reports filed with the OTS.
"Redemption Agreement" means the agreement to be entered into among the
Company and the Selling Shareholders, whereby the Company will redeem all of the
issued and outstanding shares of Common Stock of the Company.
"Registration Rights Agreement" means the Registration Rights Agreement
to be entered into among the Company, the Placement Agent and the Purchasers,
substantially in the form of Exhibit B hereto, as amended, supplemented or
otherwise modified from time to time.
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"Related Agreements" means the Indenture, the Security Agreement, the
Escrow Agreement, the Registration Rights Agreement and the Redemption
Agreement, each of which shall be effective as of the Closing.
"SAIF" means the Savings Association Insurance Fund administered by the
FDIC, and any successor thereto.
"Securities" means (i) the Senior Notes and (ii) the Common Stock, in
each case, to be issued and sold by the Company and purchased by the Purchasers
pursuant to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended (or any
successor statute thereto as in effect from time to time), and the rules and
regulations of the Commission promulgated thereunder.
"Security Agreement" means the Security Agreement to be entered into
between the Company and The Bank of New York, as trustee for the Indenture.
"Selling Shareholders" shall have the meaning set forth in the
Redemption Agreement.
"Senior Notes" means the Senior Notes due 2004 to be issued and sold by
the Company and purchased by the Purchasers pursuant to this Agreement,
substantially in the form of Exhibit A hereto, as amended, supplemented or
otherwise modified from time to time.
"State" means each of the states of the United States, the District of
Columbia and the Commonwealth of Puerto Rico.
"Stock Equivalents" means, with respect to any Person, options,
warrants, calls, contracts or other rights entered into or issued by such Person
which confer upon the holder thereof the right (whether or not contingent) to
acquire any Capital Stock, voting securities or securities convertible into or
exchangeable for Capital Stock or voting securities of such Person.
"Stock Option Plan" means the Stock Option Plan to be adopted by the
Company in September 1997.
"Subsidiary" of any Person means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by such Person.
"Taxes" means all taxes, charges, fees, levies or other governmental
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad
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valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated, severance, stamp, occupation, property or other
taxes, customs, dues, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign).
"Tax Returns" means all foreign, federal, State and local returns
relating to Taxes.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale of Securities. Subject to the terms and
conditions hereof and the representations and warranties contained herein, at
the Closing (as defined below), the Company agrees that it will issue and sell
to each Purchaser and each such Purchaser agrees, severally and not jointly and
as to itself only, that it will purchase from the Company (i) the number of
shares of Common Stock (at a price per share of $10.00), (ii) the aggregate
principal amount of Senior Notes or (iii) a combination of Common Stock and
Senior Notes, in each case as set forth below each such Purchaser's name on the
Investor Signature Page to this Agreement.
Section 2.2 Closing. The purchase and sale of the Securities will take
place at a closing (the "Closing") to be held at the offices of the Placement
Agent, Arlington, Virginia, at 10:00 a.m., Eastern Time, on September 8, 1997,
or on such earlier date as all of the conditions to the parties' obligations
hereunder specified in Article IV of this Agreement (other than the delivery of
certificates, opinions and other instruments and documents to be delivered at
the Closing) have been satisfied or waived, or at such other location, and on
such other Business Day and time as the parties hereto shall mutually agree. The
date on which the Closing is to occur is referred to herein as the "Closing
Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Company. Except as
Previously Disclosed, the Company represents and warrants to, and covenants and
agrees with, the Placement Agent and each of the Purchasers as follows:
(a) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 2,000 shares of Common Stock and 1,000 shares
of Preferred Stock. Immediately prior to the Closing, the Company shall amend
its Certificate of Incorporation in order to increase its authorized capital
stock to 25,000,000 shares of Common Stock and
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5,000,000 shares of Preferred Stock. As of the date hereof, there were (i) 60
shares of Common Stock issued and outstanding and (ii) no shares of Preferred
Stock issued and outstanding. Immediately prior to the Closing on the Closing
Date, the Company's outstanding Capital Stock will be as set forth in the
preceding sentence. As of the date hereof, all outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and none of the outstanding shares of Common Stock has been issued
in violation of the preemptive rights of any Person. There are no Stock
Equivalents authorized, issued or outstanding with respect to the Capital Stock
of the Company as of the date hereof.
(b) Organization, Standing and Authority of the Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware with full corporate power and authority to own or
lease all of its properties and assets and to carry on its business as now
conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed, qualified or in good standing would not
have a Material Adverse Effect. The Company is duly registered as a savings and
loan holding company under the HOLA and the regulations of the OTS thereunder.
The Company has heretofore delivered true and complete copies of the Certificate
of Incorporation and Bylaws of the Company as in effect as of the date hereof to
each Purchaser which has made a written request directly to the Company for the
same.
(c) Ownership of the Company Subsidiaries. The only direct or indirect
Subsidiaries of the Company consist of Local Federal Bank, F.S.B., Local America
Inc., Local America Bank of Tulsa, F.S.B., Local Acceptance Company of Florida,
Star Financial Services Corporation, Local Mortgage Corporation, Star
Properties, Inc., Service Corporation of Tulsa Inc., and Oklahoma Financial
Services Corporation. Except for (i) Capital Stock of the Company Subsidiaries,
(ii) stock in the Federal Home Loan Bank of Topeka and (iii) securities and
other interests taken in consideration of debts previously contracted, the
Company does not own or have the right to acquire, directly or indirectly, any
outstanding Capital Stock or other voting securities or ownership interests of
any corporation, bank, savings association, partnership, joint venture or other
organization. The outstanding shares of Capital Stock of the Company
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are directly or indirectly owned by the Company free and
clear of all Liens. No Stock Equivalents are authorized, issued or outstanding
with respect to the Capital Stock of the Company Subsidiaries and there are no
agreements, understandings or commitments relating to the right of the Company
to vote or to dispose of such Capital Stock.
(d) Organization, Standing and Authority of the Company Subsidiaries.
The Banks are federally-chartered savings banks duly organized, validly existing
and in good standing under the laws of the United States, and the other Company
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of their
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respective jurisdictions of incorporation. The deposit accounts of the Banks are
insured by the SAIF to the maximum extent permitted by the FDIA, and the Banks
have paid all premiums and assessments required by the FDIA and the regulations
thereunder. Each of the Company Subsidiaries has full power and authority to own
or lease all of its respective properties and assets and to carry on its
respective business as now conducted and is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such qualification,
except where the failure to be so licensed, qualified or in good standing would
not have a Material Adverse Effect. The Company has heretofore delivered true
and complete copies of the Articles of Incorporation, Charter and Bylaws of each
of the Company Subsidiaries as in effect as of the date hereof to each Purchaser
which has made a written request directly to the Company for the same.
(e) Authority. The Company has full corporate power and authority to
perform its obligations under this Agreement and each of the Related Agreements
to which it will become a party, and the execution, delivery and performance by
the Company of this Agreement and each Related Agreement to which it will become
a party have been or, prior to the Closing, will have been, duly authorized by
all necessary corporate action on the part of the Company.
(f) Due Execution. This Agreement constitutes, and each of the Related
Agreements to which the Company will become a party, when duly authorized,
executed and delivered by the Company, will constitute a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except (i) rights to indemnity and contribution under the Registration
Rights Agreement may be limited by applicable law, (ii) enforceability may be
limited by bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights generally and (iii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(g) No Conflict. The execution, delivery and performance of this
Agreement and each of the Related Agreements by the Company will not conflict
with or constitute a breach of, or a default under (i) the Certificate of
Incorporation, Articles of Incorporation or Charter, as the case may be, or the
Bylaws of the Company or any of the Company Subsidiaries, (ii) any obligation,
agreement, indenture, bond, debenture, note, instrument or any other evidence of
indebtedness to which the Company or any of the Company Subsidiaries is a party
or as to which any of their assets are subject, or (iii) any law, ordinance,
order, license, rule or other regulation or demand of any court or governmental
agency, arbitration panel or authority applicable to the Company or any of the
Company Subsidiaries, except, in the case of clauses (ii) and (iii) above, for
such conflicts, breaches or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect. Except for compliance with applicable
federal and State securities laws in connection with this Agreement and the
performance by the Company of its obligations under the Registration Rights
Agreement, no consent, approval, order or other authorization of any
governmental, administrative or regulatory body or agency is legally required by
or
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on behalf of the Company or the Company Subsidiaries in connection with the
execution, delivery and performance of this Agreement and each of the Related
Agreements to which the Company is or will become a party. The representations
and warranties set forth in clause (iii) of the second preceding sentence and in
the preceding sentence, insofar as it relates to federal and state securities
law and antitrust requirements are made in reliance on the representations and
warranties of the Purchasers contained in this Agreement.
(h) Status of Securities. The shares of Common Stock and the Senior
Notes issuable pursuant to this Agreement have been authorized by all necessary
corporate action on the part of the Company. When the Common Stock is delivered
to the Purchasers at the Closing against payment therefor as provided herein,
the Common Stock will be duly authorized, validly issued and fully paid and
nonassessable, and will not be issued in violation of the preemptive rights of
any Person. At the Closing Date, the Senior Notes will have been duly executed
by the Company and, when authenticated in the manner provided for in the
Indenture and delivered by the Company to the Purchasers against payment
therefor as described in the Private Placement Memorandum, will constitute valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except to the extent that (A) enforceability may be
limited by bankruptcy, insolvency (including without limitation, all laws
relating to fraudulent transfers), moratorium and similar laws affecting
creditors' rights generally and (B) enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(i) Regulatory Reports. The Company and each of the Banks has duly
filed with the OTS and the FDIC, as the case may be, in correct form the reports
required to be filed under applicable laws and regulations and such reports were
in all material respects complete and accurate and in compliance with the
requirements of applicable laws and regulations, provided that information as of
a later date shall be deemed to modify information as of an earlier date; and
the Company has previously delivered or made available to each Purchaser which
has requested the same in writing directly to the Company accurate and complete
copies of all such reports. In connection with the examination of the Company
and the Banks by the OTS completed on or about November 11, 1996, neither the
Company nor either of the Banks were required to correct or change any action,
procedure or proceeding which the Company or the Banks believe has not been
substantially corrected or changed as required.
(j) Financial Statements.
(i) The Private Placement Memorandum includes (x) consolidated
statements of financial condition of the Company as of June 30, 1996 and 1995
and consolidated statements of income, stockholders' equity and cash flows of
the Company for each of the years ended June 30, 1996, 1995 and 1994,
accompanied by the related audit report of Arthur Andersen LLP, and (y) an
unaudited consolidated statement of financial condition of the Company as of May
31, 1997 and an unaudited consolidated statement of
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income of the Company for the eleven months ended May 31, 1997. The foregoing
financial statements, including the related notes where applicable (collectively
the "Company Financial Statements"), fairly present (subject, in the case of the
unaudited Company Financial Statements at and for the eleven months ended May
31, 1997, to audit adjustments recognized in connection with the fiscal 1997
audit, provided such audit adjustments, either individually or in the aggregate,
do not have a Material Adverse Effect) the consolidated financial condition of
the Company as of the respective dates set forth therein, and the consolidated
results of operations, stockholders' equity and cash flows of the Company for
the respective periods or as of the respective dates set forth therein, except
that no consolidated statements of stockholders' equity or cash flows were
presented for the eleven months ended May 31, 1997.
(ii) Each of the Company Financial Statements has been
prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as stated therein, and
except that the unaudited Company Financial Statements need not contain all of
the footnote and line item disclosures that would be required for financial
statements prepared in accordance with generally accepted accounting principles.
The books and records of the Company and the Company Subsidiaries are being
maintained in material compliance with applicable legal and accounting
requirements, and such books and records accurately reflect in all material
respects all dealings and transactions in respect of the business, assets,
liabilities and affairs of the Company and the Company Subsidiaries, provided,
however, that the Company makes no representation or warranty regarding the
accuracy or completeness of the books and records of the Company's automobile
finance subsidiaries.
(k) Material Adverse Change. Since May 31, 1997, (i) neither the
Company nor any of the Company Subsidiaries has incurred any material liability
(on a consolidated basis), except in the ordinary course of business consistent
with past practice (excluding the incurrence of expenses or obligations in
connection with this Agreement, any Related Agreement or any of the transactions
contemplated hereby or thereby) and except for such liability or liabilities as
would not, individually or in the aggregate, have a Material Adverse Effect, and
(ii) no events or developments involving the Company or the Company Subsidiaries
have occurred which, individually or in the aggregate, (A) have had a Material
Adverse Effect, or (B) materially impair the ability of the Company to perform
its obligations under this Agreement, any Related Agreement to which it will
become a party or any of the Securities.
(l) Environmental Matters.
(i) To the knowledge of the Company, the Company and the
Company Subsidiaries are in compliance with all Environmental Laws, except for
any violations of any Environmental Law which would not, individually or in the
aggregate, have a Material Adverse Effect. Neither the Company nor any Company
Subsidiary has received any communication alleging that the Company or any
Company Subsidiary is not in such
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compliance and, to the knowledge of the Company, there are no present
circumstances that would prevent or interfere with the continuation of such
compliance.
(ii) To the knowledge of the Company, none of the properties
owned, leased or operated by the Company or the Company Subsidiaries has been or
is in violation of or liable under any Environmental Law, except for any such
violations or liabilities which would not individually or in the aggregate have
a Material Adverse Effect.
(iii) To the knowledge of the Company, there are no past or
present actions, activities, circumstances, conditions, events or incidents that
would reasonably form the basis of any Environmental Claim or other claim or
action or governmental investigation that would result in the imposition of any
liability arising under any Environmental Law against the Company or any Company
Subsidiary or against any Person whose liability for any Environmental Claim the
Company or any Company Subsidiary has or may have retained or assumed either
contractually or by operation of law, except such as would not have a Material
Adverse Effect.
(m) Tax Matters. The Company and the Company Subsidiaries have timely
filed all Tax Returns required by applicable law to be filed by them (including,
without limitation, estimated tax returns, income tax returns, information
returns and withholding and employment tax returns) and have paid, or where
payment is not required to have been made, have set up an adequate reserve or
accrual for the payment of, all Taxes required to be paid in respect of the
periods covered by such Tax Returns, except in all cases where the failure to
have timely filed such Tax Returns or have paid or have set up an adequate
reserve or accrual for the payment of all such Taxes would not have a Material
Adverse Effect. As of the date hereof, there is no audit examination, assessed
deficiency, deficiency litigation or refund litigation with respect to any Taxes
of the Company or any of the Company Subsidiaries. All Taxes due with respect to
completed and settled examinations or concluded litigation relating to the
Company have been paid in full or adequate provision has been made for any such
Taxes on the Company's consolidated statement of financial condition in
accordance with generally accepted accounting principles, except where the
failure to have paid in full or have made an adequate provision for the payment
of all such Taxes would not have a Material Adverse Effect. The Company has not
executed an extension or waiver of any statute of limitations on the assessment
or collection of any material tax due that is currently in effect.
(n) Allowance for Loan Losses. Notwithstanding anything in this
Agreement to the contrary, it is acknowledged and agreed that the Company makes
no representation or warranty with respect to the collectibility of the
Company's indirect automobile receivables portfolio or that the loan loss
reserves in respect to such portfolio as of May 31, 1997 are sufficient to cover
the losses that may be realized with respect to such portfolio.
(o) ERISA. Each "employee benefit plan" (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other
than any
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"multiemployer plan" (as defined in Section 3(37) or Section 4001(a)(3) of
ERISA)) that is sponsored, maintained or contributed to by the Company (a
"Company Plan") is in compliance in all material respects with all presently
applicable provisions of ERISA, except where any such noncompliance would not
reasonably be expected to have a Material Adverse Effect; no "reportable event"
(as defined in Section 4043 of ERISA or the regulations thereunder), other than
an event as to which the 30-day statutory notice period is waived by regulation,
has occurred with respect to any Company Plan that is a "pension plan" (as
defined in Section 3(2) of ERISA (each such Company Plan, a "Company Pension
Plan"); the Company has not incurred and does not expect to incur any material
liability with respect to any Company Pension Plan under (i) Title IV of ERISA
(with respect to the termination of, or withdrawal from, any such plan) or (ii)
Sections 412 or 4971 of the Code; and each Company Pension Plan has received a
determination letter from the Internal Revenue Service regarding the
qualification of such plan under Section 401(a) of the Code, and to the
knowledge of the Company, nothing has occurred, whether by action or by failure
to act, that would cause the loss of such qualification.
(p) Litigation. Except for the FDIC Dispute, there are no actions,
suits, investigations or legal proceedings pending against, or to the knowledge
of the Company, threatened against, or affecting the Company or any of the
Company Subsidiaries or their respective properties before any court or
governmental body or agency which would reasonably be expected to have a
Material Adverse Effect or which in any manner challenge the legality, validity
or enforceability of this Agreement, any of the Related Agreements or any of the
Securities, or which would reasonably be expected to materially impair the
ability or obligation of the Company to perform fully on a timely basis its
obligations under this Agreement, any Related Agreement to which it will become
a party or any of the Securities.
(q) Compliance with Laws. Each of the Company and the Company
Subsidiaries has all permits, licenses, certificates of authority, orders and
approvals of, and has made all filings, applications and registrations with,
federal, State, local and foreign governmental or regulatory bodies that are
necessary in order to permit it to carry on its business as it is presently
being conducted and the absence of which would have a Material Adverse Effect;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect; and to the knowledge of the Company, no suspension or
cancellation of any of the same is threatened.
(r) No Default or Violation. Neither the Company nor any of the Company
Subsidiaries currently is in violation of its Certificate of Incorporation,
Articles of Incorporation or Charter, as the case may be, its Bylaws, or of any
applicable federal, state or local law or ordinance or any order, rule or
regulation of any federal, state, local or other governmental agency or body
(including, without limitation, all banking, securities, safety, health,
environmental, zoning, anti-discrimination, antitrust, and wage and hour laws,
ordinances, orders, rules and regulations), or in default with respect to any
order, writ, injunction or decree of any court, or in default under any order,
license, regulation or demand of any governmental agency, where any of such
violations or defaults would,
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individually or in the aggregate, reasonably be expected (i) to have a Material
Adverse Effect or (ii) materially adversely impair the ability of the Company to
perform on a timely basis any obligation which it has under this Agreement, any
Related Agreement to which it will become a party or any of the Securities and
neither the Company nor any of the Company Subsidiaries has received any notice
or communication from any federal, state or local governmental authority
asserting that the Company or such Company Subsidiary is in violation of any of
the foregoing which would reasonably be expected to have any effect set forth in
clauses (i) or (ii) above. Neither the Company nor any of the Company
Subsidiaries is subject to any regulatory or supervisory cease and desist order,
agreement, written directive, memorandum of understanding or written commitment,
and none of them has received any written communication requesting that they
enter into any of the foregoing.
(s) Certain Contracts. Except for matters which are the subject of the
FDIC Dispute (as to which no representation or warranty is made hereby) neither
the Company nor any Company Subsidiary is in default or in non-compliance, which
default or non-compliance would reasonably be expected to have a Material
Adverse Effect, under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by which its
assets, business or operations may be bound or affected, whether entered into in
the ordinary course of business or otherwise and whether written or oral, and
there has not occurred any event that with the lapse of time or the giving of
notice, or both, would constitute such a default or non-compliance.
(t) Insurance. Except with respect to the Company's automobile finance
subsidiaries, as to which the Company makes no representations or warranty, the
Company and each Company Subsidiary is insured for reasonable amounts with
financially sound and reputable insurance companies against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured and has maintained all insurance required by
applicable laws and regulations, except where the failure to be so insured would
not have a Material Adverse Effect. Except with respect to the Company's
automobile finance subsidiaries, as to which the Company makes no
representations or warranty, neither the Company nor any of the Company
Subsidiaries has received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond or is in default under such
policy or bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion, except where any such
cancellation, default or dispute would not, individually or in the aggregate,
have a Material Adverse Effect.
(u) Properties. All real and personal property owned by the Company or
any of the Company Subsidiaries or presently used by any of them in their
respective business is in an adequate condition (ordinary wear and tear
excepted) and is sufficient to carry on the business of the Company and the
Company Subsidiaries in the ordinary course of business consistent with their
past practices. The Company and the Company Subsidiaries have good and
marketable title free and clear of all Liens to all of the material properties
and assets, real and personal, reflected on the consolidated statement of
financial condition of the
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Company as of May 31, 1997 included in the Company Financial Statements or
acquired after such date, except (i) for Liens for current taxes not yet due or
payable, (ii) for pledges to secure deposits and other Liens incurred in the
ordinary course of its banking business, (iii) for such Liens, if any, which
would not, individually or in the aggregate, have a Material Adverse Effect and
(iv) as reflected on the consolidated statement of financial condition of the
Company as of May 31, 1997 included in the Company Financial Statements. All
real and personal property which is material to the Company's business on a
consolidated basis and leased or licensed by the Company or any Company
Subsidiary is held pursuant to leases or licenses which are valid and
enforceable in accordance with their respective terms and such leases will not
terminate or lapse prior to the Closing Date, except where such invalidity,
unenforceability, termination or lapse would not, individually or in the
aggregate, have a Material Adverse Effect.
(v) Certain Fees. Except for fees and expenses payable to the Placement
Agent, no fees or commissions will be payable by the Company or any of the
Company Subsidiaries to brokers, finders, investment bankers or banks pursuant
to any agreement entered into by the Company or any of the Company Subsidiaries
with respect to the offer and sale of the Securities or any of the other
transactions contemplated hereby. Notwithstanding the foregoing, the parties
acknowledge and agree that the Company and Bear, Stearns & Co. Inc. ("Bear
Stearns") have entered into a letter agreement, dated June 10, 1996 (the "Bear
Stearns Engagement Letter"). The Selling Shareholders have agreed in the
Redemption Agreement that they will pay all fees and expenses required to be
paid to Bear Stearns in connection with the transactions contemplated by the
Redemption Agreement and this Agreement under the Bear Stearns Engagement
Letter.
(w) Certain Assets. The Company has Previously Disclosed a true and
correct listing of the following assets of the Company and the Company
Subsidiaries as of May 31, 1997: (i) all Non-performing Assets, (ii) all loans,
securities or other assets as to which any payments of principal or interest are
past due 60 or more days and (iii) all loans, securities or other assets not
included in the foregoing which have been classified special mention,
substandard, doubtful or loss by management of the Company or the Company
Subsidiaries or regulatory examiners.
(x) Hedging Contracts. Attached hereto as Schedule I is a true and
correct listing as of May 31, 1997 of all open futures contracts, option
contracts, interest rate caps, interest rate floors, interest rate exchange or
swap agreements or any other open agreements to which the Company is a party or
which are being utilized by the Company for purposes of hedging the exposure of
its interest-earning assets and interest-bearing liabilities to changes in
interest rates.
(y) No Debt. Except (i) for a promissory note payable to Isabel Collier
Read with an outstanding principal balance of $7,010,009 million as of the date
hereof, plus accrued and unpaid interest, and (ii) for the Senior Notes to be
issued pursuant to this Agreement,
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the Company, on an unconsolidated basis, does not have any outstanding
Indebtedness (as defined in Section 1.01 of the Indenture).
(z) Private Offering. Neither the Company nor any Person authorized to
act on its behalf, has taken or will take any action which might subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act or comparable provisions of any applicable State securities
laws.
(aa) Certain Information. The Company has reviewed the historical
information with respect to the Company and the Company Subsidiaries, financial
and otherwise, contained in the Private Placement Memorandum and, to the extent
such information relates to the Company and the Company Subsidiaries, as of the
date or dates thereof, none of such information contained an untrue statement of
a material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(bb) Certain May 31, 1997 Balance Sheet Information. At May 31, 1997,
the Company had (i) not less than $105,780,778 of consolidated stockholders'
equity; (ii) established reserves of not less than $12,785,314 with respect to
its potential liability to the FDIC regarding certain tax benefits previously
received under an Assistance Agreement with the Federal Savings and Loan
Insurance Corporation; and (ii) on a consolidated basis $1,307,886,382 of
adjustable-rate collateralized mortgage obligations with interest rate
adjustments tied to the Federal Home Loan Bank Eleventh District Cost of Funds
Index, subject in the case of each of clauses (i), (ii) and (iii) to audit
adjustments recognized in connection with the fiscal 1997 audit, provided such
audit adjustments, either individually or in the aggregate, do not have a
Material Adverse Effect.
Section 3.2 Representations and Warranties of the Purchasers.
(a) Investment Intent. Each Purchaser, severally and not jointly and as
to itself only, represents and warrants to, and covenants and agrees with, the
Company and the Placement Agent that the Securities to be acquired by it
hereunder are being acquired for its own account for investment and with no
intention of distributing or reselling such Securities or any part thereof or
interest therein in any transaction which would be in violation of the
securities laws of the United States of America or any State, without prejudice,
however, to a Purchaser's right, subject to the provisions of this Agreement and
the Registration Rights Agreement, at all times to sell or otherwise dispose of
all or any part of such Securities under an effective registration statement
under the Securities Act and other applicable State securities laws or under an
exemption from such registration requirements, and subject, nevertheless, to the
disposition of a Purchaser's property being at all times within its control.
Each Purchaser, severally and not jointly and as to itself only, further
represents and warrants to the Company that such Purchaser has no present
agreement, understanding, plan or intent to transfer the Securities to be
purchased by it to any transferee.
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(b) Transfer Restrictions. If a Purchaser should decide to dispose of
any of the Securities, such Purchaser understands and agrees that it may do so
only pursuant to an effective registration statement under the Securities Act or
as set forth below: (i) to the Company, (ii) to any Person reasonably believed
by such Purchaser to be a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in compliance with Rule 144A under the Securities
Act, (iii) pursuant to an exemption from registration set forth in Rule 144
under the Securities Act, (iv) to any Person who is reasonably believed by such
Purchaser to be an "accredited investor" (as defined in Rule 501(a) under the
Securities Act) and who, prior to such transfer, furnishes to the Purchaser and
the Company a signed letter confirming its status as an accredited investor and
agreeing to the restrictions on transfer of the Securities set forth in this
Agreement or (v) to any Affiliate of such Purchaser pursuant to an applicable
exemption under the Securities Act. In connection with any transfer of any
Securities other than (i) any transfer pursuant to an effective registration
statement or (ii) any transfer by a qualified institutional buyer, the Company
may require that the transferor of any such Securities provide to the Company an
opinion of counsel experienced in the area of United States securities laws
selected by the transferor (which may include in-house counsel of a transferor),
which counsel shall be and the form and substance of which opinion shall be,
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such Securities under the Securities Act or any
State securities laws. In connection with any transfer pursuant to clause (ii)
above, the Company may request reasonable certification as to the status of the
transferor's transferee as a qualified institutional buyer.
(c) Stop Transfer Instructions. Each Purchaser agrees that the Company
shall be entitled to make a notation on its records and give instructions to any
transfer agent of the Securities in order to implement the restrictions on
transfer set forth in Section 3.2(b) of this Agreement.
(d) Accredited Investor. Each Purchaser, severally and not jointly and
as to itself only, represents and warrants to, and covenants and agrees with,
the Company that (i) at the time it was offered the Securities, it was, (ii) at
the date hereof, it is, and (iii) at the Closing, it will be, an "accredited
investor" as defined in Rule 501(a) under the Securities Act, and has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment,
is able to bear the economic risk of such investment and, at the present time,
is able to afford a complete loss of such investment.
(e) Due Execution. Each Purchaser, severally and not jointly and as to
itself only, represents and warrants to the Company and the Placement Agent that
this Agreement has been, and each Related Agreement to which it will become a
party will be, duly executed and delivered by it or on its behalf and
constitutes, or will constitute, as applicable, a valid and binding obligation
of such Purchaser, enforceable against the Purchaser in accordance with its
terms, except that (i) rights to indemnity and contribution under the
Registration
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Rights Agreement may be limited by applicable law, (ii) enforceability may be
limited by bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights generally and (iii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(f) No Conflict. Each Purchaser, severally and not jointly and as to
itself only, represents and warrants to the Company and the Placement Agent that
(i) the execution, delivery and performance of this Agreement and each of the
Related Agreements to which it will become a party do not and will not, as
applicable, conflict with or constitute a breach or a default under (i) its
articles of incorporation, charter or other organizational document or bylaws,
as applicable, (ii) any obligation, agreement, indenture, bond, debenture, note,
instrument or any other evidence of indebtedness to which it is a party or as to
which its assets are subject or (iii) any law, ordinance, order, license, rule
or other regulation or demand of any court or governmental agency, arbitration
panel or authority applicable to it.
(g) Access to Information. Each Purchaser acknowledges receipt of the
Private Placement Memorandum and further acknowledges that prior to the date
hereof and, subject to the Company's compliance with its obligations pursuant to
Section 5.1(a) hereof, on and subsequent to the date hereof, it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks
of investing in the Securities and (ii) access to information about the Company
and the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment in the Securities. Each Purchaser also acknowledges that all
information, financial or otherwise, included in the Private Placement
Memorandum (both preliminary and final) has been provided by the Company for
evaluation by prospective Purchasers. Each Purchaser further acknowledges that
the information relating to the Company and the Company Subsidiaries is the sole
responsibility of the Company. Each Purchaser agrees and acknowledges that the
Placement Agent has made no recommendation or warranty and assumes no
responsibility as to the accuracy or completeness of any such information.
(h) Reliance of Others on Purchasers' Representations. Each Purchaser
understands and acknowledges that (i) the Securities are being offered and sold
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) such
exemption depends in part on, and that the Company, its counsel and the
Placement Agent will rely upon, the accuracy and truthfulness of the
representations and warranties of such Purchaser set forth in this Agreement,
and such Purchaser hereby consents to such reliance.
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(i) Governmental Authorization.
(i) Except for any required compliance by a Purchaser with
applicable federal and State securities laws, each Purchaser, severally
and not jointly and as to itself only, represents and warrants to the
Company that no consent, approval, order or other authorization of any
governmental, administrative or regulatory body or agency is legally
required by or on behalf of the Purchaser in connection with the
execution, delivery and performance of this Agreement and each Related
Agreement to which it will become a party.
(ii) Each Purchaser, severally and not jointly and as to
itself only, represents and warrants that upon consummation of the
transactions contemplated by Section 2.1 hereof, (A) it will not,
directly or indirectly, through one or more subsidiaries or
transactions or by acting in concert with one or more persons or
companies, be in control of the Company or the Banks, as defined in 12
C.F.R. Section 574.4(a), and will not be subject to a rebuttable
determination of control under 12 C.F.R. Section 574.4(b); and (B) it
does not have any agreements or understandings, written or tacit, with
respect to the exercise of control, directly or indirectly, over the
management or policies of the Company or the Banks, including
agreements (except for this Agreement) relating to voting, acquisition
or disposition of the Company's or the Bank's Capital Stock. Each
Purchaser acknowledges that if such Purchaser is deemed to be so acting
in concert with one or more persons or companies or to have such an
agreement or understanding, then such Purchaser could be in violation
of certain federal statutes and regulations, including, without
limitation, bank regulatory and antitrust laws, and such Purchaser
could be subject to fines and other penalties in respect of such
violation.
(j) Information Provided. Each Purchaser represents and warrants that,
in considering its investment in the Local Securities, such Purchaser has not
relied, and such Purchaser acknowledges and agrees that it is not entitled to
rely, on any information which is not contained in the Private Placement
Memorandum. Without limiting the generality of the foregoing, such Purchaser
acknowledges and agrees that it is not entitled to rely on (i) the Confidential
Information Memorandum dated May 1997 prepared by Bear, Stearns & Co. Inc., (ii)
any information provided by the Placement Agent, including but not limited to
the Preliminary Private Placement Memorandum dated August 8, 1997, or (iii) any
information provided by Mr. Edward A. Townsend or any person or entity acting on
Mr. Townsend's behalf.
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ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
Section 4.1 Conditions to Obligations of the Parties. The respective
obligations of each of the parties hereto to fulfill their obligations under
Section 2.1 hereof at the Closing shall be subject to the satisfaction or waiver
prior to the Closing of the following conditions:
(a) All requirements prescribed by law which are necessary to
the consummation of the transactions contemplated by this Agreement
shall have been satisfied.
(b) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of any of the transactions contemplated
by this Agreement.
(c) No statute, rule or regulation shall have been enacted,
entered, promulgated, interpreted, applied or enforced by any
governmental authority which prohibits, restricts or makes illegal
consummation of any of the transactions contemplated by this Agreement.
(d) The Company shall have completed the sale of the
Securities as contemplated by this Agreement and shall have received
gross proceeds from the sale of the Senior Notes and the Common Stock
of at least $70.0 million and $190.0 million, respectively.
(e) Each of the parties hereto shall have received (i) a
counterpart to this Agreement, duly executed and delivered by the
parties hereto, and (ii) a counterpart of each Related Agreement (other
than the Senior Notes) to which it is a party, in form and substance
satisfactory to the parties, which shall have been duly executed and
delivered by each of the applicable parties.
Section 4.2 Conditions to Obligations of the Purchasers. The
obligations of each of the Purchasers to fulfill its obligations under Section
2.1 hereof shall be subject to the satisfaction or waiver prior to the Closing
of the following conditions:
(a) Each of the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as
if made on the Closing Date (or on the date when made in the case of
any representation or warranty which specifically relates to an earlier
date); the Company shall have performed, in all material respects, each
of its covenants and agreements contained in this Agreement to be
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performed prior to the Closing; and the Placement Agent shall have
received a certificate signed by the Chief Executive Officer and the
Chief Financial Officer of the Company, dated the Closing Date, to the
foregoing effect.
(b) Each of the representations and warranties of the Selling
Shareholders contained in the Redemption Agreement shall be true and
correct in all material respects as of the date of such agreement and
as of the Closing Date as if made on the Closing Date (or on the date
when made in the case of any representation or warranty which
specifically relates to an earlier date); the Selling Shareholders
shall have performed, in all material respects, each of their covenants
and agreements contained in the Redemption Agreement to be performed
prior to the Closing; and the Company shall have received a certificate
signed by the Shareholder Representative, dated the Closing Date, to
the foregoing effect.
(c) The Company shall have delivered to each Purchaser a
Senior Note and/or a certificate evidencing shares of Common Stock, as
the case may be, in each case registered in the name of the Purchaser,
sufficient to evidence the Securities to be issued and sold by the
Company and purchased by the Purchaser, against payment therefor to the
Company, as such investment has been identified on the Investor
Signature Page to this Agreement.
(d) The Company and the Selling Shareholders shall have
executed such Redemption Agreement.
(e) The Company shall have obtained the requisite stockholder
approval of an amendment to its Certificate of Incorporation to
increase its authorized Common Stock to 25,000,000 shares and its
authorized Preferred Stock to 5,000,000 shares and shall have filed
with the Secretary of State of the State of Delaware the appropriate
documentation in order to effect such amendment.
(f) The Company shall have delivered to the Placement Agent a
certificate signed by its Chief Executive Officer, dated as of the
Closing Date, certifying on behalf of the Company that the undersigned
has reviewed on behalf of the Company the information, financial or
otherwise, contained in the Private Placement Memorandum and, to the
best knowledge of the undersigned, as of the respective dates thereof,
none of such information (except for the information covered by Section
4.2(g)(iii) as to which such certificate shall not speak) contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(g) Mr. Edward A. Townsend shall have delivered to the Company
and the Placement Agent a certificate signed by Mr. Townsend, the
Chairman elect of the
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Board of Directors and proposed Chief Executive Officer of the Company,
dated as of the Closing Date, certifying that:
(i) the Company has assumed the provisions of the
letter agreement, dated as of February 3, 1997, as amended on
August 6, 1997, between the Placement Agent and Edward A.
Townsend (the "Letter Agreement"), and has accepted and agreed
to all of the obligations set forth in such Letter Agreement,
including without limitation, the provisions regarding fees
and expenses, indemnification and contribution and Post
Offering Engagement, as defined in the Letter Agreement; and
(ii) Mr. Townsend has read the Private Placement
Memorandum; and
(iii) to the best knowledge of Mr. Townsend, the
information set forth in the Private Placement Memorandum
regarding Mr. Townsend and the information which the Private
Placement Memorandum describes as having been provided by Mr.
Townsend, including, without limitation, information regarding
the future plans of the Company or its new management or board
of directors, does not contain an untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(h) Edward A. Townsend shall have delivered a certificate to
the Company and the Selling Shareholders, dated as of the Closing Date,
certifying as to the written information provided to prospective
Purchasers in connection with the offer and sale of the Securities.
(i) Effective upon consummation of the Offering (i) all of the
current directors of the Company shall have resigned, the directors of
the Banks shall have tendered letters of resignation to the Company and
(ii) Joseph A. Leone, Jan A. Norton and Edward A. Townsend shall have
been elected directors of the Company for terms expiring at the next
annual meeting of stockholders of the Company.
(j) The Placement Agent shall have received such other
certificates, documents and instruments related to the transactions
contemplated hereby as may have been reasonably required by it and are
customary for transactions of this type, and all corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Agreement, shall
be reasonably satisfactory in form and substance to it and its counsel.
Section 4.3 Conditions to Obligations of the Company. The obligations
of the Company to fulfill its obligations under this Agreement, including
without limitation the
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obligations set forth in Section 2.1 hereof, shall be subject to the
satisfaction or waiver prior to the Closing of the following conditions:
(a) Each of the representations and warranties of the
Purchasers contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the
Closing Date as if made on the Closing Date. Payment by each Purchaser
of the applicable consideration for each of the Securities to be issued
and sold by the Company shall be deemed an affirmation by each such
Purchaser of the representations and warranties set forth in Section
3.2 of this Agreement.
(b) Each Purchaser shall have delivered to the Company the
applicable consideration for each of the Securities to be issued and
sold by the Company and purchased by the Purchaser pursuant to this
Agreement, as set forth on the Investor Signature Page to this
Agreement, such amount to be payable by wire transfer of immediately
available funds to an account with a bank designated by the Company, by
notice to each of the Purchasers to be provided no later than two
Business Days prior to the Closing Date.
(c) No party to this Agreement (other than the Company) shall
be in material breach of this Agreement unless such breach shall have
been waived in writing by each of the other parties to this Agreement.
(d) The conditions set forth in Section 4.2(g) and (h) shall have been
satisfied.
ARTICLE V
COVENANTS
Section 5.1 Investigation and Confidentiality.
(a) Prior to the Closing, the Company shall permit each Purchaser and
its representatives reasonable access to its properties and personnel, and shall
disclose and make available to each Purchaser all books, papers and records
relating to the assets, stock ownership, properties, operations, obligations and
liabilities of the Company and the Company Subsidiaries, including, but not
limited to, all books of account (including the general ledger), tax records,
minute books of meetings of boards of directors (and any committees thereof) and
shareholders, organizational documents, bylaws, material contracts and
agreements, filings with any regulatory authority, accountants' work papers,
litigation files, loan files, plans affecting employees, and any other business
activities or prospects in which a Purchaser may have a reasonable interest,
provided that such access shall be reasonably related to the transactions
contemplated hereby and not unduly interfere with normal operations, and
provided further that in the event that any of the foregoing are in the control
of any third party, the Company shall use its best efforts to cause such third
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party to provide access to such materials to each Purchaser who shall request
the same. In the event that the Company is prohibited by law from providing any
of the access referred to in the preceding sentence to a Purchaser, it shall use
its best efforts to obtain promptly waivers thereof so as to permit such access.
The Company shall make the directors, officers, employees and agents and
authorized representatives (including counsel and independent public
accountants) of the Company and the Company Subsidiaries available to confer
with a Purchaser and its representatives, provided that such access shall be
reasonably related to the transactions contemplated hereby and not unduly
interfere with normal operations.
(b) All information furnished to a Purchaser by the Company previously
in connection with the transactions contemplated by this Agreement or pursuant
hereto shall be treated as the sole property of the Company and each Purchaser
covenants, severally and not jointly and as to itself only, that it shall use
its best efforts to keep confidential all such information and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential shall
continue for five years from the date hereof but shall not apply to (i) any
information which (x) a Purchaser can establish by convincing evidence was
already in its possession prior to the disclosure thereof by the Company; (y)
was then generally known to the public; or (z) became known to the public
through no fault of a Purchaser; or (ii) disclosures pursuant to a legal
requirement or in accordance with an order of a court of competent jurisdiction,
provided that a Purchaser shall use its best efforts to give the Company at
least ten Business Days prior notice thereof and shall limit such disclosure to
the minimum amount required by such legal requirement or court order.
Section 5.2 Press Releases. The Company and the Placement Agent shall
agree with each other as to the form and substance of any press release related
to this Agreement or the transactions contemplated hereby, and consult with each
other as to the form and substance of other public disclosures which may relate
to the transactions contemplated by this Agreement, provided, however, that
nothing contained herein shall prohibit any party, following notification to
such other parties, from making any disclosure which it determines in good faith
is required by law or regulation.
Section 5.3 No Solicitation. Between the time of execution of this
Agreement and the earlier of (i) the Closing or (ii) termination of this
Agreement in accordance with Section 6.2 hereof, neither the Company nor any
Company Subsidiary, nor any of the shareholders, directors, officers, employees,
representatives or agents of the Company or other persons controlled by the
Company, shall (i) execute any agreement, letter or undertaking of any kind
whatsoever with respect to any acquisition, lease or purchase of all or a
substantial portion of the assets of, or any equity interest in, the Company or
any Company Subsidiary or any business combination with the Company or any
Company Subsidiary (an "Acquisition Transaction"), other than as contemplated by
this Agreement, including specifically with an Alternative Bidder (as defined
below) or (ii) except with respect to such persons or parties with whom the
Company shall have received a written proposal with respect to an Acquisition
Transaction as of a date prior to the date hereof (an
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"Alternative Bidder"), solicit or encourage inquiries or proposals with respect
to, furnish any information relating to, or participate in any negotiations or
discussions concerning, an Acquisition Transaction. With respect to any
Alternative Bidder, as of the date hereof through the Closing, neither the
Company, any Company Subsidiary, nor any of the shareholders, directors,
officers, employees, representatives or agents of the Company or other persons
controlled by the Company shall (i) communicate any information, written or
oral, with respect to the transactions contemplated by this Agreement and any
Related Agreement or (ii) take any steps whatsoever with respect to negotiation
of any agreement with respect to such Alternative Bidder's Acquisition
Transaction. Other than as set forth herein, the Company will immediately notify
the Placement Agent orally and in writing if any such inquiries or proposals are
received by, and such information is required from, or any such negotiations or
discussions are sought to be initiated with, the Company or any Company
Subsidiary. Notwithstanding anything in this Agreement to the contrary, if the
Placement Agent shall have failed to deliver to the Company by 5:00 p.m.,
Eastern Time, on September 2, 1997, valid executed and delivered signature pages
to this Agreement reflecting binding and enforceable commitments (subject to the
terms of this Agreement) on the part of Purchasers to purchase at least $70.0
million of Senior Notes and $190.0 million of Common Stock, then from and after
such time, this Section 5.3 shall be inapplicable.
Section 5.4 Use of Proceeds. On the Closing Date, the Company shall
apply the net proceeds from the sale of Securities pursuant to this Agreement as
follows:
(i) $154.0 million of such net proceeds shall be utilized to
fund the redemption of all of the issued and outstanding shares of Common Stock
of the Company as of the date hereof pursuant to the terms of the Redemption
Agreement;
(ii) the amount of such net proceeds required to prepay the
outstanding principal balance (in the amount of $7,010,000) of the promissory
note payable to the order of Isabel Collier Read, plus all accrued and unpaid
interest to the date of prepayment, shall be utilized to pay such principal and
interest;
(iii) an amount of such net proceeds equal to the first two
full semi-annual interest payments which become due on the Senior Notes shall be
used to establish and maintain the Interest Reserve Account required by Section
10.18 of the Indenture; and
(iv) with respect to any amount remaining after the amounts in
clauses (i) through (iii) are paid, to make capital contributions to Local
Federal Bank, F.S.B. and Local America Bank, F.S.B. in an amount sufficient to
cause each of the Banks to be classified "adequately capitalized" pursuant to 12
U.S.C. Section 1831o and 12 C.F.R. Part 565 immediately following consummation
of the transactions contemplated by this Agreement and the Related Agreements
and following the liquidation of the interest rate contracts and the additional
writedowns and reserves the Company intends to recognize as described in the
section entitled "Capitalization" in the Private Placement Memorandum.
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Section 5.5 Rights of First Refusal. (a) Subject to subsection (g)
hereof, for so long as a Purchaser is a holder of Common Stock (an "Eligible
Purchaser"), the Company agrees not to issue any of its Capital Securities or to
permit the Banks to issue any of their Capital Securities (such Capital
Securities of the Company and the Banks hereinafter are deemed to be jointly
covered by the term "Capital Securities") to any Person or Persons, other than
in the case of Capital Securities of the Banks to the Company (a "Third Party
Purchaser"), without first offering or causing the Banks to offer, as
applicable, to such Eligible Purchasers the opportunity to purchase all or part
of such Capital Securities being issued at the same purchase price and on the
same terms as are proposed to be offered to a Third Party Purchaser. For this
purpose, the Company shall deliver a written notice, or cause the Banks to
deliver a written notice, as applicable (in each case a "Notice"), to each
Eligible Purchaser of any proposed issuance of Capital Securities which shall
contain all of the material terms of the proposed issuance, including, without
limitation, the purchase price and total amount of Capital Securities proposed
to be issued, which terms, including, without limitation, the purchase price and
any conversion price or rate of such Capital Securities, may to the extent
necessary be expressed in the form of good faith estimates by the Board of
Directors of the Company.
(b) Upon receipt of the Notice, each Eligible Purchaser will have the
right to subscribe for all or part of the Capital Securities on the same terms
set forth in the Notice, by delivery of written notice to the Company or the
Banks, as applicable ("Acceptance Notice"), in accordance with the instructions
set forth in the Notice, within 20 days from the date of its receipt of the
Notice (the "Offer Period"). The Acceptance Notice shall specify the amount (not
exceeding all) of the Capital Securities being offered with respect to which the
Eligible Purchaser wishes to exercise its subscription rights.
(c) An Acceptance Notice, once given by an Eligible Purchaser in
accordance with subsection (b), shall become irrevocable at the end of the Offer
Period unless it is withdrawn prior to the expiration of the Offer Period (any
such Acceptance Notice which so becomes irrevocable being called an "Irrevocable
Acceptance" and the Eligible Purchaser giving such notice being an "Accepting
Eligible Purchaser").
(d) (i) In the event that any Eligible Purchaser fails to have
delivered an Irrevocable Acceptance with respect to any Notice on or prior to
the last day of the Offer Period with respect to such Notice, such Eligible
Purchaser will have no further right to subscribe for the Capital Securities
proposed to be issued in such Notice during a Free Sale Period commencing on the
date immediately following the end of the Offer Period with respect to such
Notice.
(ii) In the event that no Eligible Purchasers shall have
delivered an Irrevocable Acceptance with respect to a Notice on or
prior to the last day of the Offer Period with respect to such Notice,
the Company or the Banks, as applicable, will be entitled to a Free
Sale Period with respect to the Capital Securities proposed
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<PAGE>
to be issued in such Notice commencing on the date immediately
following the end of the Offer Period with respect to such notice.
(iii) In the event that Accepting Eligible Purchasers deliver
Irrevocable Acceptances relating to an amount of Capital Securities in
the aggregate in excess of the amount of Capital Securities proposed to
be issued pursuant to the Notice, the amount of Capital Securities
which each Accepting Eligible Purchaser shall be obligated to purchase
will be such Eligible Purchaser's Purchaser Percentage of the Capital
Securities proposed to be issued pursuant to such Notice (provided
that, if one or more Accepting Eligible Purchasers deliver Irrevocable
Acceptances to subscribe for less than such Eligible Purchaser's
Purchaser Percentage, then the Capital Securities that would have been
allocated to such Eligible Purchaser or Purchasers pursuant to this
subsection (d)(iii) shall be allocated to the other Accepting Eligible
Purchasers in accordance with their respective Purchaser Percentages,
except that no Accepting Eligible Purchaser shall be required to
purchase any Capital Securities in an amount greater than the amount
elected to be subscribed for by such Accepting Eligible Purchaser
pursuant to its Irrevocable Acceptance).
(iv) In the event that Accepting Eligible Purchasers exercise
their option to purchase, pursuant to the foregoing provisions of this
Section 5.5, in the aggregate, all (or, if the Company or the Banks, as
applicable, shall so elect, more than 90%) of the Capital Securities
proposed to be issued in the Notice, all such Eligible Purchasers and
the Company or the Banks, as applicable, shall complete the purchase of
the Capital Securities on the terms set forth in the Notice within 30
days of the expiration of the Offer Period, or within such longer
period (not to exceed six months from the date of the expiration of the
Offer Period) as may be required for such Accepting Eligible Purchaser
to obtain any applicable regulatory approvals that such Accepting
Eligible Purchaser is making a good faith effort to obtain. If an
Accepting Eligible Purchaser does not complete the purchase of Capital
Securities as set forth above, other than as a result of the
negligence, bad faith or willful misconduct of the Company or the Banks
or any action or omission made by the Company or the Banks that would
prevent such an Accepting Eligible Purchaser from completing its
purchase, the Company or the Banks, as applicable, will be entitled to
a Free Sale Period commencing on the 31st day following the expiration
of the Offer Period, subject to extension as set forth in the
immediately preceding sentence.
(v) Other than as set forth in subsection (vi) below (and
subject to subsection (iv) above), in the event that Accepting Eligible
Purchasers shall have delivered Irrevocable Acceptances for all or less
than all of the Capital Securities set forth in the Notice, each
Accepting Eligible Purchaser shall purchase, within the applicable
period set forth in subsection (iv) above or subsection (vi) below, as
the case may be, the amount of Capital Securities set forth in its
Irrevocable Acceptance.
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(vi) In the event that Accepting Eligible Purchasers elect to
subscribe for, in the aggregate, less than all (or if the Company or
the Banks, as applicable, shall so elect, 90%) of the Capital
Securities proposed to be offered pursuant to the Notice, the Company
or the Banks, as applicable, shall have a Free Sale Period commencing
on the date immediately following the end of the Offer Period with
respect to the Capital Securities offered pursuant to such Notice as to
which Accepting Eligible Purchasers do not elect to subscribe and the
Company agrees to sell, or to cause the Banks to sell, as applicable,
and the Accepting Eligible Purchasers shall be obligated to purchase,
the Capital Securities for which they subscribed substantially
simultaneously (or, with respect to any Accepting Eligible Purchaser,
within such longer period (not to exceed four months from the relevant
purchase by the Third Party Purchaser) as may be required for such
Accepting Eligible Purchaser to obtain any applicable regulatory
approvals that such Accepting Eligible Purchaser is making a good faith
effort to obtain) with the purchase by the Third Party Purchaser of the
balance of the Capital Securities proposed to be offered pursuant to
such Notice, it being understood that if such balance of Capital
Securities is not so purchased on the terms set forth in the Notice, no
Eligible Purchaser will be required or entitled to purchase such
Capital Securities as to which its Irrevocable Acceptance applied.
(e) If at any time during a Free Sale Period the terms of a proposed
issuance shall have changed in any material respect from the terms set forth in
the Notice, the Company or the Banks, as applicable, shall give notice (the
"Alteration Notice") to the Eligible Purchasers describing the changes in terms.
Upon receipt of any Alteration Notice, each Eligible Purchaser will have the
right to subscribe for all or part of the Capital Securities on the terms set
forth in the Alteration Notice, by delivery of an Acceptance Notice to the
Company or the Banks, as applicable, in accordance with the instructions set
forth in the Alteration Notice, within 20 days from the date of receipt of the
Alteration Notice (the "Altered Offer Period"), stating the amount (not
exceeding all) of Capital Securities proposed to be offered as to which such
Eligible Purchaser wishes to exercise its right to subscribe. In any such case,
the procedures set forth in subsection (d), to the extent applicable, shall be
followed.
(f) The failure of an Eligible Purchaser to respond to any particular
Notice or Alteration Notice will not constitute a waiver of such Eligible
Purchaser's rights with respect to any proposed issuance of Capital Securities
pursuant to a subsequent Notice or Alteration Notice.
(g) Subsections (a)-(f) shall not apply to the issuance of Capital
Securities pursuant to or in connection with (i) the purchase and sale of the
Securities contemplated by this Agreement, (ii) the issuance of Placement Agent
Warrants to the Placement Agent pursuant to Section 5.8 hereof, or in connection
with the receipt of the Company's Capital Securities upon the exercise of such
Placement Agent Warrants, (iii) a reorganization, merger or consolidation of the
Company or the Banks or a sale, disposition or other transfer
27
<PAGE>
of all or substantially all of the assets of the Company or the Banks to any
Person or any Person to the Company or the Banks pursuant to one transaction or
series of related transactions, (iv) any conversion or exchange of any Capital
Securities in accordance with the terms of such securities or of the instruments
relating to or governing the issuance of such Capital Securities, (v) any
employee benefit plans, including the Stock Option Plan or any subsequently
adopted stock option plan, or any similar plan of the Company, (vi) any stock
dividends, or pro rata (as to any class) split-ups, combinations or exchanges of
or similar transactions involving Capital Securities, (vi) any bona fide public
offering of Capital Securities which is registered under the Securities Act, and
(viii) any issuance of Capital Securities to Edward A. Townsend or Jan A. Norton
pursuant to the terms of a letter agreement among the Company and Messrs.
Townsend and Norton which provides for, among other things, the sale of Green
Country Banking Corporation.
(i) For the purposes of this Section 5.5,
"Purchaser Percentage" means, at any time of determination
with respect to an Accepting Eligible Purchaser, the aggregate number
of shares of Common Stock (including shares of Common Stock which may
be acquired upon exercise of outstanding Stock Equivalents, whether or
not then exercisable) then held by such Accepting Eligible Purchaser
divided by the aggregate number of shares of Common Stock (including
shares of Common Stock which may be acquired upon exercise of
outstanding Stock Equivalents, whether or not then exercisable) then
held by all Accepting Eligible Purchasers, expressed as a percentage,
with fractional percentages of .5 or more and less than .5 rounded up
and down, respectively.
"Free Sale Period" means a period of three months (or such
longer period of time, not in excess of one year, required to obtain
any regulatory approvals, consents or other actions necessary to
consummate a sale to a Third Party Purchaser which has agreed in
writing (subject to such regulatory approvals, consents or actions and
other reasonable closing conditions) to purchase Capital Securities on
or prior to the end of such three-month period), during which the
Company or the Banks, as applicable, shall be permitted to issue the
Capital Securities which were proposed to be issued pursuant to a
Notice or Alteration Notice to a Third Party Purchaser on terms no more
favorable to the Third Party Purchaser than those set forth in such
Notice or Alteration Notice, as the case may be.
Section 5.6 Rule 144 and Rule 144A Reporting.
With a view to making available to holders of Securities the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Securities to the public without registration, the Company agrees from and
after the Closing at all times to:
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(a) make and keep public information available, as those terms
are understood and defined in Rules 144 and 144A under the Securities
Act (or any successors thereto); and
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act.
Section 5.7 Stock Options. Immediately following the Closing, the
Company shall adopt the Stock Option Plan and shall grant to members of
Management options under the Stock Option Plan to purchase up to an aggregate of
7.0% of the shares of Common Stock issued in the Offering as described in the
Private Placement Memorandum, which options shall (i) have a per share exercise
price equal to $10.00 and (ii) become vested and exercisable in three equal
annual installments commencing on the first annual anniversary of the date of
grant.
Section 5.8 Warrants. In accordance with the terms of the Letter
Agreement, immediately following the Closing, the Company shall issue warrants
to the Placement Agent entitling the Placement Agent to purchase from the
Company, for a period of five years after the Closing Date, an aggregate amount
of shares of Common Stock of the Company equal to 3.0% of the Common Stock
issued in the offering described in the Private Placement Memorandum, at a per
share exercise price equal to $10.00.
Section 5.9 Exchange of Securities. The Company will, at its expense,
promptly upon surrender of (i) any Senior Note or (ii) any certificate
evidencing shares of Common Stock, at the office of the Company referred to in,
or designated pursuant to, Section 6.4, respectively execute and deliver to the
Purchaser (i) a new Senior Note or Senior Notes in aggregate principal amounts
specified by the Purchaser (subject to the minimum denomination of the Senior
Notes) for an aggregate principal amount equal to the Senior Note or Senior
Notes surrendered and/or (ii) a new certificate or certificates in denominations
specified by the Purchaser for an aggregate number of shares of Common Stock
equal to the number of shares of such stock represented by the certificate or
certificates surrendered.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Survival of Provisions. The representations, warranties and
covenants of the Company and the Purchasers made herein and each of the
provisions of Articles V and VI shall remain operative and in full force and
effect regardless of (i) any investigation made by or on behalf of any Purchaser
or the Company, as the case may be, (ii) acceptance of any of the Securities and
payment by the Purchasers therefor and retirement thereof or,
29
<PAGE>
(iii) the transfer of any Securities or interest therein by any Purchaser,
provided that no transferee may claim the benefit of any such representation or
warranty; provided, however, that the representations and warranties of the
Company and the Purchasers hereunder shall have no further force and effect as
of the close of business on the date which is six months from the date of this
Agreement. Each of the Purchasers expressly acknowledge that the Company is the
only party to this Agreement making the Company's representations and warranties
and, to the extent that any recovery is sought against the Company for breach of
a representation or warranty hereunder, such recovery would impact such
stockholder to the extent such recovery reduced the Company's stockholders'
equity.
Section 6.2 Termination. This Agreement may be terminated (as between
the party electing so to terminate it and the counterparty to which termination
is directed) by giving written notice of termination to the applicable
counterparty at any time prior to the Closing:
(a) By the Company (i) if any of the conditions specified in
Sections 4.1 and 4.3 of this Agreement has not been met or waived by it
pursuant to the terms of this Agreement by 5:00 p.m., Eastern Time on
September 8, 1997 or (ii) if the Placement Agent shall have failed to
deliver to the Company by 5:00 p.m., Eastern Time, on September 2,
1997, validly executed and delivered signature pages to this Agreement
reflecting binding and enforceable commitments (subject to the terms of
this Agreement) on the part of Purchasers to purchase at least $70.0
million of Senior Notes and $190.0 million of Common Stock; provided,
however, that no such commitment from any single purchaser or group of
purchasers acting in concert to purchase Common Stock shall be for a
number of shares of Common Stock which exceeds 9.9% of the aggregate
number of shares of Common Stock for which such signature pages are
delivered; or
(b) By any Purchaser if any of the conditions specified in
Sections 4.1 and 4.2 of this Agreement has not been met or waived by
such Purchaser pursuant to the terms of this Agreement by 5:00 p.m.,
Eastern Time, on September 8, 1997.
Section 6.3 Waiver; Amendments.
(a) No failure or delay on the part of the Company or any Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
any Purchaser at law or in equity. No waiver of or consent to any departure by
the Company or any Purchaser from any provision of this Agreement shall be
effective unless signed in writing by the party entitled to the benefit thereof.
Except as otherwise provided herein, no amendment, modification or termination
of any provision of this Agreement shall be effective unless signed in writing
by or on behalf of the Company and each Purchaser. Any amendment, supplement or
modification of or to any of this
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Agreement, any waiver of any provision of this Agreement, and any consent to any
departure from the terms of any provision of this Agreement, shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on any party hereto in any case shall entitle another party hereto
to any other or further notice or demand in similar or other circumstances.
(b) The Company shall not, directly or indirectly, pay or cause to be
paid any remuneration, whether by way of dividends, redemption premiums, fees or
otherwise, to any holder of any Securities as consideration for or as an
inducement to any consent, waiver or amendment of any of the terms and
provisions of this Agreement unless such remuneration is paid to all Purchasers;
provided, however, that this Section 6.3(b) does not restrict the Company's
ability to deal individually with any Purchaser or any subsequent holder with
respect to any settlement of a dispute or in the ordinary course of business.
Section 6.4 Communications. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to any Purchaser, initially at the address set forth
below its name on the Investor Signature Page to this Agreement, and
thereafter at such other address, notice of which is given in
accordance with this Section 6.4;
(ii) if to the Company, initially at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087, Attention: Chairman, with copies to
the selling shareholders identified in the Redemption Agreement c/o
Bruce Sherman, 3003 Tamiani Trail North, Naples, Florida 34103 and to
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York 10022, Attention: William Rubenstein; and thereafter at such
other address notice of which is given in accordance with this Section
6.4; and
(iii) if to the Placement Agent, initially at Potomac Tower,
1001 19th Street North, Arlington, Virginia 22209-1710, Attention:
Robert A. Kotecki; and thereafter at such other address notice of which
is given in accordance with this Section 6.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
Section 6.5 Costs, Expenses and Taxes. The Company agrees to pay all
reasonable costs and expenses incurred by it in connection with the negotiation,
preparation, typing, reproduction, execution, delivery and performance of this
Agreement and the Related
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Agreements and any amendment or supplement or modification hereof or thereof
(except to the extent otherwise provided in the Registration Rights Agreement),
including without limitation, attorneys fees and expenses and all reasonable
costs and expenses incurred by it in connection with the Company's
administration of this Agreement and any Related Agreement. The Company shall
pay all reasonable costs and expenses (including, without limitation, attorneys'
fees and expenses), if any, incurred by the Purchasers in connection with any
waiver, amendment or modification of any provision of this Agreement or any
Related Agreement with respect to an obligation of, or requested by, the
Company. In addition, the Company shall pay any and all stamp, transfer and
other similar taxes payable in connection with the execution and delivery of
this Agreement or the original issuance of any Securities, and shall save and
hold each Purchaser harmless from and against any and all liabilities with
respect to or resulting from any delay in paying, or omission to pay, such
taxes. Without limiting the foregoing, the Company agrees to pay the fees and
expenses of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps"). Skadden
Arps shall be a third party beneficiary of the preceding sentence.
Section 6.6 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
Section 6.7 Binding Effect; Assignment. Prior to the Closing, the
rights and obligations of any Purchaser under this Agreement may not be assigned
to any other Person except with the prior written consent of the Company, and
after the Closing the rights and obligations of any Purchaser may be assigned by
such Purchaser to any Person purchasing Securities from the Purchaser
contemporaneously with such assignment (provided the rights so assigned shall
apply to the Securities so purchased), subject to the provisions of Section
3.2(b), provided that the rights of a Purchaser pursuant to Section 5.5 hereof
may not be assigned to any Person other than an Affiliate of such Purchaser. The
rights and obligations of the Company under this Agreement may not be assigned
by the Company without the consent of each Purchaser. Except as expressly
provided in this Agreement, this Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement, and their respective successors and permitted assigns. This Agreement
shall be binding upon the Company and each Purchaser, and their respective
successors and permitted assigns.
Section 6.8 Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State of Delaware, and for all purposes
shall be construed in accordance with the laws of said state, without regard to
principles of conflict of laws.
Section 6.9 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability only without invalidating the remaining
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provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
Section 6.10 Headings and Gender. The Article and Section headings and
Table of Contents used or contained in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement. Use of a
particular gender herein shall be considered to represent the masculine,
feminine or neuter gender whenever appropriate.
Section 6.11 Integration. This Agreement (including documents delivered
pursuant hereto) and the Related Agreements (other than the Redemption Agreement
and the Escrow Agreement) constitute the entire agreement among the parties with
respect to the subject matter thereof and there are no promises or undertakings
with respect thereto not expressly set forth or referred to herein or therein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
LOCAL FINANCIAL CORPORATION
By: /s/Bruce A. Sherman
---------------------------------
Name: Bruce A. Sherman
Title: President
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: /s/ Robert A. Kotecki
---------------------------------
Name: Robert A. Kotecki
--------------------------
Title: Senior Vice President
--------------------------
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Investor Signature Page to the Purchase Agreement
--------------------------
Name of Investor
By:
--------------------------
Name:
Title:
Address:
-----------------
--------------------------
--------------------------
Number of Shares of Common Stock proposed to be purchased
(at $10.00 per share) ______ shares
Aggregate principle amount of Senior Notes proposed to be
purchased $______
35
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (the "Agreement"), dated as of September
8, 1997, by and among Local Financial Corporation (the "Company"), a Delaware
corporation, Friedman, Billings, Ramsey & Co., Inc., as Placement Agent (as
herein defined), and each of the undersigned Investors (hereinafter referred to
individually as an "Investor" and collectively as the "Investors").
WITNESSETH:
WHEREAS, the Company, the Placement Agent and each of the Investors
have entered into a Purchase Agreement, dated as of September 8, 1997, providing
for the purchase by the Investors of: (i) the Company's Senior Notes due 2004
(the "Senior Notes"); (ii) shares of the Company's common stock, par value $.01
per share (the "Common Stock"); or (iii) a combination of Senior Notes and
Common Stock, in each case subject to the terms and conditions set forth
therein; and
WHEREAS, the Company desires to provide the Investors with certain
registration rights with respect to the Senior Notes and the shares of Common
Stock purchased pursuant to the Purchase Agreement or, in the case of the
Placement Agent, issued upon exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein and for other good and valuable consideration, the receipt and
the sufficiency of which are hereby acknowledged, the Company and the Investors
agree as follows:
Section 1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate" shall mean, with respect to any Person, any
Person that, directly or indirectly, controls, is controlled by or is
under common control with such Person. For the purposes of this
definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings corresponding to the foregoing.
<PAGE>
(b) "Business Day" shall mean any day except a Saturday,
Sunday or other day on which commercial banks and savings institutions
in the State of Oklahoma are authorized or obligated by law to close.
(c) "Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.
(d) "Common Stock" shall mean the common stock, par value $.01
per share, of the Company.
(e) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(f) "Holder" shall mean any holder of outstanding Registrable
Securities, including any Person to whom Registrable Securities have
been transferred in compliance with this Agreement.
(g) "Indenture" shall mean the Indenture dated as of September
2, 1997 between the Company and The Bank of New York, a New York
banking corporation, as trustee, as the same may be amended from time
to time in accordance with the terms thereof, providing for the
issuance of the Senior Notes.
(h) "Initiating Holders" shall mean one or more Holders of
either: (i) not less than 35% in aggregate principal amount of the
Senior Notes; or (ii) not less than 25% of the shares of Common Stock
then outstanding.
(i) "Issue Date" shall mean September 2, 1997, the date of
original issuance pursuant to the Purchase Agreement of the Senior
Notes and the shares of Common Stock.
(j) "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
(k) "Placement Agent" means Friedman, Billings, Ramsey & Co.,
Inc., in its capacity as private placement agent with respect to the
offering of Common Stock and Senior Notes pursuant to the Purchase
Agreement.
(l) "Prospectus" shall mean the prospectus included in a Shelf
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by
a Shelf Registration Statement, and by all other amendments
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and supplements to a prospectus, including post-effective amendments,
and in each case including all material incorporated by reference
therein.
(m) "Purchase Agreement" shall mean the Purchase Agreement,
dated as of September 2, 1997, among the Company, the Placement Agent
and the Investors, as amended, supplemented or otherwise modified from
time to time.
(n) "Registrable Securities" shall mean (i) the Senior Notes
and (ii) the shares of Common Stock issued pursuant to the Purchase
Agreement (including the shares of Common Stock which may be issued
upon exercise of the Warrants) and (iii) any shares of the capital
stock (or rights to receive capital stock of the Company) issued in
respect of the Common Stock issued pursuant to the Purchase Agreement
(including shares of Common Stock issuable upon exercise of the
Warrants), by reason of, or in connection with, any stock dividend,
stock distribution, stock split, purchase in any rights offering or in
connection with any combination of shares, recapitalization, merger or
consolidation, or any other equity securities issued pursuant to any
other pro rata distribution with respect to the Common Stock issued
pursuant to the Purchase Agreement (including shares of Common Stock
issuable upon exercise of the Warrants). Notwithstanding the foregoing,
Registrable Securities shall not include otherwise Registrable
Securities (i) sold to or through a broker or dealer or underwriter or
(ii) sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section 4(1) thereof,
if in any such case, all transfer restrictions and restrictive legends
with respect thereto, if any, are removed upon the consummation of such
sale.
(o) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.
(p) "Senior Notes" shall mean the Senior Notes due 2004 of the
Company issued by the Company pursuant to the Purchase Agreement.
(q) "Shelf Registration" shall have the meaning set forth in
Section 3 of this Agreement.
(r) "Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of
Section 3 of this Agreement which covers all of the Registrable
Securities required to be registered on an appropriate form for
purposes of an offering on a continuous basis pursuant to Rule 415
under the Securities Act, or any similar rule that maybe adopted by the
Commission.
(s) "Warrants" shall mean the Warrants of the Company issued
by the Company to the Placement Agent pursuant to the Purchase
Agreement as
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compensation, in part, for its efforts in advising and assisting the
Company in the sale of Common Stock and Senior Notes.
Section 2. Restrictions on Transferability.
The Registrable Securities shall not be sold, transferred or otherwise
disposed of, except in accordance with and subject to the provisions of the
Securities Act and the rules and regulations of the Commission promulgated
thereunder.
Section 3. Shelf Registration Rights.
(a) The Company shall, at the Company's cost, subject to Section 6
hereof,
(i) within 120 days after the Issue Date, file with the
Commission, and thereafter use its best efforts to cause to be declared
effective as promptly as practicable, a Shelf Registration Statement
relating to the offer and sale of the Registrable Securities by the
Holders from time to time;
(ii) use its best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus
forming a part thereof to be usable by Holders identified as selling
security holders in such Shelf Registration Statement for a period of
two years from the date the Shelf Registration Statement is declared
effective by the Commission or until such earlier date as all
Registrable Securities shall have been disposed of or on which all
Registrable Securities shall be saleable without registration pursuant
to Rule 144 (or any similar provision then in effect), or as a result
of any changes in the existing registration requirements under the
Securities Act which eliminate the Holders' need for the Shelf
Registration Statement, or upon receipt of an opinion of counsel
satisfactory to the Company which provides that all Registrable
Securities may be resold without registration in a transaction that
would result in the Registrable Securities being freely tradeable
provided that the purchaser is not an affiliate of the Company (the
Effectiveness Period"); and
(iii) notwithstanding any other provisions hereof, use its
best efforts to ensure that (i) any Shelf Registration Statement and
any amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the
Securities Act and the rules and regulations thereunder, (ii) any Shelf
Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
Prospectus forming a part of any Shelf Registration Statement, and any
supplement to such Prospectus (as amended or supplemented from time to
time), does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements
4
<PAGE>
therein, in light of the circumstances under which they were made, not
misleading, except that the Company shall be entitled to rely on the
information provided to them by the Holders with respect to such
Holders.
(b) Any Holder desiring to sell Registrable Securities pursuant to the
Shelf Registration Statement shall provide not less than five (5) days' prior
written notice to the Company. Any such notice shall specify the aggregate
principal amount of the Senior Notes or the number of shares of Common Stock
proposed to be sold and the intended method of disposition thereof. The Company
shall use its best efforts to promptly file any required amendment(s) to the
Shelf Registration Statement in order to facilitate any sales of Senior Notes
and/or Common Stock as described above. Notwithstanding anything herein to the
contrary, during such period that the Company is conducting an Underwritten
Offering pursuant to Section 4 hereof, a Holder who does not elect to
participate in such Underwritten Offering shall have its right to sell
Registrable Securities pursuant to the Shelf Registration Statement suspended.
(c) If Initiating Holders so elect, the offering of such Registrable
Securities pursuant to such Shelf Registration shall be in the form of an
underwritten offering. If any Shelf Registration is in the form of an
underwritten offering, the Initiating Holders will select and retain the
investment banker or investment bankers and manager or managers that will
administer the offering; provided that such investment bankers and managers must
be reasonably satisfactory to the Company.
Section 4. Underwritten Offerings.
(a) In connection with any public underwriting of Company securities
that are covered by a Shelf Registration Statement, the Holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and any such
underwriting agreement shall require that the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters also shall be made to and for the benefit of such Holders and
that the conditions precedent to the obligations of such underwriters under such
underwriting agreement shall be conditions precedent to the obligations of such
Holders.
(b) No Holder may participate in any underwritten offering under
Section 3 unless such Holder (i) agrees to sell its Registrable Securities on
the basis provided in any underwriting arrangement approved by the Company and
(ii) completes and executes all questionnaires, powers of attorney, indemnities,
securities escrow agreements, underwriting agreements and other documents
required under the terms of such underwriting, and furnishes to the Company such
information as the Company may reasonably request in writing for inclusion in
the Shelf Registration Statement (and the Prospectus included therein);
provided, however, that no Holder shall be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
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<PAGE>
representations, warranties or agreements regarding such Holder and such
Holder's intended method of distribution and any other representation required
by law.
(c) In the case of any underwritten offering, the Company shall provide
written notice to the Holders of all of the Registrable Securities of such
underwritten offering at least 30 days prior to the filing of a Prospectus
supplement for such underwritten offering. Such notice shall (x) offer each such
Holder the right to participate in such underwritten offering, (y) specify a
date, which shall be no earlier than 10 days following the date of such notice,
by which the Holder must inform the Company of its intent to participate in such
underwritten offering and (z) include the instructions such Holder must follow
in order to participate in such underwritten offering.
Section 5. Registration Expenses.
The Company will pay all reasonable registration expenses in connection
with any registration pursuant to Section 3 of this Agreement, including,
without limitation, all registration and filing fees, fees with respect to
filings required to be made with the National Association of Securities Dealers,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, and fees and expenses of counsel for the Company and of all
independent public accountants of the Company (including the expenses of any
"comfort" letters and updates thereof required by or incident to the foregoing)
in connection with such registration, except that the following expenses shall
not be borne by the Company: underwriting discounts and commissions,
underwriting expenses and transfer taxes, if any (other than discounts,
commissions, expenses and transfer taxes relating to securities offered and sold
by the Company) and cost of liability insurance (except to the extent carried by
the Company on its own behalf).
Section 6. Registration Procedures.
Whenever the Company seeks to effect the registration of any shares of
Registrable Securities under the Securities Act as provided in Section 3, the
Company agrees it will, as expeditiously as possible, subject to the terms and
conditions of such sections:
(a) prepare and file with the Commission the requisite Shelf
Registration Statement to effect such registration, use its best efforts to
cause such Shelf Registration Statement to become effective and promptly notify
each Holder of Registrable Securities covered by such Shelf Registration
Statement and any managing underwriter of the effectiveness thereof;
(b) prepare and file with the Commission such amendments and
supplements to such Shelf Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Shelf Registration
Statement effective, notify each Holder of Registrable Securities covered by
such Shelf Registration Statement and any managing underwriter as promptly as
practicable of any request by the Commission for amendments
6
<PAGE>
or supplements to such Shelf Registration Statement or related Prospectus or for
additional information and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such Shelf
Registration Statement until the earlier of such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such Shelf
Registration Statement;
(c) furnish to each seller of Registrable Securities covered by such
Shelf Registration Statement such number of conformed copies of such Shelf
Registration Statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the Prospectus
contained in such Shelf Registration Statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under Rule
424 under the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents as such seller may reasonably request;
(d) use its best efforts to register or qualify all Registrable
Securities covered by such Shelf Registration Statement under such other
securities or blue sky laws of such jurisdictions as each seller thereof shall
reasonably request, to keep such registration or qualification in effect for so
long as such Shelf Registration Statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be required to
(i) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 6(d)
be obligated to be so qualified, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(e) use its best efforts to cause all shares covered by such Shelf
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such shares;
(f) enter into customary agreements (including, in the case of an
underwritten offering, an underwriting agreement in customary form) and take all
other action in connection therewith in order to expedite or facilitate the
distribution of the Registrable Securities included in such Shelf Registration
Statement, and, in the case of an underwritten offering, make representations
and warranties to the holders of Registrable Securities covered by such Shelf
Registration Statement and to the underwriters in such form and scope as are
customarily made by issuers to underwriters in primary underwritten offerings
and confirm the same to the extent customary if and when requested;
(g) make available for inspection during normal business hours by a
representative of the Holders of Registrable Securities covered by such Shelf
Registration Statement and
7
<PAGE>
any managing underwriter, and any attorney or accountant retained by such
Holders or managing underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the officers,
directors and employees of the Company to supply all information reasonably
requested by such representative, managing underwriter, attorney or accountant
in connection with such Shelf Registration Statement;
(h) use its best efforts to furnish to each Holder of Registrable
Securities covered by such Shelf Registration Statement a signed counterpart,
addressed to such Holder (and, in the case of an underwritten offering by the
Company, the underwriters), of
(i) an opinion of counsel for the Company, dated the effective
date of such Shelf Registration Statement (and, in case of an
underwritten offering by the Company, dated the date of each closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such Holder, and
(ii) a "comfort" letter, dated the effective date of such
Shelf Registration Statement (and, in the case of an underwritten
offering, dated the date of each closing under the underwriting
agreement), signed by the independent public accountants who have
certified the Company's financial statements included in such Shelf
Registration Statement, covering substantially the same matters with
respect to such Shelf Registration Statement (and the Prospectus
included therein) and with respect to events subsequent to the date of
such financial statements, as are customarily covered in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and such other financial matters as such Holder (or the
underwriters) may reasonably request;
(i) immediately notify each Holder of Registrable Securities covered by
such Shelf Registration Statement and any managing underwriter, at any time when
a Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the Prospectus included
in such Shelf Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and at the request of any
such Holder or any such managing underwriter, promptly prepare and furnish to
such Holder or managing underwriter a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made;
(j) notify each Holder of Registrable Securities covered by such Shelf
Registration Statement and any managing underwriter as promptly as practicable
after becoming aware of the issuance by the Commission of any stop order
suspending the effectiveness of such
8
<PAGE>
Shelf Registration Statement or the initiation of any proceedings for that
purpose or the receipt by the Company of any notification with respect to the
suspension of qualification of any Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose
and make all reasonable efforts to obtain as promptly as practicable the
withdrawal of any order or other action suspending the qualification of the
Registrable Securities for sale in any jurisdiction;
(k) (i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, (ii) make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such Shelf
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act, and (iii) not file any Shelf Registration
Statement or Prospectus or amendment or supplement to such Shelf Registration
Statement or Prospectus to which any such Holder of Registrable Securities
covered by any Shelf Registration Statement shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act, such Holder having been
furnished with a copy thereof at least two Business Days prior to the filing
thereof;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939 (the "TIA") in connection with the registration of the Senior Notes, and
effect such changes to the Indenture as may be required for it to be so
qualified in accordance with the terms of the TIA and execute, and use its
reasonable best efforts to cause the trustee under the Indenture to execute, all
documents as may be required to effect such changes, and all other forms and
documents required to be filed with the Commission to enable the Indenture to be
so qualified in a timely manner; and
(m) to file all reports required to be filed by it under the Exchange
Act and the rules and regulations adopted by the Commission thereunder in a
timely manner and, to the extent the Company's obligation to file such reports
pursuant to Section 15(d) of the Exchange Act expires prior to the expiration of
the Effectiveness Period, the Company shall register the Registrable Securities
under the Exchange Act and shall maintain such registration through the
Effectiveness Period.
The Company may require each Holder of Registrable Securities as to
which any registration is being effected to furnish the Company with such
information and undertakings regarding such Holder and the distribution of such
securities as the Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities covered by any Shelf Registration
Statement agrees (i) that upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (i) of this Section 6,
such Holder will forthwith discontinue such Holder's disposition of Registrable
Securities pursuant to the Shelf Registration Statement relating to such
Registrable Securities until such Holder's receipt of
9
<PAGE>
the copies of the supplemented or amended Prospectus contemplated by paragraph
(i) of this Section 6 and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
(which shall be conspicuously marked as such), then in such Holder's possession
of the Prospectus relating to such Registrable Securities current at the time of
receipt of such notice and (ii) that it will immediately notify the Company, at
any time when a Prospectus relating to the registration of such securities is
required to be delivered under the Securities Act, of the happening of any event
as a result of which information previously furnished by such Holder to the
Company in writing for inclusion in such Prospectus contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made.
Section 7. Indemnification.
(a) In the event of any registration of any Holder's Registrable
Securities under the Securities Act pursuant to this Agreement, the Company
shall indemnify and hold harmless each such Holder (a "Selling Holder"), its
directors, officers and/or trustees, each underwriter and each controlling
Person of any Selling Holder, if any (an "Indemnified Party"), against any
losses, claims, damages or liabilities, joint or several (or actions in respect
thereof), including attorneys' fees and costs, to which such Indemnified Party
may be subject under the Securities Act, under any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement (or
alleged untrue statement) of any material fact contained in any Shelf
Registration Statement under which such securities were registered under the
Securities Act, any Prospectus contained therein, any other document used to
sell the securities (including an illegal prospectus) (collectively, the
"Selling Documents"), or any amendment or supplement thereto (an "Amended
Selling Document"); or (ii) any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein (in light of the circumstances in which they were made with
respect to any Prospectus) not misleading, and shall reimburse each such
Indemnified Party for any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable to any Indemnified Party in any such event to the extent that any
loss, claim, damage or liability arises out of or is based upon any untrue
statement or omission made in such Selling Document, Amended Selling Document,
or any other document, in reliance upon and in strict conformity with written
information furnished to the Company by such Indemnified Party specifically for
use therein; and provided further that the Company shall not be liable under
this paragraph (a) with respect to any misstatement or omission or alleged
misstatement or omission in any Selling Document to the extent that any such
loss, claim, damage or liability results from the fact that the Indemnified
Party sold securities to a Person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of any Amended Selling
Document if the Company had previously furnished copies thereof to such
Indemnified Party and if the misstatement or omission or alleged misstatement or
omission was corrected in
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<PAGE>
the Amended Selling Document. The indemnity provided for herein shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party.
(b) In the event of any registration of any of the Company's securities
or any Registrable Securities under the Securities Act, each Selling Holder
shall furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with such Shelf Registration
Statement and agrees, severally and not jointly, to indemnify and hold harmless
the Company, its directors, each underwriter and each controlling Person of the
Company, if any, against any losses, claims, damages or liabilities, joint or
several (or actions in respect thereof), to which the Company, its directors,
such Selling Holder, underwriter or controlling Person may be subject under the
Securities Act or under any other statute or at common law, insofar as such
losses, claims, damages or liabilities, joint or several (or actions in respect
thereof), arise out of or are based upon (i) any untrue statement (or alleged
untrue statement) of any material fact contained in any Shelf Registration
Statement under which such securities were registered under the Securities Act,
any Selling Document or any Amended Selling Document, or (ii) any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances in
which they were made with respect to any prospectus) not misleading, and shall
reimburse the Company, its directors, such underwriter and controlling Person
for any legal or other expenses reasonably incurred by such Persons in
connection with investigating or defending any such loss, claim, damage,
liability or action; in each case, to the extent, and only to the extent, that
each untrue statement or omission (or alleged untrue statement or omission) is
made in reliance upon and in strict conformity with written information
furnished to the Company by such Selling Holder.
(c) If the indemnification provided for in paragraph (a) or (b) above
is unavailable to an indemnified party in accordance with its terms in respect
of any losses, claims, damages or liabilities referred to therein, then the
obligations of each indemnitor thereunder shall be limited to such amount paid
or payable by such indemnified party as a result of such losses, claims, damages
or liabilities, in such proportion as is appropriate to reflect the relative
fault of such indemnitor on the one hand and of the indemnified parties on the
other hand in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of each indemnitor and of the indemnified
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such
indemnitor, or by the indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method
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<PAGE>
of allocation which does not take into account the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities or actions in respect thereof referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expense reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by it exceeds the amount of any
damages which such person has otherwise been required to pay and has actually
paid by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of a fraudulent misrepresentation (within the meaning
of Section 10(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnitor under paragraph (a) or (b) above, as
the case may be, notify the indemnitor in writing of the commencement thereof;
but the omission so to notify the indemnitor shall not relieve it from any
liability which it may have to any indemnified party under such subsection
unless the failure to provide such notice results in the forfeiture by the
indemnitor of substantial rights or defenses. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnitor of the
commencement thereof, the indemnitor shall be entitled to participate therein
and, to the extent that it shall wish, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnitor and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it and/or other indemnified parties
which are in addition to or in conflict with those available to the indemnitor,
the indemnified party or parties shall have the right to select separate counsel
to assert such legal defenses (in which case the indemnitor shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties). Upon the permitted assumption by the indemnitor of the defense of such
action, and approval by the indemnified party of counsel, the indemnitor shall
not be liable to such indemnified party under this Section 7 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof (other than reasonable costs of investigation) unless
(i) the indemnified party shall have employed separate counsel in connection
with the assertion of legal defenses in accordance with the proviso to the next
preceding sentence, (ii) the indemnitor shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time, (iii) the indemnitor and its counsel do not actively and
vigorously pursue the defense of such action, or (iv) the indemnitor has
authorized the employment of counsel for the indemnified party at the expense of
the indemnitor. The indemnitor shall not be liable for any settlement of
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<PAGE>
any action or proceeding effected without its written consent, which consent
shall not be unreasonably withheld.
Section 8. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
under the internal substantive laws of the State of Delaware.
(b) Successors and Assigns. The provisions hereof shall inure to the
benefit of, and be binding upon, the parties and their respective successors,
assigns, heirs, executors and administrators. The rights and obligations of any
Investor hereunder may be assigned by such Investor to any Person acquiring
Registrable Securities from the Investor contemporaneously with such assignment,
provided that the rights so assumed shall apply only to the Registrable
Securities so acquired. The rights and obligations of the Company hereunder may
not be assigned by it without the prior written consent of the Investors.
(c) Entire Agreement. This Agreement, the Purchase Agreement and, with
respect to the Senior Notes, the Indenture constitute the full and entire
understanding and agreement among the parties with regard to the subject matter
hereof and no party shall be liable or bound to any other party in any manner by
any representations, warranties, covenants or agreements except as specifically
set forth herein or therein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
(d) Separability. Any invalidity, illegality or limitation of the
enforceability of any one or more of the provisions of this Agreement, or any
part thereof, shall in no way affect or impair the validity, legality or
enforceability of the other provisions of this Agreement. In case any provision
of this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent practicable, be modified so as to make it valid, legal and enforceable
and to retain as nearly as practicable the intent of the parties, and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
(e) Amendment and Waiver. Any provision of this Agreement may be
amended and the observance of any provision of this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), with
the written consent of the Company and the holders of not less than two thirds
of the both the aggregate principal amount of the Senior Notes and the shares of
Common Stock issued pursuant to the Purchase Agreement; provided, however, that
no such amendment or waiver shall reduce the aforesaid percentage of aggregate
principal amount of the Senior Notes or shares of Common Stock issued pursuant
to the Purchase Agreement which are required to consent to any waiver or
supplemental agreement unless the consent of the holders of all outstanding
Registrable Securities are
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<PAGE>
obtained. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon the Company and each Holder under this Agreement. Upon the
effectuation of each such amendment or waiver, the Company shall promptly give
written notice thereof to the Holders who have not previously consented thereto
in writing.
(f) Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder upon any breach, default or noncompliance
of the Company under this Agreement shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the Holders' part of any
breach, default or noncompliance under this Agreement or any waiver on the
Holders' part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing, and that all remedies afforded to the Holders under this Agreement
shall be cumulative and not alternative.
(g) Notices, etc. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to any Holder, initially at the address set forth below
its name on the Holder's signature page to this Agreement, and
thereafter at such other address, notice of which is given in
accordance with this Section 8(g); and
(ii) if to the Company, initially at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087, Attention: Chief Executive Officer,
and thereafter at such other address notice of which is given in
accordance with this Section 8(g).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
(h) Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LOCAL FINANCIAL CORPORATION
By: /s/ Edward A. Townsend
----------------------------
Name: Edward A. Townsend
Title: Chairman
15
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Investor Signature Page to Registration Rights Agreement
--------------------------
Name
By:
--------------------------
Name:
Title:
Address:
-----------------
--------------------------
--------------------------
16
Exhibit 4.3
LOCAL FINANCIAL CORPORATION
AND
THE BANK OF NEW YORK
Trustee
------------------------------
INDENTURE
Dated as of September 8, 1997
------------------------------
up to $80,000,000
11.0% Senior Notes due 2004
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE
<TABLE>
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Page
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<S> <C> <C> <C>
Definitions and Other Provisions of General Application ...........................................1
Section 1.01. Definitions .......................................................................................1
Section 1.02. Compliance Certificates and Opinions..............................................................12
Section 1.03. Form of Documents Delivered to Trustee............................................................13
Section 1.04. Acts of Noteholders...............................................................................13
Section 1.05. Notices, etc., to Trustee and Company.............................................................14
Section 1.06. Notice to Noteholders; Waiver.....................................................................15
Section 1.07. Effect of Headings and Table of Contents..........................................................15
Section 1.08. Successors and Assigns............................................................................15
Section 1.09. Separability......................................................................................15
Section 1.10. Benefits of Indenture.............................................................................16
Section 1.11. Governing Law.....................................................................................16
Section 1.12. Compliance with Trust Indenture Act...............................................................16
Section 1.13. Legal Holidays....................................................................................16
Section 1.14. No Recourse Against Others........................................................................16
ARTICLE TWO
Note Forms...................................................17
Section 2.01. Forms Generally...................................................................................17
Section 2.02. Form of Face of Note..............................................................................17
Section 2.03. Form of Reverse of Note...........................................................................20
Section 2.04. Form of Trustee's Certificate of Authentication...................................................26
ARTICLE THREE
The Notes...................................................26
Section 3.01. Title and Terms...................................................................................26
Section 3.02. Denominations.....................................................................................27
Section 3.03. Execution, Authentication, Delivery and Dating....................................................27
Section 3.04. Temporary Notes...................................................................................28
Section 3.05. Registration; Registration of Transfer and Exchange...............................................28
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.......................................................31
Section 3.07. Payment of Interest; Interest Rights Preserved...................................................31
Section 3.08. Persons Deemed Owners.............................................................................33
Section 3.09. Cancellation......................................................................................33
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Section 3.10. Authentication and Delivery of Original Issue.....................................................33
Section 3.11. Computation of Interest...........................................................................33
ARTICLE FOUR
Satisfaction and Discharge...........................................34
Section 4.01. Satisfaction and Discharge of Indenture...........................................................34
Section 4.02. Application of Trust Money........................................................................35
ARTICLE FIVE
Events of Default and Remedies.......................................35
Section 5.01. Events of Default.................................................................................35
Section 5.02. Acceleration of Maturity; Rescission and Annulment................................................37
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee...................................39
Section 5.04. Trustee May File Proofs of Claim..................................................................39
Section 5.05. Trustee May Enforce Claims Without Possession of Notes............................................40
Section 5.06. Application of Money Collected....................................................................40
Section 5.07 Limitation on Suits...............................................................................41
Section 5.08. Unconditional Right of Noteholders to Receive Principal,
Premium and Interest..................................................................42
Section 5.09. Restoration of Rights and Remedies................................................................42
Section 5.10. Rights and Remedies Cumulative....................................................................42
Section 5.11. Delay or Omission Not Waiver......................................................................42
Section 5.12. Control by Noteholders............................................................................42
Section 5.13. Waiver of Past Defaults...........................................................................43
Section 5.14. Undertaking for Costs.............................................................................43
Section 5.15. Waiver of Stay or Extension Laws..................................................................44
ARTICLE SIX
The Trustee..........................................................44
Section 6.01. Certain Duties and Responsibilities...............................................................44
Section 6.02. Notice of Defaults................................................................................45
Section 6.03. Certain Rights of Trustee.........................................................................45
Section 6.04. Not Responsible for Recitals or Issuance of Notes.................................................46
Section 6.05. May Hold Notes....................................................................................47
Section 6.06. Money Held in Trust...............................................................................47
Section 6.07. Compensation and Reimbursement....................................................................47
Section 6.08. Disqualification; Conflicting Interests...........................................................48
Section 6.09. Corporate Trustee Required; Eligibility...........................................................48
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Section 6.10. Resignation and Removal; Appointment of Successor.................................................48
Section 6.11. Acceptance of Appointment by Successor............................................................50
Section 6.12. Merger, Conversion, Consolidation or Succession to Business.......................................50
Section 6.13. Preferential Collection of Claims Against the Company.............................................50
Section 6.14 Trustee's Application for Instructions from the Company.............................. 50
ARTICLE SEVEN
Noteholders' Lists and Reporting by Trustee and Company...........................................51
Section 7.01. Company to Furnish Trustee Names and Addresses of Noteholders.....................................51
Section 7.02. Preservation of Information; Communications to Noteholders........................................51
Section 7.03. Reports by Trustee................................................................................51
Section 7.04. Reports by Company................................................................................52
Section 7.05. Calculation of Original Issue Discount........................................................... 52
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease..............................................52
Section 8.01. Company May Consolidate, etc., Only on Certain Terms..............................................52
Section 8.02. Successor Entity Substituted......................................................................53
ARTICLE NINE
Supplemental Indentures..............................................53
Section 9.01. Supplemental Indentures Without Notice to or Consent of
Noteholders...........................................................................53
Section 9.02. Supplemental Indentures With Consent of Noteholders...............................................54
Section 9.03. Execution of Supplemental Indentures..............................................................55
Section 9.04. Effect of Supplemental Indentures.................................................................55
Section 9.05. Reference in Notes to Supplemental Indentures.....................................................55
Section 9.06. Conformity With Trust Indenture Act...............................................................55
ARTICLE TEN
Covenants............................................................56
Section 10.01. Payment of Principal, Interest and Premium.......................................................56
Section 10.02. Maintenance of Office or Agency..................................................................56
Section 10.03. Money for Note Payments to be Held In Trust......................................................56
Section 10.04. Payment of Taxes and Other Claims................................................................57
Section 10.05. Corporate Existence..............................................................................58
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Section 10.06. Maintenance of Depository Institution Subsidiary.................................................58
Section 10.07. Maintenance of Properties........................................................................58
Section 10.08. Insurance........................................................................................59
Section 10.09. Books and Records................................................................................59
Section 10.10. Statements as to Compliance......................................................................59
Section 10.11. Limitations on Indebtedness......................................................................60
Section 10.12. Limitations on Restricted Payments...............................................................60
Section 10.13. Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries................................................................61
Section 10.14. Restrictions on Issuance and Sale or Disposition
of Capital Stock of Subsidiaries......................................................62
Section 10.15. Limitations on Transactions with Affiliates......................................................62
Section 10.16. Limitations on Liens and Guarantees..............................................................63
Section 10.17. Liquidity Maintenance............................................................................64
Section 10.18. Interest Reserve Account.........................................................................64
Section 10.19. Offer to Purchase Upon a Change of Control.......................................................65
Section 10.20. Payments for Consent.............................................................................67
Section 10.21. Waiver of Certain Covenants......................................................................67
ARTICLE ELEVEN
Defeasance and Covenant Defeasance...................................67
Section 11.01. Applicability of Article; Company's Option to Effect Defeasance
or Covenant Defeasance................................................................67
Section 11.02. Defeasance and Discharge.........................................................................67
Section 11.03. Covenant Defeasance..............................................................................68
Section 11.04. Conditions to Defeasance or Covenant Defeasance..................................................68
Section 11.05. Deposited Money and U.S. Government Obligations to be Held
in Trust; Other Miscellaneous Provisions..............................................70
Section 11.06. Reinstatement....................................................................................71
Section 11.07. Execution in Counterparts........................................................................71
</TABLE>
Exhibit A Form of Security Agreement
- ----------
NOTE: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
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INDENTURE, dated as of September 8, 1997, between LOCAL
FINANCIAL CORPORATION, a Delaware corporation, having its principal office at
3601 NW 63rd Street, Oklahoma City, Oklahoma 73116-2087 (the "Company"), and THE
BANK OF NEW YORK, a New York banking corporation, having its principal corporate
trust office at 101 Barclay Street, New York, New York 10286 (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation, execution and
delivery of its 11.0% Senior Notes due 2004 (the "Notes"), and to provide the
terms and conditions upon which the Notes are to be authenticated, issued and
delivered, the Company has duly authorized the execution of this Indenture.
All acts and things necessary to make the Notes, when executed
by the Company and authenticated and delivered by the Trustee as in this
Indenture provided, the legal, valid and binding obligations of the Company, and
to constitute these presents as a valid indenture and agreement according to its
terms, have been done and performed, and the execution of this Indenture and the
issuance hereunder of the Notes have in all respects been duly authorized, and
the Company, in the exercise of the legal right and power vested in it, executes
this Indenture and proposes to make, execute and deliver the Notes.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all Holders of
the Notes as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 1.01. Definitions.
For all purposes of this Indenture except as otherwise
expressly provided or unless the context otherwise requires:
(1) All references in this instrument to designated
"Articles," "Sections" and other subdivisions are to the designated articles,
sections and other subdivisions of this instrument as originally executed. The
words "herein," "hereto" and "hereunder" and other words of similar import refer
to this Indenture as a whole and not to any particular article, section or other
subdivision;
(2) the terms defined in this Article have the meaning
assigned to them in this Article, and include the plural as well as the
singular;
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(3) all other terms used herein which are defined in the Trust
Indenture Act of 1939, as amended, either directly or by reference therein, have
the meanings assigned to them therein; and
(4) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, which, with respect to any computation required or permitted
hereunder, shall mean such accounting principles as are generally accepted at
the date or time of such computation.
Certain terms, used principally in Article Six, are defined in
that Article.
"Act" when used with respect to any Noteholder has the meaning
specified in Section 1.04.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings corresponding to the
foregoing.
"Authenticating Agent" means any Person authorized by the
Trustee to act on behalf of the Trustee to authenticate Notes.
"Authorized Newspaper" means a newspaper of general
circulation in the relevant geographic area, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays. Whenever successive weekly publications in an
Authorized Newspaper are required hereunder they may be made, unless otherwise
expressly provided herein, on the same or different days of the week and in the
same or in different Authorized Newspapers.
"Banks" means (a) Local Federal Bank, F.S.B. and Local America
Bank, F.S.B., and in each case, until one or more successors shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Banks" shall mean such successor or successors; and (b) any bank or savings or
depository institution that is or shall become an Affiliate of the Company.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day upon which banking institutions or trust companies
in the city in which the principal corporate trust office of the Trustee is
located are authorized or required by law, regulation or executive order to
remain closed.
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"Capital Lease Obligation" of any Person means any obligations
of such Person under any capital lease for real or personal property which, in
accordance with GAAP, is required to be recorded as a capitalized lease
obligation; and, for the purpose of this Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents in the equity (however
designated) of such Person and any rights (other than debt securities
convertible into an equity interest), warrants or options to acquire an equity
interest in such Person.
"Change of Control" means the occurrence of any of the
following events: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 25% of the total Voting Stock of the Company, (ii) the Company consolidates
with, or merges into, another person, or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
person, or any person consolidates with, or merges into, the Company, in any
such event pursuant to a transaction in which the outstanding Voting Stock of
the Company is changed into or exchanged for cash, securities or other property,
other than any such transaction between the Company and a Wholly Owned
Subsidiary, or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Company's Board of Directors
(together with any new directors whose elections by the Company's Board of
Directors or whose nomination for elections by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors then in office.
"Change of Control Purchase Date" has the meaning specified in
Section 10.19.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Company Consent," "Company Order" and "Company Request" mean,
respectively, a written consent, order or request signed in the name of the
Company by its Chairman of the Board, President or a Vice President, and by its
Treasurer, an Assistant Treasurer, Controller, an Assistant Controller,
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
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<PAGE>
"Consolidated Net Income (Loss)" of any Person means, for any
period, the consolidated net income (or loss) of such Person and its
consolidated Subsidiaries for such period as determined in accordance with GAAP,
adjusted, to the extent included in calculating such net income (loss), by
excluding, without duplication, (i) all extraordinary gains and losses (other
than those relating to the use of net operating losses of such Person carried
forward), less all fees and expenses relating thereto, net of taxes, (ii) the
portion of net income (or loss) of any other Person (other than any of such
Person's consolidated Subsidiaries) in which such Person or any of its
Subsidiaries has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to such Person or its
consolidated Subsidiaries in cash by such other Person during such period, (iii)
net income (or loss) of any Person combined with such Person or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, (iv) any gain or loss, net of taxes, realized upon
the termination of any employee pension benefit plan or (v) the net income of
any consolidated Subsidiary of such Person to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulations applicable to that Subsidiary or its
shareholders; provided that, upon the termination or expiration of such dividend
or distribution restrictions, the portion of net income (or loss) of such
consolidated Subsidiary allocable to such Person and previously excluded shall
be added to the Consolidated Net Income (Loss) of such Person to the extent of
the amount of dividends or other distributions available to be paid to such
Person in cash by such Subsidiary.
"Consolidated Tangible Net Worth" of any Person and its
Subsidiaries means as of the date of determination all amounts that would be
included under stockholders' equity on a consolidated balance sheet of such
Person and its Subsidiaries determined in accordance with GAAP, less an amount
equal to the consolidated intangible assets (other than capitalized mortgage
servicing rights) of such Person and its Subsidiaries determined in accordance
with GAAP.
"Default" means any event that upon notice or the passage of
time or both would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section
3.07.
"Depositary" means the Person designated to act as Depositary
by the Company in Section 3.01, and any successor Depositary hereunder.
"Disqualified Capital Stock" means any Capital Stock which, by
its terms (or by the terms of any security into which it is convertible or
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part on, or prior to, or is
exchangeable for debt securities of the Company or its Subsidiaries prior to,
the final Stated Maturity of principal of the Notes; provided that only the
amount of such Capital Stock that matures or is redeemable prior to the Stated
Maturity of principal of the Notes shall be deemed to be Disqualified Capital
Stock.
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"Event of Default" has the meaning specified in Article Five.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, with respect to any asset, the
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of which is under
compulsion to complete the transaction as determined by the Board of Directors
of the Company, acting in good faith, and shall be evidenced by a Board
Resolution delivered to the Trustee.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"GAAP" means generally accepted accounting principles.
"Global Note" means a Note that evidences all or part of the
Notes authenticated and delivered to the Depositary or its nominee, and
registered in the name of such Depository or its nominee in accordance with
Section 3.03, and bearing the legend(s) prescribed in the form of Note contained
in Section 2.02.
"Guaranteed Indebtedness" of any Person means, without
duplication, all Indebtedness of any other Person guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness; (ii) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss; (iii) to supply funds to, or in any other manner
invest in, the debtor (including any agreement to pay for property or services
without requiring that such property be received or such services be rendered);
(iv) to maintain working capital or equity capital of the debtor, or otherwise
to maintain the net worth, solvency or other financial condition of the debtor;
or (v) otherwise to assure a creditor with respect to Indebtedness against loss;
provided that the term "guarantee" shall not include endorsements for collection
or deposit, in the ordinary course of business.
"Holder" when used with respect to any Note means a
Noteholder.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit issued under
letter of credit facilities, and in connection with any agreement by such Person
to purchase, redeem, exchange, convert or otherwise acquire for value any
Capital Stock of such Person now or hereafter outstanding; (ii) all obligations
of such Person evidenced by bonds, notes, debentures or other similar
instruments; (iii) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default
5
<PAGE>
are limited to repossession or sale of such property), but excluding trade
payables arising in the ordinary course of business; (iv) all obligations under
interest rate agreements of such Person; (v) all Capital Lease Obligations of
such Person; (vi) all Indebtedness referred to in clauses (i) through (v) above
of other Persons and all dividends payable by other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness (the amount of such obligations
being deemed to be the lesser of the value of such property or asset or the
amount of the obligations so secured); (vii) all guarantees by such Person of
Guaranteed Indebtedness; (viii) all Disqualified Capital Stock (valued at the
greater of book value and voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends) of such Person; and (ix) any amendment,
supplement, modification, deferral, renewal, extension, refunding or refinancing
or any liability of the types referred to in clauses (i) through (viii) above.
For purposes hereof, (x) the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value is to be determined in good faith by the
board of directors (or any duly authorized committee thereof) of the issuer of
such Disqualified Capital Stock, and (y) Indebtedness is deemed to be incurred
pursuant to a revolving credit facility each time an advance is made thereunder.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Notes.
"Interest Reserve Account" shall have the meaning specified in
Section 10.18(a).
"Issue Date" means the date on which the Notes are originally
issued.
"Junior Indebtedness" means any Indebtedness of the Company
subordinated in right of payment of either principal, premium (if any) or
interest thereon to the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Liquid Assets" shall include: (i) cash; (ii) any of the
following instruments that have a remaining term to maturity not in excess of 90
days from the determination date: (a) repurchase agreements on obligations of,
or are guaranteed as to timely receipt of principal and interest by, the United
States or any agency or instrumentality thereof when such obligations are backed
by the full faith and credit of the United States, provided that the party
agreeing to
6
<PAGE>
repurchase such obligations is a primary dealer in U.S. government securities,
(b) federal funds and deposit accounts, including but not limited to
certificates of deposit, time deposits and bankers' acceptances of any U.S.
depository institution or trust company incorporated under the laws of the
United States or any state, provided that the debt of such depository
institution or trust company at the date of acquisition thereof has been rated
by Standard & Poor's Corporation in the highest short-term rating category or
has an equivalent rating from another nationally recognized rating agency, or
(c) commercial paper of any corporation incorporated under the laws of the
United States or any state thereof that on the date of acquisition is rated
investment grade by Standard & Poor's Corporation or has an equivalent rating
from another nationally recognized rating agency; (iii) any debt instrument
which is an obligation of, or is guaranteed as to the receipt of principal and
interest by the United States, its agencies or any U.S. government sponsored
enterprise, or (iv) any mortgage-backed or mortgage-related security issued by
the United States, its agencies, or any U.S. government sponsored enterprise, as
to which the payment of principal and interest from the mortgages underlying
such securities will be passed through to the holder thereof and which has a
remaining weighted average maturity of 15 years or less. Notwithstanding the
forgoing, Liquid Assets shall not include any debt instruments, securities or
collateralized mortgage obligations (real estate mortgage investment conduits)
that would be classified as a "High-Risk Mortgage Security" pursuant to the
policy statement adopted by the Federal Financial Institutions Examination
Counsel on February 10, 1992, as reflected in Volume I of the Federal Reserve
Report Service, Part 3-1562.
"Maturity" when used with respect to any Note means the date
on which the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration or
otherwise.
"Net Cash Proceeds" means, with respect to any issuance or
sale of Capital Stock, or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock, or any capital contribution in respect of Capital Stock, the
proceeds of such issuance or sale or capital contribution in the form of cash or
cash equivalents, including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when disposed for, cash
or cash equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company), net of
attorney's fees, accountant's fees and brokerage, consulting, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale or capital contribution and net of taxes paid or payable by the Company as
a result thereof.
"Note" means either individually or collectively, as the
context requires, the Senior Notes due 2004, as amended or supplemented from
time to time in accordance with the terms hereof, issued under this Indenture on
the Issue Date.
"Noteholder" means a Person in whose name a Note is registered
in the Note Register.
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 3.05.
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"Offer to Purchase" means an offer by the Company to
repurchase Notes, as set forth in Section 10.19 hereof.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer,
an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary
or Assistant Secretary of the Company, and delivered to the Trustee. Wherever
this Indenture requires that an Officers' Certificate also be signed by an
accountant or other expert, such accountant or other expert, except as otherwise
expressly provided in this Indenture, may be in the employ of the Company and
shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may, except as otherwise expressly provided in this Indenture, be counsel for or
an employee of the Company and who shall be acceptable to the Trustee.
"Outstanding" when used with respect to Notes means, as of the
date of determination of Notes Outstanding, all Notes theretofore authenticated
and delivered under this Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes for whose payment money in the necessary amount has
been theretofore irrevocably deposited with the Trustee or any Paying Agent in
trust for the Holders of such Notes; and
(c) Notes which have been paid pursuant to Section 3.06 or
authenticated and delivered in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture, other than any such
Notes in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in whose
hand such Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Notes Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or Affiliate of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee has actual knowledge to be so
owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or Affiliate of such other obligor.
"OTS" means the Office of Thrift Supervision or any successor
thereto.
8
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"Paying Agent" means any Person authorized by the Company to
pay the principal of and premium, if any, or interest on any Notes on behalf of
the Company. Initially, the Paying Agent shall be the Trustee.
"Permitted Investments" means one or more of the following
types of investments:
(i) interest-bearing deposit accounts of any "insured
depository institution," as defined in Section 3(c) of the Federal
Deposit Insurance Act, as amended;
(ii) direct obligations of, or obligations the principal and
interest on which are unconditionally guaranteed by, the United States
of America or any agency or instrumentality thereof;
(iii) obligations of any corporate issuer which are rated in
one of the two highest rating categories of any nationally-recognized
statistical rating organization;
(iv) repurchase agreements with banks, brokers or dealers
involving any of the foregoing types of securities; and
(v) money market mutual funds;
provided that, notwithstanding anything to the contrary contained herein,
Permitted Investments shall not include any of the foregoing investments to the
extent that any such investment, in the good faith business judgment of the
Board of Directors of the Company, evidenced by a Board Resolution delivered to
the Trustee, involves at the time of acquisition or thereafter a reasonable
likelihood of a loss of principal.
"Permitted Payment" means, so long as no Default or Event of
Default is continuing,
(a) the purchase, redemption, defeasance or other acquisition
or retirement for value of any Capital Stock of the Company or any Affiliate
(other than a Wholly-Owned Subsidiary, which is unrestricted) of the Company, or
any Junior Indebtedness of the Company which may be incurred pursuant to Section
10.11 hereof in exchange for (including any such exchange pursuant to the
exercise of a conversion right or privilege where, in connection therewith, cash
is paid in lieu of the issuance of fractional shares or scrip), or out of the
Net Cash Proceeds or Fair Market Value of property not constituting Net Cash
Proceeds of, a substantially concurrent issue and sale (other than to a
Subsidiary of the Company or to an employee benefit plan of the Company or any
of its Subsidiaries) of Qualified Capital Stock of the Company; provided that
the Net Cash Proceeds or Fair Market Value of such property received by the
Company from the issuance of such shares of Qualified Capital Stock, to the
extent so utilized, shall be excluded from clause (d)(iii) of Section 10.12
hereof; and
(b) the repurchase, redemption, defeasance or other
acquisition or retirement for value of any Junior Indebtedness of the Company
which may be incurred pursuant to Section 10.11 hereof in exchange for, or out
of the Net Cash Proceeds of, a substantially concurrent issue and sale (other
than to a Subsidiary of the Company) of new Indebtedness to the Company
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(such a transaction, a "refinancing"); provided, that any such new Indebtedness
of the Company (i) shall be in a principal amount that does not exceed an amount
equal to the sum of (A) the principal amount of the Junior Indebtedness so
refinanced less any discount from the face amount of such Junior Indebtedness to
be refinanced expected to be deducted from the amount payable to the holders of
such Junior Indebtedness in connection with such refinancing, (B) the amount of
any premium expected to be paid in connection with such refinancing pursuant to
the terms of any Junior Indebtedness of the Company which may be incurred
pursuant to Section 10.11 hereof refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such refinancing
by means of a tender offer, privately negotiated repurchase or otherwise and (C)
the amount of legal, accounting, printing and other similar expenses of the
Company incurred in connection with such refinancing; provided, further, that
for purposes of this clause (i), the principal amount of any Indebtedness shall
be deemed to mean the principal amount thereof or, if such Indebtedness provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, such lesser amount as of the date of
determination; (ii) each Stated Maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund payments) of such new
Indebtedness shall be after the final Stated Maturity of principal of the Notes
then outstanding; and (iii) is made expressly subordinated to the Notes to
substantially the same extent as the Junior Indebtedness being refinanced or
expressly subordinate to such refinanced Indebtedness.
"Person" means any natural person, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Place of Payment" means a city or any political subdivision
thereof designated as such in Article Three.
"Predecessor Notes" of any particular Note means every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note.
"Qualified Capital Stock" of any Person means any and all
Capital Stock of such Person other than Disqualified Capital Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of September 8, 1997, among the Company and certain
investors in the Company's Notes and Capital Stock.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the date specified for that purpose in Section 3.07.
"Regulatory Capital Requirements" means (i) the minimum amount
of capital required to meet each of the industry-wide regulatory capital
requirements applicable to the Banks pursuant to 12 U.S.C. Section 1464(t) and
12 C.F.R. Part 567 (and any amendment to either thereof) or any successor law or
regulation, and (ii) such higher amount of capital as the Banks, individually,
are required to maintain in order to meet any individual minimum capital
standard applicable to the Banks pursuant to 12 U.S.C. Section 1464(s) and 12
C.F.R. Section 567.3 (and any amendment to either thereof) or any successor law
or regulation.
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"Responsible Officer" when used with respect to the Trustee
means any officer of the Trustee with responsibility of the administration of
this Indenture and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Note" means a Note, unless or until it has been
(i) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it or (ii) distributed to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act.
"Restricted Payment" means
(a) the declaration, payment or setting apart of any funds for
the payment of any dividend on, or making of any distribution to holders of, the
Capital Stock of the Company or any Subsidiary of the Company (other than (i)
dividends or distributions in Qualified Capital Stock of the Company and, and
(ii) dividends or distributions payable on or in respect of any class or series
of Capital Stock of a Subsidiary of the Company as long as the Company receives
at least its pro rata share of such dividends or distributions in accordance
with its ownership interests in such class or series of Capital Stock);
(b) the purchase, redemption or other acquisition or
retirement for value, directly or indirectly, of any Capital Stock of the
Company or any Affiliate of the Company (other than a Wholly-Owned Subsidiary);
or
(c) the making of any principal payments on, or repurchase,
redemption, defeasance, retirement or other acquisition for value, directly or
indirectly, of any Junior Indebtedness, prior to the Stated Maturity of
principal or scheduled redemption or defeasance of, or any scheduled sinking
fund payment on, such Junior Indebtedness.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement to be
entered into by the Company and a bank or trust company pursuant to Section
10.18(a) hereof, which shall be substantially in the form of the Security
Agreement attached as Exhibit A to this Indenture.
"Special Record Date" for the payment of any Defaulted
Interest, as defined in Section 3.07, means a date fixed by the Trustee pursuant
to Section 3.07.
"Stated Maturity" when used with respect to any Note or any
installment of interest thereon means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
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"Subsidiary" means any corporation of which at least a
majority of the outstanding stock having ordinary voting power to elect a
majority of the directors of such corporation, irrespective of whether or not at
the time stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Company, by one or more Subsidiaries of
the Company, or by the Company and one or more Subsidiaries.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended, as in force at the date as of which this instrument was executed,
except as otherwise provided in Section 9.06.
"Vice President' when used with respect to the Company or the
Trustee means any vice president, whether or not designated by a number or a
word or words before or after the title "vice president."
"Voting Stock" means Capital Stock of any class or classes,
however designated, having ordinary voting power for the election of a majority
of the board of directors, other than stock having such power only by reason of
the occurrence of a contingency.
"Wholly Owned Subsidiary" means a Subsidiary of which all of
the outstanding Capital Stock (other than directors' qualifying shares) is at
the time directly or indirectly owned by the Company, or by one or more Wholly
Owned Subsidiaries or by the Company and one or more Wholly Owned Subsidiaries.
Section 1.02. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such certificate or opinion is specifically required by
any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
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<PAGE>
(3) a statement that, in the opinion of each such individual,
he or she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.03. Form of Documents Delivered to Trustee.
In any case in which several matters are required to be
certified by, or covered by an opinion of, any specified Person, it is not
necessary (except in the case of a natural person) that all such matters be
certified by, or covered by the opinion of, only one representative of such
Person, or that they be so certified or covered by only one document, but one
representative of such Person may certify or give an opinion with respect to
some matters and one or more other representatives of such Person may certify or
give an opinion as to other matters, and any duly authorized representative of
such Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations,
with respect to the matters upon which such officer's certificate or opinion is
based, are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, any officer of the Company who may sign an Officers'
Certificate, stating that the information with respect to such factual matters
is in the possession of the Company, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters is or are erroneous.
Where any Person is required to make, give or execute two or
more applications, request, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Section 1.04. Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee, and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as an "Act" of the
Noteholders signing such instruments or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose under this Indenture and, subject to Section 6.01, conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section 1.04.
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Without limiting the generality of the foregoing, a
Noteholder, including the Depositary that is a Noteholder of a Global Note, may
make, give or take, by a proxy or proxies, duly appointed in writing, any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted in this Indenture to be made, given or taken by
Noteholders, and the Depositary that is a Noteholder of a Global Note may
provide its proxy or proxies to the beneficial owners of interest in any such
Global Note.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be provided in any reasonable manner which the
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Note shall bind the Holder
of every Note issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done or suffered to be done
by the Trustee or the Company in reliance thereon, whether or not notation of
such action is made upon such Note.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on such
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than six months after the record
date.
Section 1.05. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Noteholders or other document provided for or
permitted by this Indenture to be made upon, given or furnished to, or filed
with,
(1) the Trustee by any Noteholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its principal corporate trust office specified
in the first paragraph of this Indenture or at any other address furnished in
writing to the Noteholders or the Company by the Trustee, or
(2) the Company by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the first
paragraph of this instrument or at any other address furnish in writing to the
Trustee by the Company.
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Section 1.06. Notice to Noteholders; Waiver.
Where this Indenture provides for notice to Noteholders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Noteholder affected by such event, at such Noteholder's address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Noteholders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Noteholder
shall affect the sufficiency of such notice with respect to other Noteholders.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event required to have been described in such notice, and such
wavier shall be the equivalent of such notice. Waivers of notice by Noteholders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such wavier.
In case, by reason of the suspension of regular mail service,
or by reason of any other cause, it shall be impracticable to give such notice
by mail as required by this Indenture, then such notification as shall be made
with the approval of the Trustee shall constitute a sufficient notification for
every purpose hereunder.
In case, by reason of the suspension of publication of any
Authorized Newspaper, or by reason of any other cause, it shall be impossible to
make publication of any notice in an Authorized Newspaper or Authorized
Newspapers as required by this Indenture, then such method of publication or
notification as shall be made with the approval of the Trustee shall constitute
a sufficient publication of such notice.
Section 1.07. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents hereof are for convenience only and shall not affect the construction
hereof.
Section 1.08. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
Section 1.09. Separability.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired.
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Section 1.10. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Noteholders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.11. Governing Law.
This Indenture and each Note shall be governed by and
construed in accordance with the laws of the State of New York as applied to
contracts made or investments entered into and, in each case, made and performed
in the State of New York without regard to principles of conflicts of laws.
Section 1.12. Compliance with Trust Indenture Act.
This Indenture is subject to and shall be governed by the
provisions of the Trust Indenture Act that are required to be a part of this
Indenture. If any provision hereof limits, qualifies or conflicts with another
provision which is required under or deemed to be included in this Indenture by
any of the provisions of the Trust Indenture Act, such required or deemed
provisions shall control.
Section 1.13. Legal Holidays.
In any case where any Interest Payment Date or Stated Maturity
of any Note shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of the Notes (other
than a provision of the Notes which specifically states that such provision
shall apply in lieu of this Section)) payment of interest or principal (and
premium, if any) need not be made at such Place of Payment on such date, but may
be made on the next succeeding Business Day at such Place of Payment with the
same force and effect as if made on the Interest Payment Date or at the Stated
Maturity, provided that no interest shall accrue for the period from and after
such Interest Payment Date or Stated Maturity, as the case may be.
Section 1.14. No Recourse Against Others.
This Indenture and the Notes are solely corporate obligations
of the Company. No recourse shall be had against, and no personal liability
shall attach to, any director, officer, employee, incorporator, stockholder or
Affiliate, past, present or future, of the Company or any successor thereto, or
any of them, because of the creation of the indebtedness hereby authorized, or
under, upon or by reason of any obligation, covenant or agreement contained in
this Indenture or in any of the Notes or implied therefrom or any claim based
thereon or in respect thereof; it being expressly understood that all such
recourse and personal liability are hereby expressly waived and released as a
condition of, and as consideration for, the execution of this Indenture and the
issuance of such Notes.
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ARTICLE TWO
Note Forms
Section 2.01. Forms Generally.
The Notes and the certificates of authentication thereon shall
be in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Notes.
The definitive Notes shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or in such other manner as the Company may deem appropriate, all as
determined by the officers executing such Notes, as evidenced by their execution
of such Notes.
Section 2.02. Form of Face of Note.
[If a Global Note to be held by The Depository Trust Company,
then insert -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS EXCHANGED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[If a Global Note, then insert - THIS IS A GLOBAL NOTE WITHIN
THE MEANING OF THE INDENTURE. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN
PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL NOTE MAY NOT
BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.]
[If a Restricted Note(s), then insert -- THIS NOTE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.
NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION.
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THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO BE
BOUND BY THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT WITH THE COMPANY AND,
IN CONNECTION THEREWITH, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE,
PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH
THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY
PREDECESSOR OF THIS NOTE) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS NOTE
FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE
IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (E)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE COMPANY OR THE TRUSTEE
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C), (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM. SUCH HOLDER FURTHER AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.]
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LOCAL FINANCIAL CORPORATION
11.0% SENIOR NOTE DUE 2004
CUSIP No.______
$______________ No.______
THIS SECURITY IS NOT A SAVINGS ACCOUNT OR A DEPOSIT AND IS NOT INSURED
BY THE UNITED STATES OR ANY AGENCY OF THE UNITED STATES.
Local Financial Corporation, a Delaware corporation (together
with any successor corporation that is permitted under the Indenture hereinafter
referred to, herein called the "Company"), for value received, hereby promises
to pay to , or registered assigns, the principal sum of Dollars on September 8,
2004, and to pay interest thereon at the rate of 11.0% per annum from September
8, 1997 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually, commencing March 1, 1998, and each
March 1 and September 1 thereafter, until the principal hereof is paid or made
available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at the rate of 11.0% per annum on any overdue
principal (and premium, if any) and on any overdue installment of interest until
paid.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture, be
calculated on the basis of a 360-day year of twelve 30-day months, and will be
paid to the Person in whose name this Note (or one or more Predecessor Notes) is
registered at the close of business on the Regular Record Date for such
interest, which shall be each February 15 and August 15 prior to the applicable
Interest Payment Date. Any such interest not so punctually paid or duly provided
for shall forthwith cease to be payable to the registered Holder on such Regular
Record Date, and may be paid to the Person in whose name this Note (or one or
more Predecessor Notes) is registered at the close of business on a Special
Record Date for the payment of such defaulted interest to be fixed by the
Trustee, notice whereof shall be given to the Holders not less than ten days
prior to such Special Record Date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in said Indenture. Payment of the
principal of and interest on this Note will be made at the office or agency of
the Company maintained for that purpose in New York, New York or at such other
office or agency as may be established by the Company pursuant to the Indenture
(initially the principal corporate trust office of the Trustee in New York, New
York), in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that, at the option of the Company, payment of interest may be made
(subject to collection) by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this
Note set forth on the reverse side hereof and such further provisions shall for
all purposes have the same effect as though fully set forth at this place.
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This Note shall not be entitled to any benefit, or be valid or
obligatory for any purpose under the Indenture until the certificate of
authentication hereon shall have been manually signed by the Trustee.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed in its name by the manual or facsimile signature of its Chairman,
President or Vice President and its corporate seal, or a facsimile thereof,
impressed or imprinted hereon, attested by the manual or facsimile signature of
its Secretary or Assistant Secretary.
LOCAL FINANCIAL CORPORATION
[Corporate Seal]
By:
-------------------------------------
Chairman, President or Vice President
Attest:
--------------------------------
Secretary or Assistant Secretary
Section 2.03. Form of Reverse of Note.
This Note is one of a duly authorized issue of Notes of the
Company designated as its 11.0% Senior Notes due 2004 (herein called the
"Notes"), limited in aggregate principal amount to $80,000,000, issued and to be
issued under an Indenture dated as of September 8, 1997 (herein called the
"Indenture"), between the Company and The Bank of New York, as Trustee (herein
called the "Trustee," which term includes any successor Trustee under the
Indenture), to which the Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights thereunder of
the Company, the Trustee and the Holders of the Notes, and the terms upon which
the Notes are, and are to be, authenticated and delivered. Copies of the
Indenture and all indentures supplemental thereto will be made available to the
Holders for inspection during normal business hours at the principal office of
the Company, which on the date hereof is located at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087, and copies of the Indenture and all
indentures supplemental thereto will be mailed to any Holder by the Company upon
the Company's receipt of the written request of such Holder, sent to the Company
addressed to the attention of the Company's Corporate Secretary at the principal
office of the Company.
The indebtedness of the Company evidenced by the Notes,
including the principal thereof and interest thereon (including post-default
interest), (a) is, to the extent and in the manner set forth in the Indenture,
subordinate and junior in right of payment to the Trustee's fees and expenses,
and (b) is not secured by any collateral, including the assets of the Company or
any of its Affiliates. Each Holder of a Note, by acceptance hereof, agrees to
and shall be bound by such provisions of the Indenture and all other provisions
of the Indenture.
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If an Event of Default under the Indenture shall occur and be
continuing, the principal of all the Notes may be declared due and payable in
the manner and with the effect provided in the Indenture. The Indenture provides
that such declaration and its consequences may, in certain events, be annulled
by the Holders of a majority in principal amount of the Notes Outstanding.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Notes under the
Indenture at any time by the Company with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding, as
determined in accordance with the Indenture. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by a Holder of this Note shall be conclusive and binding upon
such Holder and upon all future Holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made on this Note.
No references herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on this Note at the times, places and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, this Note is transferable on the Note Register of
the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company to be maintained for that purpose in New York,
New York, or at such other office or agency as may be established by the Company
for such purpose pursuant to the Indenture (initially the principal corporate
trust office of the Trustee in New York, New York), duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Note Registrar duly executed by, the Holder hereof or his or her
attorney duly authorized in writing, and thereupon one or more new Notes, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
Section 10.19 of the Indenture provides that upon the
occurrence of a Change of Control and subject to further limitations contained
therein, the Company shall make an offer to purchase the Notes in accordance
with the procedures set forth in the Indenture.
All Notes are issuable and transferable only in fully
registered form, without coupons, in denominations of $1,000 or integral
multiples in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
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No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Certain capitalized terms used in this Note which are not
defined herein have the meanings set forth in the Indenture and exhibits
thereto.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee, nor any such agent shall be affected by notice to the
contrary.
22
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---------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________ agent to transfer this
Note. The agent may substitute another to act for him or her.
Date: _____________________________
Signature: _________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee*: ___________________________________
- --------
* Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined in addition to, or
in substitution for, STAMP, all in accordance with the Securities and Exchange
Act of 1934, as amended.
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In connection with any transfer of this Note the undersigned confirms that such
Note is being:
CHECK ONE BOX BELOW
(1) |_| exchanged for the undersigned's own account without
transfer; or
(2) |_| transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
(3) |_| transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
(4) |_| transferred to an "accredited investor" within the meaning
of Rule 501 under the Securities Act of 1933 that is
acquiring the Note for its own account, or for the account
of such an "accredited investor," for invest- ment purposes
and not with a view to, or for offer or sale in con- nection
with, any distribution in violation of the Securities Act of
1933; or
(5) |_| transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933; or
(6) |_| transferred pursuant to an effective registration statement.
-----------------------
Signature
24
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 10.18 of the Indenture, check the box below:
|_|
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 10.19 of the Indenture, state the amount:
$_______
Date: Your Signature:
---------------- -------------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a member firm of the
New York Stock Exchange or a commercial bank or trust
company)
25
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Section 2.04. Form of Trustee's Certificate of Authentication.
This is one of the Notes referred to in the within-mentioned Indenture.
Dated: The Bank of New York, as Trustee
By:
----------------------------
Authorized Signatory
ARTICLE THREE
The Notes
Section 3.01. Title and Terms.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is limited to $80,000,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of other Notes pursuant to Sections 3.04, 3.05,
3.06 and 9.05 or in connection with an Offer to Purchase Notes pursuant to
Section 10.19.
The Notes shall be known and designated as the 11.0% Senior
Notes due 2004 of the Company. The Stated Maturity of the principal thereof
shall be September 8, 2004, and shall bear interest from the date and at the
rate per annum specified in, and such interest shall be payable on the dates
specified in, the form of Note set forth in Sections 2.02 and 2.03, until the
principal thereof is paid or made available for payment.
The principal of (and premium, if any) and interest on the
Notes shall be payable at the office or agency of the Company maintained for
such purposes in New York, New York ("Place of Payment"), or at such other
office or agency as may be established by the Company (initially the principal
corporate trust office of the Trustee in New York, New York) pursuant to Section
10.02, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that, at the option of the Company, payment of interest may be made
(subject to collection) by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register.
The Depository for the Notes to be authenticated and delivered
in the form of a Global Note or Notes upon original issuance shall be The
Depository Trust Company ("DTC"). DTC or any successor Depositary must, at all
times while it serves as such Depositary, be a clearing agency registered under
the Exchange Act and any other applicable statute or regulation.
The Notes shall be subject to repurchase by the Company
pursuant to an Offer to Purchase as provided in Section 10.19.
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<PAGE>
The Notes shall be subject to defeasance at the option of the
Company as provided in Article Eleven
The Notes issued under any provision of this Indenture shall
bear the applicable legends contained in the form of Note set forth in Section
2.02, unless the Company shall have delivered a Company Order to the Trustee
directing that the Note may be issued without such legend(s) thereon.
Section 3.02. Denominations.
The Notes shall be issuable and transferable only in
registered form without coupons and only in denominations of $1,000 and any
integral multiple above that amount.
Section 3.03. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman, President or one of its Vice Presidents under its corporate seal
reproduced thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes; and the Trustee shall authenticate
and make such Notes available for delivery as provided in this Indenture.
In authenticating Notes in accordance with any Company Order
as provided in the preceding paragraph, the Trustee shall be entitled to
receive, and (subject to Section 6.01) shall be fully protected in relying upon,
an Opinion of Counsel stating, that such Notes when authenticated and made
available for delivery by the Trustee and issued by the Company in the manner
and subject to the conditions specified in such Opinion of Counsel, will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.
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The Company shall execute and the Trustee shall authenticate
one or more Global Notes that (i) shall represent an aggregate amount equal to
the aggregate principal amount of such of the Outstanding Notes as the Company
shall have directed the Trustee to authenticate in the form of a Global Note or
Global Notes, (ii) shall be registered in the name of the Depositary or the
nominee of the Depositary, (iii) shall be made available for delivery by the
Trustee to the Depositary or pursuant to the Depositary's instruction and (iv)
shall bear a legend(s) substantially as provided in the form of Note contained
in Section 2.02 (or in the form required by the Depositary).
Section 3.04. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute and upon Company Order the Trustee shall authenticate and make available
for delivery, temporary Notes which are printed, lithographed, typewritten,
mimeographed or otherwise produced in any authorized denomination, substantially
of the tenor of the definitive Notes in lieu of which they are issued, but with
such appropriate insertions, omissions, substitutions or other variations as the
officers executing such Notes may determine to be necessary or appropriate, as
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company in a Place of Payment, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Company shall
execute and the Trustee shall authenticate and make available for delivery in
exchange therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
Section 3.05. Registration; Registration of Transfer and Exchange.
The Company shall cause to be kept at one of its offices or
agencies maintained pursuant to Section 10.02, a register (herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. Said office or agency is hereby initially
appointed "Note Registrar" for the purpose of registering Notes and transfers of
Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company in the Place of Payment, the Company shall
execute, and the Trustee shall authenticate and make available for delivery, in
the name of the designated transferee or transferees, one or more new Notes of
any authorized denominations, of a like aggregate principal amount.
28
<PAGE>
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denominations, of a like aggregate principal amount upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and make available for delivery, the Notes which the
Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or exchange shall be duly endorsed or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Note
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing. As a condition to the registration of transfer of any Restricted
Notes, the Company or the Trustee may require evidence reasonably satisfactory
to it as to compliance with the restrictions set forth in the legend referred to
below.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Sections 3.04 and 9.05 or in accordance with any Offer to
Purchase pursuant to Section 10.19 not involving any transfer.
All Restricted Notes issued hereunder shall bear the legend as
provided in the form of Note contained in Section 2.02. All Restricted Notes
issued upon transfer or exchange or replacement thereof shall bear such legend
unless the Company shall have delivered to the Trustee (and the Note Registrar,
if other than the Trustee) a Company Order which states that the Note may be
issued without such legend thereon.
Notwithstanding any other provision of this Section, unless
and until it is exchanged in whole or in part for the individual Notes
represented thereby, a Global Note representing all or a portion of the Notes
may not be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or if at any time the Depositary
shall no longer be eligible under Section 3.01, the Company shall appoint a
successor Depositary. If a successor Depositary is not appointed by the Company
within 90 days after the Company receives such notice or becomes aware of such
ineligibility, the Company will execute, and the Trustee, upon receipt of a
Company Order for the authentication and delivery of individual Notes, will
authenticate and deliver individual Notes in an aggregate principal amount equal
to the principal amount of the Global Note or Global Notes representing Notes in
exchange for such Global Note or Global Notes.
29
<PAGE>
The Company may at any time and in its sole discretion
determine that individual Notes issued in the form of one or more Global Notes
shall in whole or in part no longer be represented by such Global Note or Global
Notes. In such event, or if an Event of Default has occurred and is continuing,
the Company will execute, and the Trustee, upon receipt of a Company Order for
the authentication and delivery of individual Notes, will authenticate and make
available for delivery, individual Notes in an aggregate principal amount equal
to the principal amount of the Global Note or Global Notes to be exchanged
therefor.
The Depositary may surrender a Global Note in exchange in
whole or in part for individual Notes on such terms as are acceptable to the
Company and such Depositary. Thereupon, the Company shall execute, and the
Trustee shall authenticate and make available for delivery, without service
charge,
(i) to each Person specified by such Depositary a new
individual Note or Notes of any authorized denomination as requested by
such Person in aggregate principal amount equal to and in exchange for
such Person's beneficial interest in the Global Note; and
(ii) to such Depositary a new Global Note in a denomination
equal to the difference, if any, between the principal amount of the
surrendered Global Note and the aggregate principal amount of
individual Notes delivered to Holders thereof.
Upon the exchange of a Global Note for individual Notes, such
Global Note shall be cancelled by the Trustee. Individual Notes issued in
exchange for a Global Note pursuant to this Section shall be registered in such
names and in such authorized denominations as the Depositary for such Global
Note, pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee and the Company shall not
have any liability for the accuracy of the instructions received from the
Depositary. The Trustee shall deliver such Notes to the Persons in whose names
such Notes are so registered.
Neither the Company nor the Trustee shall have any
responsibility or obligation to any participant in the Depositary, any Person
claiming a beneficial ownership interest in the Notes under or through the
Depositary or any such participant, or any other Person which is not shown on
the Note Register as being a Holder, with respect to (1) the Notes; (2) the
accuracy of any records maintained by the Depositary or any such participant;
(3) the payment by the Depositary or any such participant of any amount in
respect of the principal of, or premium, if any, or interest on the Notes; (4)
any notice which is permitted or required to be given to Holders of Notes under
this Indenture; or (5) any consent given or other action taken by the Depositary
as Holder of Notes.
Each Holder of a Note agrees to indemnify the Company and the Trustee
against any liability that may result from the transfer, exchange or assignment
of such Holder's Note in violation of any provision of this Indenture and/or
applicable United States federal or state securities law.
30
<PAGE>
The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Note (including any transfers between or among Depositary
participants or beneficial owners of interests in any Global Note) other than to
require delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee, or
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and (ii) there is delivered to the
Company and the Trustee such security or indemnity satisfactory to and as may be
required by each of them to hold each of them harmless, then, in the absence of
prior written notice to the Company or the Trustee that such Note has been
acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and make available for delivery, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
new Note of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay the Holder of such Note the entire unpaid
principal balance of such Note, together with all accrued but unpaid interest
thereon.
Upon issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses, including the fees and expenses of the Trustee (including attorneys'
fees and expenses), connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude, to the extent lawful, all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.07. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest payment specified
in this Article Three.
31
<PAGE>
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder; and, except as hereinafter provided, such Defaulted Interest may be
paid by the Company, at its election in each case, as provided in clause (1) or
clause (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the amount
of the Defaulted Interest proposed to be paid on each Note and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest,
which shall not be more than 15 days nor less than ten days prior to the date of
the proposed payment and not less than ten days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Noteholder at his address as it appears in the Note Register, not less
than ten days prior to such Special Record Date. The Trustee may, in its
discretion, in the name and at the expense of the Company, cause a similar
notice to be published at least once in an Authorized Newspaper in each Place of
Payment, but such publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of proposed payment of such
Defaulted Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the Persons in whose names
the Notes (or their respective Predecessor Notes with respect to transfers
between a Special Record Date and the Interest Payment Date related thereto) are
registered on such Special Record Date and shall no longer be payable pursuant
to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this clause, such payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
The Regular Record Date referred to in this Section for the
payment of interest payable, and punctually paid or duly provided for, on any
Interest Payment Date shall be each February 15 or August 15 prior to the
applicable Interest Payment Date.
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<PAGE>
All payments of interest on the Notes to the Persons entitled
thereto, whether made by the Company, the Trustee or any Paying Agent, as
authorized pursuant to this Indenture, may be made by check mailed to the
address of the Person entitled thereto, as such address shall appear on the Note
Register.
Section 3.08. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name any Note is registered as the owner
of such Note for the purpose of receiving payment of principal of and premium,
if any, and (subject to Section 3.07) interest on, such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Section 3.09. Cancellation.
All Notes surrendered for payment, registration of transfer,
exchange or conversion shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and, if not already canceled, shall be
promptly canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Company may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section, except as expressly permitted by this Indenture. All canceled
Notes held by the Trustee shall be disposed of by the Trustee as directed by the
Company; provided, that in no event shall the Trustee be required to destroy any
canceled Notes.
Section 3.10. Authentication and Delivery of Original Issue.
Forthwith upon the execution and delivery of this Indenture,
or from time to time thereafter, Notes up to the aggregate principal amount of
$80,000,000 may be executed by the Company and delivered to the Trustee for
authentication upon original issue, and shall thereupon be authenticated and
delivered by the Trustee upon Company Order, without any further action by the
Company.
Section 3.11. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
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<PAGE>
ARTICLE FOUR
Satisfaction and Discharge
Section 4.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect, and the
Trustee, on Company Order of and at the expense of the Company, shall execute
the proper instrument acknowledging satisfaction and discharge of this
Indenture, when
(1) either
(A) all Notes theretofore authenticated and
delivered, other than (i) Notes which have been destroyed, mutilated, lost or
stolen, and which have been replaced or paid as provided in Section 3.06, and
(ii) Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in Section 10.03, have been delivered
to the Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at the
Stated Maturity of the principal thereof within one year,
and the Company, in the case of (B)(i) or (ii) above, has deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee canceled or for cancellation, for
principal, premium, if any, and interest to the date of such deposit, in the
case of Notes which have become due and payable, or to the Stated Maturity of
the principal thereof, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 6.07 and,
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 4.02
and the last paragraph of Section 10.03 shall survive.
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Section 4.02. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 4.01
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal,
premium, if any, and interest for whose payment such money has been deposited
with the Trustee; but such money need not be segregated from other funds except
to the extent required by law.
ARTICLE FIVE
Events of Default and Remedies
Section 5.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal of or premium, if
any, on any Note at its Maturity; or
(2) default in the payment of any interest upon any Note when
it becomes due and payable, and continuance of such default for a period of 30
days; or
(3) default in the performance, or breach, of Section 8.01; or
(4) default, on the Change of Control Purchase Date, in the
purchase of Notes required to be purchased by the Company pursuant to an Offer
to Purchase which has been made to all Holders; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture, other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section 5.01
specifically dealt with, and continuance of such default or breach for a period
of 30 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Notes, a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
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(6) default by the Company or any Subsidiary of the Company in
the payment at stated maturity of any Indebtedness for money borrowed by the
Company or any Subsidiary of the Company with a principal amount due at maturity
which is equal to or greater than 5% of the Company's Consolidated Tangible Net
Worth, provided such default shall continue, without having been satisfied,
cured, waived or consented to, beyond any applicable period of grace, and after
acceleration of such Indebtedness, for 30 days; or receipt by the Trustee of
written notice of the occurrence of an event of default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
Subsidiary of the Company (or the payment of which is guaranteed by the Company
or any Subsidiary of the Company), whether such Indebtedness or guarantee now
exists or shall be created hereafter, and such default shall continue, without
having been satisfied, cured, waived or consented to, beyond any applicable
period of grace, and after acceleration of such Indebtedness, for 30 days;
provided, however, that no such event of default shall constitute an Event of
Default hereunder unless the effect of such event of default is to cause the
acceleration of such Indebtedness prior to its expressed maturity, which
together with the principal amount of any such other Indebtedness so caused to
be accelerated, aggregates an amount which is equal to or greater than 5% of the
Company's Consolidated Tangible Net Worth at any one point in time and such
default shall not have been cured or waived and such acceleration shall not have
been rescinded or annulled; or
(7) the entry of a decree or order by a court having
jurisdiction in the premises and adjudging the Company or either of the Banks a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, adjustment, arrangement, composition of or similar relief for
the Company or either of the Banks under the Federal Bankruptcy Act, or any
other similar applicable law of any governmental unit, domestic or foreign, and
such decree or order shall have continued undischarged or unstayed for a period
of 60 consecutive days; or a decree or order or other decision of a court or
agency or supervisory authority having jurisdiction in the premises for the
appointment of the FDIC or any other Person to act as a receiver or conservator
or liquidator or trustee or assignee in bankruptcy or insolvency of the Company,
either of the Banks or of a substantial part of any of their property, or for
the involuntary winding up or liquidation of any of their affairs, shall have
been entered and such decree or order shall have remained in force undischarged
and unstayed for a period of 60 consecutive days; or, under the provisions of
any insolvency, bankruptcy, or other law for the relief or aid of creditors or
depositors, any court, or agency or supervisory authority having jurisdiction in
the premises shall assume custody or control of the Company, either of the Banks
or of a substantial part of any of their property, and such custody and control
shall not be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(8) the institution of proceedings by the Company or either of
the Banks to be adjudicated bankrupt or insolvent, or the consent by any one of
them to the institution of a bankruptcy or insolvency proceeding against it, or
the filing by any one of them of a petition or answer or consent seeking
reorganization, adjustment, arrangement, composition, appointment of a receiver
or conservator or similar relief under the Federal Bankruptcy Act, or any other
similar applicable law of any governmental unit, domestic or foreign, or the
consent to the filing of any such petition or the consent to the appointment of
a receiver or conservator or liquidator or trustee or assignee or sequestrator
(or similar official) in insolvency of the Company, either of the Banks or of a
substantial part of any of their property, or making by any of them of an
assignment for the benefit of creditors, or the admission by any of them in
writing of their inability to pay their debts generally as they become due, or
voluntarily suspending transaction of their business (other than in connection
with a labor dispute), or any corporate action taken by the Company or either of
the Banks in furtherance of any of the aforesaid purposes; or
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(9) one or more final judgments, judicial decrees or orders by
a court having jurisdiction in the premises for the payment of an amount of
money which, individually or in the aggregate, is equal to or greater than 5% of
the Company's Consolidated Tangible Net Worth has been rendered against the
Company or any of its Subsidiaries and any such judgment, decree or order has
continued unsatisfied for a period of 60 consecutive days without a stay of
execution of such judgment, decree or order; or
(10) failure by either of the Banks to comply with any of
their respective Regulatory Capital Requirements; provided, that an Event of
Default under this paragraph (10) shall not be deemed to have occurred (a)
during the 45 day period following either of the Bank's failure to comply with
any of their respective Regulatory Capital Requirements, if within such 45 day
period, such Bank files a capital plan with the OTS, (b) during the 60 day
period following the initial submission of a capital plan to the OTS by such
Bank (or, if the OTS notifies such Bank in writing that it needs a longer period
of time to determine whether to approve such capital plan, such longer period as
is so specified by the OTS), unless prior to such date the OTS shall have
notified the Bank of its determination not to approve such capital plan, or (c)
during the period that the Bank is operating in material compliance with a
capital plan approved by the OTS; provided, further, that if such Bank meets the
minimum amount of capital required to meet each of the industry-wide regulatory
capital requirements pursuant to 12 U.S.C. Section 1464(t) and 12 C.F.R. Part
567 (and any amendment to either thereof) or any successor law or regulation,
then notwithstanding such Bank's failure to meet an individual minimum capital
requirement pursuant to 12 U.S.C. Section 1464(s) and 12.C.F.R. Section 567.3
(and any amendment to either thereof) or any successor law or regulation, no
Event of Default shall have occurred pursuant to this paragraph (10) unless
written notice thereof shall have been given (x) to the Company by the Trustee
or (y) to the Company and the Trustee by the Holders of 25% in aggregate
principal amount of the Outstanding Notes.
Section 5.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default
specified in Section 5.01(7) or (8)) occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Notes Outstanding may declare the principal of all the Notes to be due and
payable immediately, by a notice in writing to the Company, and to the Trustee
if given by Noteholders, and upon any such declaration such principal and any
accrued interest shall become immediately due and payable. If an Event of
Default specified in Section 5.01(7) or (8) occurs, the principal of and any
accrued interest on the Notes then Outstanding shall ipso facto become
immediately due and payable without any declaration or other Act on the part of
the Trustee or any Holder.
At any time after such a declaration of acceleration has been
made but before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a majority in principal amount of the Notes Outstanding, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all
Notes,
(B) the principal of and premium, if any, on any
Notes which have become due, otherwise than by such declaration of acceleration,
and, to the extent that payment of such interest is lawful, interest thereon at
the rate borne by the Notes,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Notes which have become due solely by such acceleration, have been
cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or
impair any right consequent thereon.
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Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of the principal of or
premium, if any, on any Note at the Maturity thereof or, with respect to any
Note required to have been purchased pursuant to an Offer to Purchase made by
the Company, at the Change of Control Purchase Date, or
(2) default is made in the payment of any installment of
interest on any Note when such interest becomes due and payable and such default
continues for a period of 30 days,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Notes, the whole amount then due and payable on
such Notes for principal, premium, if any, and interest, with interest upon the
overdue principal and premium, if any, and, to the extent that payment of such
interest shall be legally enforceable, upon overdue installments of interest, at
the rate borne by the Notes; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amount forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Noteholders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.04. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, conservatorship,
insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Company or relative to
any other obligor upon the Notes or the property of the Company or of such other
obligor or their creditors, irrespective of whether the principal of the Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee, including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and of the Noteholders allowed in such judicial
proceeding, and
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(2) to collect and receive any moneys or securities or other
property payable or deliverable upon the conversion or exchange of the Notes or
upon any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Noteholder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such
proceeding.
Section 5.05. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.07;
SECOND: In case the principal or premium, if any, of the Notes
shall not have become due, to the payment of interest on the Notes, in the order
of the maturity of the installments of such interest, with interest, to the
extent that such interest has been collected by the Trustee, upon the overdue
installments of interest at the rate borne by the Notes, such payments to be
made ratably to the persons entitled thereto, without discrimination or
preference;
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THIRD: In case the principal or premium, if any, of the Notes
shall have become due, by declaration or otherwise, to the payment of the whole
amount then owing and unpaid upon the Notes for principal and interest, with
interest on the overdue principal and, to the extent that such interest has been
collected by the Trustee, upon overdue installments of interest at the rate
borne by the Notes; and in case such monies shall be insufficient to pay in full
the whole amount so due and unpaid upon the Notes, then to the payment of such
principal and interest, without preference or priority of principal over
interest, or of interest over principal, or of any installment of interest over
any other installment of interest, or of any Note over any other Note, ratably
to the aggregate of such principal and accrued and unpaid interest; and
FOURTH: The remainder, if any, shall be paid to the Company,
its successors or assigns, or as a court of competent jurisdiction may direct.
Section 5.07 Limitation on Suits.
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal
amount of the outstanding Notes shall have made a written request to the Trustee
to institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all Holders.
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Section 5.08. Unconditional Right of Noteholders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and, subject to Section
3.07, interest on such Note on the respective Stated Maturities expressed in
such Note (or, in the case of an Offer to Purchase made by the Company and
required to be accepted as to such Note, on the Change of Control Purchase Date)
and to institute suit for the enforcement of any such payment, and such right
shall not be impaired or affected without the consent of such Holder.
Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any proceeding
to enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case the Company, the
Trustee and the Noteholders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 3.06, no right or remedy herein conferred upon or reserved to the
Trustee or to the Noteholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or acquiescence therein. Every right and remedy given by this Article or
by law to the Trustee or to the Noteholders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Noteholders,
as the case may be.
Section 5.12. Control by Noteholders.
The Holders of not less than a majority in principal amount of
the Outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that
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(1) such direction shall not, as determined by the Trustee in
good faith by a Responsible Officer or Officers of the Trustee, be in conflict
with any rule of law or with this Indenture or expose the Trustee to personal
liability or be unjustly prejudicial to the Holders not joining in any such
direction, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
(3) subject to the provisions of Section 6.01, the Trustee
shall have the right to decline to follow any such direction if the Trustee in
good faith shall determine that the action so directed would involve the Trustee
in personal liability or would be unduly prejudicial to Holders not joining in
such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Notes may on behalf of the Holders of all the Notes waive any
past default hereunder and its consequences, except a default
(1) in the payment of the principal of, premium, if any, or
interest on any Note (including any Note which is required to have been
purchased pursuant to an Offer to Purchase which has been made by the Company),
or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
Upon such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Note by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken or omitted by it as Trustee, the filing by any party litigant in such suit
of an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate more than 10% in principal amount of the Outstanding
Notes, or to any suit instituted by any Noteholder for the enforcement of the
payment of the principal of or premium, if any, or interest on any Note (or, in
the case of any Offer to Purchase which has been made by the Company, on or
after the Change of Control Purchase Date).
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Section 5.15. Waiver of Stay or Extension Laws.
The Company covenants, to the extent that it may lawfully do
so, that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company, to the extent
that it may lawfully do so, hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
Section 6.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture;
but in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent individual would exercise or use under the circumstances
in the conduct of his or her own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) this Subsection shall not be construed to limit
the effect of Subsection (a) of this Section 6.01;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
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(3) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of the
Outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee hereunder; and
(4) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
Section 6.02. Notice of Defaults.
The Trustee shall transmit by mail to all Noteholders, as
their names and addresses appear in the Note Register, notice of such defaults
hereunder known to a Responsible Officer of the Trustee, as and to the extent
provided by the Trust Indenture Act, unless such default shall have been cured
or waived; provided, however, that, except in the case of a default in the
payment of the principal of, premium, if any, or interest on any Note, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Noteholders; and provided,
further, that in the case of any default of the character specified in Section
5.01(5), no such notice to Noteholders shall be given until at least 30 days
after the occurrence thereof. For the purpose of this Section 6.02, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
Section 6.03. Certain Rights of Trustee.
Except as otherwise provided in Section 6.01:
(a) the Trustee may conclusively rely and shall be protected
in acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
note or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
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(d) the Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
note or other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney at the sole cost of the
Company and shall incur no liability or additional liability of any kind by
reason of such inquiry or investigation;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the 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; and
(h) the Trustee shall not be charged with knowledge of any
Event of Default with respect to the Notes unless either (1) a Responsible
Officer of the Trustee assigned to the Corporate Trust Department of the Trustee
(or any successor division or department of the Trustee) shall have actual
knowledge of the Event of Default or (2) written notice of such Event of Default
shall have been given to a Responsible Officer of the Trustee by the Company or
any other obligor on the Notes or by any Noteholder and such notice references
the Notes and this Indenture.
(i) the 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 Indenture.
Section 6.04. Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in any
Statement of Eligibility and Qualification on Form T-1 supplied to the Company
are true and accurate, subject to the qualifications set forth therein. The
Trustee shall not be accountable for the use or application by the Company of
the Notes or the proceeds thereof.
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Section 6.05. May Hold Notes.
The Trustee, any Paying Agent, the Note Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Notes and, subject to Sections 6.08 and 6.13, if operative,
may otherwise deal with the Company with the same rights it would have if it
were not a Trustee, Paying Agent, Note Registrar or such other agent.
Section 6.06. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
Section 6.07. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee agree from time to time in writing,
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust);
(2) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its counsel), except any such
expense, disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify each of the Trustee or any predecessor
Trustee and their agents for, and to hold them harmless against, any and all
loss, damage, claims, liability or expense, including taxes (other than taxes
based upon, measured by or determined by the income of the Trustee), arising out
of or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent that such loss, damage, claim,
liability or expense is due to its own negligence or bad faith.
As security for the performance of the obligations of the
Company under this Section 6.07, the Trustee shall have a lien prior to the
Notes upon all property and funds held or collected by the Trustee or any
predecessor Trustee as such, except funds expressly designated and held in trust
for the payment of principal of, premium, if any, or interest on Notes. The
Trustee's right to receive payment of any amounts due under this Section 6.07
shall not be subordinate to any other liability or indebtedness of the Company.
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When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(7) or (8), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or state bankruptcy or
insolvency or similar law.
The Company's obligations under this Section 6.07 and any lien
arising hereunder shall survive the resignation or removal of any Trustee, the
discharge of the Company's obligations pursuant to Article Four of this
Indenture and/or the termination of this Indenture.
Section 6.08. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
Section 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
a corporation organized and doing business under the laws of the United States
or of any state, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000, subject to
supervision or examination by federal or state authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section 6.09, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
6.09, it shall resign in the manner and with the effect hereinafter specified in
this Article Six.
Section 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 6.11.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If any instrument of acceptance by a successor
trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition, at the
expense of the Company, any court of competent jurisdiction for the appointment
of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Notes, delivered to
the Trustee and to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of removal, the Trustee being removed may petition, at the
expense of the Company, any court of competent jurisdiction for the appointment
of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with
Section 6.08 after written request therefor by the
Company or any Noteholder who has been a bona fide
Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible
under Section 6.09 and shall fail to resign after
written request therefor by the Company or by any
such Noteholder, or
(3) the Trustee shall become incapable of
acting or shall be adjudged a bankrupt or insolvent
or a receiver or conservator of the Trustee or of its
property shall be appointed or any public officer
shall take charge or control of the Trustee or of its
property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee or (ii) subject to Section 5.14, any Noteholder who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Noteholders and accepted appointment in the manner
hereinafter provided, any Noteholder who has been a bona fide Holder of a Note
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event within 30 days of the date thereof by first-class
mail, postage prepaid, to the Holders of Notes as their names and addresses
appear in the Note Register. Each notice shall include the name of the successor
Trustee and the address of its principal corporate trust office.
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Section 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee, and shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder, subject nevertheless to its lien,
if any, provided for in Section 6.07. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article Six.
Section 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or
conveyed or with which it may be consolidated, or any corporation resulting from
any merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article Six, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes.
Section 6.13. Preferential Collection of Claims Against the Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Notes), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
Section 6.14 Trustee's Application for Instructions from the Company.
Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or omission
of, the Trustee in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
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ARTICLE SEVEN
Noteholders' Lists and Reporting by Trustee and Company
Section 7.01. Company to Furnish Trustee Names and Addresses of Noteholders.
The Company will furnish or cause to be furnished to the
Trustee (a) semi-annually, not more than three days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date, (b) at such other
times as the Trustee may request in writing, within 30 days after the receipt by
the Company of any such request, a list of similar form and content as of a date
not more than 15 days prior to the time such list is furnished; provided,
however, that during such time as the Trustee is the Note Registrar, no such
list shall be required to be furnished.
Section 7.02. Preservation of Information; Communications to Noteholders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 7.01 and the names
and addresses of Holders received by the Trustee in its capacity as Note
Registrar (if so acting). The Trustee may destroy any list furnished to it as
provided in Section 7.01 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the Notes, and the
corresponding rights and duties of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders in
accordance with the Trust Indenture Act.
(d) Unless the Trustee deems it inappropriate under the
circumstances, the Trustee will promptly provide the Company with copies of any
forms of notice or other communication sent to Holders.
Section 7.03. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto. To the extent that any such report is required by the Trust
Indenture Act with respect to any 12-month period, such report shall cover the
12-month period ending September 15 and shall be transmitted by the next
succeeding September 15.
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(b) A copy of each such report shall, at the time of such
transmission to Noteholders, be filed by the Trustee with the Commission, any
stock exchange upon which the Notes are listed, and also with the Company. The
Company will notify the Trustee when the Notes are listed on, or delisted from,
any stock exchange.
Section 7.04. Reports by Company.
The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission. Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
Section 7.05 Calculation of Original Issue Discount.
The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of original issue
discount (including daily rates and accrual periods) accrued on Outstanding
Notes as of the end of such year and (ii) such other specific information
relating to such original issue discount as may then be relevant under the
Internal Revenue Code of 1986, as amended from time to time.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 8.01. Company May Consolidate, etc., Only on Certain Terms.
The Company shall not, in a single transaction or a series of
transactions, consolidate or merge with or into or transfer, sell, lease or
convey all or substantially all of its assets to another Person unless:
(1) either the Company shall be the entity surviving such
merger or consolidation or the corporation formed by or surviving such
consolidation or merger, or the Person to which such transfer, sale,
lease or conveyance shall have been made, shall be a corporation duly
organized and existing under the laws of the United States, any state
thereof or the District of Columbia and shall unconditionally expressly
assume by a supplemental indenture hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations
of the Company under the Notes and the Indenture; and
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(2) immediately before and immediately after giving effect to
the transaction or series of transactions, no Default or Event of
Default shall have occurred and be continuing; and
(3) immediately after giving effect to the transaction or
series of transactions, the Company or the surviving entity, as
applicable, and their respective banking and thrift subsidiaries, as
applicable, shall be in compliance with all applicable regulatory
capital requirements; and
(4) immediately after giving effect to the transaction or
series of transactions, the Company or the surviving entity, as
applicable, could incur at least $1.00 of additional Indebtedness
without violating Section 10.11(b) hereof; and
(5) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such
consolidation, merger, business combination, transfer, sale, lease or
conveyance and such supplemental indenture complies with this Article
and that all conditions precedent herein relating to such transaction
have been complied with.
Section 8.02. Successor Entity Substituted.
Upon any consolidation, merger of the Company into another
entity, business combination or transfer, conveyance, sale or lease of all or
substantially all of the properties and assets of the Company as an entirety in
accordance with Section 8.01, the successor entity formed by such consolidation
or business combination or into which the Company is merged or to which such
transfer, conveyance, sale or lease is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor entity had been named as the Company
herein.
ARTICLE NINE
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Notice to or Consent of
Noteholders.
Without notice to or the consent of the Holders of any Notes,
the Company, when authorized by a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to the extent permitted under Article Eight hereof, to
evidence the succession of another entity to the Company, and the
assumption by any such successor of the covenants of the Company herein
and in the Notes; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
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(3) to secure the Notes or to add a guarantor; or
(4) to comply with any requirements of the Commission in order
to effect and maintain the qualification of this Indenture under the
Trust Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided such
action pursuant to this clause (5) shall not adversely affect the
interests of the Holders in any material respect.
Section 9.02. Supplemental Indentures With Consent of Noteholders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the interest thereon or change any Place of Payment where,
or the coin or currency in which, any Note or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the
case of an Offer to Purchase which has been made, on or after the
Change of Control Purchase Date), or
(2) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture, or
(3) modify any of the provisions of this Section 9.02, Section
5.13 or Section 10.21, except to increase any such percentage of
Holders whose consent is required under any such Section or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Note
affected thereby.
It shall not be necessary for any Act of Noteholders under this Section 9.02 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
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The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record date,
or their duly designated proxies, and only such Persons, shall be entitled to
consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; provided, that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by and Holder be
cancelled and of no further effect.
Section 9.03. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and, subject to Section 6.01, shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture and that all conditions precedent to the execution and delivery of
such supplemental indenture by the Company and the Trustee have been complied
with. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article Nine, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 9.05. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the Board
of Directors, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
Section 9.06. Conformity With Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform with the requirements of the Trust Indenture Act as then in effect
if this Indenture shall then be qualified under the Trust Indenture Act.
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ARTICLE TEN
Covenants
Section 10.01. Payment of Principal, Interest and Premium.
The Company will duly and punctually pay, or cause to be paid,
the principal of and premium, if any, and interest on the Notes in accordance
with the terms of the Notes and this Indenture and will take any and all action
which may enable it to lawfully pay the principal of and premium, if any, and
interest on any of the Notes when the same shall become due, whether at the
Maturity thereof, by declaration as authorized by this Indenture, or otherwise.
Section 10.02. Maintenance of Office or Agency.
The Company will maintain an office or agency in each Place of
Payment where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company will give prompt written notice to the Trustee of the
location, and of any change in the location, of such office or agency. If at any
time the Company shall fail to maintain such office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the principal corporate trust
office of the Trustee, and the Company hereby appoints the Trustee its agent to
receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in each
Place of Payment for such purposes. The Company will give prompt written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
Section 10.03. Money for Note Payments to be Held In Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of and premium, if any, or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal and premium, if
any, or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided, and will promptly notify the
Trustee in writing of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, on or prior to each due date of the principal of, premium, if any, of or
interest on, any Notes, deposit with a Paying Agent a sum sufficient to pay the
principal and premium, if any, or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal or interest,
and unless such Paying Agent is the Trustee, the Paying Agent will promptly
notify the Trustee in writing of its action or failure so to act.
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The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will
(1) hold all sums held by it for the payment of principal of,
premium, if any, or interest on the Notes in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee written notice of any default by the
Company, or any other obligor upon the Notes, in the making of any such
payment of principal and premium, if any, or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by Paying Agent to the Trustee such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of and
premium, if any, or interest on any Note and remaining unclaimed for more than
two years after such principal and premium, if any, or interest has become due
and payable shall, subject to applicable law, be paid to the Company on Company
Request, or, if then held by the Company, shall be discharged from such trust;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company, cause to be mailed or published once, in an
Authorized Newspaper in each Place of Payment or mail to each such Holder or
both, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication
or mailing, an unclaimed balance of such money then remaining will be repaid to
the Company.
Section 10.04. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, and will cause each Subsidiary to pay or discharge or cause to be
paid or discharged, before the same shall become delinquent, (1) all taxes,
assessments and governmental charges levied or imposed upon the Company or such
Subsidiary or upon the income, profits or property of the Company or such
Subsidiary and (2) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon the property of the Company or such
Subsidiary; provided, however, that the Company or such Subsidiary shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings or any such tax, assessment,
charge or claim if not disadvantageous in any material respect to the
Noteholders.
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Section 10.05. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and its Subsidiaries, and will comply in all material respects with all
statutes, rules, regulations and orders of and restrictions imposed by
governmental and administrative authorities and agencies applicable to the
Company and its Subsidiaries, a failure to comply with which would have a
material adverse effect on the Company and its Subsidiaries considered as a
single enterprise; provided, however, that the Company shall not be required to
preserve any right or franchise of the Company or its Subsidiaries if the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business the Company or its Subsidiaries and the loss thereof
is not disadvantageous in any material respect to the Noteholders.
Section 10.06. Maintenance of Depository Institution Subsidiary.
Subject to Section 8.01, the Company shall maintain at all
times as a Wholly-Owned Subsidiary an entity that is a bank or thrift or
substantially similar institution subject to regulation by federal or state
authorities and do all things necessary to ensure that savings accounts of the
Banks or any such other institution are insured by the FDIC or any successor
organization up to the maximum amount permitted by the Federal Deposit Insurance
Act and regulations thereunder or any succeeding federal law hereinafter
enacted.
Section 10.07. Maintenance of Properties.
The Company will:
(a) cause all its properties and the properties of its
Subsidiaries used or useful in the conduct of the business of the Company and
its Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary facilities and equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided; however, that nothing in this
subsection shall prevent the Company or a Subsidiary from discontinuing the
operation and maintenance of any of its properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business and not
disadvantageous in any material respect to the Holders; and
(b) take all appropriate steps to maintain the licenses and
permits used in the conduct of the business of the Company and its subsidiaries;
provided, however, that nothing in this subsection shall prevent the Company or
a Subsidiary from selling, abandoning or otherwise disposing of any such license
or permit if such sale, abandonment or disposition is, in the judgment of the
Company, desirable in the conduct of its business and not disadvantageous in any
material respect to the Holders.
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Section 10.08. Insurance.
The Company will at all times maintain and will cause each of
its Subsidiaries to maintain (either in the name of the Company or in such
Subsidiary's own name) with financially sound and reputable insurers, insurance
on all its properties in such amounts as management of the Company reasonably
determines is appropriate under the circumstances.
Section 10.09. Books and Records.
The Company shall, and shall cause each Subsidiary to, at all
times keep proper books of record and account in which proper entries shall be
made in accordance with generally accepted accounting principles and, to the
extent applicable, regulatory accounting principles.
Section 10.10. Statements as to Compliance.
(a) The Company will deliver to the Trustee, within 90 days
after the end of each fiscal year, a certificate signed by the principal
executive officer, the principal financial officer or the principal accounting
officer of the Company stating, as to each signer thereof, that
(1) a review of the activities of the Company during
such year and of performance under this Indenture has been made under
his or her supervision; and
(2) to the best of his or her knowledge, based on
such review, the Company has fulfilled all its obligations under this
Indenture throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known
to him or her and the nature and status thereof.
(b) The Company shall deliver to the Trustee, as soon as
possible and in any event within 5 days after the Company becomes aware or
should reasonably become aware of the occurrence of a Default or an Event of
Default, an Officers' Certificate setting forth the details of such Default or
Event of Default and the action which the Company proposes to take with respect
thereto.
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Section 10.11. Limitations on Indebtedness.
(a) The Company will not create, incur, issue, assume,
guarantee or otherwise in any manner become directly or indirectly liable for or
with respect to, or otherwise permit to exist any Indebtedness, except:
(i) Indebtedness represented by the Notes;
(ii) Junior Indebtedness with a Stated Maturity of principal
(or any required repurchase, redemption, defeasance or sinking fund
payments) which is after the final Stated Maturity of the Notes;
(iii) Indebtedness the proceeds of which are immediately
applied to redeem or repurchase Notes, in an amount not to exceed the
principal amount of the Notes so redeemed or repurchased, provided
that, if the Notes are redeemed or repurchased only in part, such
refunding or refinancing Indebtedness has a Stated Maturity of
principal (or any required repurchase, redemption, defeasance or
sinking fund payments) which is after the final Stated Maturity of the
Notes; and
(iv) Indebtedness specified in paragraph (b) of the definition
of "Permitted Payment."
(b) Notwithstanding the provisions of Section 10.11(a), the
Company will not create, incur, assume, guarantee or otherwise in any manner
become directly or indirectly liable for or with respect to, or otherwise permit
to exist, any Indebtedness (including any Indebtedness assumed in connection
with the acquisition of assets from another Person or as a result of the merger
of any Person with or into the Company) unless at the time of such event the
principal amount of total Indebtedness of the Company would not exceed 100% of
the Company's Consolidated Tangible Net Worth, provided that for purposes of
this requirement, Indebtedness shall be net of any fund or interest reserve
account (including in the case of the Notes the Interest Reserve Account) which
has been established to fund the payment of principal and/or interest on
Indebtedness.
Section 10.12. Limitations on Restricted Payments.
The Company will not, and will not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment if, at the time of such
Restricted Payment or after giving effect thereto,
(a) a Default or Event of Default shall have occurred and be
continuing or would occur as a result thereof; or
(b) the Company would fail to maintain sufficient Liquid
Assets to comply with the terms of the covenant set forth in Section
10.17 hereof; or
(c) either of the Banks would fail to meet any of their
respective applicable capital requirements under 12 C.F.R. Part 565 (or
any other successor provision) which are necessary to enable such Bank
to qualify as an "adequately capitalized" institution under such
regulations; or
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(d) the aggregate amount of all Restricted Payments (the
amount of such payments, if other than in cash, having been determined
in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution filed with the Trustee)
declared and made after the Issue Date would exceed the sum of
(i) 25% of the aggregate Consolidated Net Income
(or, if such Consolidated Net Income is a deficit, 100% of
such deficit) of the Company accrued on a cumulative basis
during the period beginning on the first day of the fiscal
quarter during which the Issue Date occurred and ending on the
last day of the Company's last fiscal quarter ending prior to
the date of such proposed Restricted Payment, plus
(ii) the aggregate Net Cash Proceeds received by
the Company as capital contributions (other than from a
Subsidiary) after the Issue Date, plus
(iii) the aggregate Net Cash Proceeds and the Fair
Market Value of property not constituting Net Cash Proceeds
received by the Company from the issuance or sale (other than
to a Subsidiary) of Qualified Capital Stock after the Issue
Date (except, in each case, to the extent such proceeds are
used to purchase, redeem, defease, make sinking fund payments
on or otherwise acquire or retire for value Junior
Indebtedness as set forth in clause (a) of the definition of
Permitted Payment herein), plus
(iv) 100% of the amount of any Indebtedness of the
Company or a Subsidiary that is converted into or exchanged
for Qualified Capital Stock of the Company after the Issue
Date;
provided, however, that the foregoing provisions will not prevent (w) the
payment of a dividend within 60 days after the date of its declaration if at the
date of declaration such payment was permitted by the foregoing provisions, (x)
any Permitted Payment, (y) the redemption of all of the shares of Capital Stock
of the Company which are issued and outstanding immediately prior to the date of
this Indenture, or (z) the prepayment of a promissory note payable to Isabel
Collier Read outstanding as of the date of this Indenture.
Section 10.13. Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries.
The Company will not, and will not permit any of its
Subsidiaries to, create, assume or otherwise cause or suffer to exist or to
become effective any consensual encumbrance or restriction on the ability of any
such Subsidiary to:
(a) pay any dividends or make any other distribution on its
Capital Stock;
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(b) make payments in respect of any Indebtedness owed to the
Company or any other Subsidiary; or
(c) make loans or advances to the Company or any Subsidiary or
to guarantee Indebtedness of the Company or any other Subsidiary;
other than, in the case of (a), (b) and (c),
(1) restrictions imposed by applicable laws and
regulations;
(2) restrictions existing under agreements in effect
on the date of this Indenture;
(3) consensual encumbrances or restrictions binding
upon any Person at the time such Person becomes a Subsidiary of the Company so
long as such encumbrances or restrictions are not created, incurred or assumed
in contemplation of such Person becoming a Subsidiary;
(4) restrictions on the transfer of assets which are
subject to Liens;
(5) restrictions existing under agreements evidencing
Indebtedness which are incurred after the date of this Indenture in accordance
with Section 10.11 hereof, provided that the terms and conditions of any such
restrictions are no more restrictive than those contained in this Indenture; and
(6) restrictions existing under any agreement which
refinances or replaces any of the agreements containing the restrictions in
clauses (2), (3) and (5); provided that the terms and conditions of any such
restrictions are not less favorable to the Holders than those under the
agreement evidencing or relating to the Indebtedness refinanced.
Section 10.14. Restrictions on Issuance and Sale or Disposition of Capital Stock
of Subsidiaries.
The Company (a) will not permit any Subsidiary to issue or
sell any shares of its Capital Stock (other than to the Company or a Wholly
Owned Subsidiary) and (b) except pursuant to existing agreements, options or
option plans, will not permit any Person to own any shares of Capital Stock of
any Subsidiary.
Section 10.15. Limitations on Transactions with Affiliates.
The Company shall not, and shall not permit any Subsidiary of
the Company to, directly or indirectly enter into any transaction (including,
without limitation, the purchase, sale, lease or exchange of property, the
rendering of any service or the making of any loan or advance, but excluding
transactions between the Company and Wholly Owned Subsidiaries of the Company)
with any Affiliate, unless
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(i) such transaction is on terms no less favorable to the
Company or such Subsidiary than those that could be obtained in a
comparable arm's length transaction with an entity that is not an
Affiliate,
(ii) with respect to a transaction or series of transactions
involving aggregate value in excess of $500,000, the Company delivers
an Officers' Certificate to the Trustee certifying that such
transaction or series of transactions complies with clause (i) above
and has been approved by a majority of the Board of Directors of the
Company and evidenced by a Board Resolution and
(iii) with respect to a transaction or series of transactions
involving aggregate value in excess of $2,000,000, the Company delivers
to the Trustee an opinion of a nationally recognized investment banking
firm stating that the transaction or series of transactions is fair
(from a financial point of view) to the Company.
The limitations set forth in this paragraph shall not apply to
(i) transactions entered into pursuant to any agreement already in effect on the
date of this Indenture, (ii) any employment agreements, stock option, employee
benefit, indemnification, compensation, business expense reimbursement or other
employment-related agreement, arrangement or plan entered into by the Company or
any of its Subsidiaries either (A) in the ordinary course of business and
consistent with the past practice of the Company or such Subsidiary or (B) which
agreement, arrangement or plan was adopted by the Board of Directors of the
Company or such Subsidiary, as the case may be, (iii) residential mortgage,
credit card and other consumer loans to an Affiliate who is an officer, director
or employee of the Company or any of its Subsidiaries and which comply with the
applicable provisions of 12 U.S.C. ss. 1468(b) and any rules and regulations of
the OTS thereunder, (iv) any Restricted Payments, (v) any issuance of Capital
Stock to Edward A. Townsend or Jan A. Norton pursuant to the terms of a letter
agreement among the Company and Messrs. Townsend and Norton which provides for,
among other things, the sale of Green Country Banking Corporation; or (vi) any
transaction or series of transactions in which the total amount involved does
not exceed $250,000.
Section 10.16. Limitations on Liens and Guarantees.
(a) The Company shall not create, assume, incur or suffer to
exist any Lien upon (i) the Capital Stock of the Banks or (ii) any of the
Company's property or assets (other than the Capital Stock of the Banks) now
owned, or acquired after the date of this Indenture, or any income or profits
from any such property or assets, as security for Indebtedness of the Company
which may be incurred pursuant to Section 10.11 and having a contractual time to
maturity greater than one year (other than the Notes) without, in the case of
either (i) or (ii), effectively providing that the Notes will be equally and
ratably secured with (or prior to) such Indebtedness; provided that if such
Indebtedness is Junior Indebtedness, any such security interest with respect to
such Junior Indebtedness shall be subordinated to the security interest with
respect to the Notes to the same extent as such Junior Indebtedness is
subordinated to the Notes.
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(b) The Company will not permit any Subsidiary of the Company,
directly or indirectly, to guarantee or assume, or subject any of its assets to
a Lien to secure, any Indebtedness of the Company which may be incurred pursuant
to Section 10.11 (other than the Notes) unless (i) such Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a guarantee of, or pledge of assets to secure, the Notes by such
Subsidiary on terms at least as favorable to the Holders of the Notes as such
guarantee or security interest in such assets is to the holders of such
Indebtedness, except that in the event of a guarantee or security interest in
such assets with respect to Junior Indebtedness, any such guarantee or security
interest in such assets with respect to such Junior Indebtedness shall be
subordinated to such Subsidiary's guarantee or security interest in such assets
with respect to the Notes to the same extent as such Junior Indebtedness is
subordinated to the Notes and (ii) such Subsidiary waives, and agrees in writing
that it will not in any manner whatsoever claim, or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Subsidiary of the Company as a result of
any payment by such Subsidiary under its guarantees.
Section 10.17. Liquidity Maintenance.
The Company shall, at all times when Notes are not rated in an
investment grade category by one or more nationally recognized statistical
rating organizations, maintain Liquid Assets with a value equal to at least 100%
of the required interest payments due on the Notes on the next succeeding
semi-annual Interest Payment Date. Liquid Assets of a Subsidiary may be included
in such calculation only to the extent that such Liquid Assets may at such time
be distributed to the Company without restriction or notice to any Person. Such
Liquid Assets shall not be the subject of any pledge, Lien, encumbrance or
charge of any kind and shall not be used as collateral or security for
Indebtedness for borrowed money or otherwise of the Company or its Subsidiaries
nor may such Liquid Assets be used as reserves for any self-insurance maintained
by the Company.
Section 10.18. Interest Reserve Account.
(a) The Company agrees to maintain a segregated deposit
account and segregated Permitted Investments (the account or accounts pursuant
to which such deposit account and Permitted Investments are maintained are
collectively referred to herein as "Interest Reserve Account") in a bank or
trust company, which may be the Trustee, that (x) is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $50,000,000, (y) is not an Affiliate of the Company or any of its
Subsidiaries and (z) is in compliance with its applicable minimum regulatory
capital requirements, and to fund the Interest Reserve Account as set forth in
Section 10.18(b). Any funds or other assets in the Interest Reserve Account from
time to time shall not be commingled with any other funds or assets of the
Company or any of the Company's Subsidiaries or Affiliates, provided, however,
that if on any Interest Payment Date the amount of funds and the Fair Market
Value of any Permitted Investments in the Interest Reserve Account shall exceed
the amount required to be maintained therein in accordance with Section
10.18(b), the Company shall be entitled to withdraw all or any portion of such
excess in accordance with an Officer's Certificate delivered pursuant to Section
10.18(d) hereof.
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(b) The Company agrees to carry in the Interest Reserve
Account an aggregate amount of cash and Fair Market Value of Permitted
Investments (determined by the Company not less frequently than on each Interest
Payment Date) sufficient to pay at all times during the period commencing on the
date of issuance of the Notes through the next two succeeding Interest Payment
Dates. The Company agrees to (i) make such deposits as are required by this
Section 10.18(b), (ii) maintain complete and correct books and records in
reasonable detail with respect to the valuation of the Interest Reserve Account
and (iii) use, to the extent necessary, funds and Permitted Investments in the
Interest Reserve Account to pay interest and/or principal due from time to time
on the Notes or as otherwise required pursuant to the Security Agreement.
(c) At all times when there are amounts in the Interest
Reserve Account, the Company will maintain arrangements with respect to the
creation, maintenance and perfection of a first priority security interest in
favor of the Holders of the Notes in the Interest Reserve Account, including,
without limitation, the execution and delivery of the Security Agreement.
(d) Within 30 days after each Interest Payment Date, the
Company will furnish to the Trustee an Officers' Certificate stating the amount
of cash on deposit and the Fair Market Value of Permitted Investments in the
Interest Reserve Account as of such Interest Payment Date (after taking into
account any payments made therefrom on such Interest Payment Date or any
withdrawals by the Company of any excess amount as permitted under Section
10.18(a)).
Section 10.19. Offer to Purchase Upon a Change of Control.
Upon the occurrence of a Change of Control, the Company shall
be obligated to make an offer to purchase (an "Offer to Purchase"), and shall,
subject to the provisions described below, purchase, on a Business Day (the
"Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes at a purchase price (the "Change of Control Purchase Price") equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
(but excluding) the Change of Control Purchase Date. The Company shall, subject
to the provisions described below, be required to purchase all Notes properly
tendered in the Offer to Purchase and not withdrawn. Prior to the mailing of the
notice to Holders provided for below, the Company shall (i) offer to repay in
full all Indebtedness which by its terms requires repayment by the Company prior
to any repurchase by the Company of the Notes and repay the Indebtedness of each
lender who has accepted such offer or (ii) obtain the requisite consent under
such Indebtedness to permit the repurchase of the Notes as provided for under
this Section 10.19. The Company shall notify the Trustee in writing upon
satisfaction of the forgoing condition precedent. If a notice has been mailed
when such condition precedent has not been satisfied, the Company shall have no
obligation to (and shall not) effect the purchase of Notes until such time as
such condition precedent is satisfied. Failure to mail the notice on the date
specified below or to have satisfied the foregoing condition precedent by the
date that the Notice is required to be mailed shall in any event constitute a
covenant Default under clause (5) of Section 5.01.
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Notice of an Offer to Purchase shall be mailed by the Company
or the Trustee not later than the 30th day after the Change of Control to the
Holders of Notes at their last registered addresses with a copy to the Trustee
and the Paying Agent. If the Trustee is to mail the Notice of an Offer to
Purchase, the Trustee shall receive at least five days written notice prior to
the expiration of 30 days after the Change of Control Purchase Date. The Offer
to Purchase shall remain open from the time of mailing for at least 20 Business
Days and until 5:00 p.m., New York City time, on the Change of Control Purchase
Date. The notice, which shall govern the terms of the Offer to Purchase, shall
include such disclosures as are required by law and shall state:
(a) that a Change of Control has occurred and an
Offer to Purchase is being made, and that, although Holders
are not required to tender their Notes, all Notes that are
timely tendered will be accepted for payment;
(b) the purchase price (including the amount of
accrued interest, if any) for each Note and the Change of
Control Purchase Date, which will be no earlier than 30 days
nor later than 60 days from the date such notice is mailed;
(c) that any Note not tendered for payment will
continue to accrue interest in accordance with the terms
thereof;
(d) that any Note accepted for payment pursuant to
the Offer to Purchase will cease to accrue interest on and
after the Change of Control Purchase Date;
(e) the instructions that Holders must follow in
order to have such Holders' Notes repurchased (which shall
include an instruction that the Holder must complete the
Option of Holder to Elect Purchase);
(f) that Holders will be entitled to withdraw their
election not later than the close of business on the third
Business Day preceding the Change of Control Purchase Date and
the instructions that Holders must follow in order to withdraw
such election; and
(g) any other information necessary to enable Holders
to tender their Notes and to have such Notes repurchased.
On the Change of Control Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof validly tendered pursuant to the
Offer to Purchase, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Notes or portions
thereof so tendered and accepted and (iii) deliver to the Trustee all Notes so
accepted together with an Officers' Certificate stating the principal amount of
Notes tendered to and accepted for payment by the Company. The Paying Agent
shall promptly mail or deliver to the Holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered. The Notes not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
will publicly announce the results of the Offer to Purchase on or as soon as
practicable after the Change of Control Purchase Date.
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If any Note accepted for payment is not so paid pursuant to
the provisions of this covenant, then, from the Change of Control Purchase Date
until the principal and interest on such Note is paid, the Company shall pay
interest on the unpaid principal and, to the extent permitted by law, on any
accrued but unpaid interest thereon, in each case, at the rate or rates
prescribed therefor in the Notes.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to an Offer
to Purchase.
Section 10.20. Payments for Consent.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is paid to all Holders
that provide such consent or so waive or agree to amend.
Section 10.21. Waiver of Certain Covenants.
Without limiting the rights of the Holders and the Company
with respect to waivers and amendments set forth in Sections 5.13 and 9.02, the
Company may omit in any particular instance to comply with any covenant or
condition set forth in Sections 10.04 through 10.20, if before or after the time
for such compliance the Holders of at least a majority in principal amount of
the Notes at the time Outstanding shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
ARTICLE ELEVEN
Defeasance and Covenant Defeasance
Section 11.01. Applicability of Article; Company's Option to Effect Defeasance
or Covenant Defeasance.
The Company may at its option by Board Resolution, at any
time, elect to have either Section 11.02 (if applicable) or Section 11.03 (if
applicable) applied to the Outstanding Notes upon compliance with the conditions
set forth below in this Article Eleven.
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Section 11.02. Defeasance and Discharge.
Upon the Company's exercise of the above option provided in
Section 11.01 applicable to this Section 11.02, the Company shall be deemed to
have been discharged from its obligations with respect to the Outstanding Notes
on and after the date the conditions precedent set forth below are satisfied
(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Notes and to have satisfied all its other
obligations under such Notes and this Indenture, insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following, which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Notes to receive, solely from the trust fund described in
Section 11.04, as more fully set forth in such Section, payments of the
principal of and premium, if any, and interest on such Notes when such payments
are due, (B) the Company's obligations with respect to such Notes under Sections
3.04, 3.05, 3.06, 10.02 and 10.03 and such obligations as shall be ancillary
thereto, (C) the rights, powers, trusts, duties, immunities and other provisions
in respect of the Trustee hereunder and (D) this Article Twelve. Subject to
compliance with this Article Twelve, the Company may exercise its option under
this Section 11.02 notwithstanding the prior exercise of its option under
Section 11.03 with respect to the Notes. Following a defeasance, payment of the
Notes may not be accelerated because of an Event of Default.
Section 11.03. Covenant Defeasance.
Upon the Company's exercise of the option provided in
Section 11.01 applicable to this Section 11.03, (i) the Company shall be
released from its obligations under Section 10.04, Sections 10.06 through 10.16,
inclusive (subject, in the case of Section 10.10, to any requirement of the
Trust Indenture Act), and Section 10.19 and clauses (2), (3) and (4) of Section
8.01, and (ii) the occurrence of an event specified in Sections 5.01(3) (with
respect to clauses (2), (3) or (4) of Section 8.01), 5.01(4), 5.01(5) (with
respect to any of Section 10.04, Sections 10.06 through 10.19, inclusive
(subject, in the case of Section 10.10, to any requirement of the Trust
Indenture Act), 5.01(6), 5.01(9) and 5.01(10) shall not be deemed to be an Event
of Default with respect to the Outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter "covenant defeasance").
For this purpose, such covenant defeasance means that, with respect to the
Outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section or Clause, whether directly or indirectly by reason of any reference
elsewhere herein to any such Section or Clause or by reason of any reference in
any such Section or Clause to any other provision herein or in any other
document, but the remainder of this Indenture and such Notes shall be unaffected
thereby.
Section 11.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions precedent to
application of either Section 11.02 or Section 11.03 to the then Outstanding
Notes:
(1) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee as trust funds in trust for the
purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of
such Notes, (A) money in United States Dollars in an amount, or (B)
U.S. Government Obligations which through the scheduled
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payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of
any payment, money in an amount, or (C) a combination thereof,
sufficient, without reinvestment, in the opinion of a
nationally-recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee to pay and
discharge, the principal of and premium, if any, and interest on the
Outstanding Notes on the Stated Maturity of such principal, premium, if
any, or interest in accordance with the terms of this Indenture and of
the Notes. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of
America for the payment of which its full faith and credit is pledged
or (y) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act) as custodian with
respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by
such custodian for the account of the holder of such depository
receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation
evidenced by such depository receipt.
(2) No Event of Default or event which with notice or lapse
of time or both would become an Event of Default with respect to the
Notes shall have occurred and be continuing (A) on the date of such
deposit and after giving effect thereto or (B) insofar as subsections
5.01(7) and (8) are concerned, at any time during the period ending on
the 123rd day after the date of such deposit or, if longer, ending on
the day following the expiration of the longest preference period
applicable to the Company in respect of such deposit (it being
understood that the condition in this Clause (B) shall not be deemed
satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not (A)
cause the Trustee for the Notes to have a conflicting interest as
defined in Section 6.08 for purposes of the Trust Indenture Act with
respect to any securities of the Company or (B) result in the trust
arising from such deposit to constitute, unless it is qualified as, a
regulated investment company under the Investment Company Act of 1940,
as amended.
(4) Such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, this
Indenture or any other agreement or instrument to which the Company is
a party or by which it is bound.
69
<PAGE>
(5) Such defeasance or covenant defeasance shall not cause
any Notes then listed on any registered national securities exchange
under the Exchange Act to be delisted.
(6) In the case of an election under Section 11.02, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (y) since the
date of this Indenture there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
(7) In the case of an election under Section 11.03, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred.
(8) The Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally under any applicable U.S. federal or state law, and that the
Trustee has a perfected security interest in such trust funds for the
ratable benefit of the Holders.
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over the other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any creditors of the Company or others.
(10) No event or condition shall exist that would prevent
the Company from making payments of the principal of, premium, if any,
and interest on the Notes on the date of such deposit.
(11) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 11.02 or the covenant defeasance under Section 11.03 (as
the case may be) have been complied with.
70
<PAGE>
Section 11.05. Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
10.03, all money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 11.04 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (but not including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes, of all sums due and to become due thereon in respect of principal
and premium, if any, and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the money or U.S.
Government Obligations deposited pursuant to Section 11.04 or the principal and
interest received in respect thereof.
Anything herein to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 11.04 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
Section 11.06. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any
money in accordance with Section 11.05 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to this
Article Twelve until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 11.05; provided, however, that
if the Company makes any payment of principal of and premium, if any, or
interest on any such Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or the Paying Agent.
Section 11.07. Execution in Counterparts.
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
71
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed and the seal of the Company to be hereunto affixed and attested,
all as of the day and year first above written.
LOCAL FINANCIAL CORPORATION
[Company Seal] By: /s/ Edward A. Townsend
---------------------------
Name: Edward A. Townsend
Title: Chairman and Chief
Executive Officer
Attest: /s/ Alan L. Pollock
--------------------------
Name: Alan L. Pollock
Title: Corporate Secretary
THE BANK OF NEW YORK, as Trustee
By: /s/ Mary Jane Morrissey
----------------------------
Name: Mary Jane Morrissey
Title: Vice President
72
Exhibit 4.4
(FORM OF STOCK CERTIFICATE - FRONT SIDE)
NUMBER SHARES
See reverse for
certain definitions
Local Financial Corporation
Oklahoma City, Oklahoma
$.01 par value common stock -- fully paid and non-assessable
This certifies that ___________________________________ is the
registered holder of _________________ shares of the Common Stock, par value
$.01 per share, of Local Financial Corporation, Oklahoma City, Oklahoma (the
"Corporation"), incorporated under the laws of the State of Delaware.
The shares evidenced by this Certificate are transferable only on the
stock transfer books of the Corporation by the holder hereof, in person or by
duly authorized attorney or legal representative, upon surrender of this
Certificate properly endorsed. This security is not a deposit or account and is
not federally insured or guaranteed.
This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
Dated:
- ------------------------------- (SEAL) --------------------------------------
Secretary Chairman and Chief Executive Officer
Countersigned and Registered:
- ------------------------------
Transfer Agent and Registrar
By: --------------------------
Authorized Signature
<PAGE>
(FORM OF STOCK CERTIFICATE - BACK SIDE)
The shares represented by this certificate are issued subject to all
the provisions of the Certificate of Incorporation and Bylaws of the Corporation
as from time to time amended (copies of which are on file at the principal
office of the Corporation), to all of which the holder by acceptance hereof
assents.
The Corporation is authorized to issue more than one class of stock,
including a class of preferred stock which may be issued in one or more series.
The Corporation will furnish to any stockholder within five days, upon written
request and without charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class authorized to be
issued and, with respect to the issuance of any preferred stock to be issued in
series, the relative rights and preferences between the shares of each series so
far as the rights and preferences have been fixed and determined and the
authority of the Board of Directors to fix and determine the relative rights and
preferences of subsequent series.
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER
APPLICABLE SECURITIES LAW. THESE SHARES MAY NOT BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.
THE HOLDER OF THESE SHARES BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND
BY THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT WITH THE COMPANY AND, IN
CONNECTION THEREWITH, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THESE SHARES,
PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH
THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THESE SHARES ONLY
(A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THESE SHARES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THESE SHARES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION
<PAGE>
REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE COMPANY PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C), (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER
INFORMATION SATISFACTORY TO IT. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER
TO EACH PERSON TO WHOM THESE SHARES ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
<PAGE>
UNIF GIFT MIN ACT - Custodian under
------------------ ------------------------
(Cust) (Minor)
Uniform Gifts to Minors Act
-------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby
---------------------------------
sell, assign and transfer
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------------
| |
| |
-------------------------------------------
unto
----------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_______________________ shares of the common stock represented by this
Certificate, and do hereby irrevocably constitute and appoint
___________________ as Attorney, to transfer the said shares on the books of the
within named Corporation, with full power of substitution.
Dated ___________________ __, ___________
-------------------------------------
Signature
-------------------------------------
Signature
Notice: The signature(s) to this assignment must correspond with the name(s)
written upon the face of this Certificate in every particular without
alteration or any change whatsoever.
Exhibit 5
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
January 5, 1997
Board of Directors
Local Financial Corporation
3601 N.W. 63rd Street
Oklahoma City, Oklahoma 73116
Re: Registration Statement on S-1
21,128,209 Shares of Common Stock
$80,000,000 of 11.0% Senior Notes Due 2004
Ladies and Gentlemen:
We have acted as special counsel to Local Financial Corporation (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), of a Registration Statement on Form S-1 (the "Registration
Statement") which registers 21,128,209 shares of the Company's common stock,
$0.01 par value per share, and $80,000,000 of 11.0% Senior Notes due 2004
(collectively, the "Local Securities") for resale by certain stockholders of the
Company who acquired the Local Securities pursuant to an exemption from the
registration requirements contained in Section 5 of the Securities Act. As such
counsel, we have made such legal and factual examinations and inquiries as we
deemed advisable for the purpose of rendering this opinion.
Based upon the foregoing, it is our opinion that the Local Securities,
when issued, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Certain
Legal Matters" in the Prospectus constituting a part thereof.
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ Jeffrey D. Haas
------------------------------
Jeffrey D. Haas, a Partner
Exhibit 10.1
REDEMPTION AGREEMENT
REDEMPTION AGREEMENT, dated as of this 25th day of August 1997, by and
among Local Financial Corporation (the "Company"), a Delaware corporation, and
Barron Collier and Miles Collier (the "Selling Shareholders").
WITNESSETH
WHEREAS, the parties desire to provide for the redemption by the Company
of all of the capital stock of the Company beneficially owned by the Selling
Shareholders on the terms and conditions set forth herein (the "Redemption");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained, and for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person that, directly
or indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Redemption Agreement, as amended, supplemented or
modified from time to time.
"Banks" means Local Federal Bank, F.S.B., a federally-chartered savings
bank, and Local America Bank, F.S.B., a federally-chartered savings bank, in
each case, together with their respective successors.
<PAGE>
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks and savings institutions in the State of Oklahoma are
authorized or obligated by law to close.
"Capital Securities" of any Person means Capital Stock of the Person and
Stock Equivalents of the Person.
"Capital Stock" of any Person means any and all shares of capital stock
or other equity interest of such Person.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended (or any
successor statute in effect from time to time), and the rules and regulations
promulgated thereunder.
"Commission" means the Securities and Exchange Commission and any
successor thereto.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Company" means Local Financial Corporation, a Delaware corporation,
together with its successors.
"Private Placement Memorandum" means the Private Placement Memorandum,
dated August 25, 1997, with respect to the Securities referred to therein, as
amended or supplemented by the Company at any time prior to the Closing.
"Environmental Claim" means any written notice from any governmental
authority or third party alleging potential liability (including without
limitation potential liability for investigating costs, cleanup costs,
governmental response costs, natural resource damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from the
presence, or release into the environment of any Materials of Environmental
Concern.
"Environmental Laws" means any law, statute, rule or regulation of any
governmental, judicial, legislative, executive, administrative or regulatory
authority of the United States, or of any state, local or foreign government or
any subdivision thereof or of any governmental body or other regulatory or
administrative agency or commission, domestic or foreign (a "Law"), relating to
pollution or protection of the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata), including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as
amended, and other Laws relating to (i) emissions, discharges or releases of
pollutants, contaminants, chemicals, or industrial toxic or hazardous
2
<PAGE>
substances or wastes (collectively known as "Polluting Substances") or (ii) the
handling, storage, disposal, reclamation, recycling or transportation of
Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (or any successor statute in effect from time to time).
"Escrow Agent" means The Bank of New York and any successor thereto
engaged by the Company and the Selling Shareholders pursuant to the Escrow
Agreement.
"Escrow Agreement" means the Escrow Agreement to be entered into
effective as of the Closing between the Company, the Selling Shareholders and
the Escrow Agent, which agreement shall contain customary terms and conditions.
"FDIA" means the Federal Deposit Insurance Act, as amended (or any
successor statute in effect from time to time).
"FDIC" means the Federal Deposit Insurance Corporation and any successor
thereto.
"FDIC Case" means that certain lawsuit, including any appeal related
thereto, styled Local America Bank of Tulsa, F.S.B., Local America, Inc. and
Local Federal Bank, F.S.B. vs. the United States, Civil Action No. 96-584C,
filed on September 16, 1996 in the United States Court of Federal Claims.
"FDIC Claim" means any and all claims asserted by the Company or any of
its Subsidiaries or any of their respective successors or assigns in the FDIC
Case or in any related litigation, including any amended or modified claims, and
any claims asserted by the Company or any of its Subsidiaries or any of their
respective successors or assigns in any other proceeding or forum against any
entity or Person based on, arising out of or related to the facts and/or
circumstances alleged or asserted in the FDIC Case.
"FDIC Counterclaim" means any and all claims asserted by the United
States Government in the FDIC Case or in any related litigation, including any
amended or modified claims, and any claims asserted by the United States
Government in any other proceeding or forum against the Company or any of its
Subsidiaries based on, arising out of or related to facts and/or circumstances
alleged or asserted in the FDIC Case.
"FDIC Dispute" means the FDIC Claim and the FDIC Counterclaim.
"FDIC Reserve Amount" means the amount of the reserve in respect of the
FDIC Dispute reflected on the Final Closing Date Balance Sheet.
"Federal Funds Rate" means, with respect to any period, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged
3
<PAGE>
by federal funds brokers on each business day during such period, as such rates
are published by the Federal Reserve Bank of New York.
"Final FDIC Claim Resolution Amount" means an amount equal to the value
of the aggregate consideration payable or deliverable by the FDIC or any other
governmental agency in respect of the FDIC Claim upon final settlement,
non-appealable arbitral award or non-appealable judgment in respect of the FDIC
Claim (including, without limitation, any pre- and post-judgment interest).
"Final FDIC Counterclaim Resolution Amount" means an amount equal to the
aggregate amount payable by the Company or its Subsidiaries, net of any related
tax benefits, in respect of the FDIC Counterclaim under the terms of any final
settlement, non-appealable arbitral award or non-appealable judgment in respect
of the FDIC Counterclaim, including any pre- and post- judgment interest.
"Final FDIC Net Resolution Amount" means the Final FDIC Claim Resolution
Amount offset by the Final FDIC Counterclaim Resolution Amount.
"HOLA" means the Home Owners' Loan Act, as amended (or any successor
statute in effect from time to time).
"Indenture" means the Indenture between the Company and The Bank of New
York, a New York banking corporation, as trustee, as the same may be amended
from time to time in accordance with the terms thereof, providing for the
issuance of the Senior Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in respect of such asset.
"Management" means the following members of the senior management of the
Company: Chairman, President, Chief Executive Officer, Chief Financial Officer
and any Executive Vice President.
"Material Adverse Effect" means a material adverse effect on the
financial condition, business or results of operations of the Company and the
Company Subsidiaries, taken as a whole; provided, however, that Material Adverse
Effect shall not be deemed to include the impact of the transactions
contemplated by this Agreement or any Related Agreement, including the fees and
expenses to be paid in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements or any impact or
effect on the Company resulting from actions taken by the Company after the
Closing.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
4
<PAGE>
"Non-performing Assets" means the following consolidated assets of the
Company: (i) loans, securities or other assets with respect to which the Company
or either of the Banks have ceased recognizing interest under generally accepted
accounting principles or as to which any payments of principal or interest are
past due 90 days or more as of the applicable date and (ii) Real Estate Owned;
and references herein to the amounts of Non-performing Assets shall mean and
refer to the aggregate carrying value of such assets as stated in the books and
financial statements of the Company and the Banks under generally accepted
accounting principles.
"OTS" means the Office of Thrift Supervision and any successor thereto.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or a political subdivision or an agency or instrumentality thereof.
"Placement Agent" means Friedman, Billings, Ramsey & Co., Inc., in its
capacity as private placement agent with respect to the offering of Securities
described in the Private Placement Memorandum.
"Preferred Stock" means the Preferred Stock, par value $.01 per share,
of the Company.
"Previously Disclosed" means disclosed either (i) in a letter dated the
date hereof delivered from the Selling Shareholders to the Company, specifically
referring to the appropriate section of this Agreement and describing in
reasonable detail the matters contained therein, or (ii) in the Private
Placement Memorandum.
"Purchase Agreement" means the agreement among the Company, the
Placement Agent and the Purchasers, as amended, supplemented or otherwise
modified from time to time.
"Purchaser" means each Person (other than the Company) listed on the
signature pages to the Purchase Agreement, and its permitted successors and
assigns as provided therein, including any Person who becomes a party thereto by
executing and delivering a signature page thereto after the date of the Purchase
Agreement.
"Real Estate Owned" means the consolidated properties of the Company
acquired by foreclosure on a loan or deed-in-lieu thereof or otherwise included
in the Company's real estate owned for purposes of reporting asset quality of
the Banks in their reports filed with the OTS.
"Redemption" means the sale by the Selling Shareholders and the purchase
by the Company pursuant to the terms of this Agreement of all of the shares of
Common Stock owned by the Selling Shareholders.
"Registration Rights Agreement" means the Registration Rights Agreement
to be entered into among the Company, the Placement Agent and the Purchasers,
substantially in the form of
5
<PAGE>
Exhibit D to the Private Placement Memorandum, as amended, supplemented or
otherwise modified from time to time.
"Related Agreements" means the Purchase Agreement, the Indenture, the
Registration Rights Agreement, the Security Agreement and the Escrow Agreement.
"SAIF" means the Savings Association Insurance Fund administered by the
FDIC, and any successor thereto.
"Securities" means (i) the Senior Notes and (ii) the Common Stock, in
each case, to be issued and sold by the Company and purchased by the Purchasers
pursuant to the Purchase Agreement.
"Securities Act" means the Securities Act of 1933, as amended (or any
successor statute thereto as in effect from time to time), and the rules and
regulations of the Commission promulgated thereunder.
"Security Agreement" means the Security Agreement between the Company
and The Bank of New York, as trustee under the Indenture.
"Senior Notes" means the Senior Notes due 2004 to be issued and sold by
the Company and purchased by the Purchasers pursuant to the Purchase Agreement,
as amended, supplemented or otherwise modified from time to time.
"SFAS" means Statement of Financial Accounting Standards.
"Shareholder Representative" means the person jointly designated in
writing by the Selling Shareholders as the Shareholder Representative; provided,
however, that the Selling Shareholders shall be entitled at any time to remove
or replace the Shareholder Representative by giving joint written notice to such
effect to the Company, which notice shall designate the person to act as
Shareholder Representative from and after the effective date set forth in such
notice.
"State" means each of the states of the United States, the District of
Columbia and the Commonwealth of Puerto Rico.
"Stock Equivalents" means, with respect to any Person, options,
warrants, calls, contracts or other rights entered into or issued by such Person
which confer upon the holder thereof the right (whether or not contingent) to
acquire any Capital Stock, voting securities or securities convertible into or
exchangeable for Capital Stock or voting securities of such Person.
"Subsidiary" of any Person means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by such Person.
6
<PAGE>
"Taxes" means all taxes, charges, fees, levies or other governmental
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, property or other taxes, customs, dues, fees, assessments or charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts imposed by any taxing authority (domestic or
foreign).
"Tax Returns" means all foreign, federal, State and local returns
relating to Taxes.
ARTICLE II
THE REDEMPTION
Section 2.1 Redemption of Shares.
(a) Subject to and upon the terms and conditions hereof and the
representations and warranties contained herein, at the Closing (as defined in
Section 2.2 hereof), the Selling Shareholders agree to sell, transfer, assign
and deliver to the Company, and the Company agrees to purchase from the Selling
Shareholders, free and clear of all liens, claims, and encumbrances thereon, all
of the issued and outstanding shares of Common Stock of the Company, as set
forth in Section 3.1(a) hereof (the "Shares").
(b) Subject to Sections 5.1, 5.2 and 5.3 hereof, the purchase price for
all of the Shares shall be $154,000,000 in the aggregate, payable in immediately
available funds at the Closing.
Section 2.2 Closing. The Redemption will take place at a closing (the
"Closing") to be held at the offices of the Placement Agent, Arlington,
Virginia, at 10:00 a.m., Eastern Time, on September 8, 1997, or on such earlier
date as all of the conditions to the parties' obligations hereunder specified in
Article IV of this Agreement (other than the delivery of certificates and other
instruments and documents to be delivered at the Closing) have been satisfied or
waived, or at such other location, and on such other Business Day and time as
the parties hereto shall mutually agree. The date on which the Closing is to
occur is referred to herein as the "Closing Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Selling Shareholders.
Except as Previously Disclosed, the Selling Shareholders represent and warrant
to, and covenant and agree with, the Company as follows:
7
<PAGE>
(a) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 2,000 shares of Common Stock and 1,000 shares
of Preferred Stock. Immediately prior to the Closing, the Company shall amend
its Certificate of Incorporation in order to increase its authorized capital
stock to 25,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. As of the date hereof, there were (i) 60 shares of Common Stock issued
and outstanding and (ii) no shares of Preferred Stock issued and outstanding.
Immediately prior to the Closing on the Closing Date, the Company's outstanding
Capital Stock will be as set forth in the preceding sentence. As of the date
hereof, all outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and none of the outstanding
shares of Common Stock has been issued in violation of the preemptive rights of
any Person. There are no Stock Equivalents authorized, issued or outstanding
with respect to the Capital Stock of the Company as of the date hereof.
(b) Organization, Standing and Authority of the Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware with full corporate power and authority to own or
lease all of its properties and assets and to carry on its business as now
conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed, qualified or in good standing would not
have a Material Adverse Effect. The Company is duly registered as a savings and
loan holding company under the HOLA and the regulations of the OTS thereunder.
(c) Ownership of the Company Subsidiaries. The only direct or indirect
Subsidiaries of the Company consist of Local Federal Bank, F.S.B., Local America
Inc., Local America Bank of Tulsa, F.S.B., Local Acceptance Company of Florida,
Star Financial Services Corporation, Local Mortgage Corporation, Star
Properties, Inc., Service Corporation of Tulsa, Inc., and Oklahoma Financial
Services Corporation. Except for (i) Capital Stock of the Company Subsidiaries,
(ii) stock in the Federal Home Loan Bank of Topeka and (iii) securities and
other interests taken in consideration of debts previously contracted, the
Company does not own or have the right to acquire, directly or indirectly, any
outstanding Capital Stock or other voting securities or ownership interests of
any corporation, bank, savings association, partnership, joint venture or other
organization. The outstanding shares of Capital Stock of the Company
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are directly or indirectly owned by the Company free and
clear of all Liens. No Stock Equivalents are authorized, issued or outstanding
with respect to the Capital Stock of the Company Subsidiaries and there are no
agreements, understandings or commitments relating to the right of the Company
to vote or to dispose of such Capital Stock.
(d) Organization, Standing and Authority of the Company Subsidiaries.
The Banks are federally-chartered savings banks duly organized, validly existing
and in good standing under the laws of the United States, and the other Company
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation. The
deposit accounts of the Banks are insured by the SAIF to the maximum
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extent permitted by the FDIA, and the Banks have paid all premiums and
assessments required by the FDIA and the regulations thereunder. Each of the
Company Subsidiaries has full power and authority to own or lease all of its
respective properties and assets and to carry on its respective business as now
conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such qualification, except where the
failure to be so licensed, qualified or in good standing would not have a
Material Adverse Effect.
(e) Authority. The Selling Shareholders have full power and authority to
perform their obligations under this Agreement and the Company has full
corporate power and authority to perform its obligations under each of the
Related Agreements to which it will become a party, and the execution, delivery
and performance by the Company of each Related Agreement to which it will become
a party has been or, prior to the Closing, will have been duly authorized by all
necessary corporate action on the part of the Company.
(f) Due Execution.
(i) This Agreement constitutes a valid and binding obligation of
the Selling Shareholders enforceable against the Selling Shareholders in
accordance with its terms, except (A) enforceability may be limited by
bankruptcy, insolvency, moratorium and similar laws affecting creditors'
rights generally and (B) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(ii) Each of the Related Agreements to which the Company will
become a party, when duly authorized, executed and delivered by the
Company, will constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (A)
the Selling Shareholders make no representation or warranty with respect
to the enforceability of the provisions contained in (i) Sections 5.4
through 5.9 inclusive and Section 6.3(b) of the Purchase Agreement or
(ii) the Registration Rights Agreement, (B) enforceability may be
limited by bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights generally and (C) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability.
(g) No Conflict. The execution, delivery and performance of this
Agreement by the Selling Shareholders and each of the Related Agreements by the
Company will not conflict with or constitute a breach of, or a default under (i)
the Certificate of Incorporation, Articles of Incorporation or Charter, as the
case may be, or the Bylaws of the Company or any of the Company Subsidiaries,
(ii) any obligation, agreement, indenture, bond, debenture, note, instrument or
any other evidence of indebtedness to which the Selling Shareholders, the
Company or any of the Company Subsidiaries is a party or as to which any of
their respective assets are subject, or (iii) any law, ordinance, order,
license, rule or other regulation or demand of any court or governmental agency,
arbitration panel or authority applicable to the Selling Shareholders, the
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Company or any of the Company Subsidiaries, except, in the case of clauses (ii)
and (iii) above, for such conflicts, breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect. The
representation and warranty set forth in the preceding clause (iii) are made in
reliance on the representations and warranties of the Purchasers contained in
the Purchase Agreement.
(h) Status of Securities. The shares of Common Stock and the Senior
Notes issuable pursuant to the Purchase Agreement have been authorized by all
necessary corporate action on the part of the Company. When the Common Stock is
delivered to the Purchasers at the Closing against payment therefor as provided
in the Purchase Agreement, the Common Stock will be duly authorized, validly
issued and fully paid and nonassessable, and will not be issued in violation of
the preemptive rights of any Person. At the Closing Date, the Senior Notes will
have been duly executed by the Company and, when authenticated in the manner
provided for in the Indenture and delivered by the Company to the Purchasers
against payment therefor as described in the Private Placement Memorandum, will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except to the extent that (A)
enforceability may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), moratorium and similar
laws affecting creditors' rights generally and (B) enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(i) Regulatory Reports. The Company and each of the Banks has duly filed
with the OTS and the FDIC, as the case may be, in correct form the reports
required to be filed under applicable laws and regulations, and such reports
were in all material respects complete and accurate and in compliance with the
requirements of applicable laws and regulations, provided that information as of
a later date shall be deemed to modify information as of an earlier date. In
connection with the examination of the Company and the Banks by the OTS
completed on or about November 11, 1996 neither the Company nor either of the
Banks were required to correct or change any action, procedure or proceeding
which the Company or the Banks believe has not been substantially corrected or
changed as required.
(j) Financial Statements.
(i) The Private Placement Memorandum includes (x) consolidated
statements of financial condition of the Company as of June 30, 1996 and
1995 and consolidated statements of income, stockholders' equity and
cash flows of the Company for each of the years ended June 30, 1996,
1995 and 1994, accompanied by the related audit report of Arthur
Andersen LLP, and (y) an unaudited consolidated statement of financial
condition of the Company as of May 31, 1997 and an unaudited
consolidated statement of income of the Company for the eleven months
ended May 31, 1997. The foregoing financial statements, including the
related notes where applicable (collectively the "Company Financial
Statements"), fairly present (subject, in the case of the unaudited
Company Financial Statements at and for the eleven months ended May 31,
1997, to audit adjustments recognized in connection with the fiscal 1997
audit, provided such audit
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adjustments, either individually or in the aggregate, do not have a
Material Adverse Effect) the consolidated financial condition of the
Company as of the respective dates set forth therein, and the
consolidated results of operations, stockholders' equity and cash flows
of the Company for the respective periods or as of the respective dates
set forth therein, except that no consolidated statements of
stockholders' equity or cash flows were presented for the eleven months
ended May 31, 1997.
(ii) Each of the Company Financial Statements has been prepared
in accordance with generally accepted accounting principles consistently
applied during the periods involved, except as stated therein, and
except that the unaudited Company Financial Statements need not contain
all of the footnote and line item disclosures that would be required for
financial statements prepared in accordance with generally accepted
accounting principles. The books and records of the Company and the
Company Subsidiaries are being maintained in material compliance with
applicable legal and accounting requirements, and such books and records
accurately reflect in all material respects all dealings and
transactions in respect of the business, assets, liabilities and affairs
of the Company and the Company Subsidiaries, provided, however, that the
Selling Shareholders make no representation or warranty regarding the
accuracy or completeness of the books and records of the Company's
automobile finance subsidiaries.
(k) Material Adverse Change. Since May 31, 1997, (i) neither the Company
nor any of the Company Subsidiaries has incurred any material liability (on a
consolidated basis), except in the ordinary course of business consistent with
past practice (excluding the incurrence of expenses or obligations in connection
with this Agreement, any Related Agreement or any of the transactions
contemplated hereby or thereby) and except for such liability or liabilities as
would not, individually or in the aggregate, have a Material Adverse Effect, and
(ii) no events or developments involving the Company or the Company Subsidiaries
have occurred which, individually or in the aggregate, (A) have had a Material
Adverse Effect, or (B) materially impair the ability of the Selling Shareholders
or the Company to perform its obligations under this Agreement, any Related
Agreement to which it will become a party or any of the Securities.
(l) Environmental Matters.
(i) To the knowledge of the Selling Shareholders, the Company and
the Company Subsidiaries are in compliance with all Environmental Laws,
except for any violations of any Environmental Law which would not,
individually or in the aggregate, have a Material Adverse Effect.
Neither the Company nor any Company Subsidiary has received any
communication alleging that the Company or any Company Subsidiary is not
in such compliance and, to the knowledge of the Selling Shareholders,
there are no present circumstances that would prevent or interfere with
the continuation of such compliance.
(ii) To the knowledge of the Selling Shareholders, none of the
properties owned, leased or operated by the Company or the Company
Subsidiaries has been or is in violation
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of or liable under any Environmental Law, except for any such violations
or liabilities which would not individually or in the aggregate have a
Material Adverse Effect.
(iii) To the knowledge of the Selling Shareholders, there are no
past or present actions, activities, circumstances, conditions, events
or incidents that would reasonably form the basis of any Environmental
Claim or other claim or action or governmental investigation that would
result in the imposition of any liability arising under any
Environmental Law against the Company or any Company Subsidiary or
against any Person whose liability for any Environmental Claim the
Company or any Company Subsidiary has or may have retained or assumed
either contractually or by operation of law, except such as would not
have a Material Adverse Effect.
(m) Allowance for Loan Losses. Notwithstanding anything in this
Agreement to the contrary, it is acknowledged and agreed that the Selling
Shareholders and the Company make no representation or warranty with respect to
the collectibility of the Company's indirect automobile receivables portfolio or
that the loan loss reserves in respect of such portfolio as of May 31, 1997 are
sufficient to cover the losses that may be realized with respect to such
portfolio.
(n) Tax Matters. The Company and the Company Subsidiaries have timely
filed all Tax Returns required by applicable law to be filed by them (including,
without limitation, estimated tax returns, income tax returns, information
returns and withholding and employment tax returns) and have paid, or where
payment is not required to have been made, have set up an adequate reserve or
accrual for the payment of, all Taxes required to be paid in respect of the
periods covered by such Tax Returns, except in all cases where the failure to
have timely filed such Tax Returns or have paid or have set up an adequate
reserve or accrual for the payment of all such Taxes would not have a Material
Adverse Effect. As of the date hereof, there is no audit examination, assessed
deficiency, deficiency litigation or refund litigation with respect to any Taxes
of the Company or any of the Company Subsidiaries. All Taxes due with respect to
completed and settled examinations or concluded litigation relating to the
Company have been paid in full or adequate provision has been made for any such
Taxes on the Company's consolidated statement of financial condition in
accordance with generally accepted accounting principles, except where the
failure to have paid in full or have made an adequate provision for payment of
all such Taxes would not have a Material Adverse Effect. The Company has not
executed an extension or waiver of any statute of limitations on the assessment
or collection of any material tax due that is currently in effect.
(o) ERISA. Each "employee benefit plan" (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other
than any "multiemployer plan" (as defined in Section 3(37) or Section 4001(a)(3)
of ERISA)) that is sponsored, maintained or contributed to by the Company (a
"Company Plan") is in compliance in all material respects with all presently
applicable provisions of ERISA, except where any such noncompliance would not
reasonably be expected to have a Material Adverse Effect; no "reportable event"
(as defined in Section 4043 of ERISA or the regulations thereunder), other than
an event as to which the 30- day statutory notice period is waived by
regulation, has occurred with respect to any Company
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Plan that is a "pension plan" (as defined in Section 3(2) of ERISA (each such
Company Plan, a "Company Pension Plan"); the Company has not incurred and does
not expect to incur any material liability with respect to any Company Pension
Plan under (i) Title IV of ERISA (with respect to the termination of, or
withdrawal from, any such plan) or (ii) Sections 412 or 4971 of the Code; and
each Company Pension Plan has received a determination letter from the Internal
Revenue Service regarding the qualification of such plan under Section 401(a) of
the Code, and to the knowledge of the Selling Shareholders, nothing has
occurred, whether by action or by failure to act, that would cause the loss of
such qualification.
(p) Litigation. Except for the FDIC Dispute, there are no actions,
suits, investigations or legal proceedings pending against, or to the knowledge
of the Selling Shareholders, threatened against, or affecting the Selling
Shareholders, the Company or any of the Company Subsidiaries or their respective
properties before any court or governmental body or agency which would
reasonably be expected to have a Material Adverse Effect or which in any manner
challenge the legality, validity or enforceability of this Agreement, any of the
Related Agreements or any of the Securities, or which would reasonably be
expected to materially impair the ability or obligation of the Selling
Shareholders to perform fully on a timely basis its obligations under this
Agreement, or the Company to perform fully on a timely basis its obligations
under any Related Agreement to which it will become a party.
(q) Compliance with Laws. Each of the Company and the Company
Subsidiaries has all permits, licenses, certificates of authority, orders and
approvals of, and has made all filings, applications and registrations with,
federal, State, local and foreign governmental or regulatory bodies that are
necessary in order to permit it to carry on its business as it is presently
being conducted and the absence of which would have a Material Adverse Effect;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect; and to the knowledge of the Selling Shareholders, no
suspension or cancellation of any of the same is threatened.
(r) No Default or Violation. Neither the Company nor any of the Company
Subsidiaries currently is in violation of its Certificate of Incorporation,
Articles of Incorporation or Charter, as the case may be, or its Bylaws, and
neither the Selling Shareholders, the Company nor any of the Company
Subsidiaries is in violation of any applicable federal, state or local law or
ordinance or any order, rule or regulation of any federal, state, local or other
governmental agency or body (including, without limitation, all banking,
securities, safety, health, environmental, zoning, anti-discrimination,
antitrust, and wage and hour laws, ordinances, orders, rules and regulations),
or in default with respect to any order, writ, injunction or decree of any
court, or in default under any order, license, regulation or demand of any
governmental agency, where any of such violations or defaults would,
individually or in the aggregate, reasonably be expected (i) to have a Material
Adverse Effect or (ii) materially adversely impair the ability of the Selling
Shareholders to perform on a timely basis any obligation which it has under this
Agreement, or the Company to perform on a timely basis any obligation which it
has under any Related Agreement to which it will become a party and none of the
Selling Shareholders, the Company nor any of the Company Subsidiaries has
received any notice or communication from
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any federal, state or local governmental authority asserting that the Selling
Shareholders, the Company or such Company Subsidiary is in violation of any of
the foregoing which would reasonably be expected to have any effect set forth in
clauses (i) or (ii) above. Neither the Company nor any of the Company
Subsidiaries is subject to any regulatory or supervisory cease and desist order,
agreement, written directive, memorandum of understanding or written commitment,
and none of them has received any written communication requesting that they
enter into any of the foregoing.
(s) Certain Contracts. Except for matters which are the subject of the
FDIC Dispute (as to which no representation or warranty is made hereby), neither
the Company nor any Company Subsidiary is in default or in non-compliance, which
default or non-compliance would reasonably be expected to have a Material
Adverse Effect, under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by which its
assets, business or operations may be bound or affected, whether entered into in
the ordinary course of business or otherwise and whether written or oral, and
there has not occurred any event that with the lapse of time or the giving of
notice, or both, would constitute such a default or non-compliance.
(t) Insurance. Except with respect to the Company's automobile finance
subsidiaries, as to which the Selling Shareholders make no representations or
warranty, the Company and each Company Subsidiary is insured for reasonable
amounts with financially sound and reputable insurance companies against such
risks as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured and has maintained all insurance
required by applicable laws and regulations, except where the failure to be so
insured would not have a Material Adverse Effect. Except with respect to the
Company's automobile finance subsidiaries, as to which the Selling Shareholders
make no representations or warranty, neither the Company nor any of the Company
Subsidiaries has received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond or is in default under such
policy or bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion, except where any such
cancellation, default or dispute would not, individually or in the aggregate,
have a Material Adverse Effect.
(u) Properties. The Company and the Company Subsidiaries have good and
marketable title free and clear of all Liens to all of the material properties
and assets, real and personal, reflected on the consolidated statement of
financial condition of the Company as of May 31, 1997 included in the Company
Financial Statements or acquired after such date, except (i) for Liens for
current taxes not yet due or payable, (ii) for pledges to secure deposits and
other Liens incurred in the ordinary course of its banking business, (iii) for
such Liens, if any, which would not, individually or in the aggregate, have a
Material Adverse Effect and (iv) as reflected on the consolidated statement of
financial condition of the Company as of May 31, 1997 included in the Company
Financial Statements. All real and personal property which is material to the
Company's business on a consolidated basis and leased or licensed by the Company
or any Company Subsidiary is held pursuant to leases or licenses which are valid
and enforceable in accordance with their respective terms and such leases will
not terminate or lapse prior to the
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Closing Date, except where such invalidity, unenforceability, termination or
lapse would not, individually or in the aggregate, have a Material Adverse
Effect.
(v) Certain Fees. Except for fees and expenses payable by the Company to
the Placement Agent, no fees or commissions will be payable by the Company or
any of the Company Subsidiaries to brokers, finders, investment bankers or banks
pursuant to any agreement entered into by the Company or any of the Company
Subsidiaries with respect to the Redemption, the offer and sale of the
Securities or any of the other transactions contemplated by this Agreement and
the Purchase Agreement. Notwithstanding the foregoing, the parties acknowledge
and agree that the Company and Bear, Stearns & Co. Inc. ("Bear Stearns") have
entered into a letter agreement, dated June 10, 1996 (the "Bear Stearns
Engagement Letter"). The Selling Shareholders hereby agree that they will pay
all fees and expenses required to be paid to Bear Stearns in connection with the
Offering and the Redemption under the Bear Stearns Engagement Letter.
(w) No Debt. Except (i) for a promissory note payable to Isabel Collier
Read with an outstanding principal balance of $7,010,000 million as of the date
hereof, plus accrued and unpaid interest, and (ii) for the Senior Notes to be
issued pursuant to the Purchase Agreement, the Company, on an unconsolidated
basis, does not have any outstanding Indebtedness (as defined in Section 1.01 of
the Indenture).
(x) Hedging Contracts. Attached hereto as Schedule I is a true and
correct listing as of May 31, 1997 of all open futures contracts, option
contracts, interest rate caps, interest rate floors, interest rate exchange or
swap agreements or any other open agreements to which the Company is a party or
which are being utilized by the Company for purposes of hedging the exposure of
its interest-earning assets and interest-bearing liabilities to changes in
interest rates (such open futures contracts, option contracts, interest rate
caps, interest rate floors, interest rate exchange or swap agreements or other
agreements are referred to herein as the "Open Hedges.")
(y) Certain May 31, 1997 Balance Sheet Information. At May 31, 1997, the
Company had (i) not less than $105,780,778 of consolidated stockholders' equity;
(ii) established reserves of not less than $12,785,314 with respect to its
potential liability to the FDIC regarding certain tax benefits previously
received under an Assistance Agreement with the Federal Savings and Loan
Insurance Corporation; and (ii) on a consolidated basis $1,307,886,382 of
adjustable-rate collateralized mortgage obligations with interest rate
adjustments tied to the Federal Home Loan Bank Eleventh District Cost of Funds
Index, subject in the case of each of clauses (i), (ii) and (iii) to audit
adjustments recognized in connection with the fiscal 1997 audit, provided such
audit adjustments, either individually or in the aggregate, do not have a
Material Adverse Effect.
Section 3.2 Representations and Warranties of the Company.
(a) Authority. The Company has full corporate power and authority to
perform its obligations under this Agreement, and the execution, delivery and
performance by the Company
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of this Agreement has been duly authorized by all necessary corporate action of
the part of the Company.
(b) Due Execution. This Agreement constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except (i) enforceability may be limited by bankruptcy, insolvency,
moratorium and similar laws affecting creditors' rights generally and (ii)
rights or acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
(c) No Conflict. The execution, delivery and performance of this
Agreement will not conflict with or constitute a breach of, or a default under
(i) the Certificate of Incorporation, Articles of Incorporation or Charter, as
the case may be, or the Bylaws of the Company or any of the Company
Subsidiaries, (ii) any obligation, agreement, indenture, bond, debenture, note,
instrument or any other evidence of indebtedness to which the Company or any of
the Company Subsidiaries is a party or as to which any of their assets are
subject, or (iii) any law, ordinance, order, license, rule or other regulation
or demand of any court or governmental agency, arbitration panel or authority
applicable to the Company or any of the Company Subsidiaries. No consent,
approval, order or other authorization of any governmental, administrative or
regulatory body or agency is legally required by or on behalf of the Company or
the Company Subsidiaries in connection with the execution, delivery and
performance of this Agreement.
(d) Funding. Subject to the fulfillment of the condition set forth in
Section 4.1(b) hereof, at the Closing, the Company will have the financial
capability to pay for the Shares pursuant to the terms of Section 2.1 hereof.
ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
Section 4.1 Conditions to Obligations of the Parties. The respective
obligations of each of the parties hereto to fulfill their obligations under
Section 2.1 hereof at the Closing shall be subject to the satisfaction or waiver
prior to the Closing of the following conditions:
(a) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of any of the transactions contemplated by
this Agreement.
(b) The Company shall have completed the sale of the Securities
as contemplated by the Purchase Agreement and shall have raised gross
proceeds from such sale of the Senior Notes and the Common Stock of at
least $70.0 million and $190.0 million, respectively.
Section 4.2 Conditions to the Obligations of the Selling Shareholders.
The obligations of the Selling Shareholders to fulfill their obligations under
this Agreement, including,
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without limitation, the obligations set forth in Section 2.1 hereof, shall be
subject to the satisfaction or waiver prior to the Closing of the following
condition:
(a) The Company shall have delivered to the Selling Shareholders
the applicable consideration for each of the Shares to be redeemed by
the Company pursuant to this Agreement, such amount to be payable by
wire transfer of immediately available funds in equal amounts to the
brokerage accounts designated by the Selling Shareholders, by notice to
the Company to be provided no later than two Business Days prior to the
Closing Date.
ARTICLE V
COVENANTS
Section 5.1 Adjustments Related to FDIC Assistance Agreement.
(a) Upon the Closing Date, $10,000,000 of the purchase price to
be paid to the Selling Shareholders pursuant to Section 2.1 hereof will
be deposited by the Company with the Escrow Agent. Such funds shall be
held by the Escrow Agent pursuant to the Escrow Agreement in an account
entitled the "Local Financial FDIC Assistance Agreement Escrow Account"
which shall be maintained separate from the escrow accounts established
pursuant to Section 5.2(a) hereof.
(b) In the event the Final FDIC Net Resolution Amount results in
a payment being made by the Company to the FDIC, such amount shall be
paid (i) first, from the FDIC Reserve Amount, until exhausted, (ii)
second, subject to the terms of the Escrow Agreement, from the Local
Financial FDIC Assistance Agreement Escrow Account, until exhausted, and
(iii) finally, by the Selling Shareholders. After payment in full of the
Final FDIC Net Resolution Amount payable under this Section 5.1(b), any
amount remaining of the FDIC Reserve Amount shall be paid promptly by
the Company to the Selling Shareholders, together with interest on such
remaining amount from the Closing Date to the date of such payment to
the Selling Shareholders at the Federal Funds Rate, and, subject to the
terms of the Escrow Agreement, any amount remaining in the Local
Financial FDIC Assistance Agreement Escrow Account, including interest
and other earnings, shall be paid by the Escrow Agent to the Selling
Shareholders.
(c) In the event the Final FDIC Net Resolution Amount results in
a payment being made by the FDIC to the Company, (i) such amount,
together with the FDIC Reserve Amount and interest on the FDIC Reserve
Amount from the Closing Date to the date of payment to the Selling
Shareholders at the Federal Funds Rate, shall be paid promptly by the
Company to the Selling Shareholders and (ii) subject to the terms of the
Escrow Agreement, the funds held in the Local Financial FDIC Assistance
Agreement Escrow Account, including interest and other earnings, shall
be paid by the Escrow Agent to the Selling Shareholders.
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(d) Notwithstanding anything in this Agreement to the contrary,
it is acknowledged and agreed that the Selling Shareholders shall be
solely and exclusively responsible for all reasonable litigation costs
and expenses which are incurred by the Company and its Subsidiaries in
connection with the FDIC Dispute, including but not limited to the
prosecution, defense and settlement thereof. The Company shall submit
all invoices associated with all such litigation costs and expenses to
the Escrow Agent, with a copy to the Selling Shareholders, with written
instructions to pay the amounts set forth in such invoices from the
Local Financial FDIC Assistance Agreement Escrow Account. To the extent
that such funds are available, the Escrow Agent shall be authorized to
pay all such litigation costs and expenses from the Local Financial FDIC
Assistance Agreement Escrow Account. To the extent the Local Financial
FDIC Assistance Agreement Escrow Account is exhausted, the Selling
Shareholders shall pay any and all such further reasonable litigation
costs and expenses promptly upon receipt of an invoice for same from the
Company.
(e) In prosecuting the FDIC Claim and defending the FDIC
Counterclaim, the Company shall, and shall cause each of its
Subsidiaries to (i) diligently, in good faith and on a commercially
reasonable basis, prosecute the FDIC Claim and defend the FDIC
Counterclaim and consult in good faith with the Shareholder
Representative regarding such prosecution and defense, (ii) provide the
Shareholder Representative with copies of all notices, pleadings,
subpoenas, filings, correspondence or other documents received in
connection with the FDIC Dispute and with full and direct access to all
attorneys representing the Company and its Subsidiaries in connection
with the FDIC Dispute, (iii) give the Shareholder Representative
adequate prior notice of, and the full opportunity to review and comment
on, all filings, motions or other pleadings with respect to the FDIC
Dispute and (iv) use best efforts to maximize the amount of any payment
from the FDIC in respect of the FDIC Claim and minimize the amount of
any payment to the FDIC in respect of the FDIC Counterclaim. In
addition, the Company shall not, and shall cause each of its
Subsidiaries not to, take any action to settle, terminate or cease
litigation of any claim or counterclaim in respect of the FDIC Dispute,
or to appeal or to decline to appeal any finding, ruling, order or
judgment in connection with such prosecution or defense of the FDIC
Dispute, in any case without the prior written consent of the
Shareholder Representative. At or prior to the Closing, the Company and
the Selling Shareholders shall enter into a common interest agreement on
customary terms and conditions.
Section 5.2 Adjustments Related to Final Closing Date Balance Sheet.
(a) Upon the Closing Date, an additional $5,000,000 of the
purchase price to be paid to the Selling Shareholders pursuant to
Section 2.1 hereof will be deposited by the Company with the Escrow
Agent. Such funds shall be held by the Escrow Agent pursuant to the
Escrow Agreement in an account entitled the "Local Financial Closing
Adjustment Escrow Account" which shall be maintained separate from the
escrow accounts established pursuant to Section 5.1(a) hereof.
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(b) Promptly after the Closing Date, but in no event more than 30
days thereafter, the Company shall deliver to the Shareholder
Representative an unaudited consolidated statement of financial
condition of the Company as of the Closing Date (the "Closing Date
Balance Sheet"), which statement of financial condition (x) shall be
prepared in accordance with generally accepted accounting principles
(except that, regardless of whether so required by generally accepted
accounting principles, the additional writedowns expected to be
recognized with respect to the Company's securities portfolio and the
additional reserves expected to be established with respect to the
Company's loan portfolio, in each case as described in the section
entitled "Capitalization" in the Private Placement Memorandum, shall not
be reflected in the Closing Date Balance Sheet), consistent with the
accounting principles, practices and methodologies used in preparation
of the May 31, 1997 consolidated statement of financial condition of the
Company, including without limitation those used in establishing levels
of reserves; provided, however, that if the resolution of any audit
adjustment item in respect of the Company's June 30, 1997 consolidated
financial statements (including, without limitation, with respect to the
establishment of the levels of any reserves) results in the use of a
different accounting principle, practice or methodology in respect of
such item on the Company's audited June 30, 1997 consolidated financial
statements, then such different accounting principle, practice or
methodology shall be used in respect of such item in the preparation of
the Closing Date Balance Sheet; and provided, further, however, that
notwithstanding anything herein to the contrary, the FDIC Reserve Amount
shall be equal to $12,785,314, (y) shall not give effect to the Offering
or the Redemption or the other transactions contemplated hereby and (z)
shall disregard any change, event or circumstance occurring after the
Closing. The Company shall provide the Shareholder Representative and
its representatives with copies of the Company's work papers and access
to the Company's accountants' work papers generated in connection with
the preparation of the Closing Date Balance Sheet, as well as access to
employees and representatives of the Company and its accounting firms to
assist the Shareholder Representative in its review of such work papers.
In addition, following delivery of the Closing Date Balance Sheet, the
Shareholder Representative and its representatives shall be entitled to
review the books and records of the Company and its Subsidiaries. If the
Shareholder Representative accepts the Closing Date Balance Sheet, the
Shareholder Representative shall, within 30 days of delivery of the
Closing Date Balance Sheet, deliver to the Company a written notice to
such effect and, upon delivery of such notice, the Closing Date Balance
Sheet shall be final and binding upon the parties for purposes of this
Agreement.
(c) Within 30 days after delivery of the Closing Date Balance
Sheet to the Shareholder Representative, the Shareholder Representative
may dispute all or any part of the Closing Date Balance Sheet by giving
written notice to the Company setting forth in reasonable detail the
basis for such dispute (any such dispute hereinafter called a
"Disagreement"). The Shareholder Representative and the Company shall
promptly commence good faith negotiations with a view to resolving such
Disagreement not later than 30 days after the date on which such notice
of Disagreement is delivered to the Company. If the Shareholder
Representative and the Company are unable to resolve a
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Disagreement (by notice to the other party) within 30 days following the
date on which such notice of Disagreement was delivered to the Company,
such Disagreement shall be referred to an independent public accounting
firm mutually selected by the Shareholder Representative and the Company
for a resolution of such Disagreement, in accordance with the
requirements of Section 5.2(b) above. If such parties do not promptly
agree on the selection of an independent public accounting firm, each
such party shall select an independent public accounting firm and such
two independent public accounting firms shall jointly select the
independent public accounting firm. The determinations made by such
independent public accounting firm with respect to any Disagreement
shall be final and binding upon such parties. Each of such parties shall
use its best efforts to cause the independent public accounting firm to
render its determination as soon as practicable after referral of the
Disagreement to such firm, and each shall cooperate with such firm and
the Company shall provide such firm with reasonable access to the books,
records, personnel and representatives of the Company and the Company's
Subsidiaries and such other information as such firm may require in
order to render its determination. The fees and expenses of any
independent public accounting firm retained pursuant to this Section
5.2(c) shall be paid one-half by the Company and one-half by the Selling
Shareholders. The Closing Date Balance Sheet, as adjusted in accordance
with the resolution of any Disagreement or, if there shall exist no
Disagreement, as delivered to the Shareholder Representative pursuant to
Section 5.2(b) above, is referred to as the "Final Closing Date Balance
Sheet."
(d) Within five days of the determination of the Final Closing
Date Balance Sheet, the purchase price for the Shares shall be adjusted
as follows:
(i) in the event that the sum of (v) the total
stockholders' equity reflected on the Final Closing Date Balance
Sheet, (w) the specific realized loss related to the sale of
security FHLMC 1637, Class U (which amounted to a pre-tax loss of
$5,836,724), calculated net of applicable taxes, (x) the amount
of any consolidated provision for loan losses (net of applicable
taxes) recognized by the Company from (and including) June 1,
1997 through (and including) the Closing Date, (y) the aggregate
unrealized loss, net of applicable taxes, set forth on the Final
Closing Date Balance Sheet to reflect the market value of
securities classified as available for sale in accordance with
the terms of SFAS No. 115, and (z) the fees and expenses of
Skadden, Arps, Slate, Meagher & Flom LLP (to the extent such fees
and expenses are reflected in the Final Closing Date Balance
Sheet) (such sum is referred to herein as the "Adjusted Closing
Equity"), is less than $144,477,000, such difference (the
"Closing Date Difference") shall be paid by the Escrow Agent to
the Company out of the Local Financial Closing Adjustment Escrow
Account in accordance with the terms of the Escrow Agreement. For
the avoidance of doubt, the parties acknowledge and agree that in
calculating the amount of the Adjusted Closing Equity, the
absolute value of the losses, provisions, fees and expenses
referred to in clauses (w) through (z) shall be added to the
total stockholders' equity reflected on the Final Closing Date
Balance Sheet. To the extent such Closing Date Difference
20
<PAGE>
exceeds the amount contained in the Local Financial Closing
Adjustment Escrow Account, such deficiency shall be paid by the
Selling Shareholders to the Company. To the extent any funds
continue to remain in the Local Financial Closing Adjustment
Escrow Account following payment of the Closing Date Difference,
such remaining amount, including interest and other earnings,
shall be paid to the Selling Shareholders; or
(ii) in the event the Adjusted Closing Equity is equal to
$144,477,000, the Escrow Agent shall pay all funds held in the
Local Financial Closing Adjustment Escrow Account, including
interest and other earnings, to the Selling Shareholders in
accordance with the terms of the Escrow Agreement; or
(iii) in the event the Adjusted Closing Equity is greater
than $144,477,000 (the amount by which the Adjusted Closing
Equity exceeds $144,477,000 is referred to herein as the "Equity
Increase Amount"), then (x) the Company shall promptly pay the
Equity Increase Amount to the Selling Shareholders and (y) the
Escrow Agent shall pay all funds held in the Local Financial
Closing Adjustment Escrow Account, including interest and other
earnings, to the Selling Shareholders in accordance with the
terms of the Escrow Agreement.
Section 5.3 Adjustments Related to Sale of Hedging Contracts.
(a) Prior to or following the Closing Date, but in no event later
than September 30, 1997, the Selling Shareholders shall cause to be sold
or terminated (and in each case settled) all Open Hedges. Prior to
selling or terminating any Open Hedge, the Selling Shareholders shall
give adequate prior notice of such proposed sale or termination to, and
shall consult fully and in good faith with, the Company. The Company
shall cooperate fully with the Selling Shareholders in connection with
the foregoing, including without limitation executing such documents as
shall be required in connection therewith.
(b) In the event the sale or termination of all of the Open
Hedges results in pre-tax losses (in order to avoid duplication, the
pre-tax amount of any such loss that is otherwise reflected in the Final
Closing Date Balance Sheet shall be disregarded) which exceed
$42,495,000 in the aggregate, such excess (net of related tax benefit)
shall be paid promptly to the Company by the Selling Shareholders.
(c) In the event the sale or termination of all of the Open
Hedges results in pre-tax losses (in order to avoid duplication, the
pre-tax amount of any such loss that is otherwise reflected in the Final
Closing Date Balance Sheet shall be disregarded) which are less than
$42,495,000 in the aggregate, such difference (net of related tax
benefit), shall be paid promptly by the Company to the Selling
Shareholders.
Section 5.4 No Solicitation. Between the time of execution of this
Agreement and the earlier of (i) the Closing or (ii) termination of this
Agreement in accordance with Section 6.2
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hereof, neither the Company nor any Company Subsidiary, nor any of the
shareholders, directors, officers, employees, representatives or agents of the
Company or other persons controlled by the Company, shall (i) execute any
agreement, letter or undertaking of any kind whatsoever with respect to any
acquisition, lease or purchase of all or a substantial portion of the assets of,
or any equity interest in, the Company or any Company Subsidiary or any business
combination with the Company or any Company Subsidiary (an "Acquisition
Transaction"), other than as contemplated by this Agreement, including
specifically with an Alternative Bidder (as defined below) or (ii) except with
respect to such persons or parties with whom the Company shall have received a
written proposal with respect to an Acquisition Transaction as of a date prior
to the date hereof (an "Alternative Bidder"), solicit or encourage inquiries or
proposals with respect to, furnish any information relating to, or participate
in any negotiations or discussions concerning, an Acquisition Transaction. With
respect to any Alternative Bidder, as of the date hereof through the Closing,
neither the Company, any Company Subsidiary, nor any of the shareholders,
directors, officers, employees, representatives or agents of the Company or
other persons controlled by the Company shall: (i) communicate any information,
written or oral, with respect to the transactions contemplated by this Agreement
and any Related Agreement or (ii) take any steps whatsoever with respect to
negotiation of any agreement with respect to such Alternative Bidder's
Acquisition Transaction. Other than as set forth herein, the Company will
immediately notify the Placement Agent orally and in writing if any such
inquiries or proposals are received by, and such information is required from,
or any such negotiations or discussions are sought to be initiated with, the
Company or any Company Subsidiary. Notwithstanding anything in this Agreement to
the contrary, if the Placement Agent shall have failed to deliver to the Company
by 5:00 p.m., Eastern Time, on September 2, 1997, valid executed and delivered
signature pages to the Purchase Agreement reflecting binding and enforceable
commitments (subject to the terms of the Purchase Agreement) on the part of
Purchasers to purchase at least $70.0 million of Senior Notes and $190.0 million
of Common Stock, then from and after such time, this Section 5.4 shall be
inapplicable.
Section 5.5 Use of Proceeds. On the Closing Date, the Company shall
apply the net proceeds from the sale of Securities pursuant to the Purchase
Agreement as follows:
(i) $154,000,000 of such net proceeds shall be utilized to fund
the redemption of the Shares pursuant to Section 2.1 hereof; out of such
$154,000,000, at the Closing, the Company shall pay to Bear Stearns, by wire
transfer of immediately available funds, the amount which the Shareholder
Representative shall inform the Company at least 2 Business Days prior to the
Closing is the amount payable to Bear Stearns under the Bear Stearns Engagement
Letter, and the remaining balance of such $154,000,000 shall be paid in equal
amounts to the Selling Shareholders as contemplated by Section 4.2(a);
(ii) the amount of such net proceeds required to prepay the
outstanding principal balance (in the amount of $7,010,000) of the promissory
note payable to the order of Isabel Collier Read, plus all accrued and unpaid
interest to the date of prepayment, shall be utilized to pay such principal and
interest;
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(iii) an amount of such net proceeds equal to the first two full
semi-annual interest payments which become due on the Senior Notes shall be used
to establish and maintain the Interest Reserve Account required by Section 10.18
of the Indenture; and
(iv) with respect to any amount remaining after the amounts in
clauses (i) though (iii) are paid, to make capital contributions to Local
Federal Bank, F.S.B. and Local America Bank, F.S.B. in an amount sufficient to
cause each of the Banks to be classified "adequately capitalized" pursuant to 12
U.S.C. Section 1831o and 12 C.F.R. Part 565 immediately following consummation
of the transactions contemplated by this Agreement, the Related Agreements and
following the liquidation of the Open Hedges and the additional writedowns and
reserves the Company intends to recognize as described in the section entitled
"Capitalization" in the Private Placement Memorandum.
Isabel Collier Read shall be a third party beneficiary of the Company's
obligations under clause (ii) of this Section 5.5.
Section 5.6 Director and Officer Indemnification. The Company agrees
that all rights to indemnification and all limitations of liability existing in
favor of any person who is now, or has been at any time prior to the date of
this Agreement, or who becomes prior to the Closing, a director, officer or
employee of the Company or any of its Subsidiaries (the "Indemnified Parties")
as provided in the Company's Certificate of Incorporation or By-laws or in the
similar governing documents of any of the Company's Subsidiaries as in effect as
of the date of this Agreement with respect to matters occurring at or prior to
the Closing shall survive the Closing and shall continue in full force and
effect, without any amendment thereto (other than as required in law), for a
period of six years; provided, however, that all rights to indemnification in
respect of any claim asserted or made within such period shall continue until
the final disposition of such claim; provided, further, however, that nothing
contained in this Section 5.6 shall be deemed to preclude the liquidation,
consolidation or merger of the Company or any of its Subsidiaries, in which case
all of such rights to indemnification and limitations on liability shall be
deemed to so survive and continue notwithstanding any such liquidation,
consolidation or merger.
Section 5.7 Substitute Collateral. Notwithstanding anything in this
Agreement to the contrary, with respect to any amount payable to the Selling
Shareholders that is deposited with the Escrow Agent under the terms of this
Agreement, the Company and the Selling Shareholders may jointly instruct the
Escrow Agent to immediately pay to the Selling Shareholders the amounts so
deposited, plus all earnings on such amounts through the date of such payment;
provided, that (i) prior to or contemporaneously with such demand, the Selling
Shareholders shall have provided to the Company a letter of credit or other
security reasonably satisfactory to the Company in the amount of such funds
covering the Selling Shareholders' payment obligations to the Company which are
secured by such escrowed funds and (ii) the payment of such funds to the Selling
Shareholders shall not relieve the Selling Shareholders of their obligations to
make payments to the Company in respect of such funds.
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Section 5.8 Press Releases. The Selling Shareholders, the Company and
the Placement Agent shall agree with each other as to the form and substance of
any press release related to this Agreement or the transactions contemplated
hereby, and consult with each other as to the form and substance of other public
disclosures which may relate to the transactions contemplated by this Agreement,
provided, however, that nothing contained herein shall prohibit any party,
following notification to such other parties, from making any disclosure which
it determines in good faith is required by law or regulation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Survival of Provisions. The representations, warranties and
covenants of the Selling Shareholders and the Company made herein and each of
the provisions of Articles V and VI shall remain operative and in full force and
effect regardless of (i) any investigation made by or on behalf of the Company
or the Selling Shareholders, as the case may be, or (ii) redemption by the
Company of the Shares and the retirement thereof; provided, however, that the
representations and warranties of the Selling Shareholders and the Company
hereunder shall terminate and have no further force and effect as of the close
of business on the date which is six months from the date of this Agreement.
Section 6.2 Termination. This Agreement may be terminated (as between
the party electing so to terminate it and the counterparty to which termination
is directed) by giving written notice of termination to the applicable
counterparty at any time prior to the Closing:
(a) By the Selling Shareholders if the Placement Agent shall have
failed to deliver to the Company by 5:00 p.m., Eastern Time, on
September 2, 1997, valid executed and delivered signature pages to the
Purchase Agreement reflecting binding and enforceable commitments
(subject to the terms of the Purchase Agreement) on the part of
Purchasers to purchase at least $70.0 million of Senior Notes and $190.0
million of Common Stock; provided, however, that no such commitment from
any single purchaser or group of purchasers acting in concert to
purchase Common Stock shall be for a number of shares of Common Stock
which exceeds 9.9% of the aggregate number of shares of Common Stock for
which such signature pages are delivered; or
(b) By the Selling Shareholders if the Closing shall not have
occurred by 5:00 p.m., Eastern Time, on September 8, 1997; or
(c) By the Company if the Placement Agent shall have failed to
deliver to the Company by 5:00 p.m., Eastern Time, on September 2, 1997,
validly executed and delivered signature pages to the Purchase Agreement
reflecting binding and enforceable commitments (subject to the terms of
the Purchase Agreement) on the part of Purchasers to purchase at least
$70.0 million of Senior Notes and $190.0 million of Common Stock;
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<PAGE>
provided, however, that no such commitment from any single purchaser or
group of purchasers acting in concert to purchase Common Stock shall be
for a number of shares of Common Stock which exceeds 9.9% of the
aggregate number of shares of Common Stock for which such signature
pages are delivered; or
(d) By the Company if the Closing shall not have occurred by 5:00
p.m., Eastern Time, on September 8, 1997.
Section 6.3 Waiver; Amendments. No failure or delay on the part of the
Selling Shareholders or the Company in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Selling Shareholders or the Company at law
or in equity. No waiver of or consent to any departure by the Selling
Shareholders or the Company from any provision of this Agreement shall be
effective unless signed in writing by the party entitled to the benefit thereof.
Except as otherwise provided herein, no amendment, modification or termination
of any provision of this Agreement shall be effective unless signed in writing
by or on behalf of the Selling Shareholders and the Company. Any amendment,
supplement or modification of or to any of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on any
party hereto in any case shall entitle another party hereto to any other or
further notice or demand in similar or other circumstances.
Section 6.4 Communications. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to the Selling Shareholders, initially c/o Bruce Sherman,
3003 Tamiani Trail North, Naples, Florida 34103, and thereafter at such
other address, notice of which is given in accordance with this Section
6.4, with copies to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York 10022, Attention: William Rubenstein; and
(ii) if to the Company, initially at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087, Attention: Chairman; and thereafter
at such other address notice of which is given in accordance with this
Section 6.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
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Section 6.5 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
Section 6.6 Binding Effect; Assignment. Prior to the Closing, the rights
and obligations of the Selling Shareholders under this Agreement may not be
assigned to any other Person except with the prior written consent of the
Company. The rights and obligations of the Company under this Agreement may not
be assigned by the Company without the consent of the Selling Shareholders.
Except as expressly provided in this Agreement, this Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement, and their respective successors and permitted
assigns. This Agreement shall be binding upon the Company and the Selling
Shareholders, and their respective successors and permitted assigns.
Section 6.7 Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State of Delaware, and for all purposes
shall be construed in accordance with the laws of said state, without regard to
principles of conflict of laws.
Section 6.8 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability only without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 6.9 Headings and Gender. The Article and Section headings and
Table of Contents used or contained in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement. Use of a
particular gender herein shall be considered to represent the masculine,
feminine or neuter gender whenever appropriate.
Section 6.10 Integration. This Agreement (including documents delivered
pursuant hereto) and the Escrow Agreement constitute the entire agreement among
the parties with respect to the subject matter hereof and thereof and there are
no promises, undertakings or other agreements with respect thereto not expressly
set forth or referred to herein or therein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
LOCAL FINANCIAL CORPORATION
By: /s/ Bruce A. Sherman
-----------------------------
Name: Bruce A. Sherman
Title: President
SELLING SHAREHOLDERS
BARRON COLLIER
/s/ Barron Collier
-------------------------------
Barron Collier
MILES COLLIER
/s/ Miles Collier
-------------------------------
Miles Collier
27
Exhibit 10.2
September 5, 1997
Local Financial Corporation
3601 NW 63rd Street
Oklahoma City, Oklahoma 73116-2087
Re: Amendment to Redemption Agreement
Gentlemen:
Pursuant to Section 6.3 of the Redemption Agreement between Barron
Collier and Miles Collier (the "Selling Shareholders") and Local Financial
Corporation (the "Company") (the "Redemption Agreement"), pursuant to Section
6.3 of the Redemption Agreement, the Selling Shareholders hereby agree to amend
Section 6.2 of the Redemption Agreement. Terms not defined herein shall have the
meaning set forth in the Redemption Agreement.
The Redemption Agreement is amended as follows:
1. Section 6.2(b) of the Redemption Agreement is hereby amended in its
entirety to read as follows:
(b) By the Selling Shareholders if the Closing shall not have occurred
by 5:00 p.m. Eastern Time, on September 11, 1997; or
2. Section 6.2(d) of the Redemption Agreement is hereby amended in its
entirety to read as follows:
(d) By the Company if the Closing shall not have occurred by 5:00 p.m.,
Eastern Time, on September 11, 1997.
<PAGE>
Local Financial Corporation
Page 2
If the foregoing is in accordance with your understanding of our
agreement to amend the Redemption Agreement, please sign and return a copy
hereof, whereupon this letter shall become a binding amendment to the Redemption
Agreement between the Company and the Selling Shareholders.
Very truly yours,
SELLING SHAREHOLDERS
BARRON COLLIER
/s/ Barron Collier
---------------------
Barron Collier
MILES COLLIER
/s/ Miles Collier
---------------------
Miles Collier
Accepted and Agreed to as of
the date first written above:
LOCAL FINANCIAL CORPORATION
/s/ Bruce A. Sherman
- ---------------------------
By: Bruce A. Sherman
President
Exhibit 10.3
SECURITY AGREEMENT
Security Agreement (the "Agreement"), dated as of September 8, 1997,
between Local Financial Corporation (the "Company"), a Delaware corporation ,
and The Bank of New York, a New York corporation, as Trustee under the Indenture
referred to herein (the "Trustee"). Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Indenture (as defined below).
WITNESSETH:
WHEREAS, the Company and the Trustee have entered into an Indenture,
dated as of September 8, 1997 (the "Indenture"), which provides for the issuance
by the Company of Senior Notes due 2004 (the "Notes"); and
WHEREAS, pursuant to Section 10.18 of the Indenture, the Company has
agreed to establish and maintain a segregated account (the "Interest Reserve
Account") to provide a source of funds to pay interest due for a specified
period of time on the Notes; and
WHEREAS, pursuant to Section 10.18 of the Indenture, the Company has
covenanted to create, maintain and perfect in favor of the holders of the Notes
(the "Secured Parties") a first priority security interest in the Interest
Reserve Account; and
WHEREAS, capitalized terms used herein that are defined in the
Indenture are used herein as so defined, unless otherwise defined herein;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Grant of Security Interest.
(a) In order to secure the Company's obligations to make timely
payments of interest and principal in accordance with the terms of the Notes,
the Company hereby grants to the Trustee, for the ratable benefit of the Secured
Parties, continuing security interests (the "Security Interests") in and to all
of the Company's right, title and interest in and to the following property,
whether now owned or existing or hereafter acquired or arising and regardless of
where located (collectively, the "Collateral"):
(i) custodian account number 217037 at the Trustee, pursuant
to the terms of Section 10.18 of the Indenture, including, without
limitation, any funds on deposit therein and the interest earned
thereon (subject to the provisions of Section 3 hereof) (the
"Account");
<PAGE>
(ii) any Permitted Investments (as defined in Section 1(b))
held by the Trustee and made with funds on deposit in the Account and
the interest earned thereon (subject to the provisions of Section 3
hereof);
(iii) all replacements of, accessions to, and substitutions
for, any of the foregoing Collateral;
(iv) all proceeds and products of any of the foregoing
Collateral; and
(v) all ledger sheets, files, records, documents and
instruments (including, without limitation, computer programs, tapes,
printouts, discs and other computer materials and related electronic
data processing software) maintained by the Company and/or the Trustee
on behalf of the Company and evidencing an interest in or otherwise
pertaining to any of the Collateral.
(b) For purposes of this Agreement, "Permitted Investments" shall mean
one or more of the following types of investments which are made by the Trustee
with funds on deposit in the Account in accordance with the terms of this
Agreement:
(i) interest-bearing deposit accounts of any "insured
depository institution," as defined in Section 3(c) of the Federal
Deposit Insurance Act, as amended;
(ii) direct obligations of, or obligations the principal and
interest on which are unconditionally guaranteed by, the United States
of America or any agency or instrumentality thereof;
(iii) obligations of any corporate issuer which are rated in
one of the two highest rating categories of any nationally recognized
statistical rating organization;
(iv) repurchase agreements with banks, brokers or dealers
involving any of the foregoing types of securities; or
(v) money market mutual funds;
provided that, notwithstanding anything to the contrary contained herein,
Permitted Investments shall not include any of the foregoing investments to the
extent that any such investment, in the good faith business judgment of the
Board of Directors of the Company, evidenced by a Board Resolution delivered to
the Trustee, involves at the time of acquisition or thereafter a reasonable
likelihood of a loss of principal. Permitted Investments may be made by the
Trustee only pursuant to a Company Order or such other arrangements as may be
agreed to by the Company and the Trustee to ensure the validity of any such
direction by the Company and that any such direction is authorized by the terms
of this Agreement, and the Trustee shall not make any investments of funds in
the Account except pursuant to such Company Orders or such other arrangements.
Any Permitted
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Investments shall be segregated and held by the Trustee for the benefit of the
Secured Parties in accordance with the terms of this Agreement.
(c) Each provision of this Agreement referencing or otherwise related
to the Account or the Permitted Investments (including, without limitation,
Sections 2(a) and 3 hereof) shall apply to and be binding upon the Company with
respect to any other deposit account or Permitted Investments which constitutes
all or part of the Collateral (including by way of replacement or substitution
therefor or successive replacements or substitutions thereof).
2. Perfection, Representations and Covenants.
(a) In order to perfect the Security Interests in the Collateral
created hereby, the Company agrees that no later than the time the Account is
established, it will notify the Trustee in writing of Secured Parties' Security
Interests in the Account and any Permitted Investments and obtain from the
Trustee written confirmation that the Trustee (i) has not actually received
notice of any other Lien or claim on the Collateral, (ii) does not itself have
any Lien or other claim on the Collateral except as permitted in the Indenture
and, (iii) holds the Collateral as trustee and agent for the benefit of the
Secured Parties in accordance with the terms of this Agreement.
(b) The Company hereby warrants and covenants that the chief executive
office and principal place of business of the Company is located at 3601 NW 63rd
Street, Oklahoma City, Oklahoma 73116-2087 and the Company's records concerning
the Collateral will at all times be kept at such address. The Company agrees
that it will not change such chief executive office or principal place of
business or remove records without at least 30 Business Days' prior written
notice to the Trustee.
(c) The Company hereby represents and warrants that the Company's
correct corporate name is Local Financial Corporation. The Company agrees that
it will not change its name, identity or structure in any manner or use any
fictitious name which might make any financing statement or continuation
statement or other instrument or document filed hereunder misleading in any
respect without the prior written consent of the Trustee.
(d) The Company agrees to keep and maintain, at its own expense,
complete and accurate records of the Collateral (including, without limitation,
records in accordance with the provisions of the Indenture) and mark such
records in such manner as the Trustee may reasonably request in order to reflect
the Security Interests.
3. Account Balances, Withdrawals.
(a) The balance of any funds or other assets from time to time in the
Account and the Permitted Investments (not including any amounts or assets in
excess of the aggregate amount of funds and Fair Market Value of Permitted
Investments then required to be
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maintained pursuant to the Indenture) shall constitute part of the Collateral
hereunder and shall not constitute payment of the Notes until applied as
hereinafter provided.
(b) The Company covenants not to (i) withdraw funds from the Account or
(ii) sell, transfer or otherwise dispose of any Permitted Investment (other than
to reinvest the proceeds therefrom in additional Permitted Investments or to
place such funds on deposit in the Account) except in each case to permit the
Paying Agent to make payments pro rata on all of the outstanding Notes,
provided, however, that if on any Interest Payment Date the amount of funds in
the Account and the Fair Market Value of Permitted Investments shall exceed the
amount required to be maintained therein pursuant to the Indenture, the Company
shall be entitled to withdraw all or any portion of such excess upon provision
of an Officers' Certificate to the Trustee evidencing such excess.
4. No Other Liens.
(a) The Company represents that the Security Interests in the
Collateral granted to secure the Notes pursuant to this Agreement when created
will be at all times a perfected and valid first-priority security interest in
and to the Collateral, with priority over the rights of every other Person in
the Collateral, and that the Collateral is free, clear and unencumbered by any
Liens in favor of any Person other than the Liens granted pursuant to this
Agreement to the Trustee for the benefit of the Secured Parties, and the Company
covenants to maintain the Collateral free, clear and unencumbered by any Liens
in favor of any Person other than Liens granted pursuant to this Agreement to
the Trustee for the benefit of the Secured Parties.
(b) The Company will not create, permit or suffer to exist any Liens
(other than the Security Interests) on the Collateral. The Company will forever
defend the right, title and interest of the Trustee in and to the Company's
rights to the Collateral against every Person whatsoever and take all such other
reasonable action as is necessary to remove any Lien (other than the Security
Interests) on the Collateral.
(c) The Company will advise the Trustee promptly, in reasonable detail,
of any Lien (other than the Security Interests) or claim made or asserted
against any of the Collateral or the occurrence of any other event which might
have a material adverse effect on the Collateral or the Security Interests.
(d) The Trustee shall not be required to take any steps necessary to
preserve any rights of any Person other than the Secured Parties to any of the
Collateral.
5. Further Assurances.
The Company shall at any time or times hereafter, at its expense and in
a timely manner, properly prepare, execute, deliver, file or record any
statement, assignment, conveyance, instrument, document, agreement or other
paper and take any other action
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(including any filings of financing and continuation statements under the
Uniform Commercial Code in effect in any applicable jurisdiction) that from time
to time may be necessary or desirable, or that the Trustee may reasonably
request, in form and substance satisfactory to the Trustee to create, preserve,
perfect, maintain, confirm or validate the Security Interests as perfected
first-priority security interests in the Collateral and in order to consummate
fully all of the transactions contemplated under this Agreement, or in order to
enable the Trustee and the Secured Parties to obtain the full benefits of this
Agreement and for the Trustee to exercise and enforce any of their rights,
powers and remedies hereunder with respect to any of the Collateral.
6. Remedies on Default.
(a) In the event of an Event of Default:
(1) the Trustee, on behalf of the Secured Parties, shall have
all of the rights and remedies of a secured party under the Uniform
Commercial Code of the State of New York and any other applicable
jurisdiction, including without limitation, the right, to the maximum
extent permitted by law, to exercise all voting, consensual and other
rights of ownership pertaining to the Collateral as if the Trustee was
the absolute and sole owner thereof, including, without limitation, the
withdrawal of funds from the Account to satisfy the Notes in accordance
with Section 6(b) hereof;
(2) the Company, at the request of the Trustee, shall assemble
the Collateral at such place or places, reasonably convenient to the
Trustee;
(3) the Trustee, in its discretion may, in the name of the
Company or otherwise, demand, sue for or collect or receive any money
or property at any time payable or receivable, on account of or in
exchange for any of the Collateral; and
(4) the Trustee may take any of the other actions described in
Section 7(b) hereof.
(b) Prior to exercising any rights over the Collateral, the Trustee
shall give three Business Days' prior written notice to the Company. Promptly
following receipt of such notice from the Trustee, and subject to any notice to
the Company which may be required by applicable law, the Trustee shall sell,
redeem or otherwise convert any Permitted Investments to cash and place such
cash on deposit in the Account. The Company hereby agrees to cooperate with the
Trustee and to take any action which may be necessary or desirable to effect any
such sale, redemption or other conversion. After the Permitted Investments have
been converted to cash, the Trustee shall have the right to withdraw funds from
the Account to permit the Paying Agent to make payments on the Notes in
accordance with their terms and to the extent of amounts then owed to the
Secured Parties.
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(c) The Company agrees to take all such action as may be appropriate to
give effect to the rights of the Trustee and the Secured Parties set forth in
this Section 6 and in Section 7 hereof.
7. Additional Remedies.
(a) No right, power or remedy set forth herein is exclusive of any
other available rights, powers, or remedies, but each is cumulative and in
addition to every other right, power or remedy given under this Agreement or
under any other agreement between or on behalf of the Secured Parties and the
Company whether now or hereafter existing at law or in equity or by statute. The
Trustee may pursue the rights, powers and remedies set forth herein concurrently
or in any sequence, and no exercise of one right or remedy shall be deemed to be
an election to exclude the exercise of any other right or remedy. No notice to
or demand on the Company hereunder shall, of itself, entitle the Company to any
other or further notice or demand in the same or similar circumstances.
(b) If an Event of Default shall have occurred and be continuing, the
Trustee may take action in accordance with this Agreement. The Trustee may
retain or sell, assign, transfer and deliver the whole or, from time to time,
any part of the Collateral at public or private sale, for cash, upon credit or
for other property, for immediate or future delivery, and for such price or
prices and on such other terms as are satisfactory to the Trustee in its
discretion. Upon consummation of any such sale, the Trustee shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any such sale shall purchase and
thereafter hold the property sold absolutely free from any claim or right on the
part of the Company, and the Company hereby waives (to the full extent permitted
by law) all rights or equity of redemption, or any rights of stay or appraisal
which the Company now has or may at any time in the future have or claim under
any rule of law or statute now existing or hereafter enacted. The Trustee shall
give the Company five Business Days' written notice (which the Company agrees
shall be deemed to be reasonable notification within the meaning of Section
9-504(3) of the Uniform Commercial Code of the State of New York) of the
Trustee's intention to make any such public or private sale. Any such sale shall
be held at such time or times and at such place or places as the Trustee may
fix. At any such sale, the Collateral, or portion thereof to be sold, may be
sold as an entirety or in separate portions, as the Trustee may, in its
discretion, determine. The Trustee shall not be obligated to make any sale of
the Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of the Collateral may have been given. The Trustee may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case sale of all or any part of the
Collateral is made on credit or for future delivery, Collateral so sold may be
retained by the Trustee until the sale price is paid by the purchaser or
purchasers thereof, but the Trustee shall not incur any liability in case any
such purchaser or purchasers shall fail to take up and pay for the Collateral so
sold and, in case of any such failure, the Collateral may be sold again upon
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like notice. As an alternative to exercising the power of sale herein conferred
upon it, the Trustee may proceed by suit or suits at law or in equity to
foreclose this Agreement and sell the Collateral or any portion thereof pursuant
to judgment or decree of a court or courts having competent jurisdiction.
(c) Regardless of whether or not there shall have occurred or be
continuing any Event of Default, the Trustee may institute and maintain or cause
in the name of the Company, the Trustee or of the Secured Parties, or any
combination thereof, to be instituted and maintained, such suits and proceedings
as it in its discretion may deem to be reasonably necessary or expedient to
prevent any impairment of the Collateral.
8. Trustee Appointed Attorney-in-Fact.
The Company hereby constitutes and appoints the Trustee as its
attorney-in-fact for the purpose of carrying out the provisions, but subject to
the terms and conditions, of this Agreement and taking any action and executing
any instrument that the Trustee may deem necessary or advisable to accomplish
the purposes hereof, which appointments are irrevocable and coupled with
interests. Without limiting the generality of the foregoing, but subject to the
terms and conditions of this Agreement, upon an Event of Default, subject to
Section 6 hereof, the Trustee shall have the right, with full power of
substitution, either in the Trustee's name or in the name of the Company, to ask
for, demand, sue for, collect, receive and give acquittance for any and all
monies due or to become due under or by virtue of the Collateral, to endorse
checks, drafts, orders and other instruments for the payment of money payable to
the Company, representing any distribution payable in respect of the Collateral
or any part thereof or on account thereof and to give full discharge for the
same, to settle, compromise, prosecute or defend any action, claim or proceeding
with respect thereto, and to sell, assign, pledge, transfer and make any
agreement respecting, or otherwise deal with, the same; provided, however, that
no action taken or omitted to be taken by the Trustee with respect to the
Collateral or any part thereof shall give rise to any defense, counterclaim or
right of offset in favor of the Company or to any claim or right of action
against the Trustee, except to the extent that the Trustee's actions are taken
or omitted to be taken with negligence or bad faith or constitute willful
misconduct.
9. Purchase of the Collateral by the Trustee.
At any sale of the Collateral, whether pursuant to power of sale or
otherwise hereunder, the Trustee may, to the extent permitted by applicable law,
bid for and purchase, free from any right or equity of redemption, or any right
of stay or appraisal (all such rights or equities being hereby waived and
released by the Company to the extent permitted by law), the Collateral or any
part thereof or any interest therein, and upon compliance with the terms of such
sale may hold, retain, exploit, resell or otherwise dispose of such property
without further accountability to the Company for the proceeds of such sale. The
Company will execute and deliver, or cause to be executed and delivered, such
instruments,
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endorsements, assignments, waivers, certificates and other documents and take
such further action as the Trustee shall request in connection with any such
sale.
10. Provisions with respect to the Trustee.
The provisions of Article Six of the Indenture shall be applicable to
the rights and obligations of the Trustee under this Agreement as fully as if
the provisions of this Agreement were set forth in the Indenture.
11. Waiver of Claims.
Except as otherwise provided in this Agreement, THE COMPANY HEREBY
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN
CONNECTION WITH THE TRUSTEE'S TAKING POSSESSION OR DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
COMPANY WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED
STATES OR ANY STATE, and, to the full extent permitted by applicable law, the
Company hereby further waives:
(a) all damages occasioned by such taking of possession except
any damages which are the direct result of the Trustee's negligence, bad
faith or willful misconduct;
(b) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement by the
Trustee of the Secured Parties' rights and powers hereunder; and
(c) all right or equity of redemption and all rights of
appraisement, valuation, stay, marshalling of assets, extension or
moratorium, existing at law or in equity, by statute or otherwise, now
or hereafter in force, in order to prevent or delay the enforcement of
this Agreement or the sale or other disposition of the Collateral or
any portion thereof, and the Company, for itself and all who may claim
under it, insofar as it now or hereafter lawfully may, hereby waives
all such rights or equities.
Any sale of, or the exercise of any options to purchase, or any other
realization upon, the Collateral shall operate to divest all right, title,
interest, claim and demand, at law or in equity, of the Company therein and
thereto, and shall be a perpetual bar both at law and in equity against the
Company and against any and all persons claiming or attempting to claim funds in
the Collateral so sold, optioned or realized upon, or any part thereof, through
and under the Company.
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12. Assignment; Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
respective legal representatives, successors and assigns of the parties hereto;
however, the Company may not assign any of its rights or delegate any of its
obligations hereunder.
13. No Waiver; Modification in Writing.
No failure or delay on the part of the Trustee in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
No provision of this Agreement may be amended, modified, supplemented, waived or
terminated without the prior written consent of the Trustee.
14. Communications.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telecopier, or air courier guaranteeing overnight delivery:
(a) if to the Company, initially at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087, and thereafter at such other
address, notice of which is given in accordance with the provisions of
this Section 14; and
(b) if to the Trustee, initially at 101 Barclay Street, Floor
21 West, New York, New York 10286, Attention: Corporate Trust
Administration, and thereafter at such other address notice of which is
given in accordance with the provisions of this Section 14.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when receipt is acknowledged, if telecopied; and on the next Business Day if
timely delivered to an air courier guaranteeing overnight delivery.
15. Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Agreement.
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16. Governing Law.
This Agreement shall be construed in accordance with and governed by
the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that application of the law of
another jurisdiction would be required thereby.
17. Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
18. Headings.
The headings used or contained in this Agreement are for convenience of
reference only and shall not modify, restrict or otherwise affect the
construction of any of the terms and provisions hereof.
19. Entire Agreement.
This Agreement, together with the Indenture, constitute the entire
agreement between the parties relative to the subject matter thereof. Any
previous agreement, written or oral, among the parties, relative to the subject
matter hereof is superseded by this Agreement.
20. Company's Obligations Absolute.
The liability of the Company under this Agreement shall remain in full
force and effect without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by (i) any change in the time,
place or manner of payment of all or any of the payment obligations or in any
other term of the Notes, any waiver, indulgence, renewal, extension, amendment
or modification of or addition, consent or supplement to or deletion from or any
other action or inaction under or in respect of the Notes or any assignment or
transfer thereof; (ii) any lack of validity or enforceability, in whole or in
part, of the Notes; (iii) any furnishing of any additional security for the
Notes or any acceptance thereof or any release or non-perfection of any security
interests in property of a Person other than the Company; (iv) any limitation on
any party's liability or obligations under the Notes; (v) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Company, or any action taken with respect
to this Agreement by any trustee or receiver, or by any court, in any such
proceeding, whether or not the Company shall have notice or knowledge of any of
the foregoing; or (vi) any other circumstance that might otherwise constitute a
defense available
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to, or a discharge of, the Company. This Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
the Notes is rescinded or must otherwise be returned upon the insolvency,
bankruptcy or reorganization of the Company, all as though such payment had not
been made.
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
LOCAL FINANCIAL CORPORATION
/s/ Edward A. Townsend
By: --------------------------------------------
Name: Edward A. Townsend
Title: Chairman and Chief Executive Officer
THE BANK OF NEW YORK, as Trustee
/s/ Mary Jane Morrissey
By: --------------------------------------------
Name: Mary Jane Morrisey
Title: Vice President
11
Exhibit 10.4
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of September 8, 1997 (this "Agreement"),
among Local Financial Corporation (the "Company"), a Delaware corporation,
Barron Collier and Miles Collier (collectively, the "Selling Shareholders") and
The Bank of New York (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Company and the Selling Shareholders have entered into a
Redemption Agreement, dated as of August 25, 1997 (the "Redemption Agreement"),
which provides for the redemption of all of the capital stock of the Selling
Shareholders by the Company at a purchase price which is subject to certain
adjustments that are specified in the Redemption Agreement. Capitalized terms
which are not otherwise defined herein shall have the meanings set forth in the
Redemption Agreement; and
WHEREAS, the Escrow Agent is willing to serve as the escrow agent for
the Company and the Selling Shareholders in connection with the matters
specified in the Redemption Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Appointment of Escrow Agent; Establishment of Escrow Accounts;
Deposit of Funds. The Escrow Agent is hereby appointed as Escrow Agent
for the Company and the Selling Shareholders in connection with the
matters specified in Sections 5.1 and 5.2 of the Redemption Agreement
and in accordance with the terms and conditions set forth herein. The
parties hereto hereby establish two (2) escrow accounts bearing interest
from investments with the Escrow Agent, which escrow accounts are
entitled the "Local Financial FDIC Assistance Agreement Escrow Account"
and the "Local Financial Closing Adjustment Escrow Account" (each, an
"Escrow Account" and, collectively, the "Escrow Accounts"). The Escrow
Agent accepts such appointment as Escrow Agent for the Company and the
Selling Shareholders.
At the Closing, in accordance with Sections 5.1 and 5.2 of the
Redemption Agreement, the Company shall deposit, by wire transfer of
immediately available funds to the Escrow Agent, $10.0 million dollars
into the Local Financial FDIC Assistance Agreement Escrow Account and
$5.0 million in the Local Financial Closing Adjustment Escrow Account.
2. Escrow Period. The Escrow Period (the "Escrow Period") shall
begin with the date of the Closing. Subject to Section 3 hereof, with
respect to each Escrow Account, the Escrow Period shall end on the date
upon which all of the funds held in such account shall have been paid as
provided herein and in the Redemption Agreement.
<PAGE>
The Company and the Selling Shareholders are each aware and
hereby expressly acknowledge that, during the Escrow Period, neither of
them are entitled to any funds held in any of the Escrow Accounts and
that no amounts deposited in any of the Escrow Accounts shall become the
property of or be subject to the debts of the Company, the Selling
Shareholders or any other entity.
3. Release of Escrow Funds.
(a) The Escrow Agent will hold the funds in the Escrow
Accounts in its possession under the provisions of this Agreement
until authorized in writing hereunder to deliver such funds or
any specified portion thereof as follows:
(i) If the Final FDIC Net Resolution Amount
results in a payment being made by the Company to the
FDIC and the amount of such payment exceeds the FDIC
Reserve Amount, the Company shall deliver to the Escrow
Agent a notice that certain of the funds held in the
Local Financial FDIC Assistance Agreement Escrow Account
are to be paid to it (a "Notice of Claim") pursuant to
Section 5.1(b) of the Redemption Agreement, which Notice
of Claim shall set forth the amount of such funds the
Company is requesting be paid to it, and the Company
shall simultaneously deliver a copy of such Notice of
Claim to the Selling Shareholders. The Escrow Agent shall
promptly notify the Selling Shareholders of its receipt
of such Notice of Claim.
(ii) If the Final FDIC Net Resolution Amount
results in either (x) a payment being made by the Company
to the FDIC and the amount of such payment is less than
the FDIC Reserve Amount or (y) a payment being made by
the FDIC to the Company, the Selling Shareholders shall
deliver a Notice of Claim to the Escrow Agent requesting
the payment to the Selling Shareholders of all of the
funds in the Local Financial FDIC Assistance Agreement
Escrow Account pursuant to Section 5.1(c) of the
Redemption Agreement, and the Selling Shareholders shall
simultaneously deliver a copy of such Notice of Claim to
the Company. The Escrow Agent shall promptly notify the
Company of its receipt of such Notice of Claim.
(iii) If the Adjusted Closing Equity is less than
$144,477,000, the Company shall deliver a Notice of Claim
to the Escrow Agent pursuant to Section 5.2(d)(i) of the
Redemption Agreement, which Notice of Claim shall set
forth the amount of the funds held in the Local Financial
Closing Adjustment Escrow Account that the Company is
requesting be paid to it, and the Company shall
simultaneously deliver a copy of such Notice of Claim to
the Selling Shareholders. The Escrow Agent shall promptly
notify the Selling Shareholders of its receipt of such
Notice of Claim.
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(iv) If the Adjusted Closing Equity is greater
than or equal to $144,477,000, the Selling Shareholders
shall deliver a Notice of Claim to the Escrow Agent
requesting the payment to the Selling Shareholders of all
of the funds in the Local Financial Closing Adjustment
Escrow Account pursuant to Section 5.2(d)(ii) or (iii) of
the Redemption Agreement, and the Selling Shareholders
shall simultaneously deliver a copy of such Notice of
Claim to the Company. The Escrow Agent shall promptly
notify the Company of its receipt of such Notice of
Claim.
(v) As used herein, the term "Asserting Party"
shall refer to the party (or, in the case of the Selling
Shareholders, parties) which has delivered to the Escrow
Agent a Notice of Claim and the term "Non-Asserting
Party" shall refer to the other party (or in the case of
the Selling Shareholders, parties) hereto. Unless the
Escrow Agent receives notice from the Non-Asserting Party
pursuant to Section 3(b) hereof within the fifteen-day
period following the delivery (which shall be deemed to
be the date on which the Escrow Agent receives the
relevant Notice of Claim) by the Asserting Party to the
Non- Asserting Party of a copy of any Notice of Claim
(the "Fifteen-Day Notice Period"), the Escrow Agent will
release and deliver, and free and discharge from this
Escrow Agreement, funds from the relevant Escrow Account
as follows: (w) if the Notice of Claim is delivered
pursuant to Section 3(a)(i) hereof, the Escrow Agent
shall release and deliver the requested amount of funds
from the Local Financial FDIC Assistance Agreement Escrow
Account to the Company and the Escrow Agent shall release
and deliver the balance of the funds in such Escrow
Account, if any, in equal amounts to each of the Selling
Shareholders; (x) if the Notice of Claim is delivered
pursuant to Section 3(a)(ii) hereof, the Escrow Agent
shall release and deliver all of the funds in the Local
Financial FDIC Assistance Agreement Escrow Account in
equal amounts to each of the Selling Shareholders; (y) if
the Notice of Claim is delivered pursuant to Section
3(a)(iii) hereof, the Escrow Agent shall release and
deliver the requested amount of funds from the Local
Financial Closing Adjustment Escrow Account to the
Company and the Escrow Agent shall release and deliver
the balance of the funds in such Escrow Account, if any,
in equal amounts to each of the Selling Shareholders; and
(z) if the Notice of Claim is delivered pursuant to
Section 3(a)(iv) hereof, the Escrow Agent shall release
and deliver all of the funds in the Local Financial
Closing Adjustment Escrow Account in equal amounts to
each of the Selling Shareholders. If the Escrow Agent
receives a Notice of Dispute (as defined herein) within
the Fifteen-Day Notice Period from the Non-Asserting
Party, then the funds held in the relevant Escrow Account
shall not be released and delivered pursuant to the
preceding sentence.
(b) Each party shall have the right to dispute an
asserted claim to the funds in either Escrow Account by the other
party by delivering, to the Escrow Agent
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(with a copy to the other party), within the Fifteen-Day Notice
Period, a written notice (a "Notice of Dispute") which disputes
the matters set forth in the applicable Notice of Claim.
(c) In connection with the delivery of written notices to
the Escrow Agent pursuant to this Escrow Agreement, other than
investment instructions under Section 5 hereof, the parties
hereto agree as follows:
(i) Each written notice shall be signed by an
officer or an authorized representative of the party
giving such notice (which, in the case of the Selling
Shareholders, may be the Shareholder Representative) and
shall accurately set forth in each case:
(x) the party to whom, or the account to
which, the Escrow Agent is thereby directed to
pay such amount; and
(y) the date upon which the Escrow Agent is
directed to pay such amount (which date, with
respect to a Notice of Claim, shall not be before
the expiration of the Fifteen-Day Notice Period);
and such officer or representative shall certify
as to the compliance of such notice and the
contents thereof with the Redemption Agreement and
this Escrow Agreement.
The Escrow Agent may rely fully on the
provisions set forth in said written notices of the
Company and/or the Selling Shareholders without
responsibility to determine whether such notice complies
with the provisions of this Section 3, this Section 3(c)
being solely for the purpose of setting forth the
obligations and agreements of the parties hereto.
(ii) The Company and the Selling Shareholders
shall act in a timely basis to effectuate the payment of
the funds held in the Escrow Accounts in accordance with,
and subject to all of the provisions and conditions of,
this Escrow Agreement and the Redemption Agreement.
4. Notification of Status of Escrow Accounts. The Escrow Agent
shall provide the Company and the Selling Shareholders with a statement
as of the end of each month during which this Agreement is in force,
setting forth the aggregate amount of funds in each of such Escrow
Accounts.
5. Investment of Escrow Accounts. The Escrow Agent shall invest
the funds in each of the Escrow Accounts, as directed in writing by the
Company and the Selling Shareholders, in short-term certificates of
deposit, short-term obligations of the United States, any state or
agency thereof, or money market mutual funds investing in the foregoing
instruments.
4
<PAGE>
6. Rights, Liabilities and Indemnification of the Escrow Agent.
Acceptance by the Escrow Agent of its duties under this Agreement is
subject to the following terms and conditions, which the Company, the
Selling Shareholders and the Escrow Agent hereby agree shall govern and
control the rights, duties and immunities of the Escrow Agent and which
shall survive termination of this Escrow Agreement and/or the
resignation or removal of the Escrow Agent:
(a) The duties and obligations of the Escrow Agent shall
be determined solely by the express provisions of this Agreement
and the Escrow Agent shall be responsible solely for the
performance of such duties and obligations as are specifically
set out in this Agreement and no duties, responsibilities or
obligations shall be inferred or implied.
(b) The Escrow Agent shall not be responsible in any
manner whatsoever for any failure or inability of the Company,
the Selling Shareholders or of any one else, to deliver monies to
the Escrow Agent or otherwise to follow any of the provisions of
this Agreement.
(c) The Company and the Selling Shareholders will jointly
and severally indemnify the Escrow Agent for, and hold it
harmless against, any loss, liability or expense (including
attorney's fees and expenses and other costs of defense) which
may be incurred, or that arises out of or in connection with, its
performance of its duties and obligations under this Agreement;
provided, however, that such indemnification shall not be
available for any loss, liability or expense which arises out of
or results from any action taken or omitted by the Escrow Agent
and for which it shall have been adjudged negligent or having
acted in bad faith or through willful misconduct.
(d) The Escrow Agent shall have no responsibility to
inquire into or determine the genuineness, authenticity or
sufficiency of any securities, checks or other documents or
instruments submitted to it in connection with its duties
hereunder. The Escrow Agent shall be entitled to deem the
signatories of any documents or instruments submitted to it
hereunder and believed by it to be genuine and to have been
signed by the proper person as being those purported to be
authorized to sign such documents and instruments on behalf of
the parties hereto and shall be entitled to rely upon the
genuineness of the signatures of such signatories without inquiry
and without requiring substantiating evidence of any kind.
(e) The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in
connection with the transactions contemplated by this Agreement,
except for where the Escrow Agent has been adjudged as having
been negligent, having engaged in willful misconduct or having
acted in bad faith. In no event shall Escrow Agent be liable (i)
for acting in accordance with or relying upon any instruction,
notice, demand, certificate or
5
<PAGE>
document from the Company or the Selling Shareholders or any
entity acting on behalf of the Company or the Selling
Shareholders, (ii) for any consequential, punitive or special
damages, (iii) for the acts or omissions of its nominees,
correspondents, designees, subagents or subcustodians, or (iv)
for an amount in excess of the value of the Escrow Accounts.
(f) The Escrow Agent may seek the advice of legal counsel
in the event of any dispute or question as to the construction of
any of the provisions of this Agreement or its duties hereunder,
and it shall incur no liability and shall be fully protected in
respect of any action taken, omitted or suffered by it in good
faith in accordance with the advice of such counsel.
(g) If at any time Escrow Agent is served with any
judicial or administrative order, judgment, decree, writ or other
form of judicial or administrative process (an "Order") which in
any way affects the Escrow Accounts (including but not limited to
orders of attachment or garnishment or other forms of levies or
injunctions or stays relating to the transfer of funds or assets
in the Escrow Accounts), Escrow Agent shall promptly give notice
of such Order to each of the other parties hereto so that any
such party or such parties may seek appropriate relief from such
Order. Escrow Agent is authorized to comply therewith in any
manner as it or its legal counsel of its own choosing deems
appropriate; provided, however, that if any party notifies Escrow
Agent that such party intends to seek relief from such Order,
then Escrow Agent shall not comply with such Order if such party
reasonably demonstrates to the satisfaction of Escrow Agent and
its counsel that delaying compliance with such Order pending
resolution of such party's request for relief will not subject
Escrow Agent to censure or other penalty. If Escrow Agent
complies with any final, non-appealable Order, any Order as to
which no party is seeking relief or with any Order as to which
the party seeking relief shall not have reasonably demonstrated
to the satisfaction of the Escrow Agent and its counsel that
delaying compliance with such Order pending resolution of such
party's request for relief will not subject Escrow Agent to
censure or other penalty, Escrow Agent shall not be liable to any
of the parties hereto or to any other person or entity even
though such Order may be subsequently modified or vacated or
otherwise determined to have been without legal force or effect.
(h) Unless otherwise specifically set forth herein,
Escrow Agent shall proceed as soon as practicable to collect any
checks or other collection items at any time deposited hereunder.
All such collections shall be subject to Escrow Agent's usual
collection practices or terms regarding items received by Escrow
Agent for deposit or collection. Escrow Agent shall not be
required, or have any duty, to notify anyone of any payment or
maturity under the terms of any instrument deposited hereunder,
nor to take any legal action to enforce payment of any check,
note or security deposited hereunder or to exercise any right or
privilege which may be afforded to the holder of any such
security.
6
<PAGE>
7. Fees of Escrow Agent. The Company and the Selling Shareholders
hereby agree that the Escrow Agent shall be entitled to a fee as
described in the attached Schedule A plus all documented out-of-pocket
expenses incurred by the Escrow Agent (the "Escrow Fee") for performance
of the services enumerated herein. The Escrow Fee and the Escrow Agent's
expenses shall be split equally by the Company and the Selling
Shareholders. The performance by the Escrow Agent of its obligations
under this Agreement (other than the taking of any action which, under
the express terms of this Agreement, are discretionary) shall be
independent of the requirement that the Escrow Agent's fees and expenses
be paid, and the Escrow Agent shall not be entitled to delay or withhold
performance of such obligations under this Agreement by reason of
nonpayment of such fees and expenses; provided, that if any fees,
expenses or costs incurred by, or any obligations owed to, Escrow Agent
hereunder are not promptly paid when due, Escrow Agent may reimburse
itself therefor from the Escrow Accounts and may sell, convey or
otherwise dispose of any funds or assets in the Escrow Accounts for such
purpose.
8. Security for Obligations. As security for the due and punctual
performance of any and all of the Company's or the Selling Shareholders'
obligations to Escrow Agent hereunder, now or hereafter arising, the
Company and the Selling Shareholders', individually and collectively,
hereby pledge, assign and grant to Escrow Agent a continuing security
interest in, and a lien on, the Escrow Accounts and all distributions
thereon or additions thereto (whether such additions are the result of
deposits by the Company or the Selling Shareholders or the investment of
funds on deposit in the Escrow Account). The security interest of Escrow
Agent shall at all times be valid, perfected and enforceable by Escrow
Agent against the Company and the Selling Shareholders and all third
parties in accordance with the terms of the Escrow Agreement. The
Company, on the one hand, and the Selling Shareholders, on the other
hand, shall promptly reimburse the other for any fees, expenses or other
payments (including without limitation indemnification payments) paid
directly or indirectly to the Escrow Agent by the other party on behalf
of the reimbursing party.
9. Resignation or Removal of Escrow Agent. The Escrow Agent may
resign as such following the giving of thirty days' prior written notice
to the Company and the Selling Shareholders. Similarly, the Escrow Agent
may be removed and replaced following the giving of thirty days' prior
written notice to the Escrow Agent by the Company and the Selling
Shareholders. In either event, the duties of the Escrow Agent shall
terminate thirty days after the date of such notice (or as of such
earlier date as may be mutually agreeable); and the Escrow Agent shall
then deliver the balance of each of the Escrow Accounts then in its
possession to a successor Escrow Agent as shall be appointed by the
Company and the Selling Shareholders within ten (10) calendar days after
giving the foregoing notice of removal or receiving the foregoing notice
of resignation, as evidenced by written notice to the Escrow Agent from
the Company and the Selling Shareholders.
If the Company and the Selling Shareholders shall have failed to
appoint a successor Escrow Agent prior to the expiration of the thirty
days following the date of the notice of
7
<PAGE>
resignation or removal, the then acting Escrow Agent may petition any
court of competent jurisdiction for the appointment of a successor
Escrow Agent or for other appropriate relief; and any such resulting
appointment shall be binding upon the parties hereto. The costs and
expenses (including reasonable attorney's fees and expenses) incurred by
Escrow Agent in connection with such proceeding shall be paid by, and be
deemed a joint and several obligation of, the Company and the Selling
Shareholders.
Upon acknowledgment by any successor Escrow Agent of the receipt
of the then remaining balance of each of the Escrow Accounts (less the
Escrow Agent's costs and expenses or other obligations owed to the
Escrow Agent), the then acting Escrow Agent shall be fully released and
relieved of all duties, responsibilities and obligations under this
Agreement, except for any liability, claim or cause of action arising
out of conduct or failure to act of the Escrow Agent constituting gross
negligence, bad faith, fraud, or willful misconduct.
10. Ambiguities and Disputes. (a) In the event of any ambiguity
or uncertainty hereunder or in any notice, instruction or other
communication received by Escrow Agent hereunder, Escrow Agent may, in
its sole discretion, refrain from taking any action other than retaining
possession of the funds in the Escrow Accounts, unless Escrow Agent
receives written instructions, signed by all the Company and the Selling
Shareholders, which eliminates such ambiguity or uncertainty.
(b) In the event of any dispute between or conflicting claims by
or among the Company and the Selling Shareholders and/or any other
person or entity with respect to any Escrow Account, Escrow Agent shall
be entitled, in its sole discretion, to refuse to comply with any and
all claims, demands or instructions with respect to such Escrow Account
so long as such dispute or conflict shall continue, and Escrow Agent
shall not be or become liable in any way to the Company or the Selling
Shareholders for failure or refusal to comply with such conflicting
claims, demands or instructions. Escrow Agent shall be entitled to
refuse to act until, in its sole discretion, either (i) such conflicting
or adverse claims or demands shall have been determined by a final
order, judgment or decree of a court of competent jurisdiction, which
order, judgment or decree is not subject to appeal, or settled by
agreement between the conflicting parties as evidenced in a writing
satisfactory to Escrow Agent or (ii) Escrow Agent shall have received
security or an indemnity satisfactory to it sufficient to hold it
harmless from and against any and all losses which it may incur by
reason of so acting. Escrow Agent may, in addition, elect, in its sole
discretion, to commence an interpleader action or seek other judicial
relief or orders as it may deem, in its sole discretion, necessary. The
costs and expenses (including reasonable attorneys' fees and expenses)
incurred in connection with such proceeding shall be paid by, and shall
be deemed a joint and several obligation of, the Company and the Selling
Shareholders.
11. Notices. Any request, direction, notice or other services
required or permitted to be made or given by any party hereto shall be
in writing and shall be deemed
8
<PAGE>
sufficiently given or served for all purposes if given or served in
person or by first class mail or telephone facsimile transmission to the
other address as specified, from time to time, by written notice given
to the other party hereto:
(a) In the case of the Company:
Chairman of the Board
Local Financial Corporation
3601 NW 63rd Street
Oklahoma City, Oklahoma 73116-2087
(b) In the case of the Selling Shareholders:
c/o Bruce Sherman
3003 Tamiani Trail North
Naples, Florida 34103
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: William S. Rubenstein
(c) In the case of Escrow Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attn: Corporate Trust Administration
12. Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall constitute an original, but all
of which shall constitute one agreement.
13. Governing Law. This Agreement shall be construed under and
governed by the laws of the State of New York.
14. Captions. Captions appearing in this Agreement are for
convenience only and shall not be deemed to explain, limit or amplify
the provisions hereof.
9
<PAGE>
15. Amendments. This Agreement may not be amended except by a
writing signed by each of the parties hereto, or any of their
successors.
16. Duties. The relationship between the Company and the Selling
Shareholders on the one hand and the Escrow Agent on the other hand is
one of a principal and an agent having limited authority. The duties and
obligations of the Escrow Agent shall be determined solely by the
express provisions of this Agreement.
17. Entire Agreement. This Agreement shall constitute the entire
agreement of the parties with respect to the subject matter and
supersedes all prior oral or written agreements in regard thereto.
Notwithstanding the foregoing, this Agreement does not supersede or
modify in any respect the Redemption Agreement, which, as between the
Company and the Selling Shareholders, shall remain in full force and
effect.
18. Termination. This Agreement shall terminate upon the
distribution of all property from the Escrow Accounts.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date first above written by their respective duly authorized officers.
LOCAL FINANCIAL CORPORATION
By: /s/ Alan L. Pollock
---------------------------
Alan L. Pollock
Secretary
THE SELLING SHAREHOLDERS:
BARRON COLLIER
By: /s/ Thomas J. Flood
---------------------------
Thomas J. Flood
Shareholder Representative
MILES COLLIER
By: /s/ Thomas J. Flood
-----------------------------
Thomas J. Flood
Shareholder Representative
THE BANK OF NEW YORK, as Escrow Agent
By: /s/ Mary Jane Morrissey
------------------------------
Title: Vice President
11
Exhibit 10.5
COMMON INTEREST AGREEMENT
The purpose of this Agreement is to set forth the terms pursuant to
which documents and information relating to the action captioned Local America
Bank of Tulsa, F.S.B., Local America, Inc. and Local Federal Bank, F.S.B. v. The
United States, United States Court of Federal Claims, Civil Action No. 96-584C,
the agreements that are the subject thereof, and any future action or proceeding
that may arise in connection therewith (the "Action") may be exchanged in
confidence between and among counsel for plaintiffs Local America Bank of Tulsa,
F.S.B., Local America, Inc. and Local Federal Bank, F.S.B. (collectively, and
together with their respective successors and assigns, the "Company Parties")
and counsel for Barron Collier and Miles Collier (together, the "Colliers"),
pursuant to a "common interest" privilege, as set forth in U.S. v. Schwimmer,
892F.2d 237, 243 (2nd Cir. 1989).
WHEREFORE, IT IS HEREBY AGREED, by and between the Company Parties and
the Colliers, as follows:
1. With respect to any issues arising in the course of the
prosecution of any claims asserted against the defendants in the Action,
or the defense of any counterclaims that may be asserted against the
Company Parties therein, or any matters relating thereto or arising
therefrom, the Company Parties and the Colliers agree that they share a
common interest as against the defendants in the Action and third
parties.
2. The attorney-client privilege and the work product doctrine
shall apply to all privileged information and work product exchanged
between and among counsel for the Company Parties and the Colliers, and
their respective clients, relating to any and all of the acts, facts,
transactions and occurrences that are the subject of the Action, the
issues raised therein, or any matters relating thereto or arising
therefrom.
<PAGE>
3. Any voluntary exchange of information and documents between
and among counsel for the Company Parties and the Colliers, and their
respective clients, relating to the matters described in paragraph 2,
above, shall not constitute a waiver of any applicable privilege or work
product claims that may be asserted as to the information and documents
exchanged.
4. Information and documents subject to this Agreement include
all otherwise privileged or protected documents, correspondence,
memoranda, drafts, notes, witness interview materials (including
transcripts), discussions regarding the foregoing documents, and all
forms of otherwise privileged or protected information relating to
privileged communications, facts developed by a joint investigative
effort, and the mental impressions and legal theories developed by
counsel for the Company Parties and the Colliers.
5. Further, the Company Parties and the Colliers, and their
respective counsel, are operating with the understanding that the common
interest privilege may be asserted in opposition to disclosure of any
privileged or protected communication, information, or documents to
persons or entities not parties to this Agreement, by any party to this
Agreement from whom disclosure of such communication, information, or
documents is sought.
<PAGE>
6. This Agreement is written documentation of prior oral
agreements existing among the Company Parties and the Colliers, and
shall be retroactive to the commencement of the Action.
7. This Agreement may be executed in counterparts, all of which
shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties
need not sign the same counterpart.
8. This Agreement shall be governed and construed in accordance
with the laws of the State of Oklahoma, without regard to any applicable
conflicts of law.
9. The sale or disposition by the Colliers of all or any part of
their equity interest in Local Financial Corporation, a Delaware
corporation and the direct or indirect owner of the Company parties,
shall have no effect on the terms of this Agreement.
<PAGE>
Dated: September 8, 1997
Local America Bank of Tulsa, F.S.B.
/s/ Edward A. Townsend
By: ---------------------------
Edward A. Townsend
Chairman
Local America, Inc.
/s/ Edward A. Townsend
By: ---------------------------
Edward A. Townsend
Chairman
Local Federal Bank, F.S.B.
/s/ Edward A. Townsend
By: ---------------------------
Edward A. Townsend
Chairman
<PAGE>
By: /s/ Barron Collier
-----------------------------
Barron Collier
By: /s/ Miles Collier
-----------------------------
Miles Collier
Exhibit 10.6
591,000 Warrants to Purchase One Share of Common Stock Each
LOCAL FINANCIAL CORPORATION
VOID AFTER 5:00 P.M., EASTERN TIME, ON SEPTEMBER 8, 2002
THIS CERTIFIES THAT for value received, FRIEDMAN, BILLINGS, RAMSEY &
CO., INC., the registered holder hereof or registered assigns (the "Holder"), is
entitled, subject to the terms and conditions hereinafter set forth, to purchase
from Local Financial Corporation (herein called the "Company"), one fully paid
and non-assessable share of Common Stock, $0.01 par value per share, of the
Company (herein called the "Common Stock") for each Warrant comprising the
aggregate number of Warrants set forth above, upon presentation and surrender of
this Warrant Certificate with the Subscription Form attached hereto duly
completed and at any time on or before the Expiration Date, as defined in
Paragraph 2 on the reverse side hereof, to the Company's transfer agent,
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, or at such other office as shall have theretofore been designated by the
Company by notice pursuant hereto and upon payment therefor of the Purchase
Price specified in Paragraph 3 hereof.
The shares of Common Stock of the Company subject to purchase hereunder
are the shares of Common Stock of the Company as they may exist on the date of
the exercise of the Warrants represented by this Warrant Certificate, whether or
not the rights or interests represented by such shares are equivalent to the
rights or interests represented by the shares of Common Stock of the Company
authorized at the date hereof.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed and delivered by one of its officers thereunto duly authorized.
LOCAL FINANCIAL CORPORATION
/s/ Edward A. Townsend
Dated: September 8, 1997 By: __________________________________
Edward A. Townsend, Chairman and
Chief Executive Officer
<PAGE>
The Warrants represented by this Warrant Certificate are subject to the
following terms and conditions:
1. The purchase rights represented by this Warrant Certificate
are exercisable, at the option of the Holder hereof, either in whole or
from time to time in part (but not as to a fractional share of Common
Stock), at any time during the period commencing on September 8, 1997
and terminating on the Expiration Date hereof. These Warrants shall
expire in their entirety and no longer be exercisable at the close of
business on the Expiration Date. Upon surrender of this Warrant
Certificate and payment of the Purchase Price as set forth on the face
hereof, the Company shall issue and deliver or instruct its transfer
agent to issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the Holder and in such name or names as
the Holder may designate, a certificate or certificates for the number
of full shares of Common Stock so purchased upon the exercise of such
Warrants. In case of the purchase of less than all the shares
purchasable under this Warrant Certificate, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute
and deliver or instruct its transfer agent to deliver a new Warrant
Certificate of like tenor for the balance of the shares purchasable
hereunder.
2. The term "Expiration Date" shall mean 5:00 p.m., Eastern
Time, on September 8, 2002, or if said date shall in the State of
Delaware be a holiday or a day on which financial institutions are
authorized to close, then the next following date which in the Stock of
Delaware is not a holiday or a day on which financial institutions are
authorized to close.
3. The purchase price for each share of Common Stock
purchasable pursuant to the exercise of these Warrants (hereafter
referred to as the "Purchase Price") shall be $10.00 per share subject
to adjustment as provided in Paragraph 9 below. Payment of the
aggregate Purchase Price shall be paid by check, money order, certified
or bank cashier's check or by wire transfer.
4. The Company shall not be required to issue certificates
representing fractions of shares of Common Stock.
5. The Company will, at all times while the Warrants are
exercisable, keep reserved, out of its authorized Common Stock, a
number of shares of Common Stock sufficient to provide for the exercise
of the rights of purchase represented by the outstanding Warrants.
Promptly after the Expiration Date, no shares will be subject to
reservation in respect of such Warrants. The Company will take all such
action as may be necessary to insure that all shares of capital stock
issued upon exercise of these Warrants will be duly and validly
authorized and issued and, upon receipt of consideration therefor,
fully paid and non-assessable.
2
<PAGE>
6. Subject to certain restrictions, these Warrants and all
rights hereunder are transferable in whole or in part upon the books of
the Company of the registered Holder hereof in person or by his duly
authorized attorney, upon surrender of these Warrants duly endorsed, at
the principal office of the Company or at such other office as shall
have theretofore been designated by the Company by notice pursuant
hereto; provided, however, that these Warrants are not transferable
prior to the date of effectiveness of a registration statement related
to these Warrants. These Warrants and the Common Stock underlying these
Warrants shall be subject to the registration rights provided pursuant
to the Registration Rights Agreement, dated as of September 8, 1997, by
and among the Company, Friedman, Billings, Ramsey & Co., Inc. and each
the other parties named on the signature pages thereto.
7. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, or destruction or mutilation of
this Warrant Certificate, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and reimbursement
to the Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of this Warrant Certificate, if mutilated,
the Company will make and deliver or instruct its transfer agent to
deliver a new Warrant Certificate of like tenor, in lieu of this
Warrant Certificate.
8. Prior to the exercise of these Warrants, the Holder of
these Warrants shall not be entitled to any rights of a stockholder of
the Company, including without limitation the right to vote, to receive
dividends or other distributions.
9. The number and kind of securities purchasable upon the
exercise of each Warrant and the Purchase Price shall be subject to
adjustments from time to time upon the happening of certain events as
hereinafter set forth:
9.1 The number of shares purchasable upon the
exercise of each Warrant and the Purchase Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a
dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into
a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock or
capital reorganization other securities of the
Company, the number of shares purchasable upon
exercise of each Warrant immediately prior thereto
shall be adjusted so that the Holder of each Warrant
shall be entitled to receive the kind and number of
shares or other securities of the Company which the
Holder would have owned or have been entitled to
receive after the happening of any of the events
described above, had such Warrant been exercised
immediately prior to the happening of such event or
any record date with respect thereto. An adjustment
made pursuant to this Paragraph 9.1(a) shall become
effective immediately after the effective date of
such event retroactive to the record date, if any,
for such event.
3
<PAGE>
(b) No adjustment in the number of shares
purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of
at least one percent (1%) in the number of shares
purchasable upon the exercise of each Warrant;
provided, however, that any adjustments which by
reason of this Paragraph 9.1(b) are not required to
be made shall be carried forward and taken into
account in any subsequent adjustment; and, provided,
further, that all adjustments carried forward by
reason of this Paragraph 9.1(b) shall be taken into
account and the number of shares purchased upon the
exercise of each Warrant shall be adjusted as of 7
days prior to the Expiration Date. If any adjustment
is carried forward pursuant to this Paragraph 9.1(b),
the Company may make the election available pursuant
to Treasury Regulation Section 1.305-3(d)(2)(iii).
All calculations shall be made to the nearest
one-hundredth of a share.
(c) Whenever the number of shares
purchasable upon the exercise of each Warrant is
adjusted, as herein provided, the Purchase Price
payable upon exercise of each Warrant shall be
adjusted by multiplying the Purchase Price
immediately prior to the adjustment by a fraction, of
which the numerator shall be the number of shares
purchasable upon the exercise of each Warrant
immediately prior to the adjustment, and of which the
denominator shall be the number of shares so
purchasable immediately thereafter.
(d) For the purpose of this Paragraph 9.1
the term "shares of Common Stock" shall mean (i) the
class of stock designated as the Common Stock of the
Company at the date of this Warrant, or (ii) any
other class of stock resulting from successive
changes or reclassifications of such shares
consisting solely of changes in par value, or from
par value to no par value, or from no par value to
par value. In the event that at any time, as a result
of an adjustment made pursuant to Paragraph 9.1(a)
above, the Holder shall become entitled to purchase
any shares of the Company other than shares of Common
Stock, thereafter the number of such other shares so
purchasable upon exercise of each Warrant and the
Purchase Price of such shares shall be subject to
adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions
with respect to the shares contained in Paragraph
9.1(a) through (c), inclusive, above.
4
<PAGE>
9.2 Whenever the number of shares purchasable upon
the exercise of each Warrant or the Purchase Price of such
shares is adjusted, as herein provided, the Company shall
cause to be mailed by first class mail, postage prepaid, to
the Holder, notice of such adjustment or adjustments setting
forth the number of shares purchasable upon the exercise of
each Warrant and the Purchase Price of such shares after such
adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by
which such adjustment was made. Any failure by the Company to
give notice to the Holder or any defect therein shall neither
affect the validity of such adjustment or of the event
resulting in the adjustment, nor of the Holder's rights to
such adjustment.
9.3 Except as provided in Paragraphs 9.1 and 9.5, no
adjustment in respect of any dividends or distributions shall
be made during the term of a Warrant or upon the exercise of a
Warrant.
9.4 (a) In case of any consolidation of the Company
with or merger of the Company into another
corporation or in case of any sale or conveyance to
another corporation of the property of the Company as
an entirety or substantially as an entirety, such
successor or purchasing corporation may assume the
obligations hereunder, and may execute with the
Company an agreement that the Holder shall have the
right thereafter upon payment of the Purchase Price
in effect immediately prior to such transaction to
purchase upon exercise of each Warrant the kind and
amount of shares and other securities and property
(including cash) which he would have owned or have
been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such
Warrant been exercised immediately prior to such
action. The Company shall mail by first class mail,
postage prepaid, to the Holder, notice of the
execution of any such agreement. Such agreement shall
provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments
provided for in Paragraph 9. The provisions of this
Paragraph 9.4 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
(b) In the event that such successor
corporation does not execute such an agreement with
the Company as provided in Paragraph 9.4(a), then the
Holder shall be entitled to exercise outstanding
Warrants during a period of at least 30 days, which
period terminates at least 5 days prior to
consummation of the consolidation, merger, sale or
conveyance, and thereby receive consideration in the
consolidation, merger, sale or reconveyance on the
same basis as other previously outstanding shares of
the same class as the shares acquired upon exercise.
Warrants not exercised in accordance with this
5
<PAGE>
Paragraph 9.4(b) before consummation of the
transaction will be cancelled and become null and
void. The Company shall mail by first class mail,
postage prepaid, to the Holder, at least 10 days
prior to the first date on which the Warrant shall
become exercisable pursuant to the provisions of this
Paragraph 9.4(b), notice of the proposed transaction
setting forth the first and last date on which the
Holder may exercise outstanding Warrants and a
description of the terms of this Warrant providing
for cancellation of the Warrants in the event that
Warrants are not exercised by the prescribed date.
(c) The Company's failure to give any notice
required by this Paragraph 9.4 or any defect therein
shall not affect the validity of any such agreement,
consolidation, merger, sale or conveyance of
property.
9.5 In case (i) the Company shall make any
distribution of its assets to holders of its shares of Common
Stock as a liquidation or partial liquidation dividend or (ii)
the Company shall liquidate, dissolve or wind up its affairs
(other than in connection with a consolidation, merger or sale
of all or substantially all of its property, assets and
business as an entity), then the Company shall cause to be
mailed to the Holder, by first class mail, at least 20 days
prior to the applicable record date, a notice stating the date
on which such distribution, liquidation, dissolution or
winding up is expected to become effective, and the date on
which it is expected that holders of shares of Common Stock of
record shall be entitled to exchange their shares of Common
Stock for securities or other property or assets (including
cash) deliverable upon such distribution, liquidation,
dissolution or winding up, and that the Holder may exercise
outstanding Warrants during the 20-day period and, thereby,
receive consideration in the liquidation on the same basis as
other previously outstanding shares of the same class as the
shares acquired upon exercise. The Company's failure to
provide the notice required by this Paragraph 9.5 or any
defect therein shall not affect the validity of such
distribution, liquidation, dissolution or winding up.
9.6 Irrespective of any adjustments in the Purchase
Price or the number or kind of shares purchasable upon the
exercise of the Warrants, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the Warrants initially issued.
10. The Company may deem and treat the registered holder
hereof as the absolute owner of these Warrants (notwithstanding any
notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to
the contrary.
11. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made
when delivered or mailed first class postage prepaid or delivered to a
telegraph office for transmission:
6
<PAGE>
(i) if to the registered holder of these Warrants, at
the address of such holder as shown on the books of the
Company; or
(ii) if to the Company, 3601 NW 63rd Street, Oklahoma
City, Oklahoma 73116-2087, or at such other address as may
have been furnished to the Holder of these Warrants in writing
by the Company.
12. These Warrants shall be construed in accordance with and
governed by the laws of the State of Delaware.
7
<PAGE>
EXERCISE FORM
(To be Executed by the Registered Holder in Order to Exercise these Warrants)
To:
The undersigned hereby irrevocably exercise(s) the right to purchase
________ shares of the Company's Common Stock covered by the within Warrant
Certificate according to the conditions thereof and herewith make(s) payment of
the Purchase Price of $10.00 per share for such shares in full and request(s)
that certificates for such shares by issued in the name of:
Please print Name and Address and provide Social Security or Federal Tax
I.D. No.:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant Certificate for the balance remaining of the
whole number of shares purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder(s) or assignee(s) as indicated
below and delivered to the address stated below:
Dated: ___________, ____.
Address:
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
Signature of Holder or Assignee
----------------------------------------------
Signature of Holder or Assignee
Note: The above signature(s) must correspond
with the name(s) as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change whatever
unless the Warrants have been
assigned.
Signature(s) Guaranteed By:
----------------------------------------------
<PAGE>
ASSIGNMENT OF WARRANT
(To Be Signed Only Upon Assignment of Warrant)
To:
Attention:
FOR VALUE RECEIVED _________________________________ hereby sell(s),
assign(s) and transfer(s) unto (please print or type Name, Address and Social
Security or Federal Tax I.D. No. of Assignee):
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
_____________ Warrant(s), together with all right, title and interest therein,
and hereby irrevocably constituting and appointing __________________________
attorney, to transfer said Warrant(s) on the books of the Company, with full
power of substitution in the premises.
Dated: _______________, ____
----------------------------------------------
Signature of Record Holder
----------------------------------------------
Signature of Holder or Assignee
Note: The above signature(s) must correspond
with the name(s) as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change whatever.
Signature(s) Guaranteed By:
----------------------------------------------
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered
into as of this 8th day of September, 1997, to be effective as of
September 8, 1997 ("Effective Date"), by and between LOCAL FINANCIAL
CORPORATION, a Delaware corporation ("LFC"), its wholly-owned subsidiary, LOCAL
FEDERAL BANK, F.S.B., a federal stock savings bank ("Bank"), both with address
of 3601 N. W. 63rd Street, Oklahoma City, Oklahoma 73116, and EDWARD A.
TOWNSEND, an individual resident of the State of Oklahoma, with mailing address
of 28910 South 593, Grove, Oklahoma 74344 ("Townsend").
R E C I T A L S:
A. LFC is a one-bank holding company which owns all of the
issued and outstanding stock of Bank. Bank is engaged in the banking business in
the State of Oklahoma, with principal offices in Oklahoma City, Oklahoma, and
branch locations at various sites in the State of Oklahoma. Bank owns all of the
issued and outstanding stock of LOCAL AMERICA BANK, F.S.B., a federal stock
savings bank ("Local America") with principal offices in Tulsa, Oklahoma, and
branch locations at various sites in the State of Oklahoma. LFC and Bank are
desirous of employing Townsend to serve as the Chairman of the Board of
Directors and Chief Executive Officer of LFC and Bank, respectively, for the
term and subject to the other terms and conditions set forth and described below
in this Employment Agreement;
B. Townsend is a highly experienced chief executive officer of
banks, and in particular, federal stock savings banks. Townsend is desirous of
entering into an agreement with LFC and Bank whereby Townsend will be employed
by LFC and Bank to be the Chairman of the Board of Directors and Chief Executive
Officer of LFC and Bank, respectively, upon the terms and conditions provided in
this Employment Agreement; and
C. Townsend is willing to enter into this Employment Agreement
with LFC and Bank to serve as the Chairman of the Board of Directors and Chief
Executive Officer of LFC and Bank, respectively, in consideration of the
payments to be made to him by Bank, and certain other additional and valuable
benefits and inducements to be granted to him by LFC and Bank, as hereinafter
set forth and in accordance with the conditions hereinafter provided;
D. The respective Boards of Directors of the Bank and of LFC
have each specifically approved and authorized the terms and conditions of this
Agreement and the entry into this Agreement with Townsend so as to obtain his
employment by LFC and the Bank and his management and control thereof; and
E. Accordingly, LFC, the Bank and Townsend desire to enter
into this Agreement to set forth the terms and conditions of the employment
relationships between LFC, the Bank and Townsend.
NOW, THEREFORE, in consideration of the aforementioned
recitals, the premises, the mutual covenants set forth herein and of such other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by LFC, the Bank and Townsend, respectively, they each do hereby
covenant and agree as follows:
<PAGE>
1. Employment. Townsend is hereby employed as the Chairman of
the Board of Directors and Chief Executive Officer of LFC and of the Bank,
respectively, to manage and direct the conduct of their banking businesses.
Townsend shall devote all of his business time exclusively to LFC's and the
Bank's business and shall render services to LFC and to the Bank, respectively,
as their Chairman of the Board and Chief Executive Officer to the best of his
ability for and on behalf of LFC and the Bank, respectively. Townsend shall
comply with all laws, statutes, ordinances, rules and regulations relating to
the performance of services for LFC and for the Bank under this Agreement.
During the term of this Agreement, Townsend shall serve as the Chairman of the
Board of Directors and as the Chief Executive Officer of LFC and of the Bank,
and in those respective capacities shall, subject to the control of the Board of
Directors of LFC and of the Bank, respectively, generally supervise, plan and
direct the business and affairs of LFC and of the Bank and shall preside at all
meetings of the shareholders of LFC and of the Board of Directors of LFC and of
the Bank, respectively. As Chairman of the Board of Directors and Chief
Executive Officer of LFC and of the Bank, Townsend shall exercise and perform
such other powers and duties as are usually vested in a chairman of the board of
directors and chief executive officer of a bank holding company and/or federal
savings bank, or as may be from time to time prescribed or assigned to him by
the Board of Directors of LFC, or by the Board of Directors of the Bank, or as
may be otherwise prescribed or assigned to him by the By-Laws of LFC or of the
Bank. During the term of this Agreement, Townsend shall not, at any time or
place, directly or indirectly, engage in the same business in which LFC or the
Bank is engaged for any other person or entity to any extent whatsoever, other
than to the extent required by the terms and conditions of this Agreement, or as
a private investor for his own account, in a publicly held corporation engaged
in the banking business, unless his holdings shall not exceed five percent (5%)
of the issued and outstanding stock of such publicly held corporation and, so
long as such investment activities do not interfere with the performance of
Townsend's duties for LFC and for the Bank during the term of this Agreement.
The designation by LFC's or the Bank's Board of Directors of any other duties or
any other titles for Townsend during the term of this Agreement shall not affect
Townsend's compensation as provided for in this Agreement.
2. Term of Employment. Subject to the provisions on
termination of employment contained in Section 9 herein, the term of the
employment provided for herein of Townsend by LFC and by the Bank shall be for a
period of three (3) years, beginning on the Effective Date of this Agreement and
ending on the date which is the last day prior to the third (3rd) anniversary of
the Effective Date, unless extended as provided in this Section 2, below.
Subject to the provisions on termination of employment as provided for in
Section 9, below, prior to the first anniversary of the Effective Date of this
Agreement and prior to each anniversary of that date thereafter, the Board of
Directors of LFC and the Board of Directors of the Bank, respectively, shall
consider, review (with appropriate corporate documentation thereof, and after
taking into account all relevant factors, including Townsend's performance) and,
if appropriate, explicitly approve a one (1) year extension of the remaining
term of this Agreement. The term of this Agreement shall continue to so extend
each year if the Boards of Directors so approve such extension, respectively,
unless Townsend gives written notice to LFC or the Bank, respectively, of
Townsend's election not to extend the term, with such notice not to be less than
sixty (60) days prior to any such anniversary date. If the Board of Directors of
LFC, or the Board of Directors of Bank, respectively, elect not to extend the
term, that Board of Directors shall give written notice to Townsend of such
decision not less than sixty (60) days prior to any such anniversary date. If
either party hereto gives such timely notice to the other party that the
term of this Agreement will not be extended as of any such anniversary date,
then, and in such event, this Agreement shall terminate at the conclusion of its
then remaining term. References in this Agreement to the term of this Agreement
shall be deemed to refer both to the initial term and all successive terms
hereunder.
2
<PAGE>
3. Compensation.
(a) The Bank agrees to pay Townsend as a guaranteed
salary throughout the term of this Agreement, unless Townsend
voluntarily resigns from his employment by LFC and by Bank during the
term of this Agreement, for whatever reason, or unless this Agreement
is terminated for cause by LFC or the Bank, as set forth and described
in Section 9, below in this Agreement, an annual base salary for the
services rendered to LFC and Bank by Townsend, as described above, in
the amount of Three Hundred Twenty Thousand and No/100 Dollars
($320,000.00) per year. This salary shall be payable to Townsend in
twelve (12) equal, monthly installments of Twenty-Six Thousand Six
Hundred Sixty-Six and 67/100 Dollars ($26,666.67) per month for each
month during which services are rendered by Townsend to LFC or the Bank
during the term of this Agreement. LFC and Bank covenant and agree that
the amount of salary to be paid to Townsend during the term of this
Agreement cannot be decreased by LFC or Bank during the term of this
Agreement for any reason and must be paid to Townsend in all events
each month during the term of this Agreement unless Townsend
voluntarily resigns from his employment by Bank during the term of this
Agreement, for whatever reason, or unless Townsend is terminated for
cause by the Bank for the specific reasons set forth and described
below in Section 9 of this Agreement. Accordingly, Bank agrees that if
Townsend is terminated without cause, as provided below in Section 9 of
this Agreement, he shall still be entitled to receive as liquidated
damages for the termination without cause of his employment by LFC or
the Bank under this Agreement, the full amount of his remaining
guaranteed salary under this Agreement to be paid to him in the amount
of Twenty-Six Thousand Six Hundred Sixty-Six and 67/100 Dollars
($26,666.67) per month in the same manner as if he had remained
employed by the Bank during the entire term of this Agreement. Townsend
and the Bank hereby expressly covenant and agree, anything in this
Agreement to the contrary notwithstanding, including, without
limitation, the provisions of Sections 3 through 6 and Section 9 of
this Agreement, that any payments made to Townsend by Bank pursuant to
this Agreement, or otherwise, are in all respects expressly subject to
and conditioned upon their compliance with the provisions of 12 U.S.C.
ss.1828(k) and any regulations promulgated thereunder.
(b) Bank shall pay Townsend his annual base salary on
a monthly basis on the first day of each month, subject to normal
salary deductions for the amount so owing, including, but not limited
to, Social Security, Medicare, federal and state income withholding
taxes. Townsend's base annual salary may be increased in the future,
from time to time, by the actions of LFC's or Bank's Board of
Directors, based upon Townsend's performance and other relevant factors
and LFC's or Bank's Board of Directors will review Townsend's salary
for the purposes of determining any appropriate increase in the base
annual salary of Townsend at least annually. In addition, LFC or Bank
may, from time to time, enter into supplemental agreements or memoranda
in writing with Townsend for the award and payment to him of additional
compensation or
3
<PAGE>
bonuses upon such terms and conditions as LFC or Bank shall deem to be
in their respective best interests, and in the event of the execution
by LFC or Bank of any such agreement or memoranda, the right of
Townsend to additional compensation or bonuses shall be determined in
accordance with the applicable provisions thereof. In the absence of
any such supplemental agreements or memoranda, neither LFC or Bank
shall be obligated to pay to Townsend any additional compensation or
bonus whatsoever, irrespective of the payments of additional
compensation or bonus to Townsend in any past or succeeding year, or
the payment of additional compensation or bonus to other employees of
LFC or Bank at the end of the year, but may do so in the sole
discretion of LFC's or Bank's Board of Directors, respectively, and the
determination of LFC's or the Bank's Board of Directors, respectively,
in the exercise of such discretion, with respect to the payment and
amount of any additional compensation or bonus to Townsend for any
fiscal year of LFC or Bank if made, shall be final and conclusive.
4. Granting of Incentive Stock Options. As an additional
inducement to Townsend to enter into this Agreement with LFC and Bank and to
render his services to LFC and Bank upon a long-term basis and as additional
compensation to him for services to be rendered under the provisions of this
Agreement, LFC, has agreed to grant to Townsend certain stock options to acquire
LFC's Common Stock, contingent upon the closing of a private placement of LFC's
Common Stock under a Private Placement Memorandum on or before September 1, 1997
(the "Offering"). The stock options have been granted by LFC to Townsend
pursuant to that certain Local Financial Corporation Stock Option Plan ("Plan")
to be enacted by LFC contingent upon the closing of the Offering. In order to
evidence these stock options, LFC has also prepared and will execute and enter
into with Townsend, contemporaneously with this Agreement, contingent upon the
closing of the Offering, that certain Local Financial Corporation Stock Option
Agreement ("Stock Option Agreement"), which will set forth the terms and
conditions of the stock options to be granted to Townsend by LFC in accordance
herewith and the manner and method of exercising such options and acquiring such
stock by Townsend. Attached as Exhibit "A" to this Agreement, and by this
reference made a part hereof, is an executed copy of the Stock Option Agreement,
entered into by and between LFC and Townsend this same date in fulfillment of
the contractual obligations of LFC under the provisions of this Section 4 of the
Agreement.
5. Townsend's Additional Employment Benefits. In addition to
the annual base salary and the discretionary bonuses, provided for in Section 3
above, LFC and Bank agree to provide to Townsend, or to reimburse Townsend for,
the following additional employment benefits and expenses:
(a) During the term of this Agreement, Bank shall
furnish and provide to Townsend, at its sole cost and expense, the
following described employee benefits, upon the same basis that Bank
accords these same benefits to its other executive employees. In the
event Bank does not provide any of the following benefits to its
executive level employees, it shall not be required to initiate a
program solely to provide such benefits to Townsend. However, if Bank
should at any time in the future provide such benefits to its
employees, any such benefits shall also be provided to Townsend upon
the same basis that it is provided to such other employees of Bank,
whether or not such benefit is listed below:
4
<PAGE>
(i) hospitalization, dental, accident and
major medical insurance benefits to Townsend and all members
of Townsend's immediate family. The opportunity to participate
in any group life insurance program on a basis comparable to
the participation provided under any plans of such kind to
other executive officers of Bank. In any case, Bank will be
expected to make contributions towards the cost of such plans
for Townsend at the same rate and in the same manner as it
makes for its other employees of like status who participate
therein.
(ii) The right and opportunity to
participate in and become vested under and pursuant to the
Defined Benefit Pension Plan maintained by Bank, or any other
qualified pension and profit sharing plans hereafter
maintained by Bank, upon the same basis accorded to other
full-time employees of Bank. In addition, Bank shall provide
to Townsend such other fringe benefits as may be provided by
Bank to its executives, or its other employees, in accordance
with the policies heretofore or hereafter adopted by Bank.
(b) In addition to the above and foregoing fringe
benefits of employment which the Bank customarily provides to
all of its executive employees, Townsend shall be entitled to
receive the following specific additional benefits in
consideration and as additional compensation to him for
entering into this Agreement and agreeing to provide the
services required herein to LFC and to the Bank:
(i) Payment of his dues for an individual
membership in his name in a golf and country club of his
choosing located in Oklahoma County, Oklahoma; provided,
however, the Bank's obligation shall be for dues and any
member assessments only, and it shall have no obligation to
pay any charges or expenses incurred by Townsend as a member
of the aforesaid country club;
(ii) Throughout the term of this Agreement,
Townsend shall be provided an automobile of a type and kind
comparable to that which Bank provides to its other executive
officers for use in their employment by the Bank;
(iii) A one-time payment of a moving/housing
allowance in the sum of One Hundred Thousand and No/100
Dollars ($100,000.00) to be used by Townsend to relocate his
family from the Grove, Oklahoma area to the Oklahoma City
metropolitan area. In this regard, Townsend agrees that he
will cause his family to be relocated to the Oklahoma City
metropolitan area from the Grove, Oklahoma area as soon as
feasible based upon the marketing of his present home, the
school calendar and the location of a suitable home in the
Oklahoma City area.
5
<PAGE>
(c) In addition to the compensations set forth above,
Townsend shall also be entitled to reimbursement by Bank for his actual
out-of-pocket expenses incurred in the conduct of Bank's business,
which shall be limited to ordinary and necessary items and such other
valid expenditures as may be determined to be appropriate expenditures
on behalf of Bank by its Board of Directors, from time to time. The
reimbursement of said expenses and the amounts and the extent to which
they shall be reimbursed shall be decided on a case-by-case basis by
the Board of Directors of Bank, as the case may be; provided, however,
the Board of Directors of Bank may, at any time, and from time to time,
establish a policy or policies for allowing certain amounts for
reimbursements of certain types of specified business expenses,
incurred by Townsend. Townsend shall, in every instance, wherever
practical, support any claims for reimbursement for expenses by
adequate proof of such expenditures in the form of cancelled checks,
vouchers, bills, or in any other forms satisfactory to the Board of
Directors of Bank.
(d) Townsend shall be entitled to such period of
vacation with pay during any one (1) year of the term of this Agreement
as may be permitted by the Board of Directors of Bank on a case-by-case
basis, in its sole discretion, or pursuant to any policy established by
the Board of Directors of the Bank for the benefit of its executive
employees, from time to time. Townsend agrees that he will take
vacation days only at such times that will not unduly interfere with or
hamper the operation of Bank's business. Townsend shall not be entitled
to receive any additional compensation from the Bank on account of his
failure to take a paid vacation as authorized pursuant to this
Subsection. Townsend shall also not be entitled to accumulate unused
paid vacation time from one calendar year to the next calendar year
during the term of this Agreement.
6. Disability.
(a) For purposes of this Agreement, Townsend shall be
deemed to be "disabled" or have a "disability" if Townsend shall have
an illness, injury or other physical or mental condition which results
in Townsend's inability to perform substantially the duties he
performed in his employment capacity for LFC and Bank under this
Agreement to the extent he was performing such duties immediately prior
to the commencement of such condition.
(b) If Townsend shall be disabled for not more than
ninety (90) days during any twelve (12) month period of the term of
this Agreement, then, Townsend, during the continuance of such
disability, shall remain employed by Bank hereunder, shall continue to
receive his base salary and other compensation pursuant to this
Agreement and otherwise shall continue to have all of the rights and be
subject to all of Townsend's obligations and duties under this
Agreement, other than the obligation and duty to render services to
Bank otherwise in accordance with this Agreement during the period of
such disability.
(c) If Townsend shall be disabled for more than
ninety (90) days during any twelve (12) month period during the term of
this Agreement, but not more than one hundred twenty (120) days during
any twelve (12) month period, then, from and after the expiration of
the ninetieth (90) day of disability and during the continuance of such
disability up to and including the day immediately preceding the one
hundred twentieth (120th) day, Townsend shall be deemed to have taken a
leave of absence from the Bank commencing on the ninetieth (90th) day
of such disability and, during the continuance of such disability, the
following provisions shall apply:
6
<PAGE>
(i) Townsend's annual base salary shall be
apportioned up to and including the ninetieth (90th) day of
such disability and from and after the ninetieth (90th) day of
such disability and up to and including the day immediately
preceding the one hundred twentieth (120th) day of such
disability, neither LFC nor Bank shall pay any salary to
Townsend and Townsend shall receive no salary from LFC or
Bank.
(ii) Bank, in the sole discretion of its
Board of Directors, shall have the right and power to remove
Townsend from the positions of Chairman of the Board of
Directors and Chief Executive Officer of the Bank, and LFC, in
turn, in the sole discretion of LFC's Board of Directors,
shall have the right and power to remove Townsend from the
positions which he holds as LFC's Chairman of the Board of
Directors and Chief Executive Officer, or either of them may
delegate all or any portion of Townsend's duties as Chairman
of the Board of Directors and Chief Executive Officer of the
Bank or LFC, respectively, to one or more other employees of
the Bank or LFC, respectively.
(iii) Townsend shall otherwise have all of
the rights and be subject to all of Townsend's obligations and
duties under this Agreement, except that Townsend shall have
no obligation or duty to render services to LFC or the Bank,
respectively, otherwise in accordance with this Agreement
during such period of time; provided that Bank shall be
excused from providing any insurance coverage or benefits
which, by reason of Townsend's disability, Bank shall not be
able to obtain, continue or maintain at substantially the same
cost or expense or substantially the same terms and conditions
that Bank was able to obtain, continue or maintain immediately
prior to the commencement of Townsend's disability.
(d) If Townsend shall be disabled for more than one
hundred twenty (120) days in any twelve (12) month period during the
term of this Agreement, the employment of Townsend by LFC and Bank
hereunder shall cease and terminate pursuant to the provisions of
Section 9, below.
(e) If LFC and the Bank and Townsend are unable to
agree whether Townsend is disabled within the meaning of this Section
6, then this issue shall be submitted to arbitration in the manner
provided for in Section 13 of this Agreement below.
7. Standards. Townsend shall perform all of his duties and
responsibilities under this Agreement in accordance with such reasonable
standards as are established from time to time by the Board of Directors of the
Bank or of LFC, respectively. The reasonableness of such standards shall be
measured against standards for executive performance generally prevailing in the
federal stock savings bank industry.
7
<PAGE>
8. Confidential Information.
(a) Townsend acknowledges that in Townsend's
employment under this Agreement, Townsend will be making use of,
acquiring and adding to the Bank's trade secrets and its confidential
and proprietary information of a special and unique nature and value
relating to such matters as, but not limited to, the Bank's depositor
list, loan customers, business operations, internal structure,
financial affairs, programs, software, systems, procedures, manuals,
confidential reports, lists of investors and prospective investors and
sales and marketing methods, as well as the amount, nature and type of
services and methods used and preferred by the Bank and its investors,
all of which shall be deemed to be Confidential Information for
purposes of this Agreement. Townsend acknowledges that such
Confidential Information has been and will continue to be of central
importance to the business of the Bank and that disclosure of it to, or
its use by, others could cause substantial loss to the Bank.
Accordingly, during the term of this Agreement and upon and after
leaving the employ of Bank for any reason whatsoever, Townsend shall
not, for any purpose whatsoever, directly or indirectly, divulge or
disclose to any person or entity any of such Confidential Information
which was obtained by Townsend as a result of Townsend's employment
with Bank or any trade secrets of the Bank, but shall hold all of the
same confidential and inviolate.
(b) All contracts, agreements, financial books,
records, instruments and documents, a depositor list, borrower list,
investor list, memoranda, data, reports, programs, software, tapes,
rolodexes, telephone and address books, letters, research, cardex,
listings, programming and any other instruments, records or documents
relating or pertaining to the business of LFC or of the Bank
(collectively herein the "Records") shall at all times be and remain
the property of LFC and the Bank, respectively. Upon termination of
this Agreement and Townsend's employment under this Agreement for any
reason whatsoever, Townsend shall return to LFC or the Bank,
respectively, all Records (whether furnished by LFC or the Bank or
prepared by Townsend).
(c) All inventions and other creations, whether or
not patented, or copyrightable, and all ideas, reports and other
creative works, including, without limitation, computer programs,
manuals and related materials, made or conceived in whole or in part by
Townsend while employed by LFC or the Bank which relate in any manner
whatsoever to the business, existing or proposed, of LFC or the Bank or
any other business or research or developmental efforts in which LFC or
the Bank, or any of its subsidiaries or affiliates engages in during
Townsend's employment by LFC and the Bank will be disclosed promptly by
Townsend to LFC and the Bank and shall be the sole and exclusive
property of LFC or the Bank, as the case may be.
9. Termination of Employment.
(a) The Board of Directors of the Bank and/or the
Board of Directors of LFC, respectively, may terminate Townsend's
employment by the Bank and/or by LFC, respectively, under this
Agreement, with or without cause, at any time during the term hereof,
effective upon delivery of written notice to that effect to Townsend,
but any such termination by the Bank or LFC, as the case may be, of
Townsend other than termination of his employment for cause, as
described below in this Section, shall not prejudice Townsend's right
to receive the full amount of the remaining compensation which would
have otherwise been paid him throughout the term of this Agreement on
the same basis and at the same times and to receive all such other
fringe benefits to which he would have
8
<PAGE>
otherwise been entitled to receive during the term of this Agreement.
On the other hand, Townsend shall not have any right to receive any
further compensation or any other benefits to which he would have
otherwise been entitled under this Agreement after his voluntary
resignation from his employment by the Bank or LFC, for whatever
reason, or after his termination from his employment for cause by the
Bank or LFC, in accordance with the terms of this Agreement, except for
the vested rights of Townsend hereunder, i.e., any and all compensation
benefits and rights which Townsend was entitled to receive prior to the
effective date of such termination. Termination for cause shall mean
termination because of Townsend's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties under this Agreement,
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or of a final cease-and-desist order,
or any material breach by Townsend of any provision of this Agreement.
In determining the incompetence of Townsend, the acts or omissions of
Townsend shall be measured against standards generally prevailing in
the federal savings bank industry. Unless Townsend voluntarily resigns
from his employment by the Bank during the term of this Agreement, for
whatever reason, or unless the termination by the Bank or LFC of
Townsend's employment under this Agreement is for just cause, as
previously stated, the Bank shall be obligated to continue to pay to
Townsend his compensation and to provide to him all other benefits of
his employment as set forth in this Agreement during the remaining term
of this Agreement after the termination of his employment on the same
basis and at the same times as set forth and described above in this
Agreement. LFC, the Bank and Townsend agree that it would be difficult
to ascertain the amount of damages owing to Townsend if this Agreement
is terminated without cause during the term of this Agreement, and
accordingly, that the amount to be paid by Bank to Townsend as
compensation and the other benefits to be provided by Bank to Townsend
during the remaining term of this Agreement as if Townsend had remained
employed by LFC or the Bank in such instance, shall be deemed to be
liquidated damages for the termination of this Agreement by Bank or LFC
without cause and not as a forfeiture or penalty. Townsend agrees the
damages resulting from the termination of his employment by LFC or the
Bank without cause during the term of this Agreement would be difficult
and impractical to ascertain and that therefor the amount of liquidated
damages, as determined in the manner set forth above in this Section,
would be a fair and reasonable amount of damages under such
circumstances, and, accordingly, Townsend agrees that his sole remedy,
in the event of the termination of his employment hereunder by the Bank
or LFC without cause, shall be strictly limited to his right to receive
such liquidated damages, and that he shall not have any right to seek
any other equitable or legal remedy or other damages in such event,
whether actual, special, consequential or punitive, by reason thereof.
(b) If Townsend is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a
notice served under the provisions of Section 8(e)(3) or (g)(1) of the
Federal Deposit Insurance Act [12 U.S.C. ss.1818(e)(3) and (g)(1)], the
Bank's obligations under this Agreement shall be suspended as of the
date of service of said notice pursuant to the Act unless stayed by
appropriate proceedings. If the charges in the notice are dismissed,
the Bank may, in its discretion, (i) pay Townsend all or part of the
compensation which was withheld by the Bank while its obligations under
this Agreement were suspended in accordance herewith, and (ii)
reinstate (in whole or in part) any of its obligations which were so
suspended.
9
<PAGE>
(c) If Townsend is removed and/or permanently
prohibited from participating in the conduct of the Bank's affairs by
an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act [12 U.S.C. ss.1818(e)(4) or (g)(1)], all obligations of
the Bank under this Agreement shall terminate as of the effective date
of the order; provided, however, the vested rights of the Bank and
Townsend under this Agreement shall not be affected thereby.
(d) If the Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act), all obligations under
this Agreement shall terminate as of the date of such default, but this
Section 9(d) shall not affect any vested rights of the Bank or Townsend
under this Agreement.
(e) All obligations under this Agreement shall be
terminated, except to the extent determined that the continuation of
this Agreement is necessary for the continued operations of the Bank:
(i) by the Director of the Federal
Deposit Insurance Corporation, or
his or her designee, at the time the
Federal Deposit Insurance
Corporation or the Resolution Trust
Corporation enters into an agreement
to provide assistance to or on
behalf of the Bank under the
authority contained in ss. 13(c) of
the Federal Deposit Insurance Act;
or
(ii) by the Director of the Federal
Deposit Insurance Corporation, or
his or her designee, at the time the
Director, or his or her designee
approves a supervisory merger to
resolve problems related to
operation of the Bank, or when the
Bank is determined by the Director
to be in an unsafe or unsound
condition.
Any rights of the Bank or Townsend under the
Agreement that have already vested, however, shall not be affected by
such action.
(f) If Townsend resigns voluntarily from his
employment by the Bank during the term of this Agreement, for whatever
reason, then, and in such event, all of the rights, benefits and
entitlements of Townsend under this Agreement, including without
limitation, his right to receive salary payments, shall cease on the
date of such voluntary resignation, except for the rights of Townsend
which have vested prior to the date of his voluntary resignation.
10
<PAGE>
10. No Assignment or Succession; Death of Townsend. This
Agreement is personal to Townsend and to the Bank and LFC. Neither Townsend nor
the Bank or LFC may assign or delegate any of his or their respective rights or
obligations under this Agreement without first obtaining the prior written
consent of all of the other parties hereto. In the event of Townsend's death
during the term of this Agreement, all of the rights and entitlements of
Townsend under this Agreement shall cease except for the rights of Townsend
which have vested prior to the date of his death. Any and all remaining vested
compensation or benefits to which Townsend is entitled under this Agreement
prior to the date of his death shall be payable by Bank to the estate of
Townsend or to the person designated by Townsend in his Last Will and Testament
to receive such payments or benefits. In the event the Bank is involuntarily
dissolved for any reason by the Office of Thrift Supervision ("OTS") or any
other governmental entity having authority over the Bank, this Agreement shall
terminate as of the date of such dissolution and Townsend shall have no further
rights except for the rights which are vested in him prior to the effective date
of such dissolution.
11. Amendments or Additions: Action by Bank's Board of
Directors. No amendments or additions to this Agreement shall be binding unless
in writing and executed by both LFC and the Bank and by Townsend. The prior
approval by the affirmative vote of the majority of the full Board of Directors
of the Bank or of LFC, respectively, shall be required in order for the Bank or
LFC, respectively, to authorize and execute any amendments or additions to this
Agreement, to give any consents or waivers of the provisions of this Agreement,
or to take any other action under this Agreement, including any termination of
the employment of Townsend, with or without cause, under the provisions of
Section 9(a), above.
12. Reimbursement of Disallowed Expenses. If any expenses paid
by Bank for Townsend or any reimbursement of expenses by Bank to Townsend shall,
upon audit or other examination of the income tax returns of Bank, be determined
not to be allowable deductions from the gross income of Bank and such
determination shall be acceded to by Bank, or such determination shall be made
final by the appropriate taxing authority or a final judgment of a court of
competent jurisdiction, and no appeal shall be taken therefrom, or the
applicable period for the filing of a notice of appeal shall have expired, then,
and in such event, Townsend shall rebate to Bank the dollar amount of the
expenses so disallowed by such taxing authority. Such repayment may not be
waived by the Bank.
13. Binding Arbitration. Unless LFC, Bank and Townsend all
expressly agree otherwise in writing, all disputes relating to this Agreement,
or any breach thereof or the meaning and effect of any term and provisions
hereof, shall be submitted to binding arbitration by Bank, LFC and Townsend
pursuant to the provisions of the Oklahoma Uniform Arbitration Act, 15 O.S.
ss.801, et seq. (the "Act"), and in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules"). In the event a
dispute arises which cannot be informally resolved by the parties hereto, a
panel of three (3) arbitrators shall be selected to settle the dispute. Within
twenty (20) days following the demand by either party for arbitration of a
dispute arising under this Agreement, LFC and Bank shall jointly appoint an
arbitrator knowledgeable and experienced in federal savings banks and Townsend
shall appoint an arbitrator knowledgeable and experienced in federal savings
banks. The two (2) arbitrators so appointed shall together appoint a third
arbitrator, also knowledgeable and experienced in federal savings banks, within
twenty (20) days following the appointment of the last arbitrator selected by
LFC
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<PAGE>
and the Bank and by Townsend. In the event that the two (2) arbitrators selected
by LFC and the Bank and by Townsend are unable to mutually select a third
arbitrator within the twenty (20) day period, the third arbitrator shall be
selected by the then presiding judge of the Oklahoma County, Oklahoma District
Court. If the presiding judge of the Oklahoma County, Oklahoma District Court is
unable or unwilling to make such selection, the parties will request that the
Chief United States District Judge of the United States District Court for the
Western District of Oklahoma make such selection. The panel of three (3)
arbitrators shall then determine a time and a place for the hearing and shall
notify the parties in writing personally or by registered mail no less than
twenty (20) days before the hearing. The arbitrators will hear the dispute in
accordance with the Act and the Rules. Each party hereto shall be entitled to be
represented by counsel and each party shall be solely responsible for the fees
of their respective counsel. A majority of arbitrators shall render a final
award within twenty (20) days following the conclusion of the hearing which
shall be final and binding upon all parties hereto. The expenses and fees of the
third arbitrator mutually selected by the first two (2) arbitrators shall be
divided equally between the parties. Each party shall be solely responsible for
the expenses and fees of the arbitrator whom it selected. The arbitrators may
include, as part of any award, for the recovery of attorney's fees by the
prevailing party. All other expenses incurred in the conduct of the arbitration
shall be divided equally between the parties. Judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.
14. Miscellaneous Provisions.
(a) This Agreement shall be binding upon, and shall
inure to the benefit of LFC, Bank and Townsend and their respective
heirs, personal and legal representatives, successors and assigns.
(b) LFC, Bank and Townsend agree that the
construction and interpretation of this Agreement shall at all times
and in all respects be governed by the laws of the United States of
America where applicable and otherwise in all respects by the laws of
the State of Oklahoma.
(c) All notices required or permitted herein must be
in writing and shall be deemed to have been duly given on the date of
service and served personally or by telecopier, telex, or other similar
communication to the party or parties to whom notice is to be given, on
the next day if notice is effected by overnight mail service, or on the
third business day after mailing in the United States mail, if mailed,
to the party or parties to whom notice is to be given by registered or
certified mail, return receipt requested, postage prepaid, to the
address of such party, as set forth in the first paragraph of this
Agreement, or to such other address as any party to this Agreement may
designate to the other from time-to-time for this purpose in a manner
complying with the provisions of this section. Any communication which
is mailed by overnight mail or sent by telecopier or telex shall be
confirmed immediately, but failure to so confirm shall not affect the
effectiveness of such notice from and after the day on which such
notice is actually received.
(d) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate
the remaining provisions hereof and any prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
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<PAGE>
(e) This Agreement contains the entire agreement and
understanding by and between LFC, the Bank and Townsend with respect to
Townsend's employment by LFC and the Bank, as herein described, and
supersedes all prior agreements and understandings between the parties
to this Agreement, relating to the subject matter of this Agreement. No
change or modification of this Agreement shall be valid or binding
unless the same is in writing and signed by the party intending to be
so bound. No waiver of any provision of this Agreement shall be valid
unless the same is in writing and signed by the party against whom such
waiver is sought to be enforced. Moreover, no valid waiver of any
provision of this Agreement, at any time, shall be deemed to be a
waiver of any other provision of this Agreement at such time, or will
be deemed a valid waiver of such provision at any other time.
(f) This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
(g) Time shall be of the essence with regard to the
performance by the parties hereto of their respective obligations
hereunder.
IN WITNESS WHEREOF, LFC, the Bank and Townsend have duly
executed this Agreement as of the day and year first above written to be
effective as of the date stated in the first paragraph above.
LFC: LOCAL FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Jan A. Norton
----------------------------------------
Name: Jan A. Norton
Title: President
Date: 9/8/97
BANK: LOCAL FEDERAL BANK, F.S.B.,
a federal stock savings bank
By: /s/ Jan A. Norton
----------------------------------------
Name: Jan A. Norton
Title: President
Date: 9/8/97
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<PAGE>
TOWNSEND: /s/ Edward A. Townsend
----------------------------------------
Edward A. Townsend
Date: 9/8/97
14
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered
into as of this 8th day of September, 1997, to be effective as of September 8,
1997 ("Effective Date"), by and between LOCAL FINANCIAL CORPORATION, a Delaware
corporation ("LFC"), its wholly-owned subsidiary, LOCAL FEDERAL BANK, F.S.B., a
federal stock savings bank ("Bank"), both with address of 3601 N. W. 63rd
Street, Oklahoma City, Oklahoma 73116, and JAN A. NORTON, an individual resident
of the State of Oklahoma, with mailing address of 2001 Birnam Wood Drive, Miami,
Oklahoma 74354 ("Norton").
R E C I T A L S:
A. LFC is a one-bank holding company which owns all of the
issued and outstanding stock of Bank. Bank is engaged in the banking business in
the State of Oklahoma, with principal offices in Oklahoma City, Oklahoma, and
branch locations at various sites in the State of Oklahoma. Bank owns all of the
issued and outstanding stock of LOCAL AMERICA BANK, F.S.B., a federal stock
savings bank ("Local America") with principal offices in Tulsa, Oklahoma, and
branch locations at various sites in the State of Oklahoma. LFC and Bank are
desirous of employing Norton to serve as President of LFC and Bank,
respectively, for the term and subject to the other terms and conditions set
forth and described below in this Employment Agreement;
B. Norton is a highly experienced senior executive officer of
banks, and in particular, federal stock savings banks. Norton is desirous of
entering into an agreement with LFC and Bank whereby Norton will be employed by
LFC and Bank to be the President of LFC and Bank, respectively, upon the terms
and conditions provided in this Employment Agreement; and
C. Norton is willing to enter into this Employment Agreement
with LFC and Bank to serve as President of LFC and Bank, respectively, in
consideration of the payments to be made to him by Bank, and certain other
additional and valuable benefits and inducements to be granted to him by LFC and
Bank, as hereinafter set forth and in accordance with the conditions hereinafter
provided;
D. The respective Boards of Directors of the Bank and of LFC
have each specifically approved and authorized the terms and conditions of this
Agreement and the entry into this Agreement with Norton so as to obtain his
employment by LFC and the Bank and his operational management thereof; and
E. Accordingly, LFC, the Bank and Norton desire to enter into
this Agreement to set forth the terms and conditions of the employment
relationships between LFC, the Bank and Norton.
NOW, THEREFORE, in consideration of the aforementioned
recitals, the premises, the mutual covenants set forth herein and of such other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by LFC, the Bank and Norton, respectively, they each do hereby
covenant and agree as follows:
<PAGE>
1. Employment. Norton is hereby employed as the President of
LFC and of the Bank, respectively, to manage and direct the conduct of their
banking businesses. Norton shall devote all of his business time exclusively to
LFC's and the Bank's business and shall render services to LFC and to the Bank,
respectively, as their President to the best of his ability for and on behalf of
LFC and the Bank, respectively. Norton shall comply with all laws, statutes,
ordinances, rules and regulations relating to the performance of services for
LFC and for the Bank under this Agreement. During the term of this Agreement,
Norton shall serve as the President of LFC and of the Bank, and in that capacity
shall, subject to the control of the Board of Directors of LFC and of the Bank,
respectively, generally operate the business and affairs of LFC and of the Bank.
As President of LFC and of the Bank, Norton shall exercise and perform such
other powers and duties as are usually vested in a president of a bank holding
company and/or federal savings bank, or as may be from time to time prescribed
or assigned to him by the Board of Directors of LFC, or by the Board of
Directors of the Bank, or as may be otherwise prescribed or assigned to him by
the By-Laws of LFC or of the Bank. During the term of this Agreement, Norton
shall not, at any time or place, directly or indirectly, engage in the same
business in which LFC or the Bank is engaged for any other person or entity to
any extent whatsoever, other than to the extent required by the terms and
conditions of this Agreement, or as a private investor for his own account, in a
publicly held corporation engaged in the banking business, unless his holdings
shall not exceed five percent (5%) of the issued and outstanding stock of such
publicly held corporation and, so long as such investment activities do not
interfere with the performance of Norton's duties for LFC and for the Bank
during the term of this Agreement. The designation by LFC's or the Bank's Board
of Directors of any other duties or any other titles for Norton during the term
of this Agreement shall not affect Norton's compensation as provided for in this
Agreement.
2. Term of Employment. Subject to the provisions on
termination of employment contained in Section 9 herein, the term of the
employment provided for herein of Norton by LFC and by the Bank shall be for a
period of three (3) years, beginning on the Effective Date of this Agreement and
ending on the date which is the last day prior to the third (3rd) anniversary of
the Effective Date, unless extended as provided in this Section 2, below.
Subject to the provisions on termination of employment as provided for in
Section 9, below, prior to the first anniversary of the Effective Date of this
Agreement and prior to each anniversary of that date thereafter, the Board of
Directors of LFC and the Board of Directors of the Bank, respectively, shall
consider, review (with appropriate corporate documentation thereof, and after
taking into account all relevant factors, including Norton's performance) and,
if appropriate, explicitly approve a one (1) year extension of the remaining
term of this Agreement. The term of this Agreement shall continue to so extend
each year if the Boards of Directors so approve such extension, respectively,
unless Norton gives written notice to LFC or the Bank, respectively, of Norton's
election not to extend the term, with such notice not to be less than sixty (60)
days prior to any such anniversary date. If the Board of Directors of LFC, or
the Board of Directors of Bank, respectively, elect not to extend the term, that
Board of Directors shall give written notice to Norton of such decision not less
than sixty (60) days prior to any such anniversary date. If either party hereto
gives such timely notice to the other party that the term of this Agreement will
not be extended as of any such anniversary date, then, and in such event, this
Agreement shall terminate at the conclusion of its then remaining term.
References in this Agreement to the term of this Agreement shall be deemed to
refer both to the initial term and all successive terms hereunder.
2
<PAGE>
3. Compensation.
(a) The Bank agrees to pay Norton as a guaranteed
salary throughout the term of this Agreement, unless Norton voluntarily
resigns from his employment by LFC and by Bank during the term of this
Agreement, for whatever reason, or unless this Agreement is terminated
for cause by LFC or the Bank, as set forth and described in Section 9,
below in this Agreement, an annual base salary for the services
rendered to LFC and Bank by Norton, as described above, in the amount
of Two Hundred Forty Thousand and No/100 Dollars ($240,000.00) per
year. This salary shall be payable to Norton in twelve (12) equal,
monthly installments of Twenty Thousand and No/100 Dollars ($20,000.00)
per month for each month during which services are rendered by Norton
to LFC or the Bank during the term of this Agreement. LFC and Bank
covenant and agree that the amount of salary to be paid to Norton
during the term of this Agreement cannot be decreased by LFC or Bank
during the term of this Agreement for any reason and must be paid to
Norton in all events each month during the term of this Agreement
unless Norton voluntarily resigns from his employment by Bank during
the term of this Agreement, for whatever reason, or unless Norton is
terminated for cause by the Bank for the specific reasons set forth and
described below in Section 9 of this Agreement. Accordingly, Bank
agrees that if Norton is terminated without cause, as provided below in
Section 9 of this Agreement, he shall still be entitled to receive as
liquidated damages for the termination without cause of his employment
by LFC or the Bank under this Agreement, the full amount of his
remaining guaranteed salary under this Agreement to be paid to him in
the amount of Twenty Thousand and No/100 Dollars ($20,000.00) per month
in the same manner as if he had remained employed by the Bank during
the entire term of this Agreement. Norton and the Bank hereby expressly
covenant and agree, anything in this Agreement to the contrary
notwithstanding, including, without limitation, the provisions of
Sections 3 through 6 and Section 9 of this Agreement, that any payments
made to Norton by Bank pursuant to this Agreement, or otherwise, are in
all respects expressly subject to and conditioned upon their compliance
with the provisions of 12 U.S.C. ss.1828(k) and any regulations
promulgated thereunder.
(b) Bank shall pay Norton his annual base salary on a
monthly basis on the first day of each month, subject to normal salary
deductions for the amount so owing, including, but not limited to,
Social Security, Medicare, federal and state income withholding taxes.
Norton's base annual salary may be increased in the future, from time
to time, by the actions of LFC's or Bank's Board of Directors, based
upon Norton's performance and other relevant factors and LFC's or
Bank's Board of Directors will
3
<PAGE>
review Norton's salary for the purposes of determining any appropriate
increase in the base annual salary of Norton at least annually. In
addition, LFC or Bank may, from time to time, enter into supplemental
agreements or memoranda in writing with Norton for the award and
payment to him of additional compensation or bonuses upon such terms
and conditions as LFC or Bank shall deem to be in their respective best
interests, and in the event of the execution by LFC or Bank of any such
agreement or memoranda, the right of Norton to additional compensation
or bonuses shall be determined in accordance with the applicable
provisions thereof. In the absence of any such supplemental agreements
or memoranda, neither LFC or Bank shall be obligated to pay to Norton
any additional compensation or bonus whatsoever, irrespective of the
payments of additional compensation or bonus to Norton in any past or
succeeding year, or the payment of additional compensation or bonus to
other employees of LFC or Bank at the end of the year, but may do so in
the sole discretion of LFC's or Bank's Board of Directors,
respectively, and the determination of LFC's or the Bank's Board of
Directors, respectively, in the exercise of such discretion, with
respect to the payment and amount of any additional compensation or
bonus to Norton for any fiscal year of LFC or Bank if made, shall be
final and conclusive.
4. Granting of Incentive Stock Options. As an additional
inducement to Norton to enter into this Agreement with LFC and Bank and to
render his services to LFC and Bank upon a long-term basis and as additional
compensation to him for services to be rendered under the provisions of this
Agreement, LFC, has agreed to grant to Norton certain stock options to acquire
LFC's Common Stock, contingent upon the closing of a private placement of LFC's
Common Stock under a Private Placement Memorandum on or before September 1, 1997
(the "Offering"). The stock options have been granted by LFC to Norton pursuant
to that certain Local Financial Corporation Stock Option Plan ("Plan") to be
enacted by LFC contingent upon the closing of the Offering. In order to evidence
these stock options, LFC has also prepared and will execute and enter into with
Norton, contemporaneously with this Agreement, contingent upon the closing of
the Offering, that certain Local Financial Corporation Stock Option Agreement
("Stock Option Agreement"), which will set forth the terms and conditions of the
stock options to be granted to Norton by LFC in accordance herewith and the
manner and method of exercising such options and acquiring such stock by Norton.
Attached as Exhibit "A" to this Agreement, and by this reference made a part
hereof, is an executed copy of the Stock Option Agreement, entered into by and
between LFC and Norton this same date in fulfillment of the contractual
obligations of LFC under the provisions of this Section 4 of the Agreement.
5. Norton's Additional Employment Benefits. In addition to the
annual base salary and the discretionary bonuses, provided for in Section 3
above, LFC and Bank agree to provide to Norton, or to reimburse Norton for, the
following additional employment benefits and expenses:
(a) During the term of this Agreement, Bank shall
furnish and provide to Norton, at its sole cost and expense, the
following described employee benefits, upon the same basis that Bank
accords these same benefits to its other executive employees.
4
<PAGE>
In the event Bank does not provide any of the following benefits to its
executive level employees, it shall not be required to initiate a
program solely to provide such benefits to Norton. However, if Bank
should at any time in the future provide such benefits to its
employees, any such benefits shall also be provided to Norton upon the
same basis that it is provided to such other employees of Bank, whether
or not such benefit is listed below:
(i) hospitalization, dental, accident and
major medical insurance benefits to Norton and all members of
Norton's immediate family. The opportunity to participate in
any group life insurance program on a basis comparable to the
participation provided under any plans of such kind to other
executive officers of Bank. In any case, Bank will be expected
to make contributions towards the cost of such plans for
Norton at the same rate and in the same manner as it makes for
its other employees of like status who participate therein.
(ii) The right and opportunity to
participate in and become vested under and pursuant to the
Defined Benefit Pension Plan maintained by Bank, or any other
qualified pension and profit sharing plans hereafter
maintained by Bank, upon the same basis accorded to other
full-time employees of Bank. In addition, Bank shall provide
to Norton such other fringe benefits as may be provided by
Bank to its executives, or its other employees, in accordance
with the policies heretofore or hereafter adopted by Bank.
(b) In addition to the above and foregoing fringe
benefits of employment which the Bank customarily provides to
all of its executive employees, Norton shall be entitled to
receive the following specific additional benefits in
consideration and as additional compensation to him for
entering into this Agreement and agreeing to provide the
services required herein to LFC and to the Bank:
(i) Payment of his dues for an individual
membership in his name in a golf and country club of his
choosing located in Oklahoma County, Oklahoma; provided,
however, the Bank's obligation shall be for dues and any
member assessments only, and it shall have no obligation to
pay any charges or expenses incurred by Norton as a member of
the aforesaid country club;
(ii) Throughout the term of this Agreement,
Norton shall be provided an automobile of a type and kind
comparable to that which Bank provides to its other executive
officers for use in their employment by the Bank;
(iii) A one-time payment of a moving/housing
allowance in the sum of Fifty Thousand and No/100 Dollars
($50,000.00) to be used by Norton to relocate his family from
the Miami, Oklahoma area to the Oklahoma City metropolitan
area. In this regard, Norton agrees that he will cause his
family to be relocated to the Oklahoma City metropolitan area
from the Miami, Oklahoma area as soon as feasible based upon
the marketing of his present home, and the location of a
suitable home in the Oklahoma City area.
5
<PAGE>
(c) In addition to the compensations set forth above,
Norton shall also be entitled to reimbursement by Bank for his actual
out-of-pocket expenses incurred in the conduct of Bank's business,
which shall be limited to ordinary and necessary items and such other
valid expenditures as may be determined to be appropriate expenditures
on behalf of Bank by its Board of Directors, from time to time. The
reimbursement of said expenses and the amounts and the extent to which
they shall be reimbursed shall be decided on a case-by-case basis by
the Board of Directors of Bank, as the case may be; provided, however,
the Board of Directors of Bank may, at any time, and from time to time,
establish a policy or policies for allowing certain amounts for
reimbursements of certain types of specified business expenses,
incurred by Norton. Norton shall, in every instance, wherever
practical, support any claims for reimbursement for expenses by
adequate proof of such expenditures in the form of cancelled checks,
vouchers, bills, or in any other forms satisfactory to the Board of
Directors of Bank.
(d) Norton shall be entitled to such period of
vacation with pay during any one (1) year of the term of this Agreement
as may be permitted by the Board of Directors of Bank on a case-by-case
basis, in its sole discretion, or pursuant to any policy established by
the Board of Directors of the Bank for the benefit of its executive
employees, from time to time. Norton agrees that he will take vacation
days only at such times that will not unduly interfere with or hamper
the operation of Bank's business. Norton shall not be entitled to
receive any additional compensation from the Bank on account of his
failure to take a paid vacation as authorized pursuant to this
Subsection. Norton shall also not be entitled to accumulate unused paid
vacation time from one calendar year to the next calendar year during
the term of this Agreement.
6. Disability.
(a) For purposes of this Agreement, Norton shall be
deemed to be "disabled" or have a "disability" if Norton shall have an
illness, injury or other physical or mental condition which results in
Norton's inability to perform substantially the duties he performed in
his employment capacity for LFC and Bank under this Agreement to the
extent he was performing such duties immediately prior to the
commencement of such condition.
(b) If Norton shall be disabled for not more than
ninety (90) days during any twelve (12) month period of the term of
this Agreement, then, Norton, during the continuance of such
disability, shall remain employed by Bank hereunder, shall continue to
receive his base salary and other compensation pursuant to this
Agreement and otherwise shall continue to have all of the rights and be
subject to all of Norton's obligations and duties under this Agreement,
other than the obligation and duty to render services to Bank otherwise
in accordance with this Agreement during the period of such disability.
6
<PAGE>
(c) If Norton shall be disabled for more than ninety
(90) days during any twelve (12) month period during the term of this
Agreement, but not more than one hundred twenty (120) days during any
twelve (12) month period, then, from and after the expiration of the
ninetieth (90) day of disability and during the continuance of such
disability up to and including the day immediately preceding the one
hundred twentieth (120th) day, Norton shall be deemed to have taken a
leave of absence from the Bank commencing on the ninetieth (90th) day
of such disability and, during the continuance of such disability, the
following provisions shall apply:
(i) Norton's annual base salary shall be
apportioned up to and including the ninetieth (90th) day of
such disability and from and after the ninetieth (90th) day of
such disability and up to and including the day immediately
preceding the one hundred twentieth (120th) day of such
disability, neither LFC nor Bank shall pay any salary to
Norton and Norton shall receive no salary from LFC or Bank.
(ii) Bank, in the sole discretion of its
Board of Directors, shall have the right and power to remove
Norton from the position of President of the Bank, and LFC, in
turn, in the sole discretion of LFC's Board of Directors,
shall have the right and power to remove Norton from the
position which he holds as President, or either of them may
delegate all or any portion of Norton's duties as President of
the Bank or LFC, respectively, to one or more other employees
of the Bank or LFC, respectively.
(iii) Norton shall otherwise have all of the
rights and be subject to all of Norton's obligations and
duties under this Agreement, except that Norton shall have no
obligation or duty to render services to LFC or the Bank,
respectively, otherwise in accordance with this Agreement
during such period of time; provided that Bank shall be
excused from providing any insurance coverage or benefits
which, by reason of Norton's disability, Bank shall not be
able to obtain, continue or maintain at substantially the same
cost or expense or substantially the same terms and conditions
that Bank was able to obtain, continue or maintain immediately
prior to the commencement of Norton's disability.
(d) If Norton shall be disabled for more than one
hundred twenty (120) days in any twelve (12) month period during the
term of this Agreement, the employment of Norton by LFC and Bank
hereunder shall cease and terminate pursuant to the provisions of
Section 9, below.
7
<PAGE>
(e) If LFC and the Bank and Norton are unable to
agree whether Norton is disabled within the meaning of this Section 6,
then this issue shall be submitted to arbitration in the manner
provided for in Section 13 of this Agreement below.
7. Standards. Norton shall perform all of his duties and
responsibilities under this Agreement in accordance with such reasonable
standards as are established from time to time by the Board of Directors of the
Bank or of LFC, respectively. The reasonableness of such standards shall be
measured against standards for executive performance generally prevailing in the
federal stock savings bank industry.
8. Confidential Information.
(a) Norton acknowledges that in Norton's employment
under this Agreement, Norton will be making use of, acquiring and
adding to the Bank's trade secrets and its confidential and proprietary
information of a special and unique nature and value relating to such
matters as, but not limited to, the Bank's depositor list, loan
customers, business operations, internal structure, financial affairs,
programs, software, systems, procedures, manuals, confidential reports,
lists of investors and prospective investors and sales and marketing
methods, as well as the amount, nature and type of services and methods
used and preferred by the Bank and its investors, all of which shall be
deemed to be Confidential Information for purposes of this Agreement.
Norton acknowledges that such Confidential Information has been and
will continue to be of central importance to the business of the Bank
and that disclosure of it to, or its use by, others could cause
substantial loss to the Bank. Accordingly, during the term of this
Agreement and upon and after leaving the employ of Bank for any reason
whatsoever, Norton shall not, for any purpose whatsoever, directly or
indirectly, divulge or disclose to any person or entity any of such
Confidential Information which was obtained by Norton as a result of
Norton's employment with Bank or any trade secrets of the Bank, but
shall hold all of the same confidential and inviolate.
(b) All contracts, agreements, financial books,
records, instruments and documents, a depositor list, borrower list,
investor list, memoranda, data, reports, programs, software, tapes,
rolodexes, telephone and address books, letters, research, cardex,
listings, programming and any other instruments, records or documents
relating or pertaining to the business of LFC or of the Bank
(collectively herein the "Records") shall at all times be and remain
the property of LFC and the Bank, respectively. Upon termination of
this Agreement and Norton's employment under this Agreement for any
reason whatsoever, Norton shall return to LFC or the Bank,
respectively, all Records (whether furnished by LFC or the Bank or
prepared by Norton).
(c) All inventions and other creations, whether or
not patented, or copyrightable, and all ideas, reports and other
creative works, including, without limitation, computer programs,
manuals and related materials, made or conceived in whole or in part by
Norton while employed by LFC or the Bank which relate in any manner
whatsoever to the business, existing or proposed, of LFC or the Bank or
any other business or research or developmental efforts in which LFC or
the Bank, or any of its subsidiaries or affiliates engages in during
Norton's employment by LFC and the Bank will be disclosed promptly by
Norton to LFC and the Bank and shall be the sole and exclusive property
of LFC or the Bank, as the case may be.
8
<PAGE>
9. Termination of Employment.
(a) The Board of Directors of the Bank and/or the
Board of Directors of LFC, respectively, may terminate Norton's
employment by the Bank and/or by LFC, respectively, under this
Agreement, with or without cause, at any time during the term hereof,
effective upon delivery of written notice to that effect to Norton, but
any such termination by the Bank or LFC, as the case may be, of Norton
other than termination of his employment for cause, as described below
in this Section, shall not prejudice Norton's right to receive the full
amount of the remaining compensation which would have otherwise been
paid him throughout the term of this Agreement on the same basis and at
the same times and to receive all such other fringe benefits to which
he would have otherwise been entitled to receive during the term of
this Agreement. On the other hand, Norton shall not have any right to
receive any further compensation or any other benefits to which he
would have otherwise been entitled under this Agreement after his
voluntary resignation from his employment by the Bank or LFC, for
whatever reason, or after his termination from his employment for cause
by the Bank or LFC, in accordance with the terms of this Agreement,
except for the vested rights of Norton hereunder, i.e., any and all
compensation benefits and rights which Norton was entitled to receive
prior to the effective date of such termination. Termination for cause
shall mean termination because of Norton's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties under
this Agreement, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or of a final
cease-and-desist order, or any material breach by Norton of any
provision of this Agreement. In determining the incompetence of Norton,
the acts or omissions of Norton shall be measured against standards
generally prevailing in the federal savings bank industry. Unless
Norton voluntarily resigns from his employment by the Bank during the
term of this Agreement, for whatever reason, or unless the termination
by the Bank or LFC of Norton's employment under this Agreement is for
just cause, as previously stated, the Bank shall be obligated to
continue to pay to Norton his compensation and to provide to him all
other benefits of his employment as set forth in this Agreement during
the remaining term of this Agreement after the termination of his
employment on the same basis and at the same times as set forth and
described above in this Agreement. LFC, the Bank and Norton agree that
it would be difficult to ascertain the amount of damages owing to
Norton if this Agreement is terminated without cause during the term of
this Agreement, and accordingly, that the amount to be paid by Bank to
Norton as compensation and the other benefits to be provided by Bank to
Norton during the remaining term of this Agreement as if Norton had
remained employed by LFC or the Bank in such instance, shall be deemed
to be liquidated damages for the
9
<PAGE>
termination of this Agreement by Bank or LFC without cause and not as a
forfeiture or penalty. Norton agrees the damages resulting from the
termination of his employment by LFC or the Bank without cause during
the term of this Agreement would be difficult and impractical to
ascertain and that therefor the amount of liquidated damages, as
determined in the manner set forth above in this Section, would be a
fair and reasonable amount of damages under such circumstances, and,
accordingly, Norton agrees that his sole remedy, in the event of the
termination of his employment hereunder by the Bank or LFC without
cause, shall be strictly limited to his right to receive such
liquidated damages, and that he shall not have any right to seek any
other equitable or legal remedy or other damages in such event, whether
actual, special, consequential or punitive, by reason thereof.
(b) If Norton is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a
notice served under the provisions of Section 8(e)(3) or (g)(1) of the
Federal Deposit Insurance Act [12 U.S.C. ss.1818(e)(3) and (g)(1)], the
Bank's obligations under this Agreement shall be suspended as of the
date of service of said notice pursuant to the Act unless stayed by
appropriate proceedings. If the charges in the notice are dismissed,
the Bank may, in its discretion, (i) pay Norton all or part of the
compensation which was withheld by the Bank while its obligations under
this Agreement were suspended in accordance herewith, and (ii)
reinstate (in whole or in part) any of its obligations which were so
suspended.
(c) If Norton is removed and/or permanently
prohibited from participating in the conduct of the Bank's affairs by
an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act [12 U.S.C. ss.1818(e)(4) or (g)(1)], all obligations of
the Bank under this Agreement shall terminate as of the effective date
of the order; provided, however, the vested rights of the Bank and
Norton under this Agreement shall not be affected thereby.
(d) If the Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act), all obligations under
this Agreement shall terminate as of the date of such default, but this
Section 9(d) shall not affect any vested rights of the Bank or Norton
under this Agreement.
(e) All obligations under this Agreement shall be
terminated, except to the extent determined that the continuation of
this Agreement is necessary for the continued operations of the Bank:
(i) by the Director of the Federal
Deposit Insurance Corporation, or
his or her designee, at the time the
Federal Deposit Insurance
Corporation or the Resolution Trust
Corporation enters into an agreement
to provide assistance to or on
behalf of the Bank under the
authority contained in ss. 13(c) of
the Federal Deposit Insurance Act;
or
10
<PAGE>
(ii) by the Director of the Federal
Deposit Insurance Corporation, or
his or her designee, at the time the
Director, or his or her designee
approves a supervisory merger to
resolve problems related to
operation of the Bank, or when the
Bank is determined by the Director
to be in an unsafe or unsound
condition.
Any rights of the Bank or Norton under the
Agreement that have already vested, however, shall not be affected by
such action.
(f) If Norton resigns voluntarily from his employment
by the Bank during the term of this Agreement, for whatever reason,
then, and in such event, all of the rights, benefits and entitlements
of Norton under this Agreement, including without limitation, his right
to receive salary payments, shall cease on the date of such voluntary
resignation, except for the rights of Norton which have vested prior to
the date of his voluntary resignation.
10. No Assignment or Succession; Death of Norton. This
Agreement is personal to Norton and to the Bank and LFC. Neither Norton nor the
Bank or LFC may assign or delegate any of his or their respective rights or
obligations under this Agreement without first obtaining the prior written
consent of all of the other parties hereto. In the event of Norton's death
during the term of this Agreement, all of the rights and entitlements of Norton
under this Agreement shall cease except for the rights of Norton which have
vested prior to the date of his death. Any and all remaining vested compensation
or benefits to which Norton is entitled under this Agreement prior to the date
of his death shall be payable by Bank to the estate of Norton or to the person
designated by Norton in his Last Will and Testament to receive such payments or
benefits. In the event the Bank is involuntarily dissolved for any reason by the
Office of Thrift Supervision ("OTS") or any other governmental entity having
authority over the Bank, this Agreement shall terminate as of the date of such
dissolution and Norton shall have no further rights except for the rights which
are vested in him prior to the effective date of such dissolution.
11. Amendments or Additions: Action by Bank's Board of
Directors. No amendments or additions to this Agreement shall be binding unless
in writing and executed by both LFC and the Bank and by Norton. The prior
approval by the affirmative vote of the majority of the full Board of Directors
of the Bank or of LFC, respectively, shall be required in order for the Bank or
LFC, respectively, to authorize and execute any amendments or additions to this
Agreement, to give any consents or waivers of the provisions of this Agreement,
or to take any other action under this Agreement, including any termination of
the employment of Norton, with or without cause, under the provisions of Section
9(a), above.
12. Reimbursement of Disallowed Expenses. If any expenses paid
by Bank for Norton or any reimbursement of expenses by Bank to Norton shall,
upon audit or other examination of the income tax returns of Bank, be determined
not to be allowable deductions from the gross income of Bank and such
determination shall be acceded to by Bank, or such determination shall be made
final by the appropriate taxing authority or a final judgment of a court of
competent jurisdiction, and no appeal shall be taken therefrom, or the
applicable period for the filing of a notice of appeal shall have expired, then,
and in such event, Norton shall rebate to Bank the dollar amount of the expenses
so disallowed by such taxing authority. Such repayment may not be waived by the
Bank.
11
<PAGE>
13. Binding Arbitration. Unless LFC, Bank and Norton all
expressly agree otherwise in writing, all disputes relating to this Agreement,
or any breach thereof or the meaning and effect of any term and provisions
hereof, shall be submitted to binding arbitration by Bank, LFC and Norton
pursuant to the provisions of the Oklahoma Uniform Arbitration Act, 15 O.S.
ss.801, et seq. (the "Act"), and in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules"). In the event a
dispute arises which cannot be informally resolved by the parties hereto, a
panel of three (3) arbitrators shall be selected to settle the dispute. Within
twenty (20) days following the demand by either party for arbitration of a
dispute arising under this Agreement, LFC and Bank shall jointly appoint an
arbitrator knowledgeable and experienced in federal savings banks and Norton
shall appoint an arbitrator knowledgeable and experienced in federal savings
banks. The two (2) arbitrators so appointed shall together appoint a third
arbitrator, also knowledgeable and experienced in federal savings banks, within
twenty (20) days following the appointment of the last arbitrator selected by
LFC and the Bank and by Norton. In the event that the two (2) arbitrators
selected by LFC and the Bank and by Norton are unable to mutually select a third
arbitrator within the twenty (20) day period, the third arbitrator shall be
selected by the then presiding judge of the Oklahoma County, Oklahoma District
Court. If the presiding judge of the Oklahoma County, Oklahoma District Court is
unable or unwilling to make such selection, the parties will request that the
Chief United States District Judge of the United States District Court for the
Western District of Oklahoma make such selection. The panel of three (3)
arbitrators shall then determine a time and a place for the hearing and shall
notify the parties in writing personally or by registered mail no less than
twenty (20) days before the hearing. The arbitrators will hear the dispute in
accordance with the Act and the Rules. Each party hereto shall be entitled to be
represented by counsel and each party shall be solely responsible for the fees
of their respective counsel. A majority of arbitrators shall render a final
award within twenty (20) days following the conclusion of the hearing which
shall be final and binding upon all parties hereto. The expenses and fees of the
third arbitrator mutually selected by the first two (2) arbitrators shall be
divided equally between the parties. Each party shall be solely responsible for
the expenses and fees of the arbitrator whom it selected. The arbitrators may
include, as part of any award, for the recovery of attorney's fees by the
prevailing party. All other expenses incurred in the conduct of the arbitration
shall be divided equally between the parties. Judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.
12
<PAGE>
14. Miscellaneous Provisions.
(a) This Agreement shall be binding upon, and shall
inure to the benefit of LFC, Bank and Norton and their respective
heirs, personal and legal representatives, successors and assigns.
(b) LFC, Bank and Norton agree that the construction
and interpretation of this Agreement shall at all times and in all
respects be governed by the laws of the United States of America where
applicable and otherwise in all respects by the laws of the State of
Oklahoma.
(c) All notices required or permitted herein must be
in writing and shall be deemed to have been duly given on the date of
service and served personally or by telecopier, telex, or other similar
communication to the party or parties to whom notice is to be given, on
the next day if notice is effected by overnight mail service, or on the
third business day after mailing in the United States mail, if mailed,
to the party or parties to whom notice is to be given by registered or
certified mail, return receipt requested, postage prepaid, to the
address of such party, as set forth in the first paragraph of this
Agreement, or to such other address as any party to this Agreement may
designate to the other from time-to-time for this purpose in a manner
complying with the provisions of this section. Any communication which
is mailed by overnight mail or sent by telecopier or telex shall be
confirmed immediately, but failure to so confirm shall not affect the
effectiveness of such notice from and after the day on which such
notice is actually received.
(d) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate
the remaining provisions hereof and any prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
(e) This Agreement contains the entire agreement and
understanding by and between LFC, the Bank and Norton with respect to
Norton's employment by LFC and the Bank, as herein described, and
supersedes all prior agreements and understandings between the parties
to this Agreement, relating to the subject matter of this Agreement. No
change or modification of this Agreement shall be valid or binding
unless the same is in writing and signed by the party intending to be
so bound. No waiver of any provision of this Agreement shall be valid
unless the same is in writing and signed by the party against whom such
waiver is sought to be enforced. Moreover, no valid waiver of any
provision of this Agreement, at any time, shall be deemed to be a
waiver of any other provision of this Agreement at such time, or will
be deemed a valid waiver of such provision at any other time.
13
<PAGE>
(f) This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
(g) Time shall be of the essence with regard to the
performance by the parties hereto of their respective obligations
hereunder.
IN WITNESS WHEREOF, LFC, the Bank and Norton have duly
executed this Agreement as of the day and year first above written to be
effective as of the date stated in the first paragraph above.
LFC: LOCAL FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Edward A. Townsend
----------------------------------------
Name: Edward A. Townsend
Title: Chairman
Date: 9/8/97
BANK: LOCAL FEDERAL BANK, F.S.B.,
a federal stock savings bank
By: /s/ Edward A. Townsend
----------------------------------------
Name: Edward A. Townsend
Title: Chairman
Date: 9/8/97
NORTON: /s/ Jan A. Norton
----------------------------------------
Jan A. Norton
Date: 9/8/97
14
Exhibit 10.9
LOCAL FINANCIAL CORPORATION
STOCK OPTION PLAN
1. Purpose of the Plan. This STOCK OPTION PLAN (the "Plan") of
Local Financial Corporation, a Delaware corporation (the "Company") is adopted
pursuant to and in fulfillment of those certain Employment Agreements by and
between the Company, its wholly-owned subsidiary federal stock savings bank,
Local Federal Bank, F.S.B. ("Local Federal"), and Edward A. Townsend and Jan A.
Norton, respectively, dated September 8, 1997, which require the granting of
options to purchase shares of the Company's common stock, par value $0.01 per
share (the "Common Stock") and in order to accord Company the right and ability
to grant stock options to members of its Board of Directors and its executive
officers in the future as additional compensation and inducement to them to
serve in such positions. The Plan's adoption is contingent upon the closing of a
private placement of the Company's stock under a Private Placement Memorandum on
or before September 1, 1997 (the "Offering"). The Plan provides for options that
qualify as incentive stock options ("Incentive Options") under the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as options that do not so qualify.
2. Stock Subject to Plan. The maximum number of shares of
stock for which options granted under this Plan may be exercised shall be seven
percent (7%) of the shares of Common Stock outstanding immediately after the
close of the Offering (including the number of shares of Common Stock subject to
the stock warrants granted to the Placement Agent in conjunction with the
Offering).
3. Eligible Employees. The persons eligible to be considered
for the grant of options under this Plan are the Chairman of the Board of
Directors and Chief Executive Officer of the Company and Local Federal, the
President of the Company and of Local Federal, any member of the Board of
Directors of Company or Local Federal or any executive officer of Company or
Local Federal.
4. Incentive Stock Option Exercise Limitation. The aggregate
fair market value of the Common Stock underlying the Incentive Options granted
to any one eligible employee (whether under this Plan or under any other stock
option plans of the Company, its parent(s) and subsidiaries) that are first
exercisable within the same calendar year, shall not exceed $100,000.00. The
fair market value of the Common Stock shall be determined at the date of the
grant of the stock option pursuant to this Plan.
5. Non-Transferability. The transferability of options granted
under this Plan shall be determined by the Committee (as defined below) or, in
its absence, the Board (as defined below).
6. Adjustments. If the outstanding shares of Common Stock are
increased or decreased, or are changed into or exchanged for a different number
or kind of shares or securities, as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or the
like, appropriate adjustments shall be made in the number and/or kind of shares
or securities for which options may thereafter be granted under this Plan and
for which options then outstanding under this Plan may thereafter be exercised.
Any such adjustment in outstanding options shall be made without changing the
aggregate exercise price applicable to the unexercised portions of such options.
<PAGE>
7. Maximum Option Term. No Incentive Option granted under this
Plan may be exercised in whole or in part more than ten (10) years after its
date of grant, or more than five (5) years with respect to grants to an employee
of Company or Local Federal holding ten percent (10%) or more of the outstanding
Common Stock at the date of the grant of such option. The Committee (as defined
below) or, in its absence, the Board (as defined below) shall determine the term
of all other options granted pursuant to this Plan.
8. Plan Duration. Options may not be granted under this Plan
more than ten (10) years after the date of the adoption of this Plan by the
Board of Directors of Company, or of shareholder approval of this Plan by the
shareholders of Company, whichever is earlier.
9. Payment. Payment for Common Stock purchased under any
exercise of an option granted under this Plan shall be made in full in cash
concurrently with such exercise, except that, if and to the extent the
instrument evidencing the option so provides and if the Company is not then
prohibited from purchasing or acquiring shares of its Common Stock, such payment
may be made in whole or in part with shares of Common Stock the same as that
then subject to the option, delivered in lieu of cash concurrently with such
exercise, the shares so delivered to be valued on the basis of the fair market
value of the Common Stock (determined in a manner specified in the instrument
evidencing the option) on the day preceding the date of exercise. In addition to
the foregoing, payment for Common Stock purchased under any exercise of an
option granted under this Plan can also be made, if and to the extent the
instrument evidencing the option so provides, in whole or in part, by the
surrender of exercisable options granted under this Plan, if the shares of
Common Stock are then publicly traded (as defined below). Payment in surrendered
options instead of cash shall not be effective and shall be rejected by the
Company if (i) the Company is then prohibited from purchasing or acquiring the
shares, or (ii) the right or power of the person exercising the options to
deliver such options in payment of the purchase price or withholding amount is
subject to the prior interest of any other person (excepting the Company), as
indicated by legends upon the certificate(s) or as known to the Company. For
purposes of this Section 9: (a) "Publicly Traded Shares" are those that are
listed or admitted to unlisted trading privileges on a national securities
exchange or as to which bid or offer quotations are reported in the automated
quotations system ("NASDAQ") operated by the National Association of Securities
Dealers, Inc. ("NASD"), and (b) for credit toward the purchase price or
withholding amount, options surrendered shall be valued as of the day
immediately preceding the delivery to the Company of the option exercise notice
pursuant to the procedures for valuing said options set forth in the instrument
evidencing the option. If the Company rejects the payment in options, the
tendered notice of exercise shall not be deemed effective unless promptly after
being notified of such rejection, the person exercising the option pays the
purchase price or the withholding amount, as the case may be, in acceptable form
as required above by this Section.
10. Administration. The Plan shall be administered by the
Company's Board of Directors (the "Board") or, in the discretion of the Board,
by a committee (the "Committee") of not less than three (3) members of the
Board.
2
<PAGE>
The interpretation and construction by the Committee
of any term or provision of the Plan or of any option granted under it shall be
final, unless otherwise determined by the Board, in which event such
determination by the Board shall be final. The Committee may from time to time
adopt rules and regulations for carrying out this Plan and, subject to the
provisions of this Plan, may prescribe the form or forms of the instruments
evidencing any option granted under this Plan.
Subject to the provisions of this Plan, the Board or,
by delegation from the Board, the Committee, shall have full and final authority
in its discretion to grant options and to determine the number of shares to be
subject thereto, the exercise prices, the terms of exercise, expiration dates
and other pertinent provisions thereof.
11. Corporate Reorganizations. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company as a result of which the outstanding Common Stock subject to options
under this Plan are changed into or exchanged for cash or property or securities
not of the Company's issue, or upon a sale of substantially all of the property
of the Company to, or the acquisition of stock representing more than eighty
percent (80%) of the voting power of the stock of the Company then outstanding
by, another corporation or person, the Plan shall terminate, and all options
previously granted under this Plan shall terminate, unless provision be made in
writing in connection with such transaction for the continuance of the Plan
and/or for the assumption of options previously granted, or the substitution for
such options of options covering the stock of a successor employer corporation,
or a parent or a subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices, in which event the Plan and options
previously granted shall continue in the manner and under the terms so provided.
If the Plan and unexercised options shall terminate pursuant to the foregoing
sentence, all persons entitled to exercise any unexercised portions of options
then outstanding shall have the right, at such time prior to the consummation of
the transaction causing such termination as the Company shall designate, to
exercise the unexercised portions of their options, including the portions
thereof which would, but for this Section 11, not yet be exercisable.
12. Stock Appreciation Rights. If the instrument evidencing
the option so provides, an option granted under this Plan (herein sometimes
referred to as the "Corresponding Option") may include the right (a "Stock
Appreciation Right") to receive an amount equal to some or all of the excess of
the fair market value (determined in a manner specified in the instrument
evidencing the corresponding option) of the shares subject to unexercised
portions of the corresponding option over the aggregate exercised price for such
shares under the corresponding option as of the date the Stock Appreciation
Right is exercised. The amount payable upon exercise of a Stock Appreciation
Right may be paid in cash or in shares of the class then subject to the
corresponding option (valued on the basis of their fair market value, determined
as specified with respect to the measurement of the amount payable as
aforesaid), or in a combination of cash and such shares so valued. No Stock
Appreciation Right may be exercised in whole or in part (a) other than in
connection with the contemporaneous surrender without exercise of such
Corresponding Option, or the portion thereof that corresponds to the portion of
the Stock Appreciation Right being exercised, or (b) except to the extent that
the corresponding option or such portion thereof is exercisable on the date of
exercise of the Stock Appreciation Right by the person exercising the Stock
Appreciation Right, or (c) unless the class of stock then subject to the
Corresponding Option is then "publicly traded stock." For this purpose, the term
"publicly traded stock" shall be defined in the same manner set forth and
described in Section 9 of the Plan, above.
3
<PAGE>
13. Financial Assistance. The Company is vested with authority
under this Plan to assist any employee to whom an option is granted under this
Plan (including any director or officer of the Company or any of its
subsidiaries who is also an employee) in the payment of the purchase price
payable on the exercise of that option, by lending the amount of such purchase
price to such employee on such terms and at such rates of interest and upon such
security (or unsecured) as shall have been authorized by or under authority of
the Board.
14. Amendment and Termination. The Board may alter, amend,
suspend or terminate this Plan, provided that no such action shall deprive an
optionee, without his consent, of any option granted to the optionee pursuant to
this Plan or of any of his rights under such option. Except as herein provided,
no such action of the Board, unless taken with the approval of the shareholders
of the Company, may:
(a) increase the maximum number of shares for
which options granted under this Plan may
be exercised;
(b) reduce the minimum permissible exercise
price;
(c) extend the ten-year duration of this Plan
set forth herein; or
(d) alter the class of employees eligible to
receive options under the Plan.
4
Exhibit 10.10
LOCAL FINANCIAL CORPORATION STOCK
OPTION AGREEMENT WITH EDWARD A. TOWNSEND
Local Financial Corporation, a Delaware corporation (the
"Company"), desiring to afford an opportunity to the Grantee, namely, Edward A.
Townsend, a resident of the State of Oklahoma, to purchase certain shares of the
Company's common stock, par value $0.01 per share ("Common Stock"), hereby
grants to the Grantee, and the Grantee hereby accepts, options to purchase the
number of shares specified below, during the term ending at midnight, Central
Standard Time, on the expiration dates of these Options, at the option exercise
price specified below, subject to and upon the terms and conditions specified
below. This stock option is being granted to Grantee, Edward A. Townsend, in
fulfillment of the terms and conditions of that certain Employment Agreement
entered into by and between Company and its wholly-owned subsidiary federal
stock savings bank, Local Federal Bank, F.S.B. and Edward A. Townsend dated
September 8, 1997, and is the Stock Option Agreement referenced therein and
attached thereto.
1. Identifying Provisions. As used in this Agreement, the
following terms shall have the following respective meanings:
(a) Grantee: Edward A. Townsend.
(b) Date of Grant: At the effective time of the
closing of a private placement offering of 19,700,000 shares of the
Company's Common Stock under a Private Placement Memorandum (the
"Offering"). The grant of the Option shall be contingent upon the close
of the Offering.
(c) Number of Shares Option: 811,640 shares of the
Company's Common Stock constituting the number of shares equal to four
percent (4%) of the total number of shares of Common Stock outstanding
immediately after the close of the Offering (including shares subject
to the warrants being granted to the Placement Agent pursuant to the
Offering).
(d) Option Exercise Price Per Share: The exercise
price for the acquisition of the Common Stock upon exercise of the
option being granted pursuant to this Stock Option Agreement shall be
equal to the offering price per share of the Common Stock in the
Offering.
(e) Expiration Date: The Options shall expire ten
(10) years from the dates the Options first become exercisable by
Grantee hereunder; provided that the Incentive Options granted to
Grantee hereunder shall expire ten (10) years from Date of Grant.
2. Timing of Exercises. The Options shall be exercisable in
three (3) equal, annual installments, commencing with the end of the first
twelve (12) month period following the Date of Grant and continuing in like,
successive twelve (12) month periods until all of the Options are exercisable.
<PAGE>
3. Restrictions on Exercise. The following additional
provisions shall apply to the exercise of Options hereunder:
(a) Termination of Employment. In the event the
Grantee's employment by the Company or by Local Federal Bank, F.S.B. is
terminated without cause in the manner provided in Grantee's Employment
Agreement with the Company referenced above (the "Employment
Agreement") which Grantee and Company have entered into
contemporaneously herewith, then, and in such event, all unexercised
portions of the Options granted to Grantee under this Agreement shall
become immediately exercisable by the Grantee hereunder, including all
portions of the Options which would, but for this provision, not yet be
exercisable under the terms of Section 2 of this Agreement; i.e., any
portion of the total Options for 811,640 shares of the Company's Common
Stock, as described in Section 1(c), above, which have not yet become
exercisable pursuant to Section 2, above, and such exercisable Options
shall expire on their respective expiration dates hereunder; provided
that all exercisable Incentive Options shall expire three (3) months
after such termination of Grantee's employment. If, on the other hand,
the Grantee's employment by the Company is terminated for cause, or if
he voluntarily terminates employment, only those Options exercisable at
the time of such termination of employment may thereafter be exercised,
and the exercisable Options shall expire on their respective expiration
dates; provided, that exercisable Incentive Options shall expire three
(3) months after such termination of the employment of Grantee. "Cause"
shall have the same meaning used in the Grantee's Employment Agreement
referenced above. In all other respects, the Options shall terminate
upon such termination of the employment of Grantee by Company or Local
Federal Bank, F.S.B.
(b) Death of Grantee. If the Grantee shall die during
the term of this Option Agreement, then, and in such event, all
unexercised portions of the Options granted to Grantee under this
Agreement shall become immediately exercisable by the person or persons
entitled to do so under the Grantee's Last Will and Testament or under
applicable intestate laws hereunder, including all portions of the
Options which would, but for this provision, not yet be exercisable
under the terms of this Option Agreement, and such exercisable Options
shall expire on their respective, expiration dates hereunder; provided
that all exercisable Incentive Options shall expire one (1) year after
Grantee's death. In all other respects, the Options shall terminate
upon such termination of Grantee's employment by Company or Local
Federal Bank, F.S.B. due to his death.
(c) Disability of Grantee. If the Grantee's
employment is terminated because of his disability pursuant to the
provisions of his Employment Agreement with the Company and Local
Federal Bank, F.S.B., all unexercised portions of the Options granted
to Grantee under this Agreement shall become immediately exercisable by
the Grantee or his guardian or legal representative or representatives,
hereunder, including all
2
<PAGE>
portions of the Options which would, but for this provision, not yet be
exercisable under the terms of this Agreement, and such exercisable
options shall expire on their respective, expiration dates hereunder;
provided that all exercisable Incentive Options shall expire one (1)
year after such termination of Grantee's employment by reason of such
disability. In all other respects, the Options shall terminate upon
such termination of Grantee's employment by Company, or Local Federal
Bank, F.S.B. due to his disability.
4. Incentive Options. The Options shall quality as Incentive
Options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to the extent that the aggregate fair market value of the shares
underlying the Incentive Option portion that is first exercisable within the
same calendar year does not exceed $100,000.00. The Grantee may not dispose of
the shares underlying Incentive Options within two (2) years of the Date of
Grant or one (1) year of the date of exercise of the Option. The Grantee may not
transfer Incentive Options except by Last Will and Testament or the laws of
descent and distribution. Incentive Options shall be subject to such other
restrictions as are necessary to qualify them as Incentive Options under the
Code.
5. Transferability. Subject to the limitations regarding
Incentive Options, the Grantee may transfer the Options by Last Will and
Testament or the laws of descent and distribution, and by such other means as
may be permitted by the Board or the Committee.
6. Adjustments and Corporate Reorganizations. Subject to the
provisions of the Company's Stock Option Plan under which the Options are
granted, if the outstanding shares of Common Stock are increased or decreased,
or are changed into or exchanged for a different number or kind of shares or
securities, as a result of one or more reorganizations, recapitalizations, stock
splits, reverse stock splits, stock dividends or the like, appropriate
adjustments shall be made in the number and/or kind of shares or securities for
which the unexercised portions of this Option may thereafter be exercised, all
without any change in the aggregate exercise price applicable to the unexercised
Options, but with a corresponding adjustment in the exercise price per share or
other unit. No fractional share of Common Stock shall be issued under the
options or in connection with any such adjustment. Such adjustments shall be
made by or under the authority of the Board, whose determinations as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive on all parties.
Upon the dissolution or liquidation of the Company,
or upon a reorganization, merger or consolidation of the Company as a result of
which the outstanding securities of the class then subject to the Options are
changed into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of substantially all of the property of the
Company to, or the acquisition of stock representing more than eighty percent
(80%) of the voting power of the stock of the Company then outstanding by,
another corporation or person, the Options shall terminate, unless provision be
made in writing in connection with such transaction for the assumption of the
Options previously granted under the Stock Option Plan under which the Options
were granted, or the substitution for such Options of any Options
3
<PAGE>
covering the stock of a successor employer corporation, or a parent or a
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices, in which event the Options shall continue in the manner and
under the terms so provided. If the Options shall terminate pursuant to the
foregoing sentence, the Grantee shall have the right, at such time prior to the
consummation of the transaction causing such termination as the Company shall
reasonably designate, to exercise all Options granted to Grantee, including the
Options not yet exercisable by the Grantee under the terms of the Options.
7. Exercise, Payment for and Delivery of Stock. The Options
may be exercised by the Grantee, or other person then entitled to exercise it
for Grantee, by giving four (4) business days' written notice of exercise to the
Company specifying the number of shares to be purchased and the total purchase
price, accompanied by a check payable to the order of the Company in payment of
such price. If the Company is required to withhold for federal or state income
taxes as a result of such exercise, the notice of exercise shall be accompanied
by a check payable to the order of the Company in payment of the amount of such
withholding taxes.
8. Alternate Payment with Stock. Notwithstanding the foregoing
provisions requiring payment by check, payment of such purchase price or any
portion thereof, or payment of the withholding amount or any portion thereof,
may be made by tendering shares of the Company's Common Stock or surrendering
exercisable Options, if the shares are then publicly traded (as defined below).
Shares tendered or Options surrendered shall be credited towards such purchase
price or withholding amount on the valuation basis set forth below. In the case
of shares tendered, the stock certificates evidencing the shares so to be used
shall accompany the notice of exercise and shall be duly endorsed or accompanied
by duly executed stock powers to transfer the same to the Company. Payment in
Common Stock or Options instead of cash shall not be effective and shall be
rejected by the Company if (i) the Company is then prohibited from purchasing or
acquiring the shares, or (ii) the right or power of the person exercising the
Options to deliver such shares or Options in payment of the purchase price or
withholding amount is subject to the prior interest of any other person
(excepting the Company), as indicated by legends upon the certificate(s) or as
known to the Company. For purposes of this Paragraph: (a) "Publicly Traded
Shares" are those that are listed or admitted to unlisted trading privileges on
a national securities exchange or as to which bid and offer quotations are
reported in the automated quotations system ("NASDAQ") operated by the National
Association of Securities Dealers, Inc. ("NASD"), and (b) for credit toward the
purchase price or withholding amount, shares tendered or Options surrendered
shall be valued as of the day immediately preceding the delivery to the Company
of the certificates evidencing such shares, in the case of tendered shares, or
the Option Exercise Notice, in the case of surrendered Options. If such day is
not a trading day in the United States Securities Markets, the shares shall be
valued on the nearest preceding trading day. The valuation shall be made on the
basis of the closing price of the Common Stock as reported with respect to the
market (or the composite of the markets, if more than one) in which such shares
are then traded, or if no such closing prices are reported, the lowest
independent offer quotation reported therefor in Level 2 of NASDAQ, or if no
such quotations are reported, then on the basis of the most nearly comparable
valuation method acceptable to the Company. If the Company rejects the payment
in stock or Options, the tendered Notice of Exercise shall not be effective
under this Option Agreement unless promptly after being notified of such
rejection, the person exercising the Option pays the purchase price or the
withholding amount, as the case may be, in acceptable form as required above in
this Section.
4
<PAGE>
9. Rights in Shares Before Issuance and Delivery. No person
shall be entitled to the privileges of stock ownership in respect of any shares
issuable upon exercise of the Options, unless and until such shares have been
issued to such person as fully paid shares by the Company.
10. Requirements of Law and of Stock Exchanges. By accepting
the Options, the Grantee represents and agrees for himself and his transferees
that, unless a registration statement under the Securities Act of 1933 is in
effect as to shares purchased upon any exercise of any Options, (i) any and all
shares so purchased shall be acquired for his personal account and not with a
view to or for sale in connection with any distribution, and (ii) each notice of
the exercise of Options shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the shares are
being so acquired in good faith for his personal account and not with a view to
or for sale in connection with any distribution.
No certificate or certificates for shares of stock
purchased upon exercise of Options shall be issued and delivered prior to the
admission of such shares to listing on notice of issuance on any stock exchange
on which shares of that class are then listed, nor unless and until, in the
opinion of counsel for the Company, such securities may be issued and delivered
without causing the Company to be in violation of or incur any liability under
any federal, state or other securities law, any requirement of any securities
exchange listing agreement to which the Company may be a party, or any other
requirement of law or of any regulatory body having jurisdiction over the
Company.
11. Stock Option Plan. This Option Agreement is subject to,
and the Company and the Grantee agree to be bound by, all of the terms and
conditions of the Company's Stock Option Plan being adopted by Company's Board
contemporaneously herewith, under which the Options being granted hereunder were
granted, as the same shall have been amended from time to time in accordance
with the terms thereof, provided that no such amendment shall deprive the
Grantee, without his consent, of the Options or any of his rights under the
Plan. Pursuant to the Plan, the Board or the Committee (as defined in the Plan)
is vested with final authority to interpret and construe the Plan and the
Options, and is authorized to adopt rules and regulations for carrying out the
Plan. A copy of the Plan in its present form is available for inspection during
regular business hours by the Grantee or other persons entitled to exercise the
Options at the Company's principal offices.
12. Notices. Any notice to be given to the Company shall be
addressed to the Company in care of its Secretary at its principal office, and
any notice to be given to the Grantee shall be addressed to him at the address
given beneath his signature or at such other address as the Grantee may
designate in writing to the Company. Any such notice shall be deemed duly given
three (3) days after deposited with first class postage prepaid, in a post
office or branch post office regularly maintained by the United States Postal
Services, certified mail, return receipt requested.
5
<PAGE>
13. Laws Applicable to Construction. This Agreement has been
executed and delivered by the Company and by Grantee in the State of Oklahoma,
and this Agreement shall be construed and enforced in accordance with the laws
and decisions of the State of Oklahoma.
IN WITNESS WHEREOF, the Company has granted the Options on the
Date of Grant specified and defined above.
COMPANY: LOCAL FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Jan A. Norton
-----------------------------------
President
GRANTEE: Accepted and Agreed to:
/s/ Edward A. Townsend
---------------------------------------
EDWARD A. TOWNSEND, Grantee
28910 South 593
Grove, Oklahoma 74344
6
Exhibit 10.11
LOCAL FINANCIAL CORPORATION STOCK
OPTION AGREEMENT WITH JAN A. NORTON
Local Financial Corporation, a Delaware corporation (the
"Company"), desiring to afford an opportunity to the Grantee, namely, Jan A.
Norton, a resident of the State of Oklahoma, to purchase certain shares of the
Company's common stock, par value $0.01 per share ("Common Stock"), hereby
grants to the Grantee, and the Grantee hereby accepts, options to purchase the
number of shares specified below, during the term ending at midnight, Central
Standard Time, on the expiration dates of these Options, at the option exercise
price specified below, subject to and upon the terms and conditions specified
below. This stock option is being granted to Grantee, Jan A. Norton, in
fulfillment of the terms and conditions of that certain Employment Agreement
entered into by and between Company and its wholly-owned subsidiary federal
stock savings bank, Local Federal Bank, F.S.B. and Jan A. Norton dated September
8, 1997, and is the Stock Option Agreement referenced therein and attached
thereto.
1. Identifying Provisions. As used in this Agreement, the
following terms shall have the following respective meanings:
(a) Grantee: Jan A. Norton.
(b) Date of Grant: At the effective time of the
closing of a private placement offering of 19,700,000 shares of the
Company's Common Stock under a Private Placement Memorandum (the
"Offering"). The grant of the Option shall be contingent upon the close
of the Offering.
(c) Number of Shares Option: 304,365 shares of the
Company's Common Stock constituting the number of shares equal to one
and one-half percent (1 1/2%) of the total number of shares of Common
Stock outstanding immediately after the close of the Offering
(including shares subject to the warrants being granted to the
Placement Agent pursuant to the Offering).
(d) Option Exercise Price Per Share: The exercise
price for the acquisition of the Common Stock upon exercise of the
option being granted pursuant to this Stock Option Agreement shall be
equal to the offering price per share of the Common Stock in the
Offering.
(e) Expiration Date: The Options shall expire ten
(10) years from the dates the Options first become exercisable by
Grantee hereunder; provided that the Incentive Options granted to
Grantee hereunder shall expire ten (10) years from Date of Grant.
2. Timing of Exercises. The Options shall be exercisable in
three (3) equal, annual installments, commencing with the end of the first
twelve (12) month period following the Date of Grant and continuing in like,
successive twelve (12) month periods until all of the Options are exercisable.
<PAGE>
3. Restrictions on Exercise. The following additional
provisions shall apply to the exercise of Options hereunder:
(a) Termination of Employment. In the event the
Grantee's employment by the Company or by Local Federal Bank, F.S.B. is
terminated without cause in the manner provided in Grantee's Employment
Agreement with the Company referenced above (the "Employment
Agreement") which Grantee and Company have entered into
contemporaneously herewith, then, and in such event, all unexercised
portions of the Options granted to Grantee under this Agreement shall
become immediately exercisable by the Grantee hereunder, including all
portions of the Options which would, but for this provision, not yet be
exercisable under the terms of Section 2 of this Agreement; i.e., any
portion of the total Options for 304,365 shares of the Company's Common
Stock, as described in Section 1(c), above, which have not yet become
exercisable pursuant to Section 2, above, and such exercisable Options
shall expire on their respective expiration dates hereunder; provided
that all exercisable Incentive Options shall expire three (3) months
after such termination of Grantee's employment. If, on the other hand,
the Grantee's employment by the Company is terminated for cause, or if
he voluntarily terminates employment, only those Options exercisable at
the time of such termination of employment may thereafter be exercised,
and the exercisable Options shall expire on their respective expiration
dates; provided, that exercisable Incentive Options shall expire three
(3) months after such termination of the employment of Grantee. "Cause"
shall have the same meaning used in the Grantee's Employment Agreement
referenced above. In all other respects, the Options shall terminate
upon such termination of the employment of Grantee by Company or Local
Federal Bank, F.S.B.
(b) Death of Grantee. If the Grantee shall die during
the term of this Option Agreement, then, and in such event, all
unexercised portions of the Options granted to Grantee under this
Agreement shall become immediately exercisable by the person or persons
entitled to do so under the Grantee's Last Will and Testament or under
applicable intestate laws hereunder, including all portions of the
Options which would, but for this provision, not yet be exercisable
under the terms of this Option Agreement, and such exercisable Options
shall expire on their respective, expiration dates hereunder; provided
that all exercisable Incentive Options shall expire one (1) year after
Grantee's death. In all other respects, the Options shall terminate
upon such termination of Grantee's employment by Company or Local
Federal Bank, F.S.B. due to his death.
(c) Disability of Grantee. If the Grantee's
employment is terminated because of his disability pursuant to the
provisions of his Employment Agreement with the Company and Local
Federal Bank, F.S.B., all unexercised portions of the Options granted
to Grantee under this Agreement shall become immediately exercisable by
the Grantee or his guardian or legal representative or representatives,
hereunder, including all portions of the Options which would, but for
this provision, not yet be exercisable under the terms of this
Agreement, and such exercisable options shall expire on their
respective, expiration dates hereunder; provided that all exercisable
Incentive Options shall expire one (1) year after such termination of
Grantee's employment by reason of such disability. In all other
respects, the Options shall terminate upon such termination of
Grantee's employment by Company, or Local Federal Bank, F.S.B. due to
his disability.
2
<PAGE>
4. Incentive Options. The Options shall quality as Incentive
Options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to the extent that the aggregate fair market value of the shares
underlying the Incentive Option portion that is first exercisable within the
same calendar year does not exceed $100,000.00. The Grantee may not dispose of
the shares underlying Incentive Options within two (2) years of the Date of
Grant or one (1) year of the date of exercise of the Option. The Grantee may not
transfer Incentive Options except by Last Will and Testament or the laws of
descent and distribution. Incentive Options shall be subject to such other
restrictions as are necessary to qualify them as Incentive Options under the
Code.
5. Transferability. Subject to the limitations regarding
Incentive Options, the Grantee may transfer the Options by Last Will and
Testament or the laws of descent and distribution, and by such other means as
may be permitted by the Board or the Committee.
6. Adjustments and Corporate Reorganizations. Subject to the
provisions of the Company's Stock Option Plan under which the Options are
granted, if the outstanding shares of Common Stock are increased or decreased,
or are changed into or exchanged for a different number or kind of shares or
securities, as a result of one or more reorganizations, recapitalizations, stock
splits, reverse stock splits, stock dividends or the like, appropriate
adjustments shall be made in the number and/or kind of shares or securities for
which the unexercised portions of this Option may thereafter be exercised, all
without any change in the aggregate exercise price applicable to the unexercised
Options, but with a corresponding adjustment in the exercise price per share or
other unit. No fractional share of Common Stock shall be issued under the
options or in connection with any such adjustment. Such adjustments shall be
made by or under the authority of the Board, whose determinations as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive on all parties.
Upon the dissolution or liquidation of the Company,
or upon a reorganization, merger or consolidation of the Company as a result of
which the outstanding securities of the class then subject to the Options are
changed into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of substantially all of the property of the
Company to, or the acquisition of stock representing more than eighty percent
(80%) of the voting power of the stock of the Company then outstanding by,
another corporation or person, the Options shall terminate, unless provision be
made in writing in connection with such transaction for the assumption of the
Options previously granted under the Stock Option Plan under which the Options
were granted, or the substitution for such Options of any Options covering the
stock of a successor employer corporation, or a parent or a subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and prices, in
which event the Options shall continue in the manner and under the terms so
provided. If the Options shall terminate pursuant to the foregoing sentence, the
Grantee shall have the right, at such time prior to the consummation of the
transaction causing such termination as the Company shall reasonably designate,
to exercise all Options granted to Grantee, including the Options not yet
exercisable by the Grantee under the terms of the Options.
3
<PAGE>
7. Exercise, Payment for and Delivery of Stock. The Options
may be exercised by the Grantee, or other person then entitled to exercise it
for Grantee, by giving four (4) business days' written notice of exercise to the
Company specifying the number of shares to be purchased and the total purchase
price, accompanied by a check payable to the order of the Company in payment of
such price. If the Company is required to withhold for federal or state income
taxes as a result of such exercise, the notice of exercise shall be accompanied
by a check payable to the order of the Company in payment of the amount of such
withholding taxes.
8. Alternate Payment with Stock. Notwithstanding the foregoing
provisions requiring payment by check, payment of such purchase price or any
portion thereof, or payment of the withholding amount or any portion thereof,
may be made by tendering shares of the Company's Common Stock or surrendering
exercisable Options, if the shares are then publicly traded (as defined below).
Shares tendered or Options surrendered shall be credited towards such purchase
price or withholding amount on the valuation basis set forth below. In the case
of shares tendered, the stock certificates evidencing the shares so to be used
shall accompany the notice of exercise and shall be duly endorsed or accompanied
by duly executed stock powers to transfer the same to the Company. Payment in
Common Stock or Options instead of cash shall not be effective and shall be
rejected by the Company if (i) the Company is then prohibited from purchasing or
acquiring the shares, or (ii) the right or power of the person exercising the
Options to deliver such shares or Options in payment of the purchase price or
withholding amount is subject to the prior interest of any other person
(excepting the Company), as indicated by legends upon the certificate(s) or as
known to the Company. For purposes of this Paragraph: (a) "Publicly Traded
Shares" are those that are listed or admitted to unlisted trading privileges on
a national securities exchange or as to which bid and offer quotations are
reported in the automated quotations system ("NASDAQ") operated by the National
Association of Securities Dealers, Inc. ("NASD"), and (b) for credit toward the
purchase price or withholding amount, shares tendered or Options surrendered
shall be valued as of the day immediately preceding the delivery to the Company
of the certificates evidencing such shares, in the case of tendered shares, or
the Option Exercise Notice, in the case of surrendered Options. If such day is
not a trading day in the United States Securities Markets, the shares shall be
valued on the nearest preceding trading day. The valuation shall be made on the
basis of the closing price of the Common Stock as reported with respect to the
market (or the composite of the markets, if more than one) in which such shares
are then traded, or if no such closing prices are reported, the lowest
independent offer quotation reported therefor in Level 2 of NASDAQ, or if no
such quotations are reported, then on the basis of the most nearly comparable
valuation method acceptable to the Company. If the Company rejects the payment
in stock or Options, the tendered Notice of Exercise shall not be effective
under this Option Agreement unless promptly after being notified of such
rejection, the person exercising the Option pays the purchase price or the
withholding amount, as the case may be, in acceptable form as required above in
this Section.
4
<PAGE>
9. Rights in Shares Before Issuance and Delivery. No person
shall be entitled to the privileges of stock ownership in respect of any shares
issuable upon exercise of the Options, unless and until such shares have been
issued to such person as fully paid shares by the Company.
10. Requirements of Law and of Stock Exchanges. By accepting
the Options, the Grantee represents and agrees for himself and his transferees
that, unless a registration statement under the Securities Act of 1933 is in
effect as to shares purchased upon any exercise of any Options, (i) any and all
shares so purchased shall be acquired for his personal account and not with a
view to or for sale in connection with any distribution, and (ii) each notice of
the exercise of Options shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the shares are
being so acquired in good faith for his personal account and not with a view to
or for sale in connection with any distribution.
No certificate or certificates for shares of stock
purchased upon exercise of Options shall be issued and delivered prior to the
admission of such shares to listing on notice of issuance on any stock exchange
on which shares of that class are then listed, nor unless and until, in the
opinion of counsel for the Company, such securities may be issued and delivered
without causing the Company to be in violation of or incur any liability under
any federal, state or other securities law, any requirement of any securities
exchange listing agreement to which the Company may be a party, or any other
requirement of law or of any regulatory body having jurisdiction over the
Company.
11. Stock Option Plan. This Option Agreement is subject to,
and the Company and the Grantee agree to be bound by, all of the terms and
conditions of the Company's Stock Option Plan being adopted by Company's Board
contemporaneously herewith, under which the Options being granted hereunder were
granted, as the same shall have been amended from time to time in accordance
with the terms thereof, provided that no such amendment shall deprive the
Grantee, without his consent, of the Options or any of his rights under the
Plan. Pursuant to the Plan, the Board or the Committee (as defined in the Plan)
is vested with final authority to interpret and construe the Plan and the
Options, and is authorized to adopt rules and regulations for carrying out the
Plan. A copy of the Plan in its present form is available for inspection during
regular business hours by the Grantee or other persons entitled to exercise the
Options at the Company's principal offices.
12. Notices. Any notice to be given to the Company shall be
addressed to the Company in care of its Secretary at its principal office, and
any notice to be given to the Grantee shall be addressed to him at the address
given beneath his signature or at such other address as the Grantee may
designate in writing to the Company. Any such notice shall be deemed duly given
three (3) days after deposited with first class postage prepaid, in a post
office or branch post office regularly maintained by the United States Postal
Services, certified mail, return receipt requested.
5
<PAGE>
13. Laws Applicable to Construction. This Agreement has been
executed and delivered by the Company and by Grantee in the State of Oklahoma,
and this Agreement shall be construed and enforced in accordance with the laws
and decisions of the State of Oklahoma.
IN WITNESS WHEREOF, the Company has granted the Options on the
Date of Grant specified and defined above.
COMPANY: LOCAL FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Edward A. Townsend
--------------------------------------
Chairman
GRANTEE: Accepted and Agreed to:
/s/ Jan A. Norton
-----------------------------------------
JAN A. NORTON, Grantee
2001 Birnam Wood Drive
Miami, Oklahoma 74354
6
Exhibit 16
[logo]
----------------------------
Arthur Andersen LLP
----------------------------
Suite 600
20 Broadway
Oklahoma City OK 73102-8286
405 236 1491
Securities and Exchange Commission
Washington, DC 20549
We have read the item, Change in Independent Public Accountants, included in
Local Financial Corporation's Form S-1 Registration Statement to be filed with
the Securities and Exchange Commission and are in agreement with the statements
contained therein.
/s/ Arthur Andersen LLP
------------------------------------
Oklahoma City, Oklahoma
December 29, 1997
Exhibit 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
--------------------
THE BANK OF NEW YORK
---------------------------------------------------
(Exact name of trustee as specified in its charter)
New York 13-5160382
- ------------------------------ ----------------------
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip code)
--------------------
LOCAL FINANCIAL CORPORATION
---------------------------------------------------
(Exact name of obligor as specified in its charter)
Delaware 65-0424192
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3601 N.W. 63rd Street
Oklahoma City, Oklahoma 73116
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip code)
----------------------
Senior Notes due 2004
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a
and 1b to Form T-1 filed with Registration Statement No. 33-21672
and Exhibit 1 to Form T-1 filed with Registration Statement No.
33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 17th day of December, 1997.
THE BANK OF NEW YORK
By: /s/ Remo J. Reale
-----------------------------
Name: Remo J. Reale
Title: Assistant Vice President
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business June 30, 1997, published in accordance with a
call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ...... $ 7,769,502
Interest-bearing balances ............................... 1,472,524
Securities:
Held-to-maturity securities ............................. 1,080,234
Available-for-sale securities ........................... 3,046,199
Federal funds sold and Securities purchased under
agreements to resell .................................... 3,193,800
Loans and lease financing receivables:
Loans and leases, net of unearned income ................ 35,352,045
LESS: Allowance for loan and lease losses ............... 625,042
LESS: Allocated transfer risk reserve ................... 429
Loans and leases, net of unearned income, allowance,
and reserve ......................................... 34,726,574
Assets held in trading accounts ........................... 1,611,096
Premises and fixed assets (including capitalized leases) .. 676,729
Other real estate owned ................................... 22,460
Investments in unconsolidated subsidiaries and
associated companies .................................... 209,959
Customers' liability to this bank on acceptances
outstanding ............................................. 1,357,731
Intangible assets ......................................... 720,883
Other assets .............................................. 1,627,267
-----------
Total assets .............................................. $57,514,958
===========
LIABILITIES
Deposits:
In domestic offices ..................................... $26,875,596
Noninterest-bearing ..................................... 11,213,657
Interest-bearing ........................................ 15,661,939
In foreign offices, Edge and Agreement subsidiaries,
and IBFs .............................................. 16,334,270
Noninterest-bearing ..................................... 596,369
Interest-bearing ........................................ 15,737,901
Federal funds purchased and Securities sold under
agreements to repurchase ................................ 1,583,157
Demand notes issued to the U.S. Treasury .................. 303,000
Trading liabilities ....................................... 1,308,173
Other borrowed money:
With remaining maturity of one year or less ............. 2,383,570
With remaining maturity of more than one year through
three years............................................ 0
With remaining maturity of more than three years ........ 20,679
Bank's liability on acceptances executed and outstanding .. 1,377,244
Subordinated notes and debentures ......................... 1,018,940
Other liabilities ......................................... 1,732,792
-----------
Total liabilities ......................................... 52,937,421
-----------
EQUITY CAPITAL
Common stock .............................................. 1,135,284
Surplus ................................................... 731,319
Undivided profits and capital reserves .................... 2,721,258
Net unrealized holding gains (losses) on
available-for-sale securities ........................... 1,948
Cumulative foreign currency translation adjustments ....... (12,272)
------------
Total equity capital ...................................... 4,577,537
-----------
Total liabilities and equity capital ...................... $57,514,958
===========
<PAGE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Alan R. Griffith )
J. Carter Bacot ) Directors
Thomas A. Renyi ) ---------
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001047125
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<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997
<EXCHANGE-RATE> 1,000 1,000
<CASH> 22,650 15,904
<INT-BEARING-DEPOSITS> 0 89,500
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 885,233 985,565
<INVESTMENTS-CARRYING> 0 408,207
<INVESTMENTS-MARKET> 0 398,917
<LOANS> 1,036,909 1,043,033
<ALLOWANCE> 33,560 11,435
<TOTAL-ASSETS> 2,053,891 2,625,181
<DEPOSITS> 1,610,350 1,644,356
<SHORT-TERM> 258,620 531,161
<LIABILITIES-OTHER> 27,866 21,743
<LONG-TERM> 80,000 0
0 0
0 0
<COMMON> 197 0
<OTHER-SE> 67,582 134,612
<TOTAL-LIABILITIES-AND-EQUITY> 2,053,891 2,625,181
<INTEREST-LOAN> 0 0
<INTEREST-INVEST> 21,643 114,949
<INTEREST-OTHER> 25,810 107,715
<INTEREST-TOTAL> 47,453 222,664
<INTEREST-DEPOSIT> 20,523 83,091
<INTEREST-EXPENSE> 35,181 169,761
<INTEREST-INCOME-NET> 12,272 52,903
<LOAN-LOSSES> 25,353 28,428
<SECURITIES-GAINS> (125,496) (29,352)
<EXPENSE-OTHER> 7,518 (10,237)
<INCOME-PRETAX> (149,246) (41,905)
<INCOME-PRE-EXTRAORDINARY> (149,246) (41,905)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (98,451) (30,045)
<EPS-PRIMARY> (5.00) (1.53)
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 7.63 7.47
<LOANS-NON> 1,074 3,508
<LOANS-PAST> 93 415
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 11,435 3,228
<CHARGE-OFFS> 3,236 20,293
<RECOVERIES> 8 72
<ALLOWANCE-CLOSE> 33,560 11,435
<ALLOWANCE-DOMESTIC> 33,560 11,435
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